Foodservice

NEW YORK -- Attorneys for Michael Resnick, the former finance chief of Royal Ahold NV's U.S. unit accused of leading an $800 million fraud, say former executives who will testify against him told company lawyers that they weren't sure he knew of the scheme. Resnick, who was chief financial officer of Columbia, Md.-based U.S. Foodservice, is slated to go on trial Feb. 27 on charges that he lied about earnings. Former colleagues who pleaded guilty in the case are cooperating with prosecutors and will testify against him and another defendant, former marketing manager Mark Kaiser.

As the latest step in a recovery effort precipitated by a $1 billion-plus accounting scandal nearly three years ago, Royal Ahold NV said yesterday that it will boost profit at its U.S. Foodservice unit in Columbia by splitting it into two parts and cutting administrative costs. One unit of the food distribution company will deliver bulk food and equipment to institutional buyers such as hospitals, schools and prisons, while the other will service fast-food chains. Ahold, which saw its shares climb 5.6 percent to close at $7.51 yesterday, also plans to cut administrative costs by $100 million by 2008, although it did not provide details.

Federal prosecutors investigating an accounting scandal at Columbia-based U.S. Foodservice filed criminal charges yesterday against seven people who worked for company suppliers and allegedly helped cover up the fraud to maintain lucrative business relationships. They are the latest charges in a case that damaged Royal Ahold NV, one of the world's largest retailers and the parent company of U.S. Foodservice Inc.; triggered management changes at Ahold and at Foodservice, the second-largest U.S. distributor of food and food products to restaurants and cafeterias; and in January led to the indictments of nine other vendors.

THE HAGUE, Netherlands - Royal Ahold NV, the Dutch supermarket company that inflated profits, said it plans to keep U.S. Foodservice, the Columbia, Md.-based food-distribution unit where most of the faulty accounting took place. The company, which owns Giant Food of Landover and the Stop & Shop chain, can create more value by keeping the business than by selling it, Chief Executive Officer Anders Moberg said yesterday at the company's annual meeting. Ahold had been considering the unit's future since revealing the earnings fabrication in February 2003.

Nine vendors whose companies include major names in the U.S. food industry were charged in federal court in New York yesterday with helping Columbia-based U.S. Foodservice Inc. perpetrate an $800 million accounting fraud that illustrated the pressure on suppliers to engage in a cover-up to maintain lucrative business relationships, attorneys said. The vendors, whose companies included General Mills Inc. and Tyson Foods Inc., were charged with aiding executives of U.S. Foodservice in producing false records that created the illusion of $800 million in added revenues over three years.

Dutch shareholders of Royal Ahold NV, the world's third-largest retailer, have succeeded in forcing a new inquiry into its previous management, including practices that led to the accounting fraud at the food conglomerate's Columbia subsidiary, the company disclosed yesterday. A Dutch court ordered the review in response to a February 2004 request from the VEB, a small shareholder advocacy group that represents Dutch investors. Among other things, the Enterprise Chamber in Amsterdam ordered three court-appointed investigators to examine circumstances surrounding Ahold's 2000 purchase of U.S. Foodservice, the Columbia company at the center of an accounting fraud that forced the company to restate earnings by $1.2 billion for 2000-2002.

The Dutch parent of grocers Giant Food Inc. and Stop & Shop reported a wider third-quarter loss yesterday as withering competition from Wal-Mart, Target and other nontraditional food sellers hammered its U.S. retail business. Royal Ahold NV, the world's third-largest retailer, reported a net loss of 166 million euros, or $218.8 million, for the quarter, compared with a loss of 100 million euros in third-quarter 2003. Operating income from U.S. retail operations, which includes Giant, the Baltimore/Washington area's biggest grocery chain, fell 57.5 percent compared with a year ago, the company said.

Royal Ahold NV, the Dutch food conglomerate riven by an accounting fraud at its Columbia subsidiary, has reached a settlement with the Securities and Exchange Commission, ending a major chapter in the nearly two-year-old scandal. Under the agreement, Ahold won't pay any fines or admit wrongdoing for its actions, which caused it to restate earnings by $1.2 billion over three years. The SEC said Ahold wasn't fined because the company cooperated with investigators. The agency noted that Ahold reported the misconduct and conducted an extensive internal investigation that went beyond its U.S. Foodservice unit in Columbia.

YOUR MOTHER knew about lies. You can't tell just one. One fib requires a second to support the first, which spawns two more, and so forth into Wonderland. Truth is vindictive this way. Once bruised, it must be beaten to a bloody mash or it comes back and gets you. But as the offense rises from battery to murder, so do chances you'll get caught. Prosecutors like that. What were people thinking at U.S. Foodservice? As bogus accounting swelled from figment to $800 million fantasy, top managers apparently spent as much time spinning Mother Goose stories as they did running the Columbia wholesaler.

NEW YORK - Federal prosecutors announced criminal charges yesterday against four former executives at Columbia-based U.S. Foodservice in connection with a scheme to inflate earnings by more than $800 million. The Securities and Exchange Commission also filed an array of civil charges against the company's former leaders. The actions capped a 17-month investigation into accounting irregularities at the food distributor that nearly toppled its Dutch parent company and cost investors here and abroad an estimated $6 billion.