<PAGE>
CONFORMED COPY
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
[_] Registration Statement pursuant to Section 12 (b) or (g)
of the Securities Exchange Act of 1934
or
[X] Annual Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the fiscal year ended January 3, 1999
or
[_] Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the transition period from.... to ....
Commission file number 0-18898
Koninklijke Ahold N.V.
(Exact name of Registrant as specified in its charter)
Royal Ahold
(Translation of Registrant's name into English)
The Netherlands
(Jurisdiction of incorporation or organization)
Albert Heijnweg 1, 1507 EH Zaandam, The Netherlands
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the
Act:
Title of each class Name of each exchange on which registered
Common Shares at a par value of NLG 0.50 each, New York Stock Exchange
represented by American Depositary Shares
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None.
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:
None.
<TABLE>
<S> <C>
Indicate the number of outstanding shares of each of the is-
suer's classes of capital or common stock as of the close of
the period covered by the Annual Report:
Cumulative Preferred Shares par value NLG 1,000 per share none
Cumulative Preferred Financing Shares par value NLG 0.50 per
share 144,000,000
Convertible Cumulative Preferred Shares par value NLG 0.50 per
share none
Common Shares par value NLG 0.50 per share 628,096,550
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X]No [_]
Indicate by check mark which financial statement item the registrant has
elected to follow.
Item 17 [_]Item 18 [X]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
GENERAL INFORMATION............................................................................. 1
PART I
Item 1. Description of Business................................................................ 3
Item 2. Description of Property................................................................ 17
Item 3. Legal Proceedings...................................................................... 18
Item 4. Control of Registrant.................................................................. 18
Item 5. Nature of Trading Market............................................................... 20
Item 6. Exchange Controls and Other Limitations Affecting Security Holders..................... 20
Item 7. Taxation............................................................................... 21
Item 8. Selected Financial Data................................................................ 21
Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 24
Item 9A. Quantitative and Qualitative Disclosures about Market Risk............................. 36
Item 10. Directors and Officers of Registrant................................................... 38
Item 11. Compensation of Directors and Officers................................................. 40
Item 12. Options to Purchase Securities from Registrant or Subsidiaries......................... 40
Item 13. Interest of Management in Certain Transactions......................................... 41
PART II
Item 14. Description of Securities to be Registered............................................. 42
PART III
Item 15. Defaults upon Senior Securities........................................................ 42
Item 16. Changes in Securities and Changes in Security for Registered Securities................ 42
PART IV
Item 17. Financial Statements................................................................... 43
Item 18. Financial Statements................................................................... 43
Item 19. Financial Statements and Exhibits...................................................... 76
</TABLE>
i
<PAGE>
GENERAL INFORMATION
The consolidated financial statements of Koninklijke Ahold N.V., also referred
to as Royal Ahold or Ahold, appear in Item 18 of this annual report. The
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the Netherlands ("Dutch GAAP"). Dutch GAAP
differs in certain respects from generally accepted accounting principles in
the United States ("U.S. GAAP"). The differences between Dutch GAAP and U.S.
GAAP which materially affect Royal Ahold's reported net earnings and
stockholders' equity are explained in the Notes to the consolidated financial
statements, followed by a reconciliation of Dutch GAAP net earnings and
stockholders' equity to amounts computed under U.S. GAAP.
The consolidated financial statements of Royal Ahold and its consolidated
subsidiaries contained in this annual report are stated in Dutch Guilders,
referred to as Guilders or NLG. As a significant portion of Ahold's business
is based in the United States, exchange rate fluctuations between the Guilder
and the United States Dollar, referred to as Dollar or "$", are among the
factors that have influenced year-to-year comparability of consolidated
earnings and equity. The weighted average rate of the Guilder per Dollar used
in preparation of the consolidated financial statements of Ahold was:
. NLG 1.98 for fiscal year 1998
. NLG 1.95 for fiscal year 1997
. NLG 1.69 for fiscal year 1996
The year end rates of the Guilder per Dollar applied to balances in the
consolidated financial statements were:
. NLG 1.89 as of January 3, 1999
. NLG 2.00 as of December 28, 1997
The rates used in the preparation of the consolidated financial statements may
vary in certain minor respects from the rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the
Federal Reserve Bank of New York ("noon buying rate").
Solely for convenience of the reader, this annual report contains translations
between certain Guilder amounts and dollar amounts at specified rates. Unless
otherwise indicated, we have translated Guilders into Dollars at a rate of
$1.00 = NLG 1.89 which is equal to the exchange rate used for Royal Ahold's
1998 balance sheet. Except for amounts translated for convenience purposes, we
have translated certain foreign currency balance sheet amounts included in
this report into Guilders using the exchange rate prevailing as of the end of
Royal Ahold's respective reporting period. We have translated certain foreign
currency income statement amounts included in this report into Guilders using
the weighted average exchange rate during Royal Ahold's respective reporting
period.
Our fiscal year generally consists of 52 weeks and ends on the Sunday nearest
to December 31 of each calendar year. The quarters that we use for interim
financial reporting are determined as follows:
. the first quarter consists of the first 16 weeks of the fiscal year;
. the second, third and fourth quarters consist of the subsequent 12-week
periods (except years containing 53 weeks have a 13-week fourth quarter).
Fiscal year 1998 contained 53 weeks and ended on January 3, 1999. Fiscal year
1997 and fiscal year 1996 each contained 52 weeks and ended on December 28,
1997 and December 29, 1996, respectively.
Certain sales area data in the tables in this report have been presented in
terms of square feet. Square feet may be converted to square meters by
multiplying the number of square feet by 0.093 and square meters may be
converted to square feet by multiplying the number of square meters ("m/2/")
by 10.75.
1
<PAGE>
Unless otherwise indicated, references to currencies of countries other than
the Netherlands or the United States are as follows:
<TABLE>
<CAPTION>
Country Currency Symbol
------- ------------------ ------
<S> <C> <C>
Brazil........................................ Brazilian Reals BRL
Portugal...................................... Portuguese Escudos PTE
Thailand...................................... Thai Baht THB
</TABLE>
The Netherlands, country of domicile of Royal Ahold, is one of the countries
that participate in the Economic and Monetary Union. Effective January 1,
1999, the new currency unit of the Union, the Euro ("(Euro)"), has been fixed
at a rate of (Euro) 1.00 = NLG 2.20371, as set by the Council of the European
Union. The noon buying rate for the Euro, as converted into Guilders, was NLG
2.0390 per $1.00 as of March 31, 1999.
Royal Ahold has adopted the Euro as its reporting currency effective fiscal
year 1999.
Address of Royal Ahold
<TABLE>
<S> <C>
Visitor's Address Mailing Address
Royal Ahold P.O. Box 3050
Albert Heijnweg 1 1500 HB Zaandam
Zaandam, The Netherlands The Netherlands
</TABLE>
2
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Overview
Ahold is the largest food retailer in the Netherlands based on 1998 sales and
number of stores and one of the largest food retailers in the United States
based on 1998 sales. It is also one of the largest and among the most
internationally diverse food retailing groups world-wide. As of fiscal year
end 1998, Ahold operated over 3,600 stores, including over 600 franchise
stores, and employed
approximately 280,000 people world-wide. Store formats are primarily
supermarkets, but Ahold also operates through hypermarkets, discount stores,
specialty stores and convenience stores. As of March 31, 1999 Royal Ahold had
a market capitalization of NLG 49.2 billion or (Euro) 22.3 billion ($26.0
billion). The following table sets out, as of the dates indicated, Royal
Ahold's store count and sales area by geographic region:
Store Count and Sales Area by Geographic Region
<TABLE>
<CAPTION>
As of Fiscal Year end
-----------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
Store Sales Area Store Sales Area Store Sales Area
Count (sq. ft. 000) Count (sq. ft. 000) Count (sq. ft. 000)
<S> <C> <C> <C> <C> <C> <C>
The Netherlands (1) 1,751 9,410 1,750 8,969 1,649 8,391
United States (1) 1,031 30,175 830 23,208 817 22,437
Other Europe 418 4,448 348 3,493 267 2,673
Latin America 292 5,964 93 2,405 50 1,322
Asia Pacific 138 1,715 78 1,487 36 212
----- ------ ----- ------ ----- ------
Total 3,630 51,712 3,099 39,562 2,819 35,035
===== ====== ===== ====== ===== ======
</TABLE>
- --------
(1) Including franchise stores
Ahold's operations are located primarily in the United States and the
Netherlands. Sales in the United States accounted for 55% of the total sales
in 1998 while sales in the Netherlands accounted for 29% of total sales. Ahold
also has operations in Portugal, the Czech Republic, Poland, Spain, Latin
America, and in several countries in Asia Pacific. Ahold's principal business
is food retailing. Food retailing accounted for 92% of total sales in 1998.
Royal Ahold also engages in wholesale, institutional food supply and certain
specialty retailing activities in the Netherlands. The following tables set
out, for the periods indicated, Ahold's sales and operating results by
business segment and geographic region:
Sales by Business Segment/Geographic Region
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------
1998 1997 1996
----------------- ---------- ----------
($) (NLG) (%) (NLG) (%) (NLG) (%)
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C>
Food retailing:
The Netherlands (1) 6,511 12,306 21 11,658 23 11,064 30
United States (1) (2) 16,174 31,959 55 27,879 55 18,968 52
Other Europe 2,007 3,793 6 3,156 6 2,528 7
Latin America 2,447 4,625 8 2,581 5 -- --
Asia Pacific 474 896 2 921 2 56 --
------ ------ --- ------ --- ------ ---
Total food retailing 27,613 53,579 92 46,195 91 32,616 89
Food wholesaling 2,425 4,584 8 4,199 9 3,788 11
Other activities 106 201 -- 174 -- 134 --
------ ------ --- ------ --- ------ ---
Total 30,144 58,364 100 50,568 100 36,538 100
====== ====== === ====== === ====== ===
</TABLE>
- --------
(1) Includes sales to franchise stores.
(2) Dollar amounts represent the actual amount before translation into
Guilders and were $14,291 million and $11,232 million in 1997 and 1996,
respectively.
3
<PAGE>
Operating Results by Business Segment
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------
1998 1997 1996
----------------- ---------- ----------
($) (NLG) (%) (NLG) (%) (NLG) (%)
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C>
Food retailing 1,116 2,109 94 1,680 92 1,114 90
Food wholesaling 48 90 4 81 4 64 5
Real estate 57 108 5 115 6 98 8
Other activities 12 23 1 32 2 20 2
Unallocated corporate costs (47) (88) (4) (71) (4) (53) (5)
----- ----- --- ----- --- ----- ---
Total 1,186 2,242 100 1,837 100 1,243 100
===== ===== === ===== === ===== ===
Operating Results by Geographic Region
<CAPTION>
Fiscal Year
-----------------------------------------
1998 1997 1996
----------------- ---------- ----------
($) (NLG) (%) (NLG) (%) (NLG) (%)
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C>
The Netherlands 355 671 30 607 33 552 45
United States (1) 714 1,408 63 1,120 61 600 48
Other Europe 114 215 10 179 10 165 13
Latin America 74 139 6 81 4 -- --
Asia Pacific (54) (103) (5) (79) (4) (21) (1)
Unallocated corporate costs (47) (88) (4) (71) (4) (53) (5)
----- ----- --- ----- --- ----- ---
Total 1,156 2,242 100 1,837 100 1,243 100
===== ===== === ===== === ===== ===
</TABLE>
- --------
(1) Dollar amounts represent the actual amounts before translation into
Guilders.
The following table shows average capital employed by geographic region.
"Capital employed" is defined as fixed assets (including capitalized leases),
plus goodwill (at initial cost at date of acquisition) and net working
capital.
Average Capital Employed by Geographic Region
<TABLE>
<CAPTION>
Average Capital
Employed for Fiscal
Year
-------------------
1998 1997 1996
------ ------ -----
(NLG in millions)
<S> <C> <C> <C>
The Netherlands 2,646 2,331 2,118
United States (1) 12,893 10,817 6,187
Other Europe 1,829 1,279 927
Latin America 1,890 1,125 --
Asia Pacific 429 269 --
------ ------ -----
Total 19,687 15,821 9,232
====== ====== =====
</TABLE>
- --------
(1) Actual amounts reflected in U.S. dollars prior to conversion into Guilders
are $6,265 million, $5,695 million and $4,201 million for the fiscal year
1998, 1997 and 1996, respectively.
4
<PAGE>
The Netherlands
Ahold pioneered the supermarket concept in the Netherlands and is currently
the leading Dutch food retailer through its Albert Heijn supermarket chain, as
measured by both sales volume and number of stores. With 686 supermarkets,
including 169 franchise stores, Albert Heijn enjoys wide name recognition in
the Dutch market. According to AC Nielsen, an international research agency,
Albert Heijn had a market share of 28% in the Netherlands in 1998. It achieved
this position by implementing a retailing strategy of offering customers a
wide range of competitively priced products and a high service level in modern
stores. Albert Heijn continually seeks to expand and strengthen its presence
in the Dutch market and to improve its profitability through the following
initiatives:
. developing customer loyalty programs;
. servicing a growing number of independent franchisees operating under the
Albert Heijn name and formula;
. investing in new technologies to improve productivity;
. expanding into additional food store formats; and
. undertaking acquisitions.
Ahold also owns 73% of the outstanding shares of Schuitema, a Dutch food
wholesaler which supplies and provides retail support to approximately 500
independent food retailers in the Netherlands. According to AC Nielsen, the
food retailers associated with Schuitema had a market share of approximately
11% in the Netherlands in 1998.
Royal Ahold also operates stores in the following specialty retailing areas in
the Netherlands:
. wine and liquor (Gall & Gall);
. health, beauty care and natural products (Etos); and
. confectionery (Jamin).
In addition, Royal Ahold distributes a wide range of food and non-food
products to hospitals, schools, other institutional customers and hospitality
enterprises, such as hotels and restaurants. Royal Ahold also produces and
processes various products, such as coffee, tea, wine and processed meats,
mainly for sale under its own private label.
United States
Ahold has established itself, through acquisitions and internal growth, as one
of the largest food retailers in the United States and the largest supermarket
operator on the east coast of the United States based on 1998 sales. At the
end of fiscal year 1998, Royal Ahold operated 902 supermarkets (including
seven franchise supermarkets), 117 convenience stores (including nine
franchise stores) and 12 discount drug stores in 15 eastern states plus
Washington, D.C.
Royal Ahold has organized its U.S. operations into five independently-managed
operating companies, each operating in its own distinct marketing area:
. Stop & Shop, the operator of 193 stores in Massachusetts, Connecticut,
Rhode Island and New York;
. Giant Foods, headquartered in Carlisle, Pennsylvania ("Giant-Carlisle")
which operates 149 supermarkets in Pennsylvania, Virginia, West Virginia,
Maryland, New Jersey, Long Island and the metropolitan New York City area;
. BI-LO, which operates 266 supermarkets in the Carolinas, Tennessee and
Georgia;
. Tops, which operates 114 supermarkets in western and central New York,
northwestern Pennsylvania and in the northeast Ohio area; and
. Giant Food, headquartered in Landover, Maryland ("Giant-Landover"), which
operates 173 stores in Washington, D.C., Maryland, Virginia, Delaware, New
Jersey and Pennsylvania.
Additionally, in March 1999, Royal Ahold announced that it had agreed to
acquire SMG-II Holding Corporation, which owns Pathmark Stores, Inc. Pathmark
operated 132 stores at the end of 1998 in New Jersey, New York, Pennsylvania
and Delaware. The acquisition is subject to a number of conditions, including
obtaining necessary U.S. federal and state antitrust approvals. Ahold expects
to complete the transaction in the second half of 1999.
5
<PAGE>
Other Europe
Ahold also operates in other parts of Europe. Ahold is a 49% partner with
Establecimentos Jeronimo Martins & Filho S.A. in Jeronimo Martins Retail, also
referred to as JMR, in Portugal. JMR operates Pingo Doce, which operated a
chain of 147 supermarkets as of the end of fiscal year 1998, and Feira Nova,
which operated a chain of 17 hypermarkets as of the end of fiscal year 1998.
Since 1991, Ahold has been active in the Czech Republic, where as of the end
of fiscal year 1998 it operated 149 supermarkets, hypermarkets and discount
food stores through its over 99% owned subsidiary Euronova. This makes Royal
Ahold one of the largest food retailers in the Czech Republic as measured by
sales volume.
In 1995, Ahold established a joint venture, Ahold & Allkauf Polen Sp. z o.o.,
with the German retailer Allkauf-Gruppe to develop and operate retail stores
in Poland. In January 1999, Royal Ahold acquired all of the outstanding shares
of the joint venture. At the end of fiscal year 1998, Ahold & Allkauf Polen
owned and operated 80 discount food stores, supermarkets and hypermarkets.
Royal Ahold began operations in Spain in late 1996 through a 50% joint
venture, Store 2000, with the parent company of Spanish retailer Caprabo.
Royal Ahold sold its interest in the joint venture in October 1998, and since
then Ahold operates in Spain through its newly formed and wholly-owned
subsidiary Ahold SuperMercados. Ahold SuperMercados acquired 15 stores in the
Madrid area from Longinos Velasco in November 1998. In January 1999, Ahold
SuperMercados acquired Dialco S.A., Dumaya, Castillo del Barrio and Guerrero
S.A., four prominent supermarket companies located in southern Spain.
Latin America
In December 1996, Ahold entered into the Latin American market through an
agreement with Bompreco S.A. ("Bompreco"). Under this agreement Ahold
ultimately acquired 50% of the voting shares and 47.9% of the total capital of
Bompreco S.A. Supermercados do Nordeste. Bompreco is the leading food retailer
in northeastern Brazil. In June 1997, Bompreco acquired SuperMar (which was
subsequently renamed Bompreco Bahia S.A.), a regional supermarket chain in
northeastern Brazil. At the end of fiscal 1998, Bompreco operated 91
supermarkets, hypermarkets and other food retail stores, including 42 Bompreco
Bahia stores.
In January 1998, Royal Ahold continued its expansion in Latin America through
the formation of a 50% partnership with Velox Retail Holdings. The
partnership, Disco Ahold International Holdings N.V., or DAIH, owns a 90.3%
stake in Disco S.A., the largest supermarket company in Argentina, and a 65%
stake in Santa Isabel S.A., the second-largest supermarket company in both
Chile and Peru in terms of sales. As of the end of fiscal year 1998, Disco
operated 111 stores in Argentina, and Santa Isabel operated 90 stores, with 63
stores in Chile, 19 in Peru, six in Paraguay and two in Ecuador.
In March 1999, Disco entered into an agreement to acquire Supamer S.A. and
Gonzalez e Hijos S.A., both supermarket chains in Argentina, with a total of
75 supermarkets. Disco expects to complete these acquisitions by the end of
April 1999, if certain conditions are met. Most of the stores expected to be
acquired operate in the central Argentine province of Cordoba.
Asia Pacific
Since 1996, Ahold has been expanding into Asia Pacific markets by forming
partnerships with local partners. As part of its development in this area in
1996, Ahold formed 60% owned partnerships to develop supermarket chains in
Malaysia and Singapore with companies of the Kuok Group. Royal Ahold's
ownership interest in Ahold Kuok Malaysia was reduced to 52.2% following
certain acquisitions in 1998.
Royal Ahold also formed in 1996 a 50% partnership in the Shanghai region of
China with Zhonghui Supermarket Co. In 1998, the partnership, Ahold Zhonghui
Shanghai, acquired 22 supermarkets from Yaohan Liancheng in Shanghai. In
January 1997, Ahold entered into a 49% owned consolidated partnership with the
Central Robinson Group, which contributed 30 stores in Thailand. Ahold
increased its interest to 100% in April 1998 subject to repurchase options
granted to the Central Robinson Group. Additionally, Royal Ahold signed in
July 1997 a technical assistance agreement with the PSP Group in Indonesia in
connection with a potential development of a supermarket chain in July 1997.
6
<PAGE>
At the end of fiscal year 1998 Ahold owned and operated 138 food retail stores
in Asia Pacific.
Real Estate
Royal Ahold also has real estate subsidiaries in the Netherlands and the
United States. These subsidiaries concentrate on the acquisition, development
and management of retailing sites in support of Royal Ahold's retail
operations.
History
Royal Ahold was founded in 1887. In 1948, Royal Ahold, then named Albert Heijn
N.V., listed its shares on the Amsterdam Stock Exchange.
In 1973, the company's name was changed to Ahold N.V., indicative of its
development as a holding company with interests in food retailing and related
areas. Ahold's one hundredth anniversary in 1987 was marked by the granting of
the "Koninklijke" title (Dutch for "Royal") by the Queen of the Netherlands,
thus changing the full name of Ahold N.V. to Koninklijke Ahold N.V.
In order to further develop its strategy of sustained growth, Royal Ahold
began its international expansion in 1977. Acquisitions in the United States
have consisted of:
.BI-LO in 1977;
.Giant-Carlisle in 1981;
.First National (Finast) in 1988;
.Tops in 1991;
.Red Food Stores in 1994;
.Mayfair in 1995;
.Stop & Shop in July 1996; and
.Giant-Landover in October 1998.
Royal Ahold expects to finalize the acquisition of Pathmark in the second half
of 1999.
Corporate and Organizational Structure
Royal Ahold is a corporation incorporated under the laws of the Netherlands as
a holding company conducting business through subsidiaries. In the
Netherlands, Ahold manages its businesses along operational lines. In other
European countries and the United States it manages its businesses along
geographical lines. Management of each individual chain is responsible for
merchandising, store formats and marketing strategies. Decisions regarding the
strategic direction and overall management of the group companies are taken at
the holding company level.
In the Netherlands, operational management is divided into supermarkets,
specialty retailing, food wholesaling, institutional food supply, food
production and other operations. Retail operations outside the Netherlands
primarily consist of supermarkets. In the United States, Ahold U.S.A., Inc.,
the U.S. holding company, coordinates the activities of the U.S. operating
companies. In countries where Ahold operates through partnerships, the local
partnership is typically responsible for management of the operations, with
approval needed for certain investments and transactions by the partners.
7
<PAGE>
Below is the organizational structure of the principal consolidated activities
of Royal Ahold as of the end of fiscal year 1998:
PRINCIPAL ACTIVITIES OF ROYAL AHOLD
[ORGANIZATIONAL CHART APPEARS HERE]
8
<PAGE>
Food Retailing
Royal Ahold is an internationally diverse food retailer, with its operations
in the markets of the Netherlands, the eastern United States, certain other
European countries, Latin America and Asia Pacific. The following table sets
out, for the periods indicated, food retailing sales by geographic region:
Food Retailing Sales by Geographic Region
<TABLE>
<CAPTION>
Fiscal Year
--------------------------------------
1998 1997 1996
------------ ------------ ------------
(NLG) (%) (NLG) (%) (NLG) (%)
(in millions, except percentages)
<S> <C> <C> <C> <C> <C> <C>
The Netherlands (1) 12,306 23 11,658 25 11,064 34
United States (1) 31,959 60 27,879 60 18,968 58
Other Europe 3,793 7 3,156 7 2,528 8
Latin America 4,625 8 2,581 6 -- --
Asia Pacific 896 2 921 2 56 --
------- ---- ------- ---- ------- ----
Total food retailing 53,579 100 46,195 100 32,616 100
======= ==== ======= ==== ======= ====
</TABLE>
- --------
(1) Including sales to franchise stores
As of the end of fiscal year 1998, Royal Ahold operated 3,630 stores,
including 643 franchise stores. Over 2,300 of the stores are in a supermarket
format. Where local market conditions require, Ahold has expanded into other
formats, including specialty retailing, hypermarkets, cash-and-carry stores
and convenience stores. Most of Royal Ahold's franchise stores are in the
Netherlands and operate under trade names owned by Royal Ahold. They are
indistinguishable from the stores owned by Royal Ahold in terms of store
design and formula, but are owned independently by third parties. The
following table sets out, at the end of fiscal year 1998, store count and
sales area (in thousands of square feet) by company stores and franchise
stores:
Company and Franchise Stores
<TABLE>
<CAPTION>
As of Fiscal Year End 1998
------------------------------------------------------------------------
Company Franchise Company Franchise
Supermarkets (1) Supermarkets (1) Other (2) Other (2) Total
---------------- ------------------ ----------- ----------- ------------
Store Sales Store Sales Store Sales Store Sales Store Sales
Count Area Count Area Count Area Count Area Count Area
---------------- -------- --------- ----- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Netherlands 517 6,303 169 1,588 607 909 458 610 1,751 9,410
United States 895 29,352 7 259 120 520 9 44 1,031 30,175
Other Europe 383 3,100 -- -- 35 1,348 -- -- 418 4,448
Latin America 257 4,674 -- -- 35 1,290 -- -- 292 5,964
Asia Pacific 138 1,715 -- -- -- -- -- -- 138 1,715
------- -------- ------- --------- --- ----- --- --- ----- ------
Total 2,190 45,144 176 1,847 797 4,067 467 654 3,630 51,712
======= ======== ======= ========= === ===== === === ===== ======
</TABLE>
- --------
(1) Includes grocery stores and food retail stores considered supermarkets
under local market conditions.
(2) Includes certain specialty retail stores in the Netherlands, hypermarkets,
mostly in Portugal and Brazil, minimarkets in Brazil, and convenience
stores in the United States.
9
<PAGE>
The following table gives an overview of changes in total store count
(including franchise stores) for the periods indicated:
Changes in Consolidated Store Count
<TABLE>
<CAPTION>
Fiscal Year
-------------------
1998 1997 1996
<S> <C> <C> <C>
Beginning of period 3,099 2,819 2,437
Opened/acquired 745 393 541
Disposed (214) (113) (159)
----- ----- -----
End of period 3,630 3,099 2,819
===== ===== =====
</TABLE>
Food Retailing in The Netherlands
Ahold is the leading domestic food retailer in the Netherlands. The following
table sets out, for the periods indicated, sales in millions of Guilders,
store counts and sales area (in thousands of square feet) for Ahold's
retailing operations in the Netherlands:
Food Retailing Sales, Store Count and Sales Area by Business in the
Netherlands
<TABLE>
<CAPTION>
As of and for the Fiscal Year Ended
--------------------------------------------------------
1998 1997 1996
------------------ ------------------ ------------------
Store Sales Store Sales Store Sales
Sales Count Area Sales Count Area Sales Count Area
------ ----- ----- ------ ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Albert Heijn company
stores 9,506 517 6,303 8,981 512 6,140 8,557 494 5,774
Albert Heijn franchising 1,565 169 1,588 1,490 168 1,494 1,398 171 1,445
Etos 513 395 769 440 350 535 383 297 449
Gall & Gall 480 485 434 467 471 423 452 444 384
Other 242 185 316 280 249 377 274 243 339
------ ----- ----- ------ ----- ----- ------ ----- -----
Total the Netherlands 12,306 1,751 9,410 11,658 1,750 8,969 11,064 1,649 8,391
====== ===== ===== ====== ===== ===== ====== ===== =====
</TABLE>
The following table gives, for the periods indicated, the changes in store
count (including franchise stores) for the Netherlands:
Changes in Store Count in the Netherlands
<TABLE>
<CAPTION>
Fiscal Year
-------------------
1998 1997 1996
<S> <C> <C> <C>
Beginning of period 1,750 1,649 1,572
Opened/acquired:
Primarkt -- -- 36
Other 118 138 97
Disposed/closed (117) (37) (56)
----- ----- -----
End of period 1,751 1,750 1,649
===== ===== =====
</TABLE>
Albert Heijn
Albert Heijn is Ahold's primary food retailer in the Netherlands. At year end
1998, Albert Heijn had 686 stores (including 169 franchise stores) consisting
of:
. 205 stores with sales areas of less than 800 m/2/ (8,600 sq. ft.);
. 420 stores with sales areas between 800 m/2/ (8,600 sq. ft.) and 1,700 m/2/
(18,275 sq. ft.); and
. 61 stores with sales areas over 1,700 m/2/ (18,275 sq. ft).
The Albert Heijn store formula consists of offering customers a wide range of
competitively priced products and a high level of service in modern stores.
Private label goods form an important part of Albert Heijn's product selection
and represent approximately 38% of its 1998 sales. Albert Heijn operates four
distribution centers for grocery products and a number of processing and other
distribution facilities for meat and produce.
Albert Heijn continues to develop new technologies and to introduce innovative
supermarket techniques and applications. In 1996, Albert Heijn completed a new
product replenishment system under which products are delivered from
distribution centers based on scanning data taken from the stores' point-of-
sale registers. This greatly simplifies the product
10
<PAGE>
ordering at the store level. In 1997, Albert Heijn introduced a new store
format geared toward the demographics of local customers. Stores in the new
format have self-scanning cash registers and computerized databases of product
information and recipes, and offer cooking classes for shoppers. As of the end
of fiscal year 1998, Albert Heijn had converted six stores to the new format.
In early 1998, Albert Heijn introduced a customer loyalty card program, which
is intended to provide insights into customer profiles and buying behavior,
while offering discounts and buying incentives. As of the end of fiscal year
1998, there were more than four million participants in the bonus card
program.
Royal Ahold believes that these and other innovative improvements are leading
to increased productivity levels and profitability in Albert Heijn stores, as
indicated by an increase in sales per average full-time equivalent employee
from NLG 398,000 in 1996 to NLG 410,000 in 1998.
At the end of fiscal year 1998, Albert Heijn also operated through 169
franchise stores, which typically operate in smaller market areas under the
Albert Heijn formula and which are not distinguishable from company-owned
stores. Under each franchise, there is an agreement with Albert Heijn for:
. the supply of merchandise at wholesale prices (including a franchise fee);
. various support services, including logistical and warehouse services; and
. management support and training, marketing support, and administrative and
financial assistance.
Franchise agreements typically have a term of five years, and are renewable
for additional five-year terms. Franchise stores are primarily smaller stores,
with 40% of such stores having a sales area of less than 800 m/2/ (8,600 sq.
ft.) while company-owned stores are generally larger, with 73% of such stores
having a sales area above 800 m/2/ (8,600 sq. ft.).
Specialty Retailing
Other retailing in the Netherlands includes Ahold's specialty retailing
operations, which are organized as a separate group. The companies in this
group include Gall & Gall and Etos, two of Ahold's specialty store chains. At
fiscal year end 1998, Gall & Gall operated 344 stores and supplied 141
franchise stores while Etos operated 188 stores and supplied 256 franchise
stores. Other operations include confectionery stores, operating under the
name "Jamin".
Food Retailing in the United States
Ahold has established itself, through acquisitions and internal growth, as a
leading food retailer in the United States, operating in 15 eastern states and
Washington, D.C. Based on 1998 sales, Ahold U.S.A. was one of the five largest
food retailers in the United States. While management of each individual chain
is responsible for its merchandising, store formats and marketing strategies,
the operations of the five regional operating companies are coordinated as a
group through Ahold U.S.A. Each chain operates in its own distinct marketing
area.
The table that follows sets out, for the periods indicated, sales in millions
of Dollars, store counts and sales area (in thousands of square feet) for
Ahold's food retailing operations in the United States. Sales for the fiscal
year 1996 include Stop & Shop from its acquisition date of July 22, 1996.
Sales for fiscal year 1998 include Giant-Landover from its acquisition date of
October 28, 1998.
U.S. Food Retailing Sales, Store Count and Sales Area by Business
<TABLE>
<CAPTION>
As of and for the Fiscal Year Ended
-----------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
Store Sales Store Sales Store Sales
Sales Count Area Sales Count Area Sales Count Area
------ ----- ------ ------ ----- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stop & Shop 6,187 193 7,735 5,492 187 7,283 2,250 185 6,998
Giant-Carlisle 3,417 149 4,971 3,156 144 4,528 3,647 141 4,284
BI-LO 2,887 266 6,667 2,826 263 6,255 2,601 266 6,321
Tops 2,846 250 5,390 2,817 236 5,142 2,734 225 4,834
Giant-Landover 837 173 5,412 -- -- -- -- -- --
------ ----- ------ ------ --- ------ ------ --- ------
Total United States 16,174 1,031 30,175 14,291 830 23,208 11,232 817 22,437
====== ===== ====== ====== === ====== ====== === ======
</TABLE>
11
<PAGE>
The following table gives, for the periods indicated, changes in store count
for the United States:
Changes in Store Count in the United States
<TABLE>
<CAPTION>
Fiscal Year
-----------------
1998 1997 1996
<S> <C> <C> <C>
Beginning of period 830 817 653
Acquired:
Giant-Landover 173 -- --
Stop & Shop -- -- 171
Opened 53 41 42
Disposed (25) (28) (49)
----- --- ---
End of period 1,031 830 817
===== === ===
</TABLE>
Stop & Shop
Royal Ahold acquired Stop & Shop in July 1996. Stop & Shop, which is
headquartered in Quincy, Massachusetts, pioneered the superstore concept in
New England in 1982. At fiscal year end 1998 Stop & Shop operated 193
superstores and conventional supermarkets located in Massachusetts,
Connecticut, Rhode Island and New York. In 1998 Stop & Shop was the market
leader in New England with market shares of approximately 34% in Boston,
Massachusetts and approximately 37% in Hartford, Connecticut according to AC
Nielsen.
Giant-Carlisle
Royal Ahold acquired Giant-Carlisle in 1981. Based in Carlisle, Pennsylvania,
it operated 149 supermarkets at fiscal year end 1998. The stores operate under
the name "Giant" in Pennsylvania, under the name "Martin's" in Maryland,
Virginia and West Virginia and under the name "Edwards", in New Jersey, Long
Island and New York City.
Following the acquisition of Stop & Shop, the Edwards stores in Connecticut,
Massachusetts and Rhode Island that remained after required divestments were
put under the control of Stop & Shop and, in November 1996, were converted to
the Stop & Shop name.
BI-LO
Royal Ahold acquired BI-LO, based in Mauldin, South Carolina, in 1977. At the
end of fiscal year 1998, BI-LO operated 266 supermarkets in South Carolina,
North Carolina, Tennessee and Georgia.
Tops
Royal Ahold acquired Tops in March 1991. Tops is a leading food retailer in
western and central New York State and is based in Buffalo, New York. As of
fiscal year end 1998, Tops owned and operated 70 supermarkets under the name
"Tops Friendly Markets", 108 convenience stores which operate under the name
"Wilson Farms" and 12 discount drugstores which operate under the name "Vix".
In January 1999, Tops completed the sale of all Vix discount drugstores. At
fiscal year end 1998, Tops also had seven independent supermarket franchisees
operating under the "Tops Friendly Markets" name and nine franchise
convenience stores. Tops' primary markets are Buffalo and Rochester, New York
and Erie, Pennsylvania.
Finast, which Ahold acquired in 1988, operated 44 stores at the end of 1998 in
the greater Cleveland area and other northern Ohio cities. Finast stores are
currently being reformatted and renamed as Tops supermarkets.
Giant-Landover
In October 1998, Ahold acquired Giant Food, based in Landover, Maryland.
Giant-Landover operated a chain of 173 retail stores selling food, health care
items and general merchandise in Washington, D.C., Maryland, Virginia,
Delaware, New Jersey and Pennsylvania at the end of fiscal year 1998. The
majority of Giant-Landover's stores are located in shopping centers. Giant-
Landover also operates three free-standing drug stores. At the end of fiscal
year 1998, Giant-Landover reported market shares for the greater Washington,
D.C. and greater Baltimore areas of 44% and 29%, respectively.
Pathmark
In March 1999, Royal Ahold announced that it had agreed to acquire all of the
outstanding capital stock of SMG-II Holdings Corporation, which owns the U.S.
supermarket company Pathmark Stores, Inc. At the end of 1998, Pathmark
operated 132 stores in New Jersey, New York, Pennsylvania and Delaware. The
acquisition is subject to a number of conditions, including obtaining
necessary U.S. federal and state antitrust approvals. Royal Ahold expects to
complete the acquisition in the second half of 1999. In conjunction with the
acquisition, the transaction is being reviewed by the Federal Trade Commission
and the New York Attorney General. In connection with that review, Royal Ahold
may be required to divest certain stores to resolve the investigation.
General
All of Ahold's U.S. supermarket chains, with the exception of Giant-Carlisle,
are serviced from their own distribution centers. Giant-Carlisle distributes
12
<PAGE>
meat, produce and most other perishable items through its own distribution
center while using third-party wholesalers for the majority of its grocery
items.
One common feature of each U.S. subsidiary's strategy has been a focus on
optimizing store sizes and upgrading the quality and the number of services
offered at stores. Ahold U.S.A. has undertaken a number of projects to improve
operational efficiency by partially centralizing certain common functions of
its subsidiaries to take advantage of possible economies of scale. Ahold
U.S.A. has two integrated companies, American Sales Company and Ahold
Information Services, which service its retail operations. American Sales
Company provides purchasing and distribution services in health and beauty
care items and general merchandise for Ahold's U.S. chains. Ahold Information
Services operates a data operations center on behalf of all Ahold's U.S. food
retailing companies, facilitating their information systems operations.
The efficiency improvement has been strengthened by the establishment of a
number of working groups, composed of representatives of each of the U.S.
chains, whose objective is to identify and implement operational "best
practices" and potential efficiency improvements across the various chains.
Projects that have been initiated include advanced product purchasing systems,
joint private label purchasing and a more unified approach to store
construction.
In March 1999, Royal Ahold announced its plan to consolidate its five U.S.
operating companies' accounting departments into a single financial service
center called "Ahold Financial Services". The center will result in economies
of scale and facilitate the integration of new acquisitions. The consolidation
will be done over an 18 month period.
Food Retailing in Other European Countries
Ahold has continued to expand in other European countries outside the
Netherlands. The following table sets out, for the periods indicated, sales in
millions of Guilders, store counts and sales area (in thousands of square
feet) for Ahold's European consolidated food retailing operations outside the
Netherlands:
Food Retailing Sales, Store Count and Sales Area by European Country Outside
the Netherlands
<TABLE>
<CAPTION>
As of and for the Fiscal Year Ended
-----------------------------------------------------
1998 1997 1996
----------------- ----------------- -----------------
Store Sales Store Sales Store Sales
Sales Count Area Sales Count Area Sales Count Area
----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Portugal 2,617 174 2,182 2,328 156 2,035 2,077 129 1,773
Czech Republic 716 149 1,393 474 122 799 389 108 653
Poland 356 80 731 217 53 482 62 30 247
Spain 104 15 142 137 17 177 -- -- --
----- --- ----- ----- --- ----- ----- --- -----
Total Other Europe 3,793 418 4,448 3,156 348 3,493 2,528 267 2,673
===== === ===== ===== === ===== ===== === =====
</TABLE>
13
<PAGE>
The following table gives, for the periods indicated, the changes in store
count for Portugal, the Czech Republic, Poland and Spain:
Changes in Store Count in Other Europe
<TABLE>
<CAPTION>
Fiscal Year
----------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Portugal
Beginning of period 156 129 116
Opened/acquired 19 28 14
Disposed (1) (1) (1)
--- --- ---
End of period 174 156 129
=== === ===
Czech Republic
Beginning of period 122 108 96
Opened/acquired 34 21 65
Disposed (7) (7) (53)
--- --- ---
End of period 149 122 108
=== === ===
Poland
Beginning of period 53 30 --
Opened/acquired 28 26 30
Disposed (1) (3) --
--- --- ---
End of period 80 53 30
=== === ===
Spain
Beginning of period 17 -- --
Opened/acquired 43 18 --
Disposed (45) (1) --
--- --- ---
End of period 15 17 --
=== === ===
</TABLE>
Portugal
In 1992, Ahold established Jeronimo Martins Retail ("JMR"), a partnership with
Establecimentos Jeronimo Martins & Filho S.A., a leading Portuguese food
processor and retailer. JMR holds 100% of the capital stock of both Pingo
Doce, which at the end of fiscal year 1998 operated 147 supermarkets, and of
Feira Nova, which at the end of fiscal year 1998 operated 17 hypermarkets.
Pingo Doce is a major supermarket chain in Portugal offering a wide variety of
products at competitive prices. The Feira Nova hypermarkets offer a wide
variety of food and non-food products at low prices.
Ahold owns 49% of the shares of JMR. Unanimous approval for important
decisions is required by the board of JMR. Based on its direct managerial
role, representation on JMR's board of directors and stockholders' agreements,
Ahold includes JMR in its consolidated financial statements.
Czech Republic
Euronova, an indirect, wholly-owned subsidiary of Royal Ahold, started food
retail operations in the Czech Republic in 1991. At the end of 1998, Euronova
operated 149 food retail stores, making it one of the largest food retailers
in the country as measured by sales volume. As of the fiscal year end 1998,
Euronova had 84 stores operating under the name "Mana", 49 discount stores
operating under the name "SESAM", 14 "Prima" general merchandise stores and
two "Hypernova" hypermarkets.
Poland
In 1995, Ahold established a 50% joint venture with German retailer Allkauf-
Gruppe to develop retail operations in Poland. In January 1999, Royal Ahold
purchased Allkauf-Gruppe's share of the joint venture. As of fiscal year end
1998, Ahold & Allkauf Polen, operated 61 discount food stores, 17 supermarkets
and two hypermarkets in Poland. This company was renamed Ahold Polska in
February 1999.
Spain
In 1996, Ahold established Store 2000, a joint venture with the parent company
of Caprabo, a privately held food retailing company based in Barcelona, Spain.
This joint venture operated until October 1998, when Royal Ahold sold its
interest. In November 1998, Royal Ahold acquired 15 stores from Longinos
Velasco through its wholly-owned subsidiary Ahold SuperMercados. These stores
are located primarily in the Madrid area. In January 1999, Ahold expanded its
operations in Spain by acquiring Dialco, Dumaya, Castillo del Barrio and
Guerrero, four supermarket companies located in southern Spain. These chains
operated a total of 160 stores at the time of the acquisitions. Royal Ahold
intends further development and expansion in Spain through its existing
operations as well as through future acquisitions.
Food Retailing in Latin America
In December 1996, Ahold entered into the Latin American market through an
agreement with Bompreco. Under this agreement Ahold ultimately acquired 50% of
the voting shares and 47.9% of the total capital of Bompreco. Bompreco is the
leading food retailer in northeastern Brazil. In June 1997, Bompreco acquired
SuperMar (which was subsequently renamed Bompreco Bahia S.A.), a
14
<PAGE>
regional supermarket chain in northeastern Brazil. All Bompreco Bahia stores
operate under the Bompreco and Hyper Bompreco names. At the end of fiscal
1998, Bompreco operated 91 supermarkets, hypermarkets and other food retail
stores, including 42 Bompreco Bahia stores. Ahold and Bompreco intend to
continue to expand operations in Brazil.
Royal Ahold has continued the development of its Latin America operations
through the formation of a 50.0% partnership with Velox Retail Holdings in
January 1998. The partnership controls a 90.3% stake in Disco S.A. (increased
from 50.4% in December 1998), the largest supermarket company in Argentina,
and a 65.0% interest in Santa Isabel S.A. (increased from 37.0% in March
1998), the second largest supermarket company in both Chile and Peru, in terms
of sales, and with operations in Paraguay and Ecuador. Disco operated 111
stores with a total selling area of 1,657,000 sq. ft. at fiscal year end 1998.
At year end 1998, Santa Isabel operated 90 stores, with 63 stores in Chile, 19
in Peru, six in Paraguay and two in Ecuador and with a total selling area of
1,766,000 sq. ft.
In March 1999, Disco entered into an agreement to acquire Supamer S.A. and
Gonzalez e Hijos S.A, both supermarket chains in Argentina, with a total of 75
supermarkets. Disco expects to complete these acquisitions by the end of April
1999, if certain conditions are met. Most of the stores to be acquired operate
in the central Argentine province of Cordoba.
Food Retailing in Asia Pacific
Since 1996, Royal Ahold began expanding into the Asia-Pacific market by
forming partnerships with local partners.
In 1996, Royal Ahold established a 50% partnership in the Shanghai region of
China with Zhonghui Supermarket Co. In January 1998, the partnership acquired
22 supermarkets from Yaohan Liancheng in Shanghai, which it is now converting
to the TOPS name.
In 1996, Royal Ahold formed two 60%-owned partnerships to develop supermarkets
chains in Malaysia and Singapore with two companies of the Kuok Group. In May
1998, the partnership in Malaysia acquired seven supermarkets from Yahona
Corporation, and in July 1998 it acquired 27 supermarkets from Parkson
Corporation. As a result of the latter acquisition in Malaysia, Royal Ahold's
ownership interest was reduced to 52.2%. Most of these stores operate under
the TOPS name. In September 1997, the partnership in Singapore acquired the
leases of eleven supermarkets, with an average size of approximately 9,000
square feet, from Emporium Holdings. Most of these stores operate under the
TOPS name.
Early in 1997, Royal Ahold entered into a 49%-owned consolidated partnership
in Thailand with the Central Robinson Group, which contributed 30 stores to
the partnership. In April 1998, Royal Ahold's interest in the partnership was
increased to 100% subject to repurchase options granted to the Central
Robinson Group.
In July 1997, Royal Ahold entered into a technical assistance agreement with
the PSP Group in Indonesia in connection with the potential development of a
supermarket chain in that country.
At fiscal year end 1998, Royal Ahold, through its partnerships, owned and
operated 138 food retail stores in Asia Pacific. Of these stores, 40 were
located in China, 45 in Malaysia, 14 in Singapore and 39 in Thailand. Royal
Ahold believes that these comparatively less mature retail food markets of
certain Asian countries offer medium to long term opportunities for expansion
and growth.
Food Wholesaling
Ahold conducts food wholesaling through Schuitema, a publicly-traded Dutch
company of which Ahold owns 73%, and Grootverbruik Ahold, which is wholly-
owned by Ahold. Schuitema provides goods and services to approximately 500
independent food retailers operating under various trade names and formats.
Schuitema and certain independent food retailers are members of an association
that has developed and controls several store formats, including C1000, Spar
Voordeelmarkt, Kopak and Casper. Schuitema services these member independent
food retailers, which accounted for over 90% of Schuitema's sales for its
fiscal year 1998. Schuitema also supports these independent member retailers
on a commercial level and in some instances financially.
15
<PAGE>
Ahold has established itself in the Dutch institutional food supply market,
primarily through Grootverbruik Ahold. Grootverbruik Ahold supplies hospitals,
schools, other institutional customers and hospitality enterprises, such as
hotels and restaurants.
Real Estate
Ahold Vastgoed B.V. or AVG, a 100%-owned Dutch real estate subsidiary, is
engaged in the acquisition, development and management of store locations in
the Netherlands. At fiscal year end 1998 it managed or owned approximately
2,150 locations, of which about 54% were rented to Ahold's Dutch subsidiaries.
Construction of new store locations and enlargement of existing locations in
the Netherlands is subject to strict building regulations, so the availability
of scarce selling space at attractive locations is an important factor in the
competition among Dutch retail companies.
In 1989, Royal Ahold established Ahold Real Estate Company or ARC. ARC, a
wholly-owned subsidiary of Royal Ahold, is primarily engaged in acquiring and
developing strip centers and store locations in the United States where Ahold
stores will be anchor tenants. At the end of fiscal year 1998, ARC owned 24
strip centers or free-standing stores and had 11 developments in progress.
Other Activities
Ahold's other activities primarily include food production companies, which
consist of three production facilities, operating as independent profit
centers. The companies are principally engaged in producing a portion of
Albert Heijn's private label products and, on a small scale, sell to
Grootverbruik Ahold and to third parties. Important product groups include
coffee, tea, wine and processed meat.
Unconsolidated Subsidiaries
Ahold had investments of NLG 272 million in unconsolidated subsidiaries at the
end of 1998, relating primarily to investments by Schuitema in an
unconsolidated company which operates a distribution center and real estate in
the Netherlands. Other investments include Ahold's interest in a Spanish wine
producer.
European Cooperative Association
Ahold is a member of a group of 11 European retailers cooperating in AMS
Marketing Service AG, a Swiss company engaged in organizing and supervising
active cooperation between retailers and manufacturers in Europe to reduce
distribution and production costs.
Employees
The average number of store associates employed by Ahold in fiscal 1998 were:
. 62,011 in the Netherlands;
.116,772 in the U.S.;
. 19,532 in other European countries;
. 25,404 in Latin American countries; and
.11,529 in Asian Pacific countries.
A large portion of the total average of 235,248 employees in 1998 were part-
time employees. At the end of fiscal year 1998, Royal Ahold had 162,746 full-
time employee equivalents compared to 148,615 at the end of 1997 and 125,474
at the end of 1996. The number of employees rose in 1998 primarily because of
acquisitions and opening of new stores. In 1999 Ahold expects the total number
of employees in current operations to show a small increase.
Royal Ahold has a number of defined benefit pension plans covering
substantially all of its employees. These plans have been established in
accordance with applicable legal requirements, customs and existing
circumstances in each country. Benefits are generally based upon compensation
and years of service. Pension plan assets are generally invested in shares,
fixed-rate debt securities, loans and real estate.
16
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
As of January 3, 1999, Ahold operated 2,987 retail stores and 180 support
facilities (warehouse/distribution centers, offices and food processing
facilities). Of these locations, 32% were owned by Ahold, 15% held under
capital leases and 53% held under operating leases. The following table
summarizes property locations as of January 3, 1999, by industry and
geographic segment:
<TABLE>
<CAPTION>
Percentage of locations
-----------------------
Retail Support Capital Operating
Stores facilities Total Owned lease lease
------ ---------- ----- ----- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Food Retailing
The Netherlands 1,124 44 1,168 23% -- 77%
United States 1,015 46 1,061 12% 44% 44%
Other Europe 418 15 433 48% 1% 51%
Latin America 292 35 327 43% 2% 55%
Asia Pacific 138 13 151 -- -- 100%
----- --- -----
2,987 153 3,140 32% 15% 53%
===== === =====
Food Wholesaling
The Netherlands 22 22 32% -- 68%
Other Activities
The Netherlands 5 5 40% -- 60%
</TABLE>
Food Retailing
In the Netherlands, Royal Ahold's six retail chains operating food stores used
five warehouse/distribution centers (of which two are owned locations), nine
production facilities and 30 office locations in support of the operations as
of the end of fiscal 1998. Ahold operates food stores in all provinces in the
Netherlands, and has 517 company-owned supermarkets and 607 other company and
franchise retail outlets. The stores in the Netherlands are generally rented
under contracts which provide for non-cancelable, five to ten year rental
periods with renewal options, and with rents which may be adjusted annually
based on predetermined indices. Ahold's food retailing companies in the
Netherlands lease or own an additional 210 locations almost all of which are
leased to franchisees.
In the U.S., Ahold's subsidiaries operated 1,015 retail stores, 24
warehouse/distribution centers (13 owned and 11 under lease) and 22 office
locations at the end of fiscal 1998. All Ahold operations in the U.S. are in
the eastern part of the country. The terms of the leases in the U.S. typically
range from 10 to 25 years and contain renewal options. Also in the U.S., the
retail chains lease or own 206 other sites which are generally former
supermarket locations or sites held for future development. Of these
additional sites not in company use, 67% have been subleased to third parties.
At the end of fiscal 1998, Royal Ahold had 174, 149, 80 and 15 retail stores
in Portugal, the Czech Republic, Poland and Spain, respectively. Of these
stores, a total of 80, 66, 56 and 15 stores operate under leases in Portugal,
the Czech Republic, Poland and Spain, respectively, and the remainder are
owned by Royal Ahold. Support facilities in other European countries consist
of eight warehouses and distribution centers (of which four are owned) and
seven office locations (of which two are owned). Lease terms for the other
European locations generally range from five to ten years, with renewal
options. Additionally, 81 other locations are controlled by Ahold's
subsidiaries in other European countries, of which substantially all are
subleased to third parties. These locations consist primarily of smaller
retail areas in company owned shopping centers.
In Latin America, at the end of fiscal 1998 Royal Ahold's partnerships
operated 292 retail stores (122 owned), 26 warehouse/distribution centers (15
owned) and eight office locations (five owned) along with one food processing
plant. The leased locations in Latin America operate under leases with terms
of four to ten years with renewal options.
At the end of fiscal year 1998, Royal Ahold's Asia Pacific operations included
138 retail stores, five warehouse/distribution centers, six offices and two
17
<PAGE>
food processing plants. All of the locations operated
under leases with terms of five to ten years, except for one owned
warehouse/distribution center.
Food Wholesaling
Schuitema, Ahold's Dutch wholesaler, serviced 464 affiliated food stores from
nine distribution centers (of which one is owned and eight are held under
operating leases) and utilized two offices at January 3, 1999.
Additionally, Schuitema owns 139 locations and leases another 261 locations,
almost all of which are in turn leased to independent retailers utilizing
Schuitema's retail formulas and wholesale services. GVA operates eight
distribution centers (four owned) and three offices to support its sales to
restaurants, caterers and similar organizations.
Other Activities
Included in Other Activities in the above table are three leased food-
processing facilities that are utilized by Ahold's Dutch food production
companies as well as production company offices and corporate offices.
Real Estate Companies
Ahold's real estate companies, AVG and ARC, are engaged in the acquisition,
development and management of retail sites in support of Royal Ahold's retail
operations. In doing so, the real estate companies may own or lease individual
store sites, shopping centers or buildings. Real estate locations controlled
by AVG or ARC and rented to other Ahold consolidated subsidiaries are included
in the above table under the segment using the property and are included as
owned or leased based on the interest of AVG or ARC.
In addition to the locations rented to Ahold companies, the real estate
companies may own or lease locations which are adjacent to store sites,
locations held for future development or other sites related to securing and
developing sites for Ahold retail stores.
In the Netherlands, AVG controls 2,150 locations, of which about 67% are
leased under operating leases and 33% are owned. Over 54% are in turn leased
to Ahold's consolidated subsidiaries and about 10% leased to franchisees. The
remaining 777 locations (split between retail sites and apartments located
adjacent to Ahold retailers) are leased to third parties.
Ahold's U.S. real estate company, ARC, owns 24 strip centers or self-standing
stores. Of these, Ahold is the anchor tenant in all but three of the retail
centers while other, smaller shops in the centers are rented to third-party
retailers. Additionally, at January 3, 1999, ARC had 11 retail centers under
development.
ITEM 3. LEGAL PROCEEDINGS
Prior to July 1, 1992, Stop & Shop assigned certain leases to Bradlees, Inc.
("Bradlees") which was, at the time, a subsidiary of Stop & Shop. On June 23,
1995, Bradlees filed for bankruptcy protection under Chapter 11 of the United
States Bankruptcy Code in the Southern District of New York. Bradlees emerged
from bankruptcy protection on February 2, 1999. As of January 3, 1999, a total
of 100 of the Stop & Shop leases assigned to Bradlees were still outstanding.
Under certain circumstances, Stop & Shop may have liability under these leases
in the event of nonperformance by Bradlees and as at fiscal year end 1998
Ahold had a provision of NLG 115 million in respect of such liability. See
note 14 to the 1998 consolidated financial statements. The total undiscounted
value of the future minimum lease payments under these leases as of January 3,
1999 is $249 million (NLG 471 million).
There are no other material pending legal proceedings, other than ordinary
routine litigation incidental to Royal Ahold's and its subsidiaries'
businesses, to which Royal Ahold or any of its subsidiaries is a party or of
which any of their property is subject.
ITEM 4. CONTROL OF REGISTRANT
Royal Ahold is not directly or indirectly owned or controlled by another
corporation or by any foreign government. Except as described under
"Cumulative Preferred Shares" below, there are no arrangements known to Royal
Ahold that may, at a subsequent date, result in a change in the control of
Royal Ahold.
Cumulative Preferred Shares
In March 1989, Royal Ahold and Stichting Ahold Continuiteit ("SAC" or, in
English, "Ahold Continuity Foundation") entered into an agreement (the "Option
Agreement"). This option agreement was amended and restated in April 1994 and
March 1997. Pursuant to this option agreement SAC was granted an option to
acquire from Royal Ahold, from time to time until March 2004, cumulative
preferred
18
<PAGE>
shares up to a total par value that is equal to the total par value of all
issued and outstanding shares of capital stock of Ahold. Royal Ahold on its
part has the right, pursuant to the Option Agreement, to place cumulative
preferred shares with SAC up to a total par value that is equal to the total
nominal value of all issued and outstanding shares of capital stock of Ahold.
The holders of the cumulative preferred shares are entitled to 2,000 votes per
share. Subject to limited exceptions, each transfer of cumulative preferred
shares requires the approval of the Corporate Executive Board. Cumulative
preferred shares can only be issued in registered form. No share certificates
are issued for cumulative preferred shares.
The cumulative preferred shares have certain anti-takeover effects. The
issuance of all authorized cumulative preferred shares will cause substantial
dilution of the effective voting power of any shareholder, including a
shareholder that attempts to acquire Royal Ahold, and could have the effect of
delaying, deferring and preventing a change in control of Royal Ahold.
Royal Ahold may stipulate that only 25% of the nominal value be paid upon
subscription for cumulative preferred shares until payment in full of the par
value is later called by Royal Ahold. No cumulative preferred shares have been
issued or are outstanding during 1998, 1997 or 1996.
SAC is a non-membership organization with a self-appointing managing board,
organized under the law of the Netherlands. Its statutory objectives are to
enhance the continuity and the identity of Royal Ahold in case of an unwanted
take-over attempt. As of March 31, 1999, the members of the board of the
Stichting were:
<TABLE>
<CAPTION>
Name Principal occupation or relation to Royal Ahold
<S> <C>
Voting members
J.J. Slechte Former President of Shell Nederland B.V.
A.M. Knulst Former Managing Director of bv Trustkantoor Gestor
P.J. van Dun Former Executive Vice President of Royal Ahold
Non-voting
members
H. de Ruiter Chairman of the Supervisory Board of Royal Ahold
C.H. van der
Hoeven President of the Corporate Executive Board of Royal Ahold
</TABLE>
Significant ownership of voting shares
As of June 1, 1997, a new statute, the 1996 Act of Disclosure of Holdings in
Listed Companies, came into force. Under this Act any person who, directly or
indirectly, acquires or disposes of an interest in the capital or the voting
rights of a public limited liability company incorporated under Dutch law with
an official listing on a stock exchange within the European Economic Area must
give a written notice of such acquisition or disposal, if as a result of such
acquisition or disposal the percentage of capital interest or voting rights
held by such person falls within another percentage range as compared to the
percentage range held by such person prior to such acquisition at disposal.
The percentage ranges referred to in this Act are 0-5, 5-10, 10-25, 25-50, 50-
66 2/3 and over 66 2/3. As of March 31, 1999, the only persons known by Ahold
to own of record or beneficially more than 5% of any class of capital interest
and/or voting rights of Royal Ahold are the following Dutch institutional
investors which notified Royal Ahold of their capital interest in Royal Ahold
following the issuance of the cumulative preferred financing shares on June
25, 1996: AMEV/VSB 1990 N.V.; ING Groep N.V.; Cooperatie Achmea U.A.; and
AEGON N.V. Ahold has not been notified of any other holders with 5% or more of
voting rights or with 5% or more of capital interest in the voting securities
of Royal Ahold. As of March 31, 1999, no Directors or Officers were among the
holders of registered common shares.
With respect to the bearer common shares, Royal Ahold does not maintain a
register of holders of such shares. Therefore, Royal Ahold does not know of
the existence and identity of parties, if any, which own more than 10% of its
common shares. Royal Ahold does not know the number and percentage of common
shares in bearer form held by Directors and Officers as a group.
19
<PAGE>
ITEM 5. NATURE OF TRADING MARKET
The AEX-Stock Exchange (formerly known as the Amsterdam Stock Exchange) is the
principal trading market of the common shares of Royal Ahold. As of March 31,
1999, Ahold was the eighth largest company quoted on the AEX-Stock Exchange
(symbol "AHLN") in terms of market capitalization ((Euro) 22.3 billion or NLG
49.2 billion). The common shares are also listed on the Swiss Exchange. The
common shares trade in the United States on the NYSE in the form of ADSs under
the symbol "AHO".
Since January 20, 1998 the Depositary for the ADSs (the "Depositary") has been
The Bank of New York. The Depositary was previously Morgan Guaranty Trust
Company of New York. The ADSs are evidenced by ADRs and each ADS evidences the
right to receive one common share deposited under the Deposit Agreement. Royal
Ahold has been informed by the Depositary that in the United States, as of
January 3, 1999, there were 10,143,506 ADSs and 706 record owners, including
7,150 participants in employee stock ownership plans.
As of January 3, 1999, the register of holders of registered common shares
contained no names of holders having their registered address in the U.S.
The table below sets forth the high and low last sales prices during the
periods indicated for Ahold's common shares on the AEX-Stock Exchange and the
closing prices for its ADRs on the NYSE. The data in the table below have been
retroactively adjusted as necessary to give effect to a three-for-one stock
split that was effected on July 21, 1997. The quarters used are Royal Ahold's
fiscal quarters.
Prior to January 1999, the AEX-Stock Exchange quoted sales prices in Guilders.
Effective January 1999, the AEX-Stock Exchange quotes sales prices in Euro
only. The prices indicated below for the fiscal year 1998 and 1997 have been
translated into Euro at a rate of NLG 2.20371 = (Euro) 1.00.
<TABLE>
<CAPTION>
The Netherlands United States
High Low High Low
in Euro per common
share in $ per ADR
<S> <C> <C> <C> <C>
Fiscal Year 1999
Through March 31, 1999 35.80 32.40 41 3/8 35 9/16
Fiscal Year 1998
First quarter 31.76 23.46 34 5/16 25
Second quarter 31.08 27.45 34 3/16 30 3/16
Third quarter 30.04 24.23 32 3/4 27
Fourth quarter 31.76 23.87 37 29 1/8
Fiscal Year 1997
First quarter 21.63 15.88 24 51/64 19 53/64
Second quarter 26.36 19.69 29 25/64 22 27/64
Third quarter 29.50 21.92 31 7/8 24 7/16
Fourth quarter 25.87 22.10 28 7/8 24 3/4
</TABLE>
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
Currently there are no limitations other than those described in Item 7
"Taxation" below regarding the payment by Royal Ahold to non-residents with
regard to the remittances of dividends, or any other payments to or from non-
resident holders of Ahold's securities.
The Disclosure Act (see Item 4 "Control of Registrant" for a more complete
description) provides that a civil court can issue an order suspending voting
rights of a shareholder up to three years for non-compliance with its
reporting requirements. This penalty is applicable to both resident and non-
resident holders of common shares. The existing laws and regulations of the
Netherlands impose no other limitations on non-resident or foreign owners with
respect to holding or voting common shares than on resident owners. Royal
Ahold's Articles of Association do not impose any limitation on (i)
remittances to or from abroad regarding dividends or capital or (ii) rights of
non-resident or foreign owners to hold or vote common shares.
20
<PAGE>
ITEM 7. TAXATION
Income and Withholding Tax
In general, for Dutch tax purposes, holders of ADSs will be treated as the
beneficial owners of the shares of Royal Ahold represented by such ADSs.
Dividends on Royal Ahold's common shares are subject to Dutch withholding tax
of 25%. Pursuant to the Income Tax Convention between the U.S. and the
Netherlands of December 18, 1992, dividends paid by Royal Ahold on its common
shares to a resident of or corporation organized in the United States (having
no permanent establishment in the Netherlands the business property of which
such shares form a part) qualify for a reduction of Dutch withholding tax on
dividends from 25% to 15% (5% if the beneficial owner is a corporation which
holds directly at least 10% of the voting power of Royal Ahold's shares).
Where a resident of or a corporation organized in the United States has a
permanent establishment in the Netherlands and Royal Ahold's common shares
form a part of the business property of such permanent establishment,
dividends received on such shares are included in the profit of such
establishment and subject to Dutch income tax or corporation tax (assuming it
relates to a shareholding of less than 5%), as the case may be. The
Netherlands' withholding tax on dividends will be applied at the full rate of
25% and allowed as a credit against the Dutch income tax on such income. Such
tax will be treated as foreign income tax eligible for credit against the
shareholder's United States income taxes.
A qualifying U.S. pension trust or charitable or other exempt organization may
be exempt from Dutch withholding tax on dividends from its investment in Royal
Ahold's common shares. In order to qualify for this exemption, a pension trust
must be a resident of the U.S., generally exempt from U.S. taxes and
constituted and operated exclusively to administer or provide benefits under
one or more funds or plans established to provide pension, retirement or other
employee benefits.
In order to qualify for this exemption, a U.S. charitable organization must be
a resident of the U.S., exempt from U.S. taxes and would be exempt from Dutch
taxes if it were organized and carried on all of its activities in the
Netherlands.
Net Wealth Tax
A holder of common shares or ADSs will not be subject to Dutch net wealth tax
provided that such holder is not an individual or, if he is an individual,
provided that:
(i) such holder is not a resident or deemed resident of the Netherlands; and
(ii) such holder does not have an enterprise, or an interest in an enterprise,
which carries on business in the Netherlands through a permanent
establishment or a permanent representative to which or to whom the
common shares or ADSs are attributable.
Gift, Estate or Inheritance Tax
No gift, estate or inheritance tax will arise in the Netherlands in respect of
the transfer of common shares or ADSs by way of a gift or inheritance from a
shareholder that is neither resident nor deemed resident in the Netherlands,
unless either such shareholder has an enterprise or an interest in an
enterprise that is, in whole or in part, carried on through a permanent
establishment or permanent representative to which or to whom the common
shares or ADSs are attributable, or such shareholder dies within 180 days
after having made a gift, while being, on the moment of his or her death, a
resident or deemed resident of the Netherlands.
Taxes on Income and Capital Gains
A holder of common shares or ADSs will not be subject to Dutch taxes on income
and capital gains provided that:
(i) such holder is not a resident or deemed resident of the Netherlands; and
(ii) such holder does not have an enterprise, or an interest in an enterprise,
which carries on business in the Netherlands through a permanent
establishment or a permanent representative to which or to whom the
common shares or ADSs are attributable.
ITEM 8. SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with the consolidated financial statements contained in Item 18
"Financial Statements" of this annual report
21
<PAGE>
Reference is made to note 23 of the notes to the consolidated financial
statements, discussing the differences between Dutch GAAP and U.S. GAAP which
materially affect reported net earnings basic and diluted, net earnings per
common share and stockholders' equity. Additionally, reference is made to the
Item 1 "Description of Business" for information about material acquisitions
and consolidations affecting the periods presented below.
The fiscal year of Royal Ahold generally consists of 52 weeks and ends on the
Sunday nearest to December 31. Fiscal years 1994 through 1997 each contained
52 weeks and 1998 contained 53 weeks.
Consolidated Earnings Data
<TABLE>
<CAPTION>
fiscal year fiscal year fiscal year fiscal year fiscal year
1998 1997 1996 1995 1994
(in NLG millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
Amounts in accordance
with Dutch GAAP
Sales 58,364 50,568 36,538 29,617 29,010
Net Earnings (1) 1,206 934 632 457 410
Net Earnings per Common
Share 2.06 1.74 1.38 1.19 1.09
Approximate amounts in
accordance with U.S.
GAAP
Net Earnings (1) 876 712 517 410 392
Basic Net Earnings per
Common Share 1.48 1.32 1.13 1.06 1.05
Diluted Net Earnings per
Common Share 1.47 1.30 1.11 1.06 1.04
- --------
(1) Before dividends on cumulative preferred financing shares
Consolidated Balance Sheet Data
<CAPTION>
Jan. 3 Dec. 28 Dec. 29 Dec. 31 Jan. 1
1999 1997 1996 1995 1995
(in NLG millions)
<S> <C> <C> <C> <C> <C>
Amounts in accordance
with Dutch GAAP
Total Assets 25,180 18,839 14,870 9,265 8,715
Borrowings, Long-term
Portion 6,823 3,916 3,122 1,302 1,476
Capitalized Lease
Commitments, Long-term
Portion 1,823 1,494 1,222 826 769
Stockholders' Equity 3,422 3,089 2,417 2,242 2,220
Approximate amounts in
accordance with U.S.
GAAP
Total Assets 37,285 25,507 20,565 10,935 10,064
Stockholders' Equity 14,659 9,593 8,114 3,779 3,454
</TABLE>
Dividends
Ahold customarily declares dividends twice a year. In the past, an interim
dividend has been proposed by the Corporate Executive Board of Royal Ahold
and, with the approval of the Supervisory Board of Royal Ahold, has been paid
in September. The proposed total dividend must be approved by the Annual
General Meeting of Shareholders, which is typically held in May, and the final
portion of the total yearly dividend is paid after this meeting. Historically,
shareholders have had the option to elect either a cash dividend (the "Cash
Dividend Option") or a stock dividend (the "Stock Dividend Option"). Prior to
fiscal year 1997, the cash dividend consisted of a Guilder component and a
Dollar component. Effective with fiscal year 1997, Ahold has discontinued cash
dividend declarations in two currencies and cash dividends are only declared
in Guilders.
22
<PAGE>
The following table gives certain information relating to dividends declared
in the years indicated. The amounts in the following table have been
retroactively adjusted for stock dividends and the three-for-one stock split
that took place in July 1997 and rounded to the nearest one hundredth of one
Guilder or of one Dollar, as the case may be.
<TABLE>
<CAPTION>
Total Translated
Cash
Fiscal Year Cash Dividend Option Dividend Option (1) Stock Dividend Option
- ----------- -------------------- ------------------- ---------------------
NLG $ NLG $
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994 Interim 0.06 and 0.03 0.10 or 0.06 1 common share per 100 owned
Final 0.18 and 0.07 0.30 or 0.18 2 common shares per 100 owned
------- ------- ------ ------
Total 0.24 and 0.10 0.40 0.24
1995 Interim 0.07 and 0.04 0.13 or 0.08 1 common share per 100 owned
Final 0.21 and 0.07 0.35 or 0.20 2 common shares per 100 owned
------- ------- ------ ------
Total 0.28 and 0.11 0.48 0.28
1996 Interim 0.08 and 0.04 0.15 or 0.09 1 common share per 100 owned
Final 0.23 and 0.10 0.42 or 0.21 2 common shares per 100 owned
------- ------- ------ ------
Total 0.31 0.14 0.57 0.30
1997 Interim 0.21 0.10 1 common share per 100 owned
Final 0.51 0.26 2 common shares per 100 owned
------- ------
Total 0.72 0.36
1998 Interim 0.26 0.14 1 common share per 100 owned
Final(2) 0.60 0.32 2 common shares per 100 owned
------- ------
Total 0.86 0.46
</TABLE>
- --------
(1) The translated total Dollar dividend amount consists of the Guilder cash
dividend component, translated into Dollars at the noon buying rate on the
applicable dividend payment date, added to the Dollar cash dividend
component. The translated total Guilder dividend amount consists of the
Dollar cash dividend component, translated into Guilders at the noon
buying rate on the applicable dividend payment date, added to the Guilder
cash dividend component. This information is included only for the
readers' convenience.
(2) The dividend has been proposed by the Corporate Executive Board, but must
be approved by the Annual General Meeting of Shareholders to be held on
May 11, 1999. The final portion of the total yearly dividend is paid after
this meeting.
Exchange Rates
The following table sets forth, for the periods indicated, certain information
concerning the exchange rate of the Dollar relative to the Guilder (expressed
in Guilders per Dollar) at the noon buying rate:
<TABLE>
<CAPTION>
Period End Average(1) High Low
---------- ---------- ------ ------
<S> <C> <C> <C> <C>
1994..................................... 1.7360 1.8077 1.9750 1.6727
1995..................................... 1.6035 1.6044 1.7494 1.5192
1996..................................... 1.7467 1.6888 1.7560 1.6075
1997..................................... 1.9999 1.9585 2.1177 1.7300
1998..................................... 1.8770 1.9825 2.0844 1.8690
</TABLE>
- --------
(1) The average of the noon buying rates on the last day of each month during
the relevant period.
During the period January 1, 1999 through March 31, 1999, the high and low
noon buying rates of the Euro against the dollar were (Euro) 1.1812 and
(Euro) 1.0716, respectively, and the average of the noon buying rates on the
last day of each month was (Euro) 1.1058. The noon buying rate of the Euro was
(Euro) 1.0808 = $1 as of March 31, 1999.
Fluctuations in the exchange rate between the Guilder and the Dollar have
affected the Dollar equivalent of the Guilder prices of the common shares on
the AEX-Stock Exchange and, as a result, have likely affected the market price
of the ADSs on the NYSE. Beginning with fiscal 1999, fluctuations in the
exchange rate between the Euro and the Dollar will have these effects. Such
fluctuations will also affect the Dollar amounts received by holders of ADSs
on conversion by the Depositary of cash dividends paid in Guilders or Euro on
the common shares represented by the ADSs.
23
<PAGE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In this section, we explain the general financial condition and results of
operation for Royal Ahold and its subsidiaries. As you read the following
discussion and analysis, it may be helpful to refer to Royal Ahold's annual
financial statements for fiscal years 1998, 1997 and 1996 contained in Item 18
of this annual report. The annual financial statements have been prepared in
accordance with Dutch GAAP. See note 23 to the annual financial statements for
a discussion of the principal differences between Dutch GAAP and U.S. GAAP
relevant to Royal Ahold. Ahold's 1998 income statement includes Disco's and
Santa Isabel's operating results since the beginning of the fourth quarter and
Giant-Landover's operating results since October 28, 1998.
Fiscal 1998 consisted of 53 weeks of results for Royal Ahold's Netherlands and
U.S. operations, while fiscal 1997 and 1996 each consisted only of 52 weeks.
Accordingly, fiscal 1998 ended on January 3, 1999, fiscal 1997 ended on
December 28, 1997, and fiscal 1996 ended on December 29, 1996. The Other
European, Latin American and most of the Asia Pacific operations consolidated
in Royal Ahold's financial statements report on a calendar-year basis.
Accordingly, the level of sales and expenses (including Royal Ahold's
consolidated sales and expenses) for fiscal 1998 in part reflect inclusion of
an additional week of results for the Netherlands and the U.S. relative to
1997 and 1996, and to this extent do not reflect changes in Royal Ahold's
underlying business.
Overview
Royal Ahold reported 1998 net earnings of NLG 1,206 million compared to NLG
934 million in 1997 and NLG 632 million in 1996, representing increases in net
earnings of NLG 272 million or 29% in 1998 compared to 1997 and NLG 302
million or 48% in 1997 compared to 1996. Earnings per common share were NLG
2.06, NLG 1.74 and NLG 1.38 in 1998, 1997 and 1996, respectively. Earnings per
common share increased 18% in 1998 compared to 1997 and 26% in 1997 compared
to 1996.
Operating results in 1998 rose to NLG 2,242 million, an increase of NLG 405
million or 22% compared to 1997 operating results of NLG 1,837 million, which
increased NLG 594 million or 48% as compared to operating results of NLG 1,243
million in 1996. Net sales were NLG 58,364 million, NLG 50,568 million and NLG
36,538 million in 1998, 1997 and 1996, respectively, reflecting increases in
sales of 15% in 1998 compared to 1997 and 38% in 1997 compared to 1996. At
constant exchange rates, net earnings grew 28% in 1998 and 36% in 1997, while
sales increased 15% in 1998 and 28% in 1997.
Forward-looking Statements
This annual report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. See "--
Forward-Looking Statements".
Factors Affecting Financial Condition and Results of Operation
Exchange rates
Prior to January 3, 1999, Royal Ahold published its consolidated financial
statements in Guilders. Effective fiscal 1999 Royal Ahold publishes its
consolidated financial statements in Euro. Since a substantial portion of
Ahold's assets, liabilities and operating results are denominated in Dollars,
Ahold had translation exposure to fluctuations in the value of the Dollar
against the Guilder and, effective January 3, 1999, has translation exposure
to fluctuations in the value of the Dollar against the Euro. This exposure was
and is not hedged by Royal Ahold. In fiscal 1998, an increase in the value of
the Dollar of NLG 0.01 had a positive effect on consolidated net earnings of
approximately NLG 4 million.
Ahold's financial policy is to match the currency distribution of its
borrowings to the denomination of its assets. As a result, fluctuations in
balance sheet ratios resulting from changes in exchange rates are generally
limited. The effect of other currency changes on Ahold's results is limited
due to the smaller size of Royal Ahold's net earnings in other foreign
currencies.
To determine earnings Royal Ahold uses a quarterly average dollar rate. The
following average rates were used for the years indicated:
. 1998: NLG 1.98 per Dollar;
. 1997: NLG 1.95 per Dollar; and
. 1996: NLG 1.69 per Dollar.
24
<PAGE>
Ahold translates the balance sheets of subsidiaries operating in foreign
currencies into Guilders using the exchange rate at the balance sheet date.
This rate for the dollar was approximately:
. NLG 1.89 at the end of 1998; and
. NLG 2.00 at the end of 1997.
Inflation and Changing Prices
Inflation continues to cause moderate increases in costs to Royal Ahold,
including the cost of merchandise, labor, utilities and acquiring property,
plant and equipment, although cost inflation in Ahold's primary U.S. and Dutch
markets has been relatively low for each of the last three years. In the
United States, the inflation rate for food prices has been roughly equivalent
to the general increase in consumer prices, while in the Netherlands, the
inflation rate for food prices has remained below general price increases.
Although there is the risk that inflation in Asia Pacific, Other Europe and
Latin America could have an effect on Royal Ahold's results, Royal Ahold does
not believe inflation has had a material effect on sales or results of
operations in these regions to date, since Royal Ahold has been able to pass
along merchandise price increases to its customers.
Year 2000 Compliance and the Euro
Year 2000 Compliance
"Year 2000 issues" generally refers to the problems that some date-sensitive
software may have in determining the correct century beginning in 2000. For
example, many systems will not recognize a difference between 1900 and 2000,
because they use only the last two digits of the year (00) in their
programming. Failure of such software or systems to recognize the correct
century could result in system failures or miscalculations causing disruptions
of operations and an inability to engage in similar ordinary business
activities. A significant number of Royal Ahold's information technology
systems may be affected by Year 2000 issues. These include systems within
corporate offices, warehouses, retail outlets and suppliers. The impact of not
achieving Year 2000 compliance would be significant, and could cause Royal
Ahold's business to be interrupted through an inability, for example, to
provide products to Royal Ahold's stores, to process sales through point-of-
sale systems and to maintain an accurate record of activities.
Royal Ahold began to address these issues in November 1996 by initiating an
assessment of the systems then in use. From this assessment, Royal Ahold
developed a plan to have all systems within Royal Ahold achieve Year 2000
compliance by the end of calendar year 1999. These systems will be made
compliant either through remediation, replacement or upgrading. Royal Ahold's
target is to have system compliance in the first half of 1999 to allow the
remainder of the year for evaluation of the systems and additional testing, if
necessary.
Royal Ahold has also been in direct contact with certain suppliers and other
business partners to monitor their compliance in Year 2000 matters. In the
worst case scenario, cash registers and product ordering systems will fail to
operate properly, resulting in the inability to collect customer payments and
potential stock shortages.
Royal Ahold is Year 2000 compliant in most of its major operations. In the
U.S., the Netherlands, Chile, Brazil and Argentina, Royal Ahold has almost
completed projects related to this problem. The Portuguese operations should
be compliant by the end of the second quarter. Because operations in the Asia
Pacific and in all other European countries were established relatively
recently, Royal Ahold does not expect that these operations will be
significantly affected by Year 2000 issues. Royal Ahold plans to complete
preparations by the end of the second quarter to achieve Year 2000 compliance
in Asia Pacific operations as well as in all other European country
operations.
Royal Ahold has contingency plans that provide for
. higher inventory levels;
. ability to segregate affected systems to allow normal processing by non-
affected systems; and
. manual procedures to replace affected processes.
Management believes Year 2000 compliance will be achieved in a timely fashion
and does not expect Royal Ahold to suffer any significant interruptions to its
business which would have a material adverse effect on operations.
25
<PAGE>
Euro Conversion
On January 1, 1999, the countries that are members of the Economic and
Monetary Union ("EMU") established a new single currency known as the "Euro".
For the following three years there will be a transitional period during which
each EMU member country will have two currencies (the Euro and its local
currency) for electronic fund transfers. However, it has not yet been
determined whether stores will be obliged during the dual currency period, if
any, to price their products in both the local currency and the Euro or
whether the local currency will continue to have legal status during a
possible further transitional period. Euro coins and notes will begin
circulating on January 1, 2002, and it is expected that Guilders will remain
in circulation for a maximum of six months following that date.
The introduction of the Euro will have a significant effect on Royal Ahold's
European operations and financial systems. Royal Ahold is currently engaged in
a comprehensive project to identify and address all issues in the areas of
information, administration, technology, store operations and distribution.
Furthermore, Royal Ahold has been in formal communications with its
significant suppliers so that they are ready to transfer to Euro billing
whenever Royal Ahold desires to do so.
Costs
At fiscal year end 1998, Royal Ahold's consolidated balance sheet included a
provision of NLG 119 million, relating primarily to consulting and information
technology modification costs, of which NLG 55 million related to Year 2000
compliance and NLG 64 million related to the introduction of the Euro. During
1998 and 1997 Royal Ahold spent NLG 109 million and NLG 18 million,
respectively, addressing both Year 2000 and Euro issues and expects to spend
NLG 50 million in 1999 and NLG 69 million in the years thereafter. The costs
of both projects are based on management's best estimates, which were derived
using a number of assumptions as to future events, including the continued
availability of certain resources. However, actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the following:
. the availability and cost of trained personnel;
. the ability to locate and correct all relevant computer codes;
. the extent to which others are able to address their own Year 2000 issues;
and
. the final outcome of dual currency and retail pricing issues described
above.
Foreign Investment Risks
Royal Ahold and its subsidiaries have operations and other investments in a
number of countries outside of the Netherlands and the United States. Foreign
operations and investments are subject to the risks normally associated with
conducting business in foreign countries such as:
. labor disputes;
. uncertain political and economic environments;
. risks of war and civil disturbances;
. risks associated with the movement of funds;
. deprivation of contract rights;
. taking of property by nationalization or expropriation without fair
compensation;
. risks relating to changes in laws or policies of particular countries such
as foreign taxation;
. risks associated with obtaining necessary governmental permits, limitations
on ownership and on repatriation of earnings; and
. foreign exchange and currency fluctuations.
Royal Ahold cannot assure you that these problems or other problems relating
to foreign operations will not be encountered by Royal Ahold and its
subsidiaries in the future. Foreign operations and investments may also be
adversely affected by laws and policies of the Netherlands, the United States
and the other countries in which Royal Ahold operates affecting foreign trade,
investment and taxation.
26
<PAGE>
Results of Operations
Selected earnings data and their percentage relationship to sales are:
<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------------------------------------
1998 1997 1996
-------------------------------------------------------------------------------
NLG % of sales NLG % of sales NLG % of sales
----------- ------------------------ ------------------------ --------------
(in NLG millions, except per Common Share data and percentages)
<S> <C> <C> <C> <C> <C> <C>
Net Sales 58,364 100.0 50,568 100.0 36,538 100.0
Gross Profit 13,639 23.4 11,546 22.8 7,928 21.7
Operating Expenses (11,397) (19.5) (9,709) (19.2) (6,685) (18.3)
Operating Results 2,242 3.9 1,837 3.6 1,243 3.4
Net Financial Expense (516) (0.9) (474) (0.9) (318) (0.9)
Income Taxes (434) (0.8) (382) (0.8) (249) (0.7)
Minority Interests (86) (0.1) (47) (0.1) (43) (0.1)
Net Earnings 1,206 2.1 934 1.8 632 1.7
Net Earnings per Common
Share 2.06 1.74 1.38
</TABLE>
Acquisitions and Consolidations
Acquisitions are a key component of Ahold's growth strategy in the United
States and in the relatively underdeveloped markets of Southern and Central
Europe, Asia Pacific and Latin America. Royal Ahold substantially expanded its
business through acquisitions in 1998, 1997 and 1996. Over this period, Ahold
completed 10 significant business acquisitions, paying total consideration of
approximately NLG 14.5 billion in cash and assumed indebtedness. Royal Ahold's
acquisition program has considerably broadened the geographical scope of its
worldwide business. Through the business acquisitions completed in 1998, 1997
and 1996, Ahold established a significant presence in a number of new markets,
including Brazil, Argentina, Chile and Thailand. Store counts represent the
number of stores owned by each company at the time of acquisition by Royal
Ahold.
Business acquisitions completed by Ahold during 1998, 1997 and 1996 were:
. Giant-Landover (United States): acquisition of all of the voting stock of
Giant Food, a U.S. company operating 179 supermarkets in the Mid-Atlantic
region of the United States for $2.7 billion (NLG 5.6 billion) in cash. In
conjunction with the acquisition, Ahold divested ten stores (including four
Giant-Carlisle stores) pursuant to an agreement with the Federal Trade
Commission (October 1998).
. Disco (Argentina) and Santa Isabel (Chile): establishment of DAIH, a 50%
partnership with Velox Retail Holdings (January 1998). DAIH currently
controls a 90.3% stake in Disco (increased from 50.4% in December 1998),
the largest food retailer in Argentina with 108 stores, and a 65.0% stake
in Santa Isabel (increased from 37.0% in March 1998), a Chilean company
with 64 stores in Chile, 15 in Peru, six in Paraguay and two in Ecuador.
Total consideration paid by Ahold to acquire its interest in DAIH was
approximately $538 million.
. SuperMar (Brazil): acquisition by Bompreco, in which Royal Ahold holds a
50% interest, of SuperMar, operator of 50 food retail stores in the State
of Bahia, Brazil, for approximately BRL 65 million (NLG 118 million) in
cash (June 1997).
. CRC Ahold Thailand (Thailand): acquisition from Central Robinson Group of a
49% interest in 30 supermarkets in Thailand for approximately THB 4.4
billion (NLG 298 million) in cash through the establishment of a new
partnership, CRC Ahold Thailand (January 1997). In April 1998, Royal Ahold
increased its ownership interest to 100% subject to ownership interest
repurchase options granted to the Central Robinson Group.
. Bompreco (Brazil): acquisition of 38.9% of the common shares (representing
a 50% voting interest) of Bompreco, a food retailer with 50 retail stores
in northeastern Brazil, for approximately BRL 285 million (NLG 475 million)
in cash (December 1996). Subsequent to the acquisition in August 1998,
Ahold increased its percentage of ownership to 47.9%.
27
<PAGE>
. Store 2000 (Spain): establishment of a 50% partnership, Store 2000, with
the parent company of Caprabo, a privately held food retail company based
in Barcelona, Spain (December 1996). In October 1998, Royal Ahold
terminated the partnership. In December 1998, Ahold acquired 15 stores in
the Madrid area from Longinos Velasco, through its newly formed and wholly-
owned subsidiary Ahold SuperMercados.
. Shanghai Ahold-Zhonghui Supermarket Co. (China): establishment of a 50%
partnership, Shanghai Ahold-Zhonghui Supermarket Co. to which Ahold
contributed NLG 4 million and Shanghai Zhonghui Supermarket contributed 15
stores operating in the Shanghai region of China (October 1996). In January
1998, Shanghai Ahold-Zhonghui Supermarket Co. acquired 22 supermarkets from
Yaohan Liancheng.
. Stop & Shop (United States): acquisition of Stop & Shop, a U.S. company
with 171 supercenters, supermarkets and convenience stores on the date of
acquisition in the northeastern United States (July 1996). Total
consideration was approximately $1.8 billion (NLG 3.0 billion) in cash and
the assumption of $1.4 billion (NLG 2.3 billion) in interest-bearing debt.
Thirty stores and two future sites were divested pursuant to an agreement
with the FTC and certain state antitrust authorities.
. Ahold Kuok Malaysia and Ahold Kuok Singapore (Malaysia and
Singapore): establishment of partnerships with the Kuok Group in Singapore,
in which Ahold owns 60%, and in Malaysia, in which Ahold owns 52.2%, to
develop food retailing operations in those countries (March 1996). Ahold
Kuok Malaysia opened its first two pilot stores in September 1996 and in
September 1997 acquired the leases of 11 supermarkets from Emporium
Holdings. During 1998 Ahold Kuok Malaysia acquired seven supermarkets from
Yahona Corporation (May 1998) and 27 supermarkets from Parkson Corporation
(July 1998).
. Primarkt (the Netherlands): acquisition of Primarkt, a food retailer in the
southern part of the Netherlands, operating 20 supermarkets and 16 liquor
stores, for NLG 111 million (January 1996).
Recent Developments
Since the end of fiscal 1998, Royal Ahold has announced a number of
acquisitions, which could materially affect the results of operations,
including its proposed acquisition of Pathmark and its acquisition of four
supermarket companies in Spain.
Net Sales
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------
1998 1997 1996
------------- ------------- -------------
Amount Change Amount Change Amount Change
------ ------ ------ ------ ------ ------
(NLG in millions, except percentages)
% % %
<S> <C> <C> <C> <C> <C> <C>
Food Retailing
The Netherlands 12,306 6 11,658 5 11,064 5
United States 31,959 15 27,879 47 18,968 42
Other Europe 3,793 20 3,156 25 2,528 33
Latin America 4,625 79 2,581 -- -- --
Asia Pacific 896 (3) 921 -- 56 --
Food Wholesaling 4,584 9 4,199 11 3,788 2
Other Activities 201 16 174 30 134 84
------ ------ ------
Net Sales 58,364 15 50,568 38 36,538 24
====== ====== ======
</TABLE>
Net Sales
Net sales in 1998 increased by NLG 7,796 million, or 15%, to NLG 58,364
million, from NLG 50,568 million in 1997. At constant exchange rates,
consolidated net sales growth was 15% in 1998 compared to 1997. The major
reasons for this increase were, in addition to autonomous growth, the fourth
quarter consolidation of Giant-Landover, Disco and Santa Isabel and the
additional week in fiscal 1998 for the Dutch and U.S. operations. Net
28
<PAGE>
sales in 1997 increased NLG 14,030 million, or 38%, to NLG 50,568 million from
NLG 36,538 million in 1996. At constant exchange rates, consolidated sales
growth was 28% in 1997 compared to 20% in 1996. The major reasons for this
increase were the full-year consolidation of both Stop & Shop and Bompreco.
Food Retailing
In the Netherlands, net sales increases in 1998 and 1997 were primarily
volume-related and mainly attributable to the upgrading of the existing stores
and improvements in distribution efficiency. Sales in identical stores (those
owned by Royal Ahold as well as franchise stores) at Albert Heijn, Royal
Ahold's primary food retailer in the Netherlands, increased 4.3% in 1998 over
1997 after growing 4.0% in 1997 compared to 1996. Additionally, due to
continued expansion in the Netherlands, the number of total stores, including
franchises, increased to 686 in 1998 from 680 in 1997 and 665 in 1996.
According to AC Nielsen, the market share for Albert Heijn remained relatively
stable at 28% for fiscal years 1998 and 1997.
Food retailing net sales in the United States increased by 15% in 1998
compared to 1997. The increase in overall net sales growth in 1998 was
primarily due to increased market share and new store openings particularly at
Stop & Shop and Giant-Carlisle. The inclusion of Giant-Landover's net sales as
of October 28, 1998 further improved net sales in fiscal 1998. Bonus card
programs introduced in 1998 and 1997 aimed to reward and generate customer
loyalty resulted in positive effects at several U.S. subsidiaries. Identical
store net sales in the United States increased by 1.6% in 1998, in comparison
to 3.2% in 1997 and 2.9% in 1996. The decrease in growth in fiscal 1998 as
compared to fiscal 1997 primarily reflected the leveling off of sales growth
at BI-LO and Tops. In 1997, net sales grew 47% in comparison to 1996,
primarily due to the inclusion of a full year's results of Stop & Shop, sales
growth attributable to increased market share of BI-LO and new store openings.
Sales in 1997 were slightly negatively affected by divestitures that Royal
Ahold was required to make in connection with the Stop & Shop acquisition. See
"--Acquisitions and Consolidations."
Net sales in Other Europe, comprised of Portugal, the Czech Republic, Poland
and Spain, increased by 20% in 1998 primarily due to net sales growth in
Portugal, slightly offset by decreases in Poland and the Czech Republic. The
net sales increase in Portugal in 1998 and 1997 resulted largely from the
opening of new stores. Net sales in other European countries reflected an
increase of 25% in fiscal 1997 in comparison to fiscal 1996. Sales growth in
1997 came primarily from growth in Portugal as a result of the opening of new
stores as well as autonomous growth. In addition, net sales in fiscal 1997
were slightly improved by operations in the Czech Republic.
In Latin America, net sales increased significantly in 1998, primarily due to
the full year inclusion of Bompreco Bahia in Brazil, and by the fourth quarter
consolidation of Disco and Santa Isabel in Argentina and Chile, respectively.
The fiscal 1997 sales reflect the full year sales of Bompreco, acquired in
December 1996, and the half-year sales of Bompreco Bahia, acquired in July
1997.
The decrease in net sales in the Asia Pacific region in 1998 primarily
resulted from the devaluation of the local currency rates associated with the
overall downturn in the pan-Asian economy. The decrease was partially
mitigated by the successful introduction of the TOPS store format and
acquisitions in China, Malaysia, Singapore and Thailand. Net sales in the Asia
Pacific region increased in fiscal year 1997 as compared to fiscal year 1996,
primarily by the increase in the number of stores to 78 at the end of fiscal
1997 from 36 at the end of 1996. Sales in fiscal 1997 were further improved
due to the expansion in Thailand through the joint venture with the Central
Robinson Group.
Food Wholesaling and Institutional
Food wholesaling net sales increased by 9% in 1998, after an 11% growth in
1997. The increase in 1998 wholesale and institutional net sales compared to
1997 and the increase in 1997 compared to 1996 was attributable to increased
net sales to affiliated customers. The total number of supermarket outlets
affiliated with Schuitema, Ahold's primary wholesaling arm, was 464, 485 and
486 at the end of 1998, 1997 and 1996, respectively. The combined market share
of total Dutch sales of the supermarket outlets affiliated with Schuitema, as
reported by AC Nielsen, was approximately 11.0% in 1998, 10.6% in 1997 and
10.3% in 1996.
Institutional food net sales in 1998 through the operating company
Grootverbruik Ahold B.V. ("GVA") were approximately NLG 800 million in
29
<PAGE>
1998, NLG 700 million in 1997 and NLG 600 million in 1996.
Other Activities
Ahold's other activities primarily consist of revenues from real estate
operations. Net sales consist of rent revenue generated from third parties,
including franchisees (intercompany rent revenue is eliminated in
consolidation) and sales to third parties from Ahold's production companies.
As a percentage of total Ahold sales, these sales are insignificant.
Gross Profit
Gross profit in 1998 was NLG 13,639 million, compared to NLG 11,546 million in
1997 and NLG 7,928 million in 1996. The increase in 1998 was caused by both
increases in sales and gross margin improvements and the acquisition of Giant-
Landover in October 1998. In addition, 1998 and 1997 gross profits were
positively affected by a stronger Dollar.
Gross margin was 23.4% in 1998, compared to 22.8% in 1997 and 21.7% in 1996.
Gross margin increased in 1998 despite strong competition. The gross margin
increase of 0.6 percentage points in 1998 compared to 1997 was due primarily
to the growth in higher margin operations in the United States and Portugal.
The gross margin increase of 1.1 percentage points in 1997 compared to 1996
was due primarily to full year inclusion in 1997 of Stop & Shop and operations
in other European countries.
Operating Expenses
Operating expenses, consisting of selling, general and administrative
expenses, were NLG 11,397 million in 1998, compared to NLG 9,709 million in
1997 and NLG 6,685 million in 1996. Such expenses constituted 19.5%, 19.2% and
18.3% of net sales in 1998, 1997 and 1996, respectively. The increase in
operating expenses as a percentage of net sales in 1998 was due to integration
costs of Asian operations and start-up expenses incurred by Ahold's operations
in Asia Pacific and Poland. Royal Ahold anticipates that additional economies
of scale will be realized in future fiscal periods with the further
integration of Giant-Landover and Royal Ahold's U.S. operations. The increase
in operating expenses relative to sales in 1997 was caused by the start-up
expenses incurred by Ahold's Asia Pacific, the cost of integrating Finast and
Tops and the realignment and reorganization of other existing operations in
the U.S.
Selling expenses were NLG 9,725 million, NLG 8,401 million and NLG 5,878
million in 1998, 1997 and 1996, respectively. Selling expenses as a percentage
of sales were relatively unchanged at 16.7% in 1998, compared to 16.6% in 1997
and 16.1% in 1996. The increase in selling expenses as a percentage of sales
in 1997 was attributable to increased promotional activity at most locations.
Increases in the amount of expenses resulted from selling expenses at acquired
and newly consolidated companies. The increase in selling expenses as a
percentage of sales in 1996 was due to the inclusion of Stop & Shop, which had
selling expenses that, as a percentage of sales, were higher than Ahold's
other operating companies.
General and administrative expenses were NLG 1,672 million, NLG 1,308 million
and NLG 807 million in 1998, 1997 and 1996, respectively. General and
administrative expenses as a percentage of sales were 2.9% in 1998, compared
to 2.6% in 1997 and 2.2% in 1996. General and administrative expenses in 1998
increased as an absolute number and as a percentage of net sales due to the
inclusion of newly acquired and consolidated companies, particularly Giant-
Landover, that have historically had a higher level of general and
administrative costs than Ahold's operating units. General and administrative
expenses in 1997 increased compared to 1996 due to the full year inclusion of
Stop & Shop.
In order to cover costs of the reorganization of the distribution system as
well as a number of other planned changes in its organizational structure
initiated in 1993, Albert Heijn has made provisions for severance benefits
payable to administrative, production, distribution and store personnel. Such
provisions have been made over several years as the extent of the
reorganization has been refined. Provisions have been accrued for in
accordance with a master agreement between Albert Heijn and the affected labor
unions dated March 1993. At January 3, 1999, 2,000 employees had been
terminated under this agreement. The number of terminated employees is
expected to increase to a maximum of 2,050 employees. The accrued costs at
January 3, 1999 and December 28, 1997 of NLG 110 million and NLG 114 million,
respectively, include contractual termination benefits and supplemental
monthly payments over a period (which may extend up to ten years) based on the
employee's salary, age and length
30
<PAGE>
of service. Payments of such costs aggregated NLG 20 million, NLG 42 million
and NLG 12 million in 1998, 1997 and 1996, respectively. Payments in 1999 and
2000 are expected to be NLG 28 million in each of the fiscal years.
In March 1999, Royal Ahold has announced the consolidation over an 18-month
period of its five U.S. operating companies' accounting departments into a
single financial service center called "Ahold Financial Services". The center
will result in economies of scale and facilitate the integration of new
acquisitions.
Operating Results
Operating results were NLG 2,242 million in 1998, an increase of 22% over
1997, and NLG 1,837 million in 1997, an increase of 48% over 1996. Operating
results improved in 1998 in all geographic areas except for Asia Pacific,
where losses resulted from start-up costs and the regional economic crisis.
Exchange rates fluctuations, particularly the Dollar against the Guilder, had
a net positive effect of NLG 37 million and NLG 153 million on operating
results in 1998 and 1997, respectively, which were slightly offset by the
negative exchange rate fluctuations experienced in Asia Pacific. At constant
rates of exchange, operating results would have increased 20% in 1998 compared
to 36% in 1997. As a percentage of sales, operating results improved to 3.9%
in 1998, an increase of 0.3% compared to 1997. This increase resulted
primarily from increased margins in U.S. operations. Operating results
improved in 1997 as a percentage of sales to 3.6% from 3.4% in 1996. This
improvement was primarily attributable to the inclusion of Stop & Shop, whose
operating results, as a percentage of sales, were higher than those of Ahold's
other operating companies.
Net Financial Expense
Income from unconsolidated subsidiaries and affiliates was NLG 24 million in
1998, NLG 6 million in 1997 and NLG 6 million in 1996.
Interest expense increased in 1998 to NLG 704 million compared to NLG 605
million in 1997 and NLG 374 million in 1996. The increase in 1998 was
primarily due to the issuance of subordinated convertible notes and the
consolidation of interest expenses of Disco and Santa Isabel in the fourth
quarter and Giant-Landover effective October 28, 1998. The increase in
interest expense in 1997 related primarily to the short-term and long-term
debt, including capital leases, assumed through the acquisition of Stop & Shop
in July 1996.
The interest coverage ratio (operating results, foreign currency results,
income from unconsolidated subsidiaries plus interest income divided by
interest expense) was 3.5, 3.2 and 3.5 in 1998, 1997 and 1996, respectively.
In 1998 Royal Ahold recognized a foreign currency loss of approximately NLG 4
million primarily as a result of Dollar-denominated borrowings in Asia Pacific
and Latin America. In 1997, these Dollar denominated borrowings resulted in a
foreign currency gain of approximately NLG 30 million. Net financial expense
is expected to increase in fiscal year 1999, reflecting activities
consolidated in 1998 and the issuance of convertible subordinated debt in
October 1998.
Income Taxes
Royal Ahold's effective income tax rates were 25.2% in 1998, 28.1% in 1997 and
26.9% in 1996. In 1998, the decrease in the effective tax rate was largely
attributable to the changes in the composition of earnings. In 1997,
operations in countries with higher effective tax rates, such as the United
States and Portugal, contributed higher pre-tax earnings relative to countries
with lower effective tax rates.
Net Earnings
Net earnings in 1998 were NLG 1,206 million, representing an increase of 29.1%
in comparison to 1997. Net earnings per share rose 18.4% in 1998 to NLG 2.06.
At constant exchange rates, net earnings increased 28.0% in 1998 compared to
1997 corresponding to a 16.7% increase in earnings per share. Net earnings in
1997 were NLG 934 million, representing a 47.8% increase over 1996, resulting
in a 26.1% increase in net earnings per share to NLG 1.74.
Following U.S. GAAP, net earnings would have been NLG 876 million in 1998,
compared to NLG 712 million in 1997 and NLG 517 million in 1996. The principal
differences between Dutch GAAP and U.S. GAAP affecting net earnings include
the accounting treatment of pensions, provisions and goodwill. For further
information, see note 23 to the consolidated financial statements.
31
<PAGE>
Liquidity and Capital Resources
Cash Flow and Liquidity
Cash flow generated from operations provides Royal Ahold with a significant
source of liquidity. Cash flow from operations is re-invested each year in new
stores, store remodeling and store expansions as well as in efficiency-
improving measures and retailing innovations.
Royal Ahold's operating activities in fiscal 1998 generated net cash of NLG
2,772 million with NLG 2,775 million generated by earnings before minority
interests plus depreciation and amortization. In 1997 and 1996, cash flows
from operating activities were NLG 2,037 million and NLG 1,176 million,
respectively, with NLG 2,171 million and NLG 1,509 million, respectively,
generated by earnings before minority interests plus depreciation and
amortization.
Cash and cash equivalents at year end 1998, 1997 and 1996 were NLG 1,145
million, NLG 655 million and NLG 714 million, respectively. The ratio of
current assets to current liabilities was 87.4%, 81.1% and 85.2% at year end
1998, 1997 and 1996, respectively. At the end of 1998, Ahold and its
subsidiaries held approximately 29 days of inventory, compared to 30 days at
the end of 1997 and 1996.
Ahold's primary line of credit, entered into in December 1996, is a $1
billion, seven-year multi-currency revolving credit facility, under which, at
January 3, 1999, $73 million (NLG 139 million) was available for additional
borrowings. In March 1998, Ahold entered into an additional $500 million,
four-year standby multi-currency revolving credit facility. The terms and
conditions of this facility are substantially similar to Royal Ahold's
existing $1 billion multi-currency revolving credit facility. At January 3,
1999, no amounts were outstanding under the four-year credit facility.
These facilities are intended to ensure Ahold of sufficient financial
capacity. Management believes that these lines of credit represent a
sufficient source of funds for future short-term and long-term financing of
ongoing operations.
Investing Activities and Capital Expenditures
Amounts for capital expenditures and acquisitions of businesses were as
follows:
<TABLE>
<CAPTION>
Fiscal Year
1998 1997 1996
----- ----- -----
(NLG millions)
<S> <C> <C> <C>
Purchases of tangible fixed assets 2,908 2,711 1,602
Acquisitions of businesses 6,764 351 3,793
Fixed assets disposals and other (237) (254) (630)
----- ----- -----
Net cash used in investing activities 9,435 2,808 4,765
===== ===== =====
Capitalized lease commitments incurred 288 143 107
</TABLE>
In 1998, Ahold spent NLG 2,908 million on fixed assets compared to NLG 2,711
million in 1997. Of the amount expended in fiscal year 1998, approximately 77%
was spent on new stores and store improvements and the remainder was spent on
distribution centers, computer hardware and other assets.
Investments in tangible fixed assets are expected to amount to approximately
NLG 4,200 million in 1999, of which approximately NLG 750 million was
committed as of the end of 1998. The following shows the breakdown of expected
1999 fixed assets expenditures by geographic location:
. NLG 600 million in the Netherlands;
. $1.1 billion (NLG 1.9 billion) in the United States;
. NLG 900 million in Other Europe;
. NLG 750 million in Latin America; and
.NLG 50 million in Asia Pacific.
In addition, management expects that in 1999 new capitalized lease commitments
will amount to approximately $200 million (NLG 378 million), all in the United
States.
Ahold spent NLG 6,764 million in 1998 on acquisitions of businesses, primarily
Disco, Santa Isabel and Giant-Landover. Royal Ahold spent NLG 351 million in
1997 primarily on the acquisitions
32
<PAGE>
of its interest in CRC Ahold, Thailand and a partnership interest in SuperMar
in Brazil by Bompreco.
Acquisitions in 1998 were primarily financed out of proceeds from Royal
Ahold's issuances of common shares, cumulative preferred shares and
convertible subordinated notes. See "-- Financing Activities." Except for Stop
& Shop, acquisitions in 1997 and 1996 were primarily financed through cash
from operations and other internal sources. The Stop & Shop acquisition was
financed with the proceeds from Royal Ahold's issuance of common shares.
If the Pathmark acquisition is completed, the total cash consideration to be
paid by Royal Ahold will be $243 million. Royal Ahold intends to fund this
amount from cash on hand and, to the extent that cash on hand is not
sufficient, by drawing on its existing $1.0 billion credit facility. Royal
Ahold also will indirectly assume all of Pathmark's interest-bearing debt,
which totaled approximately $1.5 billion as of January 30, 1999. Royal Ahold
currently intends to refinance the Pathmark debt obligations as soon as
practicable following consummation of the acquisition. Royal Ahold currently
is considering financing a portion of such indebtedness through an equity
offering, and to refinance the balance of such indebtedness through the
incurrence of debt. Royal Ahold also anticipates that it would incur
approximately $500,000 in per store remodeling costs for select Pathmark
stores over the next few years.
Financing Activities
Cash provided through financing activities in 1998 was NLG 7,310 million,
consisting primarily of proceeds from global offerings. In April 1998, Royal
Ahold issued 34,500,000 common shares, resulting in total net proceeds to
Ahold of approximately NLG 2.2 billion. The proceeds were primarily used to
repay debt incurred to finance the acquisition of Royal Ahold's 50%
participation in DAIH and to fund a $100 million 6% loan to Velox Retail
Holdings.
In August 1998, Ahold issued 24 million cumulative preferred financing shares
resulting in aggregate net proceeds of approximately NLG 161 million. The net
proceeds were used for general corporate purposes in the Netherlands.
In September and October 1998, to finance the acquisition of Giant-Landover,
Royal Ahold issued 51,750,000 common shares, resulting in net proceeds of
approximately NLG 2.7 billion, and NLG 1,495 million aggregate principal
amount of 3% convertible subordinated notes due 2003.
Financing activities in 1997 provided NLG 664 million of cash compared to NLG
3,430 million in 1996. Cash provided by financing activities in 1997 consisted
of NLG 284 million of capital contributed by minority interests and NLG 56
million cash provided from the exercise of stock options, and NLG 324 million
provided by changes in short and long-term debt, capitalized lease commitment
payments, proceeds from stock options and dividends paid.
In December 1997, Albert Heijn issued NLG 300 million aggregate principal
amount of 5.875% senior obligations (guaranteed by Royal Ahold) due in
December 2007; and Royal Ahold issued NLG 200 million aggregate principal
amount of its 5.875% subordinated bonds due in December 2005. The proceeds
from the issuance of the senior obligations were used to repay in part pre-
existing debt obligations and the proceeds of the subordinated bonds were used
to defease in substance NLG 200 million aggregate principal amount of 7.625%
subordinated loans maturing in 2000.
Ahold has hedged certain risks related to fluctuations of interest rates on
its Dollar-denominated debt and a portion of its Guilder-denominated debt
through the purchase of options. It is Royal Ahold's policy to hedge only
well-defined interest-rate or foreign-exchange-transaction exposure and not to
hedge foreign exchange translation exposure.
At the end of fiscal 1998, Royal Ahold had 14 open foreign exchange contracts
and two open option contracts related to purchase commitments denominated in
Dollars. Additionally, at the end of 1998, Royal Ahold had six swaps which
converted certain fixed-rate debt into floating-rate debt and six swaps
converting floating-rate debt into fixed-rate debt (related to its $1 billion
seven-year multi-currency revolving credit facility and various Portuguese
obligations). Management believes that its hedging practices do not expose
Royal Ahold to any unusual risks or significant exposure to potential
liabilities from these transactions. For details regarding the notional
amounts and values of such derivative financial agreements, see note 21 to the
1998 consolidated financial statements.
33
<PAGE>
Interest-bearing debt (including capitalized lease commitments) was NLG 10,584
million at the end of fiscal 1998 compared to NLG 6,985 million at the end of
fiscal 1997 and NLG 5,434 million at the end of 1996. Net gearing, the ratio
of interest-bearing debt, net of cash, to stockholders' equity plus minority
interests ("group equity"), was 239%, 174% and 172% at fiscal year end 1998,
1997 and 1996, respectively. The ratio of interest-bearing debt to total
assets increased to 42.0% in 1998 from 37.1% at fiscal year end 1997 and 36.5%
at fiscal year end 1996.
Stockholders' equity was NLG 3,422 million, NLG 3,089 million and NLG 2,417
million at year end 1998, 1997 and 1996, respectively. Group equity
represented 16% of total assets at the end of 1998 compared to 19% at the end
of fiscal 1997 and 19% at the end of fiscal 1996.
Following U.S. GAAP, stockholders' equity would have been NLG 14,659 million
at fiscal year end 1998, compared to NLG 9,593 million at fiscal year end 1997
and NLG 8,114 million at fiscal year end 1996. The principal differences
between Dutch GAAP and U.S. GAAP affecting stockholders' equity are the
accounting treatment of goodwill, pensions, provisions and proposed dividends
of Dutch plans and proposed dividends on common shares. See note 23 to the
consolidated financial statements.
Outlook
Sales and operating results in fiscal year 1999 (which will consist of 52
weeks) are expected to improve in all regions. It is anticipated that 1999
earnings per share, excluding currency fluctuations, will increase by
approximately 15-20%.
Albert Heijn expects to generate higher 1999 sales and results. The specialty
stores, Ahold Institutional Food Supply and wholesaler Schuitema are expected
to generate further growth in sales and operating results. In the Netherlands,
Albert Heijn will continue to provide improved and innovative customer
service. The focus will be on persistent fine tuning of store formats and
distribution processes.
In the United States, Royal Ahold expects sales and operating results to
increase substantially in 1999. The October 1998 acquisition of Giant-Landover
will make an important contribution to growth in the U.S. in 1999. Autonomous
growth and many new initiatives to further improve cooperation among the
supermarket companies are expected to impact positively on operating margins.
Royal Ahold expects further growth to be enhanced through the anticipated
acquisition of Pathmark. Completion of the transaction is subject to a number
of conditions including obtaining necessary U.S. federal and state antitrust
approvals.
In Portugal, increased sales and operating earnings are expected in 1999,
reflecting further store expansion. In the Czech Republic, sales are expected
to rise sharply due to new store openings in 1998 along with two additional
hypermarkets planned to open in 1999. In Poland, sales will be boosted by the
opening of new stores and operating losses will be limited. The supermarket
companies acquired in Spain in early 1999 are expected to make a modest
contribution to results.
In Latin America, sales and earnings, expressed in local currencies, are
expected to increase considerably in 1999. However, the devaluation of the
Brazilian Real is expected to have a limited negative impact on consolidated
earnings. Royal Ahold expects further growth for Bompreco in Brazil, due in
part to new store openings and remodeling. Despite increased competition,
Royal Ahold expects annual sales and operating results at Disco in Argentina
and Santa Isabel, based in Chile to improve in fiscal year 1999.
Growth of sales and earnings in Asia Pacific have lagged behind Royal Ahold's
initial expectations, reflecting start-up costs and ongoing difficult economic
conditions. While Royal Ahold expects the region's economy to improve modestly
in fiscal year 1999, operating losses are anticipated, but at a lower level
than in fiscal 1998.
Through internal growth and acquisitions in 1999, Royal Ahold will strive to
further develop its worldwide network of food retail companies offering a
superior shopping experience to customers in their local marketplace.
Autonomous growth can be financed from cash flow available from current
operations. Sizeable acquisitions will be financed from external sources. The
equity ratio is expected to increase through the accumulation of retained
earnings in stockholders' equity.
Forward-looking Statements
Certain statements contained in this Annual Report on Form 20-F or
incorporated herein by reference
34
<PAGE>
are "Forward-looking Statements" within the meaning of Section 27A of the
Securities Act of 1933, and Section 21E of the Securities Exchange Act of
1934, and are intended to be covered by the safe harbors created thereby. Such
statements include, but are not limited to:
. statements as to expected increases in sales, operating results, market
shares and certain expenses, including interest expenses, in respect of
certain of Royal Ahold's operations;
. expectations as to the impact of innovative improvements on productivity
levels, operating results and profitability in the stores;
. expectations as to the savings from new projects and programs and from
increased cooperation between Ahold's subsidiaries (in particular, in the
United States);
. estimates and financial targets in respect of net earnings growth and net
earnings per share;
. expectations regarding the impact of recent acquisitions on future results
of operations;
. statements as to the anticipated rate of growth of markets in which Royal
Ahold has operations;
. expectations with respect to opportunities for expansion and growth;
. expectations regarding whether conditions of closing of agreements for
acquisitions of businesses or stores will be satisfied, and whether those
acquisitions will be consummated on schedule or at all;
. statements as to the funding of future expenditures and investments;
. estimates of Euro and Year 2000 costs and impact of non-compliance;
. expectations of risks and liabilities of hedging transactions entered into
by Royal Ahold;
. statements as to the expected outcome of certain legal proceedings; and
. estimates of future growth in the number of employees.
These forward-looking statements are subject to risks, uncertainties and other
factors that could cause actual results to differ materially from future
results expressed or implied by such forward-looking statements. Important
factors that could cause actual results to differ materially from the
information set forth in any forward-looking statements ("cautionary
statements") include:
. the effect of general economic conditions and changes in interest rates in
the countries in which Royal Ahold operates;
. increases in competition in the markets in which Royal Ahold's subsidiaries
operate and changes in marketing methods utilized by competitors; and
. fluctuations in exchange rates between the Euro and the other currencies in
which Royal Ahold's assets, liabilities and results are denominated, in
particular, the Dollar;
as well as the other factors discussed elsewhere in this annual report on Form
20-F or in the documents incorporated therein by reference.
Many of these factors are beyond Royal Ahold's ability to control or predict.
Given these uncertainties, readers are cautioned not to place undue reliance
on such forward-looking statements.
35
<PAGE>
ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Royal Ahold uses financial instruments, including fixed and variable rate
debt, as well as swap forward and option contracts to finance its operations
and to hedge interest rate exposures. The swap, forward and option contracts
are entered into for periods consistent with related underlying exposures and
do not constitute positions independent of those exposures. Royal Ahold does
not enter into contracts for speculative purposes, nor is it a party to any
leveraged instrument. It is the policy of Royal Ahold to hedge only well-
defined interest-rate or foreign-exchange-transaction exposure and not to
hedge foreign exchange translation exposure.
For debt obligations the underlying table presents principal cash flows and
related interest rates by fiscal year of maturity. Capital lease obligations
are not included in the table. Variable interest rates disclosed represent the
weighted average rates of the portfolio at the period end. For interest rate
swaps, the table presents notional amounts and related interest rates by
fiscal year of maturity. For these swaps the variable rates presented are
based on implied forward rates in the yield curve at January 3, 1999. Implied
forward rates should not be considered a predictor for actual or future
interest rates. The information is presented in the original currency of the
contract.
Fiscal year end 1998
Expected Maturity Dates
<TABLE>
<CAPTION>
Years
there-
1999 2000 2001 2002 2003 after Total Fair value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities (NLG
millions)
Long-term Debt
Fixed Rate (NLG) 5 107 20 23 1,729 1,022 2,905 3,058
Average interest rate 4.94% 4.71% 4.51% 4.49% 4.54%
Fixed Rate (USD) 155 134 42 396 103 636 1,466 1,717
Average interest rate 8.83% 9.09% 8.91% 8.93% 8.53%
Variable Rate (USD) 2 8 8 100 1,755 25 1,898 1,899
Average interest rate 5.40% 5.50% 5.73% 5.70% 5.83%
Fixed Rate (PTE) 5 38 22 62 -- -- 127 158
Average interest rate 11.19% 11.19% 11.67% 12.00%
Variable Rate (PTE) 55 93 -- -- 126 148 423 434
Average interest rate 4.44% 4.44% 4.38% 4.38% 4.38%
Fixed Rate (BRL) 14 8 -- -- -- -- 22 22
Average interest rate 15.00% 15.00%
Variable Rate (BRL) 42 42 46 25 20 84 259 259
Average interest rate 18.78% 18.83% 18.86% 17.11% 17.11%
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Years
there-
1998 1999 2000 2001 2002 2003 after Total Fair value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate
Derivatives
(NLG millions)
Interest Rate Swap
Fixed to variable (NLG) -- -- 470 -- 100 200 100 870 105
Average pay rate 3.37% 3.26% 3.44% 3.57% 3.70% 3.87%
Average receive rate 7.16% 7.17% 6.89% 6.90% 6.89% 6.87%
Variable to fixed (NLG) -- -- 200 -- 100 -- 300 (48)
Average pay rate 7.84% 7,84% 7.84% 7.84% 8.61%
Average receive rate 3.30% 3.19% 3.31% 3.42% 3.54%
Variable to fixed (USD) -- -- 378 945 -- -- 1,323 (36)
Average pay rate 5.81% 5.81% 6.07% 6.32%
Average receive rate 5.07% 5.10% 5.13% 5.20%
</TABLE>
Foreign currency exchange rate risk
While Royal Ahold has extensive operations in a variety of countries
throughout the world, it actively manages its foreign currency exposure by
financing such operations in local currency borrowings to the extent possible
or practical. Using this "material hedging" technique, Royal Ahold proactively
manages its overall debt portfolio to match its asset investments on a country
by country basis. When local financing is not possible or practical, Royal
Ahold will finance its foreign operations through its network of intercompany
loans. In this manner, Royal Ahold has substantially mitigated any significant
foreign exchange exposure.
37
<PAGE>
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
Supervisory Board
The Supervisory Board of Ahold is an independent and self-electing entity. The
Supervisory Board must consist of at least three members. As a member's term
expires or as a member retires, the ongoing members vote on replacement or re-
appointment. Supervisory Board members are elected for a term of four years
and may be re-elected thereafter. A member of the Supervisory Board must
retire upon reaching the age of seventy-two. Persons employed by Royal Ahold
or a dependent company (afhankelijke maatschappij) cannot be members of the
Supervisory Board.
The Supervisory Board has the power to appoint and discharge members of the
Corporate Executive Board of Ahold, the right to approve certain important
management decisions, and the power to adopt the annual financial accounts. In
addition, the Supervisory Board supervises the policies conducted by the
Corporate Executive Board, as well as Royal Ahold's general course of affairs
and its business. In performing their duties, members of the Supervisory Board
must consider the interests of Royal Ahold and its business.
The general meeting of shareholders or a duly appointed committee thereof, the
Corporate Executive Board and the Central Works Council, in its capacity as
the representative of the employees of Royal Ahold and its Dutch subsidiaries,
may make a non-binding recommendation for candidates to fill a vacancy on the
Supervisory Board. In addition, the general meeting of shareholders and the
Central Works Council have the right to object to a proposed appointment of a
member of the Supervisory Board. The appointment will take place if such
objection is declared invalid by the Enterprise Chamber (Ondernemingskamer) of
the Amsterdam Court of Appeal.
A member of the Supervisory Board may be dismissed by the Enterprise Chamber
of the Amsterdam Court of Appeal for neglect of his duties, for certain other
serious reasons or following a significant change in circumstances as a result
of which his continued membership is no longer reasonable for Royal Ahold.
The remuneration of each member of the Supervisory Board is determined by the
Supervisory Board, subject to approval by the general meeting of shareholders.
As of March 31, 1999, the members of the Supervisory Board were as follows:
<TABLE>
<CAPTION>
Principal Year of
Name Age Occupation Appointment
<S> <C> <C> <C>
H. de Ruiter 65 Former Group Managing Director and Managing 1994
(Chairman) Director of Royal Dutch Petroleum Company
R.J. Nelissen 67 Former Chairman of the Managing 1981
(Vice Chairman) Board of ABN AMRO Holding N.V.
J.A. van 62 Governor-General for the Dutch Province of 1996
Kemenade North-Holland and Former Minister of Education
and Science of the Dutch Government
A.J. Kranendonk 68 Former President of the Management 1985
Board of Friesland W.A.
R.F. Meyer 66 Professor of Business Administration 1988
Harvard Business School
Sir Michael 65 Former Chairman of the Managing 1997
Perry Board of Unilever Plc.
L.J.R. de Vink 54 President and Chief Executive Officer 1998
of Warner-Lambert Company
</TABLE>
38
<PAGE>
Corporate Executive Board
The Corporate Executive Board is responsible for the management of Ahold. The
Corporate Executive Board must consist of at least three members. Members of
the Corporate Executive Board are appointed and discharged by the Supervisory
Board. There is no stated term of office for Corporate Executive Board members
or other executive officers. As of March 31, 1999, the members of the
Corporate Executive Board were as follows:
<TABLE>
<CAPTION>
Year having Year of appointment
joined the to Corporate
Name Age Areas of Responsibility Company Executive Board
<S> <C> <C> <C> <C>
C.H. van 51 President and Chief Executive 1985 1985
der Hoeven Officer, management development
President and organization, communications
and legal
J.G. 52 European operations, including 1979 1997
Andreae Netherlands food retailing
Executive
Vice-
President
A.M. Meurs 48 Administration, finance, internal 1992 1997
Executive audit and business development
Vice-
President
A.S Noddle 58 Latin American and Asia Pacific 1981 1998
Executive operations
Vice-
President
R.R.G. 60 U.S. Operations 1996 1998
Tobin
Executive
Vice-
President
R. 59 Strategic design and international 1977 1981
Zwartendijk growth
Executive
Vice-
President
</TABLE>
Other Executive Officers
Certain key executive officers of Royal Ahold who are not members of the
Corporate Executive Board were as of March 31, 1999 as follows:
<TABLE>
<S> <C>
A.J. Brouwer Senior Vice President Management Development and Organizing since October 1997.
He joined Royal Ahold in August 1992.
A. Buitenhuis Senior Vice President Finance and Fiscal Affairs since April 1996. He has been
employed by Royal Ahold since March 1983.
P.P.J. Butzelaar Senior Vice President since April 1994 and General Counsel since joining Royal
Ahold in 1978.
M.J. Dorhout Mees Senior Vice President Business Development since June 1997. He has been employed
by Royal Ahold since August 1983.
P.P.M. Ekelschot Senior Vice President Internal Audit since April 1997. He has been employed by
Royal Ahold since March 1989.
H. Gobes Senior Vice President Communications since joining Royal Ahold in 1990.
L.A.P.A. Verhelst Senior Vice President Administration since joining Royal Ahold in April 1997.
N.L.J. Berger Corporate Secretary since April 1994. He has been employed by Royal Ahold since
1989.
</TABLE>
39
<PAGE>
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate amount of compensation paid by Ahold in 1998 for services in all
capacities, to the Supervisory Board (the "Directors") and the Corporate
Executive Board, the Senior Vice-Presidents and the Corporate Secretary of
Royal Ahold (collectively referred to as the "Officers") was NLG 13,880,000.
In addition in 1998, Ahold made aggregate contributions in the amount of
NLG 3,219,000 to pension plans on behalf of such Directors and Officers. A
portion of the compensation of the members of the Corporate Executive Board is
based on the outcome of key performance indicators.
Reference is made to Item 12 of this annual report, which contains a
description of Royal Ahold's stock option plans. Royal Ahold does not report
to its Stockholders, or otherwise make public, the information specified in
this Item for individually named Directors and Officers.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Royal Ahold established stock option plans in the Netherlands and the United
States, pursuant to which a number of options to acquire common shares are
granted to executive and other key salaried employees of Royal Ahold who are
employed at certain specified job levels and who are designated by the
Corporate Executive Board as eligible to be granted options, and such other
employees designated by the Corporate Executive Board. The exercise price of
such options is equal to the closing price of the common shares on the AEX-
Stock Exchange on the day on which the options are granted, which is typically
the last day of the fiscal year.
In the Netherlands, options granted are exercisable for a period of five years
after the grant date. Options granted prior to the beginning of fiscal year
1997 vested immediately. Options granted thereafter have a vesting period of
three years.
In the United States, Ahold established stock option plans in 1986 (the "1986
U.S. Plan") and in 1990 (the "1990 U.S. Plan"), which were both amended and
restated, effective January 1, 1998. Options granted under the 1990 U.S. Plan,
as amended and restated, are exercisable after a vesting period of five years,
after which the options may be exercised in full, or in part, during a five
year period. Under the 1986 Plan, as amended and restated, options granted
thereunder are exercisable after a vesting period determined by the Corporate
Executive Board and specified in each option award agreement, after which the
options may be exercised in full, or in part, during the remainder of the five
year period from the date of grant. No options are currently outstanding under
the 1986 U.S. Plan.
At March 31, 1999, the number of options outstanding were 16,877,455. The
total number of such unexercised outstanding options held by officers as a
group on March 31, 1999 was 2,998,680.
For further information regarding the stock option plans, also see note 15 to
the consolidated financial statements contained in Item 18 of this Annual
Report. Royal Ahold does not report to its Stockholders, or otherwise make
public, the information specified in this Item for individually named
Directors and Officers.
40
<PAGE>
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
In January 1994, a group of approximately 300 Dutch managers and employees of
Royal Ahold replaced a NLG 33 million capital investment in the AH Vaste
Klanten Fonds (the "Fund"), an independent investment fund which invests all
of its assets in shares and debt of Royal Ahold. The capital investment had
been held by Het Weerpad B.V., an investment company of the Heijn family,
founders of Ahold. Royal Ahold made loans to this group of managers and
employees, which included the Officers of Royal Ahold, to assist them with
their investment in the Fund. These floating-rate loans, bearing interest
based on the Dutch discount rate ("voorschotrente"), are generally due in ten
years from issuance or upon an individual's termination of employment, if
sooner, and are secured by each individual's corresponding investment in the
Fund.
In July 1996 and April 1998, additional loans were granted to Dutch managers
and employees of Royal Ahold to purchase additional investments in the Fund.
No Directors or Officers participated in these purchases.
The loans outstanding at January 3, 1999 that were made to Officers to assist
them with their investment in the fund amounted to NLG 4.6 million ($2.4
million).
41
<PAGE>
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable.
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES
Since January 20, 1998 the Depositary for the ADSs (the "Depositary") has been
The Bank of New York. The Depositary was previously Morgan Guaranty Trust
Company of New York.
42
<PAGE>
PART IV
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Index of consolidated financial statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 44
Consolidated Statements of Earnings for fiscal years 1998, 1997 and 1996 45
Consolidated Balance Sheets as of January 3, 1999 and December 28, 1997 46
Consolidated Statements of Cash Flows for fiscal years 1998, 1997 and
1996 48
Consolidated Statements of Stockholders' Equity for fiscal years 1998,
1997 and 1996 49
Notes to the Consolidated financial statements 50
</TABLE>
Ahold's condensed consolidated financial statements prepared under U.S. GAAP
are presented in note 23 to the consolidated financial statements.
Schedules are omitted because, under applicable rules, the omitted schedules
are not required, are inapplicable or the information required therein is
included in the financial statements or in the notes thereto.
43
<PAGE>
Independent Auditors' Report
To the Supervisory Board and Stockholders of Koninklijke Ahold N.V.:
We have audited the accompanying consolidated balance sheets of Koninklijke
Ahold N.V. as of January 3, 1999 and December 28, 1997 and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three fiscal years in the period ended January 3, 1999, expressed
in Guilders. These consolidated financial statements are the responsibility of
Royal Ahold's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the Netherlands and the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatements. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Koninklijke Ahold N.V. at January 3, 1999, December 28, 1997 and the
results of its operations, changes in its equity and its cash flows for each
of the three fiscal years in the period ended January 3, 1999, in conformity
with generally accepted accounting principles in the Netherlands.
Generally accepted accounting principles in the Netherlands vary in certain
significant respects from generally accepted accounting principles in the
United States. The application of the latter would have affected the
determination of net earnings for each of the three fiscal years in the period
ended January 3, 1999 and the determination of stockholders' equity at January
3, 1999 and December 28, 1997 to the extent summarized in Note 23.
/s/ Deloitte & Touche
Deloitte & Touche
Registeraccountants
March 9, 1999
Amsterdam, The Netherlands
44
<PAGE>
Consolidated Statements of Earnings of Royal Ahold
<TABLE>
<CAPTION>
(NLG thousands, except per share fiscal year fiscal year fiscal year
amounts) 1998 1997 1996
<S> <C> <C> <C>
Net sales 58,363,518 50,568,481 36,538,095
Cost of sales (44,724,310) (39,022,328) (28,610,392)
----------- ----------- -----------
Gross profit 13,639,208 11,546,153 7,927,703
Selling expenses (9,725,086) (8,401,195) (5,877,732)
General and administrative expenses (1,672,362) (1,308,128) (807,144)
----------- ----------- -----------
Operating results 2,241,760 1,836,830 1,242,827
Income from unconsolidated subsidiaries
and affiliates 24,473 6,269 6,236
Exchange rate differences (4,137) 30,396 --
Interest income 168,271 94,490 49,154
Interest expense (704,041) (605,013) (373,837)
----------- ----------- -----------
Net financial expense (515,434) (473,858) (318,447)
----------- ----------- -----------
Earnings before income taxes and
minority interests 1,726,326 1,362,972 924,380
Income taxes (434,296) (382,387) (248,840)
----------- ----------- -----------
Earnings after taxes and before minority
interests 1,292,030 980,585 675,540
Minority interests (86,163) (46,755) (43,115)
----------- ----------- -----------
Net earnings 1,205,867 933,830 632,425
=========== =========== ===========
Appropriation of net earnings:
Retained earnings and reserves 659,202 535,145 337,238
Dividend common shares 524,794 380,337 285,711
Dividend cumulative preferred financing
shares 21,871 18,348 9,476
----------- ----------- -----------
1,205,867 933,830 632,425
=========== =========== ===========
Net earnings after preferred dividends 1,183,996 915,482 622,949
Average number of common shares
outstanding (X 1,000) 575,702 527,536 449,826
Earnings per Common Share 2.06 1.74 1.38
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
45
<PAGE>
Consolidated Balance Sheets of Royal Ahold
(including proposed appropriation of earnings)
<TABLE>
<CAPTION>
January 3, December 28,
(NLG thousands) 1999 1997
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents 1,144,596 654,706
Receivables 2,448,367 1,759,269
Prepaid expenses 877,134 502,399
Inventories 4,399,245 3,438,806
---------- ----------
8,869,342 6,355,180
Fixed assets
Tangible fixed assets, net of depreciation
Land 1,971,685 1,450,292
Buildings 5,698,022 4,392,612
Machinery and equipment 2,553,091 1,812,519
Other 3,728,756 2,754,532
Under construction 916,002 662,775
---------- ----------
14,867,556 11,072,730
Loans receivable 309,224 348,367
Investments in unconsolidated subsidiaries and
affiliates 405,498 284,729
Intangible assets 431,015 420,966
Deferred income taxes 297,778 357,258
---------- ----------
16,311,071 12,484,050
---------- ----------
25,180,413 18,839,230
========== ==========
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
46
<PAGE>
Consolidated Balance Sheets of Royal Ahold (continued)
(including proposed appropriation of earnings)
<TABLE>
<CAPTION>
(NLG thousands, except share and per share amounts) January 3, December 28,
1999 1997
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Loans payable 1,937,497 1,575,520
Taxes payable 515,458 703,973
Accounts payable 4,913,353 3,604,245
Accrued expenses 1,763,854 1,173,733
Other current liabilities 1,022,469 775,633
---------- ----------
10,152,631 7,833,104
Long-term liabilities
Subordinated loans 1,895,000 400,000
Other loans 4,927,812 3,516,238
---------- ----------
6,822,812 3,916,238
Capitalized lease commitments 1,823,224 1,493,569
Deferred income taxes 309,350 186,854
Other provisions 2,114,437 1,771,067
---------- ----------
11,069,823 7,367,728
Minority interests 536,142 549,342
Stockholders' equity
Cumulative preferred shares--NLG 1,000.00 par value;
authorized--650,000 shares; issued--none -- --
Cumulative preferred financing shares--NLG 0.50 par
value;
authorized--195,000,000 shares; outstanding in
1998--144,000,000
shares and in 1997--120,000,000 shares,
respectively 72,000 60,000
Convertible cumulative preferred financing shares--
NLG 0.50 par value;
authorized--60,000,000 shares; issued--none -- --
Common shares--NLG 0.50 par value; authorized--
1,045,000,000 shares; outstanding in 1998--
628,096,550 shares and in 1997--522,609,319
shares, respectively 314,048 261,305
Additional paid-in capital 9,272,862 4,288,565
Revaluation reserve 116,077 128,661
General reserve (6,353,170) (1,649,475)
---------- ----------
3,421,817 3,089,056
---------- ----------
25,180,413 18,839,230
========== ==========
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
47
<PAGE>
Consolidated Statements of Cash Flows of Royal Ahold
<TABLE>
<CAPTION>
(NLG thousands) fiscal year fiscal year fiscal year
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings 1,205,867 933,830 632,425
Adjustments to reconcile to net cash
from operating activities
Minority interests in results 86,163 46,755 43,115
Depreciation and amortization 1,483,077 1,190,573 833,428
Unremitted earnings of unconsolidated
subsidiaries (15,046) 3,587 3,772
Deferred income taxes 116,124 22,877 20,735
Changes in assets and liabilities
providing (using) cash (excluding
assets and liabilities acquired):
Receivables and prepaid expenses (531,979) (188,171) (215,534)
Inventories (114,887) (386,320) (225,076)
Other current liabilities 487,032 356,160 21,813
Other provisions 55,242 58,462 61,409
---------- ---------- ----------
Net cash provided by operating
activities 2,771,593 2,037,753 1,176,087
Cash flows from investing activities
Purchase of tangible fixed assets (2,907,827) (2,711,117) (1,601,808)
Sale or disposal of tangible fixed
assets 316,486 313,562 454,615
Purchase of intangible assets (58,235) (63,804) (18,808)
Acquisitions of consolidated
subsidiaries (6,763,693) (351,324) (3,792,973)
Acquisitions of interests in
unconsolidated subsidiaries (68,800) (2,885) (18,006)
Sale of subsidiaries 46,950 7,696 14,069
Proceeds from settlement of cross-
participations -- -- 198,064
---------- ---------- ----------
Net cash used in investing activities (9,435,119) (2,807,872) (4,764,847)
Cash flows from financing activities
Proceeds from issuance of common shares 4,807,701 -- 3,198,396
Proceeds from issuance of cumulative
preferred financing shares 160,947 -- 247,614
Proceeds from issuance of convertible
subordinated notes 1,495,000 -- --
Proceeds from exercised stock options 80,392 56,094 57,904
Capital contributed by minority
interests 171,181 284,361 16,858
Proceeds from long-term debt 2,683,044 575,422 1,693,836
Repayments of long-term debt (2,117,801) (445,077) (1,642,849)
Repayments of capitalized lease
commitments (84,929) (85,868) (60,349)
Change in short-term loans payable 155,418 477,984 (24,306)
Issuance of loans receivable (134,259) (180,567) (70,431)
Repayments of loans receivable 173,338 38,348 46,512
Change in amounts due from
unconsolidated subsidiaries (25,439) (6,586) (10,819)
Payment of dividend on common shares (36,694) (31,650) (20,743)
Payment of dividend on cumulative
preferred financing shares (18,348) (18,348) (1,008)
---------- ---------- ----------
Net cash provided by (used in) financing
activities 7,309,551 664,113 3,430,615
Exchange rate differences (283,991) (746) (24,689)
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents 362,034 (106,752) (182,834)
Cash and cash equivalents at beginning
of the year 654,706 714,132 523,580
Cash brought in through acquisitions and
new consolidations 127,856 47,326 373,386
---------- ---------- ----------
Cash and cash equivalents at end of the
year 1,144,596 654,706 714,132
========== ========== ==========
Supplemental cash flow information
Income taxes paid 697,815 321,924 271,609
Interest paid 678,626 601,006 360,952
Capitalized lease commitments incurred 287,779 142,510 107,168
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
48
<PAGE>
Consolidated Statements of Stockholders' Equity of Royal Ahold
<TABLE>
<CAPTION>
(NLG thousands) Cumulative
preferred Additional
Common financing paid-in Revaluation General
shares shares capital reserve reserve Total
------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995 155,261 -- 928,097 130,099 1,028,403 2,241,860
Net earnings -- -- -- -- 632,425 632,425
Dividend proposed on
common shares -- -- -- -- (285,711) (285,711)
Dividend on cumulative
preferred financing
shares -- -- -- -- (9,476) (9,476)
Common shares issued as
final optional stock
dividend 1995 2,816 -- (2,816) -- 121,614 121,614
Common shares issued as
interim optional stock
dividend 1996 1,884 -- (1,884) -- 71,766 71,766
Common shares issued
from exercise of option
rights 1,603 -- 56,301 -- -- 57,904
Common shares issued 49,125 -- 3,149,271 -- -- 3,198,396
Cumulative preferred
financing shares issued -- 50,000 197,614 -- -- 247,614
Appropriation of
earnings 1995 -- -- -- -- (4,340) (4,340)
Goodwill paid -- -- -- -- (3,917,307) (3,917,307)
Settlement of cross-
participations -- -- (33,496) -- -- (33,496)
Realized revaluation -- -- -- (356) -- (356)
Exchange rate
differences in foreign
interests -- -- -- -- 95,974 95,974
------- ------ --------- ------- ---------- ----------
Balance at December 29,
1996 210,689 50,000 4,293,087 129,743 (2,266,652) 2,416,867
Net earnings -- -- -- -- 933,830 933,830
Dividend proposed on
common shares -- -- -- -- (380,337) (380,337)
Dividend on cumulative
preferred financing
shares -- -- -- -- (18,348) (18,348)
Three-for-one-stock
split 43,064 10,000 (53,064) -- -- --
Common shares issued as
final optional stock
dividend 1996 3,789 -- (3,789) -- 194,592 194,592
Common shares issued as
interim optional stock
dividend 1997 2,363 -- (2,363) -- 99,255 99,255
Common shares issued
from exercise of option
rights 1,400 -- 54,694 -- -- 56,094
Appropriation of
earnings 1996 -- -- -- -- (10,492) (10,492)
Goodwill paid -- -- -- -- (390,380) (390,380)
Realized revaluation -- -- -- (1,082) -- (1,082)
Exchange rate
differences in foreign
interests -- -- -- -- 189,057 189,057
------- ------ --------- ------- ---------- ----------
Balance at December 28,
1997 261,305 60,000 4,288,565 128,661 (1,649,475) 3,089,056
Net earnings -- -- -- -- 1,205,867 1,205,867
Dividend proposed on
common shares -- -- -- -- (524,794) (524,794)
Dividend on cumulative
preferred financing
shares -- -- -- -- (21,871) (21,871)
Common shares issued as
final optional stock
dividend 1997 5,123 -- (5,123) -- 266,412 266,412
Common shares issued as
interim optional stock
dividend 1998 2,598 -- (2,598) -- 135,104 135,104
Common shares issued
from exercise of option
rights 1,897 -- 78,495 -- -- 80,392
Common shares issued 43,125 -- 4,764,576 -- -- 4,807,701
Cumulative preferred
financing shares issued -- 12,000 148,947 -- -- 160,947
Appropriation of
earnings 1997 -- -- -- -- (25,777) (25,777)
Goodwill paid -- -- -- -- (5,206,212) (5,206,212)
Realized revaluation -- -- -- (12,584) -- (12,584)
Exchange rate
differences in foreign
interests -- -- -- -- (532,424) (532,424)
------- ------ --------- ------- ---------- ----------
Balance at January 3,
1999 314,048 72,000 9,272,862 116,077 (6,353,170) 3,421,817
======= ====== ========= ======= ========== ==========
</TABLE>
SEE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
49
<PAGE>
Notes to the Consolidated financial statements
Note 1Significant accounting policies
General
Royal Ahold's principal activity is the operation of food retail
supermarkets both in the Netherlands and in the United States with
additional activities in several potential growth markets. Such retail
operations are primarily conducted through the following wholly-owned
entities:
<TABLE>
<CAPTION>
Number of stores
<S> <C>
The Netherlands:
Albert Heijn:
Company owned 517
Franchised 169
United States:
Stop & Shop 193
Giant-Carlisle 149
BI-LO 266
Tops 250
Giant-Landover 173
</TABLE>
Royal Ahold ("Ahold" or the "Company") also operates food retail stores
in other regions throughout the world. Such regional retail operations
consist of the following consolidated subsidiaries or partnerships:
<TABLE>
<CAPTION>
Region Number of stores
<S> <C>
Other European Countries:
Portugal--Jeronimo Martins
Retail, SGPS, sa 174
The Czech Republic--Euronova
a.s. 149
Poland--Ahold & Allkauf Poland
Sp. z o.o. 80
Spain--Ahold SuperMercados S.A. 15
Latin America:
Brazil--Bompreco S.A.
Supermercados de Nordeste 91
Argentina--Disco S.A. 111
Chile--Santa Isabel S.A. 90
Asia Pacific:
China--Shanghai Ahold-Zhonghui
Supermarket Co. 40
Malaysia, Singapore--Ahold Kuok
Group 59
Thailand--CRC Ahold Company Ltd. 39
</TABLE>
In the Netherlands, Ahold operates 1,065 specialty retail stores (mainly
liquor stores, drugstores and confectionery stores) and is also involved in
institutional food distribution and, through its subsidiary Schuitema N.V.
(73%-owned), in the wholesale distribution of food products to independent
Dutch food retailers.
Ahold has two wholly-owned real estate affiliates, Ahold Vastgoed B.V. ("AVG")
in the Netherlands and Ahold Real Estate Company, Inc. in the United States.
These two companies are engaged in the financing, development and management
of store sites and shopping centers primarily in support of Ahold's retail
operations.
Consolidation
The financial statements of Royal Ahold presented herein, and the notes
thereto, are prepared on a consolidated basis in conformity with Dutch GAAP.
Generally, all companies in which Ahold can exercise control or where Ahold
has a direct or indirect interest of more than 50% are included in the
consolidation. All significant intercompany transactions and accounts are
eliminated in consolidation.
50
<PAGE>
Comparability of the financial statements with those included in the Annual
Report of Royal Ahold
The financial statements and related notes of Royal Ahold presented herein
differ in certain respects from the financial statements and related notes
presented in the printed English language version of the 1998 Annual Report of
Royal Ahold. The principal differences are reclassifications within certain
financial statement categories, terminology changes and additional disclosures
have been provided in order to present these financial statements in a format
more customary to readers of U.S. annual reports.
Basis of accounting
The valuation of assets, liabilities and stockholders' equity and the
determination of earnings are based on historical cost, except for AVG's 1988
revaluation of its real estate holdings and its related subsequent effects.
Fiscal year
Royal Ahold's fiscal year generally consists of 52 weeks and ends on the
Sunday nearest to December 31. Fiscal year 1998 contained 53 weeks, 1997 and
1996 each contained 52 weeks and ended on January 3, 1999, December 28, 1997
and December 29, 1996, respectively.
Foreign exchange
Transactions, receivables and liabilities denominated in foreign currencies
resulting from ordinary activities are translated at the prevailing rates of
exchange. The resulting exchange rate differences are added or charged to
operating results. Exchange rate differences resulting from financing
activities are added or charged to net financial expenses.
In the consolidation, subsidiaries' balance sheets whose functional currency
is other than Dutch Guilders are translated at the rates of exchange
prevailing at the end of the fiscal year; the amounts in the subsidiaries'
statements of earnings denominated in currencies other than Dutch Guilders are
translated per quarter at the quarter's average rate of exchange. The
resulting exchange rate differences are added or charged directly to
stockholders' equity. On a cumulative basis, the aggregate amount of foreign
exchange rate differences charged against stockholders' equity was NLG 655
million as of January 3, 1999.
The rates of exchange (Dutch Guilders per U.S. Dollar) applied for the U.S.
Dollar are as follows:
<TABLE>
<CAPTION>
fiscal year fiscal year fiscal year
1998 1997 1996
<S> <C> <C> <C>
Balance Sheet
Year-end rate 1.8860 2.0010 1.7490
Statement of
Earnings
1st quarter 2.0509 1.8689 1.6499
2nd quarter 2.0184 1.9379 1.7118
3rd quarter 1.9742 2.0412 1.6779
4th quarter 1.8759 1.9776 1.7171
</TABLE>
The effect of changes in currencies other than the U.S. Dollar have not been
material.
Receivables/Loans receivable
Receivables and loans receivable are recorded at face value less provisions
for uncollectible amounts. Project financing represents advances for the
construction of projects that are to be sold upon their completion and are
generally leased-back.
Inventories
Inventories are stated at the lower of historical cost or manufacturing cost
based on the first-in, first-out ("FIFO") method or market value.
Tangible fixed assets
Tangible fixed assets are stated at cost less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method based
on the estimated useful lives of the related assets. In the case of capital
leases and leasehold improvements, the estimated useful lives of the related
assets do not exceed the remaining term of the corresponding leases. Assigned
economic lives of Royal Ahold's tangible fixed assets are as follows:
51
<PAGE>
<TABLE>
<CAPTION>
Category Assigned economic life
<S> <C>
Buildings 30-40 years
Machinery and equipment (primarily distribution and
production facilities) 8 years
Other fixed assets (including renovations and store
equipment) 5-8 years
</TABLE>
Interest incurred during construction is capitalized as part of the related
asset. The amount recorded for buildings also includes capitalized leases for
real estate (located primarily in the United States).
Investments in unconsolidated subsidiaries and affiliates
Unconsolidated subsidiaries and affiliates over which Ahold can exercise
considerable influence and owns more than a 20% interest are stated at their
net asset value. The other unconsolidated subsidiaries and affiliates are
stated at historical cost unless there is a permanent decline in value.
Intangible assets
Goodwill including any necessary restructuring provisions incurred upon
acquisitions is charged directly to stockholders' equity. Intangible assets
primarily represent the discounted value of the difference between the fair
rental value and the contractual rents due on leases as recorded at the time
of the acquisition of a business or takeover of such leases. These discounted
intangible assets are amortized over the remaining length of the lease
agreements on a straight-line basis.
Recoverability of long-lived assets
In evaluating useful lives and carrying values of long-lived assets, Royal
Ahold reviews certain indicators of potential impairment, such as undiscounted
cash flows and profitability projections that incorporate the impact on
existing company businesses. In the event that an impairment seems likely, the
fair value of the related asset is determined, and Royal Ahold would record a
charge to earnings based on comparing the asset's carrying value to the
estimated fair value. Historically, Royal Ahold has generated sufficient
returns from acquired businesses to recover the cost of assets, including
intangible assets.
Taxes payable
Taxes payable include income taxes (net of investment credits), value added
taxes, payroll taxes and other taxes which are expected to be paid within one
year.
Revaluation reserve
In October 1988, a one-time revaluation of certain relevant real estate held
by AVG was recorded. Ahold added the difference between market value and book
value, net of deferred taxes, to a revaluation reserve in stockholders'
equity. The revalued amounts are amortized on a straight-line basis over the
remaining estimated life of the related real estate.
Income taxes/Deferred income taxes
Income taxes are determined based on the earnings reported in the Consolidated
Statement of Earnings, adjusted for permanent differences between income as
calculated for financial and tax reporting purposes at the prevailing tax
rates.
Deferred income tax assets and liabilities derive from temporary differences
between the financial and tax reporting of assets and liabilities and from
loss carryforward facilities available and are included under "Deferred income
taxes". Netting of deferred tax assets and liabilities occurs on a fiscal
unity basis.
Deferred tax assets and liabilities are based on the tax rates prevailing at
the end of the fiscal year. A valuation allowance is established, when
necessary, to reduce deferred tax assets to the amount that is more likely
than not to be realized based on available evidence.
Use of Estimates
The preparation of Royal Ahold's Consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
balance sheet dates and reported amounts of revenue and expense during the
reported periods. Actual results could differ from those estimates.
Common Share and per share information
The calculation of net earnings per Common Share is calculated based on the
weighted average number of shares outstanding during the fiscal year. The
number of shares outstanding are retroactively adjusted for stock dividends.
52
<PAGE>
Amounts in thousands of Dutch Guilders ("NLG")
Unless indicated otherwise, all amounts included in the Notes to the
Consolidated financial statements are stated in thousands of Dutch Guilders.
Reclassifications
Certain reclassifications have been made to prior year financial statements to
conform to the current year presentation.
Note 2Business acquisitions and investments
Business acquisitions completed by Ahold during the three years 1998, 1997 and
1996 include:
. Giant--Landover (United States): acquisition of all of the voting stock of
Giant Food, a U.S. company operating 179 supermarkets in the Mid-Atlantic
region of the United States for $2.7 billion (NLG 5.6 billion) in cash. In
conjunction with the acquisition, Ahold divested ten stores (including four
Giant- Carlisle stores) pursuant to an agreement with the Federal Trade
Commission (October 1998).
. Disco (Argentina) and Santa Isabel (Chile): establishment of Disco Ahold
International Holding N.V. ("DAIH"), a 50% partnership with Velox Retail
Holdings (January 1998). DAIH currently owns a 90.3% stake in Disco
(increased from 50.4% in December 1998), the largest food retailer in
Argentina with 108 stores, and a 65.0% stake in Santa Isabel (increased
from 37.0% in March 1998), a Chilean company with 64 stores in Chile, 15 in
Peru, six in Paraguay and two in Ecuador. Total consideration paid by Ahold
to acquire its interest in DAIH was approximately $538 million.
. SuperMar (Brazil): acquisition by Bompreco, in which Royal Ahold holds a
50% interest, of SuperMar, operator of 50 food retail stores in the State
of Bahia, Brazil, for approximately BRL 65 million (NLG 118 million) in
cash (June 1997).
. CRC Ahold Thailand (Thailand): acquisition from Central Robinson Group of a
49% interest in 30 supermarkets in Thailand for approximately THB 4.4
billion (NLG 298 million) in cash through the establishment of a new
partnership, CRC Ahold Thailand (January 1997). In April 1998, Royal Ahold
increased its ownership interest to 100% subject to ownership interest
repurchase options granted to the Central Robinson Group.
. Bompreco (Brazil): acquisition of 38.9% of the common shares (representing
a 50% voting interest) of Bompreco, a food retailer with 50 retail stores
in northeastern Brazil, for approximately BRL 285 million (NLG 475 million)
in cash (December 1996). Subsequent to the acquisition in August 1998,
Ahold increased its percentage of ownership to 47.9%.
. Store 2000 (Spain): establishment of a 50% partnership, Store 2000, with
the parent company of Caprabo, a privately held food retail company based
in Barcelona, Spain (December 1996). In October 1998, Royal Ahold
terminated the partnership. In November 1998, Ahold acquired 15 stores in
the Madrid area from Longinos Velasco, through its newly formed and wholly
owned subsidiary Ahold SuperMercados.
. Shanghai Ahold-Zhonghui Supermarket Co. (China): establishment of a 50%
partnership, Shanghai Ahold-Zhonghui Supermarket Co. to which Ahold
contributed NLG 4 million and Shanghai Zhonghui Supermarket contributed 15
stores operating in the Shanghai region of China (October 1996). In January
1998, Shanghai Ahold-Zhonghui Supermarket Co. acquired 22 supermarkets from
Yaohan Liancheng.
. Stop & Shop (United States): acquisition of Stop & Shop, a U.S. company
with 171 supercenters, supermarkets and convenience stores on the date of
acquisition in the northeastern United States (July 1996). Total
consideration was approximately $1.8 billion (NLG 3.0 billion) in cash and
the assumption of $1.4 billion (NLG 2.3 billion) in interest- bearing debt.
Thirty stores and two future sites were divested pursuant to an agreement
with the FTC and certain state antitrust authorities.
. Ahold Kuok Malaysia and Ahold Kuok Singapore (Malaysia and
Singapore): establishment of partnerships with the Kuok Group in
53
<PAGE>
Singapore, in which Ahold owns 60%, and in Malaysia, in which Ahold owns
52.2%, to develop food retailing operations in those countries (March
1996). Ahold Kuok Malaysia opened its first two pilot stores in September
1996 and in September 1997 acquired the leases of 11 supermarkets from
Emporium Holdings. During 1998 Ahold Kuok Malaysia acquired seven
supermarkets from Yahona Corporation (May 1998) and 27 supermarkets from
Parkson Corporation (July 1998).
. Primarkt (the Netherlands): acquisition of Primarkt, a food retailer in the
southern part of the Netherlands, operating 20 supermarkets and 16 liquor
stores, for NLG 111 million (January 1996).
The above acquisitions have been accounted for by the purchase method of
accounting. The purchase price has been allocated based on the estimated fair
values of the assets acquired and the liabilities assumed. As discussed in
Note 1 to the Consolidated financial statements, under Dutch GAAP, any
resulting goodwill is immediately charged to stockholders' equity in the year
of acquisition. The operating results of all acquisitions are included in the
Consolidated Statements of Earnings from the dates of their respective
acquisitions. Under U.S. GAAP, goodwill of approximately NLG 5,206 million and
approximately NLG 390 million in 1998 and 1997, respectively, would be
recorded as an intangible asset to reflect the excess of the purchase price
over the estimated fair value of the assets acquired and liabilities assumed.
Note 3Cash and cash equivalents
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
<S> <C> <C>
Cash and cash equivalents 913,815 570,055
Cash investments 230,781 84,651
--------- ---------
1,144,596 654,706
========= =========
Items reported as cash investments generally have an original maturity
of less than three months.
Note 4Receivables
<CAPTION>
January 3, December 28,
1999 1997
<S> <C> <C>
Trade receivables 1,136,101 808,720
Other receivables 1,355,421 965,825
Project financing 127,103 134,093
--------- ---------
2,618,625 1,908,638
Allowances for doubtful receivables (170,258) (149,369)
--------- ---------
2,448,367 1,759,269
========= =========
Note 5Inventories
<CAPTION>
January 3, December 28,
1999 1997
<S> <C> <C>
Raw materials and components 49,391 36,014
Finished products and merchandise inventories 4,369,727 3,363,052
Other inventories 123,774 120,183
--------- ---------
4,542,892 3,519,249
Allowances for obsolete inventories (143,647) (80,443)
--------- ---------
4,399,245 3,438,806
========= =========
</TABLE>
54
<PAGE>
Note 6Tangible fixed assets
<TABLE>
<CAPTION>
Machinery
and Under
Land Buildings equipment Other construction Total
<S> <C> <C> <C> <C> <C> <C>
Cost, Dec. 28, 1997 1,455,390 5,869,385 3,088,886 5,649,118 662,775 16,725,554
Accumulated depreciation (5,098) (1,476,773) (1,276,367) (2,894,586) -- (5,652,824)
--------- ---------- ---------- ---------- ------- ----------
Net book value, Dec. 28,
1997 1,450,292 4,392,612 1,812,519 2,754,532 662,775 11,072,730
Investments 252,592 804,688 681,856 1,228,797 227,673 3,195,606
Assets brought in
through acquisitions 397,115 1,106,847 540,149 745,630 91,137 2,880,878
Book value of assets
sold or disposed and
reclassifications (66,009) (155,572) (74,904) (68,221) (22,628) (387,334)
Depreciation (1,520) (272,062) (343,390) (827,193) -- (1,444,165)
Exchange rate
differences (60,785) (178,491) (63,139) (104,789) (42,955) (450,159)
--------- ---------- ---------- ---------- ------- ----------
Net book value, Jan. 3,
1999 1,971,685 5,698,022 2,553,091 3,728,756 916,002 14,867,556
========= ========== ========== ========== ======= ==========
Cost, Jan. 3, 1999 1,978,306 7,215,293 3,976,023 7,207,064 916,002 21,292,688
Accumulated depreciation (6,621) (1,517,271) (1,422,932) (3,478,308) -- (6,425,132)
--------- ---------- ---------- ---------- ------- ----------
Net book value, Jan. 3,
1999 1,971,685 5,698,022 2,553,091 3,728,756 916,002 14,867,556
========= ========== ========== ========== ======= ==========
</TABLE>
As of January 3, 1999, the aggregate amounts of mortgage and other
loans collateralized by real estate were NLG 241,829. The book values
of mortgaged real estate exceed the amounts due under the related loans
or secured liabilities.
As of January 3, 1999, Royal Ahold had purchase commitments for fixed
assets outstanding of approximately NLG 750 million.
Note 7Loans receivable
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
<S> <C> <C>
Employee loans, floating interest 150,761 85,531
Other loans issued 158,463 262,836
------- -------
309,224 348,367
======= =======
</TABLE>
Employee loans include NLG 145 million at January 3, 1999 (December 28,
1997: NLG 76 million) of loans due from Officers, managers and
employees which were granted in January 1994, July 1996 and April 1998
to assist these officers and employees with investments in the Albert
Heijn Dutch Customer Fund (the "Fund"). These floating-rate loans,
bearing interest based on the Dutch discount rate, are generally due
ten years from issuance or upon an individual's termination of
employment, if earlier, and are secured by each individual's
corresponding investment in the Fund. Loans to Directors and Officers
of Royal Ahold aggregated NLG 5 million at January 3, 1999 (December
28, 1997: NLG 6 million).
Note 8Investments in unconsolidated subsidiaries and affiliates
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
<S> <C> <C>
Investments in unconsolidated subsidiaries and
affiliates 271,560 186,289
Due from unconsolidated subsidiaries and
affiliates 133,938 98,440
------- -------
405,498 284,729
======= =======
</TABLE>
55
<PAGE>
Note 9Intangible assets
<TABLE>
<CAPTION>
fiscal year fiscal year
1998 1997
<S> <C> <C>
Net book value, beginning of year 420,966 350,160
Investments and acquisitions 88,436 78,796
Book value of sales and disposals (21,027) (13,328)
Amortization (38,912) (36,256)
Exchange rate differences (18,448) 41,594
--------- ---------
Net book value, end of year 431,015 420,966
========= =========
End of fiscal year
Cost 550,073 527,476
Accumulated amortization (119,058) (106,510)
--------- ---------
Net book value 431,015 420,966
========= =========
Note 10Loans payable
<CAPTION>
January 3, December 28,
1999 1997
<S> <C> <C>
Bank overdrafts 826,816 744,246
Borrowings, current portion 277,047 237,937
Short-term borrowings 132,285 32,333
Capitalized lease commitments, current portion 111,666 72,907
Albert Heijn Dutch Customer Fund 366,587 286,489
Other loans 223,096 201,608
--------- ---------
1,937,497 1,575,520
========= =========
Other loans consists of savings stamps held by Albert Heijn customers
and employees' savings accounts.
Note 11Other current liabilities
<CAPTION>
January 3, December 28,
1999 1997
<S> <C> <C>
Vacation allowances 504,073 392,493
Dividends 388,853 280,225
Interest 111,710 86,295
Pension funds 17,833 16,620
--------- ---------
1,022,469 775,633
========= =========
</TABLE>
56
<PAGE>
Note 12Borrowings
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
<S> <C> <C>
Subordinated Guilder loans:
7.625% bonds, maturing in 2000 200,000 200,000
6.75% bonds, maturing in 2003 200,000 200,000
5.875% bonds, maturing in 2005 200,000 200,000
3% convertible subordinated notes 1,495,000 --
Other -- 5,000
Credit facility:
Multi-currency facility, floating interest 1,747,436 1,182,591
Other loans:
NLG 500 million Eurobond, 6.25% 500,000 500,000
NLG 300 million bond, 5.875% 300,000 300,000
NLG 100 million loan, 7.70% 100,000 100,000
NLG 100 million loan, 7.15% -- 20,000
NLG 70 million loan, 7.20% 70,000 70,000
$250 million senior note, 9.75% 395,562 429,633
$100 million senior note, 13.25% -- 200,100
$50 million loan 6.23% 94,300 --
$39 million loan 6.11% 73,554 --
$39 million loan LIBOR plus 0.70% 73,554 --
$250 million 9.875% bond 471,500 --
$100 million 9.125% bond 188,600 --
U.S. Dollar mortgage loans, average 8.24% 189,718 179,530
Other Dollar loans, average 8.55% 218,606 187,382
Portuguese Escudo bonds, average 4.44% 423,115 176,320
Brazilian Real bonds, average 19.46% 122,396 141,752
Other loans, average 12.03% 236,518 261,867
--------- ---------
7,299,859 4,354,175
Cash held in escrow (200,000) (200,000)
Current portion (277,047) (237,937)
--------- ---------
Long-term portion of loans 6,822,812 3,916,238
========= =========
</TABLE>
At January 3, 1999, maturities of long-term debt during each of the next
five fiscal years and thereafter are as follows:
<TABLE>
<S> <C>
1999 277,047
2000 560,544
2001 138,411
2002 604,844
2003 3,803,186
Thereafter 1,915,827
---------
7,299,859
=========
</TABLE>
57
<PAGE>
Repayment of the principal of subordinated Guilder loans is subordinated to
the claims of all other existing and future creditors. The proceeds from the
issuance of 5.875% subordinated Guilder bonds was used to defease in-substance
the 7.625% subordinated Guilder bonds. The cash proceeds are held in escrow
with a bank to be used when the bonds mature in 2000. In addition, Royal Ahold
entered into an interest rate swap to match the cash flows of interest
payments due on the 7.625% subordinated Guilder bonds that exceed the interest
earnings on the cash held in escrow. See note 21 and note 23 to the
consolidated financial statements.
Convertible subordinated notes
In September 1998, Royal Ahold completed a public offering of NLG 1,495
million principal amount of its 3.0 percent Convertible Subordinated Notes due
2003, with interest payable annually, commencing September 30, 1999. The notes
are convertible into 23,207,079 common shares at NLG 64.42 per share at any
time prior to September 25, 2003. At any time after September 30, 2001, the
notes are redeemable at the option of Royal Ahold, in whole but not in part,
at the principal amount thereof, together with accrued interest. The notes
will mature on September 30, 2003.
Credit facilities
In December 1996, Ahold entered into a $1 billion 7-year Multi-currency
Revolving Credit Facility bearing interest at LIBOR (5.11% at January 3, 1999)
plus 0.10% and $500 million of the amount outstanding was swapped to a fixed
rate of 5.70% for a five year period. Royal Ahold pays a facility fee of 10
basis points per year on the total amount of the facility through the fifth
year. Thereafter, the facility fee will be 11.25 basis points per year. This
facility agreement contains restrictive covenants with regard to maintenance
of certain financial ratios, such as interest coverage and gearing, as
defined, all of which were complied with during 1998.
In March 1998, Ahold entered into a four year $500 million multi-currency
revolving stand-by credit facility bearing interest at LIBOR plus 0.10%. The
terms and conditions of this facility are substantially identical to Royal
Ahold's existing $1 billion multi-currency revolving credit facility. As of
January 3, 1999 there were no outstanding borrowings under this facility.
Other loans
NLG 500 million Eurobond, 6.25%. This 10-year Eurobond will mature on November
28, 2006. The bond was issued by Ahold's U.S. holding company, and is
guaranteed by Royal Ahold.
NLG 300 million bonds, 5.875%. These bonds have been issued by Albert Heijn,
and are guaranteed by Royal Ahold. The bonds mature in December 2007.
NLG 100 million loan, 7.70%. Principal repayments on this loan are due in
annual installments of NLG 20 million through June 2004.
$250 million senior note, 9.75%. This note was issued by Stop & Shop in
February 1992 and will mature July 1, 2002. This note is subordinated to all
senior indebtedness of Stop & Shop.
$250 million bonds, 9.875%. These bonds were issued by Disco in May 1998 and
mature in May 2008. The bonds may be redeemed at par at any time after May
2003.
$100 million bonds, 9.125%. These bonds were issued by Disco in May 1998 and
mature in May 2003.
Portuguese Escudo bonds. JMR issued four bonds in 1998 all of which are
subordinated to all senior indebtedness of JMR. The bonds require principal
payments between 1999 and 2003.
58
<PAGE>
Note 13Capitalized lease commitments
Capital leases are principally for buildings and are generally held by
Ahold's U.S. subsidiaries and terms typically range from ten to twenty-
five years and contain renewal options. Components of assets held under
capital leases are as follows:
<TABLE>
<CAPTION>
January December 28,
3, 1999 1997
<S> <C> <C>
Land and buildings 2,028,786 1,799,460
Machinery and equipment 119,704 110,197
--------- ---------
2,148,490 1,909,657
Accumulated amortization (650,652) (666,052)
--------- ---------
1,497,838 1,243,605
========= =========
</TABLE>
At the time of entering into capital lease agreements, the commitments
are recorded at present value using the interest rate applicable for
long-term borrowings. At January 3, 1999, existing lease commitments are
recorded at present value equivalent to an average rate of 10.10%
(10.58% at December 28, 1997).
As of January 3, 1999, the aggregate amounts of minimum lease payments
under capitalized lease contracts payable in each of the next five
fiscal years and thereafter are as follows:
<TABLE>
<S> <C>
1999 316,484
2000 306,364
2001 294,182
2002 266,995
2003 263,012
Thereafter 2,627,917
----------
Total future minimum lease payments 4,074,954
Estimated executory costs (7,855)
Amounts representing interest (2,132,209)
----------
Present value of net minimum capital
lease payments 1,934,890
Current portion (111,666)
----------
Long-term portion of capitalized
lease commitments 1,823,224
==========
</TABLE>
Total future minimum lease payments above have not been reduced by minimum
sublease rentals of NLG 119,653 as of January 3, 1999 due in the future under
related non-cancelable subleases. They also do not include contingent rentals
which may be paid under certain store leases on the basis of a percentage of
sales in excess of stipulated amounts. Contingent rentals on such leases
amounted to approximately NLG 3,500 in 1998, NLG 4,200 in 1997 and NLG 3,000
in 1996.
Note 14Other provisions
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
<S> <C> <C>
Pension provisions 371,729 335,715
Self-insurance 499,733 448,220
Closed and divested
facilities 498,468 278,761
Severance and other
personnel costs 175,398 157,285
Bankruptcy guarantees 145,735 170,171
Conversion costs 119,096 143,048
Maintenance provisions 108,522 91,343
Straight line rent 51,253 47,986
Other 144,503 98,538
--------- ---------
2,114,437 1,771,067
========= =========
</TABLE>
59
<PAGE>
Pension provisions relate to various defined benefit plans, both in the U.S.
and the Netherlands, including supplemental plans for early retirement in the
Netherlands.
Royal Ahold is self-insured for property, casualty, medical, disability and
general liability costs. Royal Ahold determines it liabilities for self-
insured claims based on actuarial analyses.
The provision for closed and divested facilities represents the estimated
future costs (principally for rent obligations and loss on the disposal of
assets) for facilities, primarily retail stores, that have been closed or
announced to be closed. Royal Ahold decided to take provisions for potential
Giant-Landover store closings. Provisions for such closings (primarily rent
obligations) totaling $92 million (NLG 174 million) were recorded in 1998.
Severance and other personnel costs include severance benefits for employees
who will be terminated. This provision includes accrued severance for certain
administrative, production, distribution and store personnel at Albert Heijn
from a reorganization plan entered into between Ahold and the respective
unions in March 1993. At January 3, 1999, 2,000 employees have been terminated
under this plan, which is expected to increase to a maximum of 2,050
employees. The accrued costs at January 3, 1999 and December 28, 1997 of NLG
110 million and NLG 114 million, respectively, include contractual termination
benefits and supplemental monthly payments over an extended period (which may
extend up to ten years) based on the employee's salary, age and length of
service for employees who have been made aware of their termination. Payments
of such costs aggregated NLG 20 million, NLG 42 million and NLG 12 million in
1998, 1997 and 1996, respectively. Payments in 1999 are expected to be NLG 28
million.
As a part of the acquisition of Stop & Shop, Ahold realigned and reassigned
the management responsibility for certain of its U.S. operations owned prior
to the Stop & Shop acquisition. The realignment at Edwards included closing
administrative facilities, conversion of store formats from supermarkets to
supercenters and termination of approximately 500 administrative personnel.
Provisions for such costs totaling $17 million (NLG 34 million) were recorded
in 1997, as additional goodwill related to the Stop & Shop acquisition. At
January 3, 1999 and December 28, 1997, the remaining balance of such
provisions aggregated $4.0 million (NLG 7.6 million) and $6 million (NLG 12
million), respectively. The realignment also included the consolidation of
management of the Ohio Finast operations into Tops. The combined management of
activities in these two adjacent markets has opened the way to greater
coordination and substantial cost savings. Provisions (and charges to
operating results) of $18 million (NLG 30 million) were recorded for this
merger in 1996 primarily for the closing of the Finast headquarters, computer
integration costs and other matters. At December 28, 1997, all management
consolidation costs for Finast have been paid and no liability remained. (Also
see the U.S. GAAP reconciliation in note 23 to the consolidated financial
statements).
Bankruptcy guarantees represent lease obligations related to properties
operated by Bradlees, Inc. ("Bradlees"). Bradlees was sold by Stop & Shop in
1992; however, Stop & Shop remained obligated under approximately 100 of its
leases assigned to Bradlees. Bradlees filed for bankruptcy protection under
Chapter 11 of the United States Bankruptcy Code in 1995 and on February 2,
1999 emerged from the bankruptcy. The provision for bankruptcy guarantees
represents the estimated future lease costs which Royal Ahold may incur for
stores Bradlees has closed or stores in which closure is expected based on
available information. Total future rental payments under all such assigned
Bradlees leases aggregated approximately $249 million (approximately NLG 471
million) at January 3, 1999.
Conversion costs represent the expected costs of systems upgrades for the
introduction of the Euro and Year 2000. (See the U.S. GAAP reconciliation in
note 23 to the consolidated financial statements.) Maintenance provisions have
been established for known and estimable repair and upkeep of stores,
primarily in the Netherlands. Straight line rent represents the excess of rent
expensed (on a straight line basis) for financial reporting purposes over
amounts paid for leases with scheduled increases.
60
<PAGE>
Note 15Stockholders' equity
Changes in Share Capital
Royal Ahold completed a public offering of 34,500,000 common shares at an
initial offering price of NLG 67.00 ($32.14) per share in April 1998 and a
public offering of 51,750,000 common shares at an initial offering price of
NLG 52.80 ($27.90) per share in September and October 1998.
Cumulative Preferred Shares
In March 1989, Royal Ahold and Stichting Ahold Continuiteit ("SAC" or, in
English, "Ahold Continuity Foundation") entered into an agreement (the "Option
Agreement"), which was amended and restated in April 1994 and March 1997,
pursuant to which SAC was granted an option to acquire from Royal Ahold, from
time to time in the fifteen years following the date of the original Option
Agreement, cumulative preferred shares up to a total par value that is equal
to the total par value of all issued and outstanding shares of capital stock
of Ahold. Royal Ahold on its part has the right, pursuant to the Option
Agreement, to place cumulative preferred shares with SAC up to a total par
value that is equal to the total nominal value of all issued and outstanding
shares of capital stock of Ahold. The holders of the cumulative preferred
shares are entitled to 2,000 votes per share. Each transfer of cumulative
preferred shares requires the approval of the Corporate Executive Board.
The cumulative preferred shares have certain anti- takeover effects. The
issuance of all authorized cumulative preferred shares will cause substantial
dilution of the effective voting power of any shareholder, including a
shareholder that attempts to acquire Royal Ahold, and could have the effect of
delaying, deferring and preventing a change in control of Royal Ahold.
Royal Ahold may stipulate that only 25% of the nominal value be paid upon
subscription for cumulative preferred shares until payment in full of the par
value is later called by Royal Ahold. No cumulative preferred shares were
issued and outstanding during 1998, 1997 or 1996.
Cumulative Preferred Financing Shares
In June 1996, the Corporate Executive Board of Royal Ahold was designated as
the body authorized to issue or grant rights to subscribe for Cumulative
Preferred Financing Shares of whatever series, subject to the prior approval
of the Supervisory Board of Royal Ahold, up to a total nominal amount equal to
25% of all the outstanding shares of the capital stock of Royal Ahold,
excluding cumulative preferred shares. Cumulative Preferred Financing Shares
must be fully paid up upon issuance.
In August 1998, Royal Ahold issued 24 million Cumulative Preferred Financing
Shares to institutional investors in the Netherlands at a price of NLG 6.75
per share, resulting in aggregate proceeds of NLG 161 million.
Dividends are paid on each Cumulative Preferred Financing Share at a
percentage (the "Financing Dividend Percentage") based on the average
effective yield on Dutch State loans with a remaining life of nine to ten
years and such rate has been fixed for a period of ten years at a rate of
7.37% per fiscal year for the share issuance in June 1996 and 5.18% for the
share issuance in August 1998.
Convertible Cumulative Preferred Financing Shares
In June 1996, the Corporate Executive Board of Royal Ahold was also designated
as the body authorized to issue or grant rights to subscribe for all
convertible cumulative preferred shares subject to the prior approval of the
Supervisory Board of Royal Ahold. Conversion of convertible cumulative
preferred shares into common shares may take place (i) pursuant to a
resolution of the Corporate Executive Board or (ii) at the request of a holder
of convertible cumulative preferred shares. No convertible cumulative
preferred shares were issued and outstanding during 1998 and 1997.
Holders of convertible cumulative preferred financing shares are entitled to
dividends similar to those on Cumulative Preferred Financing Shares.
Common Shares
Prior to 1997, cash dividends consisted of a Dutch Guilder component and a
Dollar component. Beginning in 1997, all cash dividends are declared and paid
only in Dutch Guilders. Shareholders have had the option to elect either a
cash or a share dividend. The size and composition of the final 1998 optional
share dividend option, will be announced on May 11, 1999, after the close of
trading on the Amsterdam Exchanges.
61
<PAGE>
Dividends on common shares paid or proposed are as follows:
<TABLE>
<CAPTION>
Cash Dividend
Fiscal Year Option Stock Dividend Option
<C> <C> <C> <S>
1996 Interim NLG 0.08 and $0.04 1 share per 100 shares owned
Final NLG 0.23 and $0.10 2 shares per 100 shares owned
1997 Interim NLG 0.21 1 share per 100 shares owned
Final NLG 0.51 2 shares per 100 shares owned
1998 Interim NLG 0.26 1 share per 100 shares owned
Proposed final NLG 0.60 2 shares per 100 shares owned
</TABLE>
Stock option plans
Royal Ahold established stock option plans in the Netherlands and the United
States, pursuant to which a number of options to acquire common shares are
granted to executive and other key salaried employees of Royal Ahold who are
employed at certain specified job levels and who are designated by the
Corporate Executive Board as eligible to be granted options, and such other
employees designated by the Corporate Executive Board. The exercise price of
such options is equal to the closing price of the common shares on the AEX-
Stock Exchange on the day on which the options are granted, which is typically
the last day of the fiscal year.
In the Netherlands, options granted are exercisable for a period of five years
after the grant date. Options granted prior to the beginning of fiscal year
1997 vested immediately. During 1998, the Netherlands plan was amended and
restated and the vesting period was changed to a period of three years.
In the United States, Ahold established stock option plans in 1986 (the "1986
U.S. Plan") and in 1990 (the "1990 U.S. Plan"), which were both amended and
restated, effective January 1, 1998. Options granted under the 1990 U.S. Plan,
as amended, are exercisable after a vesting period of five years, after which
the options may be exercised in full, or in part, during a five year period.
Under the 1986 Plan, as amended, options granted thereunder are exercisable
after a vesting period determined by the Corporate Executive Board and
specified in each option award agreement, after which the options may be
exercised in full, or in part, during the remainder of the five year period
from the date of grant. No options are currently outstanding under the 1986
U.S. Plan.
A summary of the activity under Ahold's stock option plans is as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- -------------------------
Average Price Average Price Average Price
per Share per Share per Share
Shares NLG Shares NLG Shares NLG
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of year 15,994,594 31.79 14,473,503 23.19 14,289,096 17.22
Granted 5,768,455 67.43 4,860,657 51.61 4,324,677 35.38
Exercised (3,794,299) 21.15 (3,133,703) 17.94 (3,847,743) 15.29
Canceled (190,487) 28.32 (205,863) 20.96 (292,527) 16.02
---------- ---------- ----------
Outstanding at end of
year 17,778,263 45.17 15,994,594 31.79 14,473,503 23.19
========== ========== ==========
</TABLE>
62
<PAGE>
The following table summarizes information about stock options outstanding at
January 3, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------- ----------------------------
Range of Weighted Average
Exercise Weighted Average Average Exercise
Prices Number Outstanding Remaining Exercise Price Number Exercisable Price
NLG at January 3, 1999 Contractual Life NLG at January 3, 1999 NLG
-------- ------------------ ---------------- -------------- ------------------ ---------
<S> <C> <C> <C> <C> <C>
10.14-16.99 2,373,040 3.2 15.59 1,858,279 15.21
20.85-34.79 5,398,745 3.8 29.16 4,104,751 29.33
42.11-58.17 4,505,028 4.8 50.76 -- --
59.60-69.40 5,501,450 6.2 69.07 -- --
---------- ---------
17,778,263 5,963,030
========== =========
</TABLE>
Ahold accounts for the stock option plans under Dutch GAAP which is similar to
Accounting Principles Board Opinion No. 25 ("APB 25") and related
interpretations for non-compensatory plans. Accordingly, no compensation cost
has been recognized for stock options. The weighted average fair value of
stock options granted during 1998, 1997 and 1996 was NLG 24.04, NLG 16.30 and
NLG 8.78, respectively. The fair value of the stock option grants has been
estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions:
<TABLE>
<CAPTION>
fiscal year fiscal year fiscal year
1998 1997 1996
<S> <C> <C> <C>
Expected life (years):
1986 Plan 2.0 2.5 2.5
1990 Plan 7.5 7.5 7.5
Interest rate 6.0% 6.0% 6.5%
Volatility 30.0% 35.0% 20.0%
Assumed forfeitures 6.0% 7.0% 7.0%
</TABLE>
Had compensation cost for the stock option plans been determined consistent
with Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), under Dutch GAAP Ahold's pro forma net
earnings and earnings per Common Share would have been as follows:
<TABLE>
<CAPTION>
fiscal year fiscal year fiscal year
1998 1997 1996
<S> <C> <C> <C>
Net earnings after dividends on Cumulative
Preferred
Financing Shares:
As reported 1,183,996 915,482 622,949
Pro forma 1,162,675 913,418 606,193
Earnings per Common Share:
As reported 2.06 1.74 1.38
Pro forma 2.02 1.74 1.35
</TABLE>
This pro forma impact only takes into account options granted since the
beginning of fiscal year 1995 and is likely to increase in future years as
additional options are granted and amortized ratably over the vesting period.
63
<PAGE>
Note 16Rentals and operating leases with third parties
Operating leases of Ahold's U.S. subsidiaries generally are for terms of
ten to twenty-five years, contain renewal options and in some cases
require additional operating lease payments based on sales volume. The
rental contracts of Ahold's Dutch retailing subsidiaries generally
provide for non-cancelable five to ten year rental periods with renewal
options, and rents reset every year based on predetermined indices.
The actual costs of rentals and operational leases were as follows:
<TABLE>
<CAPTION>
fiscal year fiscal year fiscal year
1998 1997 1996
<S> <C> <C> <C>
Minimum rentals 1,049,987 852,394 604,975
Contingent rentals 24,975 7,294 6,845
Lease and sublease income (178,028) (92,084) (99,397)
--------- ------- -------
896,934 767,604 512,423
========= ======= =======
</TABLE>
As of January 3, 1999, the aggregate amounts of minimum lease payments
under existing operational lease contracts are as follows:
<TABLE>
<S> <C>
1999 1,097,459
2000 1,016,069
2001 912,571
2002 811,670
2003 767,102
Thereafter 7,275,829
----------
11,880,700
==========
</TABLE>
Minimum lease payments above have not been reduced by minimum lease or
sublease rental income of NLG 945,408 due in the future under non-
cancelable subleases.
Note 17Income taxes
The reconciliation of income taxes between the Dutch corporate income
tax rate and Royal Ahold's effective income tax rate as shown in the
Consolidated Statements of Earnings is as follows:
<TABLE>
<CAPTION>
fiscal year fiscal year fiscal year
1998 1997 1996
<S> <C> <C> <C>
Dutch corporate income tax rate 35.00% 35.00% 35.00%
Items affecting the corporate
income tax rate
Financing and different statutory
income tax rate of foreign
subsidiaries (10.50%) (6.49%) (8.68%)
Non-taxable items (1.03%) (0.40%) 0.05%
Investment tax credits (0.04%) (0.05%) (0.07%)
Other factors 1.73% -- 0.62%
------- ------- -------
Effective tax rate 25.16% 28.06% 26.92%
======= ======= =======
The components of the provisions for income taxes are as follows:
<CAPTION>
fiscal year fiscal year fiscal year
1998 1997 1996
<S> <C> <C> <C>
Current:
Domestic 150,023 193,557 187,419
Foreign 147,483 157,906 135,432
Deferred:
Domestic 100,203 14,678 (8,189)
Foreign 36,587 16,246 (65,822)
------- ------- -------
434,296 382,387 248,840
======= ======= =======
</TABLE>
64
<PAGE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. At January 3, 1999, in
the United States Royal Ahold had state and federal operating loss
carryforwards of approximately NLG 80 million expiring between 2001 and 2012,
general business tax credit carryforwards totaling approximately NLG 68
million expiring between 2000 and 2013, and alternative minimum tax
carryforwards of NLG 89 million which can be carried forward indefinitely.
Such operating loss carryforwards and tax credits may not be used to offset
income taxes in other jurisdictions. Royal Ahold has established a valuation
allowance to reduce the tax benefit of certain net operating losses and
certain general business tax credits to an amount that is more likely than not
realizable. Management believes there is a risk that certain carryforwards may
expire unused and, accordingly, has established a valuation allowance against
them.
Deferred tax assets and liabilities as of January 3, 1999 and December 28,
1997 are as follows:
<TABLE>
<CAPTION>
Net deferred tax asset (liability)
January 3, December 28,
1999 1997
<S> <C> <C>
Fixed assets (531,732) (512,996)
Capitalized lease commitments 130,973 139,604
Benefit plans 63,011 127,480
Inventories (78,034) (137,468)
Closed locations 73,175 45,939
Provisions not yet deductible 249,728 303,946
Carryforwards
Operating losses 109,104 98,137
Alternative minimum tax 89,062 72,036
General business tax credits 32,539 45,913
Valuation allowances (57,425) (42,065)
Other, net (91,973) 29,878
----------------- -----------------
(11,572) 170,404
================= =================
</TABLE>
Deferred income taxes are classified in the accompanying balance sheets as of
January 3, 1999 and December 28, 1997 as follows:
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
<S> <C> <C>
Non-current deferred tax assets 297,778 357,258
Non-current deferred tax liabilities (309,350) (186,854)
-------- --------
(11,572) 170,404
======== ========
</TABLE>
Note 18Employee benefit plans
Pension plans
Royal Ahold has a number of defined benefit pension plans covering
substantially all of its employees. Such plans have been established in
accordance with applicable legal requirements, customs and existing
circumstances in each country. Benefits are generally based upon compensation
and years of service. Pension plan assets are generally invested in shares,
fixed-rate debt securities, loans and real estate.
Pension costs for all plans are actuarially determined and generally funded
annually. Royal Ahold accounts for its U.S. plans under the provisions of
Financial Accounting Standards No. 87 ("SFAS 87"). Pension expense for the
plans in the Netherlands is calculated using the methodology required under
Dutch GAAP. Pension expense of the qualified plans included in the
accompanying Statement of Earnings for fiscal years 1998, 1997
65
<PAGE>
and 1996 aggregated NLG 74,465, NLG 66,048 and NLG 59,100, respectively. In
addition, Royal Ahold received refunds of NLG 76 million in 1998 and NLG 83
million in 1997, respectively, of overfunded pension plan assets in the
Netherlands, which was reflected as a reduction of general and administrative
expenses in the 1998 and 1997 Consolidated Statement of Earnings. (See note 23
to the consolidated financial statements for the U.S. GAAP accounting
treatment.)
For purposes of additional disclosure, information regarding the plans in the
Netherlands has also been provided under the requirements of Financial
Accounting Standards No 132, Employers' Disclosures About Pensions and Other
Postretirement Benefits ("SFAS 132"). The following table summarizes, in Dutch
Guilders, the funded status and amounts which would be recognized in Royal
Ahold's financial statements under SFAS 132 for all defined benefit plans.
<TABLE>
<CAPTION>
Assets exceed Accumulated benefits
Accumulated benefits Exceed assets
------------------------- -------------------------
January 3, December 28, January 3, December 28,
1999 1997 1999 1997
<S> <C> <C> <C> <C>
Change in Benefit
Obligation
Benefit obligation,
beginning of period 2,415,745 2,000,404 282,572 238,727
Service cost 114,284 92,953 27,330 4,954
Interest cost 134,801 140,338 48,530 12,312
Amendments and
reclassifications (398,851) 1,355 355,130 --
Actuarial loss (gain) 214,651 253,091 72,680 35,213
Acquisition 218,264 3,532 13,344 --
Benefits paid (49,513) (75,928) (25,323) (8,634)
--------- --------- -------- --------
Benefit obligation, end
of period 2,649,381 2,415,745 774,263 282,572
========= ========= ======== ========
Change in Plan Assets
Fair value of assets,
beginning of period 2,616,876 2,265,699 143,939 130,190
Actual return on plan
assets 310,683 412,586 83,598 10,052
Company contribution (17,539) 3,932 40,180 7,726
Acquisition 215,697 10,587 -- --
Reclassifications (357,725) -- 357,725 --
Benefits paid (49,513) (75,928) (20,960) (4,029)
--------- --------- -------- --------
Fair value of assets,
end of period 2,718,479 2,616,876 604,482 143,939
========= ========= ======== ========
Funded status of plan 69,098 201,131 (184,507) (138,633)
Unrecognized actuarial
loss 195,993 99,295 55,728 28,906
Unrecognized prior
service cost 15,510 15,937 (39,311) 114
Unrecognized net
transition obligation (51,961) (65,423) 5,610 9,017
--------- --------- -------- --------
Prepaid (accrued)
benefit cost 228,640 250,940 (162,480) (100,596)
========= ========= ======== ========
<CAPTION>
Fiscal year Fiscal year Fiscal year Fiscal year
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Components of Net
Periodic Benefit Costs
Service cost of benefits
earned 103,284 92,953 24,627 4,954
Interest cost on benefit
obligation 134,801 140,338 49,362 12,312
Actual return on assets (299,112) (382,330) (45,810) (12,640)
Net amortization and
deferral 90,429 183,290 7,634 5,656
--------- --------- -------- --------
Net periodic benefit
cost 29,402 34,251 35,813 10,282
========= ========= ======== ========
</TABLE>
66
<PAGE>
The assumptions used to develop the actuarial present value of benefit
obligations and pension expense under SFAS 87 were as follows:
<TABLE>
<CAPTION>
fiscal year fiscal year fiscal year
1998 1997 1996
<S> <C> <C> <C>
Weighted average expected long-term rate
of return on plan assets 8.3% 8.3% 8.2%
Weighted average discount rate 5.5% 6.9% 6.9%
Weighted average rate of increase in
salary levels 4.4% 4.0% 4.0%
</TABLE>
Other benefit plans
Ahold also maintains various other employee benefit plans. For employees of
its U.S. subsidiaries, such plans are principally in the form of savings,
incentive compensation and bonus plans. Royal Ahold's Dutch subsidiaries
participate in a profit sharing plan for their employees. Expense for such
plans aggregated NLG 207,505, NLG 185,699 and NLG 136,836 in 1998, 1997 and
1996, respectively. In the U.S., Royal Ahold also maintains three supplemental
employee retirement plans for officers and executives of its subsidiaries. The
present value of the estimated projected benefit obligation under these plans
has been estimated at approximately NLG 66,799 million at January 3, 1999, the
majority of which is fully vested and accrued.
Additionally, certain union employees in the United States are covered by
multi-employer, defined benefit plans. Plan expenses were NLG 68,920, NLG
69,225 and NLG 27,700 for 1998, 1997 and 1996, respectively.
Postretirement plans
Ahold provides life insurance and health care benefits for certain retired
employees meeting age and service requirements at its U.S. subsidiaries. The
total costs recognized for postretirement life insurance and health care plans
were approximately NLG 3,745 (service cost of NLG 690 and interest cost of NLG
3,055) in 1998, NLG 4,209 (service cost NLG 666 and interest cost NLG 3,543)
in 1997, and NLG 1,480 (service cost NLG 221 and interest cost NLG 1,259) in
1996. Royal Ahold's postretirement benefits are not funded. The accrued
postretirement benefit cost at January 3, 1999 and December 28, 1997 was NLG
46,351 and NLG 49,075, respectively.
The assumed health care cost trend used in measuring the accumulated
postretirement benefit obligation was 9% and 10.0% (7.5% and 7.0% for post-65
coverage) in 1998 and 1997, respectively, grading down to 5.5% over 8 years. A
1% increase in the assumed health care cost trend would increase the
accumulated postretirement benefit obligation by 3% and the service and
interest costs by 6% both in 1998 and 1997. The assumed discount rate used in
determining the accumulated postretirement benefit obligation was 6.75% and
7.5% in 1998 and 1997, respectively.
67
<PAGE>
Note 19 Business segment information
Ahold operates principally in one business segment, the retail sale of food
and related non-food products. All Dutch specialty retailers, which are not
individually or in the aggregate a separately identifiable segment, are
included under "Food Retailing" together with the Albert Heijn supermarket
chain in the Netherlands. Information regarding food wholesaling and real
estate operations are also separately disclosed. Royal Ahold's other
activities do not individually constitute a separately reportable industry
segment.
<TABLE>
<CAPTION>
fiscal year fiscal year fiscal year
1998 1997 1996
<S> <C> <C> <C>
Net Sales (including intersegment)
Food retailing 54,988,058 47,109,535 33,271,450
Food wholesaling 4,639,857 4,247,924 3,831,550
Real estate 554,748 464,097 433,962
Other activities 609,704 563,698 548,501
Intersegment sales (2,428,849) (1,816,773) (1,547,368)
---------- ---------- ----------
58,363,518 50,568,481 36,538,095
========== ========== ==========
Net Sales
Food retailing 53,579,052 46,194,879 32,616,104
Food wholesaling 4,584,248 4,198,848 3,788,513
Real estate 118,584 101,442 92,696
Other activities 81,634 73,312 40,782
---------- ---------- ----------
58,363,518 50,568,481 36,538,095
========== ========== ==========
Operating Results
Food retailing 2,108,966 1,679,731 1,113,437
Food wholesaling 89,812 81,732 64,274
Real estate 108,193 114,978 98,182
Other activities 22,854 31,731 20,434
Unallocated corporate costs (88,065) (71,342) (53,500)
---------- ---------- ----------
2,241,760 1,836,830 1,242,827
========== ========== ==========
Depreciation and amortization
Food retailing 1,382,884 1,095,853 747,304
Food wholesaling 38,844 39,910 34,499
Real estate 40,623 34,548 32,944
Other activities 18,062 16,554 15,828
Unallocated corporate costs 2,664 3,708 2,853
---------- ---------- ----------
1,483,077 1,190,573 833,428
========== ========== ==========
Purchases of tangible fixed assets
Food retailing 2,648,349 2,492,668 1,417,004
Food wholesaling 66,282 50,418 77,107
Real estate 173,804 146,355 87,217
Other activities 18,341 17,960 17,586
Unallocated corporate assets 1,051 3,716 2,894
---------- ---------- ----------
2,907,827 2,711,117 1,601,808
========== ========== ==========
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
January 3, December 28, December 29,
1999 1997 1996
<S> <C> <C> <C>
Identifiable Assets
Food retailing 22,267,390 16,455,599 12,639,990
Food wholesaling 813,935 832,962 733,421
Real Estate 1,268,932 1,229,218 1,127,526
Other activities 149,325 141,554 126,638
Unallocated corporate assets 680,831 179,897 242,372
---------- ---------- ----------
25,180,413 18,839,230 14,869,947
========== ========== ==========
Note 20Geographic segment information
Ahold's operations are conducted in five geographical areas: the
Netherlands, the United States, other European countries (Portugal, the
Czech Republic, Poland and Spain), Latin America (Brazil, Argentina,
Chile, Peru, Paraguay and Ecuador) and Asia Pacific (China, Malaysia,
Singapore and Thailand).
<CAPTION>
fiscal year fiscal year fiscal year
1998 1997 1996
<S> <C> <C> <C>
Net Sales (including
intersegment)
The Netherlands 17,915,254 16,796,602 15,820,775
United States 33,381,774 28,810,893 19,649,646
Other European Countries 3,928,701 3,230,866 2,559,147
Latin America 4,663,956 2,622,244 --
Asia Pacific 902,682 924,649 55,895
Intersegment sales (2,428,849) (1,816,773) (1,547,368)
---------- ---------- ----------
58,363,518 50,568,481 36,538,095
========== ========== ==========
Net Sales
The Netherlands 16,994,754 15,929,765 14,958,588
United States 31,974,362 27,893,718 18,987,950
Other European Countries 3,827,867 3,198,105 2,535,662
Latin America 4,663,956 2,622,244 --
Asia Pacific 902,579 924,649 55,895
---------- ---------- ----------
58,363,518 50,568,481 36,538,095
========== ========== ==========
Operating Results
The Netherlands 671,328 606,816 551,801
United States 1,408,128 1,120,399 599,613
Other European Countries 215,169 179,010 165,472
Latin America 138,476 80,500 --
Asia Pacific (103,276) (78,553) (20,559)
Unallocated corporate costs (88,065) (71,342) (53,500)
---------- ---------- ----------
2,241,760 1,836,830 1,242,827
========== ========== ==========
<CAPTION>
January 3, December 28, December 29,
1999 1997 1996
<S> <C> <C> <C>
Identifiable Assets
The Netherlands 4,224,250 4,529,189 3,905,811
United States 12,980,339 10,022,072 8,269,621
Other European Countries 2,590,213 2,012,747 1,492,173
Latin America 4,244,072 1,749,469 917,535
Asia Pacific 460,708 345,856 42,435
Corporate assets 680,831 179,897 242,372
---------- ---------- ----------
25,180,413 18,839,230 14,869,947
========== ========== ==========
</TABLE>
69
<PAGE>
Note 21Financial instruments
Ahold uses financial instruments to manage its foreign exchange transaction
exposure and interest rate exposure. Ahold is a multi-national company with a
substantial portion of its assets, liabilities and results denominated in
foreign currencies, primarily the U.S. Dollar. It is Royal Ahold's policy to
not hedge foreign exchange translation exposure. Derivative financial
instruments are principally used to manage transaction exposure from foreign
exchange and interest rate risk. Royal Ahold does not use these instruments
for trading purposes. Gains and losses from derivative financial instruments
are deferred and are recognized in the Statement of Earnings when the hedged
transactions occur.
Foreign exchange risk management
Ahold has entered into foreign exchange contracts with institutions of high
credit standing in order to manage its foreign exchange transaction exposure
from purchase commitments entered into in the normal course of business. The
purpose of Royal Ahold's foreign currency hedging activities is to minimize
the effects of changes in exchange rates from transactions that are
denominated in a currency other than the currency of trading. At January 3,
1999, Ahold had 14 open foreign exchange contracts and two option contracts
for notional amounts of $3.25 million and $3.25 million, respectively, related
to purchase commitments denominated in U.S. Dollars. Such contracts expire
through January and February 1999. These instruments had a negligible fair
value at year end 1998 and any eventual gain or loss will be recognized as
part of the purchase transaction.
Interest rate risk management
Royal Ahold may hedge its interest rate risks through the use of derivatives.
All interest rate hedging activities relate to existing outstanding debt.
These agreements have been entered into with institutions of high credit
standing. The notional amounts of such agreements are used to measure interest
to be paid or received and do not represent the amount of exposure to credit
loss.
Interest rate swaps
Ahold has agreements to exchange, at specified intervals, the difference
between fixed-rate and floating-rate interest amounts calculated by reference
to an agreed notional principal amount. Royal Ahold has not entered into any
cross-currency interest rate swaps.
At January 3, 1999, Royal Ahold had 14 swaps outstanding with total notional
amounts of NLG 1,170 million and $700 million (NLG 1,215 million and $900
million at December 28, 1997). These swap contracts expire between 1999 and
2005. The seven Guilder receive-fix swaps had an average receive rate of 7.16%
and an average pay rate of 3.37% at January 3, 1999. The two pay-fix Guilder
contracts had an average pay rate of 7.84% and an average receive rate of
3.30% at January 3, 1999. The four pay-fix U.S. Dollar swaps with a notional
amount of $500 million (which fix Ahold's floating rate debt drawn under the
$1 billion 7-year Multi Currency Revolving Credit Facility) had an average pay
rate of 5.81% and an average receive rate 5.07% at January 3, 1999. The
remaining one pay-fix swap contracts with a notional amount of $200 million
will start in 2000 and will have a pay-fix rate of 6.73%; the receive rate of
these contracts is based on LIBOR and will be determined at the start date of
the swaps.
Interest rate options and cap agreements
Interest rate options and cap agreements are used to reduce the potential
impact of increases in interest rates on floating-rate long-term debt. At
January 3, 1999, Royal Ahold had no interest rate caps or floors outstanding.
The notional amount of interest rate floors and interest rate caps was NLG 210
million at December 28, 1997. The carrying amount of these agreements at
December 28, 1997 of NLG 101 represents the unamortized premiums paid for the
contracts. Royal Ahold's interest rate option contracts had terms lasting up
until 1999. The cap agreements entitle Royal Ahold to receive from the
counterparties (major banks) the amounts, if any, by which Royal Ahold's
interest payments exceed on average 7.0%.
70
<PAGE>
Fair value of financial instruments
The following table presents the carrying amounts and fair values of Royal
Ahold's financial instruments:
<TABLE>
<CAPTION>
January 3, 1999 December 28, 1997
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Assets
Investment in unconsolidated
subsidiaries and affiliates 271,560 -- 186,289 --
Liabilities
Borrowings (7,299,859) (7,810,121) (4,354,175) (4,570,531)
Derivative financial
instruments
Interest rate swap agreements 0 20,907 0 39,523
Interest rate options and cap
agreements -- -- 101 (226)
</TABLE>
The carrying amount of cash and cash equivalents, receivables and loans
payable are a reasonable estimate of their fair value. The market value for
the investments in unconsolidated subsidiaries and affiliates has not been
determined.
The fair value of long-term debt is estimated using discounted cash flow
analysis based on interest rates from similar types of borrowing arrangements
or at quoted market prices, if applicable.
The fair value of interest rate swaps is the amount at which they could be
settled, based on estimates obtained from dealers. The fair value of interest
rate options and cap agreements is estimated using option pricing models and
essentially values the potential for the caps to become in-the-money through
changes in interest rates during the remaining terms. Royal Ahold is exposed
to credit-related losses in the event of nonperformance by the counterparties.
Royal Ahold anticipates, however, that the counterparties will be able to
fully satisfy their obligations under the contracts. Royal Ahold has no
concentration of credit risk.
Note 22Subsequent events
Royal Ahold established a 50% joint venture, Ahold & Allkauf Polen, with the
German retailer Allkauf-Gruppe in 1995 to develop retail operations in Poland.
In January 1999, Ahold purchased Allkauf-Gruppe's share of the joint venture.
In January 1999, Royal Ahold expanded its operations in Spain, acquiring
Dialco S.A., Dumaya, Castillo del Barrio and Guerrero S.A., four prominent
supermarket companies operating a total of 160 stores in southern Spain, with
total sales of approximately NLG 760 million in 1998.
Additionally, in March 1999, Royal Ahold announced that it had agreed to
acquire SMG-II Holding Corporation, which owns Pathmark Stores, Inc. Pathmark
operated 132 stores at the end of 1998, with 1998 sales of $3.7 billion. The
acquisition is subject to a number of conditions, including obtaining
necessary U.S. federal and state antitrust approvals. Ahold expects to
complete the transaction in the second half of 1999.
Note 23 Reconciliation of individual material variations in net earnings, net
earnings per Common Share and stockholders' equity according to U.S.
GAAP
The consolidated financial statements prepared in accordance with Dutch GAAP
differ in certain material respects from consolidated financial statements
prepared in accordance with U.S. GAAP. Such differences with respect to Ahold
are discussed below.
Goodwill
In accordance with Dutch GAAP, Ahold deducts the amount of goodwill included
in the price of acquired companies from stockholders' equity (and minority
interest when applicable) in the year of acquisition. Under U.S. GAAP,
goodwill is
71
<PAGE>
capitalized and amortized. For U.S. GAAP purposes, an amortization period of
40 years has been used. For U.S. GAAP purposes, the disposal or termination of
certain businesses resulted in a write-off of goodwill of NLG 5,218 in 1998,
NLG 60,066 in 1997 and nil in 1996.
Royal Ahold continually monitors events and changes in circumstances that
could indicate carrying amounts of intangible assets may not be recoverable.
When events or changes in circumstances are present that indicate the carrying
amount of intangible assets may not be recoverable, Royal Ahold assesses the
recoverability of intangible assets by determining whether the carrying
amounts of such intangible assets will be fully recovered through undiscounted
expected cash flows.
Pensions
Under Dutch GAAP, pension cost with respect to the Dutch plans was calculated
in accordance with required methodology. Under U.S. GAAP, pension cost for
Dutch employees should be calculated in accordance with SFAS 87.
Revaluation of real estate
Under Dutch GAAP, the assets of Ahold Vastgoed B.V. were revalued in 1988. The
resulting unrealized gain was added to the revaluation reserve, which is part
of stockholders' equity. Upon selling revalued real estate, the relevant part
of the revaluation reserve is considered realized and transferred to the
Statement of Earnings. The revaluation amount is depreciated over the life of
the related asset. Such one-time revaluations are not allowed under U.S. GAAP.
Settlement of cross-participations
As part of unwinding the strategic alliance between Ahold, Argyll and Casino,
the cross-participations between Ahold and these companies were settled in
1996. The negative result of this settlement amounting to NLG 33 million was
charged directly to stockholders' equity. Under U.S. GAAP, such amount is
required to be recognized in the statement of earnings.
Reorganization costs
As a direct result of the acquisition of Giant Landover and Stop & Shop, Ahold
has recorded costs for necessary reorganizations of its U.S. operations, which
were included in the determination of the goodwill paid. Under U.S. GAAP,
certain of these reorganization costs were required to be charged to the
statement of earnings.
Other provisions
Under Dutch GAAP, provisions can be recorded for events relating to the
current year and for which the costs involved can be reasonably estimated.
Under U.S. GAAP, recognition of certain of these costs is subject to more
stringent rules and should be recognized when actually incurred.
Proposed dividends on common shares
Under Dutch GAAP, the proposed final dividend on common shares to be approved
by the general meeting of shareholders is recorded in "Other current
liabilities." Under U.S. GAAP, this amount should be classified as part of
stockholders' equity, until approved.
Earnings per Share
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS 128") simplifies the computation, presentation and disclosure
requirements for earnings per share. The objective of SFAS 128 is to present
"basic" earnings per share and "diluted" earnings per share on a basis more
consistent with that of the International Accounting Standards Committee. The
computation of diluted net earnings per Common Share include common stock
equivalents related to Ahold's stock option plans. Common stock equivalents
included in the computation of diluted net earnings per Common Share were
6,748,000, 6,953,000 and 5,048,000 in 1998, 1997 and 1996, respectively. Anti-
dilutive options, reflecting an exercise price greater than the average market
price of the common shares, were not significant in 1998, 1997 and 1996.
Additionally, the diluted net earnings computation for 1998 takes into
consideration the potential dilutive effect of the conversion of the 3%
convertible subordinated notes.
New accounting pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments and requires that all
derivatives be recognized as either assets or liabilities in the statements of
financial position. This pronouncement will become effective for Royal Ahold
for the year ending December 31, 2000. Royal Ahold has not yet completed its
analysis of the effect of this new standard.
72
<PAGE>
Reconciliation of reported net earnings to U.S. GAAP
<TABLE>
<CAPTION>
fiscal year fiscal year fiscal year
1998 1997 1996
<S> <C> <C> <C>
Net earnings in accordance with Dutch
GAAP 1,205,867 933,830 632,425
Items having the effect of increasing
(decreasing) reported net earnings
Goodwill (211,766) (221,797) (80,234)
Pensions (23,963) (61,256) 17,679
Revaluation of real estate 6,005 6,518 6,565
Settlement of cross-shareholding
investments -- -- (33,496)
Reorganization costs (16,258) (43,832) (80,903)
Other provisions (120,179) 95,487 50,000
Income taxes 36,325 3,481 4,478
--------- -------- -------
Approximate net earnings in accordance
with U.S. GAAP 876,031 712,431 516,514
Dividends on Cumulative Preferred
Financing Shares (21,871) (18,348) (9,476)
--------- -------- -------
Approximate net earnings in accordance
with U.S. GAAP applicable to common
shares 854,160 694,083 507,038
========= ======== =======
</TABLE>
Computation of net earnings per Common Share in accordance with U.S. GAAP
<TABLE>
<CAPTION>
fiscal year fiscal year fiscal year
1998 1997 1996
<S> <C> <C> <C>
Approximate net earnings in accordance
with U.S. GAAP applicable to common
shares 854,160 694,083 507,038
Weighted average number of common shares
outstanding (x 1,000) 575,702 527,536 449,826
Approximate basic net earnings per Common
Share in accordance with U.S. GAAP (NLG) 1.48 1.32 1.13
Approximate diluted net earnings per
Common Share in accordance with U.S. GAAP
(NLG) 1.47 1.30 1.11
</TABLE>
Had compensation cost for Royal Ahold's stock option plans described in Note
15 to the consolidated financial statements been determined consistent with
SFAS 123 in 1998, 1997 and 1996, approximate pro forma net earnings would have
been NLG 832,839, NLG 692,019 and NLG 490,282, respectively, and approximate
diluted net earnings per Common Share would have been NLG 1.42, NLG 1.29 and
NLG 1.08, respectively.
Reconciliation of reported stockholders' equity to U.S. GAAP
<TABLE>
<CAPTION>
January 3, December 28,
1999 1997
<S> <C> <C>
Stockholders' equity in accordance with Dutch GAAP 3,421,817 3,089,056
Items having the effect of increasing (decreasing)
reported stockholders' equity (net of tax, as
applicable)
Goodwill 10,740,068 6,076,291
Pensions 122,102 137,678
Revaluation of real estate (74,606) (86,997)
Proposed dividend on common shares 376,858 271,757
Other 72,834 105,455
---------- ---------
Approximate stockholders' equity in accordance with
U.S. GAAP 14,659,073 9,593,240
========== =========
</TABLE>
73
<PAGE>
Condensed consolidated financial statements prepared under U.S. GAAP
The following presents Royal Ahold's condensed Consolidated Balance Sheets,
Consolidated Statements of Earnings and Consolidated Statements of Cash Flows
prepared in accordance with U.S. GAAP considering all the items discussed
previously in this note.
Condensed Consolidated Statements of Earnings
<TABLE>
<CAPTION>
(NLG thousands) fiscal year fiscal year fiscal year
1998 1997 1996
<S> <C> <C> <C>
Net sales 58,363,518 50,568,481 36,538,095
Cost of sales (44,724,310) (39,022,328) (28,610,392)
----------- ----------- -----------
Gross profit 13,639,208 11,546,153 7,927,703
Selling, general and administrative
expenses (11,792,463) (9,942,517) (6,810,882)
----------- ----------- -----------
Operating results 1,846,745 1,603,636 1,116,821
Net financial expense (515,434) (473,858) (318,447)
----------- ----------- -----------
Operating earnings before income taxes
and minority interests 1,331,311 1,129,778 798,374
Income taxes (397,971) (378,906) (244,362)
----------- ----------- -----------
Operating earnings after income taxes
and before minority interests 933,340 750,872 554,012
Minority interests (57,309) (38,441) (37,498)
----------- ----------- -----------
Net earnings 876,031 712,431 516,514
Dividends on cumulative preferred
financing shares (21,871) (18,348) (9,476)
----------- ----------- -----------
Net earnings applicable to common
shares 854,160 694,083 507,038
=========== =========== ===========
</TABLE>
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(NLG thousands) January 3, December 28,
1999 1997
<S> <C> <C>
Assets
Current assets 9,057,191 6,566,992
Fixed assets
Tangible fixed assets 14,752,777 10,938,889
Intangible assets 12,262,134 6,810,763
Other 1,212,500 1,190,354
---------- ----------
28,227,411 18,940,006
---------- ----------
37,284,602 25,506,998
========== ==========
Liabilities and stockholders' equity
Current liabilities 9,638,095 7,561,347
Long-term liabilities 11,277,634 7,489,563
Minority interests 1,709,800 862,848
Stockholders' equity 14,659,073 9,593,240
---------- ----------
37,284,602 25,506,998
========== ==========
</TABLE>
74
<PAGE>
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(NLG thousands) fiscal year fiscal year fiscal year
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings 876,031 712,431 516,514
Adjustments to reconcile to net cash
from operating activities
Depreciation and amortization 1,717,692 1,414,166 912,714
Other 42,263 42,028 41,270
Changes in assets and liabilities
providing (using) cash 85,680 (164,913) (436,399)
---------- ---------- ----------
Net cash provided by operating
activities 2,721,666 2,003,712 1,034,099
Cash flows from investing activities
Net investments in fixed assets (2,649,574) (2,461,359) (1,166,001)
Acquisitions of businesses (net of cash
acquired) (6,654,712) (272,842) (3,329,101)
Other 46,950 7,696 245,629
---------- ---------- ----------
Net cash used in investing activities (9,257,336) (2,726,505) (4,249,473)
Cash flows from financing activities
Net change in short-term and long-term
borrowings 649,372 373,656 (68,406)
Net proceeds from issuance of common
stock 4,888,093 56,094 3,256,300
Net proceeds from issuance of preferred
stock 160,947 -- 247,614
Net proceeds from issuance of
convertible subordinated notes 1,495,000 -- --
Other 116,139 234,363 (4,893)
---------- ---------- ----------
Net cash provided by (used in)
financing activities 7,309,551 664,113 3,430,615
Exchange rate differences (283,991) (746) (24,689)
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents 489,890 (59,426) 190,552
Cash and cash equivalents at beginning
of the year 654,706 714,132 523,580
---------- ---------- ----------
Cash and cash equivalents at end of the
year 1,144,596 654,706 714,132
========== ========== ==========
</TABLE>
75
<PAGE>
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
List of Financial Statements
Reference is made to Item 18 of this Annual Report which contains the
independent auditors report, the accounting principles used, the
financial statements and the notes to the financial statements as well
as an index thereof.
List of Exhibits
<TABLE>
<C> <S>
1 Articles of Association of Royal Ahold as amended as of June 22, 1998
(incorporated by reference to Exhibit 4 to Royal Ahold's Report on
Form 6-K, dated June 23, 1998).
2(a) Form of Deposit Agreement dated January 20, 1998 among Koninklijke
Ahold N.V., The Bank of New York, as Depositary, and holders and
beneficial owners from time to time of American Depositary Receipts
issued thereunder (incorporated by reference to Royal Ahold's
Registration Statement No. 333-8222 on Form F-6).
2(b) Amended and Restated U.S. $1,000,000,000 Multicurrency Revolving
Facility Agreement, dated December 18, 1996, and amended and restated
September 7, 1998, between Koninklijke Ahold N.V., Ahold U.S.A.,
Inc., ABN AMRO Bank N.V., Chase Investment Bank Limited and J. P.
Morgan Securities Ltd. as Arrangers, The Chase Manhattan Bank as
Facility, Swing-Line, Letter of Credit and Short Term Advances Agent,
Chase Manhattan International Limited as Multicurrency Facility Agent
and certain financial institutions named therein (incorporated by
reference to Exhibit (b)(1) to Royal Ahold's Tender Offer Statement
on Schedule 14D-1 filed on March 15, 1999 with respect to
Supermarkets General Holdings Corporation).
2(c) In reliance upon the instructions to Form 20-F, various instruments
defining the rights of holders of long-term debt of Royal Ahold are
not being filed herewith because the total amount of securities
authorized under each such instrument does not exceed 10% of the
total consolidated assets of Royal Ahold. Royal Ahold hereby agrees
to furnish a copy of any such instruments to the Securities and
Exchange Commission upon request.
3(a) Stock Purchase Agreement, dated as of May 19, 1998, between
Koninklijke Ahold N.V. and The 1224 Corporation (incorporated by
reference to Exhibit (c)(3) to Royal Ahold's Tender Offer Statement
on Schedule 14D-1 filed on May 19, 1998 with respect to Giant Food
Inc.).
3(b) Stock Purchase Agreement, dated as of May 27, 1998 among Koninklijke
Ahold N.V., J Sainsbury plc and JS Mass Securities Corp.
(incorporated by reference to Exhibit (c)(4) to Royal Ahold's Tender
Offer Statement on Schedule 14D-1 with respect to Giant Food Inc.).
23 Independent Auditors' Consent.
</TABLE>
76
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, Royal Ahold certifies that it meets all of the requirements for filing on
Form 20-F and has duly caused this Annual Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Koninklijke Ahold N.V.
Cees H. van der Hoeven
President of the Corporate
Executive Board
April 12, 1999
77
<PAGE>
KONINKLIJKE AHOLD N.V.
ANNUAL REPORT ON FORM 20-F
Index of Exhibits
<TABLE>
<C> <S>
1 Articles of Association of Royal Ahold as amended as of June 22, 1998
(incorporated by reference to Exhibit 4 to Royal Ahold's Report on Form
6-K, dated June 23, 1998).
2(a) Form of Deposit Agreement dated January 20, 1998 among Koninklijke Ahold
N.V., The Bank of New York, as Depositary, and holders and beneficial
owners from time to time of American Depositary Receipts issued
thereunder (incorporated by reference to Royal Ahold's Registration
Statement No. 333-8222 on Form F-6).
2(b) Amended and Restated U.S. $1,000,000,000 Multicurrency Revolving Facility
Agreement, dated December 18, 1996, and amended and restated September 7,
1998, between Koninklijke Ahold N.V., Ahold U.S.A., Inc., ABN AMRO Bank
N.V., Chase Investment Bank Limited and J. P. Morgan Securities Ltd. as
Arrangers, The Chase Manhattan Bank as Facility, Swing-Line, Letter of
Credit and Short Term Advances Agent, Chase Manhattan International
Limited as Multicurrency Facility Agent and certain financial
institutions named therein (incorporated by reference to Exhibit (b)(1)
to Royal Ahold's Tender Offer Statement on Schedule 14D-1 filed on March
15, 1999 with respect to Supermarkets General Holdings Corporation).
2(c) In reliance upon the instructions to Form 20-F, various instruments
defining the rights of holders of long-term debt of Royal Ahold are not
being filed herewith because the total amount of securities authorized
under each such instrument does not exceed 10% of the total assets of
Royal Ahold. Royal Ahold hereby agrees to furnish a copy of any such
instrument to the Securities and Exchange Commission upon request.
3(a) Stock Purchase Agreement, dated as of May 19, 1998, between Koninklijke
Ahold N.V. and The 1224 Corporation (incorporated by reference to Exhibit
(c)(3) to Royal Ahold's Tender Offer Statement on Schedule 14D-1 filed on
May 19, 1998 with respect to Giant Food Inc.).
3(b) Stock Purchase Agreement, dated as of May 27, 1998 among Koninklijke
Ahold N.V., J Sainsbury plc and JS Mass Securities Corp. (incorporated by
reference to Exhibit (c)(4) to Royal Ahold's Tender Offer Statement on
Schedule 14D-1 filed on May 19, 1998 with respect to Giant Food Inc.).
23 Independent Auditors' Consent.
</TABLE>
1
<PAGE>
EXHIBIT 23
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statements Nos.
33-40935, 33-41068, 333-9774 and 333-10044 of Koninklijke Ahold N.V. on Form
S-8 and in Registration Statements Nos. 333-8832, 333-9376 and 333-71383 of
Koninklijke Ahold N.V. on Form F-3 of our report dated March 9, 1999 appearing
in this Annual Report on Form 20-F of Koninklijke Ahold N.V. for the year
ended January 3, 1999.
Deloitte & Touche
Registeraccountants
April 12, 1999
Amsterdam, The Netherlands
1
