00 Ahold ANNUAL REPORT 2002 35
BOARD GOVERNANCE HIGHLIGHTS OPERATING REVIEW FINANCIAL INVESTOR REL AT IONS
primarily relating to Ahold Supermercados in Spain, DAIH (through which we held our interests in Disco and Santa Isabel),
Bomprepo, G. Barbosa and Bruno's. Under Dutch GAAP, we did not recognize any goodwill impairment charge relating to
USF due to the fact that the goodwill on the acquisition of USF in fiscal 2000 was charged against shareholders' equity in
fiscal 2000. Additionally, we incurred charges totaling EUR 137 million relating to impairment of other long-lived assets,
primarily in the Czech Republic, Poland, Spain, Latin America, Asia Pacific and the United States. We evaluated the
recoverability of our tangible fixed assets because we had indications of potential impairment issues, most notably the
deterioration in market conditions due to a general slow-down in the economic environment and increased competition in
fiscal 2002 in some of the markets where we operate. We were required to reduce the carrying value of some of our
tangible fixed assets to fair value and recognize an asset impairment charge in fiscal 2002 because the carrying value of
the affected assets exceeded the projected future discounted cash flows related to them. Fair value of the impaired assets
was calculated using discounted future net cash flows expected to result from the use of each asset and its eventual
disposition.
Under US GAAP, we recognized an additional impairment loss for goodwill of EUR 3.5 billion and other intangible assets
of EUR 22 million in fiscal 2002, as a result of the adoption of SFAS No. 142 on December 31, 2001. In accordance
with SFAS No. 142, we ceased to amortize goodwill and other intangible assets with indefinite useful lives under US
GAAP. Instead, we test them for impairment annually, and more frequently if circumstances indicate a possible
impairment. After the transitional impairment tests were performed on each reporting unit upon the adoption of SFAS No.
142, we recognized a transitional impairment loss of EUR 2.8 billion in fiscal 2002. The most significant portion of this
transitional impairment loss was EUR 2.1 billion, which related to USF, which was caused primarily by the fraud and
accounting irregularities uncovered at USF, and the declining economic conditions in the food service industry in the
United States, both of which had a significant negative impact on the carrying value of USF's goodwill. In addition to USF,
we recorded transitional impairment losses under US GAAP related to our operations in other Europe retail trade,
principally Spain of EUR 136 million, Latin America retail trade, principally Brazil of EUR 331 million and Asia Pacific
retail trade, principally Malaysia of EUR 29 million and Thailand of EUR 150 million.
In addition to transitional impairment losses, we recognized under US GAAP additional impairment losses in fiscal 2002
related to goodwill and other intangible assets of EUR 735 million. We recognized additional goodwill impairment losses
related to USF of EUR 529 million due to a further deterioration of USF's business as a result of the investigations and
related changes in management. We also recognized additional goodwill impairment losses related to our operations in
other retail trade in the United States, principally from Peapod of EUR 43 million and Bruno's of EUR 7 million,
respectively. At Peapod, the impairment was recognized as a result of lower expected growth of our internet grocery sales.
At Bruno's, the impairment was recognized as a result of a higher carrying value of goodwill under US GAAP due to the
use of an amortization period of 40 years compared to 20 years under Dutch GAAP. We recognized additional goodwill
impairment loss related to our operations in other retail trade in Europe of EUR 115 million. This impairment was
recognized as a result of lower than expected operating performance after the acquisition of Superdiplo due to a slow-down
of the Spanish economy and lower than expected cost savings from the integration of our business in Spain. We recognized
additional goodwill impairment losses of EUR 41 million related to our operations in retail trade in Latin America due to
downward revisions to expected future cash flows as a result of an economic downturn in Argentina, Brazil and Chile.
For a discussion of these impairment charges, please see "Overall Results of Operations - Operating Expenses - Fiscal
2002". For a discussion of impairment charges under US GAAP, please see "Results of Operations - Overall Results of
Operations - Adjustments to Conform to US GAAP". For additional information, please see Note 6 to our financial
statements.
Impact of currency exchange rates and presentation of financial data using constant exchange rates
Since a substantial portion of our assets, liabilities and operating income is denominated in US dollars, we are exposed to
fluctuations in the value of the US dollar against the Euro. To a lesser extent, our results are affected by currency
valuations in Latin America and the Asia Pacific region. As a result, we are subject to foreign currency exchange risk due
to exchange rate movements, which affect our transaction costs and the translation of the results and underlying net
assets of our foreign subsidiaries. It is our policy to cover substantially all foreign exchange transaction exposure. Our
financial and risk management policy is to match the currency distribution of our borrowings to the denomination of our
assets to the extent practicable. We do not use financial instruments to hedge the translation risk related to equity and
earnings of foreign subsidiaries and non-consolidated companies. The effect of changes in currency exchange rates for
fiscal 2002 compared to fiscal 2001 was a decrease in net sales of approximately EUR 2.3 billion. In fiscal 2002, the
weighted average value of the US dollar against the Euro was 0.9424 compared to 0.8956 in fiscal 2001.
