00 Ahold ANNUAL REPORT 2002 83
BOARD GOVERNANCE HIGHLIGHTS OPERATING REVIEW FINANCIAL INVESTOR REL AT IONS
costs in connection with the forensic accounting and legal investigations that have been conducted and the changes we
are making in light of these investigations, including costs related to strengthening our internal controls and integrating
our operating systems. We also have incurred and will continue to incur substantial costs relating to ongoing litigation and
government and regulatory investigations. Most of these costs will be recorded as general and administrative expenses.
In addition, in fiscal 2003, we expect contributions to our defined benefit plans will increase significantly, partly as a
result of compliance with minimum plan assets to liabilities coverage ratios prescribed by U.S. and European laws.
Net financial expense: fiscal 2003
On March 3, 2003, we entered into the 2003 Credit Facility, which replaced the 2002 Credit Facility. We expect that our
interest expense for fiscal 2003 will increase in part because the 2003 Credit Facility has a higher applicable borrowing
rate than the 2002 Credit Facility. The applicable borrowing rate under the 2003 Credit Facility as of October 3, 2003, is
LIBOR (or EURIBOR on EUR borrowings) plus 3.25%. The applicable borrowing rate under our 2002 Credit Facility as of
fiscal year-end 2002, was LIBOR (or EURIBOR on EUR borrowings) plus a margin of 0.35% to 0.40%, depending upon
the amount of debt drawn under the facility.
In addition, our level of borrowing and letters of credit under the 2003 Credit Facility have increased compared to
the level under the 2002 Credit Facility. We also have incurred significant fees under the 2003 Credit Facility and in
connection with the extension and amendment of our accounts receivable securitization programs. Our borrowings under
the 2003 Credit Facility as of October 3, 2003, were USD 750 million and EUR 600 million, plus USD 353 million of
issued letters of credit that currently bear a fee of 3.25% of the stated amount. Our borrowings under the 2002 Credit
Facility as of fiscal year-end 2002 were USD 80 million, plus USD 150 million of issued letters of credit with a fee of
0.40%.
Set forth below is a discussion of our expectations of our results of operations for our various operating businesses for
fiscal 2003.
Retail trade in the United States: fiscal 2003
We expect that net sales for our U.S. retail trade operations in fiscal 2003 will increase modestly, excluding the effects of
currency exchange rates, although the weakened economy has affected and is expected to continue to negatively affect our
U.S. retail trade net sales in fiscal 2003, particularly in the southeastern United States, where a combination of strong
competition and high unemployment rates are creating a difficult trading environment. At Stop Shop and Giant-Carlisle,
we expect strong net sales growth, excluding the impact of currency exchange rates, in fiscal 2003 compared to fiscal
2002. On the other hand, Bruno's, and to a lesser extent, Giant-Landover and Tops, have been experiencing pressure on
net sales in fiscal 2003. We expect that our U.S. retail trade operating expenses will increase in fiscal 2003, reflecting
additional pension premiums and payments to our pension funds due to the poor performance of the stock markets, as
well as continued rising health care costs. A part of these expenses is, however, being offset through various cost saving
initiatives, the most significant of which are detailed below. These factors will adversely affect operating income in fiscal
2003.
We are decreasing our administrative costs by combining certain functions at four of our U.S. retail trade operations into
two integrated organizations. Tops and Giant-Carlisle began implementing a shared service organization in fiscal 2001.
This process was substantially completed in August 2003. BI-LO and Bruno's are also implementing a shared service
organization. It will combine administrative functions of BI-LO and Bruno's. We have continued to centralize our
purchasing of not-for-resale goods and services used in our business, including fixtures and store equipment.
In August 2003, we announced our intention to sell Golden Gallon convenience stores, which are part of our BI-LO
operations. This is in line with our objective to restructure our portfolio and focus on our core businesses. The sale was
completed in October 2003.
Retail trade in Europe: fiscal 2003
At the beginning of fiscal 2003, we implemented a new management structure for our retail trade operations in Europe,
which we expect will allow us to respond more quickly and more decisively to the changing market conditions in Europe.
In Europe, we have experienced retail trade sales pressure in fiscal 2003 due to the weakened economy and consumers'
focus on price, combined with increased competition. We expect that net sales will grow in fiscal 2003, compared to fiscal
2002, as a result of identical net sales growth in a limited number of markets and store expansions at most operations
despite the sales pressure resulting from the weakened economy, consumers' focus on price and increased competition.
