UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~July~~April 32, ~~2004~~2005

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

For the transition period from to

Commission File number 0-6080

DELHAIZE AMERICA, INC.

(Exact name of registrant as specified in its charter)

NORTH CAROLINA

56-0660192

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

P.O. Box 1330, 2110 Executive Drive, Salisbury, NC 28145-1330

(Address of principal executive office) (Zip Code)

(704) 633-8250

(Registrant’s telephone number, including area code)

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

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

Outstanding shares of common stock of the Registrant as of ~~August~~May 17 , ~~2004~~2005.

Class A Common Stock – 91,270,348,481


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

~~Class~~THE BREGISTRANT ~~Common~~MEETS THE ~~Stock~~CONDITIONS ~~- 75,468,935~~SET FORTH IN GENERAL INSTRUCTION H(1)(a) and (b) OF

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

DELHAIZE AMERICA, INC.

INDEX TO FORM 10-Q

~~July~~April 32, ~~2004~~2005

			Page
Forward Looking Statements			3-4
Cautionary Note Concerning Forward Looking Statements			3-4
PART I.		FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)
		Condensed Consolidated Statements of Income for the 13 weeks ended July 3, 2004 and June 28, 2003	5
		Condensed Consolidated Statements of Income for the 13 weeks ended April 2, 2005 and April 3, 2004	5
		Condensed Consolidated Statements of Income for the 26 weeks ended July 3, 2004 and June 28, 2003	6
		Condensed Consolidated Balance Sheets as of April 2, 2005 and January 1, 2005 (Audited)	6
		Condensed Consolidated Balance Sheets as of July 3, 2004 and January 3, 2004 (Audited)	7
		Condensed Consolidated Statements of Cash Flows for the 13 weeks ended April 2, 2005 and April 3, 2004	7
		Condensed Consolidated Statements of Cash Flows for the 26 weeks ended July 3, 2004 and June 28, 2003	8
		Notes to Condensed Consolidated Financial Statements	8-19
		Notes to Condensed Consolidated Financial Statements	9-18
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	19-29
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	18-28
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
	Item 4.	Controls and Procedures	29
	Item 4.	Controls and Procedures	28
PART II.		OTHER INFORMATION
	Item 6.	Exhibits ~~and Reports on Form 8-K~~	2830
Signature			2931
Exhibit Index			3032

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.

CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q includes or incorporates by reference “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), Section 21E of the Securities and Exchange Act of 1934, as amended (“Exchange Act”), and the Private Securities Litigation Reform Act of 1995 about Delhaize America that are subject to risks and uncertainties. All statements included in this quarterly report on Form 10-Q, other than statements of historical fact, which address activities, events or developments that Delhaize America expects or anticipates will or may occur in the future, including, without limitation, statements regarding expansion and growth of its business, anticipated store openings and renovations, future capital expenditures, projected revenue growth or synergies resulting from the share exchange transaction with Delhaize Group, and business strategy, are forward-looking statements. These forward-looking statements generally can be identified as statements that include phrases such as “believe”,” “expect”,” “anticipate”,” “intend”,” “plan”, ” “foresee”,” “likely”,” “will”,” “should” or other similar words or phrases.

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

• The grocery retailing industry continues to experience ~~fierce~~significant competition from other food retailers, supercenters, mass merchandisers, club or warehouse stores, drug stores and restaurants. Our continued success is dependent upon our ability to compete in this industry, develop and implement retailing strategies and continue to reduce operating expenses. The competitive environment may cause us to reduce our prices in order to gain or maintain share of sales, thus reducing margins. While we believe our opportunities for sustained, profitable growth are considerable, unanticipated actions of competitors could impact our sales and net income.

•

Our future results could be adversely affected due to pricing and promotional activities of existing and new competitors, including non-traditional food retailers; our response actions; the state of the economy, including inflationary or deflationary trends in certain commodities; recessionary times in the economy; and our ability to sustain the cost reductions that we have identified and implemented.

•

Our ability to achieve our cost savings goals could be affected by, in addition to other factors described herein, our ability to achieve productivity improvements, shrink reduction, efficiencies in our distribution centers, and other efficiencies created by our logistics projects.

• Changes in the general business and economic conditions in our operating regions, including the rate of inflation, population growth, and employment and job growth in the markets in which we operate may affect our ability to hire and train qualified employees to operate our stores. This ~~would~~could negatively affect earnings and sales growth. General economic changes may also affect the shopping habits of our customers, which could affect sales and earnings.

•

Consolidation in the food industry is likely to continue and the effects on our business, favorable or unfavorable, cannot be foreseen.

• Our ability to integrate any companies we acquire or have acquired and achieve operating improvements at those companies ~~will~~may affect our financial results.

• Increases in the cost of inputs, such as utility costs, fuel costs or raw material costs and increased product costs, and increased labor and labor related (e.g., health and welfare and pension) costs could negatively impact ~~financial~~our ~~ratios~~results.

•

Adverse weather conditions could increase the cost our suppliers charge for their products, decrease or increase the customer demand for certain products, interrupt operations at affected stores, or interrupt operations of our suppliers.

• We are subject to labor relations issues, including union organizing activities, that could result in an increase in costs or lead to a strike, thus impairing operations and decreasing sales. We are also subject to labor relations issues at entities involved in our supply chain, including both suppliers and those involved in transportation and shipping.

•

Changes in laws and regulations, including changes in accounting standards, taxation requirements, and environmental laws may have a material impact on our financial statements.

•

Our future results could be adversely affected by issues affecting the food distribution and retail industry generally, such as food safety concerns, an increase in consumers eating away from home and the manner in which vendors target their promotional dollars.

• Our comparable store sales growth could be affected by increases or decreases in private-label sales, the impact of our new store openings, as well as competitors’ openings.

• WeOur ~~have~~comparable ~~estimated~~store ~~our~~sales ~~exposure~~growth ~~to the claims and litigation arising in the normal course of business and believe we have made adequate provisions for them. Unexpected outcomes in these matters~~ could ~~result~~be inaffected anby ~~adverse~~competitors’ ~~effect on our earnings~~openings.

•

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 them. Unexpected outcomes in these matters could result in an adverse effect on our financial statements.

•

We continue to experience both federal and state audits of 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 defenses 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 these matters could result in an adverse effect on our financial statements.

•

Interest expense on variable rate borrowings will vary with changes in capital markets and the amount of debt that we have outstanding. However, the majority of our long-term notes payable bear an effective fixed interest rate. On this debt, we bear the risk that the required payments will exceed those based on current market rates.

•

Our capital expenditures could differ from our estimate if we are unsuccessful in acquiring suitable sites for new stores, if development costs vary from those budgeted, or if significant projects are not completed in the time frame expected or on budget.

• Depreciation and amortization expenses may vary from our estimates due to the timing of new store openings and remodels.

• LIFO charges and credits will be affected by changes in the cost of inventory.

• We are self-insured for workers’ compensation, general liability, ~~vehicle accident~~ and ~~druggist~~auto claims. Maximum retention, including defense costs per occurrence, ranges from (i) $0.5 million to $1.0 million per accident for workers’ compensation, (ii) $5.0 million per accident for automobile liability and (iii) $23.0 million per accident for general liability, with an additional $5.0 million retention in excess of the primary $23.0 million general liability retention for druggist liability. We are insured for costs related to covered claims, including defense costs, in excess of these retentions. It is possible that the final resolution of some of these claims may require us to make significant expenditures in excess of our existing reserves over an extended period of time and in a range of amounts that cannot be reasonably estimated. Pursuant to our self-insurance program, self-insured reserves related to workers’ compensation, general liability and auto coverage are reinsured by Pride Reinsurance Company (“Pride”), an Irish reinsurance captive, owned by an affiliated company of Delhaize Group. Premiums are transferred annually to Pride through Delhaize Insurance Co., a subsidiary of Delhaize America.

• Our access to capital markets on favorable terms and our leasing costs could be negatively affected by ~~the~~our ~~company’s~~ financial performance and by conditions of the financial ~~and credit~~ markets.

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

DELHAIZE AMERICA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

For the 13 weeks ended ~~July~~April 32, ~~2004~~2005 and ~~June~~April 283, ~~2003~~2004

(Dollars in thousands)

	13 WeeksEnded July 3, 2004		13 WeeksEnded June 28, 2003
	13 Weeks Ended April 2, 2005		13 Weeks Ended April 3, 2004
Net sales and other revenues	$	34,~~999~~026,~~188~~735	$	3,~~743~~853,~~232~~639
Cost of goods sold		2,~~974~~967,~~578~~145		2,~~809~~856,~~322~~673
Selling and administrative expenses		~~804~~854,~~376~~088		~~751~~788,~~123~~524
Operating income		~~220~~205,~~234~~502		~~182~~208,~~787~~442
Interest expense		80,~~094~~871		7880,~~731~~052
Income from continuing operations before income taxes		~~140~~124,~~140~~631		~~104~~128,~~056~~390
Provision for income taxes		5152,~~752~~892		3751,~~878~~067
Income from continuing operations		8871,~~388~~739		6677,~~178~~323
Loss from discontinued operations, net of tax		2,~~232~~193		553,~~550~~725
Net income	$	8669,~~156~~546	$	6023,~~628~~598

See notes to unaudited condensed consolidated financial statements.

DELHAIZE AMERICA, INC.

CONDENSED CONSOLIDATED ~~STATEMENTS~~BALANCE OFSHEETS ~~INCOME~~

~~(Unaudited)~~As of April 2, 2005 and January 1, 2005

For the 26 weeks ended July 3, 2004 and June 28, 2003

(Dollars in thousands)

	26 WeeksEnded July 3, 2004			26 WeeksEnded June 28, 2003
	April 2, 2005				January 1, 2005
Net sales and other revenues	$	7,856,810		$	7,371,629
	(Unaudited)				(Audited)
Cost of goods sold		5,834,443			5,558,807
ASSETS
Selling and administrative expenses		1,593,924			1,490,406
Current assets:
Operating income		428,443			322,416
Cash and cash equivalents	$	576,222			$	499,865
Interest expense		160,163			158,059
Receivables, net		113,598				120,988
Income from continuing operations before income taxes		268,280			164,357
Receivable from affiliate		12,647				17,436
Provision for income taxes		102,721			59,580
Inventories		1,152,182				1,144,904
Income from continuing operations		165,559			104,777
Prepaid expenses		96,461				49,924
Loss from discontinued operations, net of tax		55,805			29,641
Other assets		13,220				13,472
Income before cumulative effect of change in accounting principle		109,754			75,136
Total current assets		1,964,330				1,846,589
Cumulative effect of change in accounting principle, net of tax		—			10,946
Property and equipment, net		2,995,401				2,986,803
Net income	$	109,754		$	64,190
Goodwill		3,049,459				3,049,622
Other intangibles, net		723,559				733,194
Reinsurance recoverable from affiliate		140,115				136,845
Other assets		166,709				175,219
Total assets	$	9,039,573			$	8,928,272
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	717,731			$	735,305
Dividend payable		—				25,029
Payable to affiliate		—				925
Accrued expenses		349,910				295,137
Capital lease obligations - current		41,288				40,639
Long term debt - current		12,252				12,295
Other liabilities - current		33,999				40,596
Deferred income taxes		1,157				3,349
Income taxes payable		102,901				51,459
Total current liabilities		1,259,238				1,204,734
Long-term debt		2,855,339				2,866,228
Capital lease obligations		731,970				722,113
Deferred income taxes		242,589				250,323
Other liabilities		313,456				315,824
Total liabilities		5,402,592				5,359,222
Commitments and contingencies (Note 14)
Shareholders’ equity:
Class A non-voting common stock		163,076				163,076
Class B voting common stock		37,736				37,736
Accumulated other comprehensive loss, net of tax		(53,930	)			(55,234	)
Additional paid-in capital		2,499,614				2,491,560
Retained earnings		990,485				931,912
Total shareholders’ equity		3,636,981				3,569,050
Total liabilities and shareholders’ equity	$	9,039,573			$	8,928,272

See notes to unaudited condensed consolidated financial statements.

DELHAIZE AMERICA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

As of July 3, 2004 and January 3, 2004

(Dollars in thousands)

	July 3, 2004			January 3, 2004
	(Unaudited)			(Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	629,657		$	313,629
Receivables, net		113,292			111,738
Receivable from affiliate		14,817			14,708
Inventories		1,144,722			1,203,487
Prepaid expenses		72,881			40,586
Deferred tax assets		—			26,491
Other assets		13,841			9,936
Total current assets		1,989,210			1,720,575
Property and equipment, net		2,889,151			2,980,455
Goodwill, net		2,893,431			2,895,541
Other intangibles, net		752,820			775,830
Reinsurance recoverable from affiliate		132,486			129,869
Other assets		151,484			170,741
Total assets	$	8,808,582		$	8,673,011
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	764,888		$	751,122
Payable to affiliate		—			2,118
Accrued expenses		306,114			296,927
Capital lease obligations – current		36,637			35,686
Long term debt – current		17,116			13,036
Other liabilities - current		70,949			55,664
Deferred income taxes		1,007			—
Income taxes payable		13,481			1,154
Total current liabilities		1,210,192			1,155,707
Long-term debt		2,922,115			2,940,135
Capital lease obligations		671,931			685,852
Deferred income taxes		251,088			270,685
Other liabilities		301,184			274,918
Total liabilities		5,356,510			5,327,297
Commitments and contingencies (Note 14)
Shareholders’ equity:
Class A non-voting common stock		163,076			163,076
Class B voting common stock		37,736			37,736
Accumulated other comprehensive loss, net of tax		(60,315	)		(62,901	)
Additional paid-in capital, net of unearned compensation		2,475,162			2,474,412
Retained earnings		836,413			733,391
Total shareholders’ equity		3,452,072			3,345,714
Total liabilities and shareholders’ equity	$	8,808,582		$	8,673,011

See notes to unaudited condensed consolidated financial statements.

DELHAIZE AMERICA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

For the 2613 weeks ended ~~July~~April 32, ~~2004~~2005 and ~~June~~April 283, ~~2003~~2004

(Dollars in thousands)

	26 Weeks Ended July 3, 2004			26 Weeks EndedJune 28, 2003
	13 Weeks EndedApril 2, 2005			13 Weeks EndedApril 3, 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	~~109~~69,~~754~~546		$	6423,~~190~~598
Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of change in accounting principle, net of tax (Note 10)		—			10,946
Provision for loss on disposal of discontinued operations		—			72,842
Change in accounting method (Note 10)		—			87,308
Depreciation and amortization		118,610			116,091
Provision for loss on disposal of discontinued operations		72,842			27,844
Depreciation and amortization - discontinued operations		—			890
Streamline charges		—			2,346
Amortization of debt fees/costs		487			498
Depreciation and amortization		230,577			220,186
Amortization of debt premium		386			383
Depreciation and amortization - discontinued operations		790			3,397
Amortization of deferred loss on derivative		2,090			2,111
Amortization of debt fees/costs		996			977
Amortization and termination of restricted shares		1,070			948
Amortization of debt premium		622			483
Transfer from escrow to fund interest, net of accretion		656			(490	)
Amortization of deferred loss on derivative		4,223			4,145
Accrued interest on interest rate swap		(1,351	)		(3,306	)
Amortization and termination of restricted shares		2,083			2,556
Net loss (gain) on disposals of property and capital lease terminations		955			(743	)
Transfer from escrow to fund interest, net of accretion		1,543			—
Stock compensation expense		4,734			—
Accrued interest on interest rate swap		814			(26	)
Deferred income tax provision (benefit)		(10,720	)		1,102
Loss on disposals of property and capital lease terminations		1,776			1,991
Other		10			13
Deferred income taxes provision (benefit)		6,296			(71,824	)
Other		204			699
Changes in operating assets and liabilities which provided (used) cash:
Receivables		(17,~~554~~390	)		10(4,~~807~~965	)
Net receivable from affiliate		(23,~~227~~864	)		(71,~~989~~484	)
Income tax receivable		—			6,036
Inventories		(7,278	)		56,256
Inventories		58,765			31,671
Prepaid expenses		(46,537	)		(41,949	)
Prepaid expenses		(32,295	)		(43,547	)
Other assets		607			1,470
Other assets		2,728			3,724
Accounts payable		(17,614	)		(33,373	)
Accounts payable		13,766			(29,798	)
Accrued expenses		54,774			32,712
Accrued expenses		7,246			25,054
Income taxes payable		55,288			16,330
Income taxes payable		14,201			22,893
Excess tax benefits related to stock options		(3,683	)		—
Other liabilities		(1412,~~524~~235	)		(214,~~520~~448	)
Total adjustments		~~368~~151,~~872~~503			~~288~~213,~~359~~856
Net cash provided by operating activities		~~478~~221,~~626~~049			~~352~~237,~~549~~454
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(~~143~~101,~~116~~666	)		(~~141~~58,~~911~~263	)
Proceeds from sale of property		112,~~235~~329			4,~~771~~692
Other investment activity		(~~4,219~~279	)		(2,~~885~~513	)
Net cash used in investing activities		(~~136~~99,~~100~~616	)		(~~140~~56,~~025~~084	)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt		(85,~~899~~876	)		(132,~~413~~318	)
Principal payments under capital lease obligations		(1711,~~360~~082	)		(158,~~598~~488	)
Transfer from escrow to fund long-term debt		7,827			—
Dividends paid		(25,029	)		—
Taxes paid on capital contribution		—			(4,692	)
Transfer from escrow to fund long-term debt		5,636			2,808
Parent common stock repurchased		(914,~~090~~878	)		(~~649~~4,999	)
Tax payment for restricted shares vested		(852	)		—
Proceeds from stock options exercised		2,470			1,024
Proceeds from stock options exercised		1,876			248
Excess tax benefits related to stock options		3,683			—
Net cash used in financing activities		(2645,~~498~~076	)		(3411,~~104~~973	)
Net increase in cash and cash equivalents		~~316~~76,~~028~~357			~~178~~169,~~420~~397
Cash and cash equivalents at beginning of year		~~313~~499,~~629~~865			~~131~~313,~~641~~629
Cash and cash equivalents at end of period	$	~~629~~576,~~657~~222		$	~~310~~483,~~061~~026

See notes to unaudited condensed consolidated financial statements.

Notes to Unaudited Condensed Consolidated Financial Statements

1) Basis of Presentation:

The accompanying condensed consolidated financial statements are presented in accordance with the requirements for Form 10-Q and, consequently, do not include all the disclosures normally required by generally accepted accounting principles or those normally made in the Annual Report on Form 10-K of Delhaize America, Inc. (“Delhaize America” or the “Company”). Accordingly, the reader of this Form 10-Q should refer to the Company’s Form 10-K for the year ended January 31, ~~2004~~2005 for further information. Reclassifications and restatements for discontinued operations have been made for all current and historical information presented herein from that contained in the Company’s prior SEC filings on Forms 10-Q and 10-K.

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

2) Supplemental Disclosure of Cash Flow Information:

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

(Dollars in thousands)	2613 ~~WeeksEndedJuly~~Weeks 3EndedApril 2, ~~2004~~2005		2613 ~~WeeksEndedJune~~Weeks 28EndedApril 3, ~~2003~~2004
Cash payments for income taxes	$	55,765	$	86,128
Cash payments for income taxes, net of refunds	$	6,997	$	2,893
Cash payments for interest, net of amounts funded for escrow and capitalized		152,196		152,406
Cash payments for interest, net of amounts capitalized		20,458		23,284
Non-cash investing and financing activities:
Capitalized lease obligations incurred for store properties and equipment		1622,~~865~~312		153,~~437~~300
Capitalized lease obligations terminated for store properties and equipment		~~485~~726		~~843~~—
Dividend to Delhaize Group and Detla in stock		—		109,945
Change in reinsurance recoverable and other liabilities		3,270		2,921
Change in reinsurance recoverable and other liabilities		2,617		5,698
Reduction of income taxes payable and goodwill for tax adjustments		163		937
Reduction of tax payable and goodwill for tax adjustment		1,874		—

3) Inventories

Inventories are stated at the lower of cost or market. Inventories valued using the Last-in, First-out (“LIFO”) method comprised approximately 7976% ~~and 78%~~ of inventories both on ~~July~~April 32, ~~2004~~2005 and January 31, ~~2004~~2005, respectively. Meat, produce, deli-bakery and ~~deli~~seafood inventories are valued on the average cost method rather than the LIFO method. If the Company did not report under the LIFO method, inventories would have been $3743.34 million and $3340.62 million greater as of ~~July~~April 32, ~~2004~~2005 and January 31, ~~2004~~2005, respectively. Application of the LIFO method resulted in increases in cost of goods sold of $ 3.72 million and $01.7 3 million for the 2613 weeks ended ~~July~~April 32, ~~2004~~2005 and ~~June~~April 283, ~~2003~~2004, respectively. AsThe ~~stated~~Company inevaluates ~~Note~~inventory ~~10,~~shrinkage throughout the ~~Company~~year ~~changed~~based ~~its~~on ~~application~~actual ofphysical ~~the~~counts ~~LIFO~~in ~~method~~its ofstores ~~accounting~~and ~~for~~distribution ~~store~~centers and ~~inventories~~records ~~from~~adjustments based on the ~~retail~~results ~~method~~of these counts to provide for the ~~average~~estimated ~~item~~shrinkage ~~cost~~as ~~method effective~~of ~~December~~the ~~29,~~balance ~~2002~~sheet date.

In 2003, upon the adoption of Emerging Issues Task Force (EITF) Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor”, certain vendor allowances began to be recorded as a reduction of inventory. Previously, the Company recorded vendor allowances as a reduction of cost of sales when earned. This change had a timing impact on certain vendor allowances that are now an adjustment to inventory cost and recognized in cost of sales when the product is sold.

4) Supplier Allowances

The Company receives allowances, credits and income from suppliers primarily for volume incentives, new product introductions, in-store promotions and co-operative advertising. Volume incentives are based on contractual arrangements generally covering a period of one year or less and have been ~~historically~~ included in the cost of inventory and recognized as earned in cost of sales when the product is sold. New product introduction allowances compensate the Company for costs incurred ~~which are~~ associated with product handling and have been ~~historically~~ deferred and recognized as a reduction in cost of sales over the product introductory period. Non-refundable credits from suppliers for in-store promotions such as product displays require related activities by the Company. Similarly, co-operative advertising requires the Company to conduct the related advertising. In-store ~~promotions~~promotion ~~income~~ and co-operative advertising income ~~have~~is ~~historically~~recorded ~~been~~as ~~included~~a reduction in the cost of ~~sales~~inventory and recognized in cost of sales when the product is sold unless the allowance represents the reimbursement of a specific, incremental and identifiable cost incurred by the Company ~~performs~~to sell the ~~related~~vendor’s ~~activities~~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.

InTotal ~~2003,~~supplier ~~upon~~allowances ~~the adoption of EITF Issue No. 02-16, in-store promotion and co-operative advertising income is now recorded as a reduction in the cost of inventory and~~ recognized infor ~~cost of sales when~~ the ~~product~~13 isweeks ~~sold~~ended ~~unless~~April ~~the allowance represents the reimbursement of a specific~~2, ~~incremental,~~2005 and ~~identifiable~~April cost incurred by the Company to sell the vendor’s product. The Company has reviewed the promotional funding received from vendors and concluded that these arrangements are primarily for general advertising purposes and not the reimbursement of a specific3, ~~incremental~~2004, ~~and~~are ~~identifiable cost~~shown ~~incurred~~below: ~~by the Company.~~

Total supplier allowances recognized for the 13 and 26 weeks ended July 3, 2004 and the comparable periods are shown below:


(Dollars in thousands)	13 weeks ended April 2, 2005		13 weeks ended April 3, 2004
Allowances credited to cost of inventory	$	27,004	$	25,010
Other allowances		36,106		37,297

Total supplier allowances	$	63,110	$	62,307

(Dollars in thousands)	13 weeks ended July 3, 2004		13 weeks ended June 28, 2003		26 weeks ended July 3, 2004		26 weeks ended June 28, 2003*
Allowances related to the purchase of inventory	$	28,248	$	37,705	$	53,258	$	73,172
Other allowances		29,821		25,268		67,118		55,672
Total supplier allowances	$	58,069	$	62,973	$	120,376	$	128,844

* Excludes the cumulative effect of adopting EITF Issue No. 02-16 of $10.9 million, net of tax during the first quarter of 2003.

5) Reclassification

~~The~~Certain ~~Company, prior to filing its~~ financial ~~statements~~statement onitems ~~Form~~previously ~~10-Q,~~reported ~~publicly~~have ~~releases~~been ~~unaudited~~reclassified ~~condensed~~to ~~consolidated financial statements~~conform into ~~connection with~~ the ~~quarterly~~current ~~earnings release of its parent company, Delhaize Group. Between the date of such release and the filing of the Company~~period’s ~~Form 10-Q, reclassifications may be required~~presentation. Since Delhaize Group’s earnings release dated August 5, 2004, which included unaudited condensed consolidated financial statements of the Company for the quarterly period ended July 3, 2004, a reclassification totaling $2.5 million was made to net cash provided by operating activities from net cash used in financing activities.

~~Certain~~6) ~~financial~~Accounting ~~statement~~for ~~items~~Stock-Based inCompensation ~~the prior period have been reclassified to conform to the current period’s presentation.~~

6The Company participates in a stock option plan of its parent company, the Delhaize Group 2002 stock incentive plan (the “Delhaize Group Plan”), ~~Accounting~~under ~~for~~which ~~Stock~~incentive ~~Issued~~stock options to ~~Employees~~purchase Delhaize Group American Depository Shares (“ADSs”) may be granted to officers and key employees at prices equal to fair market value on the date of the grant. Options become exercisable as determined by the Board of Directors of Delhaize Group on the date of grant, provided that no option may be exercised more than ten years after the date of grant. Under the Delhaize Group Plan, the exercise of options by an optionee results in the issuance of new Delhaize Group ordinary shares through a capital increase of the Company’s parent, Delhaize Group. In connection with the exercise of an option, the optionee pays the exercise price to Delhaize Group. Additionally, the Company pays Delhaize Group 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 $9.4 million for the quarter ended April 2, 2005.

~~The~~Additionally, ~~Company~~there ~~participates~~are instill aoptions ~~stock~~to ~~option~~purchase ~~plan (the “~~Delhaize Group ~~Plan”)~~ADSs ofoutstanding ~~its~~under ~~parent,~~a ~~Delhaize~~1996 ~~Group,~~Food ~~which~~Lion isPlan, ~~described~~1988 ~~fully~~and in1998 ~~Note~~Hannaford 14Plans toand ~~the~~a ~~Company’s~~2000 ~~Annual Report on Form 10-K for the year ended January 3, 2004. The Company accounts for the~~ Delhaize ~~Group~~America Plan ~~under~~(collectively, the ~~recognition and measurement principles of Accounting Principles Board, or APB, Opinion No. 25,~~ “~~Accounting~~Prior ~~for~~Plans”); ~~Stock Issued to Employees~~however, ~~and~~the ~~Related Interpretations”. No~~Company ~~stock-based~~can ~~employee~~no ~~compensation~~longer ~~cost~~grant ~~is reflected in net income, as all~~ options ~~granted~~ under ~~the~~these ~~Delhaize~~plans. ~~Group~~The ~~Plan~~terms ~~have~~and anconditions ~~exercise~~of ~~price~~these ~~equal~~plans toare ~~the~~substantially ~~market~~consistent ~~value~~with of the ~~underlying~~current Delhaize Group ~~American~~Plan. ~~Depository~~During ~~Share~~the ~~stock~~quarter onended ~~the~~April ~~date~~2, ~~of grant. Additionally~~2005, the Company ~~still~~acquired ~~has options outstanding under a 1996 Food Lion Plan~~71,842 ~~1988~~ADSs ~~and~~to ~~1998~~support ~~Hannaford~~the exercise ~~Plans~~of ~~and~~options aunder ~~2000 Delhaize America Plan; however,~~ the ~~Company~~Prior ~~can~~Plans nofor ~~longer~~$5.2 ~~grant options under these plans~~million.

The ~~following~~Company ~~table~~also has ~~illustrates~~restricted ~~the~~stock ~~effect~~(Delhaize onGroup ~~net~~restricted ~~income~~ADSs) ifawards ~~the~~and ~~Company~~restricted ~~had~~stock ~~applied~~unit awards outstanding for executive employees. Restricted stock unit awards represent the ~~fair value~~right ~~recognition~~to ~~provisions~~receive ofthe ~~Statement~~number of ~~Financial~~ADSs ~~Accounting~~set ~~Standards~~forth ~~(SFAS)~~in Nothe award at the vesting date. ~~123,~~Unlike ~~“Accounting~~awards ~~for~~of ~~Stock-Based~~restricted ~~Compensation”~~stock, asno ~~amended~~ADSs byare ~~SFAS~~issued Nowith respect to these awards until the applicable vesting dates. ~~148~~In May 2002, ~~“Accounting~~the ~~for~~Company ~~Stock-Based~~ceased ~~Compensation-Transition~~granting restricted stock awards and began granting restricted stock unit awards under its ~~Disclosure”,~~2002 Restricted Stock Unit Award Plan. The Company plans to ~~stock-based~~repurchase ~~employee~~ADSs ~~compensation~~on the open market to support vesting of awards under the 2002 Restricted Stock Unit Award Plan.

	13 weeks ended July 3, 2004		13 weeks ended June 28, 2003		26 weeks ended July 3, 2004		26 weeks ended June 28, 2003
Net earnings – as reported	$	86,156	$	60,628	$	109,754	$	64,190
Deduct: Total stock-based employee compensation expense determined using fair value based method (net of tax)		2,527		2,726		4,856		5,124
Net earnings–pro forma	$	83,629	$	57,902	$	104,898	$	59,066

On January 2, 2005, the Company early adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“Statement 123R”), requiring the Company to recognize expense related to the fair value of its employee share-based awards. The Company will recognize the cost of all share-based awards on a graded method over the vesting period of the awards prospectively beginning with fiscal year 2005 stock compensation grants. In accordance with the provisions of FAS 123R, total stock option expense totaled $4.7 million ($4.4 million, net of tax) for the quarter ended April 2, 2005. The Company recorded compensation expense related to restricted stock expense of $1.1 million ($.7 million, net of tax) and $.9 million ($.5 million, net of tax) for the 13 weeks ended April 2, 2005 and April 3, 2004, respectively.

~~The~~Prior ~~weighted~~to ~~average~~January ~~fair~~2, ~~value~~2005, ~~at date~~the ofCompany ~~grant~~accounted for ~~options granted under~~ the Delhaize Group Plan ~~during~~under the recognition ~~second~~and ~~quarter~~measurement principles of ~~2004~~Accounting ~~and~~Principles ~~2003~~Board, ~~was~~or ~~$15.15~~APB, ~~and~~Opinion $8No.45 ~~per~~25, ~~option~~“Accounting for Stock Issued to Employees, ~~respectively~~and Related Interpretations”. ~~The~~No ~~weighted~~compensation ~~average~~cost ~~fair~~was ~~value~~recognized atin ~~date~~the ofincome ~~grant~~statement for stock options prior to fiscal year 2005, as all options granted under the Delhaize Group Plan ~~for~~have an exercise price equal to the 26market ~~weeks~~value ~~ended~~of ~~July~~the 3underlying Delhaize Group ADSs on the date of grant. Historically, ~~2004~~for ~~and~~purposes ~~June~~of 28the disclosures required by the original provisions of SFAS No. 123, ~~2003~~the straight-line method was ~~$15.15~~used ~~and~~to ~~$8.44~~allocate ~~per~~the option, ~~respectively~~valuation amounts evenly over their respective vesting schedules. The ~~fair~~Company ~~value~~elected ofto ~~options~~apply atthe ~~date~~revised standard using the modified prospective transition method. Under this transition method, compensation cost recognized in fiscal year 2005 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 2, 2005, based on the grant-date ~~was~~fair value estimated ~~using~~in accordance with the ~~Black~~original provisions of SFAS No. 123, and (b) compensation cost for all share-~~Scholes~~based ~~model~~payments granted subsequent to January 2, 2005, based on the ~~following~~grant-date ~~assumptions:~~fair value estimated in accordance with the provisions of FAS 123R. The Company is not required to restate financial statements for any prior interim and fiscal years.

	July 3, 2004	June 28, 2003
Expected dividend yield (%)	2.6	3.6
Expected volatility (%)	41.0	42.3
Risk-free interest rate (%)	3.9	2.4
Expected term (years)	5.0	5.2

In accordance with FAS 123R, 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 the first quarter of 2005 was $3.7 million (see cash flow for the 13 weeks ended April 2, 2005).

The following table illustrates the effect on net income if the Company had applied the fair value recognition provisions of FAS No. 123 to stock-based employee compensation:


	13 weeks ended April 2, 2005			13 weeks ended April 3, 2004
Net earnings - as reported	$	69,546		$	23,598
Total stock-based employee compensation expense determined using fair value based method (net of tax)		1,346	*		(2,904	)

Net earnings - pro forma	$	70,892		$	20,694

*	Represents the pro-forma tax benefit associated with disqualifying dispositions of qualified stock options during the 13 weeks ended April 2, 2005.

The fair value of stock options is determined using the Black-Scholes 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 Plan during the first quarter of 2005 and 2004 was $18.59 and $10.65 per option, respectively. The fair value of options at date of grant was estimated using the Black-Scholes model based on the following assumptions:


	13 Weeks Ended April 2, 2005	13 Weeks Ended April 3, 2004
Expected dividend yield(%)	2.6	3.6
Expected volatility (%)	37.5	41.0
Risk-free interest rate(%)	4.0	3.1
Expected term (years)	4.5	5.4

The expected dividend yield is calculated by dividing the Delhaize Group annual dividend by the share price at the date of grant for options; expected volatility represents a five year historical volatility; the risk-free rate is based on the U.S. treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option; and the expected term is based on a ten year historical pattern.

The following table summarizes the stock option transactions for the quarter ended April 2, 2005:


Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2005	5,424,181		$	41.15
Granted	3,125			70.47
Exercised	(345,119	)		41.84
Forfeited/expired	(77,086	)		42.96

Outstanding at April 2, 2005	5,005,101		$	41.08	7.5	$	135,164,034

Options exercisable at April 2, 2005	1,700,458		$	42.80	5.7	$	43,408,103

The aggregate intrinsic value of options exercised during the first quarters ended April 2, 2005 and April 3, 2004 was $10.9 million and $3.8 million, respectively.

A summary of the status of the Company’s nonvested option shares as of April 2, 2005, and changes during the quarter ended April 2, 2005, is presented below:


Nonvested options	Shares		Weighted Average Grant-Date Fair Value
Nonvested at January 1, 2005	3,460,903		$	12.76
Granted	3,125			18.59
Vested	(82,236	)		33.27
Forfeited	(77,149	)		13.99

Nonvested at April 2, 2005	3,304,643		$	12.74

As of April 2, 2005, there was $22.3 million of unrecognized compensation cost related to nonvested option shares that is expected to be recognized over a weighted average period of 1.7 years.

The following table summarizes the restricted share and restricted unit transactions for the quarter ended April 2, 2005:


	Shares and Units Outstanding		Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2005	501,072		$	38.73
Released in Q1 2005	(27,761	)		42.75

Outstanding at April 2, 2005	473,311		$	38.49

As of April 2, 2005, there was $11.5 million of unrecognized compensation cost related to restricted share and restricted unit compensation arrangements. This cost is expected to be recognized over a weighted average period of 3.4 years.

7) Derivative Financial Instruments

~~During~~The ~~the~~Company ~~fourth~~maintains ~~quarter~~interest ofrate ~~2001~~swaps ~~and~~against ~~the~~certain ~~third~~debt ~~quarter~~obligations, ofeffectively converting ~~2002,~~a portion of the ~~Company~~debt ~~entered~~from ~~into~~fixed to variable rates. The notional principal amounts of interest rate swap ~~agreements~~arrangements as of April 2, ~~effectively converting~~2005 awere ~~portion~~$300 ofmillion ~~the~~maturing ~~debt~~in ~~from~~2006 ~~fixed~~and to$100 ~~variable~~million ~~rates~~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. OnThe ~~December 30, 2003, the Company terminated~~ $100 million ofnotional ~~the~~swaps ~~2011~~maturing ~~interest~~in ~~rate~~2011 ~~swap~~meet ~~arrangements.~~the ~~The~~criteria ~~notional~~for ~~principal~~using ~~amounts~~the ofshort-cut ~~interest~~method, ~~rate~~which ~~swap~~assumes ~~arrangements~~100% athedge ~~July 3~~effectiveness, ~~2004~~as prescribed ~~were~~by ~~$300~~SFAS ~~million~~No. ~~maturing~~133 in“Derivative ~~2006~~Instruments and ~~$100~~Hedging ~~million maturing in 2011~~Activities.” ~~For~~During the 13fourth ~~weeks~~quarter ~~and~~of ~~26 weeks ended July 3,~~ 2004, ~~interest~~in ~~expense~~association ~~was~~with ~~reduced~~the byretirement of $336.1536 million ~~and~~of its $~~6.5~~600 million 7.375% ~~For~~notes, the 13Company ~~and~~de-designated 26the ~~weeks~~$300 million ~~ended~~notional ~~June~~interest ~~28,~~rate ~~2003,~~swaps ~~interest~~as ~~expense~~a ~~was~~fair ~~reduced~~value byhedge ~~$4.1~~of ~~million~~50% ~~and~~of the $~~8.3~~600 million, ~~respectively~~2006 notes, inand ~~connection~~re-designated ~~with~~them ~~these~~as ~~agreements.~~fair ~~These~~value ~~agreements~~hedge ~~met the~~of ~~criteria~~approximately ~~for~~53% ~~using~~of the ~~short-cut~~remaining ~~method,~~$563.5 ~~which~~million ~~assumes~~2006 ~~100%~~notes. ~~hedge~~These ~~effectiveness~~swaps meet the criteria of being highly effective swaps, as prescribed by SFAS No. 133, ~~“Derivative~~and ~~Instruments~~currently ~~and~~carry ~~Hedging~~no ~~Activities”~~significant ineffectiveness. The Company ~~has~~ recorded a derivative asset in connection with all these agreements in the amount of $134.12 million and $198.53 million at ~~July~~April 32, 2005 ~~2004~~ and January 31, ~~2004~~2005, respectively, which is included in ~~the~~its ~~Company’s Condensed~~ Consolidated Balance Sheet in Non-current Other Assets.

~~Prior~~In tofiscal 2001, the ~~offering~~Company ofsettled ~~bonds~~certain ~~and~~interest ~~debentures~~rate hedge agreements in ~~2001,~~connection with the ~~Company~~completion ~~entered~~of ~~into~~an ~~interest~~offering ~~rate~~of notes, resulting in an unrealized loss of ~~agreements~~approximately to$214 ~~hedge~~million. ~~against~~As ~~potential~~a ~~increases~~result inof ~~interest~~the ~~rates~~adoption of SFAS No. ~~These~~133 ~~hedge~~at ~~agreements~~the ~~were~~beginning ~~settled~~of infiscal 2001, ~~with~~ the unrealized loss was recorded in “Accumulated other comprehensive income (loss), net of ~~taxes~~tax,” and is being amortized to “Interest ~~interest~~ expense” over the term of the associated ~~debt securities~~notes. ~~This~~The unrealized loss was reduced as of the date of the Delhaize Group share exchange as a result of the application of purchase accounting. The remaining unrealized loss, net of taxes, at ~~July~~April 32, ~~2004,~~2005 and January 31, ~~2004,~~ ~~totaled~~2005 ~~approximately~~was $4137.76 million and $4438.39 million, respectively.

8) Goodwill and Intangible Assets

Intangible assets are comprised of the following:

(Dollars in thousands)	26April ~~weeks ended July 3~~2, ~~2004~~2005		Fiscal ~~2003~~2004
Goodwill	$	23,~~982~~049,~~383~~459	$	23,~~984~~049,~~492~~622
Trademarks		~~486~~476,~~752~~923		~~486~~476,~~752~~923
Favorable lease rights		~~361~~357,~~547~~433		~~365~~357,~~883~~487
Prescription files		18,626		18,~~693~~626
Liquor license		3,~~508~~811		3,~~528~~609
Other		2329,~~672~~125		2328,~~462~~195
		3,876,488		3,882,810
		3,935,377		3,934,462
Less accumulated amortization		~~230~~162,~~237~~359		~~211~~151,~~439~~646
	$	3,~~646~~773,~~251~~018	$	3,~~671~~782,~~371~~816

~~The~~Amortization ~~following~~expense ~~represents~~totaled a$11.0 million ~~summary~~for ~~of changes~~the in13 ~~gross~~weeks ~~goodwill~~ended atApril 262, 2005 and $10.1 million for the 13 weeks ended ~~July~~April 3, 2004 ~~and fiscal 2003~~.

	26 weeks ended July 3, 2004			Fiscal 2003
Balance at beginning of year	$	2,984,492		$	2,996,256
Additions (reductions)		(235	)		4,057
Reduction of goodwill for tax adjustment		(1,874	)		(15,821	)
Balance at end of period	$	2,982,383		$	2,984,492

Amortization expense totaled $10.1 million and $9.4 million for the 13 weeks ended July 3, 2004 and June 28, 2003, respectively and $20.3 million and $18.8 million for the 26 weeks ended July 3, 2004 and June 28, 2003.

The Company’s policy requires that an annual impairment assessment be conducted in the fourth quarter of each year or when events or circumstances indicate that an impairment may have occurred in accordance with SFAS 142. The Company had no impairment loss for the 26 weeks ended July 3, 2004 or 2003.

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

(Dollars in millions)	July 3, 2004Goodwill		July 3, 2004Trademarks		Fiscal 2003Goodwill		Fiscal 2003Trademarks
Food Lion	$	1,140	$	249	$	1,138	$	249
Hannaford		1,749		223		1,754		223
Harveys		4		5		4		5
	$	2,893	$	477	$	2,896	$	477

AsThe offollowing ~~July~~represents 3,a ~~2004~~summary ~~and January 3, 2004, the Company’s intangible assets with finite lives consist~~ of ~~favorable~~changes ~~lease rights,~~in ~~liquor~~goodwill ~~licenses,~~for ~~pharmacy~~periods ~~files, and developed software. The components of its intangible assets with finite lives are as follows~~presented:

	July 3, 2004									Fiscal 2003
(Dollars in thousands)	April 2, 2005				Fiscal 2004
(Dollars in millions)	Gross Carrying Value			AccumulatedAmortization				Net		Gross Carrying Value		AccumulatedAmortization			Net
Balance at beginning of year	$	3,049,622			$	2,895,541
Favorable lease rights	$	361		$	(118	)		$	243	$	366	$	(102	)	$	264
Acquisitions and purchase price Adjustments		—				162,868
Other		46			(13	)			33		46		(11	)		35
Reduction of goodwill for tax adjustments		(163	)			(8,787	)
Total	$	407		$	(131	)		$	276	$	412	$	(113	)	$	299
Balance at end of year	$	3,049,459			$	3,049,622

~~Estimated~~The ~~amortization~~Company’s ~~expense~~policy ~~for~~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 ~~finite~~SFAS ~~lives~~No. 142. ~~for~~The ~~the~~Company ~~five~~had ~~succeeding~~no ~~fiscal~~impairment ~~years~~loss ~~follows:~~for fiscal 2004.

(Dollars in millions)
2004	$	37.6
2005		35.1
2006		32.9
2007		29.0
2008		23.9

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


	April 2, 2005		April, 2, 2005		Fiscal 2004		Fiscal 2004
(Dollars in millions)	Goodwill		Trademarks		Goodwill		Trademarks
Food Lion	$	1,135	$	249	$	1,135	$	249
Hannaford		1,911		223		1,911		223
Harveys		4		5		4		5

	$	3,050	$	477	$	3,050	$	477

As of April 2, 2005 and January 1, 2005, the Company’s intangible assets with finite lives consist of favorable lease rights, liquor licenses, pharmacy files and developed software. The components of its intangible assets with finite lives are as follows:


	April 2, 2005							Fiscal 2004
(Dollars in millions)	Gross Carrying Value		Accumulated Amortization			Net		Gross Carrying Value		Accumulated Amortization			Net
Favorable lease rights	$	357	$	(143	)	$	214	$	357	$	(135	)	$	222
Other		52		(19	)		33		50		(16	)		34

Total	$	409	$	(162	)	$	247	$	407	$	(151	)	$	256

Estimated amortization expense as of January 1, 2005 for intangible assets with finite lives for the five succeeding fiscal years is as follows:


(Dollars in millions)
2005	$	37.8
2006		35.6
2007		30.3
2008		24.0
2009		19.3

9) Comprehensive Income (Loss)

Comprehensive income (loss) includes net earnings and other comprehensive earnings (losses). Other comprehensive earnings (losses) include items that are currently excluded from the Company’s net income (loss) and recorded directly to shareholders’ equity. Included in other comprehensive income (loss) are unrealized losses on hedges, minimum pension liability adjustments and unrealized security holding gains. Comprehensive income was $~~112~~70.39 million and $6724.59 million for the 2613 weeks ended ~~July~~April 32, ~~2004~~2005 and ~~June~~April 283, ~~2003~~2004, respectively.

10) ~~Accounting~~Discontinued ~~Changes~~Operations

InThe ~~the~~Company ~~second~~classifies ~~quarter~~operations ofas ~~2003,~~discontinued ~~the~~if ~~Company~~(i) ~~changed its application of~~ the ~~LIFO~~operations ~~method~~and ofcash ~~accounting~~flows ~~for~~have been ~~store~~eliminated ~~inventories~~ from ~~the~~ongoing ~~retail method to the average item cost method. The effect of the change on the December 28~~operations, ~~2002~~(ii) ~~inventory~~there ~~valuation~~is ~~resulted~~no insignificant acontinuing decrease in inventory of $87.3 million at the beginning of fiscal year 2003. The change was made to more accurately reflect inventory value by eliminating the estimation inherent in the retail method. The cumulative effect of this change on periods prior to December 28involvement, ~~2002 cannot be determined~~ and ~~accordingly,~~(iii) ~~the effect of this change has been included as~~ a ~~component of~~re-location ~~cost~~within ~~of sales in~~ the ~~condensed~~vicinity ~~consolidated~~has ~~statement~~not ~~of income for the 13 weeks ended March 29, 2003~~occurred.

InDuring ~~addition~~the 13 weeks ended April 2, 2005, the Company ~~adopted~~did ~~EITF~~not ~~Issue~~close Noany underperforming stores. ~~02-16~~To ~~during~~date ~~first~~the ~~quarter~~Company has closed 83 underperforming stores classified as discontinued operations of ~~2003~~which 39 closed during fiscal 2004 and ~~recorded~~44 closed during fiscal 2003. In accordance with the ~~cumulative~~provisions ~~effect~~of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” a ~~change~~portion inof ~~accounting~~the ~~principle~~costs associated with the closure of ~~$10.9~~these ~~million~~stores, as well as related operating activity prior to closing for these stores, was recorded in “Loss from discontinued operations, net of tax” ~~during~~in the ~~first~~Company’s ~~quarter.~~Condensed Consolidated Statement of Income.

11) Store Closings

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

	DiscontinuedOperations		Closed		Planned Closings		Total
As of April 3, 2004	70		163		2		235
Store closings added	—		5		(2	)	3
Stores sold/lease terminated	(5	)	(10	)	—		(15	)
As of July 3, 2004	65		158		—		223

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

	Qtr 22004Disc Op			Qtr 22004Closed			Qtr 22004Total
Balance at April 3, 2004	$	75.2		$	111.6		$	186.8
Additions:
Store closings – lease obligations		0.0			0.2			0.2
Store closing – other exit costs		0.1			0.0			0.1
Total additions		0.1			0.2			0.3
Adjustments:
Adjustments to estimates-lease obligation		(2.9	)		(4.2	)		(7.1	)
Adjustments to estimates-other exit costs		0.3			(0.4	)		(0.1	)
Total adjustments		(2.6	)		(4.6	)		(7.2	)
Reductions:
Lease payments made		(2.0	)		(3.1	)		(5.1	)
Payments for other exit costs		(0.9	)		(0.6	)		(1.5	)
Total reductions		(2.9	)		(3.7	)		(6.6	)
Balance at July 3, 2004	$	69.8		$	103.5		$	173.3

The July 3, 2004 balance of approximately $173.3 million consisted of lease liabilities and other exit cost liabilities of $143.7 million and $29.6 million, respectively and includes lease liabilities of $60.6 million and other exit costs of $9.2 million associated with discontinued operations. During the quarter, the Company completed the closure of three Food Lion stores, acquired one store which will remain closed, and re-instated one store whose lease had previously ended.

The Company provided for closed store liabilities in the quarter to reflect the estimated post-closing lease liabilities and other exit costs associated with the related store closing commitments. These other exit costs include estimated real estate taxes, common area maintenance, and insurance costs to be incurred after the store closes (all of which are contractually required payments under the lease agreements) over the remaining lease term. Store closings are generally completed within one year after the decision to close. The closed store liabilities are usually paid over the lease terms associated with the closed stores having remaining terms ranging from one to 19 years. Adjustments to closed store liabilities and other exit costs primarily relate to changes in subtenants and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known. Any excess store closing liability remaining upon settlement of the obligation is reversed in the period that such settlement is determined. The Company uses a discount rate based on the current treasury note rates adjusted for the Company’s current credit spread to calculate the present value of the remaining rent payments on closed stores.

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

12) Discontinued Operations

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

The Company closed 35 underperforming stores during the 26 weeks ended July 3, 2004, as well as, 44 underperforming stores through fiscal 2003. In accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, a portion of the costs associated with the closure of these stores, as well as related operating activity prior to closing for these stores, was recorded in “Loss from discontinued operations, net of tax” in the Company’s Consolidated Statement of Income.

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

(Dollars in thousands)

13 weeks ended ~~July~~April 32, ~~2004~~2005

13 weeks ended ~~June~~April 283, ~~2003~~2004

~~26 weeks ended July 3, 2004~~

~~26 weeks ended June 28, 2003~~

Net sales and other revenues

—

5126,~~948~~737

~~22,754~~

~~122,023~~

Net loss

(~~367~~119

)

(45,~~139~~565

)

~~(5,784~~

)

~~(9,810~~

)

During the first quarter of 2004 in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”,” the Company recorded a $72.8 million loss to discontinued operations ($46.4 million after taxes). for the 35 underperforming stores closed. The loss included an initial reserve of $53.5 million for rent, real estate taxes, common area maintenance expenses (other liabilities) and $1.9 million for severance and outplacement costs (accrued expenses). The remaining loss included property retirement (asset impairment) of $22.1 million ~~and~~net of gains on capital lease retirements of $4.7 million. ~~Additional discontinued operations expenses not reserved totaled $1.9 million and $3.6 million after taxes for the 13 and 26 weeks ended July 3, 2004.~~

InAdditional ~~the~~discontinued ~~first~~operations ~~quarter~~expenses ofnot ~~2003,~~reserved ~~the~~totaled ~~Company recorded an initial reserve of~~ $272.51 million ~~to discontinued~~and ~~operations (~~$171.78 million after taxes) for ~~rent,~~the ~~real~~13 ~~estate~~weeks ~~taxes~~ended ~~and~~April ~~common~~2, ~~area~~2005 ~~maintenance expenses (other liabilities)~~ and ~~severance~~April ~~and outplacement costs (accrued expenses). The Company recorded property retirement (asset impairment) of $5.0 million~~3, ~~which was substantially offset by gains on capital lease retirements of $5.0 million. During the second quarter of 2003~~2004, ~~the Company recorded an initial reserve of $0~~respectively.3

The following table shows the reserve balances for discontinued operations as of April 2, 2005:


(Dollars in thousands)	Other Liabilities			Accrued Expenses		Total
Reserve balance as of January 1, 2005	$	(55,743	)	$	—	$	(55,743	)
Utilizations		11,520			—		11,520

Reserve balance as of April 2, 2005	$	(44,223	)	$	—	$	(44,223	)

11) Store Closings

The following table shows the number of stores closed at the end of the first quarter of 2005:


	Discontinued Operations		Closed		Total
As of January 1, 2005	57		152		209
Store closings added	—		2		2
Stores sold/lease terminated	(5	)	(6	)	(11	)

As of April 2, 2005	52		148		200

The following table reflects closed store liabilities as of April 2, 2005 and activity during the quarter, including additions to closed store liabilities charged to operations or discontinued operations and adjustments to liabilities based on changes in facts and circumstances and payments made:


	Qtr 1 2005 Disc Op			Qtr 1 2005 Closed			Qtr 1 2005 Total
Balance at January 1, 2005	$	55.7		$	93.3		$	149.0
Additions:
Store closings - lease obligations		0.0			0.9			0.9
Store closing - other exit costs		0.0			0.1			0.1

Total additions		0.0			1.0			1.0
Adjustments:
Adjustments to estimates-lease obligation		0.7			(0.1	)		0.6
Adjustments to estimates-other exit costs		0.1			0.0			0.1

Total adjustments		0.8			(0.1	)		0.7
Reductions:
Lease/termination payments made		(11.6	)		(3.1	)		(14.7	)
Payments for other exit costs		(0.7	)		(0.5	)		(1.2	)

Total reductions		(12.3	)		(3.6	)		(15.9	)

Balance at April 2, 2005	$	44.2		$	90.6		$	134.8

The April 2, 2005 balance of approximately $134.8 million consisted of lease liabilities and other exit cost liabilities of $113.8 million and $21.0 million, respectively and includes lease liabilities of $41.6 million and other exit costs of $2.6 million associated with discontinued operations.

The Company provided for closed store liabilities in the quarter to reflect the estimated post-closing lease liabilities and other exit costs associated with the related store closing commitments. These other exit costs include estimated 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 April 2, 2005, closed store liabilities have remaining lease terms generally ranging from one to 18 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 uses a discount rate based on the current treasury note rates adjusted for the Company’s current credit spread to calculate the present value of the remaining liabilities on closed stores.

~~million~~Except tofor stores classified as discontinued operations, ~~($0.2~~the ~~million~~revenues ~~after~~and ~~taxes)~~operating results for ~~rent,~~stores ~~real~~closed ~~estate~~and ~~taxes~~not relocated ~~and~~are ~~common~~not ~~area~~material ~~maintenance~~to ~~expenses~~the ~~(other~~Company’s ~~liabilities)~~revenues and ~~for property~~operating ~~retirement~~results ~~(asset~~for ~~impairment)~~the quarter. ~~Additional~~Future ~~discontinued~~cash ~~operations~~obligations ~~expenses~~for ~~not~~closed ~~reserved~~store ~~totaled~~liabilities ~~$1.2~~are ~~million~~tied ~~and~~principally ~~$1.9~~to ~~million after taxes for~~ the 13remaining ~~and~~non-cancelable 26lease ~~weeks~~payments ~~ended~~less ~~June~~sublease ~~28,~~payments ~~2003~~to be received.

~~The~~12) ~~following~~Recently ~~table~~Issued ~~shows~~and ~~the~~Adopted ~~reserve~~Accounting ~~balances for discontinued operations as of July 3,~~Standards ~~2004:~~

(Dollars in thousands)	Otherliabilities			Accrued expenses			Total
Reserve balance as of April 3, 2004	$	(75,159	)	$	(110	)	$	(75,269	)
Additions		—			(217	)		(217	)
Utilizations		5,358			—			5,358
Reserve balance as of July 3, 2004	$	(69,801	)	$	(327	)	$	(70,128	)

In March 2005, the Financial Standards Board (“FASB”) issued FASB Interpretation (FIN) No. 47, “Accounting for Conditional Asset Retirement Obligations, An Interpretation of Financial Accounting Standard (FAS) No. 143, ‘Accounting for Asset Retirement Obligations.’” FIN No. 47 clarifies the requirements to record liabilities stemming from a legal obligation to clean up and retire fixed assets, when retirement depends on a future event. FASB believes this interpretation will result in more consistent recognition of liabilities relating to asset retirement obligations, more information about expected future cash outflows associated with the obligations and investments in long-lived assets because additional asset retirement costs will be recognized as part of the carrying amounts of the assets. FIN No. 47 will be effective no later than the end of fiscal years ending after December 15, 2005. Retrospective application for interim financial information is permitted but not required. Early adoption is encouraged. The adoption of this standard does not have an impact on the Company’s financial statements.

13In December 2004, FASB issued a revision of FASB Statement No. 123 (“FAS 123R”), ~~Guarantor~~“Accounting ~~Subsidiaries~~for Stock-Based Compensation” which supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” The guidance represents the requirement that the compensation costs related to share-based payment transactions be recognized in the financial statements. Compensation cost should be measured based on the fair value on their grant-date of the equity (or liability) instruments issued. This statement covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights, and employee purchase plans. Previous guidance established a fair-value-based method of accounting, as preferable, but permitted entities the alternative of continuing to disclose in the footnotes what net income would have been had the preferable method been used. The Company early adopted this standard in the first quarter of 2005, using the modified prospective method. With the application of the modified prospective method, the Company did not restate financial statements for any prior interim periods and fiscal years. The Company historically applied the recognition and measurement provisions of APB Opinion 25. In accordance with the provisions of FAS 123R, the Company recorded $4.7 million in the first quarter of 2005 for stock compensation expense (See Note 6).

~~Delhaize~~There ~~America,~~were ~~Inc.~~no ~~has~~modifications ~~issued~~made ~~7.375% notes due 2006, 7.55% notes due~~to ~~2007,~~outstanding ~~8.125%~~share ~~notes due 2011~~options, ~~8.05%~~changes ~~notes~~in ~~due~~the ~~2027~~quantity ~~and~~or ~~9.000%~~type ~~debentures~~of ~~due~~instruments ~~2031.~~used ~~Substantially~~or ~~all~~changes ofin ~~Delhaize America’s subsidiaries (~~the ~~“Guarantor~~terms ~~Subsidiaries”)~~of ~~have fully and unconditionally, jointly and severally guaranteed this debt. The Guarantor Subsidiaries and non~~share-~~guarantor~~based ~~subsidiaries~~payment ~~are~~arrangements ~~wholly-owned~~made ~~subsidiaries~~prior ofto the ~~Company.~~adoption ~~The non-guaranteeing subsidiaries represent less than 3% on an individual and aggregate basis~~ of ~~consolidated~~FAS ~~assets, pretax earnings, cash flow, and equity~~123R. ~~Therefore~~Historically, the ~~non~~straight-~~guarantor~~line ~~subsidiaries’~~method ~~information~~was isused ~~not~~to ~~separately~~allocate ~~presented~~the inoption valuation ~~the~~amounts ~~tables~~evenly ~~below,~~over ~~but~~their ~~rather~~respective isvesting ~~included~~schedules. inHowever, ~~the~~with ~~column~~adoption ~~labeled~~of ~~“Guarantor~~FAS ~~Subsidiaries”.~~123R, ~~Condensed~~the ~~consolidated~~Company ~~financial information~~will ~~for~~use the ~~Company~~graded ~~and~~method ~~its~~prospectively ~~Guarantor~~beginning ~~Subsidiaries~~with is2005 asstock ~~follow:~~compensation grants.

Delhaize America, Inc.

Consolidated Statements of Income (Loss)

For the 26 Weeks ended July 3, 2004

(Dollars in thousands)	Parent (Issuer)			Guarantor Subsidiaries		Eliminations			Consolidated
Net sales and other revenues	$	—		$	7,856,810	$	—		$	7,856,810
Cost of goods sold		—			5,834,443		—			5,834,443
Selling and administrative expenses		18,799			1,575,125		—			1,593,924
Operating (loss) income		(18,799	)		447,242		—			428,443
Interest expense		113,069			47,094		—			160,163
Equity in earnings of subsidiaries		(191,512	)		—		191,512			—
Income from continuing operations before income taxes		59,644			400,148		(191,512	)		268,280
(Benefit) provision for income taxes		(50,110	)		152,831		—			102,721
Income before loss from discontinued operations		109,754			247,317		(191,512	)		165,559
Loss from discontinued operations, net of tax		—			55,805		—			55,805
Net income	$	109,754		$	191,512	$	(191,512	)	$	109,754

Delhaize America, Inc.

Consolidated Statements of Income (Loss)

For the 26 Weeks ended June 28, 2003

(Dollars in thousands)	Parent (Issuer)			Guarantor Subsidiaries		Eliminations			Consolidated
Net sales and other revenues	$	—		$	7,371,629	$	—		$	7,371,629
Cost of goods sold		—			5,558,807		—			5,558,807
Selling and administrative expenses		12,313			1,478,093		—			1,490,406
Operating (loss) income		(12,313	)		334,729		—			322,416
Interest expense		110,277			47,782		—			158,059
Equity in earnings of subsidiaries		(140,220	)		—		140,220			—
Income from continuing operations before income taxes		17,630			286,947		(140,220	)		164,357
(Benefit) provision for income taxes		(46,560	)		106,140		—			59,580
Income before loss from discontinued operations		64,190			180,807		(140,220	)		104,777
Loss from discontinued operations, net of tax		—			29,641		—			29,641
Income before cumulative effect of changes in accounting principle		64,190			151,166		(140,220	)		75,136
Cumulative effect of changes in accounting principle, net of tax		—			10,946		—			10,946
Net income	$	64,190		$	140,220	$	(140,220	)	$	64,190

13) Guarantor Subsidiaries

Delhaize America, Inc. has issued 7.375% notes due 2006, 7.55% notes due 2007, 8.125% notes due 2011, 8.05% notes due 2027 and 9.00% debentures due 2031. Substantially all of Delhaize America’s subsidiaries (the “Guarantor Subsidiaries”) have fully and unconditionally, jointly and severally guaranteed this debt. The Guarantor Subsidiaries and non-guarantor subsidiaries are wholly-owned subsidiaries of the Company. The non-guaranteeing subsidiaries represent less than 3% on an individual and aggregate basis of consolidated assets, pretax earnings, cash flow, and equity. Therefore, the non-guarantor subsidiaries’ information is not separately presented in the tables below, but rather is included in the column labeled “Guarantor Subsidiaries.” Condensed consolidated financial information for the Company and its Guarantor Subsidiaries is as follow:

Delhaize America, Inc.

Consolidated ~~Balance~~Statements ~~Sheets~~of Income

AsFor ofthe ~~July~~13 3,Weeks ~~2004~~ended April 2, 2005

(Dollars in thousands)	Parent (Issuer)			~~Guarantor Subsidiaries~~	Guarantor Subsidiaries		~~Eliminations~~	Eliminations			~~Consolidated~~	Consolidated
Assets
Net sales and other revenues	$	—			$	4,026,735		$	—			$	4,026,735
Current assets:
Cost of goods sold		—				2,967,145			—				2,967,145
Cash and cash equivalents	$	471,245		$	158,412		$	—			$	629,657
Selling and administrative expenses		8,572				845,516			—				854,088
Receivables, net		265			113,292			(265	)			113,292
Operating (loss) income		(8,572	)			214,074			—				205,502
Receivable from affiliate		11,704			51,647			(48,534	)			14,817
Interest expense		55,999				24,872			—				80,871
Income tax receivable		—			1,767			(1,767	)			—
Equity in earnings of subsidiaries		(109,580	)			—			109,580				—
Inventories		—			1,144,722			—				1,144,722
Income from continuing operations before income taxes		45,009				189,202			(109,580	)			124,631
Prepaid expenses		953			71,928			—				72,881
(Benefit) provision for income taxes		(24,537	)			77,429			—				52,892
Other assets		—			13,841			—				13,841
Income before loss from discontinued operations		69,546				111,773			(109,580	)			71,739
Total current assets		484,167			1,555,609			(50,566	)			1,989,210
Loss from discontinued operations, net of tax		—				2,193			—				2,193
Property and equipment, net		6,804			2,882,347			—				2,889,151
Net income	$	69,546			$	109,580		$	(109,580	)		$	69,546
Goodwill, net		—			2,893,431			—				2,893,431
Delhaize America, Inc. Consolidated Statements of Income For the 13 Weeks ended April 3, 2004
Other intangibles, net		—			752,820			—				752,820
(Dollars in thousands)	Parent (Issuer)				Guarantor Subsidiaries			Eliminations				Consolidated
Reinsurance recoverable from affiliate		—			132,486			—				132,486
Net sales and other revenues	$	—			$	3,853,639		$	—			$	3,853,639
Deferred tax asset		66,773			—			(66,773	)			—
Cost of goods sold		—				2,856,673			—				2,856,673
Other assets		82,965			68,519			—				151,484
Selling and administrative expenses		8,275				780,249			—				788,524
Investment in and advances to subsidiaries		5,754,614			—			(5,754,614	)			—
Operating (loss) income		(8,275	)			216,717			—				208,442
Total assets	$	6,395,323		$	8,285,212		$	(5,871,953	)		$	8,808,582
Interest expense		56,456				23,596			—				80,052
Liabilities and Shareholders’ Equity
Equity in earnings of subsidiaries		(63,731	)			—			63,731				—
Current liabilities:
(Loss) income from continuing operations before income taxes		(1,000	)			193,121			(63,731	)			128,390
Accounts payable	$	325		$	764,563		$	—			$	764,888
(Benefit) provision for income taxes		(24,598	)			75,665			—				51,067
Payable to affiliate		35,119			13,415			(48,534	)			—
Income before loss from discontinued operations		23,598				117,456			(63,731	)			77,323
Accrued expenses		52,102			254,012			—				306,114
Loss from discontinued operations, net of tax		—				53,725			—				53,725
Capital lease obligations – current		—			36,637			—				36,637
Net income	$	23,598			$	63,731		$	(63,731	)		$	23,598
Long-term debt – current		—			17,381			(265	)			17,116
Other liabilities – current		—			70,949			—				70,949
Deferred income taxes		—			1,007			—				1,007
Income taxes payable		15,248			—			(1,767	)			13,481
Total current liabilities		102,794			1,157,964			(50,566	)			1,210,192
Long-term debt		2,839,952			82,163			—				2,922,115
Capital lease obligations		—			671,931			—				671,931
Deferred income taxes		—			317,861			(66,773	)			251,088
Other liabilities		505			300,679			—				301,184
Total liabilities		2,943,251			2,530,598			(117,339	)			5,356,510
Commitments and contingencies (Note 14)
Total shareholders’ equity		3,452,072			5,754,614			(5,754,614	)			3,452,072
Total liabilities and shareholders’equity	$	6,395,323		$	8,285,512		$	(5,871,953	)		$	8,808,582

Delhaize America, Inc.

Consolidated Balance Sheets

As of ~~January~~April 32, ~~2004~~2005

(Dollars in thousands)	Parent (Issuer)		Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	~~147~~449,~~090~~383	$	~~166~~126,~~539~~839	$	—		$	~~313~~576,~~629~~222
Receivables, net		~~1,327~~863		~~110~~113,~~676~~598		(~~265~~863	)		~~111~~113,~~738~~598
Receivable from affiliate		1210,~~086~~599		7248,~~138~~846		(6946,~~516~~798	)		1412,~~708~~647
Income tax receivable		11,895		—		(11,895	)		—
Inventories		—		1,152,182		—			1,152,182
Inventories		—		1,203,487		—			1,203,487
Prepaid expenses		2,934		93,527		—			96,461
Prepaid expenses		2,409		38,177		—			40,586
Other assets		—		13,220		—			13,220
Deferred tax assets		68,378		26,491		(68,378	)		26,491
Total current assets		463,779		1,548,212		(47,661	)		1,964,330
Other assets		—		9,936		—			9,936
Property and equipment, net		11,289		2,984,112		—			2,995,401
Total current assets		243,185		1,627,444		(150,054	)		1,720,575
Goodwill		—		3,049,459		—			3,049,459
Property and equipment, net		7,222		2,973,233		—			2,980,455
Other intangibles, net		—		723,559		—			723,559
Goodwill, net		—		2,895,541		—			2,895,541
Reinsurance recoverable from affiliate		—		140,115		—			140,115
Other intangibles, net		—		775,830		—			775,830
Deferred tax asset		64,286		—		(64,286	)		—
Reinsurance recoverable from affiliate		—		129,869		—			129,869
Other assets		101,741		64,968		—			166,709
Other assets		88,540		82,201		—			170,741
Investment in and advances to subsidiaries		6,020,063		—		(6,020,063	)		—
Investment in and advances to subsidiaries		5,964,277		—		(5,964,277	)		—
Total assets	$	6,661,158	$	8,510,425	$	(6,132,010	)	$	9,039,573
Total assets	$	6,303,224	$	8,484,118	$	(6,114,331	)	$	8,673,011
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	~~663~~111	$	~~750~~717,~~459~~620	$	—		$	~~751~~717,~~122~~731
Payable to affiliate		5736,~~638~~166		1310,~~996~~632		(6946,~~516~~798	)		~~2,118~~—
Accrued expenses		53111,~~414~~515		~~243~~238,~~513~~395		—			~~296~~349,~~927~~910
Capital lease obligations – current		—		35,686		—			35,686
Capital lease obligations - current		—		41,288		—			41,288
Long-term debt – current		—		13,301		(265	)		13,036
Long-term debt - current		—		13,115		(863	)		12,252
Other liabilities – current		—		55,664		—			55,664
Other liabilities - current		—		33,999		—			33,999
Income taxes payable		—		13,049		(11,895	)		1,154
Deferred income taxes		—		1,157		—			1,157
Total current liabilities		111,715		1,125,668		(81,676	)		1,155,707
Income taxes payable		86,247		16,654		—			102,901
Long-term debt		2,845,482		94,653		—			2,940,135
Total current liabilities		234,039		1,072,860		(47,661	)		1,259,238
Capital lease obligations		—		685,852		—			685,852
Long-term debt		2,789,322		66,017		—			2,855,339
Deferred income taxes		—		339,063		(68,378	)		270,685
Capital lease obligations		—		731,970		—			731,970
Other liabilities		313		274,605		—			274,918
Deferred income taxes		—		306,875		(64,286	)		242,589
Total liabilities		2,957,510		2,519,841		(150,054	)		5,327,297
Other liabilities		816		312,640		—			313,456
Total liabilities		3,024,177		2,490,362		(111,947	)		5,402,592
Commitments and contingencies (Note 14)
Total shareholders’ equity		3,~~345~~636,~~714~~981		56,~~964~~020,~~277~~063		(56,~~964~~020,~~277~~063	)		3,~~345~~636,~~714~~981
Total liabilities and shareholders’ equity	$	6,~~303~~661,~~224~~158	$	8,~~484~~510,~~118~~425	$	(6,~~114~~132,~~331~~010	)	$	89,~~673~~039,~~011~~573

Delhaize America, Inc.

Consolidated Balance Sheets

As of January 1, 2005


(Dollars in thousands)	Parent (Issuer)		Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	351,294	$	148,571	$	—		$	499,865
Receivables, net		1,123		120,714		(849	)		120,988
Receivable from affiliate		15,290		52,147		(50,001	)		17,436
Inventories		—		1,144,904		—			1,144,904
Prepaid expenses		1,876		48,048		—			49,924
Other assets		—		13,472		—			13,472

Total current assets		369,583		1,527,856		(50,850	)		1,846,589

Property and equipment, net		9,852		2,976,951		—			2,986,803
Goodwill		—		3,049,622		—			3,049,622
Other intangibles, net		—		733,194		—			733,194
Reinsurance recoverable from affiliate (Note 1)		—		136,845		—			136,845
Deferred tax asset		65,081		—		(65,081	)		—
Other assets		102,694		72,525		—			175,219
Investment in and advances to subsidiaries		5,968,984		—		(5,968,984	)		—

Total assets	$	6,516,194	$	8,496,993	$	(6,084,915	)	$	8,928,272

Liabilities and Shareholders’ Equity

Current liabilities:
Accounts payable	$	154	$	735,151	$	—		$	735,305
Dividend payable		25,029		—		—			25,029
Payable to affiliate		38,924		12,002		(50,001	)		925
Accrued expenses		55,870		239,267		—			295,137
Capital lease obligations - current		—		40,639		—			40,639
Long-term debt - current		—		13,144		(849	)		12,295
Other liabilities - current		—		40,596		—			40,596
Deferred income taxes		—		3,349		—			3,349
Income taxes payable		31,850		19,609		—			51,459

Total current liabilities		151,827		1,103,757		(50,850	)		1,204,734

Long-term debt		2,794,612		71,616		—			2,866,228
Capital lease obligations		—		722,113		—			722,113
Deferred income taxes		—		315,404		(65,081	)		250,323
Other liabilities		705		315,119		—			315,824

Total liabilities		2,947,144		2,528,009		(115,931	)		5,359,222

Commitments and contingencies (Note 17)
Total shareholders’ equity		3,569,050		5,968,984		(5,968,984	)		3,569,050

Total liabilities and shareholders’ equity	$	6,516,194	$	8,496,993	$	(6,084,915	)	$	8,928,272

Delhaize America, Inc.

Consolidated Statements of Cash Flows

For the 2613 Weeks ended ~~July~~April 32, ~~2004~~2005

(Dollars in thousands)	Parent (Issuer)			Guarantor Subsidiaries			Consolidated
Net cash (used in) provided by operating activities	$	(119,282	)	$	597,908		$	478,626
Net cash (used by) provided by operating activities	$	(2,070	)	$	223,119		$	221,049
Cash flows from investing activities
Capital expenditures		(211,705	)		(~~143~~99,~~095~~961	)		(~~143~~101,~~116~~666	)
Proceeds from sale of property		—			112,~~235~~329			112,~~235~~329
Other investment activity		(43,~~498~~760	)		~~279~~3,481			(~~4,219~~279	)
Net cash used in investing activities		(45,~~519~~465	)		(~~131~~94,~~581~~151	)		(~~136~~99,~~100~~616	)
Cash flows from financing activities
Principal payments on long-term debt		—			(85,~~899~~876	)		(85,~~899~~876	)
Principal payments under capital lease obligations		—			(1711,~~360~~082	)		(1711,~~360~~082	)
Transfer from escrow to fund long-term debt		—			75,~~827~~636			75,~~827~~636
Net change in advances to subsidiaries		456,022			(456,022	)		—
Dividends paid		(25,029	)		—			(25,029	)
Parent common stock repurchased		(9,090	)		—			(9,090	)
Net change in advances to subsidiaries		139,378			(139,378	)		—
Tax payment for restricted shares vested		(852	)		—			(852	)
Parent common stock repurchased		(14,878	)		—			(14,878	)
Proceeds from stock options exercised		12,~~876~~470			—			12,~~876~~470
Net cash provided by (used in) financing activities		447,956			(474,454	)		(26,498	)
Excess tax benefits related to stock options		3,683			—			3,683
Net increase (decrease) in cash and cash equivalents		324,155			(8,127	)		316,028
Net cash provided by (used in) financing activities		105,624			(150,700	)		(45,076	)
Cash and cash equivalents at beginning of year		147,090			166,539			313,629
Net increase (decrease) in cash and cash equivalents		98,089			(21,732	)		76,357
Cash and cash equivalents at end of period	$	471,245		$	158,412		$	629,657
Cash and cash equivalents at beginning of year		351,294			148,571			499,865
Cash and cash equivalents at end of period	$	449,383		$	126,839		$	576,222

Delhaize America, Inc.

Consolidated Statements of Cash Flows

For the 2613 Weeks ended ~~June~~April 283, ~~2003~~ 2004

(Dollars in thousands)	Parent (Issuer)			Guarantor Subsidiaries			Consolidated
Net cash provided by operating activities	$	(91,550	)	$	444,099		$	352,549
Net cash (used in) provided by operating activities	$	(6,031	)	$	243,485		$	237,454
Cash flows from investing activities
Capital expenditures		(111	)		(~~141~~58,~~900~~262	)		(~~141~~58,~~911~~263	)
Proceeds from sale of property		—			4,~~771~~692			4,~~771~~692
Other investment activity		(32,~~979~~542	)		~~1,094~~29			(2,~~885~~513	)
Net cash used in investing activities		(32,~~990~~543	)		(~~136~~53,~~035~~541	)		(~~140~~56,~~025~~084	)
Cash flows from financing activities
Principal payments on long-term debt		—			(132,~~413~~318	)		(132,~~413~~318	)
Principal payments under capital lease obligations		—			(158,~~598~~488	)		(158,~~598~~488	)
Taxes paid on capital contribution		(4,692	)		—			(4,692	)
Transfer from escrow to fund long- term debt		—			2,808			2,808
Net change in advances to subsidiaries		~~267~~198,~~257~~211			(~~267~~198,~~257~~211	)		—
Parent common stock repurchased		(~~649~~4,999	)		—			(~~649~~4,999	)
Proceeds from stock options exercised		~~248~~1,024			—			~~248~~1,024
Net cash provided by (used in) financing activities		~~262~~194,~~164~~236			(~~296~~206,~~268~~209	)		(3411,~~104~~973	)
Net increase in cash and cash equivalents		~~166~~185,~~624~~662			11(16,~~796~~265	)		~~178~~169,~~420~~397
Cash and cash equivalents at beginning of year		12147,~~000~~090			~~119~~166,~~641~~539			~~131~~313,~~641~~629
Cash and cash equivalents at end of period	$	~~178~~332,~~624~~752		$	~~131~~150,~~437~~274		$	~~310~~483,~~061~~026

1718

The wholly-owned direct subsidiaries named below fully and unconditionally and jointly and severally guarantee Delhaize America’s 7.375% notes due 2006, 7.~~550~~55% notes due 2007, 8.125% notes due 2011, 8.05% notes due 2027 and 9.~~000~~00% debentures due 2031.

• Food Lion, LLC is a North Carolina limited liability company that operates substantially all of the Company’s Food Lion stores. Food Lion’s executive offices are located at 2110 Executive Drive, Salisbury, North Carolina 28145-1330.

• 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 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.~~Street, Nashville, Georgia 31639.

14) Commitments and Contingencies

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

~~Item~~The 2.Company ~~Management’s~~continues ~~Discussion~~to experience both federal and ~~Analysis~~state audits of ~~Financial~~its ~~Condition~~income ~~and~~tax ~~Result~~filings, which it considers to be part of ~~Operations~~its ~~(13~~ongoing ~~weeks~~business activity. In particular, the Company has experienced an increase in audit and 26assessment activity ~~weeks~~during ~~ended~~both ~~July~~fiscal 3,2003 and 2004, ~~compared~~which it expects to continue. While the 13ultimate outcome of these federal and 26state ~~weeks~~audits ~~ended~~is ~~June~~not 28certain, ~~2003)~~the Company has 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 the Company’s 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.

~~The~~15) ~~following~~Subsequent ~~information~~Event should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto in this Quarterly Report and the audited financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operation contained in our Form 10-K for the year ended January 3, 2004.

On April 22, 2005, the Company entered into a new $500.0 million five-year unsecured revolving credit agreement, replacing and terminating the existing $350.0 secured credit agreement maturing July 2005. The new credit agreement contains affirmative and negative covenants similar to the previously existing agreement, with exception for the asset coverage ratio. The Company filed a Current Report on Form 8-K on April 26, 2005 with the Securities and Exchange Commission, disclosing its entry into the new credit agreement and the termination of the previous credit agreement.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation (13 weeks ended April 2, 2005 compared to the 13 weeks ended April 3, 2004)

The following information should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto in this Quarterly Report on Form 10-Q and the audited financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operation contained in our Annual Report on Form 10-K for the year ended January 1, 2005.

Executive Summary

Delhaize America, a wholly-owned subsidiary of Delhaize Group, engages in one line of business, the operation of retail food supermarkets in the eastern United States. Delhaize America is a holding company ~~having four subsidiary operating companies~~ that dodoes business primarily under the banners Food Lion, Hannaford, Kash n’ Karry and Harveys. Our stores sell a wide variety of groceries, produce, meats, dairy products, seafood, frozen food, deli-bakery and non-food items such as health and beauty care, ~~prescriptions~~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 under the private labels of “Food Lion”,” “Hannaford”,” “Kash n’ Karry” and “Harveys”. ”

Our business is highly competitive and characterized by low profit margins. We compete with national, regional and local supermarket chains, supercenters, discount food stores, single unit stores, convenience stores, warehouse clubs, drug stores and restaurants. We continue to develop and evaluate new retailing strategies at each of our banners in the eastern United States to respond to local consumers’ needs and maintain and increase our market share.

During the second quarter of fiscal 2004, Delhaize America posted increased sales, improving gross margins, and continued cost and expense reduction.

Second Quarter Highlights:

• Sales. Sales increased 6.8%. Comparable store sales increased 1.4%. Cost inflation has accelerated in the first half of 2004. We are very attentive to our competitive price position, but we have generally been able to pass through increased costs in this quarter while maintaining competitiveness and positive market share momentum.

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

• Market Renewal. Following the launch of Food Lion’s market renewal in Raleigh in fiscal 2003, a second renewal program is underway in Charlotte, North Carolina. Market renewal represents a change in Food Lion’s historical approach to remodeling activity. In the past, annual capital spending for remodel activity was dedicated to stores based on age and our related remodel calendar. Through market renewal, remodel spending is focused on key markets to maximize consumer recognition and reaction. Market renewal was developed to make our stores, particularly the produce and meat departments, more appealing and customer focused. As an integral part of this project, Food Lion also brings a sharper focus on assortment development, marketing, merchandising and training associates.

• Bloom, A Food Lion Market. Food Lion plans to open five pilot stores in 2004, one of which opened in the second quarter of 2004, to test a new store concept, format and brand name. The pilot stores will be named “Bloom, A Food Lion Market”, a new brand under the Food Lion banner. These stores will focus on driving convenience to a level of distinction and are designed to provide a simple, uncomplicated and hassle-free shopping experience. As its “Thought for Food” tagline suggests, Bloom will appeal to customers with a focus on shopping solutions, value-adding services, home meal replacement, easy-to-shop store lay-out and technology features that expedite the shopping experience to bring full meaning to the broad term “convenience”. The pilot stores are the result of the work of a cross-functional team from around the Group that developed this new store concept based on comprehensive consumer research.

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

• Growth of Harveys. In October of 2003, we expanded our business by acquiring Harveys, a chain of 43 supermarkets primarily in South Georgia. This chain is strengthening our position in a Georgia market where we currently do not have a strong presence, giving us opportunities to focus on local consumers’ needs in this market to grow the Harveys business. As part of this strategy, six Food Lion stores were converted to Harveys stores during the first half of fiscal 2004, while seven additional stores will be converted during the second half of 2004.

• Inventory Management. During the first half of fiscal 2004, we continued to transition our Food Lion inventory system to an existing Hannaford system, which was adapted to accomodate Food Lion specific needs. The system will improve margin analysis, shrink control and inventory management at Food Lion, through full visibility to item-level data. At the end of second quarter of 2004, the new inventory system and processes had been implemented in over 1,000 Food Lion stores and will be implemented in all of our stores by the end of the third quarter of 2004. The roll out of the same system in our Kash n’ Karry stores was completed during the second quarter of 2004.

• Cost Reduction and Continuous Improvement. In addition to our sales growth, we continued our focus in the first half of fiscal 2004 on cost reduction and continuous improvement efforts, particularly at our Food Lion banner, to drive further efficiencies in our processes and systems. We plan to continue cost savings and continuous improvement initiatives to maintain and reinforce the price leadership of Food Lion among supermarket operators in the Southeast, re-position our Kash n’ Karry banner and continue the strong performance of Hannaford.

During the second half of 2004, Delhaize America plans to continue its focus on core markets to build on accelerating sales momentum. As part of this strategy, Kash n’ Karry, which had strong comparable sales in the last half of 2003 and the first half of fiscal 2004, will be rebranded over the coming three years to the new banner name “Sweetbay Supermarket”. As part of this effort, we closed 34 underperforming Kash n’ Karry stores primarily in the Orlando area and on the east coast of Florida in the first quarter of 2004. These closings allow us to focus our efforts in the remaining stores in our core area on the west coast of Florida, including the Tampa/St. Petersburg market where we have a solid market position and consumer perceptions are strong. We plan to build on this position by delivering on meat and produce quality, variety and value for consumers in ways that differentiate us from our competitors. At our Food Lion banner in the short term, we will continue to focus on excellence in execution, in-stock conditions, cleanliness, freshness, increased convenience and customer service. In the medium term, we will focus on market renewal (see above) in key markets. At Hannaford, the Festival Strategy will evolve in response to shifting customer needs, as this strategy is founded on the principle of listening to consumers and anticipating their needs.

Recent Developments

The Board of Directors of Delhaize America’s parent company, Delhaize Group, decided, on August 4, 2004, to divest its loss-making Thai operation, Food Lion Thailand. Delhaize America owns a 51% interest in Food Lion Thailand and “Delhaize The Lion Nederland BV”, a Dutch subsidiary of Delhaize Group, owns the remaining 49% interest in Food Lion Thailand. Delhaize America accounts for its Food Lion Thailand investment under the equity method, and its share of Food Lion Thailand’s operating loss for the 26 weeks ended July 3, 2004 and fiscal 2003 was not material to the Company’s consolidated results of operation. Delhaize Group is in an advanced stage of negotiations on the possible sale of a significant number of Food Lion Thailand stores. Any store not sold will be closed. As a result of the decision to divest, Delhaize America expects to record a charge of approximately $3.0 million in the third quarter of 2004.

OnOur ~~May~~business ~~12,~~is ~~2004,~~highly ~~our~~competitive ~~company, the Bank of New York, as Trustee (the “Trustee”)~~ and ~~Food~~characterized ~~Lion,~~by ~~LLC,~~narrow ~~Hannaford Bros.~~profit Comargins., ~~Kash~~We n’compete ~~Karry~~with ~~Food Stores~~national, ~~Inc.,~~regional FLand local ~~Food~~supermarket ~~Lion~~chains, ~~Inc.~~supercenters, ~~Risk~~discount ~~Management~~food ~~Services~~stores, ~~Inc.,~~specialty ~~Hannbro Company~~stores, ~~Martin’s~~convenience ~~Foods Of South Burlington~~stores, ~~Inc.,~~warehouse ~~Shop ‘n Save-Mass.~~clubs, ~~Inc.,~~drug ~~Hannaford~~stores ~~Procurement Corp., Boney Wilson & Sons, Inc., J.H. Harvey Co., LLC~~ and ~~Hannaford Licensing Corp~~restaurants., ~~each~~We acontinue ~~direct or indirect wholly-owned subsidiary of our company (collectively, the “Subsidiary Guarantors”), executed a Second Supplemental~~ to ~~the~~develop ~~Indenture, dated as of August 25, 1991, between our company~~ and ~~the~~evaluate ~~Trustee,~~new asretailing ~~amended~~strategies byat ~~the~~each ~~First Supplemental Indenture, dated as~~ of ~~April 21, 1997, between~~ our ~~company~~banners ~~and~~in the ~~Trustee.~~eastern United ~~Under~~States ~~the~~to ~~terms~~respond ofto ~~the~~local ~~Second~~consumers’ ~~Supplemental~~needs ~~Indenture, each of the Subsidiary Guarantors fully~~ and ~~unconditionally~~maintain and ~~jointly~~increase ~~and severally guaranteed~~ our ~~$150,000,000~~market ~~in original aggregate principal amount of 7~~share.~~55%~~ ~~Notes due 2007 and $150,000,000 in original aggregate principal amount of 8.05% Notes due 2027.~~

OnDuring ~~March 15, 2004,~~ the ~~Company~~first ~~reached~~quarter anof ~~agreement~~2005, ~~with~~Delhaize ~~The~~America ~~United~~posted ~~Food~~increased &sales ~~Commercial Workers~~and ~~International~~improving ~~Union~~gross ~~(the~~margins, ~~“UFCW”)~~as ~~providing~~compared ~~that~~to the ~~UFCW~~first ~~will~~quarter ~~end~~of ~~its “corporate campaign” against the Company~~2004. ~~The agreement additionally resolves all outstanding disputes between the UFCW and the Company, including all litigation.~~

First Quarter Highlights:

•

Gross Margin Improvement. Opportunities for margin optimization have been enhanced with the implementation of the new inventory system and margin management processes in fiscal 2004 at our Food Lion and Kash n’ Karry banners. We continue to recognize improvements in margin, shrink control and inventory management through full visibility to item-level detail data provided by this system. Food Lion continues to experience a decrease in inventory shrinkage and is making related decisions to increase sales and margins.

•

Butcher’s Brand. In April 2005 Food Lion launched Butcher’s Brand Premium Beef. The development of this exclusive private label line of fresh beef was preceded by extensive customer research, the selection of the best suppliers, an intensive in-house training program, and the rollout of new quality standards. This new brand is part of our Company’s strategy to enhance the offering and customer experience in our fresh departments.

•

Selling and Administrative Expenses. During the first quarter of 2005, we incurred additional salaries, benefits and other general expenses primarily for the 19 Victory stores acquired during fourth quarter of 2004, rebranding of Kash n’ Karry to its new banner name Sweetbay and support for Food Lion’s two new market renewal efforts in advance of their related sales benefits. We also adopted FAS 123R during first quarter of 2005, which resulted in stock compensation expense of $4.7 million recorded in selling and administrative expenses.

•

Kash n’ Karry. In the fourth quarter of 2004, Sweetbay Supermarket, a new store concept to replace Kash n’ Karry in Florida, was launched. During the first quarter of 2005, all Kash n’ Karry stores in the market of Fort Myers/Naples were relaunched under the Sweetbay Supermarket brand. We currently have ten Sweetbay stores in operation.

•

Integration of Victory. During the first quarter of 2005, Hannaford worked on the integration of the 19 Victory Super Markets acquired in fourth quarter of 2004. The point of sale, inventory and store deliveries systems have been changed and the supply chain was switched to Hannaford’s self distribution in January 2005. Victory started to introduce Hannaford’s private label products and the prices of many products were lowered to align Victory to Hannaford’s Everyday Low Price pricing strategy. During the first quarter of 2005, two Victory stores were converted to the Hannaford banner. The remaining stores will be converted by the end of the year.

•

Growth of Harveys. Following the success of the 13 Food Lion stores converted to Harveys during 2004, six additional Food Lion stores were converted to Harveys during the first quarter of 2005. Harveys is strengthening our position in the Georgia market where we did not have a strong presence, giving us opportunities to focus on local consumers’ needs in this market to grow the Harveys business.

2005 Remaining Outlook:

•

Food Lion will complete market renewal programs in Greensboro, North Carolina in mid-2005 and in Baltimore, Maryland in the fall of 2005.

•

Kash n’ Karry will continue to be rebranded over the coming three years to the new banner name “Sweetbay Supermarket.” We plan to convert or open approximately 16 more stores under the Sweetbay banner by the end of 2005.

•

Harveys plans to convert an additional six Food Lion stores to its banner. These conversions are expected to enhance our Company’s presence in Harveys’ primary market area by tapping into the strength of the local Harveys’ brand.

Critical Accounting Policies

We have chosen accounting policies we believe are appropriate to accurately and fairly report our operating results and financial position and we apply these accounting policies in a consistent manner. The significant accounting policies are summarized in Note 1 to our Annual Report on Form 10-K for the year ended January 31, ~~2004~~2005.

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

Asset impairment - We periodically evaluate the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. We monitor the carrying value of our retail stores, our lowest level asset group for which identifiable cash flows are independent of other groups of assets and liabilities, for potential impairment based on projected ~~undiscounted~~ future cash flows. If impairment is identified for retail stores, we compare the asset group’s estimated fair value to its current carrying value and record provisions for impairment as appropriate. With respect to owned property and equipment associated with closed stores, the value of the property and equipment is adjusted to reflect recoverable values based on our previous experience in disposing of similar assets and current economic conditions.

Impairment losses are significantly impacted by estimates of future operating cash flows and estimates of fair value. We estimate future cash flows based on the experience and knowledge of the markets in which our stores are located. These estimates are adjusted for variable factors such as inflation and general economic conditions. We estimate fair value based on our experience and knowledge of the real estate markets where the store is located and also include an independent third-party appraiser in certain situations.

Goodwill and other intangible assets- – We conduct an annual assessment of ~~potential~~ potential impairment of goodwill and other indefinite lived intangible assets by comparing the book value of these assets to their current fair value. Fair value is estimated based on discounted cash flow projections provided by reporting unit management. When the carrying value of the reporting unit exceeds its fair value, a provision for impairment is recorded. We conduct an annual impairment assessment in the fourth quarter of each year or when events or circumstances indicate that an ~~impairment~~ impairment may have occurred in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets.”

The evaluation of goodwill and intangibles with indefinite useful lives for impairment requires management to use significant judgments and estimates including, but not limited to, projected future revenue, cash flows and discount rates. We believe that, based on current conditions, material goodwill and intangible impairments are not likely to occur. However, a change in assumptions or market conditions could result in a change in estimated future cash flows and the likelihood of material impairment.

Inventories - Inventories are stated at the lower of cost or market determined by the Last-in, First-out (“LIFO”) method. Meat, produce, ~~and~~ deli-bakery and seafood inventories are valued on the average cost method rather than the LIFO method. We evaluate inventory shrinkage throughout the year based on actual physical counts in our stores and distribution centers and record adjustments based on the results of these counts to provide for the estimated shrinkage as of the balance sheet date.

~~Supplier Allowances~~ Leases- WeOur ~~receive~~stores ~~allowances,~~operate ~~credits~~principally ~~and~~in ~~income~~leased ~~from~~premises. ~~suppliers~~We ~~primarily~~account for ~~volume~~leases ~~incentives,~~under the ~~new~~provisions ~~product~~of ~~introductions~~SFAS No.13, ~~in-store promotions~~“Accounting for Leases,” and ~~co-operative~~related ~~advertising~~accounting guidance. ~~Volume~~For ~~incentives~~lease ~~are~~agreements ~~based~~that onprovide ~~contractual~~for ~~arrangements~~escalating ~~generally~~rent ~~covering~~payments, we recognize rent expense on a ~~period~~straight-line ofbasis ~~one~~over ~~year~~the ornon-cancelable ~~less~~lease term and ~~have~~option ~~been~~renewal ~~historically~~periods ~~included~~where failure to exercise such options would result in an economic penalty such that renewal appears, at the ~~cost~~inception of ~~inventory~~the ~~and~~lease, ~~recognized~~to asbe ~~earned~~reasonably inassured. ~~cost~~Rent incurred during the construction and development of ~~sales~~a store is capitalized as a component of property and equipment. The lease term commences when we become obligated under the ~~product~~terms isof ~~sold.~~the ~~New~~lease ~~product~~agreement ~~introduction~~and ~~allowances~~extends ~~compensate~~over usthe ~~for~~non-cancelable ~~costs~~term ~~incurred~~and ~~associated~~option ~~with~~renewal ~~product~~periods where failure to exercise such option would result in an economic penalty such that renewal appears to be reasonably assured.

20When evaluating leases, we use significant judgments and estimates, which include the determination of the lease term, incremental borrowing rates and fair market values. The determination of the lease term involves judgments as to whether an economic penalty exists which reasonably assures renewal of option periods. The incremental borrowing rate is used to calculate the present value of future rent payments and is based on the current yield for publicly traded debt for our Company. The fair market value of the leased premises is based on our experience and knowledge of the real estate markets where the store is located and includes an independent third-party appraiser in certain situations.

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

~~handling~~We ~~and~~implemented ~~have~~a ~~been~~captive ~~historically~~insurance ~~deferred~~program ~~and recognized as a reduction~~ in ~~cost~~fiscal of2001 ~~sales~~pursuant ~~over~~to which the ~~product introductory period. Non~~self-~~refundable~~insured ~~credits~~reserves ~~from suppliers for in-store promotions such as product displays require~~ related ~~activities~~to byworkers’ ~~us. Similarly~~compensation, ~~co-operative~~general ~~advertising~~liability ~~requires us to conduct the related advertising. In-store promotions income~~ and ~~co-operative advertising income have~~auto ~~historically~~coverage ~~been~~were ~~included~~reinsured inby ~~cost~~Pride ~~of sales and recognized when we perform the related activities.~~

In 2003, upon the adoption of EITF Issue No. 02-16, in-store promotion and co-operative advertising income is now recorded as a reduction in the cost of inventory and recognized in cost of sales when the product is sold unless the allowance represents the reimbursement of a specific, incremental, and identifiable cost incurred by us to sell the vendor’s product. We have reviewed the promotional funding received from vendors 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.

Upon adoption of EITF Issue No. 02-16 in 2003, we recorded the cumulative effect of a change in accounting principle of $10.9 million, net of tax, during the first quarter of 2003. This charge was recorded as a decrease in net income in our consolidated statement of income and reflects an adjustment, which decreased our opening inventory balance. The adoption effectively transfers a portion of the benefit associated with supplier allowances from cost of sales to inventory until the related product is sold.

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

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

We implemented a captive insurance program in fiscal 2001 pursuant to which the self-insured reserves related to workers’ compensation, general liability and auto coverage were reinsured by Pride Reinsurance Company (“Pride”), an Irish reinsurance captive, owned by an affiliated company of Delhaize Group. The purpose for implementing the captive insurance program is to provide Delhaize Group continuing flexibility in its risk management program while providing certain excess loss protection through anticipated reinsurance contracts with Pride. Premiums are transferred annually to Pride through Delhaize Insurance Co., a subsidiary of Delhaize America.

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

Store closing reserves - We provide for closed store liabilities relating to the estimated post-closing lease liabilities and related other exit costs associated with store closing commitments. The closed store liabilities are usually paid over the lease terms associated with the closed stores having remaining terms ranging from one to 20 years. We estimate the lease liabilities net of sublease income, using a discount rate based on the current treasury note rates adjusted for our current credit spread to calculate the present value of the remaining rent payments on closed stores. Other exit costs include estimated real estate taxes, common area maintenance, and insurance costs to be incurred after the store closes (all of which are contractually required payments under the lease agreements) over the remaining lease term. Store closings are generally completed within one year after the decision to close. Adjustments to closed store liabilities and other exit costs primarily relate to changes in subtenants and actual exit costs differing from original estimates. Adjustments are made for changes in estimates in the period in which the change becomes known. Any excess store closing liability remaining upon settlement of the obligation is reversed in the period that such settlement is determined.

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

Reinsurance Company (“Pride”), an Irish reinsurance captive, owned by an affiliated company of Delhaize Group. The purpose for implementing the captive insurance program is to provide Delhaize Group continuing flexibility in its risk management program while providing certain excess loss protection through anticipated reinsurance contracts with Pride. Premiums are transferred annually to Pride through Delhaize Insurance Co., a subsidiary of Delhaize America.

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

Stock compensation- We early adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“Statement 123R”) during the first quarter of 2005, using the modified prospective approach. Historically, we applied the recognition and measurement provisions of APB Opinion 25, “Accounting for Stock Issued to Employees,” and the straight-line method was used to allocate the option valuation amounts evenly over their respective vesting schedules.

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. We elected to apply the revised standard using the modified prospective transition method. Under this transition method, compensation cost recognized in fiscal year 2005 includes: (a) compensation cost for all share-based payments 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 (b) compensation cost for all share-based payments granted subsequent to January 2, 2005, based on the grant-date fair value estimated in accordance with the provisions of FAS 123R. We are not required to restate financial statements for any prior interim and fiscal years.

The fair value of restricted stock unit awards is determined based on the number of shares granted and the market price at the grant dates. The fair value of stock options is determined using the Black-Scholes valuation model, which is consistent with our valuation techniques previously utilized for options in disclosures required under SFAS No. 123. Such value is recognized as expense over the service period, net of estimated forfeitures, using the accelerated method under FAS 123R prospectively, beginning with 2005 stock compensation grants.

Estimating the fair value of options requires us to use significant estimates and judgments, which include expected dividend yield, expected volatility, risk-free interest rate and expected term. The expected dividend yield is calculated by dividing the Delhaize Group annual dividend by the share price at the date of grant for options. The expected volatility represents a five year historical volatility and the risk-free interest rate is based on the U.S. treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The expected term is based on a ten year historical exercise pattern.

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 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.

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.

~~Results~~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 ~~Operation~~one year or less and have been included in the cost of inventory and recognized as earned in cost of sales when the product is sold. New product introduction allowances compensate us for costs incurred associated with product handling and have been 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 and recognized in cost of sales when the product is sold unless the allowance represents the reimbursement of a specific, incremental and identifiable cost incurred by our Company to sell the vendor’s product. We have reviewed the funding received from vendors for in-store promotions and co-operative advertising and concluded that these arrangements are primarily for general advertising purposes and not the reimbursement of a specific, incremental and identifiable cost incurred by our Company.

The following tables set forth the unaudited condensed consolidated statements of income for the 13 and the 26 weeks ended July 3, 2004 and for the 13 and 26 weeks ended June 28, 2003 for informational purposes. The 2003 results have been adjusted to classify the results of operation for the 35 stores closed during the 26 weeks ended July 3, 2004 as “discontinued operations.” The net sales and other revenues, cost of goods sold, and selling and administrative expenses are reflected on a net basis in “discontinued operations” in our condensed consolidated statement of income.

	13 WeeksEnded July 3, 2004		13 WeeksEnded June 28, 2003
	(unaudited)		(unaudited)
Net sales and other revenues	$	3,999,188	$	3,743,232
Cost of goods sold		2,974,578		2,809,322
Selling and administrative expenses		804,376		751,123
Operating income		220,234		182,787
Interest expense		80,094		78,731
Income from continuing operations before income taxes		140,140		104,056
Provision for income taxes		51,752		37,878
Income from continuing operations		88,388		66,178
Loss from discontinued operations, net of tax		2,232		5,550
Net income	$	86,156	$	60,628

	26 WeeksEnded July 3, 2004		26 WeeksEnded June 28, 2003
	(unaudited)		(unaudited)
Net sales and other revenues	$	7,856,810	$	7,371,629
Cost of goods sold		5,834,443		5,558,807
Selling and administrative expenses		1,593,924		1,490,406
Operating income		428,443		322,416
Interest expense		160,163		158,059
Income from continuing operations before income taxes		268,280		164,357
Provision for income taxes		102,721		59,580
Income from continuing operations		165,559		104,777
Loss from discontinued operations, net of tax		55,805		29,641
Income before cumulative effect of changes in accounting principle		109,754		75,136
Cumulative effect of change in accounting principle, net of tax		—		10,946
Net income	$	109,754	$	64,190

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

	13 WeeksEnded July 3, 2004%	13 WeeksEndedJune 28, 2003%
	(unaudited)	(unaudited)
Net sales and other revenues	100.00	100.00
Cost of goods sold	74.38	75.05
Selling and administrative expenses	20.11	20.07
Operating income	5.51	4.88
Interest expense	2.01	2.10
Income from continuing operations before income taxes	3.50	2.78
Provision for income taxes	1.29	1.01
Income from continuing operations	2.21	1.77
Loss from discontinued operations, net of tax	0.06	0.15
Net income	2.15	1.62

	26 WeeksEnded July 3, 2004 %	26 WeeksEnded June 28, 2003%
	(unaudited)	(unaudited)
Net sales and other revenues	100.00	100.00
Cost of goods sold	74.26	75.41
Selling and administrative expenses	20.29	20.22
Operating income	5.45	4.37
Interest expense	2.04	2.14
Income from continuing operations before income taxes	3.41	2.23
Provision for income taxes	1.30	0.81
Income from continuing operations	2.11	1.42
Loss from discontinued operations, net of tax	0.71	0.40
Income before cumulative effect of changes in accounting principle	1.40	1.02
Cumulative effect of change in accounting principle, net of tax	0.00	0.15
Net income	1.40	0.87

Estimating some rebates received from third party vendors requires us to make assumptions and judgments regarding specific purchase or sales levels and 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.

~~Note:~~Results ~~Cost~~ of ~~goods~~Operation sold includes a December 29, 2002 adoption charge of $87.3 million (1.18% of sales) in the 26 weeks ended June 28, 2003 related to the conversion in inventory accounting from the retail method to average item cost method at the Food Lion and Kash n’ Karry banners. The cumulative effect of change in accounting principle is discussed in Note 10 to the unaudited condensed consolidated financial statements.

The following tables set forth the unaudited condensed consolidated statements of income for the 13 weeks ended April 2, 2005 and for the 13 weeks ended April 3, 2004 for informational purposes. The 2004 results have been adjusted to classify the results of operation for the four stores closed after the 13 weeks ended April 3, 2004 as “discontinued operations.” The net sales and other revenues, cost of goods sold, and selling and administrative expenses are reflected on a net basis in “discontinued operations” in our condensed consolidated statement of income.


(Dollars in thousands)	13 Weeks Ended April 2, 2005		13 Weeks Ended April 3, 2004
	(unaudited)		(unaudited)
Net sales and other revenues	$	4,026,735	$	3,853,639
Cost of goods sold		2,967,145		2,856,673
Selling and administrative expenses		854,088		788,524

Operating income		205,502		208,442
Interest expense		80,871		80,052

Income from continuing operations before income taxes		124,631		128,390
Provision for income taxes		52,892		51,067

Income from continuing operations		71,739		77,323
Loss from discontinued operations, net of tax		2,193		53,725

Net income	$	69,546	$	23,598

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


	13 Weeks Ended April 2, 2005	13 Weeks Ended April 3, 2004
	% (unaudited)	% (unaudited)
Net sales and other revenues	100.00	100.00
Cost of goods sold	73.69	74.13
Selling and administrative expenses	21.21	20.46

Operating income	5.10	5.41
Interest expense	2.01	2.08

Income from continuing operations before income taxes	3.09	3.33
Provision for income taxes	1.31	1.33

Income from continuing operations	1.78	2.00
Loss from discontinued operations, net of tax	0.05	1.39

Net income	1.73	0.61

Sales

We record revenues primarily from the sale of products in our retail stores. Net sales and other revenues for the 13 and 26 weeks ended July 3, 2004 were $4.0 billion and $7.9 billion, respectively, resulting in increases of 6.8% and 6.6% over the corresponding periods of 2003. Included in these increases, 2.4% both for the quarter and the 26 weeks resulted from the acquisition of the 43 Harveys stores during the fourth quarter of fiscal 2003. Comparable store sales increased 1.4% during the second quarter of 2004 and 1.9% for the 26 weeks ended July 3, 2004. Second quarter sales of 2004 have been positively impacted by a continued focus on operational excellence at Food Lion, continued strength of Hannaford’s Festival strategy, and improving sales trends at our Kash n’ Karry stores.

(Dollars in billions)

13 weeks ended

April 2, 2005

13 weeks ended

April 3, 2004

Net sales and other revenues

4.0

3.9

We ~~continue~~record torevenues ~~see~~primarily afrom ~~competitive~~the sale ~~market~~of asproducts ain ~~great~~our ~~number~~retail ofstores. ~~retailers~~Net ~~battle~~sales ~~for~~and ~~the~~other ~~consumers’~~revenues ~~dollars~~increased 4.5% ~~During~~over the ~~first~~corresponding ~~six~~period ~~months~~ of 2004, wedriven ~~experienced~~primarily 54by ~~net~~the ~~competitive~~acquisition ~~store~~of ~~openings~~19 inVictory ~~our~~stores ~~operating area—increasing~~during the ~~amount~~fourth quarter of ~~grocery~~fiscal ~~square~~2004 ~~footage~~and ~~available~~new tostore ~~consumers~~sales. Comparable Instore ~~addition,~~sales ~~many~~increased ~~competitors~~0.5% ~~continued~~during tothe ~~invest~~first ~~heavily~~quarter inof ~~promotional~~2005. ~~spending~~Comparable store sales adjusted for the timing of Easter, increased 0.3% in the ~~form~~first quarter of ~~aggressive~~2005 ~~advertised~~(compared ~~pricing,~~to ~~buy~~2.5% ~~one~~in ~~and~~the ~~get~~first ~~one~~quarter orof ~~two~~2004). ~~free~~Sales ~~offers,~~continued to be ~~double~~strong at Hannaford and ~~triple~~Kash ~~couponing~~n’ Karry. Sales growth at Food Lion and ~~other~~Harveys ~~aggressive~~slowed ~~pricing~~primarily ~~strategies~~due to increased competitive activity.

As of July 3, 2004, we operated 1,493 stores, which consisted of 1,218 stores operating primarily under the Food Lion banner, 123 stores operating under the Hannaford banner, 103 stores operating under the Kash n’ Karry banner and 49 stores under the Harveys banner. During the second quarter of 2004, we opened 13 new stores; 11 under the Food Lion banner, one under the Hannaford banner and one under the Harveys banner (conversion from Food Lion to Harveys). In addition, we closed four Food Lion stores (one of which converted to Harveys from Food Lion), resulting in a net increase of nine stores. We remodeled seven stores in the second quarter of 2004; six stores for the Food Lion banner and one for the Hannaford banner. Retail store square footage totaled 54.8 million square feet at July 3, 2004, resulting in a 2.4% increase over second quarter of 2003.

Gross Profit

Gross profit as a percentage of sales was 25.62% and 24.95% for the 13 weeks ended July 3, 2004, and the corresponding period in 2003. Gross profit as a percentage of sales was 25.74% and 24.59% for the 26 weeks ended July 3, 2004, and the corresponding period in 2003. Gross margin comparisons with last year are positively impacted by the Company’s store inventory accounting change last year from the retail method to the average item cost method. The effect of the change on the December 28, 2002 inventory valuation resulted in a decrease in inventory of $87.3 million at the beginning of fiscal 2003 with a corresponding increase to cost of goods sold (1.18% of sales) for the 26 weeks ended June 28, 2003.

Gross profit as a percentage of sales increased in the second quarter of 2004 compared with the second quarter of 2003 primarily due to lower inventory shrink at Food Lion, a better sales mix throughout all banners and continued focus on optimizing margin to drive sustainable, profitable sales at all four operating companies. As of the end of second quarter 2004, more than 1,000 Food Lion stores

~~and~~We ~~all~~continue ~~Kash~~to n’see ~~Karry~~significant ~~stores~~competitive ~~have~~activity ~~successfully~~as ~~transitioned to~~ a ~~new~~greater ~~inventory~~number ~~and~~of ~~margin~~retailers ~~management~~battle ~~system,~~for ~~which~~the consumers’ ~~was~~dollars. During the first ~~developed~~quarter atof ~~Hannaford~~2005, ~~and~~we ~~modified~~experienced to13 ~~address~~competitive ~~the~~store ~~specific~~openings ~~needs~~offset ofby ~~the~~24 ~~Company’s~~competitive ~~other~~closings ~~operating~~(primarily ~~banners.~~Winn-Dixie ~~This~~closings) ~~system~~in ~~has~~our ~~enabled~~operating usarea. toIn ~~improve~~addition, ~~our~~many ~~current~~competitors ~~margin~~continued ~~analysis,~~to ~~shrink~~invest ~~control~~heavily ~~and~~in ~~inventory~~promotional spending ~~management~~in ~~through~~the ~~full visibility~~form toof ~~item-level~~aggressive ~~detail~~advertised ~~data.~~pricing, ~~Implementation~~buy inone ~~all~~and ~~Food~~get ~~Lion~~one ~~stores~~or ~~will~~two befree ~~final~~offers, bydouble ~~the~~and ~~end~~triple ofcouponing ~~the~~and ~~third~~other ~~quarter~~aggressive pricing strategies.

~~For~~As ~~the~~of 26April ~~weeks ended July 3~~2, ~~2004~~2005, ~~excluding~~we ~~the~~operated ~~impact~~1,531 ofstores. ~~the~~Our retail store ~~inventory~~square ~~accounting~~footage ~~change,~~totaled ~~gross~~56.6 ~~profit~~million assquare afeet ~~percentage~~at ofApril ~~sales~~2, ~~declined~~2005, ~~slightly~~ resulting in ~~2004, primarily as~~ a ~~result~~4.0% ofincrease over the ~~continued~~comparable ~~planned~~period ~~price initiatives at our Food Lion banner that started in second quarter~~ of ~~2003~~2004. ~~Higher~~Detail ~~than~~of ~~prior~~store ~~year~~activity ~~inventory~~for ~~shrink~~the at13 ~~Food~~weeks ~~Lion~~ended ~~also~~April ~~contributed~~2, to2005 ~~the~~is ~~first~~shown ~~quarter~~below: ~~2004 gross profit decline.~~

We provided for a $2.3 million LIFO provision in the second quarter of 2004 and $3.7 million in the 26 weeks ended July 3, 2004, compared with a LIFO provision of $0.7 million for both of the corresponding periods last year.


	Food Lion		Hannaford	Kash n’ Karry		Harveys	Total
Stores at beginning of year	1,222		142	104		55	1,523

Stores opened	7		—	3		—	10
Stores acquired	—		—	—
Stores closed	—		—	—		—	—
Stores relocated	(2	)	—	—		—	(2	)
Stores converted	(6	)	—	—		6	—

Stores at April 2, 2005	1,221		142	107	**	61	1,531

Net change for the quarter	(1	)	—	3		6	8

Stores remodeled	4		1	1		—	6

**	Note Includes ten Sweetbay Supermarkets.

Gross Profit

(Percent of net sales and other revenues)

13 weeks ended

April 2, 2005

13 weeks ended

April 3, 2004

Gross profit

26.31

25.87

Gross profit as a percentage of sales increased in the first quarter of 2005 compared with the corresponding period in 2004 primarily due to lower inventory shrink at Food Lion and continued focus on optimizing margin to drive sustainable profitable sales at all of our operating companies. During the third quarter of fiscal 2004, we successfully completed the transition of all of our Food Lion and Kash n’ Karry stores to a new inventory and margin management system, which was first developed at Hannaford and modified to address the specific needs of Food Lion and Kash n’ Karry. This system has enabled us to improve our current margin analysis, shrink control and inventory management through full visibility to item-level detail data.

Our inventories are stated at the lower of cost or market, and we value approximately 76% of our inventory using the Last-in, First-out or LIFO method.

Our LIFO reserve increased $3.2 million for the first quarter of 2005 and $1.4 million for the same period last year. The charge in the first quarter of 2005 is a result of modest inflation across most product categories.

Selling and Administrative Expenses

(Percent of net sales and otherrevenues)	% 13 Weeks ended July 3, 2004		% 13 Weeks ended June 28, 2003		% 26 Weeks endedJuly 3, 2004	% 26 Weeks ended June 28, 2003
(Percent of net sales and other revenues)	13 weeks April 2, 2005			13 weeks April 3, 2004
Selling and administrative expenses “SGA”	20.11		20.07		20.29	20.22
Selling and administrative expenses	21.21	%		20.46	%
SGA excluding depreciation and amortization	17.25		17.13		17.35	17.23
Selling and administrative expenses excluding depreciation and amortization	18.26	%		17.45	%

~~SGA~~For ~~for~~ the ~~second~~first quarter of ~~2004~~2005, ~~includes~~selling and ~~additional~~administrative ~~operating~~expenses ~~costs~~as ~~related~~a topercent of sales increased over the ~~launch~~first quarter of ~~Sweetbay~~2004 ~~Supermarkets~~primarily ~~and~~due to expenses for the 4319 ~~Harveys~~Victory stores acquired in during the fourth quarter of fiscal ~~2003.~~2004, ~~These~~expenses ~~increases~~incurred infor ~~SGA~~the ~~were~~rebranding ~~reduced~~of byKash n’ Karry to its new banner name Sweetbay and support for Food Lion’s ~~continued~~two ~~focus~~market onrenewal ~~cost~~efforts ~~improvement~~in advance of their offsetting sales increases. An additional increase in selling and administrative expenses over the first quarter of 2004 is the recording of $4.7 million in stock compensation expense as the result of the Company’s adoption of FAS 123R (See Note 6).

(Dollars in millions)	13 Weeks ended July 3, 2004		13 Weeks ended June 28, 2003		26 Weeks endedJuly 3, 2004		26 Weeks ended June 28, 2003
Depreciation and amortization expense	$	114.4	$	109.9	$	230.6	$	220.2
Percent of net sales and other revenues		2.86		2.94		2.93		2.99

The increase in depreciation and amortization for the 13 weeks and 26 weeks ended July 13, 2004 compared to the corresponding periods last year is primarily due to the acquisition of the 43 Harveys stores acquired in fiscal 2003, software purchases and upgrades for the transition of its Food Lion and Kash n’ Karry banners to a new inventory system, and equipment purchases for new stores and renovations since the second quarter of last year. The decrease as a percent of sales is due to our strong sales performance for the quarter and year to date.

Interest Expense

(Dollars in millions)	13 Weeks ended July 3, 2004		13 Weeks ended June 28, 2003		26 Weeks endedJuly 3, 2004		26 Weeks ended June 28, 2003
Interest expense	$	80.1	$	78.7	$	160.2	$	158.1
Percent of net sales and other revenues		2.01		2.10		2.04		2.14

Interest expense increased for the 13 and 26 weeks ended July 3, 2004 as compared to last year primarily due to a decrease in the benefit from our interest rate swap agreements and increased interest expense from additional store capital leases offset partially by increased investment income due to higher cash balances.

~~LIFO~~Depreciation and Amortization Expense

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


(Dollars in millions)	13 weeks ended April 2, 2005			13 weeks ended April 3, 2004
Depreciation and amortization expense	$	118.6		$	116.1
Percent of net sales and other revenues		2.95	%		3.01	%

~~Our~~The ~~LIFO~~increase ~~reserve~~in ~~increased~~depreciation $and amortization for the 13 weeks ended April 2.4, ~~million~~2005 ~~for~~compared to the ~~second~~corresponding ~~quarter~~period last year is primarily due to the acquisition of the 19 Victory stores acquired in fiscal 2004, asequipment ~~compared~~purchases tofor ~~$0.7~~new stores and renovations and additional ~~million~~store ~~for~~capital leases since the ~~same~~first ~~period~~quarter ~~last~~of ~~year~~2004.

Interest Expense


(Dollars in millions)	13 weeks ended April 2, 2005			13 weeks ended April 3, 2004
Interest Expense	$	80.9		$	80.1
Percent of net sales and other revenues		2.01	%		2.08	%

Interest expense increased for the 13 weeks ended April 2, 2005 as compared to the corresponding period primarily due to additional store capital leases and a decrease in the benefit from our interest rate swap agreements offset by increased investment income due to higher cash balances and the repurchase and redemption of $52.355 million of debt in the fourth quarter of 2004.

Discontinued Operations

~~The~~During ~~Company~~the 13 weeks ended April 2, 2005, we did not close any underperforming stores. To date we have closed 3583 underperforming stores ~~during~~classified ~~the~~as 26discontinued ~~weeks~~operations ~~ended July~~of 3,which 39 closed during fiscal 2004 and 44 closed during fiscal 2003. In accordance with the provisions of SFAS No. 144, a portion of the costs associated with the closure of these stores, as well as related operating activity prior to closing for these stores, was recorded in “Loss from discontinued operations, net of tax” in our ~~the~~Condensed ~~Company’s~~ Consolidated Statement of Income.

Income Taxes

(Dollars in millions)	13 ~~Weeks~~weeks ~~Ended~~ended ~~July~~April 32, ~~2004~~2005			13 ~~Weeks~~weeks ~~EndedJune~~ended 28April 3, ~~2003~~2004			~~26 Weeks Ended July 3, 2004~~			~~26 Weeks EndedJune 28, 2003~~
Provision for income taxes	$	5152.89		$	3751.91		$	~~102.7~~		$	~~59.6~~
Effective tax rate		3642.94	%		3639.48	%		~~38.3~~	%		~~36.3~~	%

The ~~tax~~effective ~~provision for the period ended July 3, 2004 includes approximately $3.4 million (net of~~ tax) ~~in interest income related to an IRS audit refund (discussed below). The Company’s tax~~ rate ~~from~~increased ~~continuing operations would have been 39.3% and 39.5%~~ for the ~~second~~13 ~~quarter~~weeks ofended ~~2004 and~~April ~~year to date of 2004~~2, ~~respectively,~~2005 ~~excluding~~from ~~this~~April ~~interest refund. Notwithstanding the refund~~3, ~~our effective tax rate increased in the second quarter of~~ 2004 ~~and~~primarily ~~year~~due to ~~date of 2004 from~~ the ~~respective~~non-deductible ~~periods~~nature of ~~the~~qualified ~~prior~~stock ~~year~~options ~~due~~(see toNote ~~the following reasons. First~~6, ~~the~~which ~~rate~~more ~~was~~fully ~~lower~~describes inour ~~2003~~Company’s ~~because~~adoption of ~~the~~FAS ~~relative~~123R) ~~effect~~as ofwell ~~ongoing~~as tax saving initiatives over a lower level of “Income from continuing operations before income taxes”. Income from continuing operations before income taxes was lower in 2003 primarily due to the inventory accounting charge discussed in Note 10. Second, the 2004 rate is higher due to increased ~~tax provisions related to~~ state audit activity ~~which has not yet reached a final resolution~~.

The ~~Internal~~determination ~~Revenue~~of ~~Service~~our ~~has~~Company’s ~~completed~~provision ~~its audit~~ for ~~tax~~income ~~years 1999 though~~taxes ~~2001.~~requires ~~This~~significant ~~audit~~judgment, ~~resulted~~the inuse ~~a proposed refund~~ of ~~approximately~~estimates, ~~$30~~and ~~million~~the ~~(plus~~interpretation ~~approximately~~and ~~$5.6~~application ~~million in interest) associated with the timing~~ of ~~certain~~complex tax ~~deductions~~laws. ~~Except~~Significant ~~for~~judgment ~~the~~is ~~interest~~required ~~recorded~~ in ~~the~~assessing ~~tax provision, this refund results in no impact to our Condensed Consolidated Statement of Income for~~ the ~~period~~timing ~~ended~~and ~~July~~amounts ~~3, 2004. We recently received a letter stating the congressional Joint Committee on Taxation has completed its consideration~~ of ~~such~~deductible ~~refund~~ and ~~has taken~~taxable ~~no exception to the conclusions reached by the Internal Revenue Service (IRS)~~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 during both fiscal 2003 and 2004, 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

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

(Dollars in millions)

13 weeks ended

April 2, 2005

13 weeks ended

April 3, 2004

Cash provided by operating activities

221.0

237.5

At July 3, 2004, we had cash and cash equivalents of $629.7 million compared with $310.1 million at June 28, 2003. We have historically generated positive cash flow from operations. Cash provided by operating activities totaled $478.6 million for the 26 weeks ended July 3, 2004, compared with $352.5 million for the corresponding period last year. The increase in cash provided by operating activities over the comparable period is primarily due to lower tax payments, $55.8 million for the 26 weeks ended July 3, 2004 compared with $86.1 million for the 26 weeks ended June 28, 2003. Also contributing to the increase in cash from operations were changes in inventories and accounts payable.

Cash flows used in investing activities decreased to $136.1 million for the 26 weeks ended July 3, 2004, compared with $140.0 million for the corresponding period last year primarily due to an increase in proceeds from property sales in 2004. For the 26 weeks ended July 3, 2004, proceeds were received from the sale leaseback of a Food Lion store, the sale of three Kash n’ Karry stores and the sale of land.

Capital expenditures were $143.1 million for the 26 weeks ended July 3, 2004 compared to $141.9 million for the prior year period. For the 26 weeks ended July 3, 2004, we have opened 22 new stores and seven renovations compared with ten new stores and 17 renovations for the corresponding period of last year.

In fiscal 2004, we plan to incur approximately $450 million of capital expenditures. We plan to finance capital expenditures during fiscal 2004 through funds generated from operations and existing bank facilities and through the use of leases when necessary.

Cash flows used in financing activities for the 26 weeks ended July 3, 2004 were $26.5 million compared to $34.1 million for the same period last year. The decrease in net cash used in financing activities was primarily due to the maturity of securities held in escrow to fund the defeasance of certain senior notes at the Hannaford banner (see discussion below in debt). Offsetting this decrease were additional parent common stock repurchases in 2004 and taxes paid on capital contribution in 2003.

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

At April 2, 2005, we had cash and cash equivalents of $576.2 million compared with $483.0 million at April 3, 2004. We have historically generated positive cash flow from operations. The decrease in cash provided by operating activities over the comparable period is primarily due to changes in inventory offset by changes in receivables, accounts payable and accrued expenses. The increase in inventory during first quarter of 2005 is to support the level of inventory needed to meet our store replenishment requirements and Food Lion’s preparation for the launch of its Butcher’s Brand meat program. The decrease in inventory for the first quarter of 2004 is primarily the result of the closing of 35 underperforming stores.

(Dollars in millions)

13 weeks ended

April 2, 2005

13 weeks ended

April 3, 2004

Cash flows used in investing activities

99.6

56.1

The increase in investing activities in the first quarter of 2005 was primarily due to an increase in capital expenditures, $101.7 million for the 13 weeks ended April 2, 2005 compared with $58.3 million for the comparable period. The increase in capital expenditures is primarily due to construction costs incurred for our market renewal programs in Greensboro, North Carolina and Baltimore, Maryland to be completed in mid-2005 and Fall of 2005, respectively, and costs to rebrand to Sweetbay Supermarket in Fort Myers/Naples, Florida. During the first quarter of 2005, we opened ten new stores and renovated six existing stores compared with four new stores and no renovations for the corresponding period last year.

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

(Dollars in millions)

13 weeks ended

April 2, 2005

13 weeks ended

April 3, 2004

Cash flows used in financing activities

45.1

12.0

Cash used in financing activities increased in the first quarter of 2005 compared to the first quarter of 2004 primarily due to a dividend payment of $25.0 million during the first quarter of 2005 and increased purchases of parent common stock used for employee stock option exercises in first quarter of 2005 compared to the same period last year.

Debt

WeDuring ~~maintain~~the afirst quarter of 2005, we maintained a revolving credit facility with a syndicate of commercial banks providing $350.0 million in committed lines of credit. The credit facility iswas secured by certain inventory of ~~the~~our ~~Delhaize~~Company’s ~~America~~retail operating subsidiaries. ~~The $350.0 million facility expires in July 2005~~ and contains affirmative and negative covenants. Negative covenants include a minimum fixed charge coverage ratio, a maximum leverage ratio, and an asset coverage ratio. We must be in compliance with all covenants in order to have access to the credit facility. As of ~~July 3~~April 2, ~~2004~~2005, we were in compliance with all covenants contained in the credit facility. A deteriorating economic or operating environment can subject us to a risk of non-compliance with the covenants. We had no outstanding borrowings under this facility as of ~~July~~April 32, ~~2004~~2005, and had no borrowings during ~~2004~~2005 and ~~2003~~2004. This facility is utilized to provide short-term capital to meet liquidity needs as necessary.

AtOn ~~July~~April 322, ~~2004~~2005, we entered into a new $500.0 million five-year unsecured revolving credit agreement, replacing and terminating the existing $350.0 secured credit ~~Company~~agreement ~~had~~maturing July 2005. The new credit agreement contains affirmative and negative covenants similar to the ~~following~~previously ~~long–term~~existing ~~debt:~~agreement, with exception for the asset coverage ratio. We filed a Current Report on Form 8-K on April 26, 2005 with the Securities and Exchange Commission, disclosing our entry into the new credit agreement and the termination of the previous credit agreement.

(Dollars in thousands)
Notes, 7.375%, due 2006	$	608,180	(a)
Notes, 7.55%, due 2007		149,706	(a)
Notes, 8.125%, due 2011		1,100,171	(a)
Notes, 8.05%, due 2027		121,553	(a)
Debentures, 9.00%, due 2031		855,000
Medium-term notes, 8.67% to 8.73%, due 2006		5,077	(a)
Other notes, 6.31% to 14.15%, due Nov. 2004 to 2016		64,548	(a)
Mortgage payables, 7.55% to 10.20%, due Oct. 2004 to 2016		24,760	(a)
Financing obligation, 7.25%, due 2004 to 2018		10,236
		2,939,231
Less current portion		17,116
	$	2,922,115

At April 2, 2005, we had long-term debt as follows:


(Dollars in thousands)
Notes, 7.375%, due 2006	$	565,298	(a)
Notes, 7.55%, due 2007		144,791	(a)
Notes, 8.125%, due 2011		1,096,620	(a)
Notes, 8.05%, due 2027		121,700	(a)
Debentures, 9.00%, due 2031		855,000
Medium-term notes, 8.67% to 8.73%, due 2006		5,050	(a)
Other notes, 6.31% to 14.15%, due 2005 to 2016		58,657	(a)
Mortgage payables, 7.55% to 8.65%, due 2005 to 2016		9,595	(a)
Financing lease, 7.25%, due 2005 to 2018		10,880

		2,867,591
Less current portion		12,252

	$	2,855,339

(a)	Net of associated discount and premium

In October 2003, our Hannaford banner invoked the defeasance provisions of its outstanding, 8.54% Senior Notes due 2004, 6.31% Senior Notes due 2008, 6.50% Senior Notes due 2008, 7.41% Senior Notes due 2009, 6.58% Senior Notes due 2011, and 7.06% Senior Notes due 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 July 3, 2004, $66.0 million in aggregate principal amount of these notes was outstanding. Cash committed to fund the escrow and not available for general corporate purposes is considered restricted. At July 3, 2004, restricted funds of $13.8 million and $61.1 million are recorded in Current Other Assets and Non-current Other Assets, respectively.

We enter into significant leasing obligations related to our store properties. Capital lease obligations outstanding at July 3, 2004 were $708.6 million compared with $710.5 million at June 28, 2003. These leases generally have terms of up to 25 years. We also had significant operating lease commitments at the end of fiscal 2003.

As set forth in the table below, we also have periodic short-term borrowings under informal credit arrangements that are available to us at the lenders’ discretion.

(Dollars in millions)	July 3, 2004			June 28, 2003
Outstanding borrowings at period end	$	0		$	0
Average borrowings		0.0			0.7
Maximum amount outstanding		0.0			37.0
Daily weighted average interest rate		0	%		2.81	%

Market Risk

Our company is exposed to changes in interest rates primarily as a result of our long-term debt requirements. Our interest rate risk management objectives are to limit the effect of interest rate changes on earnings and cash flows and to lower overall borrowing costs. The mix of fixed-rate debt and floating-rate debt is managed within policy guidelines. We have not entered into any financial instruments for trading purposes.

During the fourth quarter of 2001 and the third quarter of 2002, we entered into interest rate swap agreements, effectively converting a portion of our debt from fixed to variable rates. Maturity dates of interest rate swap arrangements match those of the underlying debt. These agreements involve the exchange of fixed rate payments for variable rate payments without the exchange of the underlying principal amounts. Variable rates for our agreements are based on six-month or three-month U.S. dollar LIBOR and are reset on a semi-annual or 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 is recognized over the life of the agreements as an adjustment to interest expense. On December 30, 2003, we terminated $100 million of the 2011 interest rate swap arrangements. The notional principal amounts of interest rate swap arrangements as of July 3, 2004 were $300 million maturing in 2006 and $100 million maturing in 2011. These agreements met the criteria for using the short-cut method, which assumes 100% hedge effectiveness, as prescribed by SFAS No. 133. We have recorded a derivative asset in connection with these agreements in the amount of $13.1 million and $19.5 million at July 3, 2004 and January 3, 2004, respectively, recorded in our Consolidated Balance Sheets in Other Assets.

~~Prior~~During to the ~~offering~~fourth quarter of ~~bonds and debentures in 2001~~2004, ~~the~~we ~~Company~~repurchased ~~entered~~$36.536 ~~into~~million ~~interest~~of ~~rate~~our ~~agreements~~$600 tomillion ~~hedge against potential increases in interest rates~~7.375% ~~These hedge agreements were settled in 2001 with the loss recorded in other comprehensive income (loss)~~notes, ~~net~~$5.0 ofmillion ~~taxes and amortized to interest expense over the term~~ of ~~the associated debt securities. This~~our ~~unrealized~~$150 ~~loss~~million ~~was reduced as of the date of the Delhaize Group share exchange as a result of the application of purchase accounting~~7.55% ~~The remaining unrealized loss~~notes, ~~net~~$7.867 million of ~~taxes,~~other atnotes ~~July 3, 2004,~~ and ~~January 3, 2004, totaled approximately~~ $412.7 952 million ~~and~~of ~~$44.3~~our ~~million,~~mortgage ~~respectively~~payables.

~~The~~In ~~table~~October ~~set~~2003, ~~forth~~our ~~below~~Hannaford ~~provides~~banner invoked the defeasance provisions of its outstanding 7.41% Senior Notes due February 15, 2009, 8.54% Senior Notes due November 15, 2004, 6.50% Senior Notes due May 15, 2008, 6.58% Senior Notes due February 15, 2011, 7.06% Senior Notes due May 15, 2016 and 6.31% Senior Notes due May 15, 2008 (collectively, the ~~expected~~“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 April 2, 2005 and ~~related~~January ~~interest~~1, ~~rates~~2005, $65.2 million and $65.2 million in aggregate principal amount of ~~our~~these ~~long-term~~notes ~~debt~~was byoutstanding. ~~fiscal~~Cash ~~year~~committed to fund the escrow and not available for general corporate purposes, is considered restricted. As of ~~maturity~~April as2, 2005 restricted funds of $13.0 million and $53.6 million are recorded in Current Other Assets and Non-current Other Assets. As of January 31, ~~2004~~2005 restricted funds of $13.1 million and $59.8 million are recorded in Current Other Assets and Non-current Other Assets.

(Dollars in millions)	2004			2005			2006			2007			2008			Thereafter			FairValue
Notes, due 2006							$	600.0	(a)										$	648.0
Average interest rate								7.38	%
Notes, due 2011																$	1,100.0	(b)	$	1,250.4
Average interest rate																	8.13	%
Debentures, due 2031																$	855.0		$	1,026.6
Average interest rate																	9.00	%
Medium term notes							$	5.0											$	5.5
Average interest rate								8.71	%
Debt securities, due 2007										$	150.0								$	164.7
Average interest rate											7.55	%
Debt securities, due 2027																$	126.0		$	139.9
Average interest rate																	8.05	%
Mortgage payables	$	5.0		$	2.6		$	2.9		$	3.2		$	2.8		$	9.3		$	28.1
Average interest rate		9.56	%		8.85	%		8.85	%		8.86	%		8.92	%		8.67	%
Other notes	$	8.8		$	12.1		$	12.2		$	12.2		$	12.2		$	18.8	(c)	$	80.4
Average interest rate		6.82	%		6.93	%		6.95	%		6.98	%		6.98	%		7.32	%
Financing obligation	$	0.5		$	(2.5	)	$	0.4		$	0.5		$	0.5			11.0		$	10.4
Average interest rate		7.25	%		7.25	%		7.25	%		7.25	%		7.25	%		7.25	%

We enter into significant leasing obligations related to our store properties. Capital lease obligations outstanding at April 2, 2005 were $773.3 million compared with $704.4 million at April 3, 2004. Lease agreements provide for initial terms of 20 and 25 years, with renewal options ranging from five to 20 years. We also had significant operating lease commitments at the end of fiscal 2004.

~~(a)~~We ~~$300.0~~also ~~million~~have ~~notional~~periodic short-term ~~amount~~borrowings ~~was~~under ~~swapped~~informal ~~for~~credit aarrangements ~~variable~~that ~~interest~~are ~~rate~~available ~~based~~to onus aat ~~six-month~~the orlenders’ ~~three-month U~~discretion.S. ~~dollar~~We ~~LIBOR~~had ~~reset~~no onborrowing aoutstanding ~~semi-annual~~as ~~or quarterly basis. The carrying value~~ of ~~these~~April ~~notes~~2, ~~was~~2005 ~~increased~~or byApril ~~$13.0 million at January~~ 3, 2004~~, to reflect the fair value of the interest rate swap~~.

~~(b)~~Market ~~$100.0~~Risk 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 semi-annual or quarterly basis. The carrying value of these notes was increased by $1.0 million at January 3, 2004, to reflect the fair value of the interest rate swap.

~~(c)~~Our ~~See~~Company ~~Note~~is 7exposed to changes in interest rates primarily as a result of our ~~Annual~~long-term ~~Report~~debt requirements. Our interest rate risk management objectives are to limit the effect of interest rate changes on ~~Form~~earnings 10and cash flows and to lower overall borrowing costs. We maintain certain variable-Krate ~~for~~debt ~~the~~to ~~year~~take ~~ended~~advantage ~~January~~of 3,lower ~~2004,~~relative ~~for~~interest ~~Hannaford~~rates ~~defeasance~~currently ~~discussion~~available. We have not entered into any of our financial instruments for trading purposes.

We domaintain ~~not~~interest ~~trade~~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 April 2, 2005 were $300 million maturing in ~~foreign~~2006 ~~markets~~and $100 million maturing in 2011. Maturity dates of interest rate swap arrangements match those of the underlying debt. These agreements involve the exchange of fixed rate payments for variable rate payments without the exchange of the underlying principal amounts. Variable rates for our agreements are based on six-month or three-month U.S. dollar LIBOR and are reset on a semiannual basis or a quarterly basis. The differential between fixed and variable rates to be paid or received is accrued as interest rates change in ~~commodities,~~accordance ~~nor~~with dothe weagreements ~~have~~and ~~significant~~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 ~~concentrations~~effectiveness, as prescribed by SFAS No. 133, “Derivative Instruments and Hedging Activities.” During the fourth quarter of ~~credit~~2004, ~~risk~~in association with the retirement of $36.536 ~~Accordingly~~million of our $600 million 7.375% notes, we dode-designated ~~not~~the $300 ~~believe~~million ~~that~~notional ~~foreign~~interest ~~exchange~~rate ~~risk~~swaps as a fair value hedge of 50% of the $600 million 2006 notes, ~~commodity~~and ~~risk~~re-designated orthem ~~credit~~as ~~risk~~fair ~~pose~~value ahedge of approximately 53% of the remaining $563.5 million 2006 Notes. These swaps meet the criteria of being highly effective swaps, as prescribed by SFAS No. 133, and currently carry no significant ~~threat~~ineffectiveness. toWe have recorded a derivative asset in connection with all these agreements in the amount of $4.2 million and $8.3 million at April 2, 2005 and January 1, 2005, respectively, which is included in our ~~company~~Consolidated Balance Sheet in Non-current Other Assets.

~~Contractual~~In ~~Obligations~~fiscal 2001, we settled certain interest rate hedge agreements in connection with the completion of an offering of notes, resulting in an unrealized loss of approximately $214 million. As a result of the adoption of SFAS No. 133 at the beginning of fiscal 2001, the unrealized loss was recorded in “Accumulated other comprehensive income (loss), net of tax,” and ~~Commitments~~is being amortized to “Interest expense” over the term of the associated notes. The unrealized loss was reduced as of the date of the Delhaize Group share exchange as a result of the application of purchase accounting. The remaining unrealized loss net of taxes at April 2, 2005 and January 1, 2005 was $37.6 million and $38.9 million, respectively.

We assume various financial obligations and commitments in the normal course of our operations 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. A table representing the scheduled maturities of our contractual obligations as of January 3, 2004 was included under the heading “Contractual Obligations and Commitments” on page 23 of the Company’s 2003 Annual Report on Form 10-K filed with the SEC on April 2, 2004. There were no significant changes from the table referenced above.

Insurance

We are self-insured for workers’ compensation, general liability, vehicle accident and druggist claims. The self-insurance liability is

~~determined~~The ~~actuarially,~~table ~~based~~set onforth ~~claims~~below ~~filed~~provides ~~and~~the anexpected ~~estimate~~principal ofpayments claims incurred but not yet reported. Maximum retention, including defense costs per occurrence, ranges from (i) $0.5 million to $1.0 million per accident for workers’ compensation, (ii) $5.0 million per accident for automobile liability and (iii) $2.0 million per accident for general liability, with an additional $5.0 million retention in excess of the primary $2.0 million general liability retention for druggist liability. We are insured for costs related tointerest ~~covered~~rates ~~claims, including defense costs, in excess~~ of ~~these~~our ~~retentions.~~long-term Itdebt ~~is possible that the final resolution~~by offiscal ~~some~~year of ~~these~~maturity ~~claims~~as ~~may require us to make significant expenditures in excess~~ of ~~our~~January ~~existing~~1, ~~reserves over an extended period of time and in a range of amounts that cannot be reasonably estimated~~2005.

We implemented a captive insurance program in fiscal 2001 pursuant to which the self-insured reserves related to workers’ compensation, general liability and auto coverage were reinsured by Pride, an Irish reinsurance captive, owned by an affiliated company of Delhaize Group. The purpose for implementing the captive insurance program is to provide Delhaize Group continuing flexibility in its risk management program while providing certain excess loss protection through anticipated reinsurance contracts with Pride. Premiums are transferred annually to Pride through Delhaize Insurance Co., a subsidiary of Delhaize America, Inc.


(Dollars in millions)	2005			2006			2007			2008			2009			Thereafter			Fair Value
Notes, due 2006				$	563.5	(a)													$	590.2
Average interest rate					7.38	%

Notes, due 2011																$	1,100.0	(b)	$	1,282.4
Average interest rate																	8.13	%

Debentures, due 2031																$	855.0		$	1,091.8
Average interest rate																	9.00	%

Medium-term notes				$	5.0														$	5.4
Average interest rate					8.71	%

Notes, due 2007							$	145.0											$	156.4
Average interest rate								7.55	%

Notes, due 2027																$	126.0		$	145.0
Average interest rate																	8.05	%

Mortgage payables	$	1.3		$	1.4		$	1.6		$	1.0		$	1.1		$	3.6		$	10.9
Average interest rate		8.09	%		8.10	%		8.10	%		7.76	%		7.75	%		8.08	%

Other notes	$	12.1		$	12.1		$	12.2		$	12.2		$	5.8		$	13.1	(c)	$	71.1
Average interest rate		6.93	%		6.95	%		6.98	%		6.98	%		7.34	%		7.31	%

Financing lease	$	0.6		$	0.5		$	0.6		$	0.7		$	0.7		$	7.9		$	11.0
Average interest rate		7.25	%		7.25	%		7.25	%		7.25	%		7.25	%		7.25	%

In(a) ~~the fourth quarter of 2003, we renegotiated our property insurance lowering our self-insured retention per occurrence to~~ $5300.0 million ~~for~~notional ~~named storms and $2.5 million for all other losses. Prior to the renewal, the~~ amount ofwas ~~the~~swapped ~~deductible~~ for ~~each~~a ~~named~~variable ~~storm occurrence~~interest asrate ~~insured~~based ~~was~~on ~~calculated~~a assix-month ~~five~~or ~~percent~~three-month ofU.S. ~~the~~dollar ~~total~~LIBOR ~~insured~~reset ~~value~~on ata ~~all~~semiannual ~~locations where physical loss~~ or ~~damage~~a ~~occurred~~quarterly basis. InThe ~~fiscal~~carrying ~~2003,~~value weof ~~incurred~~these ~~property~~notes ~~loss~~was ofincreased by $164.9 million ~~(which~~at ~~includes~~January a1, ~~$14.3~~2005, ~~million~~to ~~loss~~reflect the fair value of ~~inventory) related~~the tointerest ~~Hurricane~~rate ~~Isabel~~swap.

(b)

$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 increased by $1.6 million at January 1, 2005, to reflect the fair value of the interest rate swap.

(c)	See Note 7 of the Company’s 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.

Contractual Obligations and Commitments

We assume various financial obligations and commitments in the normal course of our operations 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. A table representing the scheduled maturities of our contractual obligations as of January 1, 2005 was included under the heading “Contractual Obligations and Commitments” on page 23 of our Company’s 2004 Annual Report on Form 10-K filed with the SEC on April 1, 2005. At April 2, 2005, there were no significant changes from the table referenced above.

Self-Insurance

We are self-insured for workers’ compensation, general liability and auto claims. The self-insurance liability is determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported. Maximum retention, including defense costs per occurrence, ranges from (i) $0.5 million to $1.0 million per accident for workers’ compensation, (ii) $5.0 million per accident for automobile liability, and (iii) $3.0 million per accident for general liability, with an additional $5.0 million retention in excess of the primary $3.0 million general liability retention for druggist liability. We are insured for costs related to covered claims, including defense costs, in excess of these retentions. It is possible that the final resolution of some of these claims may require us to make significant expenditures in excess of our existing reserves over an extended period of time and in a range of amounts that cannot be reasonably estimated.

We implemented a captive insurance program in fiscal 2001 pursuant to which the self-insured reserves related to workers’

compensation, general liability and auto coverage were reinsured by Pride, an Irish reinsurance captive, owned by an affiliated company of Delhaize Group. The purpose for implementing the captive insurance program is to provide Delhaize Group continuing flexibility in its risk management program while providing certain excess loss protection through anticipated reinsurance contracts with Pride. Premiums are transferred annually to Pride through Delhaize Insurance Co., a subsidiary of Delhaize America.

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

Recently Issued and Adopted Accounting Standards

In December 2004, FASB issued a revision of FASB Statement No. 123 (“FAS 123R”), “Accounting for Stock-Based Compensation” which supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” The guidance represents the requirement that the compensation costs related to share-based payment transactions be recognized in the financial statements. Compensation cost should be measured based on the fair value on their grant-date of the equity (or liability) instruments issued. This statement covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights, and employee purchase plans. Previous guidance established a fair-value-based method of accounting, as preferable, but permitted entities the alternative of continuing to disclose in the footnotes what net income would have been had the preferable method been used. We early adopted this standard in the first quarter of 2005, using the modified prospective method. With the application of the modified prospective method, we did not restate financial statements for any prior interim periods and fiscal years. We historically applied the recognition and measurement provisions of APB Opinion 25. In accordance with the provisions of FAS 123R, we recorded $4.7 million in the first quarter of 2005 for stock compensation expense (See Note 6).

There were no modifications made to outstanding share options, changes in the quantity or type of instruments used or changes in the terms of share-based payment arrangements made prior to the adoption of FAS 123R. Historically, the straight-line method was used to allocate the option valuation amounts evenly over their respective vesting schedules. However, with adoption of FAS 123R, we will use the graded method prospectively beginning with 2005 stock compensation grants.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The information set forth under the heading “Market Risk” under Item 2 of this Form 10-Q is hereby incorporated herein by reference.

Item 4. Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Accounting Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Accounting Officer have concluded that, as of such date, our disclosure controls and procedures are effective. There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

Item 6. Exhibits ~~and Reports on Form 8-K~~

(a). Exhibits


Exhibit		Description
4		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

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)

Exhibit		Description
4		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. 0-6080)
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)

(b). Reports on Form 8-K

None.

SIGNATURE

PURSUANT TO THE REQUIREMENTS 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: August 17, 2004	BY:	/s/ Carol M. Herndon
DATE: May 17, 2005	BY:	/s/ Carol M. Herndon
		Carol M. Herndon
		Executive Vice President of Accounting and Analysis and Chief Accounting Officer
		Executive Vice President of
		Accounting and Analysis and
		Chief Accounting Officer

2931

Exhibit Index

Exhibit		Description
4		~~Second~~Fifth Supplemental Indenture, dated May 17, 2005 and effective as of ~~May~~January 121, ~~2004~~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~~, 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)~~
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)

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