Note 35
2. Other intangible assets
Pursuant to the exemption available under IFRS 1, the
Company elected not to restate the carrying amount of other
intangible assets arising from business combinations
completed prior to December 29, 2003 from its previous
balance under Dutch GAAP. Differences between US GAAP
and IFRS relate to the carrying amount of certain brand
names and customer relationships recorded upon the
completion of business combinations under US GAAP prior
to December 30, 2001 and charged directly through equity
or recorded as part of goodwill under Dutch GAAP. Under
US GAAP, through December 30, 2001, brand names were
amortized over a period not exceeding 40 years. On
December 31, 2001, the Company re-assessed the useful
lives of its other intangible assets and deemed its brand
names to have an indefinite useful life. Accordingly, brand
names are no longer amortized under US GAAP after
December 31, 2001. IFRS requires the application of a
similar policy to account for intangible assets since the IFRS
transition date. Customer relationships are amortized over
the estimated duration of the relationship under IFRS and
US GAAP.
The Company recognized additional amortization of
customer relationships under US GAAP of EUR 17, EUR 17
and EUR 26 in 2006, 2005 and 2004, respectively, due to
differences in the underlying carrying amount of these
assets. Under US GAAP the carrying amount of brand
names held and used was EUR 441 and EUR 491 as of
December 31, 2006 and January 1, 2006, respectively.
Under US GAAP the carrying amount of customer
relationships was EUR 82 and EUR 144 as of December 31,
2006 and January 1, 2006, respectively.
3. Real estate
Sale and leaseback accounting
Under IFRS, 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 the sale and
leaseback does not transfer substantially all risks and
rewards of ownership to the buyer-lessor, any gain is
deferred and recognized ratably over the lease term. Under
US GAAP, if the criteria for sale and leaseback accounting
are met, any profit or loss on a sale consummated at fair
value is generally deferred and amortized in proportion to
the amortization of the leased asset for a finance lease and in
proportion to the related gross rental charges for an
operating lease. In evaluating whether the criteria for sale
and leaseback accounting are met under US GAAP, any
form of continuing involvement with the property, other than
a normal leaseback, results in accounting for the transaction
as a financing. As a result of these differences, certain gains
that were recognized at the date of sale and leaseback
transactions under IFRS were deferred under US GAAP.
The difference in net income is comprised of the
amortization relating to previously deferred gains on sale
and leaseback transactions, partly offset by deferrals
of gains in connection with several new sale and
leaseback transactions.
The impact of these differences on income (loss) before
income taxes is EUR 5, EUR 0 and EUR 11 in 2006, 2005
and 2004, respectively. The effect on shareholders' equity is
EUR (188) and EUR (210) as of December 31, 2006 and
January 1, 2006, respectively.
Other real estate differences
This item mainly relates to accounting for leases with land
and building components. Under IFRS, a finance lease that
includes both land and building is viewed as two separate
components. The land component is classified as an
operating lease unless title is expected to transfer at the end
of the lease. The building component is classified separately
as either an operating or a finance lease. Under US GAAP,
bifurcation of a finance lease including land and building is
not allowed if the land component is less than 25 percent of
the total property value. The reconciling item represents the
difference between the operating lease expenses of the land
recognized on a straight-line basis under IFRS and the
additional depreciation and interest expenses of the land
that is capitalized under US GAAP. The impact on income
(loss) before income taxes is EUR (19), EUR 8 and EUR (8)
in 2006, 2005 and 2004, respectively. The effect on
shareholders' equity is EUR (32) and EUR (22) as of
December 31, 2006 and January 1, 2006, respectively.
4. Derivative instruments and loans
Embedded derivatives
Certain of the Company's lease agreements in Central
Europe are denominated in EUR or USD. Under US GAAP
these contracts are considered to have de facto embedded
foreign exchange derivatives, which are separately
accounted for at fair value on the balance sheet with gains
and losses recognized in the consolidated statements of
operations. Under IFRS, because the lease payments are
denominated in a currency that is commonly used in the
economic environment in which the transactions take place,
the embedded feature is not accounted for separately.
Furthermore the foreign currency forwards that are entered
into to hedge the foreign currency risks embedded in these
lease contracts, which are generally accounted for as cash
flow hedges under IFRS, are accounted for as standalone
derivatives under US GAAP with fair value gains and losses
recognized in the consolidated statements of operations.
The impact of these differences on income (loss) before
income taxes is EUR 41, EUR 5 and EUR (7) in 2006, 2005
and 2004, respectively. The effect on shareholders' equity is
EUR 66 and EUR 23 as of December 31, 2006 and
January 1, 2006, respectively.
Ahold Annual Report 2006 119
