Operating and Financial Review and Prospects
36
Ahold Annual Report 2003
Operating and Financial Review and Prospects
Ahold joint ventures referred to above, and certain
previously undisclosed related side letters that nullified
the effect of these letters and resulted in the decision to
deconsolidate those joint ventures. By letter dated
February 24, 2003, Deloitte Accountants ("Deloitte")
indicated that its opinion on our audited financial
statements for the years ended December 30, 2001,
and December 31, 2000, should no longer be relied
upon. Deloitte suspended its audit of our 2002 financial
statements until the completion of necessary
investigations. On March 24, 2003, the Audit Committee
of our Supervisory Board ordered the commencement of
a series of additional investigations at 17 Ahold
operating companies and real estate companies and at
the Ahold parent company to assess the existence of
accounting irregularities, errors and/or issues, the
integrity of management, and the adequacy of internal
controls.
The investigation into the joint venture letters
found that there had been concealment of side letters
from our Supervisory Board, Audit Committee and
Deloitte and that the consolidation of these joint
ventures into our financial statements had been in
error. The additional internal investigations found
accounting irregularities at Tops, consisting of
intentional improper recognition of vendor allowances
and pervasive earnings management, and at Giant-
Carlisle, consisting of pervasive earnings management,
although involving relatively small amounts. The
investigations also concluded that certain accounting
irregularities had occurred at the Ahold parent
company. In addition, these investigations found varying
degrees of earnings management and/or other
accounting errors or issues at the Ahold parent
company and at the other operating and real estate
companies reviewed. Further, the investigations found
weaknesses in internal controls at most of the
subsidiaries reviewed.
Restatements of 2002 and 2001 financial position
and results
In connection with the findings of the investigations
referred to above, and the consequent remedial
accounting actions taken by our management, we
restated in our 2002 annual report our financial position
and results for 2001 and 2000 under both Dutch GAAP
and US GAAP. The restatements were material, both
quantitatively and qualitatively, to our 2000 opening
retained earnings and our financial position and results
of operations for 2001 and 2000.
The restated 2001 and 2000 financial position and
results reflected adjustments that correct accounting
irregularities and other accounting errors previously
made in the application of Dutch GAAP and US GAAP.
These adjustments relate to: (1) the deconsolidation of
the joint venture companies not controlled by us;
(2) improper or premature recognition of vendor
allowances; (3) misapplication of accounting principles
and misuse of facts relating to acquisition accounting;
(4) improper accounting for certain reserves, allowances
and provisions; (5) improper accounting for certain real
estate transactions; and (6) certain other accounting
issues and items arising as a result of the misapplication
of or errors in the application of Dutch GAAP and
US GAAP.
In addition to the adjustments referred to above,
we adjusted our comparative financial position as of
year-end 2001 and results for 2001 and 2000 for
certain reclassifications and changes in accounting
principles with respect to pensions, revaluations of
properties and restructuring provisions.
Correcting adjustments to 2002 Consolidated
Financial Statements
Our 2002 consolidated financial statements reflected all
material correcting adjustments that were identified in
connection with the various investigations and the audit
by our independent auditors. Specifically, we have made
correcting adjustments to our 2002 consolidated
financial statements for improper accounting for vendor
allowances totaling EUR 269 million, which represented
79% of the total 2002 correcting adjustments. These
correcting adjustments affected our reported quarterly
earnings for 2002 as announced in press releases on
June 6, 2002, August 29, 2002, and November 19,
2002, which were included in Form 6-K reports
furnished to the SEC.
Remedial actions
In response to the findings of the internal investigations
discussed above, the Audit Committee requested in
June 2003 that our management take prompt and
effective remedial actions to correct any identified
accounting irregularities and errors, and strengthen
internal controls to prevent any reoccurrence of the
items found. Our management and the Audit Committee
reviewed all of the accounting issues identified in the
internal investigations, which included 470 separately
identified items. 278 items relating to internal control
issues were identified. We took steps to compensate for
the internal control in preparing
the 2002 and 2003 financial statements and is
continuing to take steps to address the significant
internal control issues raised or confirmed in the internal
investigations. For additional information about our steps
to address these issues, including our recently formed
special task force reporting to the Audit Committee and
our new reporting line for our internal audit department,
please see "Corporate Governance - Part III: Corporate
Governance: Controls and Procedures" and "Message
from the Supervisory Board."
As a consequence of the events announced on
February 24, 2003, our then Chief Executive Officer and
Chief Financial Officer resigned effective March 10,
2003. Numerous other personnel changes have also
been made, including changes at USF, Disco, Tops
and the Ahold parent company.
We also have taken significant steps to rebuild our
executive management team. For additional information
about our new management team, please see "Message
