Food Lion 2013 Annual Report Download - page 128

Debt Covenants for Short-term Borrowings
The RCF Agreement of €600 million and the €125 million committed European bilateral credit facilities require maintenance of
various financial and non-financial covenants. The agreements contain customary provisions related to events of default and
affirmative and negative covenants applicable to Delhaize Group. The negative covenants contain restrictions in terms of
negative pledge, liens, indebtedness of subsidiaries, sale of assets and mergers, as well as minimum fixed charge coverage
ratios and maximum leverage ratios based on non-GAAP measures. None of the debt covenants restrict the abilities of
subsidiaries of Delhaize Group to transfer funds to the parent.
At December 31, 2013, 2012 and 2011, Delhaize Group was in compliance with all covenants conditions for short-term bank
borrowings.
18.3 Leases
The classification of a lease agreement depends on the allocation of risk and rewards incidental to the ownership of the leased
item. When assessing the classification of a lease agreement, certain estimates and assumptions need to be made and applied,
which include, but are not limited to, the determination of the expected lease term and minimum lease payments, the assessment
of the likelihood of exercising options and estimation of the fair value of the lease property.
Delhaize Group as Lessee - Finance and operating lease commitments
As detailed in Note 8, Delhaize Group operates a significant number of its stores under finance and operating lease
arrangements. Various properties leased are (partially or fully) subleased to third parties, where the Group is therefore acting as
a lessor (see further below). Lease terms (including reasonably certain renewal options) generally range from 1 to 45 years with
renewal options ranging from 3 to 30 years.
The schedule below provides the future minimum lease payments of our continued operations, which were not reduced by
expected minimum sublease income of €69 million, due over the term of non-cancellable subleases, as of December 31, 2013:
Continued operations
(in millions of €)
2014
2015
2016
2017
2018
Thereafter
Total
Finance leases
Future minimum lease payments
113
101
92
80
72
607
1 065
Less amount representing interest
(54)
(52)
(46)
(41)
(36)
(281)
(510)
Present value of minimum lease payments
59
49
46
39
36
326
555
Of which related to closed store lease obligations
6
6
6
5
4
35
62
Operating leases
Future minimum lease payments (for non-cancellable leases)
269
240
196
155
121
559
1 540
Of which related to closed store lease obligations
21
18
16
14
11
47
127
Following the closing of Delhaize Group’s agreed sale of Sweetbay, Harveys and Reid’s (see Note 5), the Group will provide
guarantees for a number of existing operating or finance lease contracts, which are disclosed in Note 34. Lease commitments
that will be transferred to the buyer are not included in the table above.
The average effective interest rate for finance leases was 11.4%, 11.6% and 11.8% at December 31, 2013, 2012 and 2011,
respectively. The fair value of the finance lease obligations has been determined using discounted cash flow models using the
lease terms and cost of debt as the main inputs and have been categorized as Level 2.
The fair value of the finance lease obligations amounted to €709 million (at an average market rate of 5.0%), €842 million (5.1%)
and €1 016 million (4.5%) at December 31 2013, 2012 and 2011, respectively.
The Group’s obligation under finance leases is secured by the lessors’ title to the leased assets.
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 €321 million (of which €28 million related to discontinued operations), €326 million (of
which €37 million related to discontinued operations) and €308 million (of which €32 million related to discontinued operations) in
2013, 2012 and 2011, respectively. Rent expenses are predominantly included in “Selling, general and administrative expenses”.
Certain lease agreements also include contingent rent requirements which are generally based on store sales and were
insignificant in 2013, 2012 and 2011.
Sublease payments received and recognized into income were €21 million in 2013 and 2012 and €16 million in 2011.
Delhaize Group signed lease agreements for additional store facilities under construction at December 31, 2013. The
corresponding lease terms as well as the renewal options generally range from 10 to 30 years. Total future minimum lease
payments for these agreements relating to stores under construction were approximately €27 million.
Provisions for €113 million, €107 million and €46 million at December 31, 2013, 2012 and 2011, respectively, representing the
discounted value of remaining lease payments, net of expected sublease income, for closed stores, were included in “Closed
126 DELHAIZE GROUP ANNUAL REPORT 2013 FINANCIAL STATEMENTS