Food Lion 2004 Annual Report Download - page 62

DELHAIZE GROUP  ANNUAL REPORT 2004
60
Pensions
The Group sponsors defined benefit pension plans at certain of its subsidiaries.
Such plans have been established in accordance with applicable legal require-
ments and customary practices in each country. Benefits are generally based upon
compensation and years of service. Delhaize Group accounts for pension plans
for its U.S. subsidiaries under the provisions of SFAS 87, Employers’ Accounting
for Pensions (SFAS 87). For all other consolidated entities, pension plan contri-
butions are expensed as contributions are made. Under US GAAP, pension plan
obligations are calculated in accordance w ith the provisions of SFAS 87 for all
the consolidated entities. Additionally, under Belgian GAAP, when Delhaize Group
does follow the provisions of SFAS 87, changes to the minimum pension liability
are recorded in “ Prepayments and accrued income” . Under US GAAP, this amount
is recorded in “ Other comprehensive income” .
Foreign Currency Transactions
Under Belgian GAAP, the Group had deferred foreign currency transaction
exchange rate losses incurred on debts contracted to finance non-monetary
assets. These losses were recognized based on the principle of matching expen-
ses to the income to which they relate. Under US GAAP, the increase or decrease
in expected functional currency cash flow s is a foreign currency trans action gain
or loss that is included in determining net income for the period in w hich the
exchange rate changes. In 2004 and 2003, Delhaize Group has not incurred such
foreign currency transaction exchange rate losses.
Income Taxes
Under Belgian GAAP, Delhaize Group accounts for deferred income tax assets and
liabilities for its U.S. subsidiaries under the provisions of SFAS 109, Accounting
for Income Taxes (SFAS 109). For all other consolidated entities, deferred income
tax assets and liabilities are calculated on certain, but not all, temporary diffe-
rences arising in the accounts of these consolidated entities. Deferred income
tax assets and liabilities are not calculated on tax-exempt reserves and tax loss
carryforw ards. Under US GAAP, all subsidiaries of Delhaize Group are accounted
for under the provisions of SFAS 109.
Dividends and Directors’ Remuneration
Under Belgian GAAP, the proposed annual dividend on ordinary shares to be
approved by the General M eeting of Shareholders, which is held subsequent to
year-end, is accrued at year-end. Under US GAAP, such dividends are not consi-
dered an obligation until approved. Under Belgian GAAP, until 2003, the directors’
remuneration was considered a distribution of profits, similar to a dividend to
shareholders, and w as recorded as a charge to retained earnings. Under US
GAAP, such remuneration is considered compensation expense. Beginning w ith
fiscal year 2004, Delhaize Group’s directors are remunerated for their services
with a fixed compensation w hich is expensed in the income statement under both
Belgian GAAP and US GAAP.
Derivative Instruments
Under US GAAP, Delhaize Group follows the provisions of SFAS 133, Accounting
for Derivative Instruments and Hedging Activities, to account for derivative
instruments such as interest rate swaps or cross currency sw aps. Additionally,
under Belgian GAAP, the loss (net of tax) related to the interest-rate lock agree-
ments that w ere entered into prior to the bond issues related to the acquisition
of Hannaford, w as classified in the balance sheet caption “ Prepayments and
accrued income” . Under US GAAP, this loss w as classified in the balance sheet
caption “ Other comprehensive income” , w hich is part of shareholders’ equity.
Stock Based Compensation
Under Belgian GAAP, compensation expense related to stock options is not
recorded. Under US GAAP, Delhaize Group has elected to follow the accounting
provisions of Accounting Principles Board Opinion (APBO) N° 25, Accounting for
Stock Issued to Employees, for grant of shares, stock options and other equity
instruments. This resulted in the recording of compensation expense relating
to Delhaize America’s restricted stock plans and Delhaize Group’s stock option
plans. In addition, expenses recorded in Belgian GAAP to recognize the difference
between the market price of a share and its exercise price w hen stock options
are exercised, are reversed for US GAAP. The Delhaize America share exchange
resulted in a new measurement date for the Delhaize America’s stock option and
restricted stock plans. As a result, a one-time, non-cash compensation expense
of EUR 13.1 million pre-tax was recorded in 2001 under US GAAP. Under Belgian
GAAP, tax benefits related to the exercise of stock options are recorded as a
reduction of income tax expense. Under US GAAP, such tax benefits are recorded
in shareholder’s equity. This resulted in an adjustment of EUR 8.5 million to
increase income tax expense under US GAAP.
Treasury Shares
Under Belgian GAAP, treasury shares are classified in the balance sheet caption
“ Short-term investments” and are subject to a valuation allow ance w hen the
share price at the reporting date is lower than the acquisition price. Under US
GAAP, treasury shares are deducted from shareholders’ equity in the captions
“ Capital” and “ Additional Paid in Capital” and are maintained at cost.
Inventories
Under Belgian GAAP, amounts received from suppliers for in-store promo-
tions and co-operative advertising are recognized when the activities requi-
red by the supplier are completed. Under US GAAP, Delhaize Group adopted
the Emerging Issues Task Force (EITF) Issue No. 02-16, “ Accounting by a
Reseller for Cash Consideration Received” in 2003. EITF issue No. 02-16
directs that cash consideration received from a vendor should be presumed
to be a reduction of inventory, and recognized in cost of sales w hen the
product is sold, unless it is a reimbursement of specific costs incurred in
advertising the vendor’s products.
Other Items
Other items include adjustments to record differences betw een Belgian GAAP and
US GAAP for interest cost capitalization, software development cost capitaliza-
tion, accounting for security investments and accounting for a highly inflationary
economy (Romania). Effective January 1, 2004, Romania was no longer conside-
red to have a highly inflationary economy.