Food Lion 2008 Annual Report Download - page 77
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Please find page 77 of the 2008 Food Lion annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Derivative Financial Instruments
The accounting for derivative financial instruments depends on whether the derivative is designated as an effective hedging instrument, and if so, the nature of
the item being hedged (see “Hedge Accounting” below).
Delhaize Group uses derivative financial instruments such as foreign exchange forward contracts, interest rate swaps, currency swaps and other derivative
instruments to manage its exposure to interest rates and foreign currency exchange rates.
Embedded derivatives are separated from the host contract and accounted separately if the economic characteristics and risks of the host contract and the
embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative,
and the combined instruments are not measured at fair value through profit or loss.
• Derivatives not designated as an effective hedging instrument: Derivatives are classified as held-for-trading unless they are designated as hedges and
initially recognized at fair value, with attributable transaction costs recognized in profit or loss when incurred. Subsequently, they are re-measured at fair value.
The fair value of forward currency contracts is the difference between the forward exchange rate and the contract rate. Derivatives are accounted for as assets
when the fair value is positive and as liabilities when the fair value is negative (see Note 20). Any gains or losses arising from changes in fair value on deriva-
tives that do not qualify for hedge accounting are taken directly to the income statement. Derivatives that are not a designated and effective hedging instrument
are classified as current or non-current or separated into a current or non-current portion based on an assessment of the facts and circumstances.
• Economic hedges: Foreign exchange forward contracts and currency swaps are often not designated as hedges and hedge accounting is therefore not
applied. This is because the gain or loss from re-measuring the derivative is recognized in profit or loss and naturally offset the gain or loss arising on re-meas-
uring the underlying instrument at the balance sheet exchange rate. Delhaize Group entered into several derivative contracts in order to achieve economic
hedge effects (see Note 20).
Hedge Accounting
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge
accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the
hedged item or (forecast) transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the
exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving
offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the
financial reporting periods for which they were designated.
Hedges which meet the criteria for hedge accounting are accounted for as follows:
• Cash flow hedges: Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognized directly in equity to the
extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognized in profit or loss. Amounts accumulated in
equity are recycled in the income statement in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged
takes place).
• Fair value hedges: When designated as a fair value hedge, the gain or loss from re-measuring the hedging instrument at fair value is recognized in profit
or loss and the gain or loss on the hedged item attributable to the hedged risk is recognized in profit or loss by adjusting the carrying amount of the hedged
item. Both fair value adjustments are recognized within “Finance costs.” The Group currently only applies fair value hedge accounting for hedging fixed interest
risk on borrowings (see Note 20).
• Hedges of a net investment: Delhaize Group currently does not hedge any of its net investments in any of its foreign operations.
Share Capital and Treasury Shares
• Ordinary shares: Delhaize Group’s ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share
options are recognized as a deduction from equity, net of any tax effects.
• Treasury shares: Shares of the Group purchased by the Group or companies within the Group are included in equity at cost (including any costs directly
attributable to the purchase of the shares) until the shares are cancelled, sold or otherwise disposed. Where such shares are subsequently reissued, any
consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the
company’s equity holders.
Income Taxes
The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recog-
nized directly in equity. In this case, the related tax is also recognized in equity.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the
company’s subsidiaries and associates operate and generate taxable income. Provisions are established on the basis of amounts expected to be paid to the
tax authorities.
Deferred tax liabilities and assets are recognized, using the liability method, on temporary differences arising between the carrying amount in the consolidated
financial statements and the tax basis of assets and liabilities. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset
or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred
income tax is determined using tax rates and laws that have been enacted or substantially enacted at the balance sheet date and are expected to apply when
the temporary differences reverse.
Deferred tax liabilities are recognized for temporary differences arising on investments in subsidiaries, associates and interests in joint ventures, if any, except
where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future. A deferred tax asset is recognized only to the extent that it is probable that future taxable profit will be available against which the temporary
difference can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related
tax benefit will be realized.
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Certification of Responsible
Persons
Historical
Financial Overview
Report of the
Statutory Auditor
Summary Statutory Accounts of
Delhaize Group SA
Supplementary
Information