Food Lion 2009 Annual Report Download - page 120

116 - Delhaize Group - Annual Report 2009
CONSOLIDATED STATEMENT
OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT
OF CASH FLOWS
NOTES TO THE FINANCIAL
STATEMENTS
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
CONSOLIDATED INCOME
STATEMENT
CONSOLIDATED BALANCE SHEET
18.3. Leases
As explained in Note 2.3, the classification of a lease agreement depends on the allocation of risk and rewards incidental to the ownership of
the leased item. When assessing the classification of a lease agreement, certain estimates and assumptions need to be made and applied,
which include, but are not limited to, the determination of the expected lease term and minimum lease payments, the assessment of the likeli-
hood of exercising options and estimation of the fair value of the lease property.
Delhaize Group as Lessee - Finance and operating lease commitments
As detailed in Note 8, Delhaize Group operates a significant number of its stores under finance and operating lease arrangements. Various
properties leased are (partially or in full) subleased to third parties, where the Group is therefore acting as a lessor (see further below). Lease
terms (including reasonably certain renewal options) generally range from 1 to 36 years with renewal options ranging from 3 to 30 years.
The schedule below provides the future minimum lease payments, which have not been reduced by expected minimum sublease income of
EUR 68 million, due over the term of non-cancellable subleases, as of December 31, 2009:
(in millions of EUR) 2010 2011 2012 2013 2014 Thereafter Total
Finance leases
Future minimum lease payments 119 112 108 104 99 889 1 431
Less amount representing interest (75) (69) (65) (60) (54) (421) (744)
Present value of minimum lease payments 44 43 43 44 45 468 687
Of which related to closed store lease
obligations 3 3 3 3 2 16 30
Operating leases
Future minimum lease payments
(for non-cancellable leases) 260 224 207 166 149 852 1 858
Of which related to close store lease
obligations 13 11 10 9 7 27 77
The average effective interest rate for finance leases was 11.8%, 11.9% and 11.7% at December 31, 2009, 2008 and 2007, respectively. The fair
value of the Group’s finance lease obligations using an average market rate of 6.1% at December 31, 2009 was EUR 887 million (2008: 8.3%,
EUR 817 million; 2007: 6.8%, EUR 827 million).
The Group’s obligation under finance leases is secured by the lessors’ title to the leased assets.
Rent payments, including scheduled rent increases, are recognized on a straight-line basis over the minimum lease term. Total rent expense
under operating leases was EUR 270 million, EUR 245 million and EUR 242 million in 2009, 2008 and 2007, respectively, being included pre-
dominately in “Selling, general and administrative expenses.” Certain lease agreements also include contingent rent requirements which are
generally based on store sales and were insignificant in 2009, 2008 and 2007.
Sublease payments received and recognized into income for 2009, 2008 and 2007 were EUR 22 million, EUR 19 million and EUR 20 million,
respectively.
Delhaize Group signed lease agreements for additional store facilities, under construction at December 31, 2009. The corresponding lease
terms as well as the renewal options generally range from 3 to 30 years. Total future minimum lease payments for these agreements relating
to stores under construction amount to approximately EUR 166 million.
Provisions for EUR 53 million, EUR 32 million and EUR 34 million at December 31, 2009, 2008 and 2007, respectively, representing the discount-
ed value of remaining lease payments, net of expected sublease income, for closed stores, were included in “Closed Store Provisions” (see Note
20.1). The discount rate is based on the incremental borrowing rate for debt with similar terms to the lease at the time of the store closing.