Food Lion 2007 Annual Report Download - page 88

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(in millions of EUR)
2008 2009 2010 2011 2012 Thereafter Total
Finance leases
Future minimum lease payments 113.3 109.9 104.7 98.9 95.4 891.0 1,413.2
Less amount representing interest (74.3) (70.0) (65.4) (60.9) (56.2) (451.5) (778.3)
Present value of minimum lease payments 39.0 39.9 39.3 38.0 39.2 439.5 634.9
Operating leases
Future minimum lease payments 183.0 173.4 167.0 157.2 148.7 1,097.4 1,926.7
Closed store lease obligations
Future minimum lease payments 15.8 13.6 11.2 8.7 7.4 29.8 86.5
The average effective interest rate for finance leases was 11.7%, 11.7% and
12.0% at December 31, 2007, 2006 and 2005, respectively. The fair value of
the Group’s finance lease obligations using an average market rate of 6.8% at
December 31, 2007 was EUR 826.7 million.
Minimum payments have not been reduced by minimum sublease income of
EUR 87.1 million due over the term of non-cancelable subleases.
Rent payments, including scheduled rent increases, are recognized on a straight-
line basis over the minimum lease term. Total rent expense under operating
leases was EUR 218.0 million, EUR 247.4 million and EUR 271.0 million in 2007,
2006 and 2005, respectively.
Certain lease agreements also include contingent rent requirements which are
generally based on store sales. Contingent rent expense for 2007, 2006 and 2005
was EUR 0.9 million, EUR 1.1 million and EUR 0.8 million, respectively.
Sublease payments received and recognized into income for 2007, 2006 and 2005
were EUR 19.7 million, EUR 18.1 million and EUR 17.7 million, respectively.
In addition, Delhaize Group has signed lease agreements for additional store
facilities, the construction of which was not completed at December 31, 2007.
The leases generally range from three to 27 years with renewal options generally
ranging from three to 27 years. Total future minimum rents under these agree-
ments is approximately EUR 289.3 million.
A liability of EUR 33.7 million, EUR 67.3 million and EUR 94.4 million at
December 31, 2007, 2006 and 2005, respectively, for the discounted value of
remaining lease payments net of expected sublease income on closed stores was
included in provisions (both non-current and current). The discount rate is based
on the incremental borrowing rate for debt with similar terms to the lease at the
time of the store closing.
The Group’s obligation under finance leases is secured by the lessors’ title to the
leased assets.
20. Derivative Instruments
Currency Derivatives
Delhaize Group enters into foreign currency swaps from time to time, with vari-
ous commercial banks to hedge of foreign currency risk on intercompany loans
denominated in currencies other than its functional currency. The table on page
87 indicates the principal terms of these foreign currency swaps. Changes in fair
value of these swaps are recorded in finance costs or investment income in the
income statement.
In November 2006, Delhaize Group entered into foreign exchange forward
contracts (the “Forward Contracts”) to purchase on January 30, February 21 and
March 7, 2007, CZK 2,125 million in aggregate in exchange of EUR 78.6 million,
to offset the effect of the foreign currency swaps that were entered into to hedge
the currency risk on intercompany loans to Delvita, denominated in CZK. The cur-
rency risk no longer existed as a result of the sale of Delvita. Changes in the fair
value of the Forward Contracts were recorded in the income statement in invest-
ment income. The aggregate fair value of the Forward Contracts was EUR 1.7
million at December 31, 2006.
Interest Rate Swaps
During 2007, Delhaize Group entered into interest rate swap agreements to
convert a portion of its debt from fixed to variable rates. The notional amount is
EUR 500 million maturing in 2014. The variable rate is based on the three-month
Euribor and is reset on a quarterly basis.
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.
19. Leases
Delhaize Group’s stores operate principally in leased premises. Lease terms
generally range from three to 27 years with renewal options ranging from three
to 27 years. The following schedule details at December 31, 2007, the future
minimum lease payments:
DELHAIZE GROUP / ANNUAL REPORT 2007
86