Management's discussion analysis
SIGNIFICANT FACTORS AFFECTING OUR RESULTS
OF OPERATIONS AND FINANCIAL POSITION
The agreements to settle the securities class action
and litigation with the VEB
The events of 2003
Additional factors affecting our results of operations
and financial position
ROAD TO RECOVERY 2003 - 2005
Restoring our financial health
the purchasing power of consumers which has had a
negative impact on sales of food.
Our results of operations and financial position have been
impacted by the following significant factors relating
specifically to our Company:
In November 2005, we entered into an agreement to settle
the securities class action suits (the "Securities Class
Action") arising out of the events announced on February
24, 2003. Under the terms of the agreement, the lead
plaintiffs agree to settle all claims against Ahold for the sum
of USD 1.1 billion (EUR 937 million). This amount includes
USD 9 million (EUR 8 million) as compensation to the VEB
for facilitating the global settlement. The settlement covers
Ahold, its subsidiaries and affiliates, the individual
defendants and the underwriters. As a result of the
settlement, we recorded a charge in operating income in
2005 of EUR 803 million, which includes insurance
proceeds.
In January 2006, the U.S. District Court for the District of
Maryland granted preliminary approval of our agreement
with the lead plaintiffs to settle the Securities Class Action.
The court also granted certification of the settlement class.
The settlement is conditioned on final approval of the same
court. With this settlement we have dealt with the last
outstanding material litigation with significant financial
exposure arising out of the events of 2003.
We also reached an agreement to settle the litigation with
the VEB, pursuant to which VEB has terminated certain
legal proceedings relating to our annual financial statements
for the years 1998 through 2002.
For a further discussion of these settlements, see Note 35
to our consolidated financial statements included in this
annual report.
In our 2002 annual report, we restated our financial
position and results of operations for 2001 and 2000 as
a result of the events we announced on February 24, 2003.
In response to these events, governmental and regulatory
authorities initiated civil and criminal investigations into
Ahold and some of our subsidiaries and former officers.
Numerous civil lawsuits and legal proceedings also were
filed in the U.S. and in the Netherlands naming Ahold and
certain of our current and former directors, officers and
employees as defendants. For a further discussion of these
investigations, legal proceedings and related settlement
agreements, see Note 35 to our consolidated financial
statements included in this annual report.
The additional week in 2004 also had a significant impact
on our results of operations in 2005. Our 2005 results
compared to 2004 were negatively affected by the fact that
2004 on a consolidated basis and for many of our
operations consisted of 53 weeks, while 2005 consisted of
52 weeks. This is not applicable for Ahold's operations in
the Central Europe Arena and the joint ventures and
associates. The financial year for these entities corresponds
to the calendar year. For a discussion of our financial years,
including year-end dates, see "General information" in this
annual report. For a reconciliation of net sales excluding
week 53 of 2004, see "Reconciliation of non-GAAP
financial measures" below. Our retail business generally
experiences an increase in net sales in the fourth quarter of
each year (which in 2004 included week 53), primarily as a
result of the holiday season.
The following discussions include "forward-looking
statements" that involve risks and uncertainties that are
discussed more fully in "Risk factors" and "Forward-looking
statements notice." Actual results could differ materially
from future results expressed or implied by the forward-
looking statements.
In 2003, we announced a three-year financing plan and
strategy to restore the value of our Company. The plan and
strategy focused on four key areas: (1) restoring our
financial health; (2) re-engineering our retail business; (3)
recovering the value of U.S. Foodservice; and (4) reinforcing
accountability, controls and corporate governance.
Since November 2003, we have taken numerous steps to
strengthen our financial position and flexibility. We raised
approximately EUR 2.9 billion in net equity proceeds,
reduced gross debt by approximately EUR 5.8 billion,
negotiated a new, unsecured syndicated EUR 2 billion credit
facility with more favorable terms and conditions than the
prior facility, completed divestments for cash consideration
and assumed debt totaling EUR 3.1 billion. As a result of
our efforts, we have improved our liquidity, strengthened our
balance sheet and better positioned ourselves for the future
by divesting non-core and under-performing assets.
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