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Notes to the consolidated financial statements
83
3 Significant accounting policies (continued)
Pension and other post-employment benefits
Provisions
Ahold at a glance I Business review I Governance I Financials I Investors
Reinsurance assets and liabilities
Under Ahold's self-insurance program, part of the insurance risk is ceded under a reinsurance treaty, which is a
pooling arrangement between unrelated companies. Reinsurance assets include estimated receivable balances
related to reinsurance contracts purchased by the Company. Reinsurance liabilities represent the expected
insurance risks related to reinsurance contracts sold by the Company. Reinsurance assets and liabilities are
measured on a discounted basis using accepted actuarial methods.
Financial guarantees
Financial guarantees are recognized initially as a liability at fair value. Subsequently, the liability is measured
at the higher of the best estimate of the expenditure required to settle the obligation and the amount initially
recognized less cumulative amortization.
Equity
Equity instruments issued by the Company are recorded at the value of proceeds received. Own equity
instruments that are bought back (treasury shares) are deducted from equity. Incremental costs that are directly
attributable to issuing or buying back own equity instruments are recognized directly in equity, net of the related
tax. No gain or loss is recognized in the income statement on the purchase, sale, issuance or cancelation of
the Company's own equity instruments.
Cumulative preferred financing shares
Cumulative preferred financing shares, for which dividend payments are not at the discretion of the Company,
are classified as non-current financial liabilities and are stated at amortized cost. The dividends on these
cumulative preferred financing shares are recognized as interest expense in the income statement, using
the effective interest method. From the date when Ahold receives irrevocable notification from a holder of
cumulative preferred financing shares to convert these shares into common shares, the cumulative preferred
financing shares are classified as a separate class of equity.
The net assets and net liabilities recognized on the consolidated balance sheet for defined benefit plans
represent the actual surplus or deficit in Ahold's defined benefit plans measured as the present value of the
defined benefit obligations less the fair value of plan assets. Any surplus resulting from this calculation is limited
to the present value of available refunds and reductions in future contributions to the plan.
Defined benefit obligations are actuarially calculated on the balance sheet date using the projected unit
credit method. The present value of the defined benefit obligations is determined by discounting the estimated
future cash outflows using market yields on high-quality corporate bonds (i.e., bonds rated AA or higher),
denominated in the currency in which the benefits will be paid, and that have an average duration similar to
the expected duration of the related pension liabilities.
Defined benefit costs are split into three categories:
a Service cost, past service cost, gains and losses on curtailment and settlements
a Net interest expense or income
a Remeasurement
Ahold
Annual Report 2015
The first category is presented as labor costs within operating earnings. Past-service costs are recognized
in the income statement in the period of plan amendment. Results from curtailments or settlements are
recognized immediately.
Past service years within the Dutch pension fund are calculated based upon a methodology that uses the
maximum past service years based on accrued benefits or a participant's actual date of hire.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset and is
presented within net financial expenses.
Remeasurements, comprising actuarial gains and losses, the effect of the asset ceiling (if applicable) and the
return on plan assets (excluding interest) are recognized immediately in the balance sheet with a charge or
credit to other comprehensive income in the period in which it occurs. Remeasurements recorded in other
comprehensive income are not recycled to the income statement.
Contributions to defined contribution plans are recognized as an expense when employees have rendered
service entitling them to the contributions. Post-employment benefits provided through industry multi-employer
plans, managed by third parties, are generally accounted for under defined contribution criteria.
For other long-term employee benefits, such as long-service awards, provisions are recognized on the basis
of estimates that are consistent with the estimates used for the defined benefit obligations, however discounted
using Ahold's cost of debt rate. For these, all actuarial gains and losses are recognized in the income
statement 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.
The provision for the Company's self-insurance program is recorded based on claims fled 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 based upon various assumptions that include, but are not limited
to, historical loss experience, projected loss development factors and actual payroll costs.
Restructuring-related provisions are recognized when the Company has approved a detailed formal
restructuring plan and the restructuring has either commenced or has been announced to those affected by it.
Onerous contract provisions are measured at the amount by which the unavoidable costs to fulfill agreements
exceeds the expected benefits from such agreements.
