30
Ahold Annual Report 2003
Financial Statements
161
have been granted by Ahold for property leases of its subsidiaries. The buy-back guarantees have been granted by
Ahold to facilitate external financing for franchisees or subsidiaries. The liability under these guarantees is secured
by the value of the related assets that the Company could obtain and liquidate in the event Ahold has to perform
under the guarantees.
Furthermore, the Company issued guarantees related to operating leases and capital leases of its
subsidiaries. For a discussion of capital leases, see Note 25. For a discussion of operating leases, see this
Note 30 under rent commitments.
On September 3, 2003, Albert Heijn issued a guarantee for a maximum amount of EUR 75 for the payment
obligations to the AHVKF. Albert Heijn would be required to perform under the guarantee if Ahold defaulted on
its payment obligations to the AHVKF.
Albert Heijn and other related Dutch companies are part of the fiscal unity for income taxes and for value
added taxes of Ahold. At December 28, 2003, the carrying amount of the liability related to income taxes and value
added taxes within the fiscal unity was EUR 116. The Company would be required to perform if any of the entities
within the fiscal unity defaulted on payment of the above-mentioned liabilities.
The Company's wholly-owned subsidiary, USF, had, as of December 28, 2003, product purchasing
arrangements with five entities, commonly referred to as value-added service providers (VASPs), that provided
varying degrees of support to USF primarily in the procurement of private label and signature brand products.
As part of its normal business practice, USF has guaranteed some of the obligations of the VASPs to vendors relating
to purchases made on behalf of USF. The amount of future payments that USF would have been required to make
under the guarantees depends on outstanding accounts payable to vendors for purchases made by the VASPs
on behalf of USF. Since year-end 2003, USF has ended its relationship with four of the five VASPs and is not
incurring any new guaranteed obligations with respect to these prior arrangements. The fifth VASP continues to
incur obligations which are guaranteed by USF for the reasons and purposes described above.
During the third quarter of 2003, management of USF, having the authority to do so, reached a decision
to cease doing business with the VASPs during 2004 through a phased transition of services timeline. That decision
was communicated to the VASPs prior to December 28, 2003 and resulted in claims made by the VASPs for
reimbursement by the Company of certain costs they would incur as a result of this decision, principally relating
to employee severance and unavoidable lease commitments.
USF has assumed or expects to assume certain liabilities and obligations of the VASPs in connection with the
phase out, and does not expect to be able to fully collect the amounts owed to USF by the VASPs. During the third
quarter of 2003 and subsequently, the VASPs quantified and reduced claims to writing and the Company accrued
a EUR 8 liability representing the probable minimum costs incurred as a result of these claims. In December 2003,
the Company entered into a Termination and Settlement Agreement relating to four of the five VASPs. On December
28, 2003, the Company adjusted the accrual to approximately USD 20, reflecting the effects of the changes
to previously estimated costs resulting from the settlement reached with four of the five VASPs, from the anticipated
settlement with the remaining VASP entity and related costs.
In connection with the financing of B.V. Maatschappij tot Ontwikkeling van Middenstandsprojecten C.K.K.,
the General partner of Eemburg c.v., a limited partnership in which Ahold participates indirectly, the real estate
of Eemburg c.v. has been pledged as collateral for a maximum amount of EUR 45.
Legal proceedings
U.S. securities and ERISA civil litigation and governmental/regulatory investigations
On February 24, 2003, Ahold announced that it would be restating its financial statements for 2001 and 2000
because of, among other things, certain accounting irregularities at USF and because certain joint ventures had
been improperly consolidated. Ahold further announced forensic investigations into accounting irregularities at USF
and the legality and accounting treatment of certain questionable transactions at Disco, its Argentine subsidiary.
Ahold also announced that its Chief Executive Officer and Chief Financial Officer would resign. Following these
announcements, numerous lawsuits were filed and civil and criminal investigations of Ahold were initiated by both
U.S. and non-U.S. governmental and regulatory authorities.
Numerous putative class actions claiming violations of U.S. securities laws and regulations were filed in the U.S.
on behalf of Ahold's shareholders (collectively, the "Securities Action"). Among the named defendants are Ahold and
certain of its current and/or former directors, officers, employees and auditors. Additionally, two class actions
(collectively, the "ERISA Action") were filed on behalf of participants in the 401(k) plans of Ahold USA and USF
against the same parties alleging violations of ERISA. The Securities Action and the ERISA Action have been
consolidated in the Federal District Court for the District of Maryland.
On February 17, 2004, the lead plaintiffs in the Securities Action served their consolidated amended complaint.
In the Securities Action, plaintiffs claim violations of Sections 20(a) and 10(b) of the U.S. Securities Exchange Act
of 1934, as amended, and Rule 10(b)(5) promulgated thereunder, and violations of Sections 11, 12(a)(2) and 15
of the U.S. Securities Act of 1933, as amended, by Ahold and certain of its current and/or former officers, directors,
employees, auditors and underwriters. In the complaint in the Securities Action, the plaintiffs allege that the class
