Ahold reports audited consolidated 2002 results

10/2/2003, 8:25 AM (Source: GlobeNewswire)
Highlights - Net loss for 2002 of Euro 1,208 million - Operating income for 2002 of Euro 2,145 million before impairment and amortization of goodwill and exceptional loss related to Argentina - Net loss after preferred dividends per common share for 2002 of Euro 1.34 - Net cash from operating activities for 2002 of Euro 2,486 million - Net loss under US GAAP expected to be significantly higher, primarily as a result of additional goodwill impairment of approximately Euro 3.2 billion (unaudited), of which approximately Euro 2.7 billion relates to U.S. Foodservice - Net sales for 2002 of Euro 62,683 million - Joint ventures deconsolidated and accounted for using equity accounting method - Comparable financial information restated for 2001 and 2000 - Remedial actions taken in 2003: internal controls and corporate governance strengthened

Zaandam, The Netherlands, October 2, 2003 - Ahold today published its
audited consolidated 2002 financial statements. Commenting on the
announcement, Ahold President & CEO Anders Moberg said: "The
publication of these results is a major milestone that draws a line
under recent events and enables us to move forward."

Ahold also announced that the audited 2002 financial statements were
delivered to its syndicate of banks as required under its Euro 2.65
billion credit facility negotiated in March 2003. As a result, Ahold
has access to the unsecured tranche of USD 915 million. "Based on our
current cashflow projections, we believe that we will not need access
to the unsecured tranche," Hannu Ryöppönen, Chief Financial Officer
said.

The findings of forensic and other internal investigations initiated
by the company in 2003 required Ahold to restate its consolidated
financial statements for 2001 and 2000. These restatements of prior
years arose primarily from overstatements of vendor allowance income
at U.S. Foodservice and the deconsolidation of joint ventures.

The 2002 financial statements reflect all material correcting
adjustments that have been identified as a follow-up to the various
investigations and the audit by independent auditors Deloitte &
Touche.
Net income for 2001 and 2000 has been restated resulting in a
reduction in the amount of Euro 363 million and Euro 196 million,
respectively, of which 59% and 53%, respectively, related to improper
accounting for vendor allowances. Correcting adjustments have also
been made in the 2002 financial statements. A summary of accounting
issues under Dutch GAAP is outlined later on in this release.

Net sales were reduced by Euro 12,380 million and Euro 10,709 million
for 2001 and 2000, respectively, mainly as a result of the
deconsolidation of joint ventures and some other smaller adjustments.

Commenting on the 2002 results, Mr Moberg said: "The underlying
performance of our operating companies in the aggregate was good in a
year of increased competition and a weak economy. We have some very
solid operations and strong brands. However, in many ways, it's been
a lost year, difficult and negative. With 2002 now behind us, it's
time to move forward and rebuild value for our customers and our
shareholders," he stated.

Highlights of the 2002 results follow below.

2002 results conference webcast
The 2002 results presentation for media will take place on October 2,
2003 at 10.30 CET at Ahold's offices in Zaandam, and will be
simultaneously webcast on www.ahold.com. The 2002 results conference
for analysts will take place on October 2, 2003, at 14.00 CET, also
at Ahold offices in Zaandam, and will be simultaneously webcast on
www.ahold.com. To access, please click on the link on the homepage.

Copies of the 2002 consolidated financial statements are available on
the company's website at www.ahold.com. These financial statements do
not completely fulfill the statutory filing requirements pursuant to
The Netherlands Civil Code because an annual directors' report and
parent company financial statements are not included. In that respect
they precede a complete statutory annual report for Dutch law and an
annual report on Form 20-F to be filed with the United States
Securities and Exchange Commission in order to satisfy the current
information needs of our stakeholders.

Highlights of the 2002 results
Set forth below are highlights of the results for 2002, 2001 and
2000. The results for 2001 and 2000 have been restated to reflect the
correction of accounting irregularities and errors announced on
February 24, 2003 and those found through the subsequent forensic
investigations and external and internal audits.

The increase in net sales in 2002 was largely attributable to
acquisitions, primarily those of Alliant, acquired in November 2001,
and Bruno's, acquired in December 2001. In addition, the results of
Ahold's subsidiaries Disco and Santa Isabel in South America were
consolidated in the course of 2002. The increase in net sales
excluding currency impact was 20.8%.

Operating income in 2002 amounted to Euro 239 million, a decrease of
87.5% compared to 2001. The decrease was primarily caused by Euro
1,287 million of impairment of goodwill and intangible assets,
including Euro 898 million related to Ahold's operations in Spain,
Euro 199 million related to the Argentine and Chilean operations,
Euro 129 million related to Bruno's in the U.S. and Euro 54 million
related to the Brazilian operations. The decrease was also caused by
a Euro 372 million exceptional loss on related party default
guarantee recorded in 2002 with respect to debt defaults by Velox
Retail Holding, Ahold's joint venture partner in Disco Ahold
International Holdings N.V. Operating income in 2002 also was
adversely affected by a lower U.S. Dollar/Euro exchange rate.

Operating income before impairment and amortization of goodwill and
exceptional loss in 2002 amounted to Euro 2,145 million, an increase
of 4.0% compared to 2001. See table below and the supplemental
disclosures to the statements of operations for a reconciliation of
this non-GAAP measure.

The net loss incurred in 2002 was primarily caused by impairment of
goodwill and other intangible assets of in total Euro 1,287 million,
goodwill and intangible asset amortization of Euro 433 million and an
exceptional loss on related party default guarantee of Euro 372
million.

Net sales increased in 2002 compared to 2001 both organically and as
a result of the acquisition of Bruno's that took effect in December
2001. Comparable and identical U.S. retail sales growth totaled 1.6%
and 0.9%, respectively (2001: 3.1% and 2.6%).

Operating income before impairment and amortization of goodwill
increased in 2002 compared to 2001 as a result of strong operating
performance at Stop & Shop, Giant-Landover and Giant-Carlisle.

The increase in net sales in 2002 compared to 2001 was due to the
acquisition of Alliant in November 2001.

Operating income before impairment and amortization of goodwill in
2002 included a USD 28 million gain relating to excess reserve
reversals, and in 2001 included a USD 94 million loss relating to
restructuring charges at Alliant.

Operating income before impairment and amortization of goodwill as a
percentage of net sales for 2002 was 1.7% and, as restated, 0.9% in
2001, a significant decline from the originally reported number for
U.S. Foodservice for 2001, reflecting the substantial accounting
adjustments related to U.S. Foodservice.

Identical sales growth at Albert Heijn was 4.5%. Within Other Europe,
Schuitema's net sales increased by 4.5%. In Central Europe and Spain,
the net sales increase was mainly attributed to store expansion.

In line with the sales growth, Albert Heijn improved its operating
income before impairment and amortization of goodwill in 2002 by
6.9%. In Other Europe, the operating income before impairment and
amortization of goodwill dropped from Euro 110 million to Euro 32
million, mainly due to the impairment of fixed assets in Other Europe
and less favorable business performance in Spain due to integration
challenges and start-up costs for newly-opened stores.

Net sales at Europe Foodservice declined slightly and operating
income before impairment and amortization of goodwill declined as a
result of increased pension costs.

Net sales in 2002 versus 2001 increased mainly due to the
consolidation of Disco and Santa Isabel in the course of 2002. In
Brazil, sales in local currency were higher mainly due to the
acquisition of G. Barbosa in January 2002.

The operating loss before impairment and amortization of goodwill and
exceptional loss in 2002 was primarily caused by the consolidation of
Disco and Santa Isabel. Difficult trading circumstances impacted
operating income before impairment and amortization of goodwill in
Brazil in 2002, which was below 2001 levels in local currency.

Impairment and amortization of goodwill and intangible assets
Mainly as a result of the deteriorating economic conditions in Spain,
Argentina and the Southeastern United States, goodwill impairment
charges of in total Euro 1,281 million were recorded in 2002 (2001:
Euro 0 million). Impairment charges relating to intangible assets
amounted to Euro 6 million.

Goodwill amortization in 2002 amounted to Euro 253 million (2001:
Euro 152 million). The increase is largely caused by the acquisition
of Bruno's and Alliant. Amortization of other intangible assets
amounted to Euro 180 million (2001: Euro 104 million).

Exceptional loss on related party default guarantee
An exceptional loss was incurred of Euro 372 million in 2002 relating
to the fact that the purchase price of the additional shares in Disco
Ahold International Holdings in July 2002 exceeded the fair value of
the shares acquired by Euro 363 million and a loan to Velox of Euro 5
million had to be written off.

Interest expense in 2002 increased to Euro 1,003 million (2001: Euro
921 million), primarily caused by the new debt assumed or incurred in
connection with acquisitions and an increase in cash dividends paid.
This was partly offset by a favorable currency impact, especially of
the U.S. Dollar.

Share in income (loss) of joint ventures and equity investees
The share in income (loss) of joint ventures and equity investees in
2002 amounted to a net loss of Euro 38 million compared to a net loss
of Euro 192 million in 2001.

Cash flow statement
Net cash from operating activities in 2002 amounted to Euro 2,486
million (2001: Euro 1,961 million). Changes in working capital
improved compared to the prior year, resulting in a cash inflow of
Euro 107 million compared to a cash outflow of Euro 166 million in
fiscal 2001.

Investments in tangible fixed and intangible assets in 2002 amounted
to Euro 2,160 million (2001: Euro 2,459 million). Divestments of
tangible fixed and intangible assets amounted to Euro 590 million
(2001: Euro 1,134 million), in both years mainly related to sale and
leaseback transactions in the U.S. and Europe. The cash outflow
related to acquisitions of consolidated subsidiaries of Euro 977
million was primarily for the purchase of the remaining shares in
Disco Ahold International Holdings.

Shareholders' equity
Shareholders' equity, expressed as a percentage of the balance sheet
total, was 10.5% (at year-end 2001: 19.2%). Shareholders' equity at
December 29, 2002, was Euro 2,609 million.

Long-term financial lease commitments amounted to Euro 2,224 million.

US GAAP reconciliation
The Annual Report on Form 20-F that will be filed with the U.S.
Securities and Exchange Commission will contain a US GAAP
reconciliation of net income and shareholders' equity which is in the
process of being audited. The current unavailability of US GAAP
figures has no impact on Ahold's credit agreement which required that
it delivers audited consolidated financial statements under Dutch
GAAP.

Under US GAAP, the net loss for 2002 will be significantly higher. In
particular, goodwill impairment charges related to the adoption of
Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets ("SFAS 142") on December 31, 2001, will
contribute to a higher net loss under US GAAP. This primarily will be
caused by an additional goodwill impairment charge of approximately
Euro 3.2 billion (unaudited), of which Euro 2.7 billion relates to
U.S. Foodservice.

Next steps
On September 4, 2003, President & CEO Anders Moberg announced the
most important principles of Ahold's strategy going forward. Ahold is
now focusing on two key strategic operating priorities: its leading
food retail formats in the United States and Europe, and restoring
the value of U.S. Foodservice. More details on the new Ahold
strategy, together with the company's view on its future financing,
are expected to be announced mid-October.

Definitions
- Identical sales compare sales from exactly the same stores.
- Comparable sales are identical sales plus sales from replacement
stores.
- Currency impact is the impact of using different exchange rates to
translate the financial figures of our subsidiaries to Euros. Where
specifically indicated, the financial figures of the previous year
are adjusted using the current year exchange rates.

Summary of restatements of and reclassifications to the consolidated
financial position and results for 2001 and 2000 under Dutch GAAP
The internal investigations resulted in significant restatements of
the 2001 and 2000 comparable financial information. These
investigations also revealed the necessity to strengthen Ahold's
internal controls, resulting in a company-wide process being led by a
special task force. Among other changes introduced, Ahold's Internal
Audit function will now report directly to the CEO and the Audit
Committee.

The effect of the restatements on net income for 2001 and 2000 is set
forth in the table below. Restatements of Euro 45 million relating to
periods prior to 2000 were recorded in opening retained earnings as
of January 1, 2000.

Vendor allowances: The internal investigations uncovered significant
accounting irregularities and errors in relation to vendor allowances
over the past three years, mainly at U.S. Foodservice. The correcting
adjustments had a negative effect on Ahold's net income of Euro 215
million for 2001 and Euro 103 million for 2000.

Deconsolidation of joint ventures: Ahold has deconsolidated joint
ventures where it concluded the company did not have effective
control, being ICA, Jerónimo Martins Retail, DAIH, Paiz Ahold and
Bompreço. Ahold has changed to the equity method for these ventures
for the relevant periods using the equity method. This change reduced
consolidated net sales by Euro 12.2 billion for 2001 and Euro 10.6
billion for 2000. Restatements of restructuring provisions of
deconsolidated joint ventures had a negative effect on net income of
Euro 5 million for 2001 and Euro 10 million for 2000.

Acquisition accounting: Ahold has made downward fair value
adjustments to real estate acquired in connection with the
acquisition of its 50% interest in ICA in April 2000 and of
Superdiplo in December 2000. This produced corresponding effects on
goodwill, amortization and gains on asset sales and resulted in a
negative effect on net income of Euro 36 million for 2001 and Euro 8
million for 2000.

Reserves, allowances and provisions: Ahold made changes where entries
were inadequately documented, producing a negative impact on net
income of Euro 33 million in 2001 and Euro 38 million in 2000.

Real estate transactions: Ahold has corrected the accounting
treatment on 46 leveraged lease transactions that took place in 2001.
The net gain from 39 transactions now has been recognized in income
at the transaction date instead of being deferred over the remaining
lease terms ranging from 20-25 years, while seven lease transactions
have been reclassified from operational to financial leases that must
be capitalized. These changes have a positive effect on net income
for 2001 of Euro 2 million and a negative effect of Euro 26 million
for 2000.

Other accounting issues in 2002
Put option: Put options held by ICA's joint venture partners are
disclosed in Ahold's 2002 financial statements as a contingent
liability under Dutch GAAP. In the event that these options are
exercised, Ahold expects that it would have to pay at least an amount
of Euro 1.3 billion for all of the ICA shares held by the ICA
partners.

Impairment of goodwill and tangible fixed assets: Mainly as a result
of the deteriorating economic conditions in Spain, Argentina and the
Southeastern United States, goodwill impairment charges of in total
Euro 1,281 million were recorded in 2002. Furthermore, tangible fixed
asset impairment of Euro 137 million was recorded in 2002.

Vendor invoices: Various matters raised by the U.S. Foodservice
("USF") investigation were further reviewed to determine their
impact, if any, on Ahold's financial statements. One such matter
relates to certain USF vendor invoicing practices. These practices
resulted in overbillings by various USF local branches to various
vendors with respect to vendor allowances of approximately USD 5
million in 2002, USD 7 million in 2001, USD 6 million in 2000 and
USD 13 million in 1999 and prior periods. Ahold has recorded an
accrual to cover any refunds that Ahold or USF expects to be required
to pay to vendors for these overbillings, and has restated its
financial statements for 2001 and 2000 with respect to these
overbillings. Other billing practices also were identified at USF
that could result in other potential overbilling claims by vendors in
an amount totalling approximately USD 60 million. Ahold believes that
USF may have defenses to this category of claims. Accordingly, no
liability has been accrued for this amount. Ahold is implementing
measures designed to prevent improper and questionable vendor
invoicing practices. Additionally, a further review will be done to
determine other appropriate actions to be taken, including personnel
changes. Certain employees at various USF branches have been
suspended and final decisions regarding their employment status will
be made once the investigation is completed.

Ahold Corporate Communications: +31.75.659.5720

---------------------------------------------------------------
Certain statements in this press release are "forward-looking
statements" within the meaning of U.S. federal securities laws. The
company intends that these statements be covered by the safe harbors
created under these laws. These forward-looking statements include,
but are not limited to, expectations as to Ahold's lack of need for
access to the unsecured tranche of the credit facility, expectations
as to the higher net loss under US GAAP, including the estimate as to
goodwill impairment for U.S. Foodservice, statements as to the timing
of the filing of Ahold's 2002 Annual Report on Form 20-F and
statements as to the timing of certain upcoming announcements
regarding Ahold's strategic operating priorities and future
financing. These forward-looking statements are subject to risks,
uncertainties and other factors that could cause actual results to
differ materially from future results expressed or implied by the
forward-looking statements. Important factors that could cause actual
results to differ materially from the information set forth in these
forward-looking statements include, but are not limited to, the
effect of general economic conditions, the ability of Ahold to
implement successfully its strategy including debt reduction and
divestments, the ability of Ahold to comply with the terms of the
credit facility, Ahold's liquidity needs exceeding expected levels
and amounts available under the secured tranche of the credit
facility and generated by operations, unexpected delays in the
completion of the audit of the US GAAP reconciliation and
determination of net income, shareholders' equity and impairment
charges under US GAAP and changes required as a result of such
auditing process, unexpected delays in the filing of the Form 20-F
and in the announcement of our strategy and future financing plans
and other factors discussed in the company's public filings. Many of
these factors are beyond the company's ability to control or predict.
Given these uncertainties, readers are cautioned not to place undue
reliance on the forward-looking statements, which only speak as of
the date of this press release. The company does not undertake any
obligation to release publicly any revisions to these forward-looking
statements to reflect events or circumstances after the date of this
press release or to reflect the occurrence of unanticipated events,
except as may be required under applicable securities laws. Outside
The Netherlands Koninklijke Ahold N.V., being its registered name,
presents itself under the name of "Royal Ahold" or simply "Ahold".
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