Ahold reports big loss for 2002

It could be $5.3 billion under U.S. accounting

October 03, 2003|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

In the wake of an accounting scandal at its Columbia-based food service subsidiary, Royal Ahold NV reported yesterday a $1.4 billion loss for 2002 that could mushroom to $5.3 billion under U.S. accounting standards.

Ahold's 2002 loss is the first since at least 1992 and compares with a restated profit of 750 million euros in 2001. Under tougher U.S. accounting standards, the Dutch supermarket conglomerate said it will write down the value of its assets by $3.8 billion, including $3.2 billion for U.S. Foodservice - a writedown that will balloon its loss.

The 2002 report had been delayed for seven months after the disclosure in February that U.S. Foodservice had inflated profit over three years. Ahold, which also owns Giant Food, reported its results yesterday just hours before banks were to cut off access to a $3.1 billion credit facility first negotiated in March.

"It's a new start," said Theo Kraan, who manages the equivalent of about $2.2 billion at Cene Bankiers in Utrecht, Netherlands, and decided yesterday to keep his Ahold shares. Ahold's U.S. shares closed yesterday at $10.27, up from a low of $2.72 earlier this year.

In announcing the results at its home base in Zaandam, Netherlands, Ahold's new president and chief executive, Anders Moberg, sought to close the book on a dark chapter in the company's history and reassure investors that substantial changes are being made, including strengthening internal controls and corporate governance.

Moberg, a former IKEA and Home Depot executive, replaced Cees van der Hoeven, who was ousted along with Ahold's chief financial officer in February. On that day, Ahold's stock lost more than 60 percent of its value.

"This will allow us to move forward and focus our attention back to the business," Moberg said during a news conference.

"The numbers ... show that it's absolutely vital to make changes throughout the entire company," Moberg said. "With the confidence of knowing exactly where we stand as a company, it's time to take the next step, focus our portfolio, simplify structure, drive costs out of the system and restore the value of U.S. Foodservice. My commitment is that we will get the company back on track, to the level where it could be and should be."

Moberg said he expects to announce a new chief executive of U.S. Foodservice, which supplies food and products to schools, hotels and hospitals, in the next 10 days. James Miller, U.S. Foodservice's former CEO, stepped down in May.

Ahold, primarily an operator of supermarket chains, reported net sales rose 16 percent to 62.7 million euros, or $73.3 million. Operating profit rose 4 percent to 2.1 billion euros, or $2.5 billion.

On a per-share basis, the company reported a net loss of 1.34 euros, or $1.57, per common share.

Hannu Ryopponen, Ahold's chief financial officer, said the company has not yet finalized its financial statements under U.S. accounting standards, but said the 2002 net loss is expected to be "significantly higher" than under the Dutch standard - a loss of about 4.5 billion euros, or $5.3 billion, because of the large write-down of U.S. Foodservice. The company said it expects to file those results with the U.S. Securities and Exchange Commission sometime next week.

Over the last week, Ahold has suspended 21 people in middle and lower management at U.S. Foodservice, pending the outcome of an internal investigation, he said.

Over the past six or seven months, independent auditors have completed 22 forensic accounting investigations at U.S. Foodservice, Ahold's Disco supermarket chain in Argentina, the parent company Ahold and 19 operating companies.

Those reviews identified about 460 accounting issues, all of which are reflected in the restated financial statements, and 330 "internal control" issues. The irregularities at U.S. Foodservice included "incorrect accounting, internal and unintentional misinterpretation of accounting standard, mischaracterization of receipts and misclassifications of some [vendor] allowances as revenue rather than as reduction of expenses," Ryopponen said.

Because of those findings, Ryopponen said, "new procedures have been put in place," and the company is testing a new system to track vendor allowances, which would be rolled out at all U.S. Foodservice divisions next year.

"Ahold does not want this to occur again," he said.

Wire services contributed to this article.

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