Note 3
Selling expenses
General and administrative expenses
Share-based compensation
Corporate income taxes ("Income taxes")
Scan bill back 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 the contract does not specify any performance criteria the allowance is deferred over the term of the contract.
When the products concerned are sold, 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 to be a discount on the
products purchased and are recorded as such over the term of the agreement if a specific commitment term is indicated or
upon completing the criteria indicated in the contract. These allowances are recognized as a reduction of the cost of sales
when the product concerned is sold.
Selling expenses consist of wages and salaries of retail and foodservice employees, store expenses, rent or depreciation of
stores and foodservice facilities, advertising costs and other selling expenses.
General and administrative expenses consist of salaries and wages of Ahold's operating companies' main offices and Ahold's
Group Support Offices, rent and depreciation of those facilities, impairment and amortization charges of non-current assets,
results on disposal of non-current assets, restructuring costs and other general and administrative expenses.
The fair value of share-based compensation plans is expensed on a straight-line basis over the vesting periods of the grants,
based on estimates of the number of options or shares that will eventually vest. The fair value of the options and share grants
are measured at the grant date, using generally accepted valuation models. Estimates of the number of options or shares that
will eventually vest relate to non-market vesting conditions, for example staff turnover or Economic Value Added improvement.
Ahold revises its estimates of the number of options or shares that are expected to eventually vest at each balance sheet date.
The impact of the revision of original estimates, if any, is recognized in the consolidated statements of operations, and a
corresponding adjustment to equity over the remaining vesting period.
The income tax expense in the consolidated statements of operations represents the sum of current and deferred tax expense.
Current tax expense is based on the best estimate of taxable income for the year and adjustments for current taxes payable
(receivable) for prior years. Taxable income differs from income (loss) before income taxes as reported in the consolidated
statements of operations due to items of income or expense that are taxable or deductible in other years as well as due to items
that are fully tax exempt or that are not tax deductible. Current tax assets, liabilities and expense are calculated using tax rates
that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities and the corresponding tax basis used in the computation of taxable income. Deferred tax liabilities are generally
recognized for all taxable temporary differences. Deferred tax assets and liabilities are not recognized for temporary differences
arising from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a
transaction that affects neither the taxable income nor the accounting income. Deferred tax liabilities related to unremitted
income of subsidiaries, joint ventures and associates are recognized only when the Company is not able to control the timing
of the reversal of the temporary difference or when it is considered probable that the temporary difference will reverse in the
foreseeable future.
Deferred tax assets, including deferred tax assets for tax loss carryforward positions and tax credit carryforward positions, are
recognized to the extent that it is probable that future taxable income will be available against which deductible temporary
differences can be utilized and deferred tax assets realized. The recoverable amount of deferred tax assets is reviewed at each
AHOLD ANNUAL REPORT 2005 101
