10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 30, 2006

Commission File No. 000-06080

DELHAIZE AMERICA, INC.

(Exact name of registrant as specified in its charter)

North Carolina	56-0660192
(State of incorporation)	(I.R.S. Employer Identification No.)

P.O. Box 1330, 2110 Executive Drive Salisbury, North Carolina	28145-1330
(Address of principal executive office)	(Zip Code)

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

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes    x     No  ¨

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

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

Indicate by check mark whether the registrant is 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. (Check one):

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ¨    No  x

All of the registrant’s voting and non-voting common stock was held by affiliates on December 30, 2006.

Outstanding shares of common stock of the Registrant as of March 30, 2007.

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

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

Exhibit index is located on sequential page 86 hereof.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

DELHAIZE AMERICA, INC.

FORM 10-K

FOR THE YEAR ENDED DECEMBER 30, 2006

TABLE OF CONTENTS

	PART I
ITEM 1.	Business	3
ITEM 1A.	Risk Factors	5
ITEM 1B.	Unresolved Staff Comments	9
ITEM 2.	Properties	9
ITEM 3.	Legal Proceedings	11
ITEM 4.	Submission of Matters to a Vote of Security Holders	11
	PART II
ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	11
ITEM 6.	Selected Financial Data	11
ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	12
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk	28
ITEM 8.	Financial Statements and Supplementary Data	29
ITEM 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	79
ITEM 9A.	Controls and Procedures	79
ITEM 9B.	Other Information	79
	PART III
ITEM 10.	Directors and Executive Officers of the Registrant	79
ITEM 11.	Executive Compensation	79
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	79
ITEM 13.	Certain Relationships and Related Transactions	79
ITEM 14.	Principal Accounting Fees and Services	79
	PART IV
ITEM 15.	Exhibits and Financial Statement Schedules	81
	Signatures	85

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

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CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

Statements included in, or incorporated by reference into, this report, other than statements of historical fact, which address activities, events or developments that Delhaize America expects or anticipates will or may occur in the future, including, without limitation, statements regarding expansion and growth of Delhaize America’s business, anticipated store openings and renovations, future capital expenditures, projected revenue growth or synergies resulting from acquisitions, and business strategy, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the Private Securities Litigation Reform Act of 1995 about Delhaize America that are subject to risks and uncertainties. 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”, “will”, “should” or other similar words or phrases. Although we believe that these statements are based upon reasonable assumptions, we can give no assurance that our goals will be achieved. Given these uncertainties, prospective investors are cautioned not to place undue reliance on these forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in Item 1A “Risk Factors” of this report. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

Item 1. Business.

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

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

Merchandising

The Company’s supermarkets sell a wide variety of groceries, produce, meats, dairy products, seafood, frozen food and deli-bakery products, as well as non-food items such as health and beauty care products, prescription medicines, and other household and personal products. The Company offers nationally and regionally advertised brand name merchandise as well as products manufactured and packaged for the Company, primarily under the private labels of “Food Lion,” “Hannaford,” “Kash n’ Karry,” “Sweetbay,” and “Harveys.” Sales of private label products represented 16%, 18%, 15%, and 10% of Food Lion’s, Hannaford’s, Kash n’ Karry’s (including Sweetbay) and Harveys’ respective sales in 2006.

Procurement

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

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Business Conditions and Competition

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

Stores

As of December 30, 2006, 1,549 supermarkets were in operation as follows:

	Food Lion	Harveys	Bloom	Bottom Dollar Food	Hannaford	Kash n’ Karry	Sweetbay	Total
Delaware	17							17
Florida	33	7				38	69	147
Georgia	39	60						99
Kentucky	11							11
Maine					50			50
Maryland	66		7	4				77
Massachusetts					25			25
New Hampshire					29			29
New York					40			40
North Carolina	483		5	4				492
Pennsylvania	6							6
South Carolina	126	1	5					132
Tennessee	65							65
Vermont					14			14
Virginia	295		22	10				327
West Virginia	18							18
	1,159	68	39	18	158	38	69	1,549

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

	# Stores Opened / Acquired		# Stores Closed		# Stores Closed for Relocation		# Stores Open at Year-end
2006	40		(20	)	(8	)	1,549
2005	42		(17	)	(11	)	1,537
2004	53	(a)	(40	)	(5	)	1,523

(a) Includes 19 stores acquired in connection with the acquisition of Victory Super Market.

Warehousing and Distribution

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

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Employees

As of December 30, 2006, the Company employed 45,455 full-time and 63,428 part-time employees.

Acquisitions

On November 26, 2004, the Company completed its acquisition of 19 Victory Super Markets (“Victory”) with 17 stores located in central and southeastern Massachusetts and two stores located in southern New Hampshire. The purchase price for this transaction was approximately $178.8 million. The Company’s Consolidated Statement of Income included the results of operation of Victory prospectively from November 27, 2004.

Item 1A. Risk Factors.

The following discussion of risks relating to our operations 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 operation, liquidity and the actual outcome of matters as to which forward-looking statements contained in this annual report are made.

Our results are subject to risks relating to competition and narrow profit margins in the food retail industry, which could adversely affect net income and cash generated from operations.

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 and discount retailers. 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 by 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. As of December 30, 2006, we had total consolidated debt outstanding of approximately $3.2 billion, including total capital lease and lease finance obligations of approximately $0.8 billion. Our level of debt could:

• make it difficult for us to satisfy our obligations, including making interest payments;

• limit our ability to obtain additional financing to operate our business;

• limit our financial flexibility in planning for and reacting, to industry changes;

• place us at a competitive disadvantage as compared to less leveraged companies;

• increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates; and

• require us to dedicate a substantial portion of our cash flow to payments on our debt, reducing the availability of our cash flow for other purposes.

We may borrow additional funds to fund 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.

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A competitive labor market may increase our costs, resulting in a decrease in our profits or an increase in our losses.

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, 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 operation. A shortage of qualified employees may require us to increase our wage and benefit offerings in order to compete effectively in the hiring and retention of qualified employees or to retain more expensive temporary employees. 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 face 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 up, 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 and the land on which our stores, warehouses and offices are situated, regardless of whether we lease, sublease or own the stores, warehouses 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 instance, 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 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.

Various aspects of our business are subject to federal, regional, state and local laws and regulations, 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 relating to, among other things, zoning, land use, employee health and benefits, work place safety, public health, community right-to-know, 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, 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 operation. A number of laws exist which impose burdens 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.

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There are inherent limitations in all control systems, and misstatements due to error or fraud may occur and not be detected, which may adversely impact our business and operating results.

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 effectiveness of internal control over financial reporting to future periods are subject to the risk that the control may become inadequate because of changes in conditions, or that the degree of compliance with the 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 their implementation, our business and operating results could be harmed and we could fail to meet our reporting obligations.

As a result of selling food products, we face the risk of exposure to product liability claims and adverse publicity.

The packaging, marketing, distribution and sale of food products purchased from others entail an inherent risk of product liability, product recall and resultant adverse publicity. Such products may contain contaminants that we may inadvertently redistribute. 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 may violate the 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 that 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 operation.

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 operation.

We may suffer disruptions in our business caused by labor unrest by our employees or employees of companies in our supply chain.

We are subject to labor relations issues, including union organizing activities, that could result in an increase in costs or lead to a strike, work stoppage or slowdown. We are also subject to labor relations issues affecting entities in our supply chain, including both suppliers and those involved in transportation and shipping.

Our renovation and conversion plans may not be successful, which may adversely affect our business and financial condition.

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 renovate other infrastructure could adversely affect our business, our results of operation and our ability to compete successfully.

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.

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In doing so, we face risks commonly encountered with growth through acquisition. These risks include, but are not limited to, 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, loss of customers, entering markets in which we have no or limited experience, disruption of our ongoing business and dissipation of our management resources. Realization of the anticipated benefits of an acquisition may take several years or may not occur at all. Our acquisition strategy may place a significant strain on our management, operational, financial and other resources. The success of our acquisition strategy will depend on many factors, including our ability to:

• identify suitable acquisition opportunities;

• successfully complete acquisitions at valuations that will provide anticipated returns on invested capital;

• quickly and effectively integrate acquired operations in order to realize operating synergies;

• obtain necessary financing on satisfactory terms; and

• make the payments on the indebtedness that we might incur as a result of these acquisitions.

There can be no assurance that we will be able to execute successfully our acquisition strategy, and any failure to do so could have a material adverse effect on our business, financial condition and results of operation.

Although we are not currently a party to any agreement with respect to any pending acquisition that we believe is probable and material to our business, we have engaged in and continue to engage in evaluations and discussions with respect to potential acquisitions.

A shortage or significant increase in the cost of electricity, diesel fuel or gasoline could disrupt distribution activities and negatively impact our business and results of operation.

Our operations require and are dependent upon the continued availability of substantial amounts of electricity, diesel fuel and gasoline to manufacture, store and transport products. Our trucking operations are extensive and diesel fuel storage capacity generally represents approximately one week average usage. The prices of electricity, diesel fuel and gasoline fluctuate significantly over time. Given the competitive nature of the grocery industry, we may not be able to pass on increased costs of production, storage and transportation to customers. As a result, either a shortage or significant increase in the cost of electricity, diesel fuel or gasoline could disrupt distribution activities and negatively impact our business and results of operation.

The geographic concentration of our stores on the east coast of the United States makes us vulnerable to economic downturns, natural disasters and other catastrophic events that may impact that region.

Substantially all of our stores are located on the east coast of the United States. Consequently, our operations depend significantly upon the economic and other conditions in this area, in addition to those that may affect the United States or the world as a whole. If the east coast of the United States were to experience a general economic downturn, natural disaster or other adverse condition, our results of operation of Delhaize America may suffer. Adverse weather conditions on the east coast of the United States could increase the cost our suppliers charge for their products, decrease or increase customer demand for certain products, interrupt operations at affected stores or interrupt the operations of our suppliers.

A change in supplier rebates could adversely affect our results.

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.

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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.

Unexpected outcomes in our legal proceedings could materially impact our results.

From time to time, we are party to legal proceedings including matters involving personnel and employment issues, personal injury, intellectual property 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 result in an adverse effect on our financial statements.

The effect of pending state and federal tax audits on our business can not be determined.

We continue to experience both federal and state audits of our income tax filings, which we consider to be part of our ongoing business activity. While the ultimate outcome of these federal and state audits is not certain, we have considered the merits of our filing positions in our overall evaluation of potential tax liabilities and believe we have adequate liabilities recorded in our consolidated financial statements for potential exposures on these matters. Unexpected outcomes in audit could result in an adverse effect on our financial statements.

We may experience adverse results arising from claims against our self-insurance programs.

We are self-insured for workers’ compensation, general liability, vehicle accident and druggist claims. Maximum retention, including defense costs per occurrence, is (i) from $0.5 million to $1.0 million per accident for workers’ compensation, (ii) $5.0 million per accident for automobile liability and (iii) $3.0 million per accident for general liability, with an additional $2.0 million retention in excess of the primary $3.0 million general liability retention for druggist liability. We are insured for costs related to covered claims, including defense costs, in excess of these retentions. Pursuant to our self-insurance program, self-insured reserves related to workers’ compensation, general liability and automobile coverage are reinsured by Pride Reinsurance Company (“Pride”), an Irish reinsurance captive owned by a company affiliated with us. Premiums are transferred annually to Pride through Delhaize Insurance Co., a subsidiary of our company.

Additionally, our property insurance includes self-insured retentions per occurrence of (i) $15.0 million for named windstorms, (ii) $5.0 million for Zone A flood losses and (iii) $2.5 million for all other losses.

We also are self-insured for health care, which includes medical, pharmacy, dental and short-term disability. Our self-insurance liability for claims incurred but not yet reported is estimated quarterly by management based on available information and takes into consideration actuarial evaluations determined annually based on historical claims experience, claims processing procedures and medical cost trends.

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 for a range of amounts that cannot be reasonably estimated.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The Company operated 1,159 supermarkets under the Food Lion banner, 39 supermarkets under the Bloom banner and 18 supermarkets under the Bottom Dollar Food banner at the end of 2006 in the mid-Atlantic and southeastern

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regions of the United States. Food Lion, Bloom and Bottom Dollar Food stores average approximately 35,600 square feet. The current Food Lion store prototypes are approximately 25,000 and 35,000 square feet. Bloom’s current store prototype is approximately 38,000 square feet.

At the end of 2006, the Company operated 68 Harveys supermarkets in central and south Georgia and the Tallahassee, Florida area. Harveys stores average approximately 30,300 square feet. The current Harveys store prototypes are approximately 21,000 and 35,000 square feet.

At the end of 2006, the Company operated 158 Hannaford supermarkets. Of the 158 operating stores, 120 are combination stores, which consist of traditional all-department supermarkets together with pharmacies, other services and expanded general merchandise under one roof. Hannaford supermarkets are located in Maine, New Hampshire, Vermont, upstate New York and Massachusetts. Hannaford stores average approximately 48,400 square feet. The current Hannaford store prototypes are approximately 35,600, 46,900 and 56,600 square feet.

At the end of 2006, the Company operated 38 Kash n’ Karry and 69 Sweetbay supermarkets in central Florida. Kash n’ Karry and Sweetbay stores average approximately 44,000 square feet. As discussed below in the Executive Summary, the Company is rebranding its Florida business from Kash n’ Karry to Sweetbay. The Sweetbay store prototypes are approximately 38,100, 46,900 and 49,700 square feet.

All of the Company’s supermarkets are primarily self-service stores, which have off-street parking facilities. With the exception of operating 130 owned supermarkets, the Company occupies its various supermarket premises under lease agreements typically providing for initial terms of 20 and 25 years, with renewal options ranging from five to 20 years.

The following table identifies the location and square footage of the 12 distribution centers and four offices operated by the Company as of December 30, 2006. The Company owns all of its distribution centers and office space, except for the square footage leased as identified in the table.

Distribution Centers

Location	Square Feet (in thousands)
Salisbury, North Carolina	1,630
Greencastle, Pennsylvania	1,236
Dunn, North Carolina	1,225
Disputanta, Virginia	1,124
Elloree, South Carolina	1,099
Clinton, Tennessee	833
Plant City, Florida	810
South Portland, Maine	630
Schodack, New York	580
Butner, North Carolina	441
Green Cove Springs, Florida	244	(a)
Winthrop, Maine	241
Total	10,093

Offices

Location	Square Feet (in thousands)
Corporate Headquarters, Salisbury, North Carolina	278
Corporate Offices, Scarborough, Maine	286	(a)
Corporate Offices, Tampa, Florida	19	(a)
Corporate Offices, Nashville, Georgia	26	(a)
Total	609

(a) represents leased properties

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Item 3. Legal Proceedings.

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

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

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

PART II

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

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

Dividends Declared Per Share of Common Stock *

	Year Ended December 30, 2006				Year Ended December 31, 2005
Quarter	Class A		Class B		Class A		Class B
First	$	—	$	—	$	—	$	—
Second		.001522		.001522		.001098		.001098
Third		—		—		—		—
Fourth		—		—		—		—
	$	.001522	$	.001522	$	.001098	$	.001098

* See Debt section in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” for negative covenant related to a dividend restriction test.

Item 6. Selected Financial Data.

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

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

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

Executive Summary

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

Our business is highly competitive and characterized by narrow profit margins. We compete with national, regional and local supermarket chains, supercenters, discount food stores, specialty stores, convenience stores, warehouse clubs, drug stores and restaurants. We continue to develop and evaluate new retailing strategies at each of our banners to respond to local consumer needs and maintain and increase our market share.

2006 Highlights:

Sales and Gross Margin Improvement: Principal improvements in sales and gross margins in 2006 as compared to 2005 were the result of a combination of several initiatives, including:

• effective price, promotion and marketing initiatives focusing on consumer preferences to increase same store sales;

• improved assortment and customer service;

• the success of market and concept renewal initiatives; and

• pricing optimization through the use of multiple price zones.

Sales also improved in 2006 as compared to 2005 due to (i) the exiting of one of our competitors, Winn-Dixie, from several Food Lion, Kash n’ Karry and Sweetbay markets during the second half of 2005 and (ii) a historic high of 14 store openings by Hannaford in 2006.

Selling and Administrative Expense as a percent of sales for 2006 increased due to:

• Higher health care costs due to an increase in claims filed and costs per claim;

• Higher store utility costs due to rising fuel costs;

• Kash n’ Karry’s ongoing conversion of its stores to Sweetbay Supermarket (69 Sweetbay stores were in operation as of December 30, 2006); and

• Labor and other pre-opening costs incurred in connection with Food Lion’s market renewal in the Washington, D.C. market.

These increases to selling and administrative expenses were reduced by the expense reduction related to forfeited accounts in the retirement and profit sharing plans of Food Lion and Sweetbay/Kash n’ Karry.

Food Lion started its first multi-brand market renewal in the Washington, D.C. market, converting 29 Food Lion stores to Bloom stores, converting 14 Food Lion stores to Bottom Dollar Food stores and relaunching 25 Food Lion stores. Additionally, in June 2006 certain significant support functions of Harveys were transferred from Harveys to Food Lion, in order to improve efficiency. Food Lion also completed the first phase of a project through which Food Lion intends to significantly improve the replenishment cycle of its stores.

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At Hannaford, action was undertaken to structurally reduce expenses, particularly at its head office. These initiatives allowed Hannaford to increase its price competitiveness, with a particular focus on the Massachusetts area, while protecting its profitability. Hannaford launched its in-store nutrition navigation system called “Guiding Stars,” created to make it easier for interested shoppers to choose more nutritious foods. Hannaford also expanded successful categories such as its private label Inspirations and its Meals to Go products.

In Florida, 43 Kash n’ Karry stores in the Tampa-St. Petersburg market were converted to the Sweetbay Supermarket concept in 2006, bringing the total number of Sweetbay stores to 69.

On April 17, 2006, we repaid $563.5 million of Notes (7.375%) in full, which decreased interest expense in 2006 compared to 2005.

2007 Outlook:

• Delhaize America expects that a total of approximately 47 new supermarkets will be opened under its banners, collectively, while approximately 10 stores will be closed to be relocated and 14 other stores will be closed.

• Food Lion will remodel 142 stores as part of its market and store renewal programs.

• Food Lion completed its Washington, D.C. market renewal during the first quarter of 2007 by converting 11 Food Lion stores to Bloom stores.

• Hannaford will reinvest in existing locations with 9 scheduled remodels.

• Kash n’ Karry will complete the rebranding of the remaining Kash n’ Karry stores to Sweetbay Supermarket before the end of September 2007.

• Delhaize America and Delhaize Group SA are planning the implementation of cross-guarantees between the two companies. The cross-guarantees of the companies’ financial debt obligations will support the continued integration of Delhaize Group SA and its subsidiaries and increase financial flexibility.

Critical Accounting Policies

We have chosen accounting policies we believe are appropriate to accurately and fairly report our operating results and financial position and we apply these accounting policies in a consistent manner. The significant accounting policies are summarized in Note 1 of the Company’s Consolidated Financial Statements.

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

Accounting for Stock-Based Compensation—Prior to January 2, 2005, we accounted for the Delhaize Group 2002 Stock Incentive Plan, the 1996 Food Lion Plan, the 1988 and 1998 Hannaford Plans and the 2000 Delhaize America Plan under the recognition and measurement principles of Accounting Principles Board, or APB, Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). No compensation cost was recognized in the income statement for stock options prior to 2005, as all options granted had an exercise price equal to the market value of the underlying Delhaize Group SA ADSs on the date of grant. Historically, for purposes of the disclosures required by the original provisions of Statement of Financial Accounting Standards No. 123 “Accounting for Stock Compensation” (“SFAS No. 123”), the straight-line method was used to allocate the option valuation amounts evenly over their respective vesting schedules.

On January 2, 2005, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which required the recognition of expenses for the fair value of employee share-based awards over the service period for awards expected to vest. The estimation of stock awards that will ultimately vest requires judgment and to the extent actual results or updated estimates differ from our current estimates, such amounts will be recorded in the period the estimates are revised.

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We elected to apply the revised standard using the modified prospective transition method. Under this transition method, compensation cost recognized in 2005 includes: (i) compensation cost for all share-based awards granted prior to, but not yet vested as of, January 2, 2005, based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, and (ii) compensation cost on a graded method for all share-based awards granted subsequent to January 2, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R.

We determine fair value of our share-based awards using the Black-Scholes-Merton option pricing model. The Black-Scholes-Merton option pricing model incorporates certain assumptions, the most significant of which are our estimates of the risk-free interest rate, expected volatility, expected dividend yield and expected life of options, in order to arrive at a fair value estimate. As required under the accounting rules, we review our valuation assumptions at each grant date and, as a result, are likely to change our valuation assumptions used to value stock based awards granted in future periods.

Based on the guidance in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 (SAB 107), “Share-Based Payment”, we reassessed the expected volatility assumptions as of the grant date for stock options granted during 2006. Prior to 2006, the Company used historical volatility to estimate the grant date fair value of stock options. The Company changed its method of estimating expected volatility for all stock options granted after January 1, 2006 to exclude a period of abnormal volatility (July 2002 to July 2003) that is not representative of future expected stock price behavior and is not expected to recur during the expected or contractual term of the options. We believe that this change results in a more accurate estimate of the grant date fair value of employee stock options. Using historical volatility, and excluding a period of abnormal volatility, to value the stock options granted in 2006 resulted in a decrease to the total grant date fair value of approximately $5.2 million (total fair value of the stock options granted in 2006 was approximately $19.0 million).

Asset impairment—We periodically evaluate the period of depreciation or amortization for long-lived assets in accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,.” to determine whether current circumstances warrant revised estimates of useful lives. We monitor the carrying value of each of our retail stores, our lowest level asset group for which identifiable cash flows are independent of other groups of assets and liabilities, for potential impairment based on projected future cash flows. If an impairment is identified for a retail store, we compare the asset group’s estimated fair value to its current carrying value and record provisions for impairment as appropriate.

Impairment losses are significantly impacted by estimates of future operating cash flows and estimates of fair value. We estimate future cash flows based on the experience and knowledge of the markets in which our stores are located. These estimates are adjusted for variable factors such as inflation and general economic conditions. We estimate fair value based on our experience and knowledge of the real estate markets where the store is located and also include an independent third-party appraiser in certain situations. Although we believe the assumptions used are reasonable, changes in economic conditions and operating performance impacting the assumptions used in projecting future operating cash flows could have a significant impact on the determination of fair value and impairment amounts.

Goodwill and other intangible assets—We conduct an annual assessment of potential impairment of goodwill and other indefinite lived intangible assets in the fourth quarter of each year or when events or circumstances indicate that impairment may have occurred in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.” We perform our impairment analysis by comparing the carrying value of each reporting unit to its current fair value. Fair value is estimated based on discounted cash flow projections provided by reporting unit management. When the carrying value of the reporting unit exceeds its fair value, the implied fair value of the reporting unit’s goodwill is compared to the carrying amount of that goodwill. When the carrying amount of the goodwill exceeds the implied fair value, an impairment loss is recorded.

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The evaluation of goodwill and intangibles with indefinite useful lives for impairment requires management to use significant judgments and estimates including, but not limited to, projected future revenue, cash flows and discount rates. We believe that, based on current conditions, material goodwill and intangible impairments are not likely to occur. While we believe the assumptions used are reasonable, changes in economic conditions and operating performance could impact the assumptions used in projecting future operating cash flows and in selecting an appropriate discount rate could have a significant impact on the determination of fair value and impairment amounts.

Income taxes—Deferred tax liabilities or assets are established using statutory tax rates in effect at the balance sheet date for temporary differences between financial and tax reporting bases. Deferred tax assets and liabilities are subsequently adjusted to reflect changes in tax laws or rates in the period that includes the enactment date. Significant accounting judgment is required in determining the income taxes and related accruals, deferred tax assets and liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. In addition, we are subject to periodic audits and examinations by tax authorities. Although we believe that our estimates are reasonable, actual results could differ from these estimates. 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 in excess of the amounts currently recorded as liabilities in our consolidated financial statements will be material to our financial condition or future results of operation.

Inventories—Inventories are stated at the lower of cost (Last-in, First-out (“LIFO”), First-in, First-out (“FIFO”) and Average Cost) or market. We evaluate inventory shrinkage throughout the year based on actual physical counts in our stores and distribution centers and record adjustments on total inventory based on the results of these counts applied to the total inventory to provide for the estimated shrinkage as of the balance sheet date. Shrinkage refers to the difference in the amount of inventory we initially record and the actual inventory on hand. Shrinkage primarily occurs in our perishable items, due to spoilage, breakage and other inventory losses. If actual losses as a result of inventory shrinkage are different than management’s estimates, adjustments to the allowance for inventory shrinkage may be required.

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

Emerging Issues Task Force 97-10 (“EITF 97-10”) “The Effect of Lessee Involvement in Asset Construction,” is applied when our company is involved in certain structural elements of the construction of stores that will be leased when construction is complete. EITF 97-10 requires us to be considered the owner, for accounting purposes, of these facilities. Accordingly, we record a construction in progress asset for these stores with offsetting lease finance obligations in the consolidated balance sheets. These leases typically do not qualify for sale-leaseback treatment in accordance with SFAS No. 98, “Accounting for Leases,” and as such, we continue to account for these leases as a lease financing obligation upon completion of store construction.

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

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

We implemented a captive insurance program in 2001 pursuant to which the self-insured reserves related to workers’ compensation, general liability and automobile coverage were reinsured by Pride, an Irish reinsurance captive owned by an affiliated company of Delhaize Group SA. The purpose for implementing the captive insurance program was to provide Delhaize Group SA continuing flexibility in its risk management program while providing certain excess loss protection through anticipated reinsurance contracts with Pride. Premiums are transferred annually to Pride through Delhaize Insurance Co. (“DIC”), a subsidiary of Delhaize America. Prior to January 1, 2006, 100% of the risk was reinsured by Pride. Beginning on January 1, 2006, Pride reinsures 90% of the risk and the remaining 10% is retained by DIC.

Additionally property insurance includes self-insured retentions per occurrence of (i) $15.0 million for named windstorms, (ii) $5.0 million for Zone A flood losses, and (iii) $2.5 million for all other losses.

We also are self-insured for health care, which includes medical, pharmacy, dental and short-term disability. Our self-insurance liability for claims incurred but not yet reported is estimated quarterly by management based on available information and takes into consideration actuarial evaluations determined annually based on historical claims experience, claims processing procedures and medical cost trends.

The actuarial estimates are subject to a high degree of uncertainty from various sources, including changes in claim reporting patterns, claim settlement patterns, judicial decisions, legislation, and economic conditions. Although we believe the actuarial estimates are reasonable, significant differences related to the items noted above could materially affect our self-insurance obligations and the rates on future premiums to Pride.

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

Inventory write-downs, if any, in connection with store closings, are classified in cost of sales. Costs to transfer inventory and equipment from closed stores are expensed as incurred. When severance costs are incurred in connection with store closings, a liability for the termination benefits is recognized and measured at its fair value at

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the communication date. Store closing liabilities are reviewed quarterly to ensure that any accrued amounts appropriately reflect the outstanding commitments and that any additional costs are accrued or amounts that are no longer needed for their originally intended purpose are reversed.

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

Supplier allowances—We receive allowances, credits and income from suppliers primarily for volume incentives, new product introductions, in-store promotions and co-operative advertising. Volume incentives are based on contractual arrangements generally covering a period of one year or less and have been included as a reduction in the cost of inventory as earned and recognized as a reduction in cost of sales when the product is sold. New product introduction allowances compensate us for costs incurred associated with product handling and have been deferred and recognized as a reduction in cost of sales over the product introductory period.

Non-refundable credits from suppliers for in-store promotions such as product displays require related activities by our company. Similarly, co-operative advertising requires us to conduct the related advertising. In-store promotion and co-operative advertising income is recorded as a reduction in the cost of inventory as earned and recognized as a reduction in cost of sales when the product is sold unless the allowance represents the reimbursement of a specific, incremental and identifiable cost incurred by us to sell the vendor’s product. We have reviewed the funding received from vendors for in-store promotions and co-operative advertising and concluded that these arrangements are primarily for general advertising purposes and not the reimbursement of a specific, incremental and identifiable cost incurred by us.

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

Amounts owed to us under these arrangements are subject to 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 accounts and to cover disputes in the event that our interpretation of the contract terms differs from that of our vendors’ and our vendors seek to recover some of the consideration from us. These allowances are based on the current financial condition of our vendors, specific information regarding disputes and historical experience, and changes to these factors could impact these allowances.

Results of Operation

The following tables set forth the Consolidated Statements of Income for the years ended December 30 2006, December 31, 2005 and January 1, 2005 for informational purposes.

	2006		2005		2004
(Dollars in millions)
Net sales and other revenues	$	17,289.2	$	16,550.7	$	15,837.8
Cost of goods sold		12,596.4		12,068.6		11,644.3
Selling and administrative expenses		3,748.7		3,583.1		3,339.9
Operating income		944.1		899.0		853.6
Interest expense, net		303.8		322.9		325.4
Net loss from extinguishment of debt		—		—		4.5
Income from continuing operations before income taxes		640.3		576.1		523.7
Income taxes		257.6		233.5		212.9
Income before loss from discontinued operations		382.7		342.6		310.8
Loss from discontinued operations, net of tax		6.7		10.3		56.7
Net income	$	376.0	$	332.3	$	254.1

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	2006 %	2005 %	2004 %
(Percent of net sales and other revenues)
Net sales and other revenues	100.00	100.00	100.00
Cost of goods sold	72.86	72.92	73.52
Selling and administrative expenses	21.68	21.65	21.10
Operating income	5.46	5.43	5.38
Interest expense, net	1.76	1.95	2.05
Net loss from extinguishment of debt	0.00	0.00	0.03
Income from continuing operations before income taxes	3.70	3.48	3.30
Income taxes	1.49	1.42	1.34
Income before loss from discontinued operations	2.21	2.06	1.96
Loss from discontinued operations, net of tax	0.04	0.06	0.36
Net income	2.17	2.00	1.60

Net Sales and Other Revenues

(Dollars in billions)	2006		2005		2004
Net sales and other revenues	$	17.3	$	16.6	$	15.8

We record revenues primarily from the sale of products in our retail stores. Net sales and other revenues increased 4.46% in 2006 in comparison with 2005. Comparable store sales increased 2.7% during 2006 over the comparable period in 2005. Comparable store sales are calculated as the difference in sales from same stores (including relocations) over a comparable period. A new store has to be in operation for 56 weeks before it is included in the calculation of comparable store sales. A new store opening within the vicinity of an existing store which will be closed is considered a relocation. A closed store is removed from the calculation in the period in which it is closed.

The 2006 sales increase was driven primarily by the strong sales performance of Food Lion and Hannaford. The strong sales momentum at Food Lion was supported by effective price, promotion and marketing initiatives, improved assortment and customer service, the success of the market and concept renewal initiatives and the store closings in 2005 by Winn Dixie, a major competitor of Food Lion.

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Hannaford’s strong sales were supported by competitive pricing, a historic high of 14 store openings, the expansion of its private label categories, major price investments, particularly in the Massachusetts market, and its focus on health and wellness initiatives such as the launch of the “Guiding Stars” in-store nutrition navigation system. Sales at Sweetbay were negatively impacted by the intensive remodeling activity and the sales weakness at the unconverted Kash n’ Karry stores. During 2006, we had a net increase of 12 store openings, and we remodeled 97 stores.

We continue to see significant competitive activity through pricing and promotion initiatives as retailers bid for consumer dollars. During 2006, our Food Lion and Hannaford banners experienced 91 competitive store openings (including the reopening of certain previously closed former Winn Dixie sites) offset by 25 competitive store closings. In addition, many competitors continued to invest heavily in promotional spending in the form of aggressive advertised pricing, buy one and get one or two free offers, double and triple couponing and other aggressive pricing strategies. The activities and initiatives described in the previous paragraph, particularly at Food Lion and Hannaford, have resulted in improved sales momentum despite this competitive activity.

As of December 30, 2006, we operated 1,549 stores. Our retail store square footage totaled 57.7 million square feet at December 30, 2006, resulting in a 1.4% increase over fiscal 2005. Detail of store activity for 2006 is shown below:

	Food Lion		Harveys		Bloom		Bottom Dollar Food		Hannaford		Kash n’ Karry		Sweetbay	Total
Stores at beginning of year	1,209		67		5		3		145		83		25	1,537
Stores opened	18		2		5		—		14		—		1	40
Stores closed	(12	)	(6	)	—		—		—		(2	)	—	(20	)
Stores closed for relocation	(6	)	(1	)	—		—		(1	)	—		—	(8	)
Stores converted	(50	)	6		29	*	15	*	—		(43	)	43	—
Stores at end of year	1,159		68		39		18		158		38		69	1,549
Net change for year	(50	)	1		34		15		13		(45	)	44	12
Stores remodeled	36	**	8		—		—		10		—		43	97

* Includes 29 Bloom and 14 Bottom Dollar Food stores converted as part of the Washington, D.C. market renewal in 2006.

** Includes 25 Food Lion stores remodeled as part of the Washington, D.C. market renewal in 2006.

Net sales and other revenues increased 4.50% in 2005 in comparison with 2004. Comparable store sales increased 1.1% during 2005 over the comparable period in 2004. The 2005 sales increase was primarily driven by: (i) investments in pricing, promotional, and marketing activities; (ii) pricing optimization using multiple prize zones; (iii) successful Food Lion market renewals and Kash n’ Karry conversions to Sweetbay; (iv) the exiting of one of our competitors, Winn-Dixie, from several Food Lion, Kash n’ Karry and Sweetbay markets in the Southeast; and (v) Hannaford’s acquisition and conversion of 19 Victory stores to Hannaford stores. During 2005, we had a net increase of 14 store openings, and we remodeled 176 stores.

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As of December 31, 2005, we operated 1,537 stores. Our retail store square footage totaled 56.9 million square feet at December 31, 2005, resulting in a 1.4% increase over fiscal 2004. Detail of store activity for 2005 is shown below:

	Food Lion		Harveys		Bloom	Bottom Dollar Food	Hannaford	Kash n’ Karry		Sweetbay	Total
Stores at beginning of year	1,217		55		5	—	142	98		6	1,523
Stores opened	31		3		—	—	3	—		5	42
Stores acquired	—		—		—	—	—	—		—	—
Stores closed	(14	)	(2	)	—	—	—	(1	)	—	(17	)
Stores closed for relocation	(10	)	(1	)	—	—	—	—		—	(11	)
Stores converted	(15	)	12		—	3	—	(14	)	14	—
Stores at end of year	1,209		67		5	3	145	83		25	1,537
Net change for year	(8	)	12		—	3	3	(15	)	19	14
Stores remodeled	131	*	9		—	—	22	—		14	176

* Includes 124 stores remodeled as part of the Greensboro and Baltimore market renewals in 2005.

Gross Margin

(Percent of net sales and other revenues)	2006		2005		2004
Gross margin	27.14	%	27.08	%	26.48	%

Gross margin as a percentage of sales increased in 2006 compared with 2005 due primarily to better inventory results, continued margin management and price optimization and an improvement in the sales mix, partially offset by targeted price reductions to improve competitiveness.

The gross margin increase from 2004 to 2005 as a percentage of sales was due primarily to pricing optimization using multiple price zones and the ACIS margin and inventory management system, expanded offerings in higher-margin departments such as Produce and Deli/Bakery (particularly with respect to the market renewals at Food Lion and Kash n’ Karry conversions to Sweetbay), and improved shrink management at Food Lion. A decrease in expenses related to hurricane activity in 2005 compared with 2004 also positively affected gross margins for 2005.

Selling and Administrative Expenses

(Percent of net sales and other revenues)	2006		2005		2004
Selling and administrative expenses	21.68	%	21.65	%	21.10	%
Selling and administrative expenses excluding depreciation and amortization	18.82	%	18.79	%	18.13	%

Selling and administrative expenses as a percent of sales for 2006 increased in comparison with 2005 primarily due to (i) an increase in health care costs resulting from an increase in both the number of claims filed and the costs per claim, (ii) an increase in store utility costs due to rising fuel cost, (iii) expenses related to the Sweetbay conversion and (iv) labor and other pre-opening costs incurred in connection with the Food Lion market renewal in the Washington, D.C. market. These increases in 2006 were offset by the expense reduction of $19.5 million related to forfeited accounts in the retirement and profit sharing plans of Food Lion and Sweetbay/Kash n’ Karry.

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Selling and administrative expenses as a percent of sales for 2005 increased in comparison with 2004 primarily due to additional personnel and other expenses incurred in advance of expected sales benefits related to (i) Hannaford’s integration of Victory; (ii) Kash n’ Karry’s ongoing conversion of its stores to Sweetbay Supermarket (25 Sweetbay stores were in operation as of December 31, 2005); (iii) Food Lion’s market renewals in Greensboro, North Carolina and Baltimore, Maryland; (iv) Food Lion’s re-launch of its five Bloom stores; and (v) Food Lion’s launch of its first three Bottom Dollar stores during September and October of 2005. In addition, selling and administrative expenses increased due to (i) an increase in health care costs resulting from an increase in the number of claims filed and the costs per claim, (ii) an increase in store utility and store supply costs due to rising fuel costs, and (iii) an increase in stock compensation expense as a result of our adoption of a new accounting standard which required expensing of stock options (see Note 15 of our Consolidated Financial Statements).

Depreciation and Amortization Expense

(Dollars in millions)	2006			2005			2004
Depreciation and amortization expense	$	494.3		$	473.7		$	468.2
Percent of net sales and other revenues		2.86	%		2.86	%		2.97	%

Depreciation and amortization for 2006 increased in comparison with 2005 primarily due to equipment purchases made for new stores, remodeled stores and converted stores in 2006.

The increase in depreciation and amortization for 2005 in comparison with 2004 was primarily due to the 19 Victory stores acquired in the fourth quarter of 2004 and Kash n’ Karry’s conversion to Sweetbay Supermarkets during 2005 offset by certain of Food Lion’s leasehold improvements becoming fully depreciated in 2005.

Interest Expense, Net

(Dollars in millions)	2006			2005			2004
Interest expense, net	$	303.8		$	322.9		$	325.4
Percent of net sales and other revenues		1.76	%		1.95	%		2.05	%

Interest expense, net decreased in 2006 over 2005 primarily due to the repayment of our $563.5 million of 7.375% Notes on April 17, 2006. This decrease to interest expense, net was partially offset by a decrease in investment income and an increase in short-term borrowings.

Interest expense, net decreased in 2005 over 2004 primarily due to increased investment income resulting from higher cash balances, higher short-term interest rates and the repurchase and redemption of $52.4 million of our debt during the fourth quarter of 2004. These decreases to interest expense, net were offset by a decrease in the benefit from our interest rate swap agreements and additional store capital leases.

LIFO

Our inventories are stated at the lower of cost or market and we value approximately 74% of our inventory using the LIFO method.

Our LIFO reserve increased $12.5 million in 2006, $12.4 million in 2005 and $6.6 million in 2004. The increase in 2006 is due to inflation in all our merchandise categories. The increase in 2005 is due to inflation across most of our merchandise categories. The increase in 2004 is due to slight inflation in all of our key merchandise categories.

Discontinued Operations

	Number of stores closed classified as discontinued operations
2003	44
2004	39
2005	0
2006	4
Total stores closed classified as discontinued operations	87

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In accordance with the provisions of SFAS No. 144, the costs associated with the closing of these stores, as well as related operating activity prior to the closing of these stores, are recorded in “Loss from discontinued operations, net of tax” in our Consolidated Statements of Income.

Income Taxes

(Dollars in millions)	2006			2005			2004
Income taxes	$	257.6		$	233.5		$	212.9
Effective tax rate		40.2	%		40.5	%		40.7	%

The effective tax rate decreased in 2006 compared to 2005 due primarily to an increase in the amount of deductible stock option expense associated with our company’s stock based compensation.

The effective tax rate decreased slightly in 2005 from 2004 primarily due to the favorable resolution of state tax matters. This decrease in rate was offset by an increase in the amount of tax expense associated with our company’s stock based compensation (see Note 15 of our Consolidated Financial Statements, which more fully describes our adoption of a new accounting standard for stock options). Additionally, the 2004 effective tax rate was impacted by approximately $3.4 million (net of tax) in interest income related to an Internal Revenue Service (“IRS”) audit refund. Excluding the impact of this refund our tax rate from continuing operations would have been 41.3% for 2004.

The determination of our income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items.

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

Liquidity and Capital Resources

At the end of 2006, we had cash and cash equivalents of $165.6 million compared with $668.3 million at the end of 2005. The decrease in cash is primarily due to our debt repayment during the second quarter of 2006 (see Debt section below).

(Dollars in millions)	2006		2005		2004
Cash provided by operating activities	$	798.6	$	860.6	$	908.0

We have historically generated positive cash flow from operations. Cash provided by operating activities for 2006 decreased over 2005 primarily due to an increase in tax payments ($284.5 million in 2006 and $224.4 million in 2005) and an increase in inventory levels, offset by increased net income.

The decrease in cash provided by operating activities for 2005 in comparison with 2004 is primarily due to an increase in net working capital and an increase in tax payments ($224.4 million in 2005 and $108.6 million in 2004).

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(Dollars in millions)	2006		2005		2004
Cash flows used in investing activities	$	628.7	$	492.6	$	593.9

Cash flows used in investing activities in 2006 increased primarily due to an increase in capital expenditures and a decrease in cash used for workers’ compensation collateral requirements (see detail below). The increase in capital expenditures, $663.5 million for 2006 compared with $569.7 million for 2005, was primarily due to costs to convert 43 existing Kash n’Karry stores to Sweetbay Supermarkets, the opening of one new Sweetbay Supermarket store, construction costs incurred for the Washington D.C. market renewal and an active store opening program, particularly at Hannaford and Food Lion.

The decrease in cash flows used in investing activities in 2005 compared with 2004 was primarily due to the $178.8 million acquisition of 19 Victory stores during the last quarter of 2004 and cash used for workers’ compensation collateral requirements, offset by increased capital expenditures. During 2005, $42.9 million of the workers’ compensation cash collateral was returned and replaced with uncollateralized letters of credit using our new credit facility. The increase in capital expenditures, $569.7 million for 2005 compared with $413.7 million for 2004, was primarily due to costs to convert 19 Victory stores to Hannaford, construction costs incurred for the Greensboro and Maryland market renewals, costs to convert 14 existing Kash n’ Karry stores to Sweetbay Supermarkets and the opening of five new Sweetbay Supermarket stores.

Capital expenditures were $663.5 million in 2006 compared to $569.7 million in 2005 and $413.7 million in 2004. The increase in capital expenditures for 2006 from 2005 was primarily due to higher investments per store as a result of Food Lion’s multi-brand market renewal in the Washington, D.C. market and costs to convert 43 existing Kash n’ Karry stores to Sweetbay Supermarkets. During 2006, we opened 40 new stores and renovated 97 existing stores. During 2005, we opened 42 new stores and renovated 176 existing stores. During 2004, we opened 34 new stores and renovated 79 existing stores.

Total store square footage increased 1.4 % from 56.9 million at the end of 2005 to 57.7 million at the end of 2006, primarily due to the opening of 40 new stores, including eight relocated stores, offset by 20 stores closed in 2006. Total store square footage increased 1.4% from 56.1 million at the end of 2004 to 56.9 million at the end of 2005, primarily due to the opening of 42 new stores, including 11 relocated stores, offset by 17 stores closed in 2005. Total store square footage increased 1.1% from 55.5 million at the end of 2003 to 56.1 million at the end of 2004, primarily due to the opening of 34 new stores, including five relocated stores, and the acquisition of 19 Victory stores, offset by 40 stores closed in 2004

Our total operating distribution space was 10.1 million square feet at the end of 2006, 10.5 million square feet at the end of 2005 and 10.3 million square feet at the end of 2004.

In 2007, we plan to incur approximately $755 million of capital expenditures. We plan to finance capital expenditures during 2007 through funds generated from operations and existing bank facilities.

(Dollars in millions)	2006		2005		2004
Cash flows used in financing activities	$	672.6	$	199.7	$	127.7

Cash used in financing activities increased from 2005 to 2006 primarily due to the repayment of our $563.5 million 7.375% Notes on April 17, 2006, offset by $134.0 million in proceeds from short-term debt (see Debt section below). Cash used in financing activities increased from 2004 to 2005 primarily due to dividend payments of $125.3 million in 2005, offset by a decrease of $57.5 million in principal payments on long-term debt in 2005.

Debt

We have a $500 million unsecured revolving credit agreement (the “Credit Agreement”) with a syndicate of commercial banks. The Credit Agreement provides for a $500 million five-year unsecured revolving credit facility, with a $100 million sublimit for the issuance of letters of credit, and a $35 million sublimit for swingline loans. Upon our company’s election, the aggregate maximum principal amount available under the Credit Agreement may be increased to an aggregate amount not exceeding $650 million. Funds are available under the Credit Agreement for general corporate purposes. The Credit Agreement will mature in April 2010, unless we exercise our option to

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extend it for up to two additional years. We had $120.0 million in outstanding borrowings under the Credit Agreement as of December 30, 2006 and had no borrowing as of December 31, 2005. Under this facility, the Company had average daily borrowings of $30.9 million during 2006 and no borrowings during 2005. However, approximately $46.7 million and $57.0 million of the Credit Agreement was used to fund letters of credit during 2006 and 2005, respectively.

The Credit Agreement contains affirmative and negative covenants. Negative covenants include a minimum fixed charge coverage ratio, a maximum leverage ratio and a dividend restriction test. We must comply with all covenants in order to have access to funds under the Credit Agreement. As of December 30, 2006, we were in compliance with all covenants contained in the Credit Agreement. A deteriorating economic or operating environment may subject us to a risk of non-compliance with the covenants.

In addition, we have periodic short-term borrowings under other arrangements that are available to us at the lenders’ discretion. As of December 30, 2006, we had borrowings of $14.0 million outstanding under these arrangements. There were no outstanding borrowings under these arrangements at December 31, 2005.

At December 30, 2006, we had long-term debt, net of associated discount and premium as follows:

(Dollars in millions)
Notes, 7.55%, due 2007	$	145.0
Notes, 8.125%, due 2011		1,096.0
Notes, 8.05%, due 2027		122.0
Debentures, 9.00%, due 2031		855.0
Other notes, 6.31% to 7.41%, due 2007 to 2016		39.6
Mortgage payables, 7.55% to 8.65%, due 2007 to 2016		7.0
Other debt, 7.25% to 14.15%, due 2007 to 2013		14.8
Total long-term debt		2,279.4
Less current portion		170.7
Long-term debt, net of current portion	$	2,108.7

On April 17, 2006, we repaid $563.5 million of 7.375% notes in full.

In 2004, we repurchased $36.5 million of our $600 million 7.375% notes, $5.0 million of our $150 million 7.55% notes, $7.9 million of other notes and $3.0 million of our mortgage payables. These repurchases resulted in a $4.7 million loss from the early extinguishment of debt, a $0.2 million loss for the related hedge write-off, offset by a gain of $0.4 million from the interest rate swap, net premium write-off and related unamortized debt issuance costs. These costs are classified in our Consolidated Statement of Income for 2004 as “Net loss from extinguishment of debt.”

We enter into significant leasing obligations related to our store properties. Capital lease and lease finance obligations outstanding at the end of 2006 were $789.9 million compared with $777.7 million at the end of 2005. Typically, lease agreements provide for initial terms of 20 and 25 years, with renewal options ranging from five to 20 years. We also had significant operating lease commitments at the end of 2006. Total annual minimum operating lease commitments are approximately $244.2 million in 2007, including approximately $216.8 million related to open store properties and $27.4 million related to closed store properties. These annual minimum operating lease commitments decrease gradually to approximately $180.2 million in 2011, including approximately $164.7 million related to open store properties and $15.5 million related to closed store properties.

Market Risk

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

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We maintain interest rate swaps against certain debt obligations, effectively converting a portion of the debt from fixed to variable rates. The notional principal amounts of interest rate swap arrangements as of December 30, 2006 were $100 million maturing in 2011. Maturity dates of interest rate swap arrangements match those of the underlying debt. These agreements involve the exchange of fixed rate payments for variable rate payments without the exchange of the underlying principal amounts. Variable rates for our agreements are based on six-month or three-month U.S. dollar LIBOR and are reset on a semiannual basis or a quarterly basis. The differential between fixed and variable rates to be paid or received is accrued as interest rates change in accordance with the agreements and recognized over the life of the agreements as an adjustment to interest expense. The $100 million notional swaps maturing in 2011 meet the criteria for using the short-cut method, which assumes 100% hedge effectiveness, as prescribed by SFAS No. 133, “Derivative Instruments and Hedging Activities.”

During the fourth quarter of 2004, in association with the retirement of $36.5 million of its $600 million 7.375% notes,we de-designated the $300 million notional interest rate swaps as a fair value hedge of 50% of the $600 million 2006 notes, and re-designated them as a fair value hedge of approximately 53% of the remaining $563.5 million 2006 notes. These swaps were unwound with pay-off of the debt of $563.5 million in April 2006. We have recorded a derivative in connection with these agreements in our Consolidated Balance Sheets in the amount of $2.5 million (derivative liability) at December 30, 2006 and $1.7 million (derivative liability) at December 31, 2005 in Non-current Other Liabilities.

The table set forth below provides the expected principal payments and related interest rates of our long-term debt by year of maturity as of December 30, 2006.

(Dollars in millions)	2007			2008			2009			2010			2011			Thereafter			Fair Value
Notes, due 2007	$	145.0																	$	146.5
Average interest rate		7.55	%
Notes, due 2011													$	1,100.0				(a)	$	1,186.8
Average interest rate														8.13	%
Notes, due 2027																$	126.0		$	137.2
Average interest rate																	8.05	%
Debentures, due 2031																$	855.0		$	1,015.2
Average interest rate																	9.00	%
Other notes	$	11.8		$	11.8		$	5.6		$	1.7		$	1.7		$	9.0	(b )	$	42.6
Average interest rate		6.77	%		6.77	%		7.17	%		6.58	%		6.58	%		7.06	%
Mortgage payables	$	1.6		$	1.0		$	1.1		$	1.2		$	0.3		$	2.0		$	7.8
Average interest rate		8.10	%		7.76	%		7.75	%		7.75	%		8.25	%		8.25	%
Other debt	$	13.4		$	0.3		$	0.2		$	0.2		$	0.2		$	0.4		$	15.0
Average interest rate		7.42	%		13.79	%		13.21	%		13.21	%		13.21	%		13.21	%
Total																			$	2,551.1

(a) $100.0 million notional amount was swapped for a variable interest rate based on a six-month or three-month U.S. dollar LIBOR reset on a semiannual or a quarterly basis. The carrying value of these notes was decreased by $2.5 million at December 30, 2006, to reflect the fair value of the interest rate swap.

(b) See Note 7 of our Consolidated Financial Statements for Hannaford defeasance discussion.

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

Off-Balance Sheet Arrangements

The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, results of operations or cash flows.

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Contractual Obligations and Commitments

We assume various financial obligations and commitments in the normal course of our operating and financing activities. Financial obligations are considered to represent known future cash payments that we are required to make under existing contractual arrangements, such as debt and lease agreements. The table below represents the scheduled maturities of our contractual obligations as of December 30, 2006.

(Dollars in millions)	Total		2007		2008		2009		2010		2011		Thereafter
Long-term debt	$	2,279.4	$	170.7	$	12.3	$	6.1	$	2.2	$	1,099.5	$	988.6
Interest on fixed rate debt		2,513.4		185.3		178.7		178.0		177.6		132.7		1,661.1
Capital lease and lease finance obligations		1,629.4		146.3		145.2		142.4		134.4		125.7		935.4
Self insurance liabilities		152.4		47.1		31.8		21.9		14.7		9.9		27.0
Operating leases—open stores		2,056.3		216.8		202.7		186.6		174.6		164.7		1,110.9
Operating leases—closed stores		188.3		27.4		25.9		23.2		19.2		15.5		77.1
Purchase obligations (1)		235.0		131.1		25.4		10.6		6.3		3.9		57.7
Pension plans		83.4		8.1		8.2		8.6		8.3		7.5		42.7
Postretirement plans		5.0		0.5		0.5		0.5		0.5		0.5		2.5
Total	$	9,142.6	$	933.3	$	630.7	$	577.9	$	537.8	$	1,559.9	$	4,903.0

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

Impact of Inflation

The Company’s performance for 2006 reflects the impact of several product cost increases (primarily in groceries, produce, health and beauty care product and other household and personal products), significant fuel, energy, and commodity price inflation experienced throughout most of that time, as well as increased employee benefit costs. Through 2006, our reaction to the increase in product costs varied across geographical operating territories, based on unique competitive environments. In the Southeast, we avoided significant retail price increases and managed external cost pressures through price optimization and mix improvements, productivity savings, and technological initiatives to enhance the inventory management. In the Northeast, inflation impacts on product and other operating expenses generally were managed through product pricing or cost reduction efforts.

During 2005, the supermarket industry and all four of our operating companies experienced several product cost increases as a result of Hurricane Katrina. For example, there were significant cost increases in the commodities of sugar, coffee and bananas. Additionally, because of fuel price increases, the industry as well as our four operating companies experienced increased costs in components of our business, including resins, diesel fuel, and plastic. The Company’s reaction to this cost inflation varied across geographical operating territories based on unique competitive environments and specific market conditions.

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

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Recently Issued Accounting Standards

In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109. FIN 48 provides guidance for the recognition, derecognition and measurement in financial statements of tax positions taken in previously filed tax returns or tax positions expected to be taken in tax returns. FIN 48 requires an entity to recognize the financial statement benefit of a tax position when it is more likely than not that the position will be sustained upon examination. If the tax position meets the more-likely-than-not recognition threshold, the tax effect is recognized at the largest amount of the benefit that is greater than fifty percent likely of being realized upon ultimate settlement. FIN 48 requires that a liability established for unrecognized tax benefits must be presented as a liability and not combined with deferred tax liabilities or assets. The application of FIN 48 may also affect the tax basis of assets and liabilities and therefore may change or create deferred tax liabilities or assets. FIN 48 permits an entity to recognize interest related to tax uncertainties as either income taxes or interest expense. FIN 48 also permits an entity to recognize penalties related to tax uncertainties as either income tax expense or within other expense classifications. We have historically recognized interest and penalties, if any, related to tax uncertainties as income tax expense and expect to continue this treatment upon adoption of FIN 48. Our company will be required to adopt FIN 48 as of December 31, 2006 (which will impact the Company’s fiscal year 2007), with any cumulative effect of the change in accounting principles recorded as an adjustment to opening retained earnings. We are currently evaluating the impact of our adoption of FIN 48 and have not yet determined the effect on our earnings or financial position.

In September 2006, FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Retirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R)”. SFAS No. 158 requires employers to recognize the overfunded or underfunded status of a defined benefit post-retirement plan and/or a defined benefit plan as an asset or liability in its balance sheet, measured as the difference between the fair value of plan assets and the benefit obligation. In addition, SFAS No. 158 requires employers to recognize changes in that funded status in the year in which the changes occur through comprehensive income net of tax effects. We adopted the SFAS No.158 as of December 30, 2006 as required, which increased our pension liability and accumulated other comprehensive loss by $15.8 million, pretax. The impact of the adoption of SFAS No. 158 is fully described in Note 6.

In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS No. 157 is applicable to other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are in the process of evaluating the impact that the adoption of SFAS No. 157 will have on our financial statements.

In September 2006, the SEC released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides guidance on how the effects of prior-year uncorrected financial statement misstatements should be considered in quantifying a current year misstatement. SAB 108 requires registrants to quantify misstatements using both an income statement (“rollover”) and balance sheet (“iron curtain”) approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered. If prior years are not restated, the cumulative effect adjustment is recorded in opening accumulated earnings as of the beginning of the fiscal year of adoption. SAB 108 is effective for fiscal years ending on or after November 15, 2006. SAB 108 did not have any impact to our financial statements because we have used both the “iron curtain” and “rollover” approaches when quantifying misstatement amounts.

In February 2007, FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115”. Under SFAS No. 159, our company will be permitted to measure financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the fair value option). SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. We are in the process of evaluating the impact that the adoption of SFAS No. 159 will have on our financial statements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

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

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Item 8. Financial Statements and Supplementary Data.

Delhaize America, Inc.

Consolidated Statements of Income

(Dollars in millions)	Year Ended December 30, 2006		Year Ended December 31, 2005		Year Ended January 1, 2005
Net sales and other revenues	$	17,289.2	$	16,550.7	$	15,837.8
Cost of goods sold		12,596.4		12,068.6		11,644.3
Selling and administrative expenses		3,748.7		3,583.1		3,339.9
Operating income		944.1		899.0		853.6
Interest expense, net		303.8		322.9		325.4
Net loss from extinguishment of debt		—		—		4.5
Income from continuing operations before income taxes		640.3		576.1		523.7
Income taxes		257.6		233.5		212.9
Income before loss from discontinued operations		382.7		342.6		310.8
Loss from discontinued operations, net of tax		6.7		10.3		56.7
Net income	$	376.0	$	332.3	$	254.1

See notes to the consolidated financial statements.

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Delhaize America, Inc.

Consolidated Balance Sheets

(Dollars in millions)	December 30, 2006			December 31, 2005
Assets
Current assets:
Cash and cash equivalents	$	165.6		$	668.3
Receivables, net		130.6			116.9
Receivable from affiliate		22.5			20.3
Inventories		1,258.0			1,198.3
Prepaid expenses		41.6			32.0
Other current assets		36.1			26.7
Total current assets		1,654.4			2,062.5
Property and equipment, net		3,286.3			3,069.4
Goodwill		3,071.5			3,074.0
Intangibles, net		757.0			771.4
Loan to affiliate		—			17.4
Reinsurance recoverable from affiliate		145.6			147.2
Other assets		57.0			80.2
Total assets	$	8,971.8		$	9,222.1
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt	$	134.0		$	—
Accounts payable		796.6			756.7
Payable to affiliate		7.6			4.5
Accrued expenses		267.2			271.1
Current portion of capital lease and lease finance obligations		48.4			44.0
Current portion of long-term debt		170.7			581.3
Other current liabilities		114.1			127.5
Deferred income taxes, net		7.4			12.3
Income taxes payable		76.6			72.5
Total current liabilities		1,622.6			1,869.9
Long-term debt, net of current portion		2,108.7			2,279.9
Capital lease and lease finance obligations, net of current portion		741.5			733.7
Deferred income taxes, net		156.3			211.6
Other liabilities, net		322.8			325.6
Total liabilities		4,951.9			5,420.7
Shareholders’ equity:
Class A non-voting common stock, authorized 1,280,160,900,000 shares; 91,270,348,000 shares issued and outstanding		163.1			163.1
Class B voting common stock, authorized 1,500,000,000 shares; 75,469,000 shares issued and outstanding		37.7			37.7
Accumulated other comprehensive loss, net of tax		(46.5	)		(49.0	)
Additional paid-in capital		2,556.3			2,516.5
Retained earnings		1,309.3			1,133.1
Total shareholders’ equity		4,019.9			3,801.4
Total liabilities and shareholders’ equity	$	8,971.8		$	9,222.1

See notes to the consolidated financial statements.

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Delhaize America, Inc.

Consolidated Statements of Cash Flows

(Dollars in millions)	Year Ended December 30, 2006			Year Ended December 31, 2005			Year Ended January 1, 2005
OPERATING ACTIVITIES
Net income	$	376.0		$	332.3		$	254.1
Adjustments to reconcile net income to net cash provided by continuing operating activities:
Depreciation and amortization		494.3			473.7			468.2
Amortization of debt costs/premium		3.0			3.6			3.5
Amortization of deferred loss on derivative		6.5			8.4			8.4
Transfer from escrow to fund interest, net of accretion		1.7			2.3			2.9
Accrued interest on interest rate swap		0.2			2.1			1.2
Loss on disposals of property and equipment		4.4			13.7			11.0
Net loss from extinguishment of debt		—			—			4.5
Asset impairment provisions		1.7			9.4			10.3
Provision for losses on uncollectible receivables and write-off of receivables		14.7			12.9			16.8
Stock compensation expense		28.6			28.2			6.4
Deferred income tax (benefit) provision		(51.9	)		(23.0	)		61.1
Other		(0.2	)		1.4			0.3
Changes in operating assets and liabilities which provided (used) cash (net of effect of acquisition):
Receivables		(28.4	)		(10.4	)		(23.8	)
Net receivable from affiliate		0.9			0.7			(3.9	)
Inventories		(60.8	)		(49.7	)		72.2
Prepaid expenses		(9.5	)		4.7			(4.6	)
Other assets		(3.0	)		(1.9	)		3.0
Accounts payable		42.5			52.3			(20.1	)
Accrued expenses		(3.9	)		12.2			0.8
Income taxes payable		24.4			32.2			41.7
Excess tax benefits related to stock options		(20.3	)		(10.3	)		—
Other liabilities		(20.3	)		(28.0	)		(49.2	)
Total adjustments		424.6			534.5			610.7
Cash flow from operating activities of continuing operations		800.6			866.8			864.8
Cash flow from operating activities of discontinued operations		(2.0	)		(6.2	)		43.2
Net cash provided by operating activities		798.6			860.6			908.0
INVESTING ACTIVITIES
Capital expenditures		(663.5	)		(569.7	)		(413.7	)
Investment in Victory, net of cash acquired		—			—			(178.8	)
Proceeds from sale of property and equipment		14.1			22.3			32.5
Other investment activity		20.7			54.8			(33.9	)
Net cash used in investing activities		(628.7	)		(492.6	)		(593.9	)

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(Dollars in millions)	Year Ended December 30, 2006			Year Ended December 31, 2005			Year Ended January 1, 2005
FINANCING ACTIVITIES
Borrowings under revolving credit facilities		625.0			—			—
Repayments of borrowings under revolving credit facilities		(505.0	)		—			—
Net proceeds from other short-term debt		14.0			—			—
Proceeds from long-term debt		—			3.1			1.3
Principal payments on long-term debt		(582.5	)		(14.0	)		(71.5	)
Principal payments under capital lease and lease finance obligations		(47.3	)		(40.9	)		(35.7	)
Dividends paid		(139.0	)		(125.3	)		—
Transfer from escrow to fund long-term debt		11.8			11.8			8.6
Parent common stock (ADSs) purchased		(72.7	)		(49.0	)		(40.1	)
Proceeds from stock options exercised		2.8			4.3			9.7
Excess tax benefits related to stock options		20.3			10.3			—
Net cash used in financing activities		(672.6	)		(199.7	)		(127.7	)
Net (decrease) increase in cash and cash equivalents		(502.7	)		168.3			186.4
Cash and cash equivalents at beginning of year		668.3			500.0			313.6
Cash and cash equivalents at end of year	$	165.6		$	668.3		$	500.0

See notes to the consolidated financial statements.

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Delhaize America, Inc.

Consolidated Statements of Shareholders’ Equity and Comprehensive Income

(Dollars and shares in millions except per share amounts)	Class A Common Stock Shares	Amount		Class B Common Stock Shares	Amount
Balances January 3, 2004	91,270.3	$	163.1	75.5	$	37.7
Cash dividends declared:
Class A—$.000274 per share
Class B—$.000274 per share
Sale of parent company ADSs
Tax benefit of non-qualified ADSs options exercised
Amortization and acceleration of restricted ADSs
Parent common stock (ADSs) purchased
Parent common stock (ADSs) issued
Comprehensive income:
Net income
Additional minimum pension liability, net of tax
Unrealized gain on available-for-sale securities, net of tax
Extinguishment of debt – derivative
Amortization of deferred loss on hedge into interest expense
Total comprehensive income
Balances January 1, 2005	91,270.3		163.1	75.5		37.7
Cash dividends declared:
Class A—$.001098 per share
Class B—$.001098 per share
Sale of parent company ADSs
Tax benefit of non-qualified ADSs options exercised
Stock option expense
Amortization and acceleration of restricted ADSs
Restricted (ADSs) adjustment
Parent common stock (ADSs) purchased
Parent common stock (ADSs)/ restricted stock issued
Comprehensive income:
Net income
Additional minimum pension liability, net of tax
Unrealized loss on available-for-sale securities, net of tax
Amortization of deferred loss on hedge into interest expense
Total comprehensive income
Balances December 31, 2005	91,270.3		163.1	75.5		37.7
Cash dividends declared:
Class A—$.001522 per share
Class B—$.001522 per share
Sale of parent company ADSs
Tax benefit of non-qualified ADSs options exercised
Stock option expense
Amortization and acceleration of restricted ADSs
Parent common stock (ADSs) purchased
Parent common stock (ADSs)/ restricted stock issued
Comprehensive income:
Net income
Additional minimum pension liability, net of tax
Adjustment to initially apply FASB Statement No. 158, net of tax
Amortization of deferred loss on hedge into interest expense
Total comprehensive income
Balances December 30, 2006	91,270.3	$	163.1	75.5	$	37.7

See notes to the consolidated financial statements.

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	Additional Paid-in Capital			Accumulated Other Comprehensive Loss, Net of Tax			Retained Earnings			Total
Balances January 3, 2004	$	2,474.4		$	(62.9	)	$	733.4		$	3,345.7
Cash dividends declared:
Class A—$.000274 per share								(25.0	)		(25.0	)
Class B—$.000274 per share								—			—
Sale of parent company ADSs		9.7									9.7
Tax benefit of non-qualified ADSs options exercised		10.5									10.5
Amortization and acceleration of restricted ADSs		6.4									6.4
Parent common stock (ADSs) purchased		(12.8	)					(27.3	)		(40.1	)
Parent common stock (ADSs) issued		3.3						(3.3	)		—
Comprehensive income:
Net income								254.1			254.1
Additional minimum pension liability, net of tax					2.2						2.2
Unrealized gain on available-for-sale securities, net of tax					0.1						0.1
Extinguishment of debt – derivative					0.2						0.2
Amortization of deferred loss on hedge into interest expense					5.2						5.2
Total comprehensive income											261.8
Balances January 1, 2005		2,491.5			(55.2	)		931.9			3,569.0
Cash dividends declared:
Class A—$.001098 per share								(100.2	)		(100.2	)
Class B—$.001098 per share								(0.1	)		(0.1	)
Sale of parent company ADSs		4.3									4.3
Tax benefit of non-qualified ADSs options exercised		10.3									10.3
Stock option expense		20.9									20.9
Amortization and acceleration of restricted ADSs		7.3									7.3
Restricted (ADSs) adjustment		0.4									0.4
Parent common stock (ADSs) purchased		(21.5	)					(27.5	)		(49.0	)
Parent common stock(ADSs) /restricted stock issued		3.3						(3.3	)		—
Comprehensive income:
Net income								332.3			332.3
Additional minimum pension liability, net of tax					1.1						1.1
Unrealized loss on available-for-sale securities, net of tax					(0.1	)					(0.1	)
Amortization of deferred loss on hedge into interest expense					5.2						5.2
Total comprehensive income											338.5
Balances December 31, 2005		2,516.5			(49.0	)		1,133.1			3,801.4
Cash dividends declared:
Class A—$.001522 per share								(138.9	)		(138.9	)
Class B—$.001522 per share								(0.1	)		(0.1	)
Sale of parent company ADSs		2.8									2.8
Tax benefit of non-qualified ADSs options exercised		20.3									20.3
Stock option expense		21.3									21.3
Amortization and acceleration of restricted ADSs		7.3									7.3
Parent common stock (ADSs) purchased		(14.4	)					(58.3	)		(72.7	)
Parent common stock(ADSs) /restricted stock issued		2.5						(2.5	)		—
Comprehensive income:
Net income								376.0			376.0
Minimum pension liability adjustment, net of tax					7.8						7.8
Amortization of deferred loss on hedge into interest expense					4.1						4.1
Total comprehensive income											387.9
Adjustment to initially apply FASB No. 158, net of tax					(9.4	)					(9.4	)
Balances December 30, 2006	$	2,556.3		$	(46.5	)	$	1,309.3		$	4,019.9

See notes to the consolidated financial statements.

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Notes to Consolidated Financial Statements

1. Summary of Significant Accounting Policies

Nature of Operations

As of December 30, 2006, Delhaize America, Inc. (“the Company”) operated 1,549 retail food supermarkets and 12 distribution centers in 16 states in the eastern United States. The Company’s stores, which are accounted for under Food Lion (including Harveys, Bloom and Bottom Dollar Food), Hannaford and Kash n’ Karry (including Sweetbay), sell a wide variety of groceries, produce, meats, dairy products, seafood, frozen foods and deli-bakery products, as well as non-food items, such as health and beauty care products, prescription medicines, and other household and personal products.

Principles of Consolidation

The Company is a wholly owned subsidiary of Delhaize Group SA, a foreign private issuer with American Depositary Shares listed on the New York Stock Exchange. The Company is structured as a holding company with several wholly owned retail operating subsidiaries. Delhaize America, Inc., the holding company, serves as the consolidating entity for all of the Company’s supermarket chains. The consolidated financial statements include the accounts of Delhaize America, Inc. and its wholly owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

Reclassification

Certain amounts in the prior years Consolidated Financial Statements have been reclassified to conform to the 2006 presentation. Such reclassifications had no effect on net income, total assets, total liabilities or shareholders’ equity. In addition, in accordance with SFAS No. 144, the results of operations of stores closed and classified as discontinued operations in the current year have been reclassified from continuing operations to discontinued operations in the prior year in order to reflect the current classification.

Operating Segment

The Company engages in one line of business, the operation of general food supermarkets located in the eastern United States. Each of its operating companies represents a separate operating segment as defined by SFAS No. 131, “Disclosures about Segments of Enterprise and Related Information,” which are aggregated into one reportable segment under the aggregation requirements of SFAS No. 131.

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Fiscal Year

The Company’s fiscal year ends on the Saturday nearest to December 31. Fiscal years 2006, 2005 and 2004 ended on December 30, 2006, December 31, 2005 and January 1, 2005, respectively. Reference to 2006, 2005 and 2004 represent the fiscal years ended December 30, 2006, December 31, 2005 and January 1, 2005, respectively. Fiscal years 2006, 2005 and 2004 were each 52 week years.

Use of Estimates in Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas of significant estimates include self-insurance reserves, inventory valuation, store closing reserves, liabilities for tax uncertainties and impairment of long-lived assets and goodwill.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Negative cash balances resulting from outstanding checks of $17.0 million and $7.7 million as of December 30, 2006 and December 31, 2005, respectively, have been reclassified to Accounts Payable on the Company’s Consolidated Balance Sheets. The Company classifies amounts due from banks for third party credit cards, debit card and electronic transactions as cash equivalents.

Receivables, net

Receivables, net of uncollectible reserves, principally include amounts due from suppliers, coupon-handling fees, returned customer checks, pharmacy insurance programs and sublease tenants. Uncollectible receivables are written off when identified.

The Company provides allowances for doubtful accounts equal to the estimated collection loss that may be incurred in the collection of all receivables. The estimated losses are based on collection experience. Allowance for doubtful accounts at December 30, 2006 and December 31, 2005, were $8.4 million and $6.1 million, respectively.

Inventories

Inventories are stated at the lower of cost (Last-in, First-out (“LIFO”), First-in, First-out (“FIFO”) and Average Cost) or market. Inventories valued using the LIFO method comprised approximately 74% of inventories for both 2006 and 2005, respectively. If the Company did not report under the LIFO method, inventories would have been $65.3 million and $52.8 million greater in 2006 and 2005, respectively. Application of the LIFO method resulted in an increase in cost of goods sold of $12.5 million, $12.4 million and $6.6 million for 2006, 2005 and 2004, respectively.

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The Company evaluates inventory shrinkage throughout the year based on actual physical counts in its stores and distribution centers and records adjustments based on the results of these counts applied to the total inventory to provide for the estimated shrinkage as of the balance sheet date. Shrinkage refers to the difference in the amount of inventory the Company initially records and the actual inventory on hand. The incidence of shrinkage primarily occurs in perishable items due to spoilage, breakage and other inventory losses.

Supplier Allowances

The Company receives allowances, credits and income from suppliers primarily for volume incentives, new product introductions, in-store promotions and co-operative advertising. Volume incentives are based on contractual arrangements generally covering a period of one year or less and have been included as a reduction in the cost of inventory as earned and recognized as a reduction in cost of sales when the product is sold. New product introduction allowances compensate the Company for costs incurred associated with product handling and have been deferred and recognized as a reduction in cost of sales over the product introductory period.

Non-refundable credits from suppliers for in-store promotions such as product displays require related activities by the Company. Similarly, co-operative advertising requires the Company to conduct the related advertising. In-store promotion and co-operative advertising income is recorded as a reduction in the cost of inventory as earned and recognized as a reduction in cost of sales when the product is sold unless the allowance represents the reimbursement of a specific, incremental and identifiable cost incurred by the Company to sell the vendor’s product. The Company has reviewed the funding received from vendors for in-store promotions and co-operative advertising and concluded that these arrangements are primarily for general advertising purposes and not the reimbursement of a specific, incremental and identifiable cost incurred by the Company.

Total supplier allowances recognized in cost of sales for 2006, 2005 and 2004 are shown below:

(Dollars in millions)	2006		2005		2004
Volume and other allowances	$	85.3	$	108.5	$	108.3
New product introduction and other allowances		147.6		142.4		136.9
Total supplier allowances recognized as a reduction in cost of goods sold	$	232.9	$	250.9	$	245.2

Supplier allowances that represented a reimbursement of advertising costs incurred by the Company were recognized as a reduction of advertising costs in selling and administrative expenses of $6.1 million, $5.4 million and $6.0 million in 2006, 2005 and 2004, respectively.

Property and Equipment

Property and equipment is stated at historical cost and depreciated and amortized on a straight-line basis over the estimated service lives of assets, generally as follows:

Buildings and building equipment	10 - 40 years
Furniture, fixtures and equipment	3 - 14 years
Vehicles	3 – 12 years
Leasehold improvements	10 - 20 years or remaining lease term, whichever is shorter
Property under capital leases and lease finance obligations	Lease term

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Leased buildings capitalized under SFAS No. 13, “Accounting for Leases” are recorded at the lesser of fair value or the discounted present value of future lease payments at the inception of the leases. Property under capital leases, lease finance obligations and leasehold improvements are amortized in accordance with the Company’s normal depreciation policy for owned assets or, if shorter, over the non-cancelable lease term and option renewal periods where failure to exercise such option would result in an economic penalty such that renewal appears to be reasonably assured.

Goodwill and Intangible Assets

Intangible assets primarily include goodwill, trademarks and favorable lease rights, all of which arose in conjunction with acquisitions accounted for under the purchase method. Favorable lease rights with finite lives are amortized on a straight-line basis over their estimated useful lives. The Company has determined that its trademarks have an indefinite useful life and are therefore not amortized but are tested annually for potential impairment. The Company believes that the trademarks have indefinite useful lives because they contribute directly to each operating banner cash flows as a result of recognition by the customers of each banner’s unique characteristics in the marketplace. There are no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of the trademarks (See Note 4 of the Company’s Consolidated Financial Statements).

The Company’s policy requires that an annual impairment assessment for goodwill and other indefinite lived intangible assets be conducted in the fourth quarter of each year or when events or circumstances indicate that impairment may have occurred in accordance with SFAS No. 142. Prior to 2006, goodwill was tested for impairment at the operating banner level since each banner represented a separate operating segment as defined by SFAS No. 131 and a separate reporting unit as defined by SFAS No. 142. The Company reorganized its reporting structure in 2006 such that Food Lion and Harveys are now evaluated as one reporting unit.

The Company performs impairment analysis by comparing the carrying value of each reporting unit to its current fair value. Fair value is estimated based on discounted cash flow projections provided by reporting unit management. When the carrying value of the reporting unit exceeds its fair value, the implied fair value of the reporting unit’s goodwill and other indefinite lived intangible assets is compared to the carrying amount of that goodwill. When the carrying amount of the goodwill and other indefinite lived intangible assets exceeds the implied fair value, an impairment loss is recorded. The Company had no impairment loss on goodwill and other indefinite lived intangible assets for 2006, 2005 and 2004.

Intangible assets also include internal-use software which is stated at cost less accumulated amortization and is amortized using the straight-line method

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over its estimated useful life. Software assets are reviewed for impairment when events or circumstances indicate that the carrying value may not be recoverable over the remaining lives of the assets. During the software application development stage, capitalized costs include external consulting costs, cost of software licenses, and internal payroll and payroll-related costs for employees who are directly associated with a software project. Upgrades and enhancements are capitalized if they result in added functionality which enables the software to perform tasks it was previously incapable of performing. Software maintenance, training, data conversion and business process reengineering costs are expensed in the period in which they are incurred.

The useful lives of intangible assets with finite lives are as follows:

Software	3-5 years
Prescription files	15 years
Favorable lease rights	Lease term

Asset Impairment

The Company follows SFAS No. 144, in reviewing long-lived assets for impairment.

During 2006, 2005 and 2004, the total pre-tax asset impairment charges of $1.7 million, $9.4 million and $10.3 million included in the Company’s selling and administrative expenses were attributable to certain underperforming store assets that exceeded their estimated fair values.

In accordance with SFAS No. 144, the Company periodically evaluates the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. The Company monitors the carrying value of each of its retail stores, its lowest level asset group for which identifiable cash flows are independent of other groups of assets and liabilities, for potential impairment based on projected future cash flows. If potential impairment is identified for a retail store, the Company compares the asset group’s estimated fair value to its current carrying value and records provisions for impairment as appropriate.

With respect to owned property and equipment associated with closed stores, the value of the property and equipment is adjusted to reflect recoverable values based on previous experience in disposing of similar assets and current economic conditions. The carrying value of assets to be disposed amounted to approximately $10.4 million and $8.9 million at December 30, 2006 and December 31, 2005, respectively. At December 30, 2006, in accordance with SFAS No. 144, these assets were not classified as held for sale because they did not meet the probability of sale within one year.

Income Taxes

Deferred tax liabilities or assets are established using statutory tax rates in effect at the balance sheet date for temporary differences between financial and tax reporting bases. Deferred tax assets and liabilities are subsequently adjusted to reflect changes in tax laws or rates in the period that includes the enactment date. Significant accounting judgment is required in determining the income taxes and related accruals, deferred tax assets and liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain.

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In addition, the Company is subject to periodic audits and examinations by tax authorities. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates.

Revenue Recognition

Revenues from the sale of products to the Company’s customers are recognized at the point of sale. Several of the Company’s banners offer loyalty cards to their customers. The discounts and incentives offered through these cards include price discounts from regular retail for specific items and “buy one, get one free” incentives. Sales are recorded at the net amount received from customers. Funding from suppliers for these discounts, if available, is recognized at the time the related products are sold and is recorded as a reduction of cost of sales. Discounts provided to customers from manufacturer coupons are recorded as revenue and as a receivable from the vendor’s authorized clearinghouse.

The Company’s accounting policy for the presentation of sales taxes is on a net basis.

Cost of Goods Sold

Purchases are recorded net of cash discounts, volume, new product introduction and other supplier discounts and vendor allowances. The primary components of cost of goods sold are warehousing and distribution costs.

Employee Benefits

A defined benefit plan is a benefit plan that defines an amount of benefits that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The defined benefit obligation is calculated regularly by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that have terms to maturity approximating the terms of the related pension liability.

Past service costs are recognized immediately in income unless the changes to the plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past service costs are amortized on a straight-line basis over the vesting period. Pension expense is included in cost of goods sold and in selling and administrative expenses.

A defined contribution plan is a pension plan under which the Company pays fixed contributions usually to a separate entity. The Company has no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Company makes contributions to defined contribution plans on a contractual and voluntary basis. The contributions are recognized as an employee benefit expense when they are due.

In September 2006, FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Retirement Plans – an amendment of FASB Statements No. 87, 88, 106 and 132(R)”. SFAS No. 158 requires employers to recognize the overfunded or underfunded status of a defined benefit post-

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retirement plan and/or a defined benefit plan as an asset or liability in its balance sheet, measured as the difference between the fair value of plan assets and the benefit obligation. In addition, SFAS No. 158 requires employers to recognize changes in that funded status in the year in which the changes occur through comprehensive income net of tax effects. The Company adopted SFAS No. 158 as of December 30, 2006 as required, which increased its pension liability and accumulated other comprehensive loss by $15.8 million, pretax. The impact of the adoption of SFAS No. 158 is fully described in Note 6.

Advertising Costs

Advertising costs are expensed as incurred and included in selling and administrative expenses.

The Company recorded advertising expense of $124.7 million, $116.5 million, and $101.0 million in 2006, 2005 and 2004, respectively.

Capitalized Interest

The Company capitalizes interest costs incurred during the time period required to prepare certain assets for their intended use. Capitalized interest was $3.3 million, $2.4 million and $2.0 million 2006, 2005 and 2004, respectively.

Leases

The Company’s stores operate principally in leased premises. The Company accounts for leases under the provisions of SFAS No. 13, “Accounting for Leases,” and related accounting guidance. For lease agreements that provide for escalating rent payments, the Company recognizes rent expense on a straight-line basis over the non-cancelable lease term and option renewal periods where failure to exercise such options would result in an economic penalty such that renewal appears, at the inception of the lease, to be reasonably assured. The lease term commences when the Company becomes obligated under the terms of the lease agreement.

Emerging Issues Task Force 97-10 (“EITF 97-10”) “The Effect of Lessee Involvement in Asset Construction,” is applied when the Company is involved in certain structural elements of the construction of stores that will be leased when construction is complete. EITF 97-10 requires the Company to be considered the owner, for accounting purposes, of these facilities. Accordingly, the Company records a construction in progress asset for these stores with offsetting lease finance obligations in the consolidated balance sheets. These leases typically do not qualify for sale-leaseback treatment in accordance with SFAS No. 98, “Accounting for Leases,” and as such, the Company continues to account for these leases as a lease financing obligation upon completion of store construction.

Store Opening Costs

Costs associated with the opening of new stores are expensed as incurred.

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Store Closing Costs

With the adoption of SFAS No.146, “Accounting for Costs Associated with Exit or Disposal Activities,” the Company records the costs associated with an exit or disposal activity at fair value when the liability is incurred. SFAS No. 146 stipulates that these costs may not be recorded until the store is actually closed. Prior to the adoption in 2003 of SFAS No. 146, the Company, under the guidance of EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring),” recorded an estimated store closing liability at the time the decision was made to close the store.

As most of the Company’s stores are located in leased facilities, a lease liability (recorded in Other Liabilities on the Consolidated Balance Sheet) is recorded for the fair value of the contractual lease obligation, generally determined as the present value of the estimated remaining non-cancelable lease payments after the closing date, net of estimated subtenant income. In addition, the Company records an exit cost liability for expenditures to be incurred after the store closing which is required under leases or local ordinances for site preservation. These 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 value of owned property and equipment related to a closed store is reduced to reflect recoverable values based on the Company’s previous experience in disposing of similar assets and current economic conditions. Any reductions in the recorded value of owned property and equipment for closed stores are reflected as an asset impairment charge. Disposition efforts related to store leases and owned property begin immediately following the store closing.

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

Significant cash outflows associated with closed stores relate to ongoing lease payments. Because the liability associated with ongoing operating leases for closed stores is recorded at the present value of the estimated remaining non-cancelable lease payments, net of estimated subtenant income, the principal portion of lease payments reduces the closed store liability, while the interest portion of lease payments is recorded as an accretion expense, which is included as part of selling and administrative expenses for stores accounted for under SFAS No. 146 since its adoption on December 29, 2002 and as interest expense for stores closed prior to December 28, 2002 which are accounted for under EITF Issue No. 94-3.

Self-insurance

The Company is self-insured for workers’ compensation, general liability, vehicle accident and druggist claims. Self-insurance liability is determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported. Maximum retention, including defense costs per occurrence, is

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(i) from $0.5 million to $1.0 million per accident for workers’ compensation, (ii) $5.0 million per accident for automobile liability and (iii) $3.0 million per accident for general liability, with an additional $2.0 million retention in excess of the primary $3.0 million general liability retention for druggist liability. The Company is insured for costs related to covered claims, including defense costs, in excess of these retentions.

The Company implemented a captive insurance program in 2001 pursuant to which the self-insured reserves related to workers’ compensation, general liability and automobile coverage were reinsured by Pride, an Irish reinsurance captive owned by an affiliated company of Delhaize Group SA. The purpose for implementing the captive insurance program was to provide Delhaize Group SA continuing flexibility in its risk management program while providing certain excess loss protection through anticipated reinsurance contracts with Pride. Premiums are transferred annually to Pride through Delhaize Insurance Co. (“DIC”), a subsidiary of Delhaize America. For 2006, 2005 and 2004, the Company paid an annual premium of approximately $57.9 million, $55.8 million and $52.5 million, respectively. Prior to January 1, 2006, 100% of the risk was reinsured by Pride. Beginning on January 1, 2006, Pride reinsures 90% of the risk and the remaining 10% is retained by DIC. DIC had the following balances and is included in the Company’s Consolidated Balance Sheets:

(Dollars in millions)	2006			2005
Cash and cash equivalents	$	7.7		$	0.8
Reinsurance recoverable		145.6			147.2
Receivable from affiliate		12.5			10.8
Other assets		0.3			—
Reserve for losses		(150.4	)		(147.2	)
Losses payable to insured		(12.7	)		(10.8	)
Other liabilities		(1.2	)		(0.2	)
Total net assets	$	1.8		$	0.6

The Company’s property insurance includes self-insured retentions per occurrence of (i) $15.0 million for named windstorms, (ii) $5.0 million for Zone A flood losses and (iii) $2.5 million for all other losses. The Company incurred property losses of $1.3 million, $1.8 million and $11.4 million for hurricanes experienced during 2006, 2005 and 2004, respectively. In 2004, the Company also received insurance reimbursement of $4.0 million related to Hurricane Isabel.

Self-insurance expense related to the captive insurance program and other workers’ compensation costs totaled $64.3 million for 2006, $64.0 million for 2005, and $57.1 million for 2004. Total claim payments were $47.9 million, $44.5 million, and $46.8 million for 2006, 2005 and 2004, respectively.

The Company is also self-insured for health care, which includes medical, pharmacy, dental and short-term disability. The self-insurance liability for claims incurred but not yet reported (“IBNR”) is estimated quarterly by management based on available information and takes into consideration actuarial evaluations determined annually based on historical claims experience, claims processing procedures and medical cost trends. Self-insurance expense totaled $130.4 million for 2006, $116.7 million for 2005, and $104.3 million for 2004.

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Statements of Cash Flows

Selected cash payments and non-cash activities were as follows:

(Dollars in millions)	2006		2005		2004
Cash payments for income taxes, net of refunds	$	284.5	$	224.4	$	108.6
Cash payments for interest, net of amounts capitalized		300.7		306.6		310.8
Non-cash investing and financing activities:
Capitalized lease and lease finance obligations incurred for store properties and equipment		60.4		60.4		90.0
Capitalized lease and lease finance obligations terminated for store properties and equipment		1.5		5.5		1.1
Change in construction in progress accruals		13.0		24.3		—
Dividends declared but not paid		—		—		25.0
Reduction of income taxes payable and goodwill for tax adjustments		5.9		3.3		8.8

Fair Value of Financial Instruments

Accounting principles generally accepted in the United States require the disclosure of the fair value of certain financial instruments where estimates of fair value are practicable. Significant judgment is required to develop estimates of fair value. Estimates presented are not necessarily indicative of the amounts that the Company could realize in a current market exchange. Fair values stated are as of year-end and may differ significantly from future estimates.

Cash and cash equivalents and short-term borrowings: The carrying amount of these items approximate fair value.

Long-term debt: The Company estimated that the fair value of its long-term debt was approximately $2.6 billion and $3.1 billion compared with a carrying value of $2.3 billion and $2.9 billion at December 30, 2006 and December 31, 2005, respectively. The fair value of the Company’s long-term debt is based on the current market quotes for its publicly traded debt and estimated rates for its non-public debt, reflecting current market rates offered to the Company for debt with similar maturities.

Financial instruments: The fair values of interest rate swap agreements (see Note 7 of the Company’s Consolidated Financial Statements) are estimated using the present value of the difference between the contracted rates and the applicable forward rates. At December 30, 2006 and December 31, 2005, the fair value of the interest rate swap agreements was $2.5 million (derivative liability) and $1.7 million (derivative liability), respectively.

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Accounting for Stock Based Compensation

Prior to January 2, 2005, the Company accounted for the Delhaize Group 2002 Stock Incentive Plan, the 1996 Food Lion Plan, the 1988 and 1998 Hannaford Plans and the 2000 Delhaize America Plan under the recognition and measurement principles of Accounting Principles Board, or APB, Opinion No. 25, “Accounting for Stock Issued to Employees”(“APB No. 25”). No compensation cost was recognized in the income statement for stock options prior to 2005, as all options granted had an exercise price equal to the market value of the underlying Delhaize Group SA ADSs on the date of grant. Historically, for purposes of the disclosures required by the original provisions of SFAS No. 123, the straight-line method was used to allocate the option valuation amounts evenly over their respective vesting schedules. Stock options generally vest over three years. Vested stock options are exercisable in full at anytime prior to the expiration date of ten years from the date of the grant.

The Company elected to early adopt SFAS No. 123R in the first quarter of 2005 using the modified prospective method. SFAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements as compensation cost based on the fair value of such awards using option pricing models such as the Black-Scholes-Merton option pricing model. The Company uses the Black-Scholes-Merton option pricing model to fair value its options. This model incorporates certain assumptions, such as risk-free interest rate, expected volatility, expected dividend yield and expected life of options, in order to arrive at a fair value estimate. The Company recognizes the cost of all share-based awards on a graded method over the vesting period of the awards prospectively beginning with 2005 stock compensation grants.

The Company’s income from continuing operations before income tax and net income for 2006 and 2005 would have been increased by $21.3 million and $17.7 million and $20.9 million and $19.3 million, respectively, if it had continued to account for stock option under APB No. 25. Prior to the adoption of SFAS No. 123R, the Company presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. Beginning on January 1, 2005 the Company changed its cash flow presentation in accordance with SFAS No. 123R which requires the cash flows of the realized tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. The $20.3 million and the $10.3 million excess tax benefit classified as a financing cash inflow in 2006 and 2005, respectively would have been classified as an operating cash inflow if the Company had not adopted SFAS No. 123R.

In November 2005, the FASB issued Staff Position (FSP) No. FAS 123R-3 “Transition Election to Accounting for the Tax Effects of Share-Based Payment Awards”. This FSP provides a practical transition election related to accounting for the tax effects of share-based payment awards to employees. In connection with the adoption of FSP SFAS No. 123R, the Company has elected to calculate its pool of excess tax benefits under the alternative or “short-cut” method. At adoption, the Company has no pool of benefits. This pool may increase in future periods if tax benefits realized are in excess of those based on grant date fair values of share-based payments and is available to absorb future tax deficiencies determined for financial reporting purposes under provisions of SFAS No. 123R.

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The following table illustrates the effect on net income if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock option compensation for 2004. For purposes of this pro forma disclosure, the value of the options is amortized to expense on a straight-line basis over a three-year vesting period and forfeitures are recognized as they occur:

(Dollars in millions)	2004
Net income—as reported	$	254.1
Total stock-based employee compensation expense determined using fair value based method (net of tax)		(12.9	)
Net income—pro forma	$	241.2

The fair value of stock options is determined using the Black-Scholes-Merton valuation model, which is consistent with the Company’s valuation techniques previously utilized for options in disclosures required under SFAS No. 123. The weighted average fair value at date of grant for options granted under the Delhaize Group 2002 Stock Incentive Plan during the years 2006, 2005, and 2004 was $14.36, $18.28 and $15.15, respectively. No options were issued under the 1996 Food Lion Plan, the 1988 and 1998 Hannaford Plans or the 2000 Delhaize America Plan during 2006, 2005 and 2004, respectively. Based on the guidance in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107 (SAB 107), “Share-Based Payment”, the Company reassessed the expected volatility assumptions as of the grant date for stock options granted during 2006. Prior to 2006, the Company used historical volatility to estimate the grant date fair value of stock options. The Company changed its method of estimating expected volatility for all stock options granted after January 1, 2006 to exclude a period of abnormal volatility (July 2002 to July 2003) that is not representative of future expected stock price behavior and is not expected to recur during the expected or contractual term of the options. The Company believes that this change results in a more accurate estimate of the grant date fair value of employee stock options. Using historical volatility, and excluding a period of abnormal volatility, to value the stock options granted in 2006 resulted in a decrease to the total grant date fair value of approximately $5.2 million (total fair value of the stock options granted in 2006 was approximately $19.0 million).

The fair value of options at date of grant was estimated using the Black-Scholes-Merton model based on the following assumptions:

	2006	2005	2004
Expected dividend yield (%)	2.5	2.3	2.6
Expected volatility (%)	27.2	39.7	41.0
Risk-free interest rate (%)	5.0	3.7	3.9
Expected term (years) from grant date	4.0	4.1	4.7

The expected dividend yield is calculated by dividing the Delhaize Group SA ordinary share annual dividend by the share price at the date of grant for options; expected volatility for 2006 is based on historical volatility over the expected term (excluding a period of abnormal volatility) and expected volatility for 2005 and 2004 represents a five-year historical volatility; the risk-free rate is based on the U.S. treasury yield curve in effect at the

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time of grant for periods corresponding with the expected life of the option; and the expected term is based on observed exercise history since 2002 and the expected exercise activity through maturity of the option grant.

Recently Issued Accounting Standards

In July 2006, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes– an interpretation of FASB Statement No. 109. FIN 48 provides guidance for the recognition, derecognition and measurement in financial statements of tax positions taken in previously filed tax returns or tax positions expected to be taken in tax returns. FIN 48 requires an entity to recognize the financial statement benefit of a tax position when it is more likely than not that the position will be sustained upon examination. If the tax position meets the more-likely-than-not recognition threshold, the tax effect is recognized at the largest amount of the benefit that is greater than fifty percent likely of being realized upon ultimate settlement. FIN 48 requires that a liability established for unrecognized tax benefits must be presented as a liability and not combined with deferred tax liabilities or assets. The application of FIN 48 may also affect the tax basis of assets and liabilities and therefore may change or create deferred tax liabilities or assets. FIN 48 permits an entity to recognize interest related to tax uncertainties as either income taxes or interest expense. FIN 48 also permits an entity to recognize penalties related to tax uncertainties as either income tax expense or within other expense classifications. The Company has historically recognized interest and penalties, if any, related to tax uncertainties as income tax expense and expects to continue this treatment upon adoption of FIN 48. The Company will be required to adopt FIN 48 as of December 31, 2006 (which will impact the Company’s fiscal year 2007), with any cumulative effect of the change in accounting principles recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of its adoption of FIN 48 and has not yet determined the effect on its earnings or financial position.

In September 2006, FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS No. 157 is applicable to other accounting pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is in the process of evaluating the impact that the adoption of SFAS No. 157 will have on its financial statements.

In September 2006, the SEC released Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 provides guidance on how the effects of prior-year uncorrected financial statement misstatements should be considered in quantifying a current year misstatement. SAB 108 requires registrants to quantify misstatements using both an income statement (“rollover”) and balance sheet (“iron curtain”) approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered. If prior

47

years are not restated, the cumulative effect adjustment is recorded in opening accumulated earnings as of the beginning of the fiscal year of adoption. SAB 108 is effective for fiscal years ending on or after November 15, 2006. SAB 108 did not have any impact to the Company’s financial statements because the Company has used both the “iron curtain” and “rollover” approaches when quantifying misstatement amounts.

In February 2007, FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115”. Under SFAS No. 159, the Company will be permitted to measure financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis (the fair value option). SFAS No. 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is in the process of evaluating the impact that the adoption of SFAS No. 159 will have on its financial statements.

2. Acquisition

Victory Acquisition

On November 26, 2004, the Company completed its acquisition of 19 Victory Super Markets (“Victory”) for approximately $178.8 million. The acquisition included 17 stores located in central and southeastern Massachusetts and two in southern New Hampshire. The Company’s Consolidated Statement of Income included the results of operation of Victory prospectively from November 27, 2004.

Additional direct costs incurred in connection with the acquisition, principally legal and other professional fees, in the amount of $2.0 million have been included in the purchase price.

The Victory acquisition purchase price was allocated to acquired assets and liabilities, based on their estimated fair values at the date of acquisition.

The purchase price was allocated as follows:

(Dollars in millions)
Current assets (excluding cash acquired)	$	22.1
Property and equipment		18.2
Goodwill		163.1
Other non-current assets		0.1
Current liabilities		(24.7	)
Purchase price	$	178.8

3. Property and Equipment

Property and equipment consists of the following:

(Dollars in millions)	2006		2005
Land and improvements	$	306.7	$	299.3
Buildings		840.5		776.4
Furniture, fixtures and equipment		2,220.0		2,105.4
Vehicles		172.3		162.2
Leasehold improvements		1,276.1		1,103.3
Construction in progress		105.7		70.1
		4,921.3		4,516.7
Less accumulated depreciation		2,250.3		2,060.2
		2,671.0		2,456.5
Property under capital leases and lease finance obligations		901.7		844.0
Less accumulated amortization		286.4		231.1
		615.3		612.9
	$	3,286.3	$	3,069.4

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Depreciation and amortization expense totaled $436.1 million for 2006, $414.1 million for 2005, and $414.4 million for 2004. Depreciation and amortization expense of $40.8 million, $39.0 million, and $37.5 million is included in cost of goods sold for 2006, 2005, and 2004, respectively. Depreciation and amortization expense of $395.3 million, $375.1 million, and $376.9 million is included in selling and administrative expenses for 2006, 2005 and 2004, respectively.

4. Goodwill and Intangible Assets

Goodwill and intangible assets are comprised of the following:

(Dollars in millions)	2006		2005
Goodwill	$	3,071.5	$	3,074.0
Trademarks		476.9		476.9
Favorable lease rights		331.0		353.2
Prescription files		19.9		18.9
Liquor licenses		5.3		4.3
Software		175.2		134.6
Other		32.4		28.5
		4,112.2		4,090.4
Less accumulated amortization		283.7		245.0
	$	3,828.5	$	3,845.4

Amortization expense totaled $58.2 million for 2006, $59.6 million for 2005, and $53.8 million for 2004. Amortization expense is included in selling and administrative expenses.

The following represents a summary of changes in goodwill for the years 2006 and 2005.

(Dollars in millions)	2006			2005
Balance at beginning of year	$	3,074.0		$	3,049.6
Acquisitions and adjustments to initial purchase accounting		3.4			27.7
Reduction of goodwill		(5.9	)		(3.3	)
Balance at end of year	$	3,071.5		$	3,074.0

The carrying amount of goodwill and trademarks (indefinite lived intangible assets) at each of the Company’s reporting units follows:

	2006				2005
(Dollars in millions)	Goodwill		Trademarks		Goodwill		Trademarks
Food Lion(including Harveys)	$	1,154.1	$	254.1	$	1,151.0	$	254.1
Hannaford		1,917.4		222.8		1,923.0		222.8
	$	3,071.5	$	476.9	$	3,074.0	$	476.9

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As of December 30, 2006 and December 31, 2005, the Company’s intangible assets with finite lives consist primarily of favorable lease rights and other intangibles consisting of prescription files, liquor licenses, and software. The components of its intangible assets with finite lives are as follows:

	2006							2005
(Dollars in millions)	Gross Carrying Value		Accumulated Amortization			Net		Gross Carrying Value		Accumulated Amortization			Net
Favorable lease rights	$	331.0	$	(175.5	)	$	155.5	$	353.2	$	(166.2	)	$	187.0
Other		232.8		(108.2	)		124.6		186.3		(78.8	)		107.5
Total	$	563.8	$	(283.7	)	$	280.1	$	539.5	$	(245.0	)	$	294.5

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

(Dollars in millions)
2007	$	53.9
2008		44.3
2009		34.2
2010		28.4
2011		19.1

5. Accrued Expenses

Accrued expenses consist of the following:

(Dollars in millions)	2006		2005
Payroll and compensated absences	$	161.7	$	145.7
Employee benefit plans		13.5		29.1
Accrued interest		39.3		47.8
Other		52.7		48.5
	$	267.2	$	271.1

6. Employee Benefits

The Company’s employees are covered by certain benefit plans, as described below.

Defined Contribution Plans

The Company sponsors profit-sharing retirement plans covering employees of the Company, Food Lion (including Bloom and Bottom Dollar Food) and Kash n’ Karry (including Sweetbay) with one or more years of service. Employees become vested in any profit-sharing contributions made by their respective

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employers after five years of consecutive service. Forfeitures of profit-sharing contributions may be used to offset plan expenses. Profit-sharing contributions to the retirement plans are discretionary and determined by the Company. The profit-sharing plans include a 401(k) feature that permits plan participants to make elective deferrals of their compensation and allows these companies to make matching contributions. Hannaford and Harveys also provide defined contribution 401(k) plans including employer-matching provisions to employees. These defined contribution plans provide benefits to participants upon death, retirement or termination of employment with these companies. The expense (net of forfeitures) related to the defined contribution retirement plans of the Company was $32.2 million in 2006, $45.0 million in 2005, and $40.8 million in 2004.

Defined Benefit Plans

Pension Plans. The Company has a defined benefit pension plan (funded plan) covering approximately 50% of Hannaford employees and supplemental executive retirement plans (unfunded plan) covering certain executives. Benefits generally are based on average earnings, years of service and age at retirement. The plans are in compliance with legal requirements and tax regulations.

Post-Retirement Plans. Hannaford and Kash n’ Karry (including Sweetbay) provide certain health care and life insurance benefits for retired employees (“post-retirement benefits”). Substantially all Hannaford employees and certain Kash n’ Karry (including Sweetbay) employees may become eligible for these benefits. The post-retirement health care plan is contributory for most participants with retiree contributions adjusted annually.

In 2005, the Company changed the measurement date for its pension and post-retirement benefit plans from September 30 to December 31. The Company believes the change in measurement date is a preferable change as it better reflects the pension balances at the balance sheet date and conforms to the measurement date required to be used in the consolidated financial statements of the Company’s parent company, Delhaize Group SA. The change did not have a material effect on retained earnings as of January 1, 2005 or on income from continuing operations before income taxes and net income for any interim period in 2005 or in 2004. Amounts reported in the tables for 2006 and 2005 are based on a measurement date of December 31. Amounts reported in the tables for 2004 are based on a measurement date of September 30, 2004.

As disclosed in Note 1 of Notes to Consolidated Financial Statements, the Company adopted SFAS No. 158 effective December 30, 2006. The following table summarizes the incremental effect of the adoption of SFAS No. 158 on individual line items in the Consolidated Balance Sheet at December 30, 2006:

(Dollars in millions)	Prior to SFAS No. 158 Adoption			Impact of SFAS No. 158 Adoption- Increase (Decrease)			After SFAS No. 158 Adoption
Other current liabilities	$	122.4		$	(8.3	)	$	114.1
Total current liabilities	$	1,630.9		$	(8.3	)	$	1,622.6
Other liabilities, net	$	298.9		$	23.9		$	322.8
Deferred income taxes, net		162.5			(6.2	)		156.3
Total liabilities	$	4,942.5		$	9.4		$	4,951.9
Accumulated other comprehensive loss, net of tax	$	(37.1	)	$	(9.4	)	$	(46.5	)
Total shareholders’ equity	$	4,029.3		$	(9.4	)	$	4,019.9

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The following tables set forth the funded status of the defined benefit pension and post-retirement plans, and amounts recognized in the Consolidated Balance Sheet. As disclosed above, SFAS No. 158, adopted by the Company effective December 30, 2006, requires the recognition of the overfunded or underfunded status of a defined benefit and post-retirement plans as an asset or liability in the balance sheet, with changes in the funded status recorded through other comprehensive income. Accordingly, the amounts presented in the table below for 2006 and 2005 utilize different accounting methodologies. The related value of the plans’ assets is determined using the fair market value.

	Pension Plans						Post- retirement Plans
(Dollars in millions)	2006			2005			2006			2005
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year	$	141.0		$	126.5		$	8.0		$	9.4
Service cost		9.9			8.2			—			0.1
Interest cost		7.6			7.2			0.4			0.5
Plan change		—			0.5			(1.1	)		(1.1	)
Plan participants’ contributions		—			—			0.5			0.7
Actuarial (gain) loss		(6.5	)		9.0			(0.7	)		(0.3	)
Benefits paid		(9.5	)		(10.4	)		(1.2	)		(1.3	)
Benefit obligation at end of year	$	142.5		$	141.0		$	5.9		$	8.0
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year	$	96.7		$	83.0		$	—		$	—
Actual return on plan assets		12.6			12.4			—			—
Employer contributions		12.1			11.7			0.7			0.6
Plan participants’ contributions		—			—			0.5			0.7
Benefits paid		(9.5	)		(10.4	)		(1.2	)		(1.3	)
Fair value of plan assets at end of year	$	111.9		$	96.7		$	—		$	—
Unfunded status/Accrued benefit cost at end of year	$	(30.6	)	$	(44.3	)	$	(5.9	)	$	(8.0	)
Unrecognized prior service cost		*			0.9			*			(1.1	)
Unrecognized net actuarial loss		*			41.2			*			3.4
Additional pension liability		*			(25.6	)		*			—
Accrued benefit cost at end of year	$	(30.6	)		(27.8	)	$	(5.9	)		(5.7	)

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AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET
Other current liabilities	$	(0.2	)		(8.8	)	$	(0.4	)		—
Other liabilities		(30.4	)		(19.0	)		(5.5	)		(5.7	)
Net amount recognized	$	(30.6	)	$	(27.8	)	$	(5.9	)	$	(5.7	)

WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE BENEFIT OBLIGATIONS AS OF MEASUREMENT DATE:
Discount rate	5.8%	5.5%	5.8%	5.5%
Rate of compensation increase	4.5% to 5.5%	4.5% to 5.5%	—	—
Health care claim cost trend rate assumed for next year	—	—	9.0%	10.0%
Ultimate health care claim cost trend rate	—	—	5.0%	5.0%
Year that ultimate health care claim cost trend rate is achieved	—	—	2012	2012

* The adoption of SFAS No.158 resulted in recognition of previously unrecognized net prior service cost and actuarial loss on the Consolidated Balance Sheet. The liability is recognized through an adjustment to other comprehensive income.

The amounts recognized in accumulated other comprehensive loss as of December 30, 2006 and December 31, 2005 are as follows:

	2006 Pension Plans		2005 Pension Plans		2006 Post-retirement Plans			2005 Post-retirement Plans
Prior service cost	$	0.7	$	—	$	(2.1	)	$	—
Net actuarial loss		27.3		—		2.4			—
Additional pension liability		—		25.6		—			—
Total	$	28.0	$	25.6	$	0.3		$	—

The amounts in accumulated other comprehensive loss as of December 30, 2006, that are expected to be recognized as components of net periodic benefit cost (credit) during 2007 are as follows:

	Pension Plans		Post-retirement Plans
Prior service cost	$	0.1	$	(0.3	)
Net actuarial loss		1.0		0.2
Total	$	1.1	$	(0.1	)

The net periodic cost (benefit) related to the defined benefit pension plans included the following components:

	Pension Plans									Post-retirement Plans
	2006			2005			2004			2006			2005		2004
COMPONENTS OF NET PERIODIC BENEFIT COSTS:
Service cost	$	9.9		$	8.2		$	7.2		$	—		$	0.1	$	—
Interest expense		7.6			7.2			6.9			0.4			0.5		0.4
Prior service cost amortization		—			—			—			(0.1	)		—		—
Expected return on plan assets		(7.2	)		(6.5	)		(5.8	)		—			—		—
Amortization of prior service cost		0.1			0.1			0.1			—			—		—
Recognized net actuarial loss		2.0			2.1			2.4			—			—		—
Net loss/(gain) amortization		—			—			—			0.2			0.2		0.2
Net periodic benefit cost	$	12.4		$	11.1		$	10.8		$	0.5		$	0.8	$	0.6

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	2006	2005	2004
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE NET PERIODIC BENEFIT COST FOR PENSION BY YEAR:
Discount rate	5.5% to 5.8%	5.5% to 5.8%	6.0% to 6.3%
Expected return on plan assets	7.8%	7.8%	7.8%
Rate of compensation increase	4.5% to 5.5%	4.5% to 5.5%	4.5% to 5.5%
	2006	2005	2004
WEIGHTED-AVERAGE ASSUMPTIONS USED TO DETERMINE NET PERIODIC BENEFIT COST FOR OTHER POST-RETIREMENT BY YEAR:
Discount rate	5.5% to 5.6%	5.8%	6.0%
Health care claim cost trend rate	9.0% to 10.0%	11.0%	11.0%
Ultimate health care claim cost trend rate	5.0%	5.0%	5.0%
Year that ultimate trend rate is reached	2012	2012	2011

A 1.0% change in the assumed health care trend rates would not have a material effect on the benefit obligation or expense of post-retirement benefits.

Prior to the fiscal year ended December 30, 2006, a minimum pension liability adjustment was required when the actuarial present value of accumulated benefits exceeds plan assets and accrued pension liabilities. The projected benefit obligation and accumulated benefit obligation for the pension plans with accumulated benefit obligations in excess of plan assets were $141.0 million and $119.6 million at December 31, 2005, respectively.

The Company’s investment policy is to maintain a targeted balance of equity securities, debt securities and cash equivalent in its portfolio. The portfolio is re-balanced periodically throughout the year. As of the plan’s measurement date, actual and targeted investment allocation percentages were as follows:

	Target		Actual as of December 30, 2006		Actual as of December 31, 2005
Equities	60-70	%	73.3	%	72.1	%
Debt	20-30	%	23.0	%	25.7	%
Cash equivalents	0-10	%	3.7	%	2.2	%

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The current sponsor funding policy has been generally to contribute the minimum required contribution and additional deductible amounts at the sponsor’s discretion. In 2007, the Company expects to make pension contributions, including voluntary amounts, of up to $10.0 million under this policy. Contributions of $12.1 million were made during 2006 under this policy.

Benefit payments are paid from plan assets or directly by the Company for the Company’s nonfunded plans. Expected benefit payments to be made during the next ten years are as follows:

(Dollars in millions)	Pension Plans		Post-retirement Plans
2007	$	8.1	$	0.5
2008		8.2		0.5
2009		8.6		0.5
2010		8.3		0.5
2011		7.5		0.5
2012 through 2016		42.7		2.5

7. Long-Term Debt

Long-term debt consists of the following:

(Dollars in millions)	2006		2005
Notes, $563.5 face amount at 7.375%, due 2006 (plus premium of $0.1 for 2005, based on an effective interest rate of 7.16% for 2005)	$	—	$	563.6
Notes, $145.0 face amount at 7.55%, due 2007 (less unamortized discount of $0.1 for 2005, based on an effective interest rate of 7.71%)		145.0		144.9
Notes, $1,100.0 face amount at 8.125%, due 2011 (less unamortized discount of $4.0 and $3.9 for 2006 and 2005, respectively, based on effective interest rate of 8.22% and 8.20% for 2006 and 2005, respectively)		1,096.0		1,096.1
Notes, $126.0 face amount at 8.05%, due 2027 (less unamortized discount of $4.0 and $4.2 for 2006 and 2005, respectively, based on an effective interest rate of 8.77%)		122.0		121.8

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Debentures, 9.000%, due 2031		855.0		855.0
Medium-term notes, $5.0 face amount due 2006. Interest ranges from 8.67% to 8.73%		—		5.0
Other notes, $41.6 and $53.4 face amount, for 2006 and 2005, respectively, due from 2007 to 2016. Interest ranges from 6.31% to 7.41% (less unamortized discount of $2.0 and $2.7 for 2006 and 2005, respectively, based on an effective interest rate of 8.91% and 8.90% for 2006 and 2005, respectively)		39.6		50.7
Mortgage payables, $7.2 and $8.7 face amount, for 2006 and 2005, respectively, due from 2007 to 2016. Interest ranges from 7.55% to 8.65% (less unamortized discount of $0.2 and $0.3 based on an effective interest rate of 9.01% and 9.0% for 2006 and 2005, respectively)		7.0		8.4
Other debt, $14.7 and $15.5 face amount for 2006 and 2005, respectively, due from 2007 to 2013. Interest ranges from 7.25% to 14.15% (plus unamortized premium of $0.1 and $0.2 based on an effective interest rate of 8.83% and 8.80% for 2006 and 2005, respectively)		14.8		15.7
	$	2,279.4	$	2,861.2
Less current portion		170.7		581.3
	$	2,108.7	$	2,279.9

At December 30, 2006 and December 31, 2005, property having a net book value of $14.6 million and $15.2 million was pledged as collateral for mortgage payables.

Approximate maturities of long-term debt in the years 2007 through 2011 are $170.7 million, $12.3 million, $6.1 million, $2.2 million and $1.1 billion, respectively.

On April 17, 2006, the Company repaid $563.5 million of 7.375% notes in full.

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In 2004, the Company repurchased $36.5 million of its $600 million 7.375% notes, $5.0 million of its $150 million 7.55% notes, $7.9 million of other notes and $3.0 million of its mortgage payables. These repurchases resulted in a $4.7 million loss from the early extinguishment of debt, a $0.2 million loss for the related hedge write-off, offset by a gain of $0.4 million from the interest rate swap, net premium write-off and related unamortized debt issuance costs. These costs are classified in the Company’s Consolidated Statement of Income for 2004 as “Net loss from extinguishment of debt.”

In 2003, Hannaford invoked the defeasance provisions of its outstanding, 8.54% Senior Notes due November 15, 2004, 6.50% Senior Notes due May 15, 2008, 6.31% Senior Notes due May 15, 2008, 7.41% Senior Notes due February 15, 2009, 6.58% Senior Notes due February 15, 2011, and 7.06% Senior Notes due May 15, 2016 (collectively, the “Notes”) and placed sufficient funds in an escrow account to satisfy the remaining principal and interest payments due on the Notes. As a result of this defeasance, Hannaford is no longer subject to the negative covenants contained in the agreements governing these Notes. As of December 30, 2006 and December 31, 2005, $41.6 million and $53.4 million in aggregate principal amount of these Notes were outstanding. Cash committed to fund the escrow and not available for general corporate purposes, is considered restricted. As of December 30, 2006 restricted funds of $12.7 million and $32.5 million are recorded in Current Other Assets and Non-current Other Assets, respectively. As of December 31, 2005 restricted funds of $12.9 million and $45.9 million are recorded in Current Other Assets and Non-current Other Assets, respectively.

The Company maintains interest rate swaps against certain debt obligations, effectively converting a portion of the debt from fixed to variable rates. The notional principal amounts of interest rate swap arrangements as of December 30, 2006 were $100 million maturing in 2011. Maturity dates of interest rate swap arrangements match those of the underlying debt. These agreements involve the exchange of fixed rate payments for variable rate payments without the exchange of the underlying principal amounts. Variable rates for the Company’s agreements are based on six-month or three-month U.S. dollar LIBOR and are reset on a semiannual basis or a quarterly basis. The differential between fixed and variable rates to be paid or received is accrued as interest rates change in accordance with the agreements and recognized over the life of the agreements as an adjustment to interest expense. The $100 million notional swaps maturing in 2011 meet the criteria for using the short-cut method, which assumes 100% hedge effectiveness, as prescribed by SFAS No. 133, “Derivative Instruments and Hedging Activities.”

During the fourth quarter of 2004, in association with the retirement of $36.5 million of its $600 million 7.375% notes, the Company de-designated the $300 million notional interest rate swaps as a fair value hedge of 50% of the $600 million 2006 notes, and re-designated them as a fair value hedge of approximately 53% of the remaining $563.5 million 2006 notes. These swaps were unwound with pay-off of the debt of $563.5 million in April 2006. The Company recorded a derivative in connection with these agreements in its Consolidated Balance Sheets in the amount of $2.5 million (derivative liability) at December 30, 2006 and $1.7 million (derivative liability) at December 31, 2005 in Non-current Other Liabilities.

The Company settled certain interest rate hedge agreements in connection with the completion of an offering of notes in 2001, resulting in an unrealized loss of approximately $214 million. As a result of the adoption of SFAS No. 133, the unrealized loss was recorded in “Accumulated Other Comprehensive

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Loss, Net of Tax,” and is being amortized to “Interest Expense” over the term of the associated notes. The unrealized loss, net of taxes, at December 30, 2006 and December 31, 2005 was $29.6 million and $33.7 million, respectively.

8. Credit Arrangements

The Company has a $500 million unsecured revolving credit agreement (the “Credit Agreement”) with a syndicate of commercial banks. The Credit Agreement provides for a $500 million five-year unsecured revolving credit facility, with a $100 million sublimit for the issuance of letters of credit, and a $35 million sublimit for swingline loans. Upon the Company’s election, the aggregate maximum principal amount available under the Credit Agreement may be increased to an aggregate amount not exceeding $650 million. Funds are available under the Credit Agreement for general corporate purposes. The Credit Agreement will mature in April 2010, unless the Company exercises its option to extend it for up to two additional years. The Company had $120.0 million in outstanding borrowings under the Credit Agreement as of December 30, 2006 and had no outstanding borrowings as of December 31, 2005. Under this facility, the Company had average daily borrowings of $30.9 million during 2006 and no borrowings during 2005. However, approximately $46.7 million and $57.0 million of the Credit Agreement was used to fund letters of credit during 2006 and 2005, respectively.

The Credit Agreement contains affirmative and negative covenants. Negative covenants include a minimum fixed charge coverage ratio, a maximum leverage ratio and a dividend restriction test. The Company must comply with all covenants in order to have access to funds under the Credit Agreement. As of December 30, 2006, the Company was in compliance with all covenants contained in the Credit Agreement. A deteriorating economic or operating environment may subject the Company to a risk of non-compliance with the covenants.

In addition, the Company has periodic short-term borrowings under other arrangements that are available to them at the lenders’ discretion. As of December 30, 2006, the Company had borrowings of $14.0 million outstanding under these arrangements. There were no outstanding borrowings under these arrangements at December 31, 2005.

9. Leases

The Company’s stores operate principally in leased premises. Typically, lease agreements provide for initial terms of 20 and 25 years, with renewal options ranging from five to 20 years. Leases for open stores have average remaining terms of nine to 20 years. The average remaining lease term for closed stores is 5.4 years. The following schedule shows, as of December 30, 2006 the future minimum lease payments under capital lease and lease finance obligations, operating leases and leases for closed stores.

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	Open Stores
(Dollars in millions)	Capital/ Finance Leases		Operating Leases		Closed Stores
2007	$	146.3	$	216.8	$	27.4
2008		145.2		202.7		25.9
2009		142.4		186.6		23.2
2010		134.4		174.6		19.2
2011		125.7		164.7		15.5
Thereafter		935.4		1,110.9		77.1
Total minimum payments		1,629.4	$	2,056.3	$	188.3
Less estimated executory costs		20.9
Net minimum lease payments		1,608.5
Less amount representing interest		818.6
Present value of net minimum lease payments		789.9
Less current portion		48.4
Capital lease and lease finance obligations	$	741.5

Future minimum payments for closed stores have not been reduced by estimated minimum sublease income of $70.7 million due over the term of non-cancelable subleases.

The Company recognizes rent expense for operating leases with step rent provisions on a straight-line basis generally over the minimum lease term.

Total rent payments (net of sublease income) under operating leases are as follows:

(Dollars in millions)	2006		2005		2004
Minimum rents	$	239.9	$	247.5	$	241.8
Contingent rents, based on sales		1.1		1.2		0.7
	$	241.0	$	248.7	$	242.5

In addition, the Company has signed lease agreements for additional store facilities, the construction of which had not been completed by the lessor at December 30, 2006. These leases expire on various dates extending to 2026 with renewal options generally ranging from five to 20 years. Upon completion of lessor requirements under these agreements, the total future minimum rents under these agreements will be approximately $410.5 million.

Lease Accounting Adjustments

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

As a result of this review, the Company recorded an adjustment in the fourth quarter of 2004 representing a non-cash charge to earnings of $8.5 million, after taxes, and an increase in assets and liabilities of $34.7 million and $43.2 million, respectively, at January 1, 2005. The adjustment reflects a change in the depreciable lives for buildings to conform to the associated ground lease term, the recognition of straight-line rent expense over the ground lease term, and the recording of certain lease assets and obligations

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where lessee involvement during asset construction and where sale-leaseback transactions with renewal options precluded operating lease accounting. The Company believes that the impact of the adjustment is immaterial to any individual prior year. The adjustment did not affect sales, historical or future cash flows, or the timing or amounts of lease payments and has no impact on the Company’s compliance with its debt covenants. Furthermore, the impact of the adjustment is not expected to have a material impact on the Company’s future earnings.

10. Discontinued Operations

The Company classifies operations as discontinued if (i) the operations and cash flows have been eliminated from ongoing operations, (ii) there is no significant continuing involvement, and (iii) a relocation within the vicinity has not occurred. As of December 30, 2006, the Company had 87 closed stores classified as discontinued operations as shown below:

	# of stores closed classified as discontinued operations
2003	44
2004	39
2005	—
2006	4
	87

In accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the costs associated with the closure of these stores, as well as related operating activity prior to closing for these stores, are recorded in “Loss from discontinued operations, net of tax” in the Company’s Consolidated Statements of Income.

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

(Dollars in millions)	2006			2005			2004
Net sales and other revenues	$	4.7		$	14.1		$	45.5
Net loss	$	(0.6	)	$	(1.1	)	$	(7.6	)

During 2006 in accordance with SFAS NO.146, “Accounting for Costs Associated with Exit or Disposal Activities,” the Company recorded $2.1 million loss to discontinued operations ($1.3 million after taxes) for the closure of four underperforming stores. Additional expenses for discontinued operations not reserved totaled $4.8 million after taxes for 2006 and $9.2 million after taxes for 2005.

During 2004, the Company recorded a $72.9 million loss to discontinued operations ($46.4 million after taxes) for the closure of 39 underperforming stores. The loss included an initial reserve of $53.6 million for rent, real estate taxes, common area maintenance expenses (other liabilities) and $1.9 million for severance and outplacement costs (accrued expenses). The remaining loss included property retirement (asset impairment) of $22.1 million net of gains on capital lease retirements of $4.7 million. Additional expenses for discontinued operations not reserved totaled $2.7 million after taxes for 2004.

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The following table shows the reserve balances for discontinued operations as of December 30, 2006:

(Dollars in millions)	Other liabilities			Accrued expenses			Total
2004
Reserve balance at beginning of year	$	23.4		$	—		$	23.4
Additions		53.6			1.9			55.5
Adjustments to estimates and reductions		(21.3	)		(1.9	)		(23.2	)
Reserve balance at end of year	$	55.7		$	—		$	55.7
2005
Reserve balance at beginning of year	$	55.7		$	—		$	55.7
Adjustments to estimates and reductions		(15.5	)		—			(15.5	)
Reserve balance at end of year	$	40.2		$	—		$	40.2
2006
Reserve balance at beginning of year	$	40.2		$	—		$	40.2
Additions		2.1			—			2.1
Adjustments to estimates and reductions		(4.9	)		—			(4.9	)
Reserve balance at end of year	$	37.4		$	—		$	37.4

11. Store and Warehouse Closings

The following table reflects activity in the number of closed stores, planned closings and warehouse closings at the end of 2004, 2005, and 2006:

	Closed Stores Included in Discontinued Operations		Closed Stores Included in Continuing Operations		Planned Closings		Total Closed Stores		Closed Warehouse
As of January 3, 2004	39		165		2		206		—
Store closings added	39		10		—		49
Planned closings completed	—		2		(2	)	—
Stores sold/lease terminated	(21	)	(25	)	—		(46	)
As of January 1, 2005	57		152		—		209		—
Store closings added	—		32		—		32		—
Stores sold/lease terminated	(13	)	(37	)	—		(50	)	—
As of December 31, 2005	44		147		—		191		—
Store & warehouse closings added	4		23		—		27		1
Stores sold/lease terminated	(4	)	(42	)	—		(46	)	—
As of December 30, 2006	44		128		—		172		1

The following table reflects activity in the closed stores and warehouse liabilities for 2006 and 2005:

	2006						2005
(Dollars in millions)	Closed Stores Included in Discontinued Operations		Closed Stores & Warehouse Included in Continuing Operations		Total		Closed Stores Included in Discontinued Operations		Closed Stores Included in Continuing Operations		Total
Balance at beginning of year	$	40.2	$	84.6	$	124.8	$	55.7	$	93.3	$	149.0
Additions:
Store & warehouse closings lease obligations		1.8		4.7		6.5		—		10.4		10.4
Store & warehouse closing other exit costs		0.4		1.4		1.8		—		2.2		2.2
Total additions		2.2		6.1		8.3		—		12.6		12.6

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Adjustments to estimates:
Lease obligation		1.3			(7.2	)		(5.9	)		(0.9	)		(5.0	)		(5.9	)
Other exit costs		2.8			(2.5	)		0.3			2.7			(0.5	)		2.2
Total adjustments to estimates		4.1			(9.7	)		(5.6	)		1.8			(5.5	)		(3.7	)
Reductions:
Lease/termination payments made		(7.2	)		(14.0	)		(21.2	)		(15.2	)		(12.6	)		(27.8	)
Payments for other exit costs		(1.9	)		(2.6	)		(4.5	)		(2.1	)		(3.2	)		(5.3	)
Total reductions		(9.1	)		(16.6	)		(25.7	)		(17.3	)		(15.8	)		(33.1	)
Balance at end of year	$	37.4		$	64.4		$	101.8		$	40.2		$	84.6		$	124.8

The December 30, 2006 balance of approximately $101.8 million consisted of lease liabilities and other exit cost liabilities of $83.0 million and $18.8 million, respectively, and includes lease liabilities of $32.4 million and other exit costs of $5.0 million associated with discontinued operations.

The December 31, 2005 balance of approximately $124.8 million consisted of lease liabilities and other exit cost liabilities of $103.6 million and $21.2 million, respectively, and includes lease liabilities of $36.4 million and other exit costs of $3.8 million associated with discontinued operations.

The Company provided for closed store liabilities in each of the periods presented above to reflect the estimated post-closing lease liabilities and other exit costs associated with the related store closing commitments. These other exit costs include estimated utilities, real estate taxes, common area maintenance and insurance costs to be incurred after the store closes over the remaining lease term (all of which are contractually required payments under the lease agreements). Store closings are generally completed within one year after the decision to close. The closed store liabilities are paid over the lease terms associated with the closed stores. As of December 30, 2006, closed store liabilities have remaining lease terms ranging from one to 16 years. Adjustments to closed store liabilities and other exit costs primarily relate to changes in subtenants and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known. Any excess store closing liability remaining upon settlement of the obligation is reversed in the period that such settlement is determined. The Company estimates the lease liabilities, net of sublease income using a discount rate based on the current treasury note rates adjusted for the Company’s current credit spread to calculate the present value of the remaining liabilities on closed stores.

12. Comprehensive Income

(Dollars in millions)	Unrealized gain (loss) on available-for-sale securities			Minimum pension liability			Deferred loss on hedge			Adjustment to initially apply FASB No. 158, net of tax			Accumulated other comprehensive (loss) income, net of tax
Balances January 3, 2004	$	0.1		$	(18.7	)	$	(44.3	)				$	(62.9	)
Change during the year		0.2			3.7			9.1						13.0
Income tax		(0.1	)		(1.5	)		(3.7	)					(5.3	)
Balances January 1, 2005		0.2			(16.5	)		(38.9	)					(55.2	)
Change during the year		(0.2	)		1.8			8.7						10.3
Income tax		0.1			(0.7	)		(3.5	)					(4.1	)
Balances December 31, 2005	$	0.1		$	(15.4	)	$	(33.7	)				$	(49.0	)
Change during the year		—			13.0			6.9						19.9
Income tax		—			(5.2	)		(2.8	)					(8.0	)
Balances December 30, 2006 before adjustment to initially apply FASB No. 158	$	0.1		$	(7.6	)	$	(29.6	)	$	—		$	(37.1	)
Adjustment to initially apply FASB No.158, net of tax $6.4		—			—			—			(9.4	)		(9.4	)
Balances December 30, 2006	$	0.1		$	(7.6	)	$	(29.6	)	$	(9.4	)	$	(46.5	)

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13. Income Taxes

Income taxes (benefits) relating to continuing operations for 2006, 2005 and 2004 consist of the following:

(Dollars in millions)	Current		Deferred			Total
2006
Federal	$	260.0	$	(41.3	)	$	218.7
State		49.5		(10.6	)		38.9
	$	309.5	$	(51.9	)	$	257.6
2005
Federal	$	221.8	$	(15.8	)	$	206.0
State		34.7		(7.2	)		27.5
	$	256.5	$	(23.0	)	$	233.5
2004
Federal	$	139.5	$	49.0		$	188.5
State		12.3		12.1			24.4
	$	151.8	$	61.1		$	212.9

The Company’s effective tax rate from continuing operations varied from the federal statutory rate as follows:

	2006		2005		2004
Federal statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	4.3		2.7		4.9
Other	0.9		2.8		0.8
	40.2	%	40.5	%	40.7	%

The components of deferred income tax assets and liabilities at December 30, 2006 and December 31, 2005 are as follows:

(Dollars in millions)	2006			2005
Deferred tax assets:
Leases	$	71.1		$	66.0
Provision for store closings		36.7			44.8
Tax loss carryforwards		45.7			44.7
Tax credit carryforwards		1.7			—
Interest expenses		41.4			45.0
Compensation expenses		50.6			23.1
Accrued expenses		29.1			27.1
Total assets		276.3			250.7
Valuation allowance		(41.9	)		(39.0	)
Deferred tax asset (net of allowance)		234.4			211.7
Deferred tax liabilities:
Depreciation and amortization		(356.9	)		(399.7	)
Inventories		(41.2	)		(35.9	)
Total liabilities		(398.1	)		(435.6	)
Net deferred tax liability	$	(163.7	)	$	(223.9	)

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At December 30, 2006, the Company had deferred tax assets associated with net operating loss carryforwards for federal income tax purposes of approximately $2.9 million, which if unused would expire in 2011. In addition, the Company had deferred tax assets associated with net operating loss carryforwards for state income tax purposes of approximately $39.3 million that will expire from 2011 through 2026. The Company has provided a valuation allowance of approximately $38.4 million of the deferred tax asset relating to the state income tax loss carryforwards because realization is not considered more likely than not. The Company has deferred tax assets associated with capital loss carryforwards of approximately $3.5 million which will expire in 2008. A full valuation allowance has been provided for this amount.

The Company continues to experience both federal and state audits of its income tax filings, which it considers to be part of its ongoing business activity. In particular, the Company has experienced an increase in audit and assessment activity over the past several years, which it expects to continue. While the ultimate outcome of these federal and state audits is not certain, the Company considered the merits of its filing positions in its overall evaluation of potential tax liabilities and believes it has adequate liabilities recorded in its consolidated financial statements for exposures on these matters. Based on its evaluation of the potential tax liabilities and the merits of its filing positions, the Company also believes it is unlikely that potential tax exposures over and above the amounts currently recorded as liabilities in its consolidated financial statements will be material to its financial condition or future results of operation.

14. Other Liabilities

Other liabilities consist of the following:

(Dollars in millions)	2006		2005
Closed store liabilities	$	101.8	$	124.8
Self-insurance reserves		152.4		153.6
Pension liability		30.6		27.8
Post retirement benefits		5.9		5.7
Deferred income		33.0		33.2
Sales taxes payable		37.6		35.4
Other		75.6		72.6
		436.9		453.1
Less current portion		114.1		127.5
	$	322.8	$	325.6

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15. Accounting for Stock Based Compensation

Stock Option Plans

The Company’s employees are eligible to participate in a stock option plan of its parent company, the Delhaize Group 2002 Stock Incentive Plan (the “Delhaize Group Plan”), under which options to purchase Delhaize Group SA American Depositary Shares (“ADSs”) may be granted to officers and key employees at prices equal to fair market value on the date of the grant. The Board of Directors of Delhaize Group SA determines on the date of grant when options become exercisable provided that no option may be exercised more than ten years after the date of grant. Unlike option exercises under the Prior Plans (defined below), the exercise of options under the Delhaize Group Plan by an optionee results in the issuance of new Delhaize Group SA ordinary shares through a capital increase of the Company’s parent, Delhaize Group SA. In connection with the exercise of an option, the optionee pays the exercise price to Delhaize Group SA. Additionally, the Company pays Delhaize Group SA an amount equal to the difference between the exercise price of the option and the fair market value of the ADSs on the date of exercise, which totaled $58.3 million, $27.5 million and $27.3 million for 2006, 2005 and 2004, respectively. The Company records these payments with a charge to equity (Retained Earnings). These Company payments are included as part of parent common stock (ADSs) purchased under cash flows from financing activities on the Company’s consolidated statements of cash flows and on the Company’s consolidated statements of shareholders’ equity and comprehensive income.

Additionally, there are outstanding options to purchase Delhaize Group SA ADSs under the Company’s 1996 Food Lion Plan, 1988 and 1998 Hannaford Plans and 2000 Delhaize America Plan (collectively, the “Prior Plans”); however, the Company can no longer grant options under these Prior Plans. The terms and conditions of the Prior Plans are substantially consistent with the current Delhaize Group Plan, with the exception that the Company purchases ADSs to deliver to persons exercising options under the Prior Plans. For 2006, 2005 and 2004 the Company acquired 71,300 ADSs for $5.4 million, 146,278 ADSs for $8.9 million and 191,403 ADSs for $11.9 million, respectively, to support the exercise of options under the Prior Plans. These Company payments are included as part of parent common stock ADSs purchased under cash flows from financing activities on the Company’s consolidated statements of cash flows and on the Company’s consolidated statements of shareholders’ equity and comprehensive income. The Company records the purchase of such ADSs with a decrease to equity (Additional Paid in Capital) equal to the fair market value of the ADSs at the time of purchase. When an optionee exercises an option under a Prior Plan, the Company records a cash receipt for the exercise price with an increase to equity (Additional Paid in Capital). The difference between the exercise price received and the cost to the Company of the ADSs is recorded as a transfer between equity accounts (Additional Paid in Capital and Retained Earnings). The Company received proceeds from stock options exercised under the Prior Plans totaling $2.8 million, $4.3 million and $9.7 million for 2006, 2005 and 2004, respectively.

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In accordance with the provisions of SFAS No. 123R, stock option expense totaled $21.3 million ($17.7 million, net of tax) and $20.9 million ($19.3 million, net of tax) for the years ended December 30, 2006 and December 31, 2005, respectively. As of December 30, 2006, there was $16.5 million of unrecognized compensation cost related to nonvested option shares that is expected to be recognized over a weighted average period of 1.2 years. The cash flows resulting from the tax benefits that relate to tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) have been classified as financing cash flows. This excess tax benefit for 2006 and 2005 was $20.3 million and $10.3 million, respectively.

The following table summarizes the stock option transactions for the last three years:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (Dollars in millions)
2004
Outstanding at beginning of year	5,611,009		$	39.37	—		—
Granted	1,520,178			46.43	—		—
Exercised	(1,410,938	)		39.21	—		—
Forfeited/expired	(296,068	)		43.54	—		—
Outstanding at end of year	5,424,181			41.15	—		—
Options exercisable at end of year	1,963,278			42.72	—		—
2005
Outstanding at beginning of year	5,424,181		$	41.15	—		—
Granted	1,105,043			60.74	—		—
Exercised	(1,194,121	)		39.70	—		—
Forfeited/expired	(296,242	)		45.15	—		—
Outstanding at end of year	5,038,861			45.49	7.30	$	101.50
Options exercisable at end of year	2,223,274			42.59	5.90	$	51.70
2006
Outstanding at beginning of year	5,038,861		$	45.49	—		—
Granted	1,324,338			63.09	—		—
Exercised	(1,827,644	)		40.95	—		—
Forfeited/expired	(222,007	)		52.94	—		—
Outstanding at end of year	4,313,548			52.43	7.40	$	133.10
Vested and expected to vest at end of year	4,184,142			52.43	7.40	$	129.11
Options exercisable at end of year	1,716,247			43.94	5.67	$	67.56

The total intrinsic value of options exercised during the years ended 2006, 2005, and 2004, was $60.0 million, $29.5 million and $30.5 million, respectively.

A summary of the status of the Company’s nonvested option shares as of December 30, 2006, and changes during the year ended December 30, 2006, is presented below.

66

Nonvested options	Shares		Weighted Average Grant-Date Fair Value
Nonvested at December 31, 2005	2,815,587		$	15.80
Granted	1,324,338			14.36
Vested	(1,247,461	)		13.10
Forfeited	(295,163	)		13.05
Nonvested at December 30, 2006	2,597,301		$	16.67

Restricted Stock Plans

The Company also has restricted stock (Delhaize Group Restricted ADSs) awards and restricted stock unit awards outstanding for executive employees. The restricted stock awards and the restricted stock unit awards vest over a five-year period and are subject to certain transfer restrictions and forfeiture prior to vesting. Restricted stock unit awards represent the right to receive the number of ADSs set forth in the award at the vesting date. Unlike awards of restricted stock, no ADSs are issued with respect to these awards until the applicable vesting dates. In May 2002, the Company ceased granting restricted stock awards and began granting restricted stock unit awards under its 2002 Restricted Stock Unit Plan. The Company purchases ADSs on the open market to support vesting of restricted stock unit awards under the 2002 Restricted Stock Unit Plan. For 2006, the Company acquired 80,100 ADSs on the open market at a cost of $6.1 million to support vesting of 76,695 restricted stock units awarded under the 2002 Restricted Stock Unit Plan. For 2005, the Company acquired 157,580 ADSs on the open market at a cost of $9.8 million to support vesting of 62,922 restricted stock units awarded under the 2002 Restricted Stock Unit Plan. No ADSs were acquired for the restricted stock plan for 2004. These amounts are included as part of parent common stock ADSs purchased under cash flows from financing activities on the Company’s consolidated statements of cash flows and on the Company’s consolidated statements of shareholders’ equity and comprehensive income. In addition, the Company withheld shares of restricted stock on employees’ behalf to pay related taxes, and paid on employees’ behalf such related taxes, amounting to $2.9 million, $2.8 million and $0.9 million for 2006, 2005 and 2004, respectively. These amounts are included as part of parent common stock ADSs purchased under cash flows from financing activities on the Company’s consolidated statements of cash flows and on the Company’s consolidated statements of shareholders’ equity and comprehensive income.

The Company recorded compensation expense related to restricted stock of $7.3 million ($4.5 million, net of tax), $7.3 million ($4.5 million, net of tax) and $6.4 million ($4.0 million, net of tax) for 2006, 2005 and 2004, respectively. As of December 30, 2006, there was $16.4 million of unrecognized compensation cost related to restricted share and restricted stock unit compensation arrangements. This cost is expected to be recognized over a weighted average period of 2.5 years.

The following table summarizes the restricted share and restricted unit transactions for the last three years:

	Shares/Units		Weighted Average Grant Date Fair Value
2004
Outstanding at beginning of year	388,562		—
Granted	179,567		—
Released from restriction	(63,230	)	—
Forfeited/expired	(3,827	)	—
Outstanding at end of year	501,072		—

67

2005
Outstanding at beginning of year	501,072		$	38.73
Granted	145,868			60.76
Released from restriction	(137,570	)		64.27
Forfeited/expired	(13,478	)		42.55
Outstanding at end of year	495,892		$	45.26
2006
Outstanding at beginning of year	495,892		$	45.26
Granted	155,305			63.04
Released from restriction	(126,004	)		64.95
Forfeited/expired	(9,872	)		49.08
Outstanding at end of year	515,321		$	45.73

16. Common Stock

On December 30, 2006, 81.86% and 18.14% of the issued and outstanding Class A non-voting common stock and 80.58% and 19.42% of the issued and outstanding Class B voting common stock was held, respectively, by Delhaize Group SA and Delhaize The Lion America, Inc. (“DETLA”), a wholly owned subsidiary of Delhaize Group SA. In the aggregate, Delhaize Group SA and DETLA owned 100% of the Class B voting common stock and 100% of the Class A non-voting common stock.

17. Interest Expense, Net

Interest expense, net consists of the following:

(Dollars in millions)	2006			2005			2004
Interest on borrowings (net of $3.3 million, $2.4 million and $2.0 million capitalized in 2006, 2005 and 2004, respectively)	$	217.4		$	249.5		$	255.8
Interest on capital leases and lease finance obligations		95.9			93.1			88.7
Interest income		(9.5	)		(19.7	)		(19.1	)
	$	303.8		$	322.9		$	325.4

68

18. Commitments and Contingencies

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

19. Related Parties

The following is a description of related party transactions not disclosed in other footnotes to the Company’s consolidated financial statements.

In 2000, the Company entered into a joint venture with Delhaize Group SA concerning the operation of Food Lion Thailand Ltd. (formerly known as Bel–Thai Supermarket Co., Ltd.) a supermarket company based in Thailand (“Food Lion Thailand”). The Company owned, through its wholly owned subsidiary Food Lion Thailand, Inc., a 51% interest in Food Lion Thailand and Delhaize “The Lion” Nederland BV, a Dutch subsidiary of Delhaize Group SA, owned the remaining 49% interest in Food Lion Thailand. The Company accounted for its Food Lion Thailand investment under the equity method, and its shares of Food Lion Thailand’s operating loss for 2004 was not material to the Company’s consolidated results of operation. On August 4, 2004, the Company and Delhaize Group SA agreed to divest their interests in Food Lion Thailand. As a result of the decision to divest, the Company recorded a charge of $1.8 million in the third quarter of 2004. Delhaize Group SA sold 21 of its 26 Food Lion Thailand stores in the third quarter of 2004 to Central Food Retail Company of Thailand and closed the remaining stores in August of 2004.

On November 27, 2001, the Company loaned $12 million to DETLA. This loan was restructured during 2002 to a five-year revolving credit line in the aggregate amount of $30 million maturing November 27, 2007. On March 28, 2005, the Company increased the revolving credit line to $40 million maturing November 27, 2007. Until the maturity date, DETLA will pay interest on the unpaid principal amount at a rate equal to LIBOR plus 125 basis points. In 2006, Detla used the dividends received from the Company to repay its outstanding principal of $19.9 million and accrued interest of $0.9 million in lieu of dividend declaration to Delhaize Group SA. The loan balance at December 31, 2005 was $17.4 million, respectively and is included in the Company’s Consolidated Balance Sheet in Non-current Other Assets.

20. Guarantor Subsidiaries

Delhaize America, Inc. has issued 7.375% notes due 2006 (that were paid in full at maturity on April 17, 2006), 7.55% notes due 2007, 8.125% notes due 2011, 8.05% notes due 2027 and 9.000% debentures due 2031. Substantially all of Delhaize America’s subsidiaries (the “Guarantor Subsidiaries”) have fully and unconditionally and jointly and severally guaranteed this debt. The Guarantor Subsidiaries and non-guarantor subsidiaries are wholly owned subsidiaries of the Company. The non-guaranteeing subsidiaries represent less than 3% on an individual and aggregate basis of consolidated assets, pretax earnings, cash flow, and equity. Therefore, the non-guarantor subsidiaries’

69

information is not separately presented in the tables below but rather is included in the column labeled “Guarantor Subsidiaries.” Consolidated financial information for the Company and its Guarantor Subsidiaries is as follows:

Delhaize America, Inc.

Consolidated Statements of Income

For the Year Ended December 30, 2006

(Dollars in millions)	Parent (Issuer)			Guarantor Subsidiaries		Eliminations			Consolidated
Net sales and other revenues	$	—		$	17,289.2	$	—		$	17,289.2
Cost of goods sold		—			12,596.4		—			12,596.4
Selling and administrative expenses		32.4			3,716.3		—			3,748.7
Equity in earnings of subsidiaries		(514.1	)		—		514.1			—
Operating income		481.7			976.5		(514.1	)		944.1
Interest expense, net		205.1			98.7		—			303.8
Income from continuing operations before income taxes		276.6			877.8		(514.1	)		640.3
Income taxes (benefit)		(99.4	)		357.0		—			257.6
Income before loss from discontinued operations		376.0			520.8		(514.1	)		382.7
Loss from discontinued operations, net of tax		—			6.7		—			6.7
Net income	$	376.0		$	514.1	$	(514.1	)	$	376.0

Delhaize America, Inc.

Consolidated Statements of Income

For the Year Ended December 31, 2005

(Dollars in millions)	Parent (Issuer)			Guarantor Subsidiaries		Eliminations			Consolidated
Net sales and other revenues	$	—		$	16,550.7	$	—		$	16,550.7
Cost of goods sold		—			12,068.6		—			12,068.6
Selling and administrative expenses		25.8			3,557.3		—			3,583.1
Equity in earnings of subsidiaries		(486.8	)		—		486.8			—
Operating income		461.0			924.8		(486.8	)		899.0
Interest expense, net		223.5			99.4		—			322.9
Income from continuing operations before income taxes		237.5			825.4		(486.8	)		576.1
Income taxes (benefit)		(94.8	)		328.3		—			233.5
Income before loss from discontinued operations		332.3			497.1		(486.8	)		342.6
Loss from discontinued operations, net of tax		—			10.3		—			10.3
Net income	$	332.3		$	486.8	$	(486.8	)	$	332.3

70

Delhaize America, Inc.

Consolidated Statements of Income

For the Year Ended January 1, 2005

(Dollars in millions)	Parent (Issuer)			Guarantor Subsidiaries		Eliminations			Consolidated
Net sales and other revenues	$	—		$	15,837.8	$	—		$	15,837.8
Cost of goods sold		—			11,644.3		—			11,644.3
Selling and administrative expenses		31.8			3,308.1		—			3,339.9
Equity in earnings of subsidiaries		(417.0	)		—		417.0			—
Operating income		385.2			885.4		(417.0	)		853.6
Interest expense, net		226.4			99.0		—			325.4
Net loss from extinguishment of debt		4.5			—		—			4.5
Income from continuing operations before income taxes		154.3			786.4		(417.0	)		523.7
Income taxes (benefit)		(99.8	)		312.7		—			212.9
Income before loss from discontinued operations		254.1			473.7		(417.0	)		310.8
Loss from discontinued operations, net of tax		—			56.7		—			56.7
Net income	$	254.1		$	417.0	$	(417.0	)	$	254.1

71

Delhaize America, Inc.

Consolidated Balance Sheets

As of December 30, 2006

(Dollars in millions)	Parent (Issuer)		Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	9.7	$	155.9	$	—		$	165.6
Receivables, net		—		130.6		—			130.6
Receivable from affiliate		21.9		14.2		(13.6	)		22.5
Inventories		—		1,258.0		—			1,258.0
Prepaid expenses		1.2		40.4		—			41.6
Deferred tax asset		—		3.5		(3.5	)		—
Other current assets		—		36.1		—			36.1
Total current assets		32.8		1,638.7		(17.1	)		1,654.4
Property and equipment, net		21.1		3,265.2		—			3,286.3
Goodwill		—		3,071.5		—			3,071.5
Intangibles, net		—		757.0		—			757.0
Reinsurance recoverable from affiliate		—		145.6		—			145.6
Deferred tax asset		59.4		0.2		(59.6	)		—
Other assets		18.0		39.0		—			57.0
Investment in and advances to subsidiaries		6,369.5		—		(6,369.5	)		—
Total assets	$	6,500.8	$	8,917.2	$	(6,446.2	)	$	8,971.8
Liabilities and Shareholders’ Equity
Current liabilities:
Short-term debt	$	134.0	$	—	$	—		$	134.0
Accounts payable		0.4		796.2		—			796.6
Payable to affiliate		3.8		17.4		(13.6	)		7.6
Accrued expenses		50.3		216.9		—			267.2
Current portion of capital lease and lease finance obligations		—		48.4		—			48.4
Current portion of long-term debt		144.4		26.3		—			170.7
Other current liabilities		—		114.1		—			114.1
Deferred income taxes, net		—		—		7.4			7.4
Income taxes payable		69.0		7.6		—			76.6
Total current liabilities		401.9		1,226.9		(6.2	)		1,622.6
Long-term debt, net of current portion		2,073.5		35.2		—			2,108.7
Capital lease and lease finance obligations, net of current portion		—		741.5		—			741.5
Deferred income taxes, net		—		226.8		(70.5	)		156.3
Other liabilities, net		5.5		317.3		—			322.8
Total liabilities		2,480.9		2,547.7		(76.7	)		4,951.9
Total shareholders’ equity		4,019.9		6,369.5		(6,369.5	)		4,019.9
Total liabilities and shareholders’ equity	$	6,500.8	$	8,917.2	$	(6,446.2	)	$	8,971.8

72

Delhaize America, Inc.

Consolidated Balance Sheets

As of December 31, 2005

(Dollars in millions)	Parent (Issuer)		Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	513.3	$	155.0	$	—		$	668.3
Receivables, net		—		116.9		—			116.9
Receivable from affiliate		18.5		72.7		(70.9	)		20.3
Inventories		—		1,198.3		—			1,198.3
Prepaid expenses		1.8		30.2		—			32.0
Other current assets		—		26.7		—			26.7
Total current assets		533.6		1,599.8		(70.9	)		2,062.5
Property and equipment, net		23.0		3,046.4		—			3,069.4
Goodwill		—		3,074.0		—			3,074.0
Intangibles, net		—		771.4		—			771.4
Loan to affiliate		17.4		—		—			17.4
Reinsurance recoverable from affiliate		—		147.2		—			147.2
Deferred tax asset		61.9		—		(61.9	)		—
Other assets		22.0		58.2		—			80.2
Investment in and advances to subsidiaries		6,117.8		—		(6,117.8	)		—
Total assets	$	6,775.7	$	8,697.0	$	(6,250.6	)	$	9,222.1
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	0.6	$	756.1	$	—		$	756.7
Payable to affiliate		60.7		14.7		(70.9	)		4.5
Accrued expenses		53.6		217.5		—			271.1
Current portion of capital lease and lease finance obligations		—		44.0		—			44.0
Current portion of long-term debt		567.9		13.4		—			581.3
Other current liabilities		—		127.5		—			127.5
Deferred income taxes, net		—		8.7		3.6			12.3
Income taxes payable		68.9		3.6		—			72.5
Total current liabilities		751.7		1,185.5		(67.3	)		1,869.9
Long-term debt, net of current portion		2,218.5		61.4		—			2,279.9
Capital lease and lease finance obligations, net of current portion		—		733.7		—			733.7
Deferred income taxes, net		—		277.1		(65.5	)		211.6
Other liabilities, net		4.1		321.5		—			325.6
Total liabilities		2,974.3		2,579.2		(132.8	)		5,420.7
Total shareholders’ equity		3,801.4		6,117.8		(6,117.8	)		3,801.4
Total liabilities and shareholders’ equity	$	6,775.7	$	8,697.0	$	(6,250.6	)	$	9,222.1

73

Delhaize America, Inc.

Consolidated Statements of Cash Flows

For the Year Ended December 30, 2006

(Dollars in millions)	Parent (Issuer)			Guarantor Subsidiaries			Consolidated
Net cash (used in) provided by operating activities	$	(220.0	)	$	1,018.6		$	798.6
INVESTING ACTIVITIES
Capital expenditures		(0.1	)		(663.4	)		(663.5	)
Proceeds from sale of property and equipment		—			14.1			14.1
Other investment activity		19.3			1.4			20.7
Net cash provided by (used in) investing activities		19.2			(647.9	)		(628.7	)
FINANCING ACTIVITIES
Borrowings under revolving credit facilities		625.0			—			625.0
Repayments of amounts borrowed under revolving credit facilities		(505.0	)		—			(505.0	)
Proceeds from other short-term debt		14.0			—			14.0
Principal payments on long-term debt		(568.5	)		(14.0	)		(582.5	)
Principal payments under capital lease and lease finance obligations		—			(47.3	)		(47.3	)
Transfer from escrow to fund long-term debt		—			11.8			11.8
Dividends paid		(139.0	)		—			(139.0	)
Net change in advances to subsidiaries		320.3			(320.3	)		—
Parent common stock (ADSs) purchased		(72.7	)		—			(72.7	)
Proceeds from stock options exercised		2.8			—			2.8
Excess tax benefits related to stock options		20.3			—			20.3
Net cash used in financing activities		(302.8	)		(369.8	)		(672.6	)
Net (decrease) increase in cash and cash equivalents		(503.6	)		0.9			(502.7	)
Cash and cash equivalents at beginning of year		513.3			155.0			668.3
Cash and cash equivalents at end of year	$	9.7		$	155.9		$	165.6

74

Delhaize America, Inc.

Consolidated Statements of Cash Flows

For the Year Ended December 31, 2005

(Dollars in millions)	Parent (Issuer)			Guarantor Subsidiaries			Consolidated
Net cash (used in) provided by operating activities	$	(217.2	)	$	1,077.8		$	860.6
INVESTING ACTIVITIES
Capital expenditures		(20.4	)		(549.3	)		(569.7	)
Proceeds from sale of property and equipment		6.5			15.8			22.3
Other investment activity		52.9			1.9			54.8
Net cash provided by (used in) investing activities		39.0			(531.6	)		(492.6	)
FINANCING ACTIVITIES
Proceeds from long-term debt		—			3.1			3.1
Principal payments on long-term debt		—			(14.0	)		(14.0	)
Principal payments under capital lease and lease finance obligations		—			(40.9	)		(40.9	)
Dividends paid		(125.3	)					(125.3	)
Transfer from escrow to fund long-term debt		—			11.8			11.8
Net change in advances to subsidiaries		499.9			(499.9	)		—
Parent common stock (ADSs) purchased		(49.0	)		—			(49.0	)
Proceeds from stock options exercised		4.3			—			4.3
Excess tax benefits related to stock options		10.3			—			10.3
Net cash provided by (used in) financing activities		340.2			(539.9	)		(199.7	)
Net increase in cash and cash equivalents		162.0			6.3			168.3
Cash and cash equivalents at beginning of year		351.3			148.7			500.0
Cash and cash equivalents at end of year	$	513.3		$	155.0		$	668.3

75

Delhaize America, Inc.

Consolidated Statements of Cash Flows

For the Year Ended January 1, 2005

(Dollars in millions)	Parent (Issuer)			Guarantor Subsidiaries			Consolidated
Net cash (used in) provided by operating activities	$	(218.2	)	$	1,126.2		$	908.0
INVESTING ACTIVITIES
Capital expenditures		(3.6	)		(410.1	)		(413.7	)
Investment in Victory, net of cash acquired		—			(178.8	)		(178.8	)
Proceeds from sale of property and equipment		—			32.5			32.5
Other investment activity		(33.5	)		(0.4	)		(33.9	)
Net cash used in investing activities		(37.1	)		(556.8	)		(593.9	)
FINANCING ACTIVITIES
Proceeds from long-term debt		—			1.3			1.3
Principal payments on long-term debt		(44.1	)		(27.4	)		(71.5	)
Principal payments under capital Lease and lease finance obligations		—			(35.7	)		(35.7	)
Transfer from escrow to fund long-term debt		—			8.6			8.6
Net change in advances to subsidiaries		534.0			(534.0	)		—
Parent common stock (ADSs) purchased		(40.1	)		—			(40.1	)
Proceeds from stock options exercised		9.7			—			9.7
Net cash provided by (used in) financing activities		459.5			(587.2	)		(127.7	)
Net increase (decrease) in cash and cash equivalents		204.2			(17.8	)		186.4
Cash and cash equivalents at beginning of year		147.1			166.5			313.6
Cash and cash equivalents at end of year	$	351.3		$	148.7		$	500.0

The wholly owned direct subsidiaries named below fully and unconditionally and jointly and severally guarantee Delhaize America’s 7.375% notes due 2006 (that were paid in full at maturity on April 17, 2006), 7.55% notes due 2007, 8.125% notes due 2011, 8.05% notes due 2027 and 9.00% debentures due 2031.

• Food Lion, LLC is a North Carolina limited liability company that operates all of the Company’s Food Lion, Bloom and Bottom Dollar Food stores. Food Lion’s executive offices are located at 2110 Executive Drive, Salisbury, North Carolina 28147.

• Hannaford Bros. Co. is a Maine corporation that operates substantially all of the Company’s Hannaford’s stores. Hannaford’s executive offices are located at 145 Pleasant Hill Road, Scarborough, Maine 04074.

• Kash n’ Karry Food Stores, Inc. is a Delaware corporation that operates all the Company’s Kash n’ Karry and Sweetbay stores. Kash n’ Karry executive offices are located at 3801 Sugar Palm Drive, Tampa, Florida 33619.

• J.H. Harvey Co., LLC is a Georgia limited liability company that operates all of the Company’s Harveys stores. Harveys executive offices are located at 727 S. Davis St., Nashville, Georgia 31639.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Delhaize America, Inc.

Salisbury, North Carolina

We have audited the accompanying consolidated balance sheets of Delhaize America, Inc. and subsidiaries (the “Company”) as of December 30, 2006 and December 31, 2005, and the related consolidated statements of income, shareholders’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 30, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Delhaize America, Inc. and subsidiaries at December 30, 2006 and December 31, 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 2006, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the financial statements, in 2005, the Company early adopted Statement of Financial Accounting Standards No. 123 (R), “Share-Based Payment”.

/s/ Deloitte & Touche LLP

Charlotte, North Carolina

March 27, 2007

77

Results by Quarter

(unaudited)

(Dollars in millions)

2006	First Quarter (13 Weeks)		Second Quarter (13 Weeks)		Third Quarter (13 Weeks)		Fourth Quarter (13 Weeks)		Total 2006
Net sales and other revenues	$	4,143.0	$	4,364.8	$	4,412.0	$	4,369.4	$	17,289.2
Cost of goods sold		3,003.6		3,189.7		3,212.5		3,190.6		12,596.4
Selling and administrative expenses		916.5		956.5		947.6		928.1		3,748.7
Operating income		222.9		218.6		251.9		250.7		944.1
Net income	$	83.2	$	85.4	$	110.1	$	97.3	$	376.0
2005	First Quarter (13 Weeks)		Second Quarter (13 Weeks)		Third Quarter (13 Weeks)		Fourth Quarter (13 Weeks)		Total 2005
Net sales and other revenues	$	4,024.9	$	4,125.1	$	4,194.9	$	4,205.8	$	16,550.7
Cost of goods sold		2,932.9		3,016.5		3,059.6		3,059.6		12,068.6
Selling and administrative expenses		885.5		902.0		908.5		887.1		3,583.1
Operating income		206.5		206.6		226.8		259.1		899.0
Net income	$	69.5	$	69.8	$	83.3	$	109.7	$	332.3

78

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

As of December 30, 2006, an evaluation was carried out under the supervision and with the participation of Delhaize America’s management, including our Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, the Chief Executive Officer and Chief Accounting Officer concluded that the design and operation of these disclosure controls and procedures were effective as of December 30, 2006. No change in Delhaize America’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) occurred during the Company’s most recent fiscal quarter that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information.

None.

PART III

Item 10. Directors and Executive Officers of the Registrant.

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

Item 11. Executive Compensation.

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

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

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

Item 13. Certain Relationships and Related Transactions.

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

Item 14. Principal Accounting Fees and Services.

Deloitte & Touche LLP was appointed by the Audit Committee of Delhaize Group SA’s Board of Directors as our independent auditors. Deloitte & Touche LLP and its affiliates (collectively, “Deloitte”) billed Delhaize America the following aggregate amounts for the indicated types of services provided during 2006 and 2005:

(Dollars in millions)	2006		2005
Audit fees	$	2.1	$	1.6
Audit-related fees		0.1		1.2
Tax fees		0.0		0.0
Other fees		0.1		0.6
Total	$	2.3	$	3.4

• Audit Fees. Represents fees for professional services provided for the audit of Delhaize America’s annual financial statements and review of Delhaize America’s quarterly financial statements, and audit services provided in connection with other statutory or regulatory filings including those for Delhaize Group SA.

79

• Audit-Related Fees. Represents fees for employee benefit plan audits, consultation on accounting pronouncements and internal and financial reporting standards.

• Tax Fees. Represents fees for professional services provided primarily for tax advice and consulting.

• Other Fees. Represents fees for consulting services provided for cost optimization projects.

Delhaize America is wholly owned by Delhaize Group SA, a foreign private issuer with American Depositary Shares listed on the New York Stock Exchange that files reports with the Securities and Exchange Commission.

Pursuant to the Delhaize Group SA Audit Committee Charter, the Delhaize Group SA Audit Committee (the “Audit Committee”) is directly responsible for the appointment, compensation and oversight of our independent auditor, Deloitte & Touche.

Under its pre-approval policy, the Audit Committee pre-approves all audit services and non-audit services to be provided by our independent auditor. The Audit Committee may delegate to one or more of its members the authority to grant the required approvals, provided that any exercise of such authority is presented at the next Audit Committee meeting.

Each audit or non-audit service that is approved by the Audit Committee (excluding tax services performed in the ordinary course of our business) is reflected in a written engagement letter or writing specifying the services to be performed and the cost of such services, which is signed by either a member of the Audit Committee or by an officer of Delhaize Group SA authorized by the Audit Committee to sign on behalf of Delhaize Group SA.

The Audit Committee will not approve any prohibited non-audit service or any non-audit service that individually or in the aggregate may impair, in the Audit Committee’s opinion, the independence of our independent auditor.

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PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) The following documents are filed as part of this report:

1. Financial Statements:

	PAGES
Consolidated Statements of Income for the year ended December 30, 2006, for the year ended December 31, 2005, and for the year ended January 1, 2005	29
Consolidated Balance Sheets, as of December 30, 2006 and December 31, 2005	30
Consolidated Statements of Cash Flows for the year ended December 30, 2006, for the year ended December 31, 2005, and for the year ended January 1, 2005	31
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the year ended December 30, 2006, for the year ended December 31, 2005 and for the year ended January 1, 2005	33
Notes to Consolidated Financial Statements	35
Report of Independent Registered Public Accounting Firm	77
Results by Quarter (unaudited)	78

2. Other:

All other schedules are omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the financial statements and notes thereto.

3. Exhibits:

Exhibit No.	Description
2	Agreement and Plan of Share Exchange dated as of November 16, 2000 between Etablissements Delhaize Frères et Cie “Le Lion” S. A. and the Company, as amended (incorporated by reference to Exhibit 2.1 of the Registration Statement on Form F-4 of Etablissements Delhaize Frères et Cie “Le Lion” S. A. dated March 23, 2001) (Registration No. 333-13302)
3(a)	Articles of Incorporation, together with all amendments thereto (through May 5, 1988)(incorporated by reference to Exhibit 3(a) of the Company’s Annual Report on Form 10-K dated March 24, 1992) (SEC File No. 000-06080)

81

3(b)	Articles of Amendment to Articles of Incorporation, effective as of September 9, 1999 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated September 7, 1999) (SEC File No. 001-15275)
3(c)	Articles of Amendment to Articles of Incorporation, effective as of April 25, 2001 (incorporated by reference to Exhibit 3(c) of the Company’s Annual Report on Form 10-K dated March 29, 2002) (SEC File No. 000-06080)
3(d)	Bylaws of the Company effective May 25, 2001 (incorporated by reference to Exhibit 3(d) of the Company’s Annual Report on Form 10-K dated March 29, 2002) (SEC File No. 000-06080)
4(a)	Indenture dated as of August 15, 1991, between the Company and The Bank of New York, as Trustee, providing for the issuance of an unlimited amount of debt securities in one or more series (incorporated by reference to Exhibit 4(a) of the Company’s Annual Report on Form 10-K dated March 24, 1992) (SEC File No. 000-06080)
4(b)	Indenture, dated as of April 15, 2001, by and among the Company, Food Lion, LLC and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.1 of Amendment No. 1 to the Company’s Current Report on Form 8-K dated April 26, 2001) (SEC File No. 001-15275)
4(c)	First Supplemental Indenture, dated as of April 19, 2001, by and among the Company, Food Lion, LLC and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.2 of Amendment No. 1 to the Company’s Current Report on Form 8-K dated April 26, 2001) (SEC File No. 001-15275)
4(d)	Second Supplemental Indenture, dated as of September 6, 2001, by and among the Company, Food Lion, LLC, Hannaford Bros. Co., Kash n’ Karry and Sweetbay Food Stores, Inc. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4(e) of the Company’s Registration Statement on Form S-4 dated September 17, 2001) (Registration No. 333-69520)
4(e)	Form of Third Supplemental Indenture, dated as of November , 2001, by and among the Company, Food Lion, LLC, Hannaford Bros. Co., Kash `n Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop `n Save-Mass., Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4(f) of Amendment No. 2 to the Company’s Registration Statement on Form S-4 dated November 15, 2001) (Registration No. 333-69520)
4(f)	Registration Rights Agreement, dated as of April 19, 2001, by and among the Company, Food Lion, LLC and Salomon Smith Barney, Inc., Chase Securities Inc. and Deutsche Banc Alex. Brown, in their respective capacities as initial purchasers and as representatives of the other initial purchasers (incorporated by reference to Exhibit 10.3 of Amendment No. 1 to the Company’s Current Report on Form 8-K dated April 26, 2001) (SEC File No. 001-15275)
4(g)	Fourth Supplemental Indenture, dated March 10, 2004 and effective as of December 31, 2003, by and among Delhaize America, Inc., Food Lion, LLC, Hannaford Bros. Co. Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop ‘n Save-Mass, Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC, Hannaford Licensing Corp. and The Bank of New York (incorporated by reference to Exhibit 4(h) of the Company’s Annual Report on Form 10-K dated April 2, 2004) (SEC File No. 000-06080)
4(h)	Second Supplemental Indenture, dated as of May 12, 2004, by and among Delhaize America, Inc., Food Lion, LLC, Hannaford Bros. Co, Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop’n

82

	Save-Mass, Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC, Hannaford Licensing Corp. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4(b) of the Company’s Quarterly Report on Form 10-Q dated May 18, 2004) (SEC File No. 0-6080)
4(i)	Fifth Supplemental Indenture, dated May 17, 2005 and effective as of January 1, 2005, by and among Delhaize America, Inc., Food Lion, LLC, Hannaford Bros. Co. Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop ‘n Save-Mass, Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC, Hannaford Licensing Corp., Victory Distributors, Inc. and The Bank of New York (incorporated by reference to Exhibit 4 of the Company’s Quarterly Report on Form 10-Q dated May 17, 2005) (SEC File No. 000-06080)
4(j)	Agreement of Resignation, Appointment and Acceptance, effective as of March 12, 2007, by and among Delhaize America, Inc., Food Lion, LLC, Hannaford Bros. Co, Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop’n Save-Mass, Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC, Hannaford Licensing Corp. The Bank of New York and the Bank of New York Trust Company, N.A.
4(k)	Agreement of Resignation, Appointment and Acceptance, effective as of March 12, 2007, by and among Delhaize America, Inc., Food Lion, LLC, Hannaford Bros. Co. Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop ‘n Save-Mass, Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC, Hannaford Licensing Corp., Victory Distributors, Inc., The Bank of New York and The Bank of New York Trust Company, N.A.
10(a)	License Agreement between the Company and Etablissements Delhaize Frères et Cie “Le Lion” S.A. dated January 1, 1983 (incorporated by reference to Exhibit 10(t) of the Company’s Annual Report on Form 10-K dated March 31, 1994) (SEC File No. 000-06080)
10(b)	License Agreement, dated as of June 19, 1997, among the Company, Kash n’ Karry and Sweetbay Food Stores, Inc., and Etablissements Delhaize Frères et Cie “Le Lion” S.A. (incorporated by reference to Exhibit 10(a) of the Company’s Quarterly Report on Form 10-Q dated July 25, 1997) (SEC File No. 000-06080)
10(c)	First Supplement Indenture dated as of April 21, 1997, among Food Lion Inc. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10(a) of the Company’s Quarterly Report on Form 10-Q dated May 2, 1997) (SEC File No. 000-06080)
10(d)	Underwriting Agreement dated as of April 16, 1997, between Food Lion, Inc. and Salomon Brothers, Inc. for itself and as representative for NationsBanc Capital Markets Inc. (incorporated by reference to Exhibit 10(b) of the Company’s Quarterly Report on Form 10-Q dated May 2, 1997) (SEC File No. 000-06080)
10(e)	Agreement, dated as of January 4, 1998, between Etablissements Delhaize Frères et Cie “Le Lion” S.A. and the Company (incorporated by reference to 10(af) of the Company’s Annual Report on Form 10-K dated April 8, 1998) (SEC File No. 000-06080)
10(f)	Credit Agreement, dated as of April 22, 2005, among Delhaize America, Inc., the subsidiary guarantors party thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, Issuing Bank and Swingline Lender relating to the $500,000,000 5-Year Revolving Credit Facility (incorporated by reference to Exhibit 10 of Company’s Current Report of Form 8-K dated April 22, 2005) (SEC File No. 000-06080)

83

18(a)	Preferability Letter from Deloitte & Touche LLP (incorporated by reference to Exhibit 18 of the Company’s Quarterly Report on Form 10-Q dated August 12, 2003) (SEC File No. 000-06080)
18(b)	Preferability Letter from Deloitte & Touche LLP (incorporated by reference to Exhibit 18(b) of the Company’s Annual Report on Form 10-K dated March 27, 2006) (SEC File No. 000-06080)
23	Consent of Deloitte & Touche LLP
31(a)	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. § 7241)
31(b)	Certification of Chief Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. § 7241)
32	Certifications of Chief Executive Officer and Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)
99	Undertaking of the Company to file exhibits pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K

84

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Delhaize America, Inc.
Date: March 30, 2007	By:	/s/ Carol M. Herndon
		Carol M. Herndon
		Executive Vice President of Accounting and Analysis and Chief Accounting Officer Principal Accounting Officer and Principal Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Date: March 30, 2007	By:	/s/ Carol M. Herndon
		Carol M. Herndon
		Executive Vice President of Accounting and Analysis and Chief Accounting Officer Principal Accounting Officer and Principal Financial Officer
Date: March 30, 2007	By:	/s/ Pierre-Olivier Beckers
		Pierre-Olivier Beckers
		Chairman and Chief Executive Officer Director

85

EXHIBIT INDEX

to

ANNUAL REPORT ON FORM 10-K of

Delhaize America, Inc.

For the Fiscal Year Ended December 30, 2006

Exhibit No.	Description
2	Agreement and Plan of Share Exchange dated as of November 16, 2000 between Etablissements Delhaize Frères et Cie “Le Lion” S. A. and the Company, as amended (incorporated by reference to Exhibit 2.1 of the Registration Statement on Form F-4 of Etablissements Delhaize Frères et Cie “Le Lion” S. A. dated March 23, 2001) (Registration No. 333-13302)
3(a)	Articles of Incorporation, together with all amendments thereto (through May 5, 1988) (incorporated by reference to Exhibit 3(a) of the Company’s Annual Report on Form 10-K dated March 24, 1992) (SEC File No. 000-06080)
3(b)	Articles of Amendment to Articles of Incorporation, effective as of September 9, 1999 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K dated September 7, 1999) (SEC File No. 001-15275)
3(c)	Articles of Amendment to Articles of Incorporation, effective as of April 25, 2001 (incorporated by reference to Exhibit 3(c) of the Company’s Annual Report on Form 10-K dated March 29, 2002) (SEC File No. 000-06080)
3(d)	Bylaws of the Company effective May 25, 2001 (incorporated by reference to Exhibit 3(d) of the Company’s Annual Report on Form 10-K dated March 29, 2002) (SEC File No. 000-06080)
4(a)	Indenture dated as of August 15, 1991, between the Company and The Bank of New York, as Trustee, providing for the issuance of an unlimited amount of debt securities in one or more series (incorporated by reference to Exhibit 4(a) of the Company’s Annual Report on Form 10-K dated March 24, 1992) (SEC File No. 000-06080)
4(b)	Indenture, dated as of April 15, 2001, by and among the Company, Food Lion, LLC and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.1 of Amendment No. 1 to the Company’s Current Report on Form 8-K dated April 26, 2001) (SEC File No. 001-15275)
4(c)	First Supplemental Indenture, dated as of April 19, 2001, by and among the Company, Food Lion, LLC and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10.2 of Amendment No. 1 to the Company’s Current Report on Form 8-K dated April 26, 2001) (SEC File No. 001-15275)
4(d)	Second Supplemental Indenture, dated as of September 6, 2001, by and among the Company, Food Lion, LLC, Hannaford Bros. Co., Kash n’ Karry and Sweetbay Food Stores, Inc. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4(e) of the Company’s Registration Statement on Form S-4 dated September 17, 2001) (Registration No. 333-69520)
4(e)	Form of Third Supplemental Indenture, dated as of November , 2001, by and among the Company, Food Lion, LLC, Hannaford Bros. Co., Kash `n Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop `n Save-Mass., Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4(f) of Amendment No. 2 to the Company’s Registration Statement on Form S-4 dated November 15, 2001) (Registration No. 333-69520)

86

4(f)	Registration Rights Agreement, dated as of April 19, 2001, by and among the Company, Food Lion, LLC and Salomon Smith Barney, Inc., Chase Securities Inc. and Deutsche Banc Alex. Brown, in their respective capacities as initial purchasers and as representatives of the other initial purchasers (incorporated by reference to Exhibit 10.3 of Amendment No. 1 to the Company’s Current Report on Form 8-K dated April 26, 2001) (SEC File No. 001-15275)
4(g)	Fourth Supplemental Indenture, dated March 10, 2004 and effective as of December 31, 2003, by and among Delhaize America, Inc., Food Lion, LLC, Hannaford Bros. Co. Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop ‘n Save-Mass, Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC, Hannaford Licensing Corp. and The Bank of New York (incorporated by reference to Exhibit 4(h) of the Company’s Annual Report on Form 10-K dated April 2, 2004) (SEC File No. 000-06080)
4(h)	Second Supplemental Indenture, dated as of May 12, 2004, by and among Delhaize America, Inc., Food Lion, LLC, Hannaford Bros. Co, Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop’n Save-Mass, Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC, Hannaford Licensing Corp. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4(b) of the Company’s Quarterly Report on Form 10-Q dated May 18, 2004) (SEC File No. 000-06080)
4(i)	Fifth Supplemental Indenture, dated May 17, 2005 and effective as of January 1, 2005, by and among Delhaize America, Inc., Food Lion, LLC, Hannaford Bros. Co. Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop ‘n Save-Mass, Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC, Hannaford Licensing Corp., Victory Distributors, Inc. and The Bank of New York (incorporated by reference to Exhibit 4 of the Company’s Quarterly Report on Form 10-Q dated May 17, 2005) (SEC File No. 000-06080)
4(j)	Agreement of Resignation, Appointment and Acceptance, effective as of March 12, 2007, by and among Delhaize America, Inc., Food Lion, LLC, Hannaford Bros. Co, Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop’n Save-Mass, Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC, Hannaford Licensing Corp. The Bank of New York and the Bank of New York Trust Company, N.A.
4(k)	Agreement of Resignation, Appointment and Acceptance, effective as of March 12, 2007, by and among Delhaize America, Inc., Food Lion, LLC, Hannaford Bros. Co. Kash n’ Karry Food Stores, Inc., FL Food Lion, Inc., Risk Management Services, Inc., Hannbro Company, Martin’s Foods of South Burlington, Inc., Shop ‘n Save-Mass, Inc., Hannaford Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC, Hannaford Licensing Corp., Victory Distributors, Inc., The Bank of New York and The Bank of New York Trust Company, N.A.
10(a)	License Agreement between the Company and Etablissements Delhaize Frères et Cie “Le Lion” S.A. dated January 1, 1983 (incorporated by reference to Exhibit 10(t) of the Company’s Annual Report on Form 10-K dated March 31, 1994) (SEC File No. 000-06080)
10(b)	License Agreement, dated as of June 19, 1997, among the Company, Kash n’ Karry and Sweetbay Food Stores, Inc., and Etablissements Delhaize Frères et Cie “Le Lion” S.A. (incorporated by reference to Exhibit 10(a) of the Company’s Quarterly Report on Form 10-Q dated July 25, 1997) (SEC File No. 000-06080)
10(c)	First Supplement Indenture dated as of April 21, 1997, among Food Lion Inc. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10(a) of the Company’s Quarterly Report on Form 10-Q dated May 2, 1997) (SEC File No. 000-06080)

87

10(d)	Underwriting Agreement dated as of April 16, 1997, between Food Lion, Inc. and Salomon Brothers, Inc. for itself and as representative for NationsBanc Capital Markets Inc. (incorporated by reference to Exhibit 10(b) of the Company’s Quarterly Report on Form 10-Q dated May 2, 1997) (SEC File No. 000-06080)
10(e)	Agreement, dated as of January 4, 1998, between Etablissements Delhaize Frères et Cie “Le Lion” S.A. and the Company (incorporated by reference to 10(af) of the Company’s Annual Report on Form 10-K dated April 8, 1998) (SEC File No. 000-06080)
10(f)	Credit Agreement, dated as of April 22, 2005, among Delhaize America, Inc., the subsidiary guarantors party thereto, the lenders party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent, Issuing Bank and Swingline Lender relating to the $500,000,000 5-Year Revolving Credit Facility (incorporated by reference to Exhibit 10 of Company’s Current Report of Form 8-K dated April 22, 2005) (SEC File No. 000-06080)
18(a)	Preferability Letter from Deloitte & Touche LLP (incorporated by reference to Exhibit 18 of the Company’s Quarterly Report on Form 10-Q dated August 12, 2003) (SEC File No. 000-06080)
18(b)	Preferability Letter from Deloitte & Touche LLP (incorporated by reference to Exhibit 18(b) of the Company’s Annual Report on Form 10-K dated March 27, 2006) (SEC File No. 000-06080)
23	Consent of Deloitte & Touche LLP
31(a)	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. § 7241)
31(b)	Certification of Chief Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. § 7241)
32	Certifications of Chief Executive Officer and Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)
99	Undertaking of the Company to file exhibits pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K

88

EX-4.(J)

Exhibit 4(j)

AGREEMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE

This Agreement of Resignation, Appointment and Acceptance, dated as of April 17, 2006 (this “Agreement”), is made by and among that issuer or other person who is identified in Exhibit A attached hereto (the “Exhibit”) as the “Issuer” (the “Issuer”), the guarantors listed on the signature pages of this Agreement (the “Guarantors”), The Bank of New York, a banking corporation with trust powers duly organized and existing under the laws of the State of New York and having its principal corporate trust office at 101 Barclay Street, New York, NY 10286 (the “Bank”) and The Bank of New York Trust Company, N.A., a national banking association duly organized and existing under the laws of the United States and having its principal office in Los Angeles, California (“BNYTC”).

RECITALS:

WHEREAS, the Issuer, the Guarantors and the Bank entered into one or more trust indentures, paying agency agreements, registrar agreements, or other relevant agreements as such are more particularly described in the Exhibit under the section entitled “Agreements” (individually and collectively referred to herein as the “Agreements”) under which the Bank was appointed in the capacity or capacities identified in the Exhibit (individually and collectively the “Capacities”);

WHEREAS, BNYTC has requested that it be appointed by the Issuer and the Guarantors as the successor to the Bank in its Capacities under the Agreements; and

WHEREAS, BNYTC is willing to accept such appointment as the successor to the Bank in its Capacities under the Agreements.

NOW, THEREFORE, the Issuer, the Guarantors, the Bank and BNYTC, for and in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby consent and agree as follows:

ARTICLE I

THE BANK

SECTION 1.01. The Bank hereby resigns from its Capacities under the Agreements.

SECTION 1.02. The Bank hereby assigns, transfers, delivers and confirms to BNYTC all right, title and interest of the Bank in its Capacity(s) relating to the Agreements.

1

ARTICLE II

THE ISSUER AND THE GUARANTORS

SECTION 2.01. The Issuer and the Guarantors hereby accept the resignation of the Bank from its Capacities under the Agreements.

SECTION 2.02. All conditions relating to the appointment of BNYTC as the successor to the Bank in its Capacities under the Agreements have been met by the Issuer and the Guarantors, and the Issuer and the Guarantors hereby appoint BNYTC to its Capacities under the Agreements with like effect as if originally named to such Capacities under the Agreements.

ARTICLE III

BNYTC

SECTION 3.01. BNYTC hereby represents and warrants to the Bank and to the Issuer and the Guarantors that BNYTC is not disqualified to act in the Capacities under the Agreements.

SECTION 3.02. BNYTC hereby accepts its appointment to the Capacities under the Agreements and accepts and assumes the rights, powers, duties and obligations of the Bank under the Agreements, upon the terms and conditions set forth therein, with like effect as if originally named to such Capacities under the Agreements.

ARTICLE IV

MISCELLANEOUS

SECTION 4.01. This Agreement and the resignation, appointment and acceptance effected hereby shall be effective as of 12:01 A.M. local Los Angeles time on the Effective Date set forth in the Exhibit.

SECTION 4.02. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

SECTION 4.03. This Agreement may be executed in any number of counterparts each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.

SECTION 4.04. The persons signing this Agreement on behalf of the Issuer, each Guarantor, BNYTC and the Bank are duly authorized to execute it on behalf of each party, and each party warrants that it is authorized to execute this Agreement and to perform its duties hereunder.

SECTION 4.05. The Issuer represents that it is the type of entity as identified in the Exhibit and has been duly organized and is validly existing under the laws of the jurisdiction and with the principal office as identified in the Exhibit.

2

IN WITNESS WHEREOF, the parties hereto have caused this Agreement of Resignation, Appointment and Acceptance to be duly executed and acknowledged all as of the day and year first above written.

Issuer:	DELHAIZE AMERICA, INC.
	By:	/s/ G. Linn Evans
		G. Linn Evans
		Assistant Secretary
Guarantors:	FOOD LION, LLC
	By:	/s/ G. Linn Evans
		G. Linn Evans
		Vice President and Secretary
	HANNAFORD BROS. CO.
	By:	/s/ Emily Dickinson
		Emily Dickinson
		Senior Vice President, Secretary and General Counsel
	KASH N’ KARRY FOOD STORES, INC.
	By:	/s/ Emily Dickinson
		Emily Dickinson
		Secretary and Assistant Treasurer
	FL FOOD LION, INC.
	By:	/s/ G. Linn Evans
		G. Linn Evans
		Secretary

3

RISK MANAGEMENT SERVICES, INC.
By:	/s/ G. Linn Evans
	G. Linn Evans
	Secretary and Treasurer
HANNBRO COMPANY
By:	/s/ Emily D. Dickinson
	Emily D. Dickinson
	President
MARTIN’S FOODS OF SOUTH BURLINGTON, INC.
By:	/s/ Emily D. Dickinson
	Emily D. Dickinson
	Assistant Secretary
SHOP ‘N SAVE-MASS., INC.
By:	/s/ Emily D. Dickinson
	Emily D. Dickinson
	Secretary
HANNAFORD PROCUREMENT CORP.
By:	/s/ Emily D. Dickinson
	Emily D. Dickinson
	Secretary
BONEY WILSON & SONS, INC.
By:	/s/ Emily D. Dickinson
	Emily D. Dickinson
	Secretary

4

	J.H. HARVEY CO., LLC
	By:	/s/ G. Linn Evans
		G. Linn Evans
		Vice President and Secretary
	HANNAFORD LICENSING CORP.
	By:	/s/ Emily D. Dickinson
		Emily D. Dickinson
		Secretary
Bank:	The Bank of New York
	By:	/s/ Van K. Brown
	Name:	Van K. Brown
	Title:	Vice President
BNYTC:	The Bank of New York Trust Company, N.A.
	By:	/s/ Tina D. Gonzalez
	Name:	Tina D. Gonzalez
	Title:	Assistant Treasurer

5

EXHIBIT A

Issuer: Delhaize America, Inc., a North Carolina corporation, formerly known as Food Lion, Inc., with its principal office located at 2110 Executive Drive, Salisbury, NC 28147.

Effective Date: March 12, 2007

Agreement(s):

Name/Description of transaction	Description of relevant Agreement & Date	The Bank of New York’s Capacity(s)
Food Lion Inc., Medium Term Notes	08/15/91	Trustee, Reg, P/A
Food Lion Inc., 7.55% Notes due 2007	08/15/91	Trustee, Reg, P/A
Food Lion Inc., 8.05% Notes due 2027	08/15/91	Trustee, Reg, P/A

6

EX-4.(K)

Exhibit 4(k)

AGREEMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE

This Agreement of Resignation, Appointment and Acceptance, dated as of April 19, 2006 (this “Agreement”), is made by and among that issuer or other person who is identified in Exhibit A attached hereto (the “Exhibit”) as the “Issuer” (the “Issuer”), the guarantors listed on the signature pages of this Agreement (the “Guarantors”), The Bank of New York, a banking corporation with trust powers duly organized and existing under the laws of the State of New York and having its principal corporate trust office at 101 Barclay Street, New York, NY 10286 (the “Bank) and The Bank of New York Trust Company, N.A., a national banking association duly organized and existing under the laws of the United States and having its principal office in Los Angeles, California (“BNYTC”).

RECITALS:

WHEREAS, the Issuer, the Guarantors and the Bank entered into one or more trust indentures, paying agency agreements, registrar agreements, or other relevant agreements as such are more particularly described in the Exhibit under the section entitled “Agreements” (individually and collectively referred to herein as the “Agreements”) under which the Bank was appointed in the capacity or capacities identified in the Exhibit (individually and collectively the “Capacities”);

WHEREAS, BNYTC has requested that it be appointed by the Issuer and the Guarantors as the successor to the Bank in its Capacities under the Agreements; and

WHEREAS, BNYTC is willing to accept such appointment as the successor to the Bank in its Capacities under the Agreements.

NOW, THEREFORE, the Issuer, the Guarantors, the Bank and BNYTC, for and in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby consent and agree as follows:

ARTICLE I

THE BANK

SECTION 1.01. The Bank hereby resigns from its Capacities under the Agreements.

SECTION 1.02. The Bank hereby assigns, transfers, delivers and confirms to BNYTC all right, title and interest of the Bank in its Capacity(s) relating to the Agreements.

1

ARTICLE II

THE ISSUER AND THE GUARANTORS

SECTION 2.01. The Issuer and the Guarantors hereby accept the resignation of the Bank from its Capacities under the Agreements.

SECTION 2.02. All conditions relating to the appointment of BNYTC as the successor to the Bank in its Capacities under the Agreements have been met by the Issuer and the Guarantors, and the Issuer and the Guarantors hereby appoint BNYTC to its Capacities under the Agreements with like effect as if originally named to such Capacities under the Agreements.

ARTICLE III

BNYTC

SECTION 3.01. BNYTC hereby represents and warrants to the Bank and to the Issuer and the Guarantors that BNYTC is not disqualified to act in the Capacities under the Agreements.

SECTION 3.02. BNYTC hereby accepts its appointment to the Capacities under the Agreements and accepts and assumes the rights, powers, duties and obligations of the Bank under the Agreements, upon the terms and conditions set forth therein, with like effect as if originally named to such Capacities under the Agreements.

ARTICLE IV

MISCELLANEOUS

SECTION 4.01. This Agreement and the resignation, appointment and acceptance effected hereby shall be effective as of 12:01 A.M. local Los Angeles time on the Effective Date set forth in the Exhibit.

SECTION 4.02. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

SECTION 4.03. This Agreement may be executed in any number of counterparts each of which shall be an original, but such counterparts shall together constitute but one and the same instrument.

SECTION 4.04. The persons signing this Agreement on behalf of the Issuer, each Guarantor, BNYTC and the Bank are duly authorized to execute it on behalf of each party, and each party warrants that it is authorized to execute this Agreement and to perform its duties hereunder.

2

SECTION 4.05. The Issuer represents that it is the type of entity as identified in the Exhibit and has been duly organized and is validly existing under the laws of the jurisdiction and with the principal office as identified in the Exhibit.

[The signature pages follow as the next pages.]

3

IN WITNESS WHEREOF, the parties hereto have caused this Agreement of Resignation, Appointment and Acceptance to be duly executed and acknowledged all as of the day and year first above written.

Issuer:	Delhaize America, Inc.
	By:	/s/ G. Linn Evans
		G. Linn Evans
		Assistant Secretary
Guarantors:	FOOD LION, LLC
	By:	/s/ G. Linn Evans
		G. Linn Evans
		Vice President and Secretary
	HANNAFORD BROS. CO.
	By:	/s/ Emily Dickinson
		Emily Dickinson
		Senior Vice President, Secretary and General Counsel
	KASH N’ KARRY FOOD STORES, INC.
	By:	/s/ Emily Dickinson
		Emily Dickinson
		Secretary and Assistant Treasurer
	FL FOOD LION, INC.
	By:	/s/ G. Linn Evans
		G. Linn Evans
		Secretary

4

RISK MANAGEMENT SERVICES, INC.
By:	/s/ G. Linn Evans
	G. Linn Evans
	Secretary and Treasurer
HANNBRO COMPANY
By:	/s/ Emily D. Dickson
	Emily D. Dickinson
	President
MARTIN’S FOODS OF SOUTH BURLINGTON, INC.
By:	/s/ Emily D. Dickinson
	Emily D. Dickinson
	Assistant Secretary
SHOP ‘N SAVE-MASS., INC.
By:	/s/ Emily D. Dickinson
	Emily D. Dickinson
	Secretary
HANNAFORD PROCUREMENT CORP.
By:	/s/ Emily D. Dickinson
	Emily D. Dickinson
	Secretary
BONEY WILSON & SONS, INC.
By:	/s/ Emily D. Dickinson
	Emily D. Dickinson
	Secretary
J.H. HARVEY CO., LLC
By:	/s/ G. Linn Evans
	G. Linn Evans
	Vice President and Secretary

5

	HANNAFORD LICENSING CORP.
	By:	/s/ Emily D. Dickinson
		Emily D. Dickinson
		Secretary
	VICTORY DISTRIBUTORS, INC.
	By:	/s/ Emily D. Dickinson
		Emily D. Dickinson
		Secretary
Bank:	The Bank of New York
	By:	/s/ Van K. Brown
	Name:	Van K. Brown
	Title:	Vice President
BNYTC:	The Bank of New York Trust Company, N.A.
	By:	/s/ Tina D. Gonzalez
	Name:	Tina D. Gonzalez
	Title:	Assistant Treasurer

6

EXHIBIT A

Issuer: Delhaize America, Inc., a North Carolina corporation with its principal office located at 2110 Executive Drive, Salisbury, NC 28147.

Effective Date: March 12, 2007

Agreement(s):

Name/Description of transaction	Description of relevant Agreement & Date	The Bank of New York’s Capacity(s)
Delhaize America Inc. 7.375% Notes due 2006	04/15/01	Trustee, Reg, P/A
Delhaize America Inc. 8.125% Notes due 2011	04/15/01	Trustee, Reg, P/A
Delhaize America Inc. 9.0% Notes due 2031	04/15/01	Trustee, Reg, P/A

7

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following Registration Statements of Delhaize America, Inc.:

• Registration Statement No. 333-69520 on Form S-4;

• Registration Statement No. 33-49620 on Form S-3

of our report relating to the consolidated financial statements of Delhaize America, Inc. dated March 27, 2007 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the Company’s early adoption in 2005 of Statement of Financial Accounting Standards No. 123(R) “Share-Based Payment”) appearing in the Annual Report on Form 10-K of Delhaize America, Inc. for the year ended December 30, 2006.

/s/ Deloitte & Touche LLP

Charlotte, North Carolina

March 27, 2007

EX-31.(A)

Exhibit 31(a)

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. § 7241)

I, Pierre-Olivier Beckers, certify that:

1) I have reviewed this Annual Report on Form 10-K of Delhaize America, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 30, 2007

/s/ Pierre-Olivier Beckers

Pierre-Olivier Beckers

Chief Executive Officer

EX-31.(B)

Exhibit 31(b)

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. § 7241)

I, Carol M. Herndon, certify that:

1) I have reviewed this Annual Report on Form 10-K of Delhaize America, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 30, 2007

/s/ Carol M. Herndon

Carol M. Herndon

Chief Accounting Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Delhaize America, Inc. (the Company) on Form 10-K for the year ended December 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the Form 10-K), we, Pierre-Olivier Beckers and Carol M. Herndon, Chief Executive Officer and Chief Accounting Officer, respectively, of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

(i) the Form 10-K fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: March 30, 2007

/s/ Pierre-Olivier Beckers

Pierre-Olivier Beckers

Chief Executive Officer

/s/ Carol M. Herndon

Carol M. Herndon

Chief Accounting Officer

A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906 HAS BEEN PROVIDED TO THE COMPANY AND WILL BE RETAINED BY THE COMPANY AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION OR ITS STAFF UPON REQUEST.

EX-99

Exhibit 99

UNDERTAKING TO FILE EXHIBITS PURSUANT

TO ITEM 601(b)(4)(iii)(A) OF REGULATIONS S-K

The undersigned registrant acknowledges that it has not filed with the Securities and Exchange Commission (the “Commission”) copies of certain instruments with respect to long-term debt of the registrant representing obligations not exceeding 10% of the registrant’s total assets as of December 30, 2006, pursuant to the provisions of Item 601(b)(4)(iii)(A) of Regulation S-K of the Commission (the “Regulation”).

Pursuant to the Regulation, the undersigned registrant hereby undertakes to furnish to the Commission upon its request a copy of any such instrument.

This is the 30^th day of March, 2007.

DELHAIZE AMERICA, INC.

/s/ Carol M. Herndon

Carol M. Herndon

Executive Vice President of Accounting

and Analysis and Chief Accounting Officer