Note 36
The differences mentioned above have resulted in a decrease of expenses related to employee benefits of EUR 52 in 2004.
The adjustments to pension assets and provisions, including provisions for other long-term employee service benefits, for the
2004 opening and closing balances are as follows:
January 2, 1
2005 1
December
29, 2003
Unrecognized gains and losses - deferred past service cost - measurement date adjustments
(598)
(677)
(Reversal) additional minimum liabilities
532
237
Other long-term employee benefits
(18)
(16)
1 Total
(84)
(456)
11 Discounting of long-term provisions
IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" requires that in cases where the effect of the time value
of money is significant, the amount of a provision should be the present value of the expenditures required to settle the
obligation. The discount rate should be a rate that reflects the risks that are specific to the provision. Ahold has decided to use
the "cost of debt" rates for this purpose, with the exception of the self-insurance provisions, which are discounted using a risk-
free interest rate. Under Dutch GAAP, not all long-term provisions were discounted. The adjustments under IFRS mainly relate
to restructuring provisions and provisions for customer loyalty programs. Consequently, provisions have decreased by EUR 11
and EUR 9 as of December 29, 2003 and January 2, 2005, respectively.
12 Derivatives and revaluation of hedged bonds
IFRS requires that derivatives be always recognized at their fair value in the balance sheet. Ahold, as a policy, does not enter
into derivative contracts for speculative purposes. Derivative contracts are utilized to hedge foreign currency exchange risk,
interest rate risk and, to a lesser extent, commodity price risk. Under Dutch GAAP the majority of the derivative contracts have
remained entirely off-balance, because they were all considered highly effective hedging instruments under Dutch GAAP and it
was then allowed to defer the recognition of these instruments to the extent required to achieve an appropriate matching with
the recognition of the hedged items in the consolidated statement of operations. Under IFRS, all derivatives are recognized on
the balance sheet at fair value and all debt instruments denominated in a foreign currency are converted into euros at the
closing rate on each balance sheet date. The effective portion of changes in the fair value of derivatives that are designated
and qualify as cash flow hedging instruments (i.e., they are effectively hedging unrecognized, future cash flows) are included
as a separate component in equity, the cash flow hedging reserve, under IFRS. Gains and losses on these instruments are
recognized in the consolidated statement of operations in the same period in which the hedged item affects income, for
example when the hedged foreign currency debt is remeasured to the closing rate. The gain or loss related to the ineffective
portion of such instruments is recognized immediately in the consolidated statement of operations.
The recognition of derivatives at fair value resulted in an increase of group equity of EUR 807 as of January 2, 2005
(December 29, 2003: EUR 547). The revaluation of hedged foreign currency denominated debt from the hedge rates to
the closing rates resulted in a decrease of group equity of EUR 809 as of January 2, 2005 (December 29, 2003: EUR 621).
As a result, group equity decreased by EUR 2 as of January 2, 2005 (December 29, 2003: EUR 74).
The requirements to qualify for hedge accounting treatment under IFRS are much stricter than under Dutch GAAP. Moreover,
if under IFRS a hedging instrument is not highly effective, then it is not allowed to apply hedge accounting treatment to that
instrument and the hedged item at all, not even for the effective portion. In the third quarter of 2004, a cross currency interest
rate swap ("CCIRS") that was entered into in 2003 to hedge the foreign currency risk on a GBP bond issued in 2001 by one of
Ahold's U.S. operations, failed the hedge effectiveness test under IFRS. As a result of no longer applying fair value hedge
accounting principles to this CCIRS and the related bond as of that date, Ahold included EUR 39 in 2004 consolidated net
income, which was not included in Dutch GAAP net income.
13 ICA put option
IFRS requires the ICA put option to be recognized as a separate liability at fair value. As a result, group equity as of December
29, 2003, decreased by EUR 601 compared to Dutch GAAP, where Ahold was not required to recognize that option as a
separate liability. The fair value of the option under IFRS was determined using the same valuation model and assumptions
AHOLD ANNUAL REPORT 2005 183
