Financial statements - Notes to the consolidated financial statements
Note 3
Inventories
Receivables
Cash and cash equivalents
Equity
Pension and other retirement benefits
Inventories are stated at cost or net realizable value, whichever is lower. Cost consists of all costs of purchase, cost of
conversion and other costs incurred in bringing the inventories to their present location and condition, net of vendor allowances
attributable to inventories. For certain inventories, cost is measured using the retail method, whereby the sales value of the
inventories is reduced by the appropriate percentage gross margin. The cost of inventories is determined using either the first-
in, first-out ("FIFO") method or the weighted average cost method, depending on their nature or use. Net realizable value is
the estimated selling price in the ordinary course of business, less the estimated marketing, distribution and selling expenses.
Receivables are carried at amortized cost, which is usually the nominal value. Where necessary, provisions for impairment
losses are recorded at an amount management considers sufficient to meet anticipated losses related to the collectibility of
the receivables. Such provisions are based upon historical loss experience, current economic trends, the age of outstanding
receivables and relationships with and economic status of the debtor.
Using consolidated special purpose entities, Ahold sells certificates representing fractional, undivided interests in eligible
accounts receivable to third-party investors in exchange for cash. Both the accounts receivable and the short-term debt
resulting from the sale of such certificates to third-party investors are included in Ahold's consolidated balance sheets. Losses
in the form of discounts on the sales price received on each receivable transferred, primarily representing interest, vary on a
monthly basis and are included in the consolidated statements of operations as interest expense.
Cash and cash equivalents include all cash on hand balances, checks, debit and credit card receivables that process in less
than seven days, short-term highly liquid cash investments and time deposits with original maturities of three months or less.
Bank overdrafts are included in short-term borrowings on the consolidated balance sheets. Ahold's banking arrangements allow
the Company to fund outstanding checks when presented to the bank for payment. This cash management practice may result
in a net cash book overdraft position, which occurs when the total issued checks exceed available cash balances within the
Group cash concentration structure. Such book overdrafts are classified in accounts payable.
Equity instruments issued by the Company are recorded at the proceeds received. Incremental costs that are directly
attributable to issuing or buying back own equity instruments are recognized directly in equity, net of the related tax.
Ahold sponsors pension, post-employment life insurance and post-employment medical care plans covering a substantial
number of its employees in Europe and the U.S. These plans have been established in accordance with applicable legal
requirements, customs, and local circumstances. Ahold provides post-employment benefits through group plans that are
accounted for as defined benefit plans, as well as through industry multi-employer plans, managed by third parties.
The Company's participations in multi-employer plans are generally accounted for under defined contribution criteria,
whereby the annual expense typically equals the contributions paid to the plan related to that year.
The net assets and net liabilities recognized in the consolidated balance sheets for defined benefit pension plans, or other
post-employment benefit plans, represent the present values of the defined benefit obligations at the balance sheet date, less
the fair value of plan assets, adjusted for unrecognized actuarial gains or losses and unamortized past service costs. Any asset
resulting from this calculation is limited to unrecognized actuarial losses and past service cost, plus the present value of
available refunds and reductions in future contributions to the plan. Ahold applies the corridor approach in recognizing
actuarial gains and losses related to these plans. Under this approach, if, for a specific plan, the net unrecognized actuarial
gains and losses at the balance sheet date exceed the greater of 10% of the fair value of the plan assets and 10% of the
defined benefit obligation, the excess is taken into account in determining net periodic expense for the subsequent period.
The amount then expensed in the subsequent period is the excess divided by the expected remaining average working lives
of employees covered by that plan.
The defined benefit obligation is calculated at least annually on the balance sheet date by independent actuaries using the
projected unit credit method. The present value of the defined benefit obligations is determined by discounting the estimated
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