##### 



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 June 28, 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

---

(Address of principal executive office)                 (Zip Code)


(704) 633-8250

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(Registrants telephone number, including area code)


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 August 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
June 28, 2003

|                                   |         |                                                                                                           |    |      |       | 
|---------------------------------- | ------- | --------------------------------------------------------------------------------------------------------- | -- | ---- | ----- | 
|                                   |         |                                                                                                           |    | Page
|                                   |         |                                                                                                           |    |     
|PART I.      FINANCIAL INFORMATION |         |                                                                                                           |    |     
|                                   | Item 1. | Financial Statements (Unaudited)                                                                          |    |      |       | 
|                                   |         | Condensed Consolidated Statements of Income
for the 13 weeks ended June 28, 2003 and June 29, 2002        |    |      | 3     | 
|                                   |         | Condensed Consolidated Statements of Income (Loss)
for the 26 weeks ended June 28, 2003 and June 29, 2002 |    |      | 4     | 
|                                   |         | Condensed Consolidated Balance Sheets as of
June 28, 2003 and December 28, 2002 (Audited)                 |    |      | 5     | 
|                                   |         | Condensed Consolidated Statements of Cash Flows
for the 26 weeks ended June 28, 2003 and June 29, 2002    |    |      | 6     | 
|                                   |         | Notes to Condensed Consolidated Financial Statements                                                      |    |      | 7-12  | 
|                                   | Item 2. | Managements Discussion and Analysis of
Financial Condition and Results of Operations                     |    |      | 12-21 | 
|                                   | Item 3. | Quantitative and Qualitative Disclosures About Market Risk                                                |    |      | 21    | 
|                                   | Item 4. | Controls and Procedures                                                                                   |    |      | 21    | 
|PART II.      OTHER INFORMATION    |         |                                                                                                           |    |     
|                                   | Item 6. | Exhibits and Reports on Form 8-K                                                                          |    |      | 21    | 
|Signature                          |         |                                                                                                           | 22 |     
|Exhibit Index                      |         |                                                                                                           | 23 |     

2



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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 June 28, 2003 and June 29, 2002
(Dollars in thousands)

|                                                            |  |               |           |               |  |   |           | 
|----------------------------------------------------------- |  | ------------- | --------- | ------------- |  | - | --------- | 
|                                                            |  | 13 Weeks      |           | 13 Weeks     
|                                                            |  | Ended         |           | Ended        
|                                                            |  | June 28, 2003 |           | June 29, 2002
|                                                            |  |               |           |              
|Net sales and other revenues                                |  | $             | 3,794,776 |               |  | $ | 3,711,619 | 
|Cost of goods sold (Note 9)                                 |  |               | 2,850,091 |               |  |   | 2,769,314 | 
|Selling and administrative expenses                         |  |               | 765,336   |               |  |   | 756,062   | 
|                                                            |  |               |           |               |  |   |           | 
|Operating income                                            |  |               | 179,349   |               |  |   | 186,243   | 
|Interest expense                                            |  |               | 79,086    |               |  |   | 82,061    | 
|                                                            |  |               |           |               |  |   |           | 
|Income from continuing operations
before income taxes       |  |               | 100,263   |               |  |   | 104,182   | 
|Provision for income taxes                                  |  |               | 36,846    |               |  |   | 40,271    | 
|                                                            |  |               |           |               |  |   |           | 
|Income before loss from discontinued operations,
net of tax |  |               | 63,417    |               |  |   | 63,911    | 
|Loss from discontinued operations, net of tax               |  |               | 2,789     |               |  |   | 3,084     | 
|                                                            |  |               |           |               |  |   |           | 
|Net income                                                  |  | $             | 60,628    |               |  | $ | 60,827    | 
|                                                            |  |               |           |               |  |   |           | 

See notes to the unaudited condensed consolidated financial statements.

3



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##### 



DELHAIZE AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
For the 26 weeks ended June 28, 2003 and June 29, 2002
(Dollars in thousands)

|                                                                   |  |               |           |               |  |   |           |  
|------------------------------------------------------------------ |  | ------------- | --------- | ------------- |  | - | --------- | -
|                                                                   |  | 26 Weeks      |           | 26 Weeks     
|                                                                   |  | Ended         |           | Ended        
|                                                                   |  | June 28, 2003 |           | June 29, 2002
|                                                                   |  |               |           |              
|Net sales and other revenues                                       |  | $             | 7,474,897 |               |  | $ | 7,416,422 |  
|Cost of goods sold (Note 9)                                        |  |               | 5,640,212 |               |  |   | 5,516,106 |  
|Selling and administrative expenses                                |  |               | 1,518,081 |               |  |   | 1,524,094 |  
|                                                                   |  |               |           |               |  |   |           |  
|Operating income                                                   |  |               | 316,604   |               |  |   | 376,222   |  
|Interest expense                                                   |  |               | 158,773   |               |  |   | 169,387   |  
|                                                                   |  |               |           |               |  |   |           |  
|Income from continuing operations
before income taxes              |  |               | 157,831   |               |  |   | 206,835   |  
|Provision for income taxes                                         |  |               | 57,530    |               |  |   | 81,308    |  
|                                                                   |  |               |           |               |  |   |           |  
|Income before loss from discontinued operations,
net of tax        |  |               | 100,301   |               |  |   | 125,527   |  
|Loss from discontinued operations, net of tax                      |  |               | 25,165    |               |  |   | 5,473     |  
|                                                                   |  |               |           |               |  |   |           |  
|Income before cumulative effect
of changes in accounting principle |  |               | 75,136    |               |  |   | 120,054   |  
|Cumulative effect of changes in accounting
principle, net of tax   |  |               | 10,946    |               |  |   | 284,097   |  
|                                                                   |  |               |           |               |  |   |           |  
|Net income (loss)                                                  |  | $             | 64,190    |               |  | $ | (164,043  | )
|                                                                   |  |               |           |               |  |   |           |  

See notes to the unaudited condensed consolidated financial statements.

4



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##### 



DELHAIZE AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

|                                                         |                                     |                                            |           |               |           |                   |           |           |           | 
|-------------------------------------------------------- | ----------------------------------- | ------------------------------------------ | --------- | ------------- | --------- | ----------------- | --------- | --------- | --------- | 
|                                                         |                                     |                                            |           | June 28, 2003 |           | December 28, 2002
|                                                         |                                     |                                            |           |               |           |                  
|                                                         |                                     |                                            |           | (Unaudited)   |           | (Audited)        
|ASSETS                                                   |                                     |                                            |           |               |           |                   |           |          
|Current assets:                                          |                                     |                                            |           |               |           |                   |           |          
|                                                         | Cash and cash equivalents           |                                            | $         | 310,061       |           |                   | $         | 131,641   |          
|                                                         | Receivables,net                     |                                            |           | 131,531       |           |                   |           | 142,371   |          
|                                                         | Receivable from affiliate           |                                            |           | 13,513        |           |                   |           | 14,483    |          
|                                                         | Income tax receivable               |                                            |           |              |           |                   |           | 6,036     |          
|                                                         | Inventories                         |                                            |           | 1,201,390     |           |                   |           | 1,340,847 |          
|                                                         | Prepaid expenses                    |                                            |           | 74,414        |           |                   |           | 30,622    |          
|                                                         | Deferred tax assets                 |                                            |           | 66,200        |           |                   |           | 18,976    |          
|                                                         |                                     |                                            |           |               |           |                   |           |           |          
|                                                         |                                     | Total current assets                       |           |               | 1,797,109 |                   |           |           | 1,684,976 | 
|Property and equipment, net                              |                                     |                                            | 2,957,644 |               |           |                   | 3,041,465 |          
|Goodwill, net                                            |                                     |                                            | 2,907,305 |               |           |                   | 2,907,305 |          
|Other intangibles, net                                   |                                     |                                            | 782,614   |               |           |                   | 792,689   |          
|Reinsurance recoverable from affiliate                   |                                     |                                            | 125,525   |               |           |                   | 119,827   |          
|Other assets                                             |                                     |                                            | 96,264    |               |           |                   | 88,554    |          
|                                                         |                                     |                                            |           |               |           |                   |           |           |          
|                                                         |                                     | Total assets                               |           | $             | 8,666,461 |                   |           | $         | 8,634,816 | 
|                                                         |                                     |                                            |           |               |           |                   |           |           |          
|LIABILITIES AND SHAREHOLDERS EQUITY                     |                                     |                                            |           |               |           |                   |           |          
|Current liabilities:                                     |                                     |                                            |           |               |           |                   |           |          
|                                                         | Accounts payable                    |                                            | $         | 729,778       |           |                   | $         | 762,179   |          
|                                                         | Dividend payable                    |                                            |           |              |           |                   |           | 114,636   |          
|                                                         | Payable to affiliate                |                                            |           |              |           |                   |           | 8,959     |          
|                                                         | Accrued expenses                    |                                            |           | 342,857       |           |                   |           | 314,851   |          
|                                                         | Capital
lease obligations - current |                                            |           | 33,852        |           |                   |           | 32,652    |          
|                                                         | Long term debt - current            |                                            |           | 25,223        |           |                   |           | 28,294    |          
|                                                         | Other liabilities - current         |                                            |           | 51,828        |           |                   |           | 49,372    |          
|                                                         | Income taxes payable                |                                            |           | 16,715        |           |                   |           |          |          
|                                                         |                                     |                                            |           |               |           |                   |           |           |          
|                                                         |                                     | Total current liabilities                  |           |               | 1,200,253 |                   |           |           | 1,310,943 | 
|Long-term debt                                           |                                     |                                            | 2,950,738 |               |           |                   | 2,951,072 |          
|Capital lease obligations                                |                                     |                                            | 676,613   |               |           |                   | 698,283   |          
|Deferred income taxes                                    |                                     |                                            | 334,290   |               |           |                   | 357,314   |          
|Other liabilities                                        |                                     |                                            | 281,306   |               |           |                   | 273,502   |          
|                                                         |                                     |                                            |           |               |           |                   |           |           |          
|                                                         |                                     | Total liabilities                          |           |               | 5,443,200 |                   |           |           | 5,591,114 | 
|                                                         |                                     |                                            |           |               |           |                   |           |           |          
|Commitments and contingencies (Note 15)                  |                                     |                                            |           |               |           |                   |           |          
|Shareholders equity:                                    |                                     |                                            |           |               |           |                   |           |          
|Class A non-voting common stock                          |                                     |                                            | 163,076   |               |           |                   | 53,222    |          
|Class B voting common stock                              |                                     |                                            | 37,736    |               |           |                   | 37,645    |          
|Accumulated other comprehensive loss, net of tax         |                                     |                                            | (67,861   | )             |           |                   | (71,130   | )        
|Additional paid-in capital, net
of unearned compensation |                                     |                                            | 2,470,416 |               |           |                   | 2,467,397 |          
|Retained earnings                                        |                                     |                                            | 619,894   |               |           |                   | 556,568   |          
|                                                         |                                     |                                            |           |               |           |                   |           |           |          
|                                                         |                                     | Total shareholders equity                 |           |               | 3,223,261 |                   |           |           | 3,043,702 | 
|                                                         |                                     |                                            |           |               |           |                   |           |           |          
|                                                         |                                     | Total liabilities and
shareholders equity |           | $             | 8,666,461 |                   |           | $         | 8,634,816 | 
|                                                         |                                     |                                            |           |               |           |                   |           |           |          

See notes to unaudited condensed consolidated financial statements.

5



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DELHAIZE AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the 26 weeks ended June 28, 2003 and June 29, 2002
(Dollars in thousands)

|                                                                                        |                                                                  |                                       |         |               |         |               |          |          |          |  
|--------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ------------------------------------- | ------- | ------------- | ------- | ------------- | -------- | -------- | -------- | -
|                                                                                        |                                                                  |                                       |         | 26 Weeks      |         | 26 Weeks     
|                                                                                        |                                                                  |                                       |         | June 28, 2003 |         | June 29, 2002
|                                                                                        |                                                                  |                                       |         |               |         |              
|CASH FLOWS FROM OPERATING ACTIVITIES                                                    |                                                                  |                                       |         |               |         |               |          |         
|Net income (loss)                                                                       |                                                                  | $                                     | 64,190  |               |         | $             | (164,043 | )       
|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        |         |               |          | 284,097  |         
|                                                                                        | Change
in accounting method (Note 9)                             |                                       |         | 87,308        |         |               |          |         |         
|                                                                                        | Discontinued operations                                          |                                       |         | 27,844        |         |               |          |         |         
|                                                                                        | Streamline charges                                               |                                       |         | 2,346         |         |               |          |         |         
|                                                                                        | Depreciation and amortization                                    |                                       |         | 223,105       |         |               |          | 226,573  |         
|                                                                                        | Depreciation
and amortization - discontinued operations          |                                       |         | 478           |         |               |          | 3,022    |         
|                                                                                        | Amortization of debt fees/costs                                  |                                       |         | 977           |         |               |          | 1,006    |         
|                                                                                        | Amortization of debt premium/(discount)                          |                                       |         | 483           |         |               |          | 583      |         
|                                                                                        | Amortization of deferred loss on derivative                      |                                       |         | 4,145         |         |               |          | 4,255    |         
|                                                                                        | Amortization and termination of restricted shares                |                                       |         | 2,556         |         |               |          | 5,088    |         
|                                                                                        | Accrued interest on interest rate swap                           |                                       |         | (26           | )       |               |          | (1,604   | )       
|                                                                                        | Loss on disposals of property and
capital lease terminations     |                                       |         | 1,991         |         |               |          | 867      |         
|                                                                                        | Deferred income taxes (benefit) provision                        |                                       |         | (71,824       | )       |               |          | 3,734    |         
|                                                                                        | Other                                                            |                                       |         | 699           |         |               |          | (337     | )       
|Changes in operating assets and liabilities which provided (used) cash:                 |                                                                  |                                       |         |               |         |               |          |         
|                                                                                        | Receivables                                                      |                                       |         | 10,840        |         |               |          | 66,627   |         
|                                                                                        | Net receivable from affiliate                                    |                                       |         | (7,989        | )       |               |          | 11,154   |         
|                                                                                        | Income tax receivable                                            |                                       |         | 6,036         |         |               |          | 8,429    |         
|                                                                                        | Inventories                                                      |                                       |         | 31,899        |         |               |          | (30,616  | )       
|                                                                                        | Prepaid expenses                                                 |                                       |         | (43,792       | )       |               |          | (27,151  | )       
|                                                                                        | Other assets                                                     |                                       |         | 3,749         |         |               |          | 1,256    |         
|                                                                                        | Accounts payable                                                 |                                       |         | (29,276       | )       |               |          | 89,122   |         
|                                                                                        | Accrued expenses                                                 |                                       |         | 24,491        |         |               |          | 45,179   |         
|                                                                                        | Income taxes payable                                             |                                       |         | 22,893        |         |               |          | 23,673   |         
|                                                                                        | Other liabilities                                                |                                       |         | (21,520       | )       |               |          | (17,199  | )       
|                                                                                        |                                                                  |                                       |         |               |         |               |          |         
|                                                                                        | Total adjustments                                                |                                       |         | 288,359       |         |               |          | 697,758  |         
|                                                                                        |                                                                  |                                       |         |               |         |               |          |         
|                                                                                        | Net cash provided by operating activities                        |                                       |         | 352,549       |         |               |          | 533,715  |         
|                                                                                        |                                                                  |                                       |         |               |         |               |          |         
|CASH FLOWS FROM INVESTING ACTIVITIES                                                    |                                                                  |                                       |         |               |         |               |          |         
|                                                                                        | Capital expenditures                                             |                                       |         | (141,911      | )       |               |          | (202,916 | )       
|                                                                                        | Proceeds from sale of property                                   |                                       |         | 4,771         |         |               |          | 7,769    |         
|                                                                                        | Other investment activity                                        |                                       |         | (2,885        | )       |               |          | (1,918   | )       
|                                                                                        |                                                                  |                                       |         |               |         |               |          |         
|                                                                                        | Net cash used in investing activities                            |                                       |         | (140,025      | )       |               |          | (197,065 | )       
|                                                                                        |                                                                  |                                       |         |               |         |               |          |         
|CASH FLOWS FROM FINANCING ACTIVITIES                                                    |                                                                  |                                       |         |               |         |               |          |         
|                                                                                        | Net payments under short-term borrowings                         |                                       |         |              |         |               |          | (140,000 | )       
|                                                                                        | Principal payments on long-term debt                             |                                       |         | (13,413       | )       |               |          | (11,740  | )       
|                                                                                        | Principal payments under capital lease obligations               |                                       |         | (15,598       | )       |               |          | (14,623  | )       
|                                                                                        | Taxes paid on capital contribution                               |                                       |         | (4,692        | )       |               |          |         |         
|                                                                                        | Parent common stock repurchased                                  |                                       |         | (649          | )       |               |          | (9,601   | )       
|                                                                                        | Proceeds from stock options exercised                            |                                       |         | 248           |         |               |          | 3,961    |         
|                                                                                        |                                                                  |                                       |         |               |         |               |          |         
|                                                                                        |                                                                  | Net cash used in financing activities |         |               | (34,104 | )             |          |          | (172,003 | )
|                                                                                        |                                                                  |                                       |         |               |         |               |          |         
|Net increase in cash and cash
equivalents                                               |                                                                  |                                       | 178,420 |               |         |               | 164,647  |         
|Cash and cash equivalents at beginning
of year                                          |                                                                  |                                       | 131,641 |               |         |               | 137,206  |         
|                                                                                        |                                                                  |                                       |         |               |         |               |          |         
|Cash and cash equivalents at end of period                                              |                                                                  | $                                     | 310,061 |               |         | $             | 301,853  |         
|                                                                                        |                                                                  |                                       |         |               |         |               |          |         

See notes to unaudited condensed consolidated financial statements.

6



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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 and, except for the change in the
method of store inventory accounting discussed below, 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 under performing 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:

|                                                                                                                                        |                           |               |          |               |          |   |         |        | 
|--------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------- | -------- | ------------- | -------- | - | ------- | ------ | 
|                                                                                                                                        |                           |               | 26 Weeks |               | 26 Weeks
|                                                                                                                                        |                           |               | Ended    |               | Ended   
|(Dollars in thousands)                                                                                                                  |                           | June 28, 2003 |          | June 29, 2002
|                                                                                                                                        |                           |               |          |              
|Cash payments for income taxes                                                                                                          |                           | $             | 86,128   |               |          | $ | 42,223  |       
|Cash payments for interest, net of amounts
capitalized                                                                                  |                           |               | 152,406  |               |          |   | 167,355 |       
|Non-cash investing and financing activities:                                                                                            |                           |               |          |               |          |   |         |       
|Capitalized lease obligations incurred for store
properties and equipment                                                               |                           |               | 15,437   |               |          |   | 20,795  |       
|Capitalized lease obligations terminated for store
properties and equipment                                                             |                           |               | 843      |               |          |   |        |       
|Dividend to Delhaize Group and Detla in stock                                                                                           |                           |               | 109,944  |               |          |   |        |       
|Change in reinsurance recoverable and other liabilities                                                                                 |                           |               | 5,698    |               |          |   | 1,312   |       
|Other                                                                                                                                   |                           |               | 471      |               |          |   |        |       
|Investment in WWRE                                                                                                                      |                           |               |         |               |          |   | 3,000   |       
|Delhaize Group Share Exchange  final adjustment to
purchase price allocation:                                                          |                           |               |          |               |          |   |         |       
|                                                                                                                                        | Property                  |               |          |              |          |   |         | 44,433 | 
|                                                                                                                                        | Deferred income taxes     |               |          |              |          |   |         | 43,752 | 
|                                                                                                                                        | Capital lease obligations |               |          |              |          |   |         | 4,475  | 
|                                                                                                                                        | Accrued expenses          |               |          |              |          |   |         | 5,156  | 
|Reclassification 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 June 28, 2003 and 79% of inventories on June 29 2002. Meat, produce and deli
inventories are valued on the average cost method. If the average cost method
was used entirely, inventories would have been $32.7 million and $66.8 million
greater as of June 28, 2003 and June 29, 2002, respectively. Application of the
LIFO method resulted in increases in cost of goods sold of $0.7 million and
$2.0 million for the 26 weeks ended June 28, 2003 and June 29, 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 has a stock option plan 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
Company accounts for this 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 this 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.

7



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##### 



|                                                                                                              |  |                |        |                |  |                |        |                |  |   |        |  |  |   |          |  
|------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | -------------- |  | -------------- | ------ | -------------- |  | - | ------ |  |  | - | -------- | -
|                                                                                                              |  | 13 weeks ended |        | 13 weeks ended |  | 26 weeks ended |        | 26 weeks ended
|                                                                                                              |  | June 28, 2003  |        | June 29, 2002  |  | June 28, 2003  |        | June 29, 2002 
|                                                                                                              |  |                |        |                |  |                |        |               
|Net earnings (loss)  as reported                                                                             |  | $              | 60,628 |                |  | $              | 60,827 |                |  | $ | 64,190 |  |  | $ | (164,043 | )
|Deduct: Total stock-based
employee compensation expense
determined using fair value
based method (net of tax) |  |                | 2,781  |                |  |                | 2,227  |                |  |   | 5,252  |  |  |   | 4,001    |  
|                                                                                                              |  |                |        |                |  |                |        |                |  |   |        |  |  |   |          |  
|Net earnings (loss)  pro forma                                                                               |  | $              | 57,847 |                |  | $              | 58,600 |                |  | $ | 58,938 |  |  | $ | (168,044 | )

The weighted average fair value at date of grant for options granted during the
second quarter of 2003 and 2002 was $8.45 and $16.35 per option, respectively.
The weighted average fair value at date of grant for options granted for the 26
weeks ended June 28, 2003 and June 29, 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:

|                            |  |               |      |               |  |  |      | 
|--------------------------- |  | ------------- | ---- | ------------- |  |  | ---- | 
|                            |  | June 28, 2003 |      | June 29, 2002
|                            |  |               |      |              
|Expected
dividend yield (%) |  |               | 3.6  |               |  |  | 2.6  | 
|Expected volatility (%)     |  |               | 42.3 |               |  |  | 38.8 | 
|Risk-free
interest rate (%) |  |               | 2.4  |               |  |  | 4.6  | 
|Expected 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 $2.6 million, net of tax of the other comprehensive loss
associated with these hedge agreements to interest expense during both the 26
weeks ended June 28, 2003 and June 29, 2002. 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 June 28, 2003, and
June 29, 2002, totaled approximately $47.0 million and $53.2 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 June 28, 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 26 weeks ended June 28,
2003, interest expense decreased by $4.1 and $8.3 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 fair value of the Companys debt has been increased by $30.1
million at June 28, 2003 with these agreements. The Company has also recorded a
derivative asset in connection with these agreements in the amount of $33.6
million 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 chain 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.

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

8



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##### 



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
has experienced the impact of security concerns and economic pressures, which
continue to negatively impact temporary residence and tourism in the state. 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 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 $67.5 and $(161.7) million for the 26 weeks
ended June 28, 2003 and June 29, 2002, respectively.

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 26 weeks ended June 28, 2003. In comparison with
2002 and excluding the $87.3 million change, 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
and a $14.0 million increase in cost of sales in the second 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 Ended |           |                |  |  
|                                                                   |  | March 29, 2003 |           | 13 weeks Ended
|                                                                   |  | As Previously  |           | March 29, 2003
|(Dollars in thousands)                                             |  | Reported       |           | As Restated   
|Net 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   |                |  |   | 137,254   |  
|Interest expense                                                   |  |                | 79,686    |                |  |   | 79,686    |  
|                                                                   |  |                |           |                |  |   |           |  
|Income from continuing operations before income taxes              |  |                | 135,360   |                |  |   | 57,568    |  
|Provision for income taxes                                         |  |                | 50,075    |                |  |   | 20,684    |  
|                                                                   |  |                |           |                |  |   |           |  
|Income before loss from discontinued operations, net of tax        |  |                | 85,285    |                |  |   | 36,884    |  
|Loss from discontinued operations, net of tax                      |  |                | 22,246    |                |  |   | 22,376    | *
|                                                                   |  |                |           |                |  |   |           |  
|Income before cumulative effect of changes in accounting
principle |  |                | 63,039    |                |  |   | 14,508    |  
|Cumulative effect of changes in accounting principle, net of tax   |  |                | 10,946    |                |  |   | 10,946    |  
|                                                                   |  |                |           |                |  |   |           |  
|Net income                                                         |  | $              | 52,093    |                |  | $ | 3,562     |  
|                                                                   |  |                |           |                |  |   |           |  

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

In addition, the Company adopted 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 under performing Food Lion and Kash n Karry stores
during the 26 weeks ending June 28, 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).

9



---



##### 



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

|                             |  |                |       |                |  |                |        |                |  |   |        |  |  |   |        | 
|---------------------------- |  | -------------- | ----- | -------------- |  | -------------- | ------ | -------------- |  | - | ------ |  |  | - | ------ | 
|                             |  | 13 weeks ended |       | 13 weeks ended |  | 26 weeks ended |        | 26 weeks ended
|(Dollars in thousands)       |  | June 28, 2003  |       | June 29, 2002  |  | June 28, 2003  |        | June 29, 2002 
|Net sales and other revenues |  | $              | 42    |                |  | $              | 42,170 |                |  | $ | 17,561 |  |  | $ | 85,667 | 
|Net loss                     |  | $              | 1,395 |                |  | $              | 3,084  |                |  | $ | 5,334  |  |  | $ | 5,473  | 

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 (asset impairment) 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 (asset impairment).

Additional discontinued operations expenses not reserved totaled $1.2 million
and $2.0 million after taxes for the 13 and 26 weeks ended June 28, 2003,
respectively.

The following table shows the reserve balances for discontinued operations as
of June 28, 2003:

|                                     |  |                   |         |                  |  |       |      |   |  |   |         |  
|------------------------------------ |  | ----------------- | ------- | ---------------- |  | ----- | ---- | - |  | - | ------- | -
|(Dollars in thousands)               |  | Other liabilities |         | Accrued expenses |  | Total
|Reserve balance as of March 29, 2003 |  | $                 | (25,372 | )                |  | $     | (804 | ) |  | $ | (26,176 | )
|Additions                            |  |                   | (157    | )                |  |       |     |   |  |   | (157    | )
|Utilizations                         |  |                   | 596     |                  |  |       | 39   |   |  |   | 635     |  
|                                     |  |                   |         |                  |  |       |      |   |  |   |         |  
|Reserve balance as of June 28, 2003  |  | $                 | (24,933 | )                |  | $     | (765 | ) |  | $ | (25,698 | )
|                                     |  |                   |         |                  |  |       |      |   |  |   |         |  

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 26 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 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 second
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



---



##### 



$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 second quarter of fiscal 2003.

In June 2001, the FASB also 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 28145-1330.

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.

14) Recently Issued Accounting Standards Not Yet Adopted

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 remaining
provisions of this Statement are consistent with the Boards proposal to revise
that definition to encompass certain obligations that a reporting entity can or
must settle by issuing its own equity shares, depending on the nature of the
relationship established between the holder and the issuer. While the Board
still plans to revise that definition through an amendment to Concepts
Statement 6, the Board decided to defer issuing that amendment until it has
concluded its deliberations on the next phase of the project. That next phase
will deal with certain compound financial instruments including puttable
shares, convertible bonds, and dual-indexed financial instruments. This
statement concludes the first phase of the Boards redeliberations of the
Exposure Draft, Accounting for Financial Instruments with Characteristics of
Liabilities, Equity, or Both. This standard does not currently have an impact
on the Companys financial statements.

11



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##### 



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
standard does not currently have an impact on the Companys 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.

Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations (13 and 26 weeks ended June 28, 2003 compared to the 13 and 26
weeks ended June 29, 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.

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.

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 26 weeks ended June 28, 2003 and for the 13 and
26 weeks ended June 29, 2002 for informational purposes. The 2002 results have
been adjusted to classify the results of operations for the 43 stores closed
during the 26 weeks ended June 28, 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).

12



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##### 



|                                                            |  |               |           |               |  |   |           | 
|----------------------------------------------------------- |  | ------------- | --------- | ------------- |  | - | --------- | 
|                                                            |  | 13 Weeks      |           | 13 Weeks     
|                                                            |  | Ended         |           | Ended        
|                                                            |  | June 28, 2003 |           | June 29, 2002
|                                                            |  | (unaudited)   |           | (unaudited)  
|Net sales and other revenues                                |  | $             | 3,794,776 |               |  | $ | 3,711,619 | 
|Cost of goods sold                                          |  |               | 2,850,091 |               |  |   | 2,769,314 | 
|Selling and administrative expenses                         |  |               | 765,336   |               |  |   | 756,062   | 
|                                                            |  |               |           |               |  |   |          
|Operating income                                            |  |               | 179,349   |               |  |   | 186,243   | 
|Interest expense                                            |  |               | 79,086    |               |  |   | 82,061    | 
|                                                            |  |               |           |               |  |   |          
|Income from continuing operations before
income taxes       |  |               | 100,263   |               |  |   | 104,182   | 
|Provision for income taxes                                  |  |               | 36,846    |               |  |   | 40,271    | 
|                                                            |  |               |           |               |  |   |          
|Income before loss from discontinued operations,
net of tax |  |               | 63,417    |               |  |   | 63,911    | 
|Loss from discontinued operations, net of tax               |  |               | 2,789     |               |  |   | 3,084     | 
|                                                            |  |               |           |               |  |   |          
|Net income                                                  |  | $             | 60,628    |               |  | $ | 60,827    | 
|                                                            |  |               |           |               |  |   |          

|                                                                   |  |               |           |               |  |   |           |  
|------------------------------------------------------------------ |  | ------------- | --------- | ------------- |  | - | --------- | -
|                                                                   |  | 26 Weeks      |           | 26 Weeks     
|                                                                   |  | Ended         |           | Ended        
|                                                                   |  | June 28, 2003 |           | June 29, 2002
|                                                                   |  | (unaudited)   |           | (unaudited)  
|Net sales and other revenues                                       |  | $             | 7,474,897 |               |  | $ | 7,416,422 |  
|Cost of goods sold                                                 |  |               | 5,640,212 |               |  |   | 5,516,106 |  
|Selling and administrative expenses                                |  |               | 1,518,081 |               |  |   | 1,524,094 |  
|                                                                   |  |               |           |               |  |   |          
|Operating income                                                   |  |               | 316,604   |               |  |   | 376,222   |  
|Interest expense                                                   |  |               | 158,773   |               |  |   | 169,387   |  
|                                                                   |  |               |           |               |  |   |          
|Income from continuing operations before
income taxes              |  |               | 157,831   |               |  |   | 206,835   |  
|Provision for income taxes                                         |  |               | 57,530    |               |  |   | 81,308    |  
|                                                                   |  |               |           |               |  |   |          
|Income before loss from discontinued operations,
net of tax        |  |               | 100,301   |               |  |   | 125,527   |  
|Loss from discontinued operations, net of tax                      |  |               | 25,165    |               |  |   | 5,473     |  
|                                                                   |  |               |           |               |  |   |          
|Income before cumulative effect of changes in
accounting principle |  |               | 75,136    |               |  |   | 120,054   |  
|Cumulative effect of changes in accounting
principle, net of tax   |  |               | 10,946    |               |  |   | 284,097   |  
|                                                                   |  |               |           |               |  |   |          
|Net income (loss)                                                  |  | $             | 64,190    |               |  | $ | (164,043  | )
|                                                                   |  |               |           |               |  |   |          

Note: Cost of goods sold includes an
$87.3 million (1.17%) charge in the 26 weeks ended June 28, 2003
related to the conversion from retail to cost inventory at Food Lion
and Kash n Karry.

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 Weeks     
|                                                            |  | Ended         |        | Ended        
|                                                            |  | June 28, 2003 |        | June 29, 2002
|                                                            |  | %             |        | %            
|                                                            |  | (unaudited)   |        | (unaudited)  
|Net sales and other revenues                                |  |               | 100.00 |               |  |  | 100.00 | 
|Cost of goods sold                                          |  |               | 75.11  |               |  |  | 74.61  | 
|Selling and administrative expenses                         |  |               | 20.17  |               |  |  | 20.37  | 
|                                                            |  |               |        |               |  |  |       
|Operating income                                            |  |               | 4.72   |               |  |  | 5.02   | 
|Interest expense                                            |  |               | 2.08   |               |  |  | 2.21   | 
|                                                            |  |               |        |               |  |  |       
|Income from continuing operations before
income taxes       |  |               | 2.64   |               |  |  | 2.81   | 
|Provision for income taxes                                  |  |               | 0.97   |               |  |  | 1.09   | 
|                                                            |  |               |        |               |  |  |       
|Income before loss from discontinued operations,
net of tax |  |               | 1.67   |               |  |  | 1.72   | 
|Loss from discontinued operations, net of tax               |  |               | 0.07   |               |  |  | 0.08   | 
|                                                            |  |               |        |               |  |  |       
|Net income                                                  |  |               | 1.60   |               |  |  | 1.64   | 
|                                                            |  |               |        |               |  |  |       

13



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##### 



|                                                                   |  |               |        |               |  |  |        |  
|------------------------------------------------------------------ |  | ------------- | ------ | ------------- |  |  | ------ | -
|                                                                   |  | 26 Weeks      |        | 26 Weeks     
|                                                                   |  | Ended         |        | Ended        
|                                                                   |  | June 28, 2003 |        | June 29, 2002
|                                                                   |  | %             |        | %            
|                                                                   |  | (unaudited)   |        | (unaudited)  
|Net sales and other revenues                                       |  |               | 100.00 |               |  |  | 100.00 |  
|Cost of goods sold                                                 |  |               | 75.46  |               |  |  | 74.38  |  
|Selling and administrative expenses                                |  |               | 20.31  |               |  |  | 20.55  |  
|                                                                   |  |               |        |               |  |  |       
|Operating income                                                   |  |               | 4.23   |               |  |  | 5.07   |  
|Interest expense                                                   |  |               | 2.12   |               |  |  | 2.28   |  
|                                                                   |  |               |        |               |  |  |       
|Income from continuing operations before
income taxes              |  |               | 2.11   |               |  |  | 2.79   |  
|Provision for income taxes                                         |  |               | 0.77   |               |  |  | 1.10   |  
|                                                                   |  |               |        |               |  |  |       
|Income before loss from discontinued operations,
net of tax        |  |               | 1.34   |               |  |  | 1.69   |  
|Loss from discontinued operations, net of tax                      |  |               | 0.33   |               |  |  | 0.07   |  
|                                                                   |  |               |        |               |  |  |       
|Income before cumulative effect of changes
in accounting principle |  |               | 1.01   |               |  |  | 1.62   |  
|Cumulative effect of changes in accounting
principle, net of tax   |  |               | 0.15   |               |  |  | 3.83   |  
|                                                                   |  |               |        |               |  |  |       
|Net income (loss)                                                  |  |               | 0.86   |               |  |  | (2.21  | )
|                                                                   |  |               |        |               |  |  |       

Note: Cost of goods sold includes an
$87.3 million (1.17%) charge in the 26 weeks ends June 28, 2003
related to the conversion from retail to cost inventory at Food Lion
and Kash n Karry.

Sales

We record revenues primarily from the sale of products in over 1,440 retail
stores. Net sales and other revenues for the second quarter 2003 and for the 26
weeks ended June 28, 2003 were $3.8 billion and $7.5 billion, respectively,
resulting in increases of 2.2% and 0.8% over the corresponding periods of 2002.
Comparable store sales increased 0.7% during the second quarter of 2003 and
decreased 0.7% for the 26 weeks ended June 28, 2003. Sales performance during
the second quarter of 2003 was positively impacted by the timing of the Easter
holiday, which fell in the second quarter of 2003 and the first quarter of
2002. Excluding the positive impact of the timing of Easter, comparable store
sales in the second quarter of 2003 decreased 0.4%. Sales performance during
2003 has been negatively impacted by soft economic conditions and heightened
competitive activity in the Companys major operating areas. Most of our stores
are located in the Southeast region of the United States, which continues to
experience corporate layoffs, high unemployment, and generally depressed
economic conditions.

We continue to see an increase in competitive activity as a greater number of
retailers continue to battle for consumers dollars. During the first six
months of 2003, we experienced 28 net competitive store openings in our
operating area  increasing the amount of grocery square footage available to
consumers. 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 began planned
margin investments 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 were supported by cost reduction commitments that materialized
during the second quarter of 2003 and positively
impacted current sales performance and sales trends during the quarter.

As of June 28, 2003, we operated 1,449 stores, which consisted of 1,193 stores
operating primarily under the Food Lion banner, 119 stores operating under the
Hannaford banner and 137 stores operating under the Kash n Karry banner.
During the second quarter of 2003, we opened seven new stores; six under our
Food Lion banner and one under the Kash n Karry banner. In addition, we
remodeled 11 stores in the second quarter of 2003 including seven Food Lion
stores, two Hannaford stores and two Kash n Karry stores. During the second
quarter of 2003, we closed one Food Lion store and one Kash n Karry store,
resulting in a net increase of five stores.

Gross Profit

Gross profit as a percentage of sales was 24.89% and 24.54% for the 13 and 26
weeks ended June 28, 2003, compared to 25.39% and 25.62% 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 change, 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 and $14 million increase in
cost of sales in the second 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).

We began planned margin investments 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
supported by cost reduction commitments that materialized during the second
quarter of 2003 and positively impacted current sales
performance and sales trends during the quarter.

We provided for a $0.7 million
LIFO provision in the second quarter of 2003 and
$0.7 million in the 26 weeks ended June 28, 2003, compared with a LIFO
provision of $1.5 million and $2.0 million for the corresponding periods last
year. During the second quarter of 2003, inflation/deflation conditions appear
to be relatively flat.

14



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##### 



Selling and administrative expenses

Selling and administrative expenses (which include depreciation and
amortization) as a percentage of sales were 20.17% in second quarter of 2003
compared to 20.37% in the second quarter of 2002. For the 26 weeks ended June
28, 2003, selling and administrative expenses as a percentage of sales were
20.31% compared to 20.55% for the corresponding period in the prior year.
Excluding depreciation and amortization, selling and administrative expenses as
a percentage of sales were 17.23% for the second quarter of 2003 and 17.32% for
the 26 weeks ended June 28, 2003 compared to 17.30% and 17.50% for the
corresponding periods of the prior year. The decrease in selling and
administrative expenses (excluding depreciation and amortization) for the
second 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 execution improvements, lower medical costs as a result of recent changes
in medical plan benefit provisions, lower retirement plan expense as a result of
changes in plan provisions for Food Lion and Kash n Karry and
the completion of
a majority of Food Lions corporate support streamlining efforts during the
first quarter of 2003.

Depreciation and amortization expense during the second quarter of 2003 was
$111.4 million or 2.93% of sales compared to $114.0 million or 3.07% of sales
for the second quarter of the prior year. For the 26 weeks ended June 28, 2003
depreciation and amortization expense was $223.1 million or 2.98% of sales
compared to $226.6 million or 3.06% of sales for the corresponding period in
the prior year. The decrease in depreciation and amortization for the 13 and 26
weeks ended June 28, 2003 compared to the corresponding periods last year is due to
lower than planned capital expenditures this year 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.

Interest Expense

Interest expense during the second quarter of 2003 was $79.1 million or 2.08%
of sales compared to $82.1 million or 2.21% of sales for the second quarter of
the prior year. For the 26 weeks ended June 28, 2003, interest expense was
$158.8 million or 2.12% of sales compared to $169.4 million or 2.28% of sales
for the corresponding period in the prior year. Interest expense was lower for
the 26 weeks ended June 28, 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.

Store Closings

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

|                             |  |                         |    |        |  |  |     |   |  |                  |  |       |  |  |    |   |  |  |     |  
|---------------------------- |  | ----------------------- | -- | ------ |  |  | --- | - |  | ---------------- |  | ----- |  |  | -- | - |  |  | --- | -
|                             |  | Discontinued
Operations |    | Closed |  |  |     |   |  | Planned Closings |  | Total
|As of March 29, 2003         |  |                         | 42 |        |  |  | 172 |   |  |                  |  |       |  |  | 4  |   |  |  | 218 |  
|Store closings added         |  |                         | 1  |        |  |  | 3   |   |  |                  |  |       |  |  |   |   |  |  | 4   |  
|Planned closings completed   |  |                         |   |        |  |  | 1   |   |  |                  |  |       |  |  | (1 | ) |  |  | 0   |  
|Stores sold/lease terminated |  |                         |   |        |  |  | (7  | ) |  |                  |  |       |  |  |   |   |  |  | (7  | )
|                             |  |                         |    |        |  |  |     |   |  |                  |  |       |  |  |    |   |  |  |     |  
|As of June 28, 2003          |  |                         | 43 |        |  |  | 169 |   |  |                  |  |       |  |  | 3  |   |  |  | 215 |  

The following table reflects closed store liabilities as of June 28, 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 2   |      | Qtr 2  |      | Qtr 2
|                          |                                           |                               |                   |     | 2003    |      | 2003   |      | 2003 
|                          |                                           |                               |                   |     | Disc Op |      | Closed |      | Total
|                          |                                           |                               |                   |     |         |      |        |      |      
|Balance at March 29, 2003 |                                           | $                             | 25.4              |     |         | $    | 135.5  |      |       | $    | 160.9 |     
|Additions:                |                                           |                               |                   |     |         |      |        |      |       |      |       |     
|                          | Store closings - lease obligations        |                               |                   | 0.1 |         |      |        | 1.0  |       |      |       | 1.1  |     
|                          | Store closing - other exit costs          |                               |                   | 0.0 |         |      |        | 0.1  |       |      |       | 0.1  |     
|                          |                                           |                               |                   |     |         |      |        |      |       |      |       |     
|                          |                                           |                               | Total additions   |     |         | 0.1  |        |      |       | 1.1  |       |      |      | 1.2  |  
|Adjustments:              |                                           |                               |                   |     |         |      |        |      |       |      |       |     
|                          | Adjustments to estimates-lease obligation |                               |                   | 0.5 |         |      |        | (3.1 | )     |      |       | (2.6 | )   
|                          | Adjustments to estimates-other exit costs |                               |                   | 0.0 |         |      |        | (2.0 | )     |      |       | (2.0 | )   
|                          |                                           |                               |                   |     |         |      |        |      |       |      |       |     
|                          |                                           |                               | Total adjustments |     |         | 0.5  |        |      |       | (5.1 | )     |      |      | (4.6 | )
|Reductions:               |                                           |                               |                   |     |         |      |        |      |       |      |       |     
|                          |                                           | Lease payments made           |                   |     | (0.9    | )    |        |      | (3.6  | )    |       |      | (4.5 | )   
|                          |                                           | Payments for other exit costs |                   |     | (0.2    | )    |        |      | (0.6  | )    |       |      | (0.8 | )   
|                          |                                           |                               |                   |     |         |      |        |      |       |      |       |     
|                          |                                           |                               | Total reductions  |     |         | (1.1 | )      |      |       | (4.2 | )     |      |      | (5.3 | )
|                          |                                           |                               |                   |     |         |      |        |      |       |      |       |     
|Balance at June 28, 2003  |                                           | $                             | 24.9              |     |         | $    | 127.3  |      |       | $    | 152.2 |     
|                          |                                           |                               |                   |     |         |      |        |      |       |      |       |     

15



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##### 



The June 28, 2003 balance of approximately $152.2 million consisted of lease
liabilities and other exit cost liabilities of $123.0 million and $29.2
million, respectively. The June 28, 2003 balance also includes lease
liabilities of $22.1 million and other exit costs of $2.8 million associated
with the closure of 42 under performing stores in the first quarter of 2003 and
one under performing store in the second quarter of 2003.

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 26 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).

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 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 under performing Food Lion and Kash n Karry stores
during the 26 weeks ending June 28, 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 |  | 26 weeks ended |        | 26 weeks ended
|(Dollars in thousands)       |  | June 28, 2003  |       | June 29, 2002  |  | June 28, 2003  |        | June 29, 2002 
|Net sales and other revenues |  | $              | 42    |                |  | $              | 42,170 |                |  | $ | 17,561 |  |  | $ | 85,667 | 
|Net loss                     |  | $              | 1,395 |                |  | $              | 3,084  |                |  | $ | 5,334  |  |  | $ | 5,473  | 

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 (asset impairment) of $5.0
million, which was offset by gains on capital lease retirements of $5.0
million.

16



---



##### 



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 (asset impairment).

Additional discontinued operations expenses not reserved totaled $1.2 million
and $2.0 million after taxes for the 13 and 26 weeks ended June 28, 2003,
respectively.

The following table shows the reserve balances for discontinued operations as
of June 28, 2003:

|                                     |  |             |         |          |  |       |      |   |  |   |         |  
|------------------------------------ |  | ----------- | ------- | -------- |  | ----- | ---- | - |  | - | ------- | -
|                                     |  | Other       |         | Accrued  |  |       |      |  
|(Dollars in thousands)               |  | liabilities |         | expenses |  | Total
|Reserve balance as of March 29, 2003 |  | $           | (25,372 | )        |  | $     | (804 | ) |  | $ | (26,176 | )
|Additions                            |  |             | (157    | )        |  |       |     |   |  |   | (157    | )
|Utilizations                         |  |             | 596     |          |  |       | 39   |   |  |   | 635     |  
|                                     |  |             |         |          |  |       |      |   |  |   |         |  
|Reserve balance as of June 28, 2003  |  | $           | (24,933 | )        |  | $     | (765 | ) |  | $ | (25,698 | )
|                                     |  |             |         |          |  |       |      |   |  |   |         |  

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 26 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 37% on Income from Continuing Operations
for the quarter ended June 28, 2003 compared to 39% for last years comparable
period. The lower rate during 2003 is primarily related to the change in
Income from Continuing Operations during the first half of 2003 compared to the
same period for 2002.

Liquidity and Capital Resources

We have funded our operations and acquisitions for the 13 and 26 weeks ended
June 28, 2003 and June 29, 2002 from cash generated from our operations and
borrowings.

At June 28, 2003, we had cash and cash equivalents of $310.1 million. We have
historically generated positive cash flow from operations. Cash provided by
operating activities totaled $352.5 million for the 26 weeks ended June 28,
2003, compared with $533.7 million for the corresponding period last year. Cash
provided by operating activities for the 26 weeks ended June 28, 2003 was
primarily due to income of $162.4 million before cumulative effect of changes
in accounting principle and change in accounting method, a decrease in
inventory of $31.9 million (excluding the impact of the
accounting change 
Note 9), an increase in accrued expenses of $24.5 million, and an increase in
income tax payable of $22.9 million. The decrease in cash provided by operating
activities from the corresponding period last year was primarily due to
decreases in deferred income taxes and accounts payable offset by an increase in
income before the cumulative effect of changes in accounting principle and
change in accounting method, decreases in accounts receivable and inventory
(excluding the impact of the accounting change  Note 9).

Cash flows used in investing activities decreased to $140.0 million for the 26
weeks ended June 28, 2003, compared with $197.1 million for the corresponding
period last year primarily due to a decrease in capital expenditures which were
$141.9 million for the 26 weeks ended June 28, 2003 compared with $202.9
million for the corresponding period in 2002. For the 26 weeks ended June 28,
2003, we have opened ten new stores and completed the renovation of 17 existing
stores compared to 21 openings and 64 renovations completed for the
corresponding period of last year. The decrease in capital expenditures is
attributable to fewer store openings in 2003 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.

In fiscal 2003, we plan to incur approximately $380 million of capital
expenditures, including approximately $115 million to renovate existing stores,
approximately $132 million for new store construction and approximately $133
million for information technology, logistics and distribution spending. 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
necessary.

Cash flows used in financing activities for the 26 weeks ended June 28, 2003
were $34.1 million compared to $172.0 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.

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

17



---



##### 



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 June 28, 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 June 28,
2003 and have had no borrowings during 2003. There were no borrowings
outstanding at June 29, 2002. This facility is utilized to provide short-term
capital to meet liquidity needs as necessary.

At June 28, 2003, we had outstanding notes of $600 million at 7.375% due 2006,
$149.6 million at 7.55% due 2007, $1.1 billion in notes at 8.125% due 2011,
$121.4 million at 8.05% due 2027 and $855 million in debentures at 9.00% due
2031. We also had medium-term notes of $15.7 million due from 2003 to 2006 at
interest rates of 8.53% to 8.73% and outstanding other notes of $72.8 million
due from 2004 to 2016 at interest rates of 6.31% to 14.15%. The Company had
mortgage notes payable of $30.4 million due from 2003 to 2016 at interest rates
of 7.5% to 10.2% at June 28, 2003.

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 June 28, 2003 were $710.5 million
compared with $724.5 million at June 29, 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.

Informal Credit Arrangements

|                                                        |  |          |      |          |  |   |      |  
|------------------------------------------------------- |  | -------- | ---- | -------- |  | - | ---- | -
|                                                        |  | June 28, |      | June 29,
|                                                        |  | 2003     |      | 2002    
|(Dollars in millions)                                   |  |          |      |         
|Outstanding borrowings
at the end of the second quarter |  | $        |     |          |  | $ |     |  
|Average borrowings                                      |  |          | 0.7  |          |  |   | 3.6  |  
|Maximum amount outstanding                              |  |          | 37.0 |          |  |   | 80.0 |  
|Daily 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 June 28, 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 26 weeks ended June 28, 2003, interest
expense decreased by $4.1 and $8.3 million 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 fair value of the
Companys debt has been increased by $30.1 million at June 28, 2003 with these
agreements. The Company has also recorded a derivative asset in connection with
these agreements in the amount of $33.6 million 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 second quarter 2003 was approximately
$47.0 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.

18



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##### 



|                           |  |      |       |      |  |      |      |      |  |      |      |            |  |            |       |   |  |   |       |   |  |   |         |   |  |   |         |  |  |        |  | 
|-------------------------- |  | ---- | ----- | ---- |  | ---- | ---- | ---- |  | ---- | ---- | ---------- |  | ---------- | ----- | - |  | - | ----- | - |  | - | ------- | - |  | - | ------- |  |  | ------ |  | 
|(Dollars in millions)      |  | 2003 |       | 2004 |  | 2005 |      | 2006 |  | 2007 |      | Thereafter |  | Fair Value |       |   |  |  
|                           |  |      |       |      |  |      |      |      |  |      |      |            |  |            |       |   |  |  
|Notes, due 2006            |  |      |       |      |  |      |      |      |  |      |      |            |  | $          | 600.0 |   |  |   |       |   |  |   |         |   |  | $ | 582.1   |  |  |        |  | 
|Average interest rate      |  |      |       |      |  |      |      |      |  |      |      |            |  |            | 7.38  | % |  |   |       |   |  |   |         |   |  |   |         |  |  |        |  | 
|Notes, due 2011            |  |      |       |      |  |      |      |      |  |      |      |            |  |            |       |   |  |   |       |   |  | $ | 1,100.0 |   |  | $ | 1,056.1 |  |  |        |  | 
|Average interest rate      |  |      |       |      |  |      |      |      |  |      |      |            |  |            |       |   |  |   |       |   |  |   | 8.13    | % |  |   |         |  |  |        |  | 
|Debentures, due 2031       |  |      |       |      |  |      |      |      |  |      |      |            |  |            |       |   |  |   |       |   |  | $ | 855.0   |   |  | $ | 769.6   |  |  |        |  | 
|Average interest rate      |  |      |       |      |  |      |      |      |  |      |      |            |  |            |       |   |  |   |       |   |  |   | 9.00    | % |  |   |         |  |  |        |  | 
|Medium term notes          |  | $    | 10.7  |      |  |      |      |      |  |      |      |            |  | $          | 5.1   |   |  |   |       |   |  |   |         |   |  | $ | 15.7    |  |  |        |  | 
|Average interest rate      |  |      | 8.63  | %    |  |      |      |      |  |      |      |            |  |            | 8.71  | % |  |   |       |   |  |   |         |   |  |   |         |  |  |        |  | 
|Debt securities (discount) |  | $    | (0.3  | )    |  | $    | (0.3 | )    |  | $    | (0.3 | )          |  | $          | (0.3  | ) |  | $ | 149.8 |   |  | $ | 122.2   |   |  | $ | 244.5   |  |  |        |  | 
|Average 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    |   |  | $ | 33.5    |  |  |        |  | 
|Average 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    |  |  |        |  | 
|Average interest rate      |  |      | 6.86  | %    |  |      | 6.91 | %    |  |      | 6.99 | %          |  |            | 7.00  | % |  |   | 7.01  | % |  |   | 7.21    | % |  |   |         |  |  |        |  | 
|Other note payable         |  | $    | 1.9   |      |  |      |      |      |  |      |      |            |  |            |       |   |  |   |       |   |  |   |         |   |  | $ | 1.9     |  |  |        |  | 
|Average interest rate      |  |      | 11.25 | %    |  |      |      |      |  |      |      |            |  |            |       |   |  |   |       |   |  |   |         |   |  |   |         |  |  |        |  | 
|Interest rate swap         |  |      |       |      |  |      |      |      |  |      |      |            |  | $          | 18.5  |   |  |   |       |   |  | $ | 2.1     |   |  | $ | 20.6    |  |  | Note 1

Note 1. The fair value of the Companys debt has increased by $30.1
million at June 28, 2003, see discussion above.

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 |  | Thereafter
|                          |  |       |         |      |  |      |       |      |  |      |       |      |  |           
|Long-term debt            |  | $     | 2,979.4 |      |  |      | 28.3  |      |  |      | 13.0  |      |  |            | 14.1  |  |  |  | 638.1 |  |  |  | 164.9 |  |  |  | 2,121.0 | 
|Capital lease obligations |  |       | 1,514.1 |      |  |      | 117.9 |      |  |      | 117.6 |      |  |            | 116.2 |  |  |  | 115.5 |  |  |  | 114.4 |  |  |  | 932.5   | 
|Operating leases          |  |       | 2,763.7 |      |  |      | 237.2 |      |  |      | 231.7 |      |  |            | 226.5 |  |  |  | 219.5 |  |  |  | 210.2 |  |  |  | 1,638.6 | 

Recently Adopted Accounting Standards

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 second
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.

19



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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 second quarter of fiscal 2003.

In June 2001, the FASB also 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 28145-1330.

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 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 remaining
provisions of this Statement are consistent with the Boards proposal to revise
that definition to encompass certain obligations that a reporting entity can or
must settle by issuing its own equity shares, depending on the nature of the
relationship established between the holder and the issuer. While the Board
still plans to revise that definition through an amendment to Concepts
Statement 6, the Board decided to defer issuing that amendment until it has
concluded its deliberations on the next phase of the project. That next phase
will deal with certain compound financial instruments including puttable
shares, convertible bonds, and dual-indexed financial instruments. This
statement concludes the first phase of the Boards redeliberations of the
Exposure Draft, Accounting for Financial Instruments with Characteristics of
Liabilities, Equity, or Both. This standard does not currently have an impact
on the Companys financial statements.

20



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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
standard does not currently have an impact on the Companys financial
statements.

Recent Events

On June 18, 2003, the Company
announced Shelley G. Broader
as the President and
Chief Operating Officer of its Kash n Karry banner effective June 23, 2003.
Broader replaced Michael Byars, who had served as Chief Operating Officer
since September 1997.

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 and achieve operating improvements at Hannaford as well as other
companies Delhaize America, Inc. acquires, 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                  |  | Description                                                                                        
|                         |  |                                                                                                    
|18                       |  | Preferability Letter from Deloitte & Touche LLP                                                    
|                         |  |                                                                                                    
|31.1                     |  | Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 
|                         |  |                                                                                                    
|31.2                     |  | Certification of Chief Accounting Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|                         |  |                                                                                                    
|32.1                     |  | Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 
|                         |  |                                                                                                    
|32.2                     |  | Certification of Chief Accounting Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|                         |  |                                                                                                    
|(b). Reports on Form 8-K
|                         |  |                                                                                                    
|                         |  | None.                                                                                              

21



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

22



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Exhibit Index

|        |  |                                                                                                    
|------- |  | ---------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                        
|        |  |                                                                                                    
|18      |  | Preferability Letter from Deloitte & Touche LLP                                                    
|        |  |                                                                                                    
|31.1    |  | Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 
|        |  |                                                                                                    
|31.2    |  | Certification of Chief Accounting Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|        |  |                                                                                                    
|32.1    |  | Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 
|        |  |                                                                                                    
|32.2    |  | Certification of Chief Accounting Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002

23