Food Lion 2006 Annual Report Download - page 84

Interest Rate Swaps
During 2003, a subsidiary of Delhaize Group entered into interest rate swap
agreements to exchange the fixed interest rate of its newly issued EUR 100
million bond for variable rates. The notional amount is EUR 100 million maturing
in 2008. The fixed rate is 8.00%. The variable rate is based on the three-month
Euribor and is reset on a quarterly basis.
During 2002 and 2001, Delhaize America entered into interest rate swap agree-
ments, effectively converting a portion of its debt from fixed to variable rates.
Maturity dates of interest rate swap arrangements match those of the underlying
debt. Variable rates for these agreements are based on six-month or three-
month US Libor and are reset on a semi-annual basis or a quarterly basis. In
December 2003, Delhaize America cancelled USD 100 million (EUR 75.9 million)
of the 2011 interest rate swap arrangement. The notional principal amount of
the interest rate swap arrangements at December 31, 2006 was USD 100 million
(EUR 75.9 million) maturing in 2011.
The interest rate swap agreements exchange fixed rate interest payments for
variable rate payments without the exchange of the underlying principal amounts.
The differential between fixed and variable rates to be paid or received is accrued
as interest rates change in accordance with the agreements and recognized over
the life of the agreements as an adjustment to interest expense. The fair value
of interest rate swaps at December 31, 2006, 2005 and 2004 was EUR -2.6 mil-
lion, EUR - 0.5 million and EUR 6.3 million, respectively. The interest rate swaps
are designated and are effective fair value hedges recorded at fair value on the
balance sheet with changes in fair value recorded in the income statement as
finance costs.
Derivative instruments are carried at fair value defined as the amount at which
these instruments could be settled based on estimates obtained from financial
institutions:
December 31,
(in millions of EUR) 2006 2005 2004
Assets Liabilities Assets Liabilities Assets Liabilities
Interest rate swaps - 2.6 0.9 1.4 6.3 -
Cross currency swaps 0.2 2.3 0.3 7.7 - 15.1
Foreign exchange
forward contracts 1.7 - - - - -
Total 1.9 4.9 1.2 9.1 6.3 15.1
20. Provisions
December 31,
(in millions of EUR) 2006 2005 2004
Closed store provision:
Non-current 73.6 101.4 96.7
Current 10.4 13.9 21.3
Self-insurance provision:
Non-current 116.1 125.6 105.1
Current 1.4 5.4 4.2
Pension benefit and other
post-employment benefit provision:
Non-current 80.8 102.0 75.3
Other provisions:
Non-current 19.8 21.7 11.3
Current 2.5 2.2 2.0
Total provisions
Non-current 290.3 350.7 288.4
Current 14.3 21.5 27.5
21. Closed Store Provision
Delhaize Group records closed store provisions for the present value of post-clos-
ing lease liabilities and other contractually obligated lease related costs such as
real estate taxes, common area maintenance and insurance cost, net of estimated
amounts to be recovered from subletting closed store space. Remaining lease
liabilities on closed stores generally range from one to 17 years. The average
remaining lease term for closed stores was 5.9 years at December 31, 2006.
The liability associated with each store is discounted using a pre-tax rate that
reflects the borrowing rate of debt with terms matching the terms of future rent
payments. The adequacy of the provision for closed stores is dependent on the
Group’s ability to sublet closed store property for the estimated recovery amount
which may be affected by changes in the economic conditions in the areas where
closed stores are located.
The following table reflects the activity related to closed store liabilities:
(in millions of EUR) 2006 2005 2004
Closed store provision
at January 1 115.3 118.0 121.7
Additions charged to earnings:
Store closings - lease obligations 5.5 8.5 38.3
Store closings - other exit costs 1.5 1.7 7.8
Adjustments to prior year estimates (2.8) 0.2 (2.9)
Interest expense 8.6 10.4 13.1
Reductions:
Lease payments made (21.4) (23.3) (28.9)
Lease terminations (8.2) (13.4) (12.1)
Payments made for other exit costs (3.6) (4.0) (9.6)
Transfer to other accounts 0.4 0.2 (0.3)
Amount classified as held for sale (0.3) - -
Currency translation effect (11.0) 17.0 (9.1)
Closed store provision
at December 31 84.0 115.3 118.0
The provision for closed stores primarily relates to the closed store obligations
in the United States.
During 2006, Delhaize Group recorded additions to the closed store provision of
EUR 7.1 million primarily related to 27 store closings made in the ordinary course
of business.
During 2005, Delhaize Group recorded additions to the closed store provision
of EUR 10.2 million primarily related to 32 store closings made in the ordinary
course of business.
During 2004, Delhaize Group recorded additions to the closed store provision of
EUR 46.1 million primarily related to 17 store closings made in the ordinary course
of business and the closure of 34 Kash n’ Karry stores mainly located on the East
coast of Florida and in Orlando and classified as discontinued operations.
The following table presents the number of closed stores and the changes in the
number of closed stores:
Number of closed stores
Balance at January 1, 2004 225
Store closings added 52
Stores sold/lease terminated (50)
Balance at December 31, 2004 227
Store closings added 32
Stores sold/lease terminated (52)
Balance at December 31, 2005 207
Store closings added 27
Stores sold/lease terminated (53)
Balance at December 31, 2006 181
 / ANNUAL REPORT 2006
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