GO Ahold
Vendor allowances
Net sales
Cost of sales
103
Other provisions include commitments for supplementary or severance payments. The supplementary payments relate to
occupational disability. The severance payments relate to commitments of the Company made to terminate employment
before the normal retirement date or the termination of redundant personnel. Ahold accrues occupational disability and
severance payments that vest or accumulate if the employee’s rights to the payments are attributable to services already
rendered and if payment is probable and can be reasonably estimated. When severance payments are part of a
restructuring activity, this determination is made in accordance with the policy on restructuring stated above.
The Company also records provisions for unavoidable costs to fulfill agreements that exceed the expected gains from such
agreements. Provisions for claims, disputes and legal proceedings are recorded if it is probable that the Company will be
liable in a proceeding, for the estimated amount at which the liability can be settled. If the amount for which the liability
can be settled cannot be reliably estimated, the claim, dispute or legal proceeding is disclosed, if it is expected to be
significant.
All provisions are undiscounted, with the exception of provisions for unfavorable lease contracts. Such provisions are stated
at the present value of the future obligations.
The Company is self-insured for certain losses related to general liability, commercial auto liability and workers’
compensation. The Company has stop-loss coverage to limit the exposure arising from these claims. It is the Company’s
policy to record its self-insurance liabilities based on claims filed and an estimate of claims incurred but not yet reported.
The Company’s estimate of the required liability of such claims is recorded on a discounted basis, utilizing an actuarial
method, which is based upon various assumptions that include, but are not limited to, historical loss experience, projected
loss development factors, actual payroll costs and other data.
Generally, sales and cost of sales are recorded on a gross basis, based on the gross amount collected from the customer
and the amount paid for the product to the vendor. However, for certain products or services, such as the sales of lottery
tickets, third-party prepaid phone cards, stamps and public transportation tickets that the Company sells, the Company
has determined that it acts as the de facto agent based on criteria as set forth in the Guidelines for Annual Reporting in
The Netherlands 270 “Statement of Operations”. For these transactions, the Company records the amount of the net
margin in its sales.
The most common allowances offered by vendors are (i) volume allowances, which are off-invoice or amounts billed back
to vendors based on the quantity of products sold to customers or purchased from the vendor and (ii) promotional
allowances, which relate to cooperative advertising and market development efforts. Vendor allowances are only recognized
in income if evidence of a binding arrangement exists with the vendor. The timing of recognition depends on the facts and
circumstances as described below for the various types of arrangements.
as a result of a particular event; (ii) it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation, and (iii) a reliable estimate can be made of the amount of the obligation.
The Company receives various types of vendor allowances in the form of up-front payments (or lump sum payments or pre
paid amounts), rebates (in the form of cash or credits), and other forms of payments that effectively reduce the Company’s
cost of goods purchased from the vendor or the cost of promotional activities conducted by the Company that benefit the
vendor.
Ahold generates and recognizes sales to retail customers at the point of sale in its stores and upon delivery of groceries to
Internet customers. Ahold also generates sales from the sale of products to food service customers and retail franchisees,
which are recognized upon delivery. In addition, Ahold recognizes income from franchisee fees based on contractual
arrangements over the term of the contracts. Sales to retail franchisees and franchise fees amounted to EUR 1,281,
EUR 1,181 and EUR 1,090 for fiscal 2002, 2001 and 2000, respectively. Discounts earned by customers through
agreements or by using their bonus or loyalty cards, are recorded by the Company as a reduction of the sales price at
the time of the sale.
This includes the purchase price of the products sold, as well as the costs of purchasing, storing, rent, depreciation of
tangible fixed assets, salaries and transporting the products. Vendor allowances are generally deducted from cost of sales.
BOARD GOVERNANCE HIGHLIGHTS OPERATING REVIEW FINANCIAL INVESTOR RELATIONS
ANNUAL REPORT 2002
