AHOLD TAKES STEPS TOWARD RECOVERY

MARK HAMSTRA

ZAANDAM, Netherlands -- It has been nearly a year since an accounting scandal brought Ahold to its knees, but many questions about the future of one of the world's largest food companies remain unanswered.

Will the company, which is based here but derives most of its revenues from the United States, be able to sell enough assets to service its $13 billion debt load? Will any of the company's current or former executives face criminal charges? How culpable was the board of directors? What will become of the company's U.S. Foodservice division, which was at the heart of the earnings misstatement that led the company to report a $1.4 billion loss for 2002? Will the company's U.S. Retail division, which ranks as the fourth-largest traditional supermarket operator in the United States, be able to survive intact?

Perhaps 2004 will bring the answers to some of these questions. As the current year progressed, it became clear that the company would attempt to retain a viable core while shedding many of the marginal businesses it spent the last 10 years acquiring.

Ahold at first shocked the industry in February of this year with the news that profit overstatements related to improperly recorded vendor allowances at U.S. Foodservice would total at least $500 million for fiscal years 2001 and 2002 -- an amount that represented nearly half the division's operating earnings at that time. The actual amount of the overstatement at U.S. Foodservice, the company later revealed, was much larger, totaling $856 million, and was achieved with the apparent cooperation of certain personnel at some of the company's major suppliers. Additional accounting irregularities in Ahold's overseas operations and a $29 million profit overstatement at Tops Friendly Markets, Williamsville, N.Y., also for improperly reported vendor allowances, brought the total value of all of Ahold's financial misstatements during 2000, 2001 and 2002 to $1.1 billion.

Federal authorities in Europe and the United States -- including the Securities and Exchange Commission, the U.S. Justice Department and the Federal Bureau of Investigation -- launched investigations into the matter, and some observers said the Ahold scandal could result in regulators taking a closer look at the ways retailers and suppliers record vendor allowances.

The company's stock plummeted 70% in the days following the initial February announcement, but it has since recovered some of that loss.

Cees van der Hoeven, the company's top executive, resigned along with Ahold's chief financial officer, Michael Meurs, at the start of the scandal. They were followed out the door by Jim Miller, CEO of U.S. Foodservice, which is based in Columbia, Md. A handful of other top executives at U.S. Foodservice also left the division, which had been assembled through a series of acquisitions of local food-service distributors.

After taking over day-to-day operations on an interim basis, Henny de Ruiter, chairman of Ahold's supervisory board, turned over the helm of Ahold to Anders Moberg, the former CEO of Swedish furniture retailer Ikea. Another Ikea veteran, Hannu Ryopponen, was named CFO shortly thereafter. The two recently outlined a three-year "Road to Recovery" strategy, detailing plans to raise money through a stock offering and focus on profitable divisions in mature markets.

Meanwhile, the company had brought back longtime Ahold USA Retail veteran Robert Tobin to run the U.S. Foodservice unit on an interim basis before tapping NutraSweet Co. CEO Richard Benjamin to be the new CEO of U.S. Foodservice.

Frank Curci, the CEO of Tops, also resigned after the vendor-rebate problem surfaced there.

After several months of internal investigation, Ahold in October revealed the full extent of its losses for 2002, reporting a loss of $1.4 billion using Dutch accounting rules and a much higher sum -- $5.1 billion -- using U.S. accounting rules, which required a write-down of goodwill for U.S. Foodservice.

Ahold had already launched an evaluation of its asset base in 2002, and said it would continue that process in determining which divisions to divest. In April, the company revealed plans to sell its operations in four South American countries: Brazil, Argentina, Peru and Paraguay. It had already revealed plans to sell its Chilean supermarket holdings. It has since sold its Peruvian business, Supermercados Santa Isabel.

In the United States, the company has yet to reveal any specific plans for the divestment of its U.S. supermarket banners -- which include Stop & Shop, Tops, Giant-Landover, Giant-Carlisle, Bruno's and Bi-Lo, plus the Peapod online grocery service. However, analysts have increasingly raised doubts about the future of the company's Bi-Lo and Bruno's assets. In October, the company divested its 138-unit Golden Gallon convenience-store chain for $187 million; otherwise, Ahold had retained its U.S. retail banners.

William Grize, CEO, Ahold USA Retail, Chantilly, Va., told SN in March that it would be "business as usual" at his division, although the company was contemplating cutting back on store remodels in an effort to save money and accelerating some cost-cutting initiatives. Since then, reports have emerged about the company raising prices and laying off staff at the Giant-Landover division.

Last month, the company also said it was planning to integrate the back-office functions of its Giant-Landover and Stop & Shop chains, mirroring efforts that have been under way between Tops and Giant-Carlisle and between Bi-Lo and Bruno's.