Notes: 2
104
Ahold Annual Report 2003
Financial Statements
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.
Net sales
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 revenues from the sale of products to foodservice 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. Ahold recognizes franchise fees
(with appropriate provision for estimated uncollectible accounts) as revenue when all material services relating
to the contract have been substantially performed. Sales to retail franchisees and franchise fees amounted to
EUR 3,752, EUR 3,590 and EUR 3,324 for 2003, 2002 and 2001, 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.
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, the Company has
determined that it acts as an 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.
Cost of sales
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. Since the change in accounting policy to follow the
guidance of EITF 02-16, vendor allowances are generally deducted from cost of sales when the products to which
the vendor allowances relate are sold.
Vendor allowances
The Company receives various types of vendor allowances in the form of up-front payments (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 a vendor or the cost of promotional activities conducted by the Company
that benefit the vendor.
Vendor allowances are only recorded if evidence of a binding arrangement exists with the vendor and the
amounts that will be received are both probable and estimable. Evidence of an arrangement takes different forms.
Arrangements with vendors are principally evidenced by written contracts. In the absence of written contracts, the
other documentation evidencing an arrangement are: documentation received from vendors, including end-of-period
settlements statements; vendor presentation materials; term sheets; and e-mails or other forms of documentation
that specify the terms and conditions of the vendor allowance receivable. The Company only considers these forms
of documentation binding when they are consistent with historical business practices relating to a vendor and when
settlement has occurred or is reasonably assured.
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. The timing of
recognition depends on the facts and circumstances as described below for the various types of arrangements.
Slotting and stocking allowances that are paid by vendors in return for introducing their new products in a
store, up-front payments by vendors and rebates received relating to volume of products purchased are all volume
allowances recognized on a systematic basis as a reduction of the purchase price of the related products as they are
sold. If these volume allowances are contingent on achieving certain minimum volume targets, the allowances are
recognized only to the extent it is probable that the minimum volume targets will be achieved and the amount of the
allowance can be reasonably estimated.
Scan billback volume allowance programs involve amounts billed back to vendors based on scan data, in some
cases adjusted to compensate for scanning errors and/or administrative costs. These allowances are recognized as
an offset to cost of sales when the related products are scanned at the point-of-sale.
Promotional allowance payments from vendors representing promotional activities are recorded as a reduction
of the cost of the related products when the advertising or other marketing activities specified in the contract are
performed by the Company for the vendor. If no specific performance criteria are defined in the contract, the
allowance is deferred over the term of the contract. Upon the sale of the related products the promotional allowance
is recognized as a reduction of cost of sales.
Other vendor allowances mainly relate to promotional display allowances paid by vendors in return for displaying
their products in a specific manner or location and other lump sum payments. These payments are also considered