Note 37
Impairment
Purchase accounting adjustments
In connection with the purchase price allocation relating to the Company's acquisitions of U.S. Foodservice and Giant-
Landover, the Company established a valuation allowance relating to certain operating loss carryforwards since the Company
did not believe that it was probable that the operating loss carryforwards could be utilized. The Company believed that it would
be limited in the use of these loss carryforwards by the tax authorities. Furthermore, the Company established certain tax
contingency reserves, as part of the purchase price allocation relating to U.S. Foodservice, for expenses it believed would
be disallowed by the tax authorities. Subsequent to the original assessment and after consultation with the tax authorities,
the Company determined that the loss carryforwards were not limited as to their use and that the expenses would be allowed.
Under IFRS the changes in the deferred tax assets recognized and the tax contingency reserves described above were recognized
in the consolidated statements of operations. These releases were reversed to goodwill under US GAAP in accordance with the
FASB's Emerging Issues Task Force ("EITF") Issue No. 93-7 "Uncertainties Related to Income Taxes in a Purchase Business
Combination".
The Company released EUR 62 through its consolidated statements of operations in 2004 (2005: nil) under IFRS that was
reversed and offset to goodwill under US GAAP. These purchase accounting adjustments are reflected in the reconciliation of
the net income (loss) under the caption, "Income taxes."
Reconciling items related to impairment arise based on differences in the initial recognition and measurement of goodwill
upon completion of a business combination as described above and the impairment test itself. For IFRS, impairment testing is
conducted by comparing the carrying amount of a cash-generating unit to which goodwill is allocated to its recoverable amount,
which is measured by using the higher of the fair value less costs to sell or the value in use of the asset. For US GAAP, the
impairment test is comprised of two steps. The initial step is designed to identify potential goodwill impairment by comparing
an estimate of the fair value of a reporting unit to its carrying amount including goodwill. If the carrying amount exceeds the
fair value of the reporting unit, a second step is performed, which compares the implied fair value of the applicable reporting
unit's goodwill with the carrying amount of that goodwill, to measure the amount of goodwill impairment, if any.
The Company recognized additional goodwill impairment under IFRS in 2005 of EUR 17. The goodwill impairment is mainly
related to Tops for which IFRS goodwill existed that had already been fully impaired under US GAAP. In 2004 additional
goodwill impairment under US GAAP was recognized for EUR 156 related to Tops and EUR 2 related to other.
AHOLD ANNUAL REPORT 2005 189
