ZAANDAM, the Netherlands, April 8, 2002 (PRIMEZONE) -- Remarks by Ahold (NYSE:AHO) President & CEO Cees van der Hoeven and Ahold Chief Financial Officer Michiel Meurs at an analyst conference call on Monday April 8, 2002, at corporate headquarters in Zaandam, the Netherlands:
Cees van der Hoeven:
Ladies and gentlemen,Welcome to the Ahold (NYSE:AHO) conference call. This conference call is clearly necessary and we will attempt to address all of your concerns.
When we had our conference call on March 7 and the long analyst meeting on March 8, we did not have as yet a full reconciliation of Dutch GAAP to U.S. GAAP. So far we have generally done this reconciliation only once a year in preparation of the Annual Report and 20-F. We are in the process of changing this practice and we will inform you on a quarterly basis of any major differences beginning 1st Quarter 2002. The differences in 2001 were very significant and Michael will address them in much greater detail later on in the call.
The interpretation that several of you have made is that we have overstated our 2001 Dutch GAAP earnings. This of course is factually incorrect as we have totally conformed to Dutch accounting rules. However, you may argue that some of the gains could have been explained in more detail as part of our 2001 Dutch GAAP results. This applies in particular to real estate gains as well as the gains on derivative transactions.
Real estate
Real estate gains are a normal part of our business as we get involved with the development of shopping centers and other real estate in which we are the anchor tenant. We sell them off once they reach a steady value and the real estate markets are favorable. Real estate investment is simply not our core business. The gains made will of course vary year by year and in 2001 they were higher than normal. Usually one should see approx. EUR 50-100 million in real estate gains and last year these were EUR 159 million. However, we had singled them out in the cash flow presentation that Michael made on March 8 and therefore they should not have come as a surprise. In our earnings outlook for 2002 we have taken into account a normal level of real estate gains. In other words, we expect to make up the difference with 2001 in 2002 operating earnings.
Derivatives transactions
The SFAS 133 adjustment is new to all of us and requires a detailed explanation. The upshot is that net financial expense in 2001 benefited from a pre-tax gain of EUR 76 million because of a swap transaction. Under US GAAP these gains amortize during the remaining lifetime of the underlying item being hedged, which in this particular case is the next 6 years. We did tell you in March of 2001 that we expected approx. EUR 900 million of net financial expenses for the year. We reduced this guidance in September partly because of the one-time gain of a swap transaction.
From now on we will clearly notify you of any such one-time items if they were to occur in the future. Again here we have taken the 2001 gain into account when projecting our growth targets for 2002. It signifies that we expect operating earnings growth to make up for the difference.
Michael will now take you through the details and I will come back with some closing remarks.
Michiel Meurs:
Good afternoon and good morning, ladies and gentlemen. Thank you for joining us today to discuss the release of our 2001 results under U.S. GAAP included in the annual report. The purpose of this call is to clearly define the differences between our results under U.S. GAAP versus Dutch GAAP, and to explain why these results came to the market in the manner in which they did.
On March 7, Ahold reported net earnings of EUR 1.1 billion using Dutch GAAP, the accounting standard Ahold has used for decades. As required by the SEC, Ahold performs a reconciliation at the end of the fiscal year of its results under Dutch GAAP to U.S. GAAP. Due to differences between Dutch GAAP and U.S. GAAP, accounting standards related to goodwill, derivatives, and real estate gains our results were materially impacted, resulting in U.S. GAAP net earnings of EUR 120 million, after preferred dividend. We will walk you through the three major items that impacted the results under the two accounting standards.
Goodwill
The largest item is goodwill, representing a EUR 728 million reduction to net earnings under U.S. GAAP. An analysis of our investment in Disco resulted in an impairment write down of EUR 511 million under U.S. GAAP. This impairment is related to the value of our shares in Disco Ahold International Holdings.
Under Dutch GAAP we already deducted the goodwill from equity on the date of the acquisition, which was in January 1998 (as we did with all goodwill on acquisitions dating from before December 2000). Due to the economic conditions in Argentina and the value of the Peso, we adjusted the value of these 2619 shares in DAIH from $272,000 to $100,000.
It should be noted that under U.S. GAAP, goodwill can only be revised downwards to reflect depreciable value, not upward to reflect any appreciation in other businesses. The remaining EUR 217 million reduction in goodwill is related to the difference in treatment of goodwill under U.S. GAAP and Dutch GAAP.
Please note that under the U.S. GAAP as well as under Dutch GAAP reconciliation, also the impact of the lower exchange rate of the Argentine Peso versus the U.S. Dollar has been included. Decree 214, which sees to a transition of all third party U.S. Dollar denominated debt under Argentine law, is now working in our favor, more than we previously foresaw. At an exchange rate of 3 Peso to the Dollar, most likely, there would be no impact on our earnings under both GAAP systems. The current exposed third party debt in U.S. dollars amounts to $190 million as per today.
Outside of the obligations recorded on our balance sheet, we also have certain commitments and contingencies that may have future cash requirements. These commitments primarily consist of operating lease commitments and a maximum contingent liability of $492 million (EUR 557 million) under our guarantee of the indebtedness of our partner in Disco, Velox. These contingent liabilities will only materialize in such a case that Velox defaults under the above referenced bank indebtedness.
For the last couple of months we have been in close contact with Velox management. As stated in our annual report, Velox has confirmed to us that no such default had occurred and that it intends to be a long-term partner of Disco. We believe that the purchase price for existing and new Disco shares exceeds the current fair market value. The extent to which this would lead to an impairment of goodwill in the future is too early to say. If such an impairment of goodwill would occur, this will lead to a charge to earnings in the quarter in which required payments would be made.
To view the full article on the remarks by Cees van der Hoeven and Michiel Meurs please go to the following link:http://reports.huginonline.com/854631/101699.pdf