Future accounting changes
Outlook for 2004
Ahold Annual Report 2003
Operating and Financial Review and Prospects
45
income in the same period in which the previously
hedged transaction affects earnings. However, if it is
considered probable that the originally forecasted
transaction will not occur by the end of the originally
specified time period, the unrealized gain or loss in OCI
is reclassified immediately to income.
In countries where the local currency is subject to
large fluctuations, we often enter into lease agreements
denominated in currencies that differ from local
currency (historically, this included the US dollar and
currencies subsequently replaced by the Euro). As a
result, we had embedded foreign exchange derivatives
in certain lease contracts in the Czech Republic,
Slovakia and Poland. To the extent that the currency in
which the lease payments are made is not the functional
currency of either us or the lease counter-party, these
embedded derivatives are required to be separately
accounted for at fair value on the balance sheet under
SFAS No. 133 rules. The fair value of these embedded
derivatives was EUR (45) million at December 28, 2003.
For more information on our derivative instruments,
please see Note 29 of our consolidated financial
statements included with this annual report.
We have to adopt IFRS accounting standards in 2005, as
required under EU regulations. We currently prepare our
financial statements in accordance with Dutch GAAP and
prepare a reconciliation of net income and shareholders'
equity to US GAAP, as required by SEC regulations.
Applying IFRS standards to our financial statements may
have a considerable impact on a number of important
areas. We are currently in the process of assessing the
differences between Dutch GAAP, IFRS and US GAAP in
order to determine any necessary accounting changes,
as well as to quantify the impact on our consolidated
financial statements.
After an initial impact study, we have recently
started the actual conversion to, and implementation
of IFRS. The conversion project and implementation
consist of: making accounting policy decisions, training
relevant staff, rewriting our accounting manual,
preparing an IFRS compliant budgeting process for the
year 2005, adjusting existing reporting systems,
adapting procedures and business policies where
applicable, and converting the opening balance sheet
and other comparative financial information.
We are listed on the NYSE and therefore subject
to SEC requirements and legislation. Based on current
proposals issued by the SEC, we expect to present our
first IFRS financial statements for 2005, which will include
comparable IFRS financial statements for 2004.
In order to facilitate the transition to IFRS as of
January 1, 2005, and embed the changes into the
organization, all of our subsidiaries, including equity
investments, will have to report, and will begin reporting,
on the basis of Dutch GAAP and IFRS during the last
quarter of 2004.
As we have so far only performed an initial impact
study, we are not yet able to provide a quantitative
analysis of the impact of IFRS on this year's financial
results and balance sheet.
We will be subject to certain new accounting
guidelines under Dutch GAAP beginning in 2004.
For additional information, please see Note 2 to our
consolidated financial statements included in this
annual report. We will also be subject to new accounting
guidelines under US GAAP beginning in 2004.
For additional information, please see Note 31 to our
consolidated financial statements included in this
annual report.
The following discussion provides an overview of our
outlook for 2004 for our consolidated results of operations
and for our various business segments. Because we have
operations in a number of countries throughout the world,
a substantial portion of our results of operations are
denominated in foreign currencies, primarily the US dollar.
As a result, we are subject to foreign currency exchange
risks due to exchange rate movements, which affect our
transaction costs and the translation of the results for the
operations of our foreign subsidiaries. Our expectations, set
forth below, as to net sales and operating income exclude
any impact of currency exchange rates. As discussed
below, currency exchange rates could significantly affect
our results of operations for 2004.
For a discussion of our three-year financing plan
and strategy to restore the value of our Company,
including plans to re-engineer our food retail business,
recover the value of USF, reinforce accountability,
controls and corporate governance and restore our
financial health, please see "Strategy" above. The
following discussion should be read in conjunction with
the discussion of our results of operations for 2003 and
2002 under "Results of Operations" and other
subsections under this section. The following discussion
includes "forward-looking statements" that involve risk
and uncertainties that are discussed more fully in "Risk
Factors." Actual results could differ materially from
those provided in the forward-looking statements.
In 2004, we will focus on continued efforts to
strengthen the organization, and restructure and integrate
the businesses in order to build a solid platform for future
growth and profitability. Management will concentrate on
achieving the previously announced "Road to Recovery"
performance objectives for 2005 and beyond. We will
continue to strengthen and improve our internal controls,
as well as solidify compliance with regulatory
requirements in 2004. All of these changes are important
cornerstones of our "Road to Recovery" strategy. They will
require considerable resources and effort from our
operations and corporate support office in 2004.
Our retail trade businesses will continue to face
increased competition and price pressure. On the other
hand, we expect positive sales growth in the foodservice
industry, although net sales at U.S. Foodservice in 2004
may experience a small reduction.
