3 Liquidity and capital resources
00 Ahold ANNUAL REPORT 2002 73
BOARD GOVERNANCE HIGHLIGHTS OPERATING REVIEW FINANCIAL INVESTOR REL AT IONS
Liquidity
Historically, our primary sources of liquidity have been (1) cash provided by operating activities, (2) borrowings under our
credit facilities and (3) debt and equity issuances in the capital markets. Beginning in early 2003, business challenges
arising as a result of the February 24, 2003 announcement and related developments, described in "Restatements,
Adjustments and Remedial Actions" above, negatively impacted our liquidity and affected our cash availability. These
issues, among other things, led to credit rating downgrades that, coupled with the announcement of accounting
irregularities, errors and other issues and the resulting delay in the publishing of our results for fiscal 2002, caused us to
lose, to a significant extent, access to the capital markets and to financing sources which, historically, were an important
source of funding to us. In addition, following these events, a number of our local committed and uncommitted credit
lines were cancelled, reduced or restricted, either to the amount of borrowings outstanding at the time or else with respect
to the use of those borrowings. Further, as a result of the issues announced by us on February 24, 2003, and related
developments, including the credit ratings downgrades and delay in publishing our audited financial statements for fiscal
2002, we may have breached some of our representations and warranties and/or failed to meet some of the covenants
contained in our then-outstanding debt agreements and contractual obligations, including operating leases and derivative
instruments. Due to these events and their consequent impact on our compliance with financial and other covenants in our
then-existing debt obligations, including our 2002 Credit Facility, we repaid certain debt and other obligations prior to
their stated maturity and on March 3, 2003, we entered into the new 2003 Credit Facility to provide us with liquidity to
stabilize our Company, replace the 2002 Credit Facility and provide funding to cover maturing debt obligations.
We currently have substantial debt outstanding and the timely payment of amounts due in the near-term on our outstanding
debt and the continued funding of our business will require significant cash resources. In addition, apart from the
obligations recorded on our balance sheet, we also have certain commitments and contingencies that may have significant
future cash requirements. For additional information about our commitments and contingent liabilities, please see our
financial statements. Furthermore, our letter of credit requirements have increased significantly since fiscal year-end
2002, and we expect them to increase further, primarily because of increased requirements of our third-party insurance
providers, in particular with respect to workers' compensation coverage. The increased workers' compensation coverage
requirements stem from issues affecting the U.S. insurance market as a whole, as well as increased credit support
requirements as a result of the February 24, 2003 announcement and related events. Our current level of indebtedness,
our other commitments and contingencies and our increased letter of credit requirements could affect our operations in a
number of ways, including (1) requiring us to dedicate a substantial portion of our cash flow from operations to service our
debt, (2) limiting our ability to obtain additional debt financing in the future for working capital or capital expenditures or
to refinance existing debt, (3) limiting our flexibility in reacting to industry changes and economic conditions generally and
(4) consequently placing us at a competitive disadvantage.
As announced on September 4, 2003, and as discussed under "Strategic Outlook" in this section, under the direction of
our new President and Chief Executive Officer and new Chief Financial Officer, a primary focus of our Company is on debt
reduction through divestments, improving operational performance and generating cash flow by improving working capital
management and scrutinizing our capital expenditures. Cost reduction programs are being implemented throughout our
Company. As we previously announced, we have begun divesting, and will continue divesting, our non-core businesses and
consistently underperforming assets, either in whole or in part, in an effort to focus on our core operations and enhance
our local market leadership positions in markets we serve where we have achieved, or believe we can achieve, a leading
position based on net sales. As part of our new strategic framework, the scope of this divestment program will be
expanded, as we intend to scrutinize our portfolio of businesses with a focus on identifying those operations and formats
that do not fit our future strategy. Finally, we are also assessing the options, in addition to divestments, that are available
for strengthening our balance sheet and refinancing our debt. For a more detailed discussion of our strategic plans, please
see "Strategic Outlook" in this section.
In light of this strategic framework and based on current operating performance, we believe that our cash generated
from operations, proceeds from divestitures and the refinancing of our debt, including the 2003 Credit Facility, through
accessing the capital markets, obtaining bank loans or otherwise, will be sufficient for our working capital, capital
expenditures and scheduled debt repayment requirements for the next twelve months. We will continue to assess our
liquidity position and potential sources of supplemental liquidity in view of our operating performance and other relevant
circumstances. However, as a consequence of the accounting irregularities and related events at Ahold, our high debt level
and current credit ratings, we cannot be certain that these actions will be successful. If funds from any of these sources
are not available on a timely basis or on satisfactory terms, or at all, or if these sources are insufficient to pay our
