U.S., Dutch accountings bare divergent pictures of Aegon

Insurer lost $2.38 billion, but profited $1.65 billion

March 27, 2003|By William Patalon III | William Patalon III,SUN STAFF

Dutch insurance giant Aegon NV said yesterday that it had a net loss last year of $2.38 billion under U.S. accounting rules, but a profit of $1.65 billion under regulations of the Netherlands.

Because Aegon, which employs about 900 at its U.S. headquarters in Baltimore, lists its shares on the New York Stock Exchange, the company is required to follow U.S. accounting rules when releasing its financial statements in this country.

Aegon officials were unavailable to elaborate yesterday.

As yesterday's report shows, the differences between Dutch and U.S. accounting rules can lead to big divergences in the underlying figures, said Raymond Locke, an accountant and financial-statements expert with Watkins Meegan Drury & Co., in Bethesda.

Aegon, which employs about 25,000 worldwide, had reported its sales and profits March 6, when it also announced a dividend cut for the second straight year. In yesterday's announcement, Aegon said the largest part of the difference could be explained by U.S. accounting regulations that required it to take two sets of charges against earnings. Those charges transformed the company's profit at home into a U.S. loss.

The first charge -- $1.13 billion -- was taken because some of the stocks Aegon held as investments had declined in value. U.S. accounting rules, unlike those in The Netherlands, require Aegon to charge that write-off against profits, Aegon said.

The second charge -- $2.01 billion-- pertained to Aegon's $10.8 billion purchase of Transamerica Finance Corp. in 1999. Under a new U.S. accounting rule, a decline in the goodwill value of an acquired company must be written off in the year it occurs.

Goodwill is a bookkeeping measure that accounts for the difference between the price that's paid for a company and the value of the purchased assets. Until rules changed this year, goodwill was usually written off in equal yearly increments of up to 40 years.

"The value of Aegon declined because the value of its investments declined," Locke said.

Dutch insurance firms such as Aegon, and rival ING Groep NV, face significant write-offs after spending billions of dollars acquiring companies to bulk up in recent years, since those acquired companies have declined in value. ING took a charge of nearly $14 billion just to account for a decline in goodwill valuations.

"The reason [Aegon's write-down] is not as bad as ING's is that Aegon paid less a longer time ago," said Andrew Ritchie, an analyst at Fox-Plitt, Kelton, a London investment firm.

Aegon's American Registered Shares rose 8 cents yesterday to close at $8.48.

Bloomberg News contributed to this article.

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