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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 September 27, 2003

OR

[  ] 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

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(704) 633-8250

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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 November 12 , 2003.

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


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.

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DELHAIZE AMERICA, INC.
INDEX TO FORM 10-Q
September 27, 2003

PagePART I
    
    

    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Statements of Income
for the 13 weeks ended September 27, 2003 and
September 28, 2002
    
    3Condensed Consolidated Statements of Income (Loss)
for the 39 weeks ended September 27, 2003 and
September 28, 2002
    
    4Condensed Consolidated Balance Sheets as of
September 27, 2003 and December 28, 2002 (Audited)
    
    5Condensed Consolidated Statements of Cash Flows
for the 39 weeks ended September 27, 2003 and
September 28, 2002
    
    6Notes to Condensed Consolidated Financial Statements
    
    7-12Item 2.
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    12-22Item 3.
    
    Quantitative and Qualitative Disclosures About
Market Risk
    
    22Item 4.
    
    Controls and Procedures
    
    22PART II
    
    
    OTHER INFORMATIONItem 6.
    
    Exhibits and Reports on Form 8-K
    
    22Signature
    
    23Exhibit Index
    
    24


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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

DELHAIZE AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the 13 weeks ended September 27, 2003 and September 28, 2002
(Dollars in thousands)

13 Weeks
    
    13 WeeksEnded
    
    EndedSeptember 27, 2003
    
    September 28, 2002Net sales and other revenues
    
    $
    3,872,194
    
    
    $
    3,774,860Cost of goods sold (Note 9)
    
    
    2,912,871
    
    
    
    2,822,274Selling and administrative expenses
    
    
    778,100
    
    
    
    778,586Operating income
    
    
    181,223
    
    
    
    174,000Interest expense
    
    
    78,373
    
    
    
    83,019Net gain from extinguishment of debt
    
    
    
    
    
    
    882Net other loss from extinguishment of debt
    
    
    
    
    
    
    260Income from continuing operations
before income taxes
    
    
    102,850
    
    
    
    91,603Provision for income taxes
    
    
    38,353
    
    
    
    36,412Income before loss from discontinued operations
    
    
    64,497
    
    
    
    55,191Loss from discontinued operations, net of tax
    
    
    1,371
    
    
    
    3,133Net income
    
    $
    63,126
    
    
    $
    52,058


See notes to unaudited condensed consolidated financial statements.

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DELHAIZE AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
For the 39 weeks ended September 27, 2003 and September 28, 2002
(Dollars in thousands)

39 Weeks
    
    39 WeeksEnded
    
    EndedSeptember 27, 2003
    
    September 28, 2002Net sales and other revenues
    
    $
    11,347,091
    
    
    $
    11,191,282Cost of goods sold (Note 9)
    
    
    8,553,074
    
    
    
    8,338,374Selling and administrative expenses
    
    
    2,296,190
    
    
    
    2,302,686Operating income
    
    
    497,827
    
    
    
    550,222Interest expense
    
    
    237,146
    
    
    
    252,406Net gain from extinguishment of debt
    
    
    
    
    
    
    882Net other loss from extinguishment of debt
    
    
    
    
    
    
    260Income from continuing operations
before income taxes
    
    
    260,681
    
    
    
    298,438Provision for income taxes
    
    
    95,883
    
    
    
    117,720Income before loss from discontinued operations
    
    
    164,798
    
    
    
    180,718Loss from discontinued operations, net of tax
    
    
    26,536
    
    
    
    8,606Income before cumulative effect
of changes in accounting principle
    
    
    138,262
    
    
    
    172,112Cumulative effect of changes in accounting
principle, net of tax
    
    
    10,946
    
    
    
    284,097Net income (loss)
    
    $
    127,316
    
    
    $
    (111,985
    )


See notes to unaudited condensed consolidated financial statements.

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DELHAIZE AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 27, 2003 and December 28,2002
(Dollars in thousands)

September 27, 2003
    
    December 28, 2002(Unaudited)
    
    (Audited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    302,412
    
    
    $
    131,641Receivables, net
    
    
    121,947
    
    
    
    142,371Receivable from affiliate
    
    
    12,256
    
    
    
    14,483Income tax receivable
    
    
    196
    
    
    
    6,036Inventories
    
    
    1,197,673
    
    
    
    1,340,847Prepaid expenses
    
    
    43,047
    
    
    
    30,622Deferred tax assets
    
    
    39,559
    
    
    
    18,976Other assets
    
    
    10,466
    
    
    
    Total current assets
    
    
    1,727,556
    
    
    
    1,684,976Property and equipment, net
    
    
    2,972,293
    
    
    
    3,041,465Goodwill, net
    
    
    2,907,305
    
    
    
    2,907,305Other intangibles, net
    
    
    776,828
    
    
    
    792,689Reinsurance recoverable from affiliate
    
    
    128,943
    
    
    
    119,827Other assets
    
    
    175,524
    
    
    
    88,554Total assets
    
    $
    8,688,449
    
    
    $
    8,634,816LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    717,362
    
    
    $
    762,179Dividend payable
    
    
    
    
    
    
    114,636Payable to affiliate
    
    
    
    
    
    
    8,959Accrued expenses
    
    
    398,501
    
    
    
    314,851Capital lease obligations  current
    
    
    34,555
    
    
    
    32,652Long term debt  current
    
    
    14,125
    
    
    
    28,294Other liabilities  current
    
    
    55,825
    
    
    
    49,372Total current liabilities
    
    
    1,220,368
    
    
    
    1,310,943Long-term debt
    
    
    2,938,415
    
    
    
    2,951,072Capital lease obligations
    
    
    672,317
    
    
    
    698,283Deferred income taxes
    
    
    294,718
    
    
    
    357,314Other liabilities
    
    
    274,808
    
    
    
    273,502Total liabilities
    
    
    5,400,626
    
    
    
    5,591,114Commitments and contingencies (Note 15)Shareholders equity:Class A non-voting common stock
    
    
    163,076
    
    
    
    53,222Class B voting common stock
    
    
    37,736
    
    
    
    37,645Accumulated other comprehensive loss, net of tax
    
    
    (66,579
    )
    
    
    (71,130
    )Additional paid-in capital, net
of unearned compensation
    
    
    2,471,696
    
    
    
    2,467,397Retained earnings
    
    
    681,894
    
    
    
    556,568Total shareholders equity
    
    
    3,287,823
    
    
    
    3,043,702Total liabilities and
shareholders equity
    
    $
    8,688,449
    
    
    $
    8,634,816


See notes to unaudited condensed consolidated financial statements.

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DELHAIZE AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 39 weeks ended September 27, 2003 and September 28, 2002
(Dollars in thousands)

39 Weeks Ended
    
    39 Weeks EndedSeptember 27, 2003
    
    September 28, 2002CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    127,316
    
    
    $
    (111,985
    )Adjustments to reconcile net income(loss)
to net cash provided by operating activities:Cumulative effect of changes in accounting
principle, net of tax
    
    
    10,946
    
    
    
    284,097Change in accounting method (Note 9)
    
    
    87,308
    
    
    
    Provision for loss on disposal of discontinued operations
    
    
    27,844
    
    
    
    Streamline charges
    
    
    2,346
    
    
    
    Depreciation and amortization
    
    
    336,350
    
    
    
    340,602Depreciation and amortization  discontinued operations
    
    
    480
    
    
    
    4,478Amortization of debt fees/costs
    
    
    1,466
    
    
    
    1,507Amortization of debt premium/(discount)
    
    
    754
    
    
    
    852Amortization of deferred loss on derivative
    
    
    6,215
    
    
    
    6,378Amortization and termination of restricted shares
    
    
    4,014
    
    
    
    8,783Accrued interest on interest rate swap
    
    
    (3,929
    )
    
    
    (4,780
    )Loss on disposals of property and
capital lease terminations
    
    
    623
    
    
    
    298Net gain from extinguishment of debt
    
    
    
    
    
    
    (882
    )Net other loss from extinguishment of debt
    
    
    
    
    
    
    260Deferred income taxes (benefit) provision
    
    
    (85,541
    )
    
    
    5,035Other
    
    
    698
    
    
    
    (538
    )Changes in operating assets and liabilities which provided (used) cash:Receivables
    
    
    20,424
    
    
    
    78,789Net receivable from affiliate
    
    
    (6,732
    )
    
    
    2,930Income tax receivable
    
    
    12,018
    
    
    
    8,429Inventories
    
    
    35,616
    
    
    
    8,090Prepaid expenses
    
    
    (12,425
    )
    
    
    (14,550
    )Other assets
    
    
    4,626
    
    
    
    (63
    )Accounts payable
    
    
    (41,692
    )
    
    
    (2,601
    )Accrued expenses
    
    
    80,135
    
    
    
    109,413Income taxes payable
    
    
    
    
    
    
    60,684Other liabilities
    
    
    (27,439
    )
    
    
    (18,095
    )Total adjustments
    
    
    454,105
    
    
    
    879,116Net cash provided by operating activities
    
    
    581,421
    
    
    
    767,131CASH FLOWS FROM INVESTING ACTIVITIESCapital expenditures
    
    
    (263,702
    )
    
    
    (333,383
    )Proceeds from sale of property
    
    
    10,310
    
    
    
    11,654Other investment activity
    
    
    (15,197
    )
    
    
    (1,565
    )Net cash used in investing activities
    
    
    (268,589
    )
    
    
    (323,294
    )CASH FLOWS FROM FINANCING ACTIVITIESNet payments under short-term borrowings
    
    
    
    
    
    
    (140,000
    )Principal payments on long-term debt
    
    
    (25,390
    )
    
    
    (76,238
    )Principal payments under capital lease obligations
    
    
    (23,681
    )
    
    
    (22,328
    )Escrow funding for Senior Notes
    
    
    (86,592
    )
    
    
    Taxes paid on capital contribution
    
    
    (4,692
    )
    
    
    Dividends paid
    
    
    
    
    
    
    (86,023
    )Parent common stock repurchased
    
    
    (2,306
    )
    
    
    (11,459
    )Proceeds from stock options exercised
    
    
    600
    
    
    
    4,586Net cash used in financing activities
    
    
    (142,061
    )
    
    
    (331,462
    )Net increase in cash and cash
equivalents
    
    
    170,771
    
    
    
    112,375Cash and cash equivalents at beginning
of year
    
    
    131,641
    
    
    
    137,206Cash and cash equivalents at end of period
    
    $
    302,412
    
    
    $
    249,581


See notes to unaudited condensed consolidated financial statements.

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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
December 28, 2002 for further information.

The financial information presented herein has been prepared in accordance with
the Companys customary accounting practices except for the change in the
method of store inventory accounting discussed below and has not been audited.
In the opinion of management, the financial information includes all
adjustments, including normal recurring items, necessary for a fair
presentation of interim results.

The financial statement presentation includes the impact of the Companys
closing of 43 underperforming Food Lion and Kash n Karry stores, of which 42
stores were closed during the first quarter of 2003 and one store was closed
during the second quarter of 2003. In accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 144, a portion of the
costs associated with these stores, as well as related operating activity prior
to closing for these stores, was recorded as discontinued operations in the
Companys Condensed Consolidated Statement of Income (Loss) for all periods
presented.

2) Supplemental Disclosure of Cash Flow Information:

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

39 Weeks
    
    39 WeeksEnded
    
    Ended(Dollars in thousands)
    
    Sept 27, 2003
    
    Sept 28, 2002Cash payments for income taxes
    
    $
    154,356
    
    
    $
    38,359Cash payments for interest, net of amounts
capitalized
    
    
    175,008
    
    
    
    191,415Non-cash investing and financing activities:Capitalized lease obligations incurred for store
properties and equipment
    
    
    21,247
    
    
    
    37,331Capitalized lease obligations terminated for store
properties and equipment
    
    
    2,163
    
    
    
    1,882Dividend to Delhaize Group and Delta paid in stock
    
    
    109,944
    
    
    
    Change in reinsurance recoverable and other liabilities
    
    
    9,116
    
    
    
    1,947Other
    
    
    471
    
    
    
    Investment in WWRE
    
    
    
    
    
    
    3,000Delhaize Group Share Exchange  final adjustment to
purchase price allocation:Property
    
    
    
    
    
    
    44,433Deferred income taxes
    
    
    
    
    
    
    43,752Capital lease obligations
    
    
    
    
    
    
    4,475Accrued expenses
    
    
    
    
    
    
    5,156Reclassification of deferred taxes to goodwill
related to intangible assets that did not meet the
separability criteria of SFAS No. 141
    
    
    
    
    
    
    117,895


3) Inventories

Inventories are stated at the lower of cost or market. Inventories valued using
the last-in, first-out (LIFO) method comprised approximately 78% of inventories
on September 27, 2003 and September 28 2002. Meat, produce and deli 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 $33.3 million and $67.3 million greater
as of September 27, 2003 and September 28, 2002, respectively. Application of
the LIFO method resulted in increases in cost of goods sold of $1.3 million and
$2.6 million for the 39 weeks ended September 27, 2003 and September 28, 2002,
respectively. As stated in Note 9, in the second quarter of 2003 the Company
changed its application of the LIFO method of accounting for store inventories
from the retail method to the average item cost method effective December 29,
2002.

4) Reclassification

Certain financial statement items in the prior periods have been reclassified
to conform to the current periods presentation.

5) Accounting for Stock Issued to Employees

The Company participates in a stock option plan of its parent,
Delhaize Group, that is described fully in Note 14 to the
Companys Annual Report on Form 10-K for the year ended December 28, 2002 (the Delhaize Group Plan).
Additionally, the Company still has options outstanding under a 1996 Food Lion Plan, a 1988 and 1998 Hannaford
Plan and 2000 Delhaize America Plan; however, the Company can no longer grant options under these plans.
The Company accounts for the Delhaize Group Plan under the recognition and measurement principles
of APB Opinion No. 25, Accounting for Stock Issued to Employees, and Related
Interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under the Delhaize Group Plan have an exercise price equal to
the market value of the underlying common stock on the date of the grant. The
following table illustrates the effect on net income if the Company had applied
the fair value recognition provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, as amended by SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, to stock-based employee
compensation.

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13 weeks ended
    
    13 weeks ended
    
    39 weeks ended
    
    39 weeks endedSept 27, 2003
    
    Sept 28, 2002
    
    Sept 27, 2003
    
    Sept 28, 2002Net earnings (loss)  as reported
    
    $
    63,126
    
    
    $
    52,058
    
    
    $
    127,316
    
    
    $
    (111,985
    )Deduct: Total stock-based
employee compensation expense
determined using fair value
based method (net of tax)
    
    
    2,973
    
    
    
    3,678
    
    
    
    8,158
    
    
    
    7,769Net earnings (loss)pro forma
    
    $
    60,153
    
    
    $
    48,380
    
    
    $
    119,158
    
    
    $
    (119,754
    )


The weighted average fair value at date of grant for options granted
under the Delhaize Group Plan during the third quarter of 2003 was $12.45. There were no options
granted under the Delhaize Group Plan during the third quarter of 2002. The weighted average fair
value at date of grant for options granted for the 39 weeks ended September 27, 2003 and
September 28, 2002 was $8.44 and $16.34 per option, respectively. The fair value of options
at date of grant was estimated using the Black-Scholes model using the following assumptions:

Sept 27, 2003
    
    Sept 28, 2002Expected dividend yield(%)
    
    
    3.6
    
    
    
    2.6Expected volatility (%)
    
    
    42.3
    
    
    
    38.8Risk-free interest rate(%)
    
    
    2.4
    
    
    
    4.6Expected term (years)
    
    
    5.2
    
    
    
    5.2


6) Derivative Financial Instruments

Prior to the offering of the bonds and debentures on April 19, 2001, the
Company entered into interest rate agreements to hedge against potential
increases in interest rates. The notional amount of these hedge agreements was
$1.75 billion. These agreements were structured to hedge against the risk of
increasing market interest rates based on U.S. treasury rates, with the
specified rates based on the expected maturities of the related securities.
These hedge agreements were settled in connection with the completion of the
offering of the bonds and debentures, resulting in a payment in the amount of
an unrealized loss of approximately $214 million. As a result of the adoption
of SFAS No. 133, Derivative Instruments and Hedging Activities, at the
beginning of fiscal 2001, the unrealized loss was recorded in other
comprehensive income, net of deferred taxes, and is being amortized to interest
expense over the term of the associated debt securities. The Company amortized
approximately $3.9 million and $4.0 million, net of tax of the other
comprehensive loss associated with these hedge agreements to interest expense
during both the 39 weeks ended September 27, 2003 and September 28, 2002,
respectively. 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 at September 27, 2003, and September 28, 2002,
totaled approximately $45.7 million and $51.7 million, net of deferred taxes,
respectively.

During the fourth quarter of 2001 and the third quarter of 2002, the Company
entered into interest rate swap agreements, effectively converting a portion of
the debt from fixed to variable rates. Maturity dates of the Companys 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. The notional principal
amounts of interest rate swap arrangements at September 27, 2003 were $300
million maturing in 2006 and $200 million maturing in 2011. These agreements
are accounted for as fair value hedges. For the 13 and 39 weeks ended September
27, 2003, interest expense decreased by $3.9 and $12.2 million, respectively,
in connection with these agreements. For the 13 and 39 weeks ended September
28, 2002, interest expense decreased by $3.2 and $7.8 million, respectively, in
connection with these agreements. These agreements met the criteria for using
the short-cut method, which assumes 100% hedge effectiveness, as prescribed by
SFAS No. 133. The Company has recorded a derivative asset in
connection with these agreements in the amount of $25.8 million and $24.7
million at September 27, 2003 and September 28, 2002, respectively, recorded in
the Companys Condensed Consolidated Balance Sheet in Other Assets.

7) Goodwill and Other Intangible Assets

On December 30, 2001, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which required that we cease amortizing goodwill and other
intangible assets with indefinite lives, and begin an annual assessment of
potential impairment of goodwill and other indefinite lived intangible assets
by comparing the book value of these assets to their current fair value.
Accordingly, during the first quarter of 2002, the Company performed its
transitional assessment for potential impairment at each of the three operating
banners, since each banner represents a separate operating segment as defined by
SFAS No. 131 and a separate reporting unit as defined by SFAS No. 142. In
performing its assessment, the carrying value of assets and liabilities was
determined for each reporting unit and compared to the fair value of each
reporting unit, which was obtained from independent appraisals. If the carrying value of the reporting unit exceeded its fair value, an assessment of
impairment was then necessary.

8



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The Companys impairment assessment at its individual operating banners
resulted in a non-cash impairment charge totaling approximately $288 million
before taxes ($284 million net of taxes), which was recorded as a cumulative
effect of change in accounting principle in the first quarter 2002. This
impairment charge relates primarily to goodwill associated with the Delhaize
Group share exchange and with the Companys acquisitions of Kash n Karry and
Hannaford. The Florida market, where Kash n Karry is concentrated, is one of
the most competitive markets in the Southeast region. In addition, this market
experienced the impact of security concerns and economic pressures after
September 2001, which continued to negatively impact temporary residence and
tourism in the state at the time of the Companys impairment assessment in
2002. The Hannaford banner carries a significant goodwill balance due to the
initial acquisition in 2000 and the assignment of goodwill to this banner
related to the Delhaize Group share exchange.

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the
Company conducts an impairment assessment of Goodwill and Other Intangible
Assets with indefinite lives at least annually. This annual assessment will be
conducted in the fourth quarter of each year unless facts and circumstances
require an assessment at an earlier date.

8) 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 and unrealized security holding gains.
Comprehensive income (loss) was $131.9 and $(108.3) million for the 39 weeks
ended September 27, 2003 and September 28, 2002, respectively. The
comprehensive loss for the 39 weeks ended September 28, 2002 was primarily due
to impairment assessment discussed in Note 7.

9) Accounting Change

In the second quarter of 2003, the Company changed its application of the LIFO
method of accounting for store inventories 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 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 28, 2002
cannot be determined and accordingly, the effect of this change has been
included as a component of cost of sales in the condensed consolidated
statement of income for the 39 weeks ended September 27, 2003. In comparison
with 2002 and excluding the $87.3 million charge, the impact of changing from
the retail method to the average item cost method resulted in a $9.4 million
decrease in cost of sales in the first quarter of 2003, a $14.0 million
increase in cost of sales in the second quarter of 2003 and a $2.6 million
decrease in cost of sales in the third quarter of 2003. Pro forma effects of
the change for periods prior to 2003 have not been presented, as cost
information is not determinable.

The accounting change to the average item cost method results in the
restatement of the Companys 13 weeks ended March 29, 2003 as follows:

13 weeks EndedMarch 29,2003
    
    13 weeks EndedAs Previously
    
    March 29,2003(Dollars in thousands)
    
    Reported
    
    As RestatedNet sales and other revenues
    
    $
    3,681,128
    
    
    $
    3,680,121
    *Cost of goods sold
    
    
    2,712,990
    
    
    
    2,790,120
    *Selling and administrative expenses
    
    
    753,092
    
    
    
    752,747
    *Operating income
    
    
    215,046
    
    
    
    137,254Interest expense
    
    
    79,686
    
    
    
    79,686Income from continuing operations before income taxes
    
    
    135,360
    
    
    
    57,568Provision for income taxes
    
    
    50,075
    
    
    
    20,684Income before loss from discontinued operations
    
    
    85,285
    
    
    
    36,884Loss from discontinued operations, net of tax
    
    
    22,246
    
    
    
    22,376
    *Income before cumulative effect of changes in
accounting principle
    
    
    63,039
    
    
    
    14,508Cumulative effect of changes in accounting
principle, net of tax
    
    
    10,946
    
    
    
    10,946Net income
    
    $
    52,093
    
    
    $
    3,562




---

|* |  | First quarter 2003 has also been adjusted to classify the results of
operations for one store closed during second quarter 2003 as discontinued
operations.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

9



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##### 



In addition, the Company adopted Emerging Issues Task Force (EITF) Issue No.
02-16 during first quarter of 2003 and recorded the cumulative effect of a
change in accounting principle of $10.9 million, net of tax during the first
quarter (Note 12).

10) Discontinued Operations

The Company closed 43 underperforming Food Lion and Kash n Karry stores
during the 39 weeks ending September 27, 2003, of which 42 were closed during
first quarter of 2003 and one was closed during second quarter of 2003. In
accordance with the provisions of SFAS No. 144, a portion of the costs
associated with these stores, as well as related operating activity prior to
closing for these stores, was recorded in discontinued operations in the
Companys Condensed Consolidated Statement of Income (Loss).

Operating activity prior to closing for the 43 discontinued stores is shown
below:

13 weeks ended
    
    13 weeks ended
    
    39 weeks ended
    
    39 weeks ended(Dollars in thousands)
    
    Sept 27, 2003
    
    Sept 28, 2002
    
    Sept 27, 2003
    
    Sept 28, 2002Net sales and other revenues
    
    $
    0
    
    
    $
    41,757
    
    
    $
    17,561
    
    
    $
    127,424Net
(loss)
    
    $
    (41
    )
    
    $
    (3,133
    )
    
    $
    (5,375
    )
    
    $
    (8,606
    )


During the first quarter of 2003 in accordance with SFAS No. 146, the Company
recorded an initial reserve of $27.5 million to discontinued operations ($17.7
million after taxes) for rent, real estate taxes and common area maintenance
expenses (other liabilities) and severance and outplacement costs (accrued
expenses). The Company recorded property retirement losses of $5.0 million,
which was offset by gains on capital lease retirements of $5.0 million.

During the second quarter of 2003, the Company recorded an initial reserve of
$0.3 million to discontinued operations ($0.2 million after taxes) for rent,
real estate taxes and common area maintenance expenses (other liabilities) and
for property retirement losses.

Additional discontinued operations expenses not reserved totaled $1.3 million
and $3.3 million after taxes for the 13 and 39 weeks ended September 27, 2003,
respectively.

The following table shows the reserve balances for discontinued operations as
of September 27, 2003:

Other
    
    Accrued(Dollars in thousands)
    
    liabilities
    
    expenses
    
    TotalReserve balance as of June 28, 2003
    
    $
    (24,933
    )
    
    $
    (765
    )
    
    $
    (25,698
    )Utilizations
    
    
    994
    
    
    
    
    
    
    
    994Reserve balance as of September 27, 2003
    
    $
    (23,939
    )
    
    $
    (765
    )
    
    $
    (24,704
    )


11) Streamlining

During the first quarter of 2003, Food Lion initiated additional cost saving
opportunities by streamlining and optimizing the functioning of its support and
management structure. As a result, the Company recorded a pre-tax charge of
$2.4 million, which was included in Selling and Administrative Expenses, and
represents related severance, benefits, and outplacement service costs. The
Company paid $2.0 million of the initial reserve during the first 39 weeks of
2003 and the outstanding $0.4 million is included in the Companys Condensed
Consolidated Balance Sheet in Accrued Expenses.

12) Recently Adopted Accounting Standards

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity, which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. Some of the provisions of
this Statement are consistent with the current definition of liabilities in
FASB Concepts Statement No. 6, Elements of Financial Statements. The statement is effective immediately for all
financial instruments entered into or modified after May 31, 2003. For all
other instruments, the Standard goes into effect at the beginning of the first
interim period beginning after June 15, 2003. This standard does not currently
have an impact on the Companys financial statements.

In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which

10



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##### 



amends and clarifies
financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under FASB Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities. This statement is effective for contracts entered into or
modified after June 30, 2003. This standard does not currently have an impact
on the Companys financial statements.

In December 2002, SFAS No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure, was issued and amends SFAS No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for
voluntary change to the fair value based method of accounting for stock based
employee compensation. In addition, this Statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reporting results.
Certain new disclosure provisions of SFAS No. 148 are required for fiscal years
ending after December 15, 2002. See Note 5 to the Companys Condensed
Consolidated Financial Statements for related disclosures for the third quarter
of fiscal 2003.

In November 2002, the Financial Standards Board (FASB) issued FASB
Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, which is an interpretation of FASB Statements No. 5, 57, and 107 and
rescission of FASB Interpretation No. 34. FIN 45 elaborates on the disclosures
to be made by a guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002. The adoption of
this standard did not have an impact on the Companys financial statements.

In September 2002, Emerging Issues Task Force (EITF) Issue No. 02-16,
Accounting by a Reseller for Cash Consideration Received, was proposed and a
consensus was reached in January 2003. The issue was revised and finalized in
March 2003. This issue addresses the appropriate accounting, by a retailer, for
cash consideration received from a vendor and directs that cash consideration
received from a vendor should be presumed to be a reduction of inventory unless
it is a reimbursement of specific costs incurred in advertising the vendors
products. Previously, the Company recorded allowances as a reduction of cost of
sales when earned. This change will have a timing impact on certain allowances
that will now be an adjustment to inventory cost and recognized in cost of
sales when the product is sold.

Upon adoption of EITF Issue No. 02-16 in 2003, the Company 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 in the Companys
Condensed Consolidated Statement of Income (Loss) and reflects an adjustment of
the Companys opening inventory balance. As a result of the adoption of this
issue, certain allowances will be recorded as a reduction of inventory as
appropriate.

In June 2002, SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, was issued by the FASB. SFAS No. 146 addresses
significant issues relating to the recognition, measurement and reporting of
costs associated with exit and disposal activities (including store closings).
SFAS No. 146 replaces previous accounting guidance, principally EITF Issue No.
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). Issue No. 94-3 required that a liability for an exit cost be
recognized when the company committed to a specific plan; whereas, SFAS No. 146
requires that the liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. SFAS No. 146 is
effective for exit or disposal activities initiated after December 31, 2002.
See Note 10 to the Companys Condensed Consolidated Financial Statements for
related disclosures for the third quarter of fiscal 2003.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs, and applies to the legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or normal operation of a long-lived
asset, except for certain obligations of lessees. SFAS No. 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
The adoption of this standard did not have a significant effect on the
Companys financial statements.

13) Debt Guarantees

Delhaize America is a holding company having three subsidiary operating
companies that do business primarily under the banners Food Lion, Hannaford and
Kash n Karry. The wholly owned direct subsidiaries named below have fully and
unconditionally and jointly and severally guaranteed the debt of Delhaize
America.

Food Lion, LLC is a North Carolina limited liability company that operates all
of the Companys Food Lion stores. Food Lions executive offices are located at
2110 Executive Drive, Salisbury, North Carolina 28147.

Hannaford Bros. Co. is a Maine corporation that operates all of the Companys
Hannaford stores. Hannafords executive offices are located at 145 Pleasant
Hill Road, Scarborough, Maine 04074.

11



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##### 



Kash n Karry Food Stores, Inc. is a Delaware corporation that operates all the
Companys Kash n Karry stores. Kash n Karrys executive offices are located
at 6422 Harney Road, Tampa, Florida 33610.

14) Recently Issued Accounting Standards Not Yet Adopted

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, which is an interpretation of
Accounting Research Bulletin (ARB) No. 51. Fin 46 addresses consolidation by
business enterprises of variable interest entities. The objective of this
Interpretation is not to restrict the use of variable interest entities but to
improve financial reporting by enterprises involved with variable interest
entities. The FASB believes that if a business enterprise has a controlling
financial interest in a variable interest entity, the assets, liabilities, and
results of the activities of the variable interest entity should be included in
consolidated statements with those of the business enterprise. FIN 46 applies
to all newly created variable interest entities. In addition, FIN 46, as amended, will
become effective for variable interest entities created before February 1,
2003, and reported in financial statements issued for interim periods ending
after December 15, 2003. The Company is currently assessing the potential
effect of FIN 46 on its financial statements.

15) 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 operations, financial position or
liquidity.

16) Subsequent Events

On October 27, 2003, the Company completed its previously
announced acquisition of 43 Harveys supermarkets, located in central and south Georgia and the
Tallahassee, Florida, area. The acquisition includes the Harveys corporate
headquarters and warehouse in Nashville, Georgia. The majority of the Harveys
stores are between 18,000 and 35,000 square feet. Seven Harveys stores have a
pharmacy. To acquire the Harveys stores, the Company paid $29.4 million in cash
and assumed $14.6 million in accounts payable and other short-term liabilities
associated with the operation of Harveys. The Company also purchased $2 million in additional
inventory from the seller in connection with  the sellers exercise of an inventory put option agreement. The
acquisition fills in an area where Food Lion, the largest U.S. banner of the Company, has a limited
presence. Harveys is now the fourth U.S. banner of the Company, joining Food
Lion, Hannaford and Kash n Karry. The Company will include the results of
operations of Harveys prospectively from October 26, 2003.

In October 2003, Hannaford Bros. Co. (Hannaford), a wholly-owned subsidiary
of the Company, 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 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 September
27, 2003, $75.0 million in aggregate principal amount of these
notes was
outstanding. Cash committed to fund the escrow and not available for general corporate purposes has been considered
restricted. At September 27, 2003, restricted funds of $10.5 million and $76.1 million
are recorded in Current Other Assets and Non-current Other Assets, respectively.

Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations (13 and 39 weeks ended September 27, 2003 compared to the 13 and
39 weeks ended September 28, 2002)

The accompanying financial statements are presented in accordance with the
requirements of Form 10-Q and, consequently, do not include all the disclosures
normally required by generally accepted accounting principles or those normally
made in the Companys Annual Report on Form 10-K. Accordingly, the reader of
this Form 10-Q should refer to the Companys Annual Report on Form 10-K for the
year ended December 28, 2002 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 annual reports to shareholders and SEC filings on forms 10-Q, 10-K and
8-K.

Delhaize America, Inc. (Delhaize America or the Company), a wholly-owned
subsidiary of Delhaize Group, engages in one line of business, the operation of
retail food supermarkets in the eastern United States. The Company was
incorporated in North Carolina in 1957 and maintains its corporate headquarters
in Salisbury, North Carolina. Delhaize America is a holding company having
three subsidiary operating companies that do business primarily under the
banners Food Lion, Hannaford and Kash n Karry.

When we use the terms Delhaize America, the Company, we, us and our,
we mean Delhaize America, Inc., a North Carolina corporation, and its
consolidated subsidiaries.

The Companys 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, and other household and personal products. The
Company offers nationally and regionally advertised brand name merchandise as
well as products manufactured and packaged for the Company under the private
labels of Food Lion, Hannaford and Kash n Karry.

The business in which the Company is engaged is highly competitive and
characterized by low profit margins. The Company competes with national,
regional and local supermarket chains, supercenters, discount food stores,
single unit stores, convenience stores, warehouse clubs and drug stores.
Seasonal changes have no material effect on the operation of the Companys
supermarkets.

12



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##### 



CRITICAL ACCOUNTING POLICIES

We have chosen accounting policies that we believe are appropriate to
accurately and fairly report our operating results and financial position and
we apply those accounting policies in a consistent manner. 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. The reader
should refer to Note 1 to the consolidated financial statements in our Annual
Report on Form 10-K for the fiscal year ended December 28, 2002 and Item 1 of
this Quarterly Report on Form 10-Q for further information regarding
significant accounting policies.

RESULTS OF OPERATIONS

The following tables set forth the unaudited condensed consolidated statements
of income (loss) for the 13 and 39 weeks ended September 27, 2003 and for the
13 and 39 weeks ended September 28, 2002 for informational purposes. The 2002
results have been adjusted to classify the results of operations for the 43
stores closed during the 39 weeks ended September 27, 2003 as discontinued
operations; their net sales and other revenues, cost of goods sold, and
selling and administrative expenses have been reflected on a net basis in
discontinued operations in our condensed consolidated statement of income
(loss).

13 Weeks
    
    13 WeeksEnded
    
    EndedSept 27, 2003
    
    Sept 28, 2002(unaudited)
    
    (unaudited)Net sales and other revenues
    
    $
    3,872,194
    
    
    $
    3,774,860Cost of goods sold
    
    
    2,912,871
    
    
    
    2,822,274Selling and administrative expenses
    
    
    778,100
    
    
    
    778,586Operating income
    
    
    181,223
    
    
    
    174,000Interest expense
    
    
    78,373
    
    
    
    83,019Net gain from extinguishment of debt
    
    
    
    
    
    
    882Net other loss from extinguishment of debt
    
    
    
    
    
    
    260Income from continuing operations before
income taxes
    
    
    102,850
    
    
    
    91,603Provision for income taxes
    
    
    38,353
    
    
    
    36,412Income before loss from discontinued operations
    
    
    64,497
    
    
    
    55,191Loss from discontinued operations, net of tax
    
    
    1,371
    
    
    
    3,133Net income
    
    $
    63,126
    
    
    $
    52,058


39 Weeks
    
    39 WeeksEnded
    
    EndedSept 27, 2003
    
    Sept 28, 2002(unaudited)
    
    (unaudited)Net sales and other revenues
    
    $
    11,347,091
    
    
    $
    11,191,282Cost of goods sold
    
    
    8,553,074
    
    
    
    8,338,374Selling and administrative expenses
    
    
    2,296,190
    
    
    
    2,302,686Operating income
    
    
    497,827
    
    
    
    550,222Interest expense
    
    
    237,146
    
    
    
    252,406Net gain from extinguishment of debt
    
    
    
    
    
    
    882Net other loss from extinguishment of debt
    
    
    
    
    
    
    260Income from continuing operations before
income taxes
    
    
    260,681
    
    
    
    298,438Provision for income taxes
    
    
    95,883
    
    
    
    117,720Income before loss from discontinued operations
    
    
    164,798
    
    
    
    180,718Loss from discontinued operations, net of tax
    
    
    26,536
    
    
    
    8,606Income before cumulative effect of changes in
accounting principle
    
    
    138,262
    
    
    
    172,112Cumulative effect of changes in accounting
principle, net of tax
    
    
    10,946
    
    
    
    284,097Net income (loss)
    
    $
    127,316
    
    
    $
    (111,985
    )


Note: Cost of goods sold includes an $87.3 million (0.77%) charge in the 39
weeks ended September 27, 2003 related to the conversion from retail to average
item cost inventory at the Food Lion and Kash n Karry banners. The cumulative
effect of changes in accounting principle are discussed below.

13



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##### 



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

13 Weeks
    
    13 WeeksEnded
    
    EndedSept 27, 2003
    
    Sept 28, 2002%
    
    %(unaudited)
    
    (unaudited)Net sales and other revenues
    
    
    100.00
    
    
    
    100.00Cost of goods sold
    
    
    75.23
    
    
    
    74.76Selling and administrative expenses
    
    
    20.09
    
    
    
    20.63Operating income
    
    
    4.68
    
    
    
    4.61Interest expense
    
    
    2.02
    
    
    
    2.20Net gain from extinguishment of debt
    
    
    
    
    
    
    0.02Net other loss from extinguishment of debt
    
    
    
    
    
    
    0.01Income from continuing operations before
income taxes
    
    
    2.66
    
    
    
    2.42Provision for income taxes
    
    
    0.99
    
    
    
    0.96Income before loss from discontinued operations
    
    
    1.67
    
    
    
    1.46Loss from discontinued operations, net of tax
    
    
    0.04
    
    
    
    0.08Net income
    
    
    1.63
    
    
    
    1.38


39 Weeks
    
    39 WeeksEnded
    
    EndedSept 27, 2003
    
    Sept 28, 2002%
    
    %(unaudited)
    
    (unaudited)Net sales and other revenues
    
    
    100.00
    
    
    
    100.00Cost of goods sold
    
    
    75.38
    
    
    
    74.51Selling and administrative expenses
    
    
    20.23
    
    
    
    20.57Operating income
    
    
    4.39
    
    
    
    4.92Interest expense
    
    
    2.09
    
    
    
    2.26Net gain from extinguishment of debt
    
    
    
    
    
    
    0.01Net other loss from extinguishment of debt
    
    
    
    
    
    
    0.00Income from continuing operations before
income taxes
    
    
    2.30
    
    
    
    2.67Provision for income taxes
    
    
    0.85
    
    
    
    1.05Income before loss from discontinued operations
    
    
    1.45
    
    
    
    1.62Loss from discontinued operations, net of tax
    
    
    0.23
    
    
    
    0.08Income before cumulative effect of changes
in accounting principle
    
    
    1.22
    
    
    
    1.54Cumulative effect of changes in accounting
principle, net of tax
    
    
    0.10
    
    
    
    2.54Net income (loss)
    
    
    1.12
    
    
    
    (1.00
    )


Note: Cost of goods sold includes an $87.3 million (0.77%) charge in the 39
weeks ended September 27, 2003 related to the conversion from retail to average
item cost inventory at the Food Lion and Kash n Karry banners. The cumulative
effect of changes in accounting principle are discussed below.

Sales

We record revenues primarily from the sale of products in over 1,450 retail
stores. Net sales and other revenues for the third quarter 2003 and for the 39
weeks ended September 27, 2003 were $3.9 billion and $11.3 billion,
respectively, resulting in increases of 2.6% and 1.4% over the corresponding
periods of 2002. Comparable store sales increased 1.0% during the third
quarter of 2003 and decreased 0.1% for the 39 weeks ended September 27, 2003.
Comparable store sales increased in the third quarter reflecting continued
improvement in sales trends throughout 2003. Sales in 2003 have been positively
impacted by a continued focus on operational excellence at Food Lion and
continued strength of Hannafords Festival strategy. The sales momentum during
the 39 weeks of 2003 was achieved despite the impact of soft economic
conditions and continued competitive activity in the Companys major operating
areas. Most of our stores are located in the Southeast region of the United
States, which during most of 2003, experienced corporate layoffs, high
unemployment, and generally depressed economic conditions.

During the first nine months of 2003, we experienced 65 net competitive store
openings in our operating area  increasing the amount of grocery square
footage available to consumers. In addition, most competitors continued to
invest heavily in promotional spending in the form of aggressive advertisement
pricing, buy one and get one or two free offers, double/triple couponing and
other pricing strategies.

We continued planned margin investments that began in the second quarter of
2003 at the Food Lion banner that included a combination of promotional
activity and every day shelf pricing adjustments. These investments in margin
during the quarter were funded by operating cost reductions that materialized
during the second and third quarters of 2003, and continue to positively impact
current sales performance and sales trends.

14



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##### 



As of September 27, 2003, we operated 1,456 stores, which
consisted of 1,199 stores operating primarily under the Food Lion banner, 120 stores operating
under the Hannaford banner and 137 stores operating under the Kash n Karry banner. During
the third quarter of 2003, we opened eight new stores; six under the Food Lion banner and two
under the Hannaford banner. In addition, we remodeled 68 stores in the third
quarter of 2003 including 63 Food Lion stores, four Hannaford stores and one
Kash n Karry store. During the third quarter of 2003, we closed one Hannaford
store, resulting in a net increase of seven stores.

Gross Profit

Gross profit as a percentage of sales was 24.77% and 24.62% for the 13 and 39
weeks ended September 27, 2003, compared to 25.24% and 25.49% for the
corresponding periods of 2002. Gross margin comparisons with last year are
negatively impacted by the Companys store inventory accounting change 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 the year with a corresponding increase to
cost of goods sold. In comparison with 2002 and excluding the $87.3 million
charge, the impact of changing from the retail method to the average item cost
method resulted in a $9.4 million decrease in cost of sales in the first
quarter of 2003, a $14.0 million increase in cost of sales in the second
quarter of 2003 and $2.6 million decrease in third quarter of 2003. Restated
gross margin for the first quarter ended March 29, 2003 was 24.18% compared
with the previously reported gross margin of 26.30% (Note 9).

Also, gross profit for the 13 weeks ended September 27, 2003 was negatively
affected by the impact of Hurricane Isabel, which resulted in product losses of
$14.4 million, 0.37% of sales, at more than 200 Food Lion stores due to power
failure, mandatory evacuation and store closings.

During the third quarter of 2003 we continued planned
margin investments that began in the second quarter of
2003 at the Food Lion banner that included a combination of promotional
activity and every day shelf pricing adjustments. These investments in margin
during the quarter were funded by operating cost reductions that materialized
during the second and third quarters of 2003, and continue to positively impact
current sales performance and sales trends.

We provided for a $0.6 million LIFO provision in the third quarter of 2003 and
$1.3 million in the 39 weeks ended September 27, 2003 compared with a LIFO
provision of $0.6 million and $2.6 million for the corresponding periods last
year.

Selling and Administrative Expenses

Selling and administrative expenses (which include depreciation and
amortization) as a percentage of sales were 20.09% in third quarter of 2003
compared to 20.63% in the third quarter of 2002. For the 39 weeks ended
September 27, 2003, selling and administrative expenses as a percentage of
sales were 20.23% compared to 20.57% for the corresponding period in the prior
year. Excluding depreciation and amortization, selling and administrative
expenses as a percentage of sales were 17.17% for the third quarter of 2003 and
17.27% for the 39 weeks ended September 27, 2003 compared to 17.60% and 17.53%
for the corresponding periods of the prior year. The decrease in selling and
administrative expenses (excluding depreciation and amortization) for the third
quarter of 2003 compared to the corresponding period of last year is primarily
due to decreases in store labor costs as a result of productivity and
operational improvements, lower retirement plan expense as a result of changes
in plan provisions for Food Lion and Kash n Karry and the impact of Food
Lions cost reduction and corporate support streamlining efforts during 2003.
An additional decrease in selling and administrative expenses as compared to
last year is due to a 2002 charge in the third quarter related to the Companys
reorganization of its senior executive team.

Depreciation and amortization expense during the third quarter of 2003 was
$113.2 million or 2.92% of sales compared to $114.0 million or 3.02% of sales
for the third quarter of the prior year. For the 39 weeks ended September 27,
2003, depreciation and amortization expense was $336.4 million or 2.96% of
sales compared to $340.6 million or 3.04% of sales for the corresponding period
in the prior year. The decrease in depreciation and amortization for the 13 and
39 weeks ended September 27, 2003 compared to the corresponding periods last
year is due to lower than planned capital expenditures this year, partially as
a result of construction delays related to prolonged rain and related weather
conditions along the East coast of the United States during the spring of 2003,
and as a result of the Companys management of capital spending to
support the generation of free cash flow and debt reduction.

Interest Expense

Interest expense during the third quarter of 2003 was $78.4 million or 2.02% of
sales compared to $83.0 million or 2.20% of sales for the third quarter of the
prior year. For the 39 weeks ended September 27, 2003, interest expense was
$237.1 million or 2.09% of sales compared to $252.4 million or 2.26% of sales
for the corresponding period in the prior year. Interest expense was lower for
the 39 weeks ended September 27, 2003 compared with the comparable period of
the prior year primarily due to the interest reduction from interest rate swap
agreements and the repurchase of $68.975 million in debentures and debt
securities during the last half of 2002.

Last year third quarter included a net gain of $0.9 million for the early
retirement of $26.2 million in debt securities (see further discussion below in
the Debt section) recorded in net gain from extinguishment of debt. The $0.9
million represents the difference between the reacquisition price of the debt
and the principal and remaining unamortized debt issuance costs.

15



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##### 



Net other loss from extinguishment of debt represents the unamortized hedges
associated with debt retired. Third quarter 2002 included a $0.3 million loss
for the early retirement of the $26.2 million (see further discussion below in
the Debt section).

Store Closings

The following table shows the number of stores closed at the end of the third
quarter of 2003:

Discontinued
    
    
    
    
    
    PlannedOperations
    
    Closed
    
    Closings
    
    TotalAs of June 28, 2003
    
    
    43
    
    
    
    169
    
    
    
    3
    
    
    
    215Store closings added
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Planned closings completed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stores sold/lease terminated
    
    
    (2
    )
    
    
    (6
    )
    
    
    
    
    
    
    (8
    )As of September 27, 2003
    
    
    41
    
    
    
    167
    
    
    
    3
    
    
    
    211


The following table reflects closed store liabilities as of September 27, 2003
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 3
    
    Qtr 3
    
    Qtr 32003
    
    2003
    
    2003Disc Op
    
    Closed
    
    TotalBalance at June 28, 2003
    
    $
    24.9
    
    
    $
    127.3
    
    
    $
    152.2Additions:Store closings  lease obligations
    
    
    0.0
    
    
    
    1.1
    
    
    
    1.1Store closing  other exit costs
    
    
    0.0
    
    
    
    0.1
    
    
    
    0.1Total additions
    
    
    0.0
    
    
    
    1.2
    
    
    
    1.2Adjustments:Adjustments to estimates-lease obligation
    
    
    (0.4
    )
    
    
    (0.6
    )
    
    
    (1.0
    )Adjustments to estimates-other exit costs
    
    
    0.4
    
    
    
    (0.1
    )
    
    
    0.3Total adjustments
    
    
    0.0
    
    
    
    (0.7
    )
    
    
    (0.7
    )Reductions:Lease payments made
    
    
    (0.8
    )
    
    
    (3.7
    )
    
    
    (4.5
    )Payments for other exit costs
    
    
    (0.2
    )
    
    
    (0.5
    )
    
    
    (0.7
    )Total reductions
    
    
    (1.0
    )
    
    
    (4.2
    )
    
    
    (5.2
    )Balance at September 27, 2003
    
    $
    23.9
    
    
    $
    123.6
    
    
    $
    147.5


The September 27, 2003 balance of approximately $147.5 million consisted of
lease liabilities and other exit cost liabilities of $118.7 million and $28.8
million, respectively. The September 27, 2003 balance also includes lease
liabilities of $20.8 million and other exit costs of $3.1 million associated
with the closure of 42 underperforming stores in the first quarter of 2003 and
one underperforming store in the second quarter of 2003 to discontinued
operations.

We 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 20 years. Adjustments
to closed store liabilities and other exit costs primarily relate to changes in
subtenants and actual exit costs 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 to income in the period that such settlement is determined. We use 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.

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 our revenues and operating results for the 13 and 39 weeks
periods. Future cash obligations for closed store liabilities are tied
principally to the remaining non-cancelable lease payments less sublease
payments to be received.

Asset Impairment Charge

During the quarter ended March 30, 2002, we adopted SFAS No. 142, Goodwill and
Other Intangible Assets, effective December 31, 2001. As a result, we no
longer amortize goodwill and intangible assets with indefinite lives. Under
SFAS No. 142 the Company is required to annually assess goodwill and other
intangible assets with indefinite lives by comparing the book value of these
assets to their current fair value. The Companys transitional impairment
analysis (required upon adoption of the standard) resulted in an impairment
charge totaling $288 million before tax ($284 million after tax) which was
recorded in the first quarter of 2002 as a change in accounting principle on
the Companys Condensed Consolidated Statement of Income (Loss).

16



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##### 



In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the
Company conducts an impairment assessment of Goodwill and Other Intangible
Assets with indefinite lives at least annually. This annual assessment will be conducted in the fourth quarter of each year
unless facts and circumstances require an assessment at an earlier date.

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, 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 cash flows. If impairment is
identified for retail stores, we compare the asset groups estimated fair
market 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.

Discontinued Operations

The Company closed 43 underperforming Food Lion and Kash n Karry stores
during the 39 weeks ending September 27, 2003, of which 42 were closed during
first quarter of 2003 and one was closed during second quarter of 2003. In
accordance with the provisions of SFAS No. 144, a portion of the costs
associated with these stores, as well as related operating activity prior to
closing for these stores, was recorded in discontinued operations in the
Companys Condensed Consolidated Statement of Income (Loss).

Operating activity prior to closing for the 43 discontinued stores is shown
below:

13 weeks ended
    
    13 weeks ended
    
    39 weeks ended
    
    39 weeks ended(Dollars in thousands)
    
    Sept 27, 2003
    
    Sept 28, 2002
    
    Sept 27, 2003
    
    Sept 28, 2002Net sales and other revenues
    
    $
    0
    
    
    $
    41,757
    
    
    $
    17,561
    
    
    $
    127,424Net
(loss)
    
    $
    (41
    )
    
    $
    (3,133
    )
    
    $
    (5,375
    )
    
    $
    (8,606
    )


During the first quarter of 2003 in accordance with SFAS No. 146, the Company
recorded an initial reserve of $27.5 million to discontinued operations ($17.7
million after taxes) for rent, real estate taxes and common area maintenance
expenses (other liabilities) and severance and outplacement costs (accrued
expenses). The Company recorded property retirement losses of $5.0 million,
which was offset by gains on capital lease retirements of $5.0 million.

During the second quarter of 2003, the Company recorded an initial reserve of
$0.3 million to discontinued operations ($0.2 million after taxes) for rent,
real estate taxes and common area maintenance expenses (other liabilities) and
for property retirement losses.

Additional discontinued operations expenses not reserved totaled $1.3 million
and $3.3 million after taxes for the 13 and 39 weeks ended September 27, 2003,
respectively.

The following table shows the reserve balances for discontinued operations as
of September 27, 2003:

(Dollars in thousands)
    
    Other liabilities
    
    Accrued expenses
    
    TotalReserve balance as of June 28, 2003
    
    $
    (24,933
    )
    
    $
    (765
    )
    
    $
    (25,698
    )Utilizations
    
    
    994
    
    
    
    
    
    
    
    994Reserve balance as of September 27, 2003
    
    $
    (23,939
    )
    
    $
    (765
    )
    
    $
    (24,704
    )


Streamlining

During the first quarter of 2003, Food Lion initiated additional cost saving
opportunities by streamlining and optimizing the functioning of its support and
management structure. As a result, the Company recorded a pre-tax charge of
$2.4 million, which was included in Selling and Administrative Expenses, and
represents related severance, benefits, and outplacement service costs. The
Company paid $2.0 million of the initial reserve during the first 39 weeks of
2003 and the outstanding $0.4 million is included in the Companys Condensed
Consolidated Balance Sheet in Accrued Expenses.

Effective Income Tax Rate

The provision for income taxes reflects managements best estimate of the
annual effective tax rate.
The Companys effective tax rate was 36.8% on Income from Continuing Operations
for the 39 weeks ended September 27, 2003 compared to 39.4% for last years
comparable period. The lower rate during 2003 is attributable to the relative effect of tax
savings initiatives as compared to the reduced level of Income from continuing operations before income
taxes  year to date this year versus last year.

Liquidity and Capital Resources

We have funded our operations and acquisitions for the 13 and 39 weeks ended
September 27, 2003 and September 28, 2002 from cash generated from our
operations and borrowings.

17



---



##### 



At September 27, 2003, we had cash and cash equivalents of $302.4 million
compared with $249.6 million last year. We have historically generated positive
cash flow from operations. Net cash provided by operating activities totaled $581.4 million for the 39 weeks ended September
27, 2003, compared with $767.1 million for the corresponding period last year.
The decrease in net cash provided by operating activities from the
corresponding period last year was primarily due to an increase in income taxes
paid, a decrease in accounts receivable collections from 2002, and a decrease
in accounts payable. The above decreases were offset by an increase in income
before the cumulative effect of changes in accounting principle and change in
accounting method and a decrease in inventory (excluding the impact of the
accounting change  Note 9) due primarily to the closing of 43 unprofitable
stores this year.

Cash flows used in investing activities decreased to $268.6 million for the 39
weeks ended September 27, 2003, compared with $323.3 million for the
corresponding period last year primarily due to a decrease in capital
expenditures which were $263.7 million for the 39 weeks ended September 27,
2003 compared with $333.4 million for the corresponding period in 2002. For the
39 weeks ended September 27, 2003, we have opened 18 new stores and completed
the renovation of 85 existing stores compared to 26 openings and 92 renovations
completed for the corresponding period of last year. The decrease in capital
expenditures is attributable to fewer store openings in 2003 partially as a
result of construction delays related to prolonged rain and related weather
conditions along the East coast of the United States during the spring of
2003, and as a result of the Companys management of capital spending to
support the generation of free cash flow and debt reduction.

In fiscal 2003, we plan to incur approximately $415 million of capital
expenditures, including the funding for the Harveys acquisition. We plan to
finance capital expenditures during fiscal 2003 through funds generated from
operations and existing bank facilities and through the use of leases when
appropriate.

Cash flows used in financing activities for the 39 weeks ended September 27,
2003 were $142.1 million compared to $331.5 million for the same period last
year. The decrease in cash used in financing activities was primarily the
result of short-term borrowings repaid in 2002 and a dividend payment last year
of $86.0 million, offset partially by the commitment of escrow funds for the senior notes
at Hannaford during the third quarter of 2003 (see discussion in Recent Events
below).

Debt

We maintain a revolving credit facility with a syndicate of commercial banks
providing $350.0 million in committed lines of credit. In December 2002, the
credit facility was amended and the line of credit was reduced from $500.0
million to $350.0 million. The credit facility is secured by certain inventory
of the Delhaize America 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 these
covenants in order to have access to the credit facility. As of September 27,
2003, 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 September 27, 2003 and have had no borrowings during
2003. There were no borrowings outstanding at September 28, 2002. This facility
is utilized to provide short-term capital to meet liquidity needs as necessary.

At September 27, 2003, the Company had longterm debt as follows:

(Dollars in thousands)Notes, 7.375%, due 2006
    
    $
    616,805
    (b)Notes, 7.55%, due 2007
    
    
    149,627
    (b)Notes, 8.125%, due 2011
    
    
    1,101,574
    (b)Notes, 8.05%, due 2027
    
    
    121,406
    (b)Debentures, 9.00%, due 2031
    
    
    855,000Medium-term notes, 8.67% to 8.73%, due 2006
    
    
    5,103
    (b)Other notes, 6.31% to 14.15%, due 2004 to 2016
    
    
    73,043
    (a), (b)Mortgage payables, 7.55% to 10.20%, due 2004 to 2016
    
    
    29,486
    (b)Other
    
    
    496$
    2,952,540




---

|(a) |  | See Note 16  Subsequent Events        
|--- |  | ---------------------------------------
|(b) |  | Net of associated discount and premium.

During the third quarter of 2002, the Company repurchased $10 million of its
$900 million in 9.00% debentures and $16.150 million of its 8.05% debt
securities resulting in a $1.8 million gain from the early extinguishment of
debt offset by $0.9 million in expenses for the write-off of the related
unamortized debt issuance costs and discount. Other income/loss from
extinguishment of debt included a net loss of $0.3 million for the write-off of
its related hedge.

On December 12, 2001, the Company was granted a term loan facility by Delhaize
The Lion Coordination Center S.A., a Belgian company wholly-owned by Delhaize
Group, in the amount of $38 million intended for general corporate and working
capital requirements. On September 19, 2002, the Company repaid the $38 million
loan plus accrued interest totaling $1.1 million.

We enter into significant leasing obligations related to our store properties.
Capital lease obligations outstanding at September 27, 2003 were $706.9 million
compared with $731.5 million at September 28, 2002. These leases generally have
original terms of up to 20 years.

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

18



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##### 



Informal Credit Arrangements

Sept 27, 2003
    
    Sept 28, 2002(Dollars in millions)Outstanding borrowings
at the end of the third quarter
    
    $
    
    
    
    $
    Average borrowings
    
    
    0.4
    
    
    
    2.4Maximum amount outstanding
    
    
    37.0
    
    
    
    80.0Daily weighted average interest rate
    
    
    2.81
    %
    
    
    2.84
    %


Market Risk

We are 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. We maintain certain variable-rate debt to take
advantage of lower relative interest rates currently available. We have not
entered into any of our financial instruments for trading purposes.

During the fourth quarter of 2001 and the third quarter of 2002, the
Company entered into interest rate swap agreements, effectively converting a
portion of the debt from fixed to variable rates. Maturity dates of the
Companys 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. The notional
principal amounts of interest rate swap arrangements at September 27, 2003 were
$300 million maturing in 2006 and $200 million maturing in 2011. These
agreements are accounted for as fair value hedges. For the 13 and 39 weeks
ended September 27, 2003, interest expense decreased by $3.9 and $12.2 million,
respectively, in connection with these agreements. For the 13 and 39 weeks
ended September 28, 2002, interest expense decreased by $3.2 and $7.8 million,
respectively, in connection with these agreements. These agreements met the
criteria for using the short-cut method, which assumes 100% hedge
effectiveness, as prescribed by SFAS No. 133. The Company has
recorded a derivative asset in connection with these agreements in the amount
of $25.8 million and $24.7 million at September 27, 2003 and September 28,
2002, respectively recorded in the Companys Condensed Consolidated Balance
Sheet in Other Assets.

Prior to the offering of the original debt securities discussed under the
heading Debt above, we entered into interest rate agreements to hedge against
potential increases in interest rates. The notional amount of these hedge
agreements was $1.75 billion. These agreements were structured to hedge against
the risk of increasing market interest rates based on U.S. treasury rates, with
the specified rates based on the expected maturities of the related securities.
These hedge agreements were settled in connection with the completion of the
offering of the original debt securities, resulting in a payment in the amount
of 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 other comprehensive loss, net of taxes and is being amortized
to interest expense over the term of the associated debt securities. 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 at the end of third quarter 2003 was approximately $45.7 million, net of
taxes.

The table set forth below provides the expected principal payments (net of
related discounts or premiums) and related interest rates of our long-term debt
by fiscal year of maturity as of December 28, 2002.

(Dollars in millions)
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    Thereafter
    
    Fair ValueNotes, due 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    600.0
    
    
    
    
    
    
    
    
    
    
    $
    582.1Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7.38
    %Notes, due 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,100.0
    
    
    $
    1,056.1Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8.13
    %Debentures, due 2031
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    855.0
    
    
    $
    769.6Average interest rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9.00
    %Medium term notes
    
    $
    10.7
    
    
    
    
    
    
    
    
    
    
    $
    5.1
    
    
    
    
    
    
    
    
    
    
    $
    15.7Average interest rate
    
    
    8.63
    %
    
    
    
    
    
    
    
    
    
    
    8.71
    %Debt securities (discount)
    
    $
    (0.3
    )
    
    $
    (0.3
    )
    
    $
    (0.3
    )
    
    $
    (0.3
    )
    
    $
    149.8
    
    
    $
    122.2
    
    
    $
    244.5Average interest rate
    
    
    7.88
    %
    
    
    7.88
    %
    
    
    7.88
    %
    
    
    7.88
    %
    
    
    7.55
    %
    
    
    8.05
    %Mortgage payables
    
    $
    6.2
    
    
    $
    5.4
    
    
    $
    3.1
    
    
    $
    3.4
    
    
    $
    3.4
    
    
    $
    12.1
    
    
    $
    33.5Average interest rate
    
    
    9.64
    %
    
    
    9.64
    %
    
    
    9.10
    %
    
    
    9.09
    %
    
    
    9.00
    %
    
    
    8.74
    %Other notes
    
    $
    9.8
    
    
    $
    7.9
    
    
    $
    11.3
    
    
    $
    11.4
    
    
    $
    11.7
    
    
    $
    29.6
    
    
    $
    82.4
    
    
    Note 2Average interest rate
    
    
    6.86
    %
    
    
    6.91
    %
    
    
    6.99
    %
    
    
    7.00
    %
    
    
    7.01
    %
    
    
    7.21
    %Other note payable
    
    $
    1.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1.9Average interest rate
    
    
    11.25
    %Interest rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    18.5
    
    
    
    
    
    
    $
    2.1
    
    
    $
    20.6
    
    
    Note 1


19



---



##### 



Note 1. The carrying value of the Companys debt was increased by $18.4 million at
September 27, 2003, to reflect the fair value of the interest rate swaps.

Note 2. See Note 16 
Subsequent Events.

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

The following table summarizes our contractual obligations and commitments as
of December 28, 2002:

(Dollars in millions)
    
    Total
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    ThereafterLong-term debt
    
    $
    2,979.4
    
    
    
    28.3
    
    
    
    13.0
    
    
    
    14.1
    
    
    
    638.1
    
    
    
    164.9
    
    
    
    2,121.0Capital lease obligations
    
    
    1,514.1
    
    
    
    117.9
    
    
    
    117.6
    
    
    
    116.2
    
    
    
    115.5
    
    
    
    114.4
    
    
    
    932.5Operating leases
    
    
    2,763.7
    
    
    
    237.2
    
    
    
    231.7
    
    
    
    226.5
    
    
    
    219.5
    
    
    
    210.2
    
    
    
    1,638.6


Recently Adopted Accounting Standards

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity, which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. Some of the provisions of
this Statement are consistent with the current definition of liabilities in
FASB Concepts Statement No. 6, Elements of Financial Statements. The statement is effective immediately for all
financial instruments entered into or modified after May 31, 2003. For all
other instruments, the Standard goes into effect at the beginning of the first
interim period beginning after June 15, 2003. This standard does not currently
have an impact on the Companys financial statements.

In May 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which amends and clarifies
financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under FASB Statement No.
133, Accounting for Derivative Instruments and Hedging Activities. This
statement is effective for contracts entered into or modified after June 30,
2003. This standard does not currently have an impact on the Companys
financial statements.

In December 2002, SFAS No. 148, Accounting for Stock-Based Compensation -
Transition and Disclosure, was issued and amends SFAS No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for
voluntary change to the fair value based method of accounting for stock based
employee compensation. In addition, this Statement amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reporting results.
Certain new disclosure provisions of SFAS No. 148 are required for fiscal years
ending after December 15, 2002. See Note 5 to the Companys Condensed
Consolidated Financial Statements for related disclosures for the third quarter
of fiscal 2003.

In November 2002, the Financial Standards Board (FASB) issued FASB
Interpretation No. 45 (FIN 45), Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, which is an interpretation of FASB Statements No. 5, 57, and 107 and
rescission of FASB Interpretation No. 34. FIN 45 elaborates on the disclosures
to be made by a guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002. The adoption of
this standard did not have an impact on the Companys financial statements.

In September 2002, Emerging Issues Task Force (EITF) Issue No. 02-16,
Accounting by a Reseller for Cash Consideration Received, was proposed and a
consensus was reached in January 2003. The issue was revised and finalized in
March 2003. This issue addresses the appropriate accounting, by a retailer, for
cash consideration received from a vendor and directs that cash consideration
received from a vendor should be presumed to be a reduction of inventory unless
it is a reimbursement of specific costs incurred in advertising the vendors
products. Previously, the Company recorded allowances as a reduction of cost of
sales when earned. This change will have a timing impact on certain allowances
that will now be an adjustment to inventory cost and recognized in cost of
sales when the product is sold.

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Upon adoption of EITF Issue No. 02-16 in 2003, the Company 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 in the
Companys Condensed Consolidated Statement of Income (Loss) and reflects an
adjustment of the Companys opening inventory balance. As a result of the
adoption of this issue, certain allowances will be recorded as a reduction of
inventory as appropriate.

In June 2002, SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities, was issued by the FASB. SFAS No. 146 addresses
significant issues relating to the recognition, measurement and reporting of
costs associated with exit and disposal activities (including store closings).
SFAS No. 146 replaces previous accounting guidance, principally EITF Issue No.
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). Issue No. 94-3 required that a liability for an exit cost be
recognized when the company committed to a specific plan; whereas, SFAS No. 146
requires that the liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. SFAS No. 146 is
effective for exit or disposal activities initiated after December 31, 2002.
See Note 10 to the Companys Condensed Consolidated Financial Statements for
related disclosures for the third quarter of fiscal 2003.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs, and applies to the legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or normal operation of a long-lived
asset, except for certain obligations of lessees. SFAS No. 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
The adoption of this standard did not have a significant effect on the
Companys financial statements.

Debt Guarantees

As mentioned above, Delhaize America is a holding company having three
subsidiary operating companies that do business primarily under the banners
Food Lion, Hannaford and Kash n Karry. The wholly owned direct subsidiaries
named below have fully and unconditionally and jointly and severally guaranteed
the debt of Delhaize America.

Food Lion, LLC is a North Carolina limited liability company that operates all
of the Companys Food Lion stores. Food Lions executive offices are located at
2110 Executive Drive, Salisbury, North Carolina 28147.

Hannaford Bros. Co. is a Maine corporation that operates all of the Companys
Hannaford 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s executive offices are located
at 6422 Harney Road, Tampa, Florida 33610.

Recently Issued Accounting
Standards Not Yet Adopted

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, which is an interpretation of
Accounting Research Bulletin (ARB) No. 51. Fin 46 addresses consolidation by
business enterprises of variable interest entities. The objective of this
Interpretation is not to restrict the use of variable interest entities but to
improve financial reporting by enterprises involved with variable interest
entities. The FASB believes that if a business enterprise has a controlling
financial interest in a variable interest entity, the assets, liabilities, and
results of the activities of the variable interest entity should be included in
consolidated statements with those of the business enterprise. FIN 46 applies
to all newly created variable interest entities. In addition, FIN 46, as amended, will
become effective for variable interest entities created before February 1,
2003, and reported in financial statements issued for interim periods ending
after December 15, 2003. The Company is currently assessing the potential
effect of FIN 46 on its financial statements.

Recent Events

On October 27, 2003, the Company completed its previously announced acquisition
of 43 Harveys supermarkets, located in central and south Georgia and the
Tallahassee, Florida, area. The acquisition includes the Harveys corporate
headquarters and warehouse in Nashville, Georgia. The majority of the Harveys
stores are between 18,000 and 35,000 square feet. Seven Harveys stores have a
pharmacy. To acquire the Harveys stores, the Company paid $29.4 million in cash
and assumed $14.6 million in accounts payable and other short-term liabilities
associated with the operation of Harveys. The Company also purchased $2 million in additional inventory from
the seller in connection with the sellers exercise of an inventory put option agreement. The acquisition fills in an area
where Food Lion, the largest U.S. banner of the Company, has a limited
presence. Harveys is now the fourth U.S. banner of the Company, joining Food
Lion, Hannaford and Kash n Karry. The Company will include the results of
operations of Harveys prospectively from October 26, 2003.

In October 2003, Hannaford Bros. Co. (Hannaford), a wholly-owned subsidiary
of the Company, 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 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 September
27, 2003, $75.0 million in aggregate principal amount of these notes was
outstanding. Cash committed to fund the escrow and not available for general corporate purposes has been considered
restricted. At September 27, 2003, restricted funds of $10.5 million and $76.1 million
are recorded in Current Other Assets and Non-current Other Assets, respectively.

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Other

All statements in this report, other than statements of historical facts, which
address activities, events or developments that the Company expects or
anticipates will or may occur in the future, including such things as expansion
and growth of the Companys business, future capital expenditures and the
Companys business strategy, are forward-looking statements within the
meaning of the Securities Litigation Reform Act. In reviewing such information,
it should be kept in mind that actual results may differ materially from those
projected or suggested in such forward-looking statements. This forward-looking
information is based on various factors and was derived utilizing numerous
assumptions. Many of these factors have previously been identified in filings
or statements made by or on behalf of the Company, including filings with the
Securities and Exchange Commission of Forms 10-Q, 10-K and 8-K.

Important assumptions and other important factors that could cause actual
results to differ materially from those set forth in the forward-looking
statements include: changes in the general economy or in the Companys primary
markets, changes in consumer spending, competitive factors, the nature and
extent of continued consolidation in the industry, changes in the rate of
inflation and interest costs on borrowed funds, changes in state or federal
legislation or regulation, changes in the availability and cost of labor,
adverse determinations with respect to litigation or other claims, inability to
develop new stores or complete remodels as rapidly as planned,
the ability to integrate any companies we acquire and achieve operating improvements at those companies,
the cost and stability of power sources, the ability to implement new technology successfully, the
susceptibility of the Company to natural disasters and other catastrophic events,
and stability of product costs 
supply or quality control problems with the Companys vendors detailed from
time-to-time in the Companys filings with the Securities and Exchange
Commission.

The Company does not undertake to update forward-looking information contained
herein or elsewhere to reflect actual results, changes in assumptions or
changes in other factors affecting such forward-looking information.

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 cover 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
    
    Description31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Accounting Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 200232
    
    Certifications of Chief Executive Officer and Chief Accounting Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


(b). Reports on Form 8-K

None.

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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:  November 12, 2003
    
    BY:
    
    /s/ Carol M. HerndonCarol M. Herndon
Executive Vice President of
Accounting and Analysis and
Chief Accounting Officer


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Exhibit Index

Exhibit
    
    Description31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Accounting Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 200232
    
    Certifications of Chief Executive Officer and Chief Accounting Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


24