Note 35
Financial statements - Notes to the consolidated financial statements
Release of cash flow hedge reserve and revaluation of bonds
under fair value hedges
Ahold's reconciling differences relate to timing differences
between IFRS and US GAAP, since the Company was unable
to apply hedge accounting under US GAAP in 2001. Under
IFRS transition rules hedge accounting was deemed to have
been applied from the inception of the derivative contracts,
including 2001, to calculate the cash flow hedge reserve
and fair value hedge as of the transition date. As a result,
balances recorded in the cash flow hedge reserve under
IFRS differ from the balances recorded in other
comprehensive income under US GAAP at the transition
date and consequently different amounts are released from
the cash flow hedge reserve under IFRS compared to the
amounts released from other comprehensive income under
US GAAP. The fair value hedge became ineffective in 2006.
The impact of these differences on income (loss) before
income taxes is EUR 4, EUR 58 and nil in 2006, 2005 and
2004, respectively. The effect on shareholders' equity is
EUR 4 and EUR 27 as of December 31, 2006 and
January 1, 2006, respectively.
Convertible bond
Under IFRS the EUR 920 convertible bond, originally
maturing in May 2005, was bifurcated between the
conversion feature and the bond, resulting in the recognition
of a conversion feature valued at EUR 29 in the 2004
opening balance under IFRS and a corresponding reduction
in the carrying amount of the bond as previously recognized
under Dutch GAAP. In 2004 the bond was redeemed early,
resulting in a one-time loss under IFRS of EUR 20 relating to
the remaining value of the conversion feature and EUR 9 of
interest expense relating to the change in the value of the
conversion feature through the redemption date of the bond.
Since the bond did not have a beneficial conversion feature
and the conversion option could only be physically settled,
the bond was recorded at face value under US GAAP and
when redeemed at face value, the conversion features were
realized under US GAAP, resulting in an increase in US
GAAP income (loss) before income taxes of EUR 29 in 2004.
5. Pensions and other post-employment benefits
As of December 31, 2006, defined benefit plans are
recognized in the balance sheet at funded status, measured
as the difference between plan assets at fair value and the
projected benefit obligation for pensions or measured at the
accumulated post-retirement benefit obligation, for any
other post-retirement benefit plan. In addition, gains or
losses and prior service costs or credits that arise during the
period but that are not recognized as components of net
periodic benefit cost are recognized, net of income taxes,
as a component of other comprehensive income. Amounts
recognized in accumulated other comprehensive income
are adjusted as they are subsequently recognized as
components of net period benefit costs. Under IFRS,
defined benefit plans are recognized in the balance sheet at
funded status less unrecognized actuarial gains or losses
and prior service costs.
For years prior to 2006, an additional pension liability was
recognized if the accumulated benefit obligation of a plan at
the measurement date exceeded the fair value of plan assets
and if the recognized accrued liability was less than the
excess. This additional minimum pension liability was
reflected as a charge to other comprehensive income, net of
income taxes. IAS 19 does not contain an "additional
minimum pension liability" provision.
The incremental effect of applying the new US GAAP
standard, FAS 158, on the individual line items in the
balance sheet at December 31, 2006 is as follows:
Balances before
FAS 158
Balances after
application of
adoption
application of
FAS 158
adjustments
FAS 158
Non-current pension and other post-employment benefits assets 122 261 383
Non-current pension and other post-employment benefit liabilities (276) (162) (438)
Current pension and other post-employment benefit liabilities - (11) (11)
Deferred tax assets 460 2 462
Investments in joint ventures and associates 2,236 (8) 2,228
Accumulated other comprehensive income (279) (82) (361)
Group equity (10,351) (82) (10,433)
FAS 158 requires the current portion of the liability to be calculated as the amount by which the expected payments related to
the plan to be made over the next 12 months exceeds the fair value of the plan's assets. The remaining portion of the liability is
classified as non-current. Deferred tax assets and liabilities were impacted by both the elimination of the additional minimum
liability (EUR 66) and the recognition of actuarial gains and losses and prior service costs in accumulated other comprehensive
income (EUR 68). In the aggregate, the adoption of FAS 158 increased deferred tax assets by EUR 2.
Net periodic pension expense under US GAAP is EUR 36 higher than net periodic pension expense under IFRS mainly due to
differences in the amortization of actuarial gains and losses (EUR 32), differences in the amortization of prior service cost
(EUR 1) and differences in the amounts recognized for curtailments and settlements (EUR 2). These differences are mainly
the result of the Company's decision to recognize all actuarial gains and losses upon transition to IFRS on December 29,
2003, whereas under US GAAP these gains and losses continue to be amortized.
120 Ahold Annual Report 2006
