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Ahold Annual Report 2003
Operating and Financial Review and Prospects
53
mainly related to the positive impact of the revaluation of
the Argentine peso on US dollar-denominated debt in
Argentina. In 2002, a foreign exchange loss of EUR 50
million was incurred, mainly related to the negative
impact of the devaluation of the Argentine peso on US
dollar-denominated debt and inflation adjustment losses
related to Argentine peso-denominated debt in
Argentina.
2002
Our net financial expense was EUR 1.0 billion in 2002
compared to EUR 707 million in 2001. The increase in
net financial expense in 2002 was largely due to an
increase in net interest expense and the EUR 50 million
foreign exchange loss incurred in 2002 referred to
above. Interest expense increased from EUR 812 million
in 2001 to EUR 944 million in 2002. The increase in net
interest expense was primarily caused by the new debt
assumed or incurred in connection with acquisitions and
an increase in cash dividends, as a result of fewer
shareholders electing to receive their dividends in the
form of common shares compared to 2001.
Income taxes
2003
In 2003, we recorded a tax credit of EUR 72 million or
32.7% of loss before tax, while in 2002 we had a tax
charge of EUR 390 million or 50.8% of income before
tax. Our effective tax rate, excluding the impact of non
tax-deductible impairment and amortization of goodwill,
loss on related party default guarantee in 2002 and loss
on divestments in 2003, decreased significantly in 2003
compared to 2002. The main factors contributing to this
decrease in the effective tax rate were the release of tax
provisions of EUR 55 million due to the partial closure of
the 1999-2001 U.S. tax audit and due to the closure of
a large Dutch 1997-2002 tax audit and tax deductible
losses as a result of the divestment of our Asia Pacific
operations, as well as a different geographic mix of
income. In addition, our 2002 effective tax rate of
50.8% was caused primarily by non-tax-deductible
goodwill amortization of EUR 179 million, goodwill
impairment of EUR 1.3 billion, the loss on related party
default guarantee of EUR 372 million and foreign
exchange loss primarily relating to the devaluation of the
Argentine peso. Our 2002 effective income tax rate also
was affected by the consolidation of Disco beginning in
the second quarter of 2002, the consolidation of Santa
Isabel beginning in the third quarter of 2002 and the
consolidation of G. Barbosa beginning in the first quarter
of 2002, as well as the continued consolidation of
Bomprepo in 2002. These entities had substantial losses
before taxes in 2002 for which no loss carry forward was
recorded because it was not deemed probable that
these entities would generate sufficient income in the
future against which such a loss carry forward could be
applied in 2002 as well as in 2003. As a result, such
losses reduced the total amount of income before
income taxes, but not the amount of income taxes. Our
effective income tax rate in 2002 was reduced in part
due to intercompany finance activities. The statutory
corporate income tax rate in The Netherlands for 2003
and 2002 was 34.5%.
2002
Our effective tax rate in 2002 was 50.8%, as discussed
above. The reduction in our 2002 effective tax rate as a
result of intercompany finance activities was smaller
than in 2001 because of unfavorable currency exchange
rate changes between the Euro and the US dollar during
2002. Our effective income tax rate in 2001 was 22.5%.
The statutory corporate income tax rates in The
Netherlands for 2002 and 2001 were 34.5% and 35%,
respectively.
Our effective income tax rate in 2002 was reduced
in part due to intercompany finance activities, but this
impact in 2002 was smaller than in 2001 because of
unfavorable currency exchange rate changes between
the Euro and the US dollar during 2002.
Share in income (Loss) of joint ventures and equity
investees
The following table sets forth our share in income (loss)
of joint ventures and equity investees for 2003, 2002
and 2001.
(in EUR millions)
2003
2002
2001
ICA, Scandinavia
132
61
64
JMR, Portugal
24
35
30
Paiz Ahold, South America
9
10
13
DAIH, South America1
(126)
(296)
Others
(4)
(18)
(3)
Total share in income (loss) of joint ventures
and equity investees
161
(38)
(192)
1 Includes DAIH for periods in 2002 and 2001 in which it was not consolidated in our
financial statements. DAIH is a holding company of Disco and had owned a controlling
stake in Santa Isabel until it was sold during 2003. Disco was consolidated since the
second quarter of 2002 and DAIH, including Santa Isabel, was consolidated since the third
quarter of2002.
2003
Our share in income of joint ventures and equity
investees in 2003 amounted to EUR 161 million,
compared to a loss of EUR 38 million in 2002. This was
primarily caused by the inclusion in our income (loss)
from our unconsolidated joint ventures and equity
investees for 2002 of a EUR 126 million loss at DAIH.
DAIH began to be consolidated beginning in the third
quarter of 2002 and, after that time, DAIH's loss was no
longer included in our income (loss) from our
unconsolidated joint ventures and equity investees. The
2002 loss at DAIH reflects losses incurred in 2002 at
Disco and Santa Isabel until they were consolidated in
our financial statements in the second and third quarters
of 2002, respectively. The share in income of ICA
increased considerably in 2003 mainly as a result of a
EUR 119 million gain related to the sale and leaseback
of several distribution centers. This share in income was
partially offset by lower results at JMR. Results were
lower primarily as a result of lower gross profit margins
due to price repositioning at Pingo Doce and strong
competition at Feira Nova.
