GO Ahold
Certain risks and concentrations
Liquidity and capital resources
97
accounting for vendor allowances, purchase accounting and goodwill, impairment of long-lived assets, pensions and
other post-retirement benefits, self-insurance and income taxes. Actual results could differ from those estimates.
All assumptions, anticipations, expectations and forecasts used as a basis for certain estimates within the consolidated
financial statements represent good-faith assessments of the Company’s future performance for which it believes there is
a reasonable basis and represent the Company’s view only as of the dates they are made. It involves known and unknown
risks, uncertainties and other factors that could cause the Company’s actual future results, performance and achievements
to differ materially from those forecasted.
The Company maintains the majority of its cash balances and all of its short-term investments with no more than ten
financial institutions. The Company invests with high credit quality financial institutions and, by policy, limits the amount
of credit exposure to any one financial institution. U.S. Foodservice and its subsidiaries have accounts receivable from
several customers in the food service industry and from time to time sells certain receivables by way of securitizations and
retains a participating interest. Management of the Company performs ongoing credit evaluations of its customers and
maintains allowances for doubtful accounts.
The 2003 Credit Facility requires the Company and some of its subsidiaries to comply with various covenants (financial
and otherwise) which may significantly restrict, and in some cases may prohibit, the Company’s ability and the ability of
those subsidiaries to incur additional debt, create or incur liens, pay dividends or make other equity distributions, create
restrictions on the payment of dividends or other amounts by those subsidiaries, make loans, acquisitions and investments,
incur capital expenses, sell assets, issue or sell the equity of subsidiaries and retire or defease certain debt. It also
requires the Company to maintain a specified ratio of adjusted operating income to net interest expense. Certain other
debt instruments of the Company also contain various financial and restrictive covenants. In the event that the Company or
any such subsidiaries were to fail to meet any of these covenants and were unable to cure any breach or obtain consents
to waivers of non-compliance with or otherwise renegotiate these covenants, the lenders under the 2003 Credit Facility
and other credit agreements and debt instruments, counterparties to derivative instruments and lessors under some of the
Company’s operating leases would be able to elect to accelerate their final maturities and in some cases would have
significant rights to sell or otherwise enforce upon assets pledged. The counterparties under these various contracts could
also require the Company, among other things, to pay penalties, support its obligations with letters of credit or renegotiate
for less favorable terms.
The timely payment of amounts due in the near-term on the Company’s outstanding indebtedness and the continued
funding of its business will require substantial cash resources. As of fiscal year-end 2002, EUR 1,273, EUR 56 and
EUR 2,530 of the Company’s outstanding long- and short-term borrowings, excluding amounts which have been repaid
during 2003, will become due and payable in 2003, 2004 and 2005, respectively. In addition, as of September 15,
The Company’s product revenues are concentrated in the retail and food service industry, which is highly competitive
and heavily subject to changes in customer behavior. Significant changes in the industry or customer behavior, or the
emergence of competitive markets could adversely affect the Company’s operating results. Also, a majority of the
Company’s revenue is derived from sales in the food industry, whereby the results of operations are highly dependent on
vendor allowances. Significant changes in the pricing and purchase terms in this industry could adversely affect operating
results. In addition, a significant portion of the Company’s revenue and results of operations is derived from international
activities. Fluctuations of the Euro against foreign currencies, such as the U.S. Dollar, changes in local regulatory or
economic conditions or significant dislocations in local distribution channels could adversely affect the Company’s
operating results.
Beginning in early 2003, Company-specific business challenges arising as a result of the February 24, 2003 announcement
and subsequent developments, described in Note 3 negatively affected the Company’s cash availability and created
marketplace concerns regarding its liquidity. This, among other things, led to credit rating downgrades that, coupled with
accounting irregularities and errors and the resulting delay in the announcement of the Company’s results, caused the
Company to lose, to a significant extent, access to capital markets, which historically was an important source of funding for
the Company. Due to these events and their consequent impact on the Company's compliance with financial covenants in its
then-existing credit facilities, on March 3, 2003, the Company entered into a new 2003 credit facility (the “2003 Credit
Facility”) to provide it with liquidity to stabilize the Company, replace its 2002 credit facility and cover maturing debt
obligations. The 2003 Credit Facility provides for aggregate borrowings of up to EUR 600 and USD 2.2 billion and expires
in February 2004.
BOARD GOVERNANCE HIGHLIGHTS OPERATING REVIEW FINANCIAL INVESTOR RELATIONS
ANNUAL REPORT 2002
