Note 3
Provisions
Loans and short-term borrowings
future cash outflows using interest rates of high-quality corporate bonds denominated in the currency in which the benefits will
be paid, and that have an average duration consistent with the expected duration of the related pension liabilities. Past service
costs are recognized immediately to the extent that the benefits are already vested, and are otherwise amortized on a straight-
line basis over the average period until the benefits become vested. If a plan is materially curtailed (i.e., if the number of
employees covered by a plan is materially reduced) or settled in a period, the related portion of net unrecognized actuarial
gains and losses is recognized immediately. Net assets of a plan are only set off against net liabilities of another plan if there is
a legally enforceable right to use the surplus in that plan to settle obligations under the other plan and if the Company intends
to settle both plans simultaneously.
For other long-term employee benefits, such as long-service awards, provisions are recognized on the basis of discount rates
and other estimates that are consistent with the estimates used for the defined benefit obligations. For these provisions the
corridor approach is not applied and all gains and losses are recognized in the consolidated statements of operations
immediately.
Provisions are recognized when (i) the Company has a present (legal or constructive) obligation as a result of past events, (ii) it
is more likely than not that an outflow of resources will be required to settle the obligation and (iii) the amount can be reliably
estimated. The amount recognized is the best estimate of the expenditure required to settle the obligation. Provisions are
discounted whenever the effect of the time value of money is significant. Material obligations for which an outflow of resources
is reasonably possible, but not more likely than not, or for which no reliable estimate can be made, are disclosed as contingent
liabilities but no provision is recognized.
Restructuring provisions are subject to certain specific criteria which include the existence of a detailed formal plan,
identifying at least: (i) the business or part of a business concerned, (ii) the principal locations affected, (iii) the location,
function and approximate number of employees who will be compensated for terminating their services, (iv) the expenditures
that will be undertaken and (v) the timing of when the plan will be implemented. Furthermore, the Company must have raised
a valid expectation with those affected that it will carry out the restructuring, by starting to implement that plan or announcing
its main features to those affected by it. The provision is limited to termination payments to employees, continuing rent
obligations and other expenditures necessarily entailed by the restructuring.
Onerous contract provisions are recorded for the amount by which the unavoidable costs to fulfill agreements exceeds the
expected benefits from such agreements.
The Company is self-insured for certain potential losses that may arise at its subsidiaries, related mainly to general liability,
commercial vehicle liability and workers' compensation. The Company has stop-loss coverage to limit the exposure arising from
these claims. The self-insurance program liabilities are recorded based on claims filed and an estimate of claims incurred but
not yet reported. The provision includes expenses incurred in the claim settlement process that can be directly associated with
specific claims. Other expenses incurred in the claim settlement process are expensed when incurred. 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 and
actual payroll costs.
Loans and short-term borrowings are recognized initially at the proceeds received, which represent fair value, net of transaction
costs incurred. Loans and short-term borrowings are subsequently stated at amortized cost. Any difference between the
proceeds and redemption value is recognized in the statements of operations over the period of the loans and short-term
borrowings using the effective interest method.
Loans are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability
for at least 12 months after the balance sheet date.
AHOLD ANNUAL REPORT 2005 99
