00 Ahold ANNUAL REPORT 2002 177
BOARD GOVERNANCE HIGHLIGHTS OPERATING REVIEW FINANCIAL INVESTOR REL AT IONS
(7) Sale and leaseback of property
As discussed in Note 2, the Company enters into sale and leaseback arrangements with various financial institutions,
whereby the Company sells various retail properties and simultaneously leases them back from the purchaser. Under Dutch
GAAP, if a sale and leaseback transaction transfers substantially all risks and rewards of ownership to the buyer-lessor and
the transaction is established at fair value, the gain or loss on the sale is recognized immediately in the consolidated
statements of operations. If such sale and leaseback transaction is established above fair value, the excess of the sales
price over fair value of the underlying property should be deferred and amortized over the lease term. If a sale and
leaseback transaction does not transfer substantially all risks and rewards of ownership to the buyer-lessor, any gain should
be deferred and recognized ratably over the lease term.
US GAAP has specific accounting criteria for sale and leasebacks under SFAS No. 28 "Accounting for Sales with
Leasebacks", SFAS No. 66 "Accounting for Sales of Real Estate" and SFAS No. 98, "Accounting for Leases." Under SFAS
No. 98, a seller-lessee is required to make a determination whether the transaction qualifies for sale and leaseback
accounting. Where sale and leaseback transactions do not qualify for sale and leaseback accounting, they are required
to be accounted for as a financing. Sale and leaseback accounting shall be used by a seller-lessee only if a sale and
leaseback transaction meets all of the following criteria: (i) a sale is consummated, (ii) the transaction involves a normal
leaseback, (iii) the buyer's initial and continuing investments are adequate to demonstrate a commitment to pay for the
property and (iv) the seller has transferred to the buyer substantially all of the other risks and rewards of ownership
demonstrated by the absence of any continuing involvement in the real estate by the seller-lessee.
Gains on transactions qualifying as sale and leasebacks are recognized based on the degree to which the seller-lessee
retains the right to use the real estate through the leaseback. Where the seller-lessee retains substantially all of the use of
the property, the gain on the sale transaction is required to be deferred and amortized over the lease term. Were the seller-
lessee retains only a minor use of the property, any profit or loss generally is recognized at the date of sale. If the seller-
lessee retains more than a minor part but less than substantially all of the use of the property, any profit in excess of the
present value of the minimum lease payments is recognized at the date of sale. Losses are recognized immediately upon
consummation of the sale. As a result of the aforementioned difference between US GAAP and Dutch GAAP certain gains
that were recognized at the date of sale and leaseback transactions under Dutch GAAP were deferred under US GAAP.
In fiscal 2000 US GAAP net income was EUR 24 lower than Dutch GAAP net income. This was the result of EUR 30 of
gains deferred under US GAAP, mainly relating to three sale and leaseback transactions entered into by Ahold Real Estate
Europe in fiscal 2000, which were partially offset by the amortization of EUR 6 relating to previously deferred gains on
sale and leaseback transactions.
In fiscal 2001 US GAAP net income was EUR 142 lower than Dutch GAAP net income. This was mainly the result of a
deferral of EUR 82 in connection with the USD 638 million leveraged lease transaction, EUR 44 in connection with
several sale and leaseback transactions by Ahold Real Estate Europe and EUR 30 in connection with sale and leaseback
transactions by various other operating companies. These deferred gains were partially off set by the amortization of EUR
14 relating to previously deferred gains on sale and leaseback transactions.
In fiscal 2002 US GAAP net income was EUR 36 lower than Dutch GAAP net income. This was mainly the result of
deferral of EUR 25 in connection with several sale and leaseback transactions by Ahold Real Estate Europe, EUR 11
in connection with a sale and leaseback transaction by Giant Landover, EUR 11 in connection with the sale and leaseback
transactions in Poland and EUR 7 in connection with sale and leaseback transactions by various other operating companies.
These deferred gains were partially offset by the amortization of EUR 18 relating to previously deferred gains on sale and
leaseback transactions
(8) Derivative instruments
Under Dutch GAAP, gains and losses from derivative financial instruments that are designated and qualify as hedges are
deferred and are recognized in the consolidated statement of operations in the same period in which the underlying hedge
exposure affects earnings.
Under US GAAP, SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133") was
adopted by the Company as of January 1, 2001. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including embedded derivatives, and for hedging activities. SFAS No. 133 requires that all
derivatives be recognized as either assets or liabilities in the consolidated balance sheet and measured at fair value.
Depending on the documented designation of a derivative instrument, any change in fair value is recognized either in
income or shareholders' equity (as a component of accumulated other comprehensive income ("OCI"). The effect of
