Food Lion 2006 Annual Report Download - page 43

DELHAIZE GROUP / ANNUAL REPORT 2006 41
On December 31, 2006, Delhaize Group had fi nance lease
obligations outstanding of EUR 636.5 million compared with
EUR 689.3 million at the end of 2005. The average interest
rate on fi nancial lease obligations was 11.7%.
At the end of 2006, Delhaize Group’s net debt amounted to
EUR 2.6 billion, a decrease of EUR 308.4 million or -10.5%
mainly due to the weakening of the U.S. dollar between
the two balance sheet dates (currency translation effect
of EUR 242.6 million) and the continued generation of free
cash fl ow. The net debt to equity ratio continued to improve,
decreasing from 81.8% at the end of 2005 to 74.0% at the end
of 2006.
At the end of 2006, Delhaize Group had total annual minimum
operating lease commitments for 2007 of approximately
EUR 227.9 million, including approximately EUR 21.0 million
related to closed stores.. These leases generally have terms
that range between three and 27 years with renewal options
ranging within similar ranges.
RECONCILIATION
FROM IFRS TO US GAAP
Delhaize Group prepares its fi nancial statements under
IFRS and also prepares a reconciliation of its net income
and shareholders’ equity to US GAAP in accordance with its
obligations as a foreign company listed on the New York Stock
Exchange (see p. 103).
Under US GAAP, Delhaize Group’s 2006 net income was
EUR 374.9 million (EUR 363.7 million in 2005) compared
to EUR 351.9 million under IFRS. The most signifi cant
reconciling items affecting net income were related to goodwill
adjustments, accounting differences for the convertible bond,
share-based compensation, closed store provisions, defi ned
benefi t plans, impairment charges and disposal of a foreign
operation.
At the end of 2006, Delhaize Group shareholders’ equity under
US GAAP was EUR 3.6 billion (EUR 3.7 billion at the end of
2005) compared to EUR 3.5 billion under IFRS.
RECENT EVENTS
In March 2007, Delhaize Group reached a binding agreement
to sell Di, its Belgian beauty and body care business, to Parma
Gestion, a subsidiary of Distripar, which is owned by CNP/
NPM. The agreement foresees the sale of the operations of
Di for consideration, subject to contractual adjustments, of
EUR 33.4 million in cash, which will produce a small gain.
The impact of the divestiture on the ongoing profi tability
of Delhaize Belgium will be minor. In 2006, the Di network
consisted of 90 company-operated and 42 franchised stores,
which contributed EUR 95.5 million to Delhaize Group’s net
sales and other revenues.
In March 2007, Delhaize Group announced it is planning to
implement cross-guarantees between Delhaize Group SA and
Delhaize America. The cross-guarantees of the companies’
fi nancial debt obligations will support the continued integration
of Delhaize group and increase its fi nancial fl exibility. The
implementation of cross-guarantees must not negatively
impact the credit ratings and outlook of Delhaize America and
is conditional on obtaining a credit rating for Delhaize Group
SA from Moody’s and Standard & Poor’s at least as strong
as the current credit rating and outlook of Delhaize America.
Delhaize America currently has the only credit rating within
Delhaize Group.
RISK FACTORS
The following discussion refl ects business risks that are
evaluated by our management and our Board of Directors.
This section should be read carefully in relation to our
prospects and the forward-looking statements contained
in this annual report. Any of the following risks could have
a material adverse effect on our fi nancial condition, results
of operations or liquidity and lead to impairment losses on
goodwill, intangible assets and other assets. There may be
additional risks of which the Group is unaware. There may
also be risks Delhaize Group now believes to be immaterial,
but which could turn out to have a material adverse effect.
NET DEBT
(IN BILLIONS OF EUR)
3.0 2.6 2.9 2.6
2006 2005 2004 2003
NET DEBT TO EQUITY
108% 91% 82% 74%
2006 2005 2004 2003