Impairment of long-lived assets
Investments in joint ventures and equity investees
Value Added Service Providers
100
The Company periodically reviews its equity investments for which fair value is less than the carrying value to determine if
the decline in value is other than temporary. If the decline in value is judged to be other than temporary, an impairment
loss is recognized in operating income to reduce the carrying value of the investment to its fair value.
In case an equity investees’ equity becomes negative, the Company continues to record the share in losses for those equity
investees in “investments in joint ventures and equity investees”, if it has either issued declarations of assumption of
liability or has a firm intention to enable, up to the Company’s share, payments of debts by the equity investee. Any direct
or indirect loans with those equity investees are provided for to the extent of their non-recoverable amount.
Equity investees in which Ahold does not have the ability to exercise significant influence are accounted for by the cost
method. Dividends and other gains and losses from these investments are recorded under “Other financial income and
expense” in the consolidated statements of operations.
Fixed and intangible assets held and used by the Company are evaluated for impairment if there are changes in
circumstances that indicate that the carrying amount of the assets may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an asset to its recoverable amount, calculated as
the higher of the net selling price or the discounted future net cash flows expected to result from the use of the asset and
its eventual disposition. Fixed and intangible assets are grouped at the lowest level of identifiable cash flows for this
analysis (e.g. on a store by store basis), while goodwill is grouped and assigned to each reporting unit of the Company,
defined as one level below its operating segments. If such assets are considered to be impaired, the impairment
recognized is measured as the amount by which the carrying amount of the assets exceeds the net realizable value of the
assets and is recorded as a charge to operating income. The most significant estimates made in determining discounted
future net cash flows include the selection of the appropriate discount rates, residual asset values and the number of years
on which to base the cash flow projections. Generally, fixed and intangible assets to be disposed are reported at the lower
of carrying amount or fair value less cost to sell the assets.
Investments in joint ventures and other companies (“equity investees”) in which Ahold does not have the ability to directly
or indirectly control the financial and operating decisions, but does possess the ability to exert significant influence, are
accounted for using the equity method. Under the equity method, as applied under Dutch GAAP, the investment is carried
at the cost of the Company’s share in the net assets of the joint venture or equity investee excluding goodwill, plus the
Company’s share in income or losses since acquisition, less dividends received. Ahold’s share in the net income (loss) of
these investments is recorded in the line “Share in income (loss) of joint ventures and equity investees” in the
consolidated statements of operations. Generally, significant influence is presumed to exist if at least 20% of the voting
stock is owned by Ahold. Goodwill arising from these acquisitions is recorded under goodwill on the balance sheet and
amortized over a period not exceeding 20 years. Amortization of goodwill is recorded in the line “Goodwill and intangible
asset amortization” in the consolidated statements of operations.
The Company’s wholly owned food service subsidiary in the U.S., U.S. Foodservice (“USF”) has product financing
arrangements with five Value Added Service Providers (“VASPs”). USF does not own any shares in the VASPs, nor does it
have any voting interest in these companies. Each VASP, at the request or with the consent of USF, will purchase certain
commodities and products from third parties, then mark-up and resell such products to USF. Although these VASPs are not
owned by USF, they are almost entirely dependent on their sales to USF. The VASPs provide varying degrees of support to
USF primarily in the purchase of private label and signature brand products. USF engages in direct business discussions
with the VASPs’ ultimate vendors to ensure price, product specification and quality requirements are met and to take
advantage of volume purchasing power. The VASPs’ purchases are funded almost entirely by USF with interest-free
advances and by the extension of trade credit by vendors, some of which has been guaranteed by USF. A portion of the
VASP sales price to USF is subsequently passed back to USF, leaving the VASP with a predetermined, per transaction fee.
The transaction fee, which includes reimbursements for holding costs associated with the inventory, is intended to be
sufficient to allow the VASPs to recover substantially all of their operating costs with a limited profit. USF uses the invoice
price from the VASPs as its cost in sales made to its customers under “cost plus” contracts. Additionally, since USF has
guaranteed certain of the obligations of the VASPs and ultimately retains the risks and rewards related to the inventory
and related payables of the VASPs, Dutch GAAP and US GAAP require the recognition of certain of these inventories and
related payables of the VASPs within Ahold’s consolidated financial statements, consistent with the approach under SFAS
No. 49 “Accounting for Product Financing Arrangements”.
