derivative financial instruments and hedging

The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investment grade credit ratings. The calculation of fair values for derivative financial instruments depends on the type of instruments:

• Derivative interest rate contracts: the fair value of derivative interest rate contracts (e.g., interest rate swap agreements) is estimated by discounting expected future cash flows using current market interest rates and yield curve over the remaining term of the instrument.

• Derivative currency contracts: the fair value of forward foreign currency exchange contracts is based on forward exchange rates.

• Derivative cross-currency contracts: the fair value of derivative cross-currency contracts is estimated by discounting expected future cash flows using current market interest rates and yield curve over the remaining term of the instrument, translated at the rate prevailing at meas- urement date.

Derivative instruments are mandatorily classified as “held for trading” and carried at fair value, being the amount for which a resulting asset could be exchanged or a liability settled:

(in millions of EUR) December 31,

2010 2009 2008

Assets Liabilities Assets Liabilities Assets Liabilities

Interest rate swaps 61 - 61 - 39 -

Cross currency swaps 5 16 35 40 18 -

Foreign exchange forward contracts - - - - 1 -

CONSOLIDATED BALANCE SHEET CONSOLIDATED INCOME

STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF CHANGES IN EqUITY CONSOLIDATED STATEMENT OF CASH FLOwS notes to the finanCial statements

As described in Note 2.3, Delhaize Group does not enter into derivative financial instrument arrangements for speculative / trading, but rather for hedging (both economic and accounting) purposes only. As the Group currently holds no derivatives where net settlement has been agreed, the following table indicates the contractually agreed (undiscounted) gross interest and principal payments associated with derivative financial instruments (assets and liabilities) at December 31, 2010:

(in millions of EUR) 1 - 3 months 4 - 12 months 2012 - 2013 2014

Principal Interest Principal Interest Principal Interest Principal Interest

Interest rate swaps being part of a fair value hedge relationship

Inflows - - - 29 - 58 - 29

Outflows - (2) - (7) - (20) - (5)

Cross-currency interest rate swaps being part of a cash flow hedge relationship

Inflows - 7 - 7 - 27 225 7

Outflows - (15) - - - (30) (228) (15)

Cross-currency interest rate swaps without a hedging relationship

Inflows 26 4 119 9 - 20 500 5

Outflows (26) (3) (116) (7) - (13) (502) (3)

Total Cash flows - (9) 3 31 - 42 (5) 18

interest rate swaps Fair value hedge:

In 2007 Delhaize Group issued EUR 500 million Senior Notes with a 5.625% fixed interest rate and a 7 year term, exposing the Group to changes in the fair value due to changes in market interest rates (see Note 18.1).

In order to hedge that risk, Delhaize America, LLC swapped 100% of the proceeds to a EURIBOR 3m floating rate for the 7 year term. The maturity dates of interest rate swap arrangements (“hedging instrument”) match those of the underlying debt (“hedged item”). The transactions were designated and qualify for hedge accounting in accordance with IAS 39, and were documented and reflected in the financial statements of Delhaize Group as fair value hedges. The aim of the hedge is to transform the fixed rate Notes into variable interest debt (“hedged risk”). Credit risks are not part of the hedging relationship. The effectiveness is tested using statistical methods in the form of a regression analysis. Changes in fair values were recorded in the income statement as finance costs as follows (see Note 29.1):

(in millions of EUR) December 31,

Note 2010 2009 2008

Losses (gains) on

Interest rate swaps 29.1 3 (8) (31)

Related debt instruments 29.1 (3) 8 31

Total - - -

Discontinued cash flow hedge:

In the second quarter of 2007, Delhaize Group entered into interest rate swap arrangements to hedge the variability of the cash flows related to the refinancing of a portion of its debt (see Note 18.1). The arrangements were terminated before completion of the refinancing. A loss of EUR 4 million, related to the tender offer, was recognized in finance costs of that year. The swap arrangements related to the new debt issue were initially designated as a cash flow hedge and consequently the gain (EUR 2 million) from discontinuing the hedge accounting is deferred (“Discontinued cash flow hedge reserve”) and amortized to finance costs over the term of the underlying debt, which matures in 2017.

Currency swaps

The Group uses currency swaps to manage some of its currency exposures.

Cash flow hedge:

Delhaize Group issued in 2009 a USD 300 million Bond with a 5.875% fixed interest rate and a 5 year term (“hedged item”), exposing Delhaize Group to currency risk on USD cash flows (“hedged risk”). In order to hedge that risk, Delhaize Group swapped 100% of the proceeds to a EURO fixed rate liability with a 5 year term (“hedging instrument”). The maturity dates, the USD interest rate, the interest payment dates, and the USD flows (interest and principal) of the hedging instrument, match those of the underlying debt. The transactions have been designated and qualify for hedge accounting in accordance with IAS 39, and were documented and reflected in the financial statements of Delhaize Group as cash flow hedges. Delhaize Group tests effectiveness by comparing the movements in cash flows of the hedged item with those of a “hypothetical derivative” representing the “perfect hedge.” The terms of the hedging instrument and the hypothetical derivative are the same, with the excep- tion of counterparty credit risk, which is closely monitored by the Group. During 2010, the Group recognized fair value gains of the hedging instrument of EUR 23 million in the “Cash flow hedge reserve,” representing the effective portion of the hedging relationship. Thereof, EUR 15 million have been recycled to profit or loss (“Finance costs,” see Note 29.1) in order to offset foreign currency losses recognized in the income statement relating to the hedged risk. At December 31, 2010, net of taxes, being EUR 3 million, a total gain of EUR 5 million (2009: loss of EUR 6 million) has been recognized in the “Cash flow hedge reserve” (see Note 16).

PERSONS AUDITOR OF DELHAIZE GROUP SA STATEMENT OF COMPREHENSIVE INCOME OF CHANGES IN EqUITY OF CASH FLOwS statements

Economic hedges:

During the year, Delhaize Group entered into other currency swap contracts, but none are designated as cash flow, fair value or net invest- ment hedges. Those contracts are generally entered into for periods consistent with currency transaction exposures where hedge accounting is not necessary, as the transactions naturally offset the exposure hedged. Consequently, the Group does not designate and document such transactions as hedge accounting relationships.

In 2007, and simultaneously to entering into interest rate swaps described above, Delhaize Group’s U.S. operations also entered into cross- currency interest rate swaps, exchanging the principal amounts (EUR 500 million for USD 670 million) and interest payments (both variable), in order to cover the foreign currency exposure of the entity. Delhaize Group did not apply hedge accounting to this transaction because this swap constitutes an economic hedge with Delhaize America, LLC’s underlying EUR 500 million term loan.

In addition, Delhaize Group enters into foreign currency swaps with various commercial banks to hedge foreign currency risk on intercompany loans denominated in currencies other than its reporting currency.

The table below indicates the principal terms of the currency swaps outstanding at December 31, 2010. Changes in fair value of these swaps are recorded in “Finance costs” or “Income from investments” in the income statement, except - as explained above - for the USD 300 million Senior Notes, which are designated as cash flow hedges:

(in millions) Foreign Currency Swaps

Year Year Amount Interest Amount Interest Fair Value Fair Value Fair Value

Trade Expiration Received from Rate Delivered to Rate Dec. 31, 2010 Dec. 31, 2009 Dec. 31, 2008

Date Date Bank at Trade Bank at Trade (EUR) (EUR) (EUR)

Date, and to be Date, and to

Delivered to Bank Receive from Bank

at Expiration at Expiration

Date Date

2010 2011 EUR 53 6m EURIBOR USD 75 6m LIBOR 3 - -

+3.33% +3.40%

2010 2011 EUR 26 12m EURIBOR USD 35 12m LIBOR 1 - -

+5.02% +4.94%

2010 2011 EUR 63 6m EURIBOR USD 85 6m LIBOR - - -

+2.97% +3.55%

2009 2010 EUR 20 12m EURIBOR USD 25 12m LIBOR - (2) -

+4.99% +4.94%

2009 2014 EUR 228 6.63% USD 300 5.875% (13) (38) -

2008 2009 EUR 7 12m EURIBOR USD 10 12m LIBOR - - -

+1.31% +1.34%

2007 2014 USD 670 3m LIBOR EUR 500 3m EURIBOR (2) 35 18

+0.98% +0.94%

foreign exchange forward Contracts

The Group uses currency forward contracts to manage certain parts of its currency exposures. These contracts are not designated as cash flow or fair value hedges and are generally entered into for periods consistent with currency transaction exposures.

At December 31, 2010, Delhaize Group held no foreign exchange forward contracts. At the end of 2009, the Group had signed a foreign exchange forward contract to purchase in 2010 USD 11 million in exchange for EUR 7 million to offset intercompany foreign currency exchange exposure.

As explained in Note 2.3, changes in the fair value of forward contracts are recorded in the income statement in “Finance costs” or “Income from investments” depending on the underlying transaction.

debt Covenants for derivatives

The Group has several ISDAs in place containing customary provisions related to events of default and restrictions in terms of sale of assets, merger and rating.

The maximum exposure of derivative financial instruments to credit risk at the reporting date equals their carrying values at balance sheet date (i.e., EUR 66 million at December 31, 2010). See Note 12 in connection with collateral posted on derivative financial liabilities.

CONSOLIDATED BALANCE SHEET CONSOLIDATED INCOME

STATEMENT CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF CHANGES IN EqUITY CONSOLIDATED STATEMENT OF CASH FLOwS notes to the finanCial statements