Ahold scandal may yet drop another shoe: a wooden one


LEDGER, LEDGER on the desk. Which Ahold books are most grotesque?

U.S. Foodservice boss James Miller seems to think there's something rotten in Zaandam. In a letter to customers last week, Miller said the resignations of two top Royal Ahold NV executives "had nothing to do with our company" and were "the result of events that occurred outside the United States."

A huge seller of edibles to restaurants, schools and prisons, U.S. Foodservice has been owned by grocery mammoth Ahold since 2000 and was the source of $500 million in "overstated" Ahold earnings, mostly for last year.

On the same day that Ahold admitted to broiling its books like a four-hour roast, it announced the decampment of Chief Executive Officer Cees van der Hoeven and Chief Financial Officer Michiel Meurs.

The profit pickle and executive egress did not seem like they had "nothing to do" with each other, and this week Ahold refused to endorse Miller's version of events.

"Mr. Miller's business is under investigation," an Ahold spokesman told the Financial Times, and Ahold "cannot stand by what [he] said to the largest customers of U.S. Foodservice."

Indeed, Ahold, based in Zaandam, Netherlands, has implied from the start that Columbia is ground zero in the shock that has pushed the company's U.S.-registered shares from $10 to $3.

Despite simultaneous irregularities in Ahold's Argentine stores and restated financial results for Ahold divisions in Brazil, Argentina, Scandinavia and Central America, the company blames U.S. Foodservice alone for the $500 million profit haircut.

Zaandam's rebuke to Columbia does not bode well for Miller's future at the division he founded in 1989. Executives below and above him have already been canned or suspended, and, although he has denied knowledge of accounting problems, he was the guy running the boiler when it blew.

But there is probably another shoe to drop in the Ahold scandal, and it could be made of wood. Miller's comments suggest something bigger at Ahold headquarters than has been revealed so far.

Ahold has said its Argentina investigation is complete and will not affect profit results. But a New York grand jury is conducting an inquiry described by Ahold in internal memos as "extremely broad" and stretching back to the beginning of 1999, before Ahold bought U.S. Foodservice, The Sun reported a few days ago.

On Monday the Netherlands' acting finance minister, Hans Hoogervorst, accused Ahold and Dutch stock market regulators of waiting too long to notify shareholders after the accounting problems were uncovered. Dutch investigations are under way as well as an inquiry by the U.S. Securities and Exchange Commission.

Ahold's trans-Atlantic blame game is more than just a sibling spat.

Hit with Europe's first large-scale accounting meltdown, Old World pundits have reassured themselves by assigning most of the fault to Ahold's U.S. partners and merely chiding Ahold for trusting the cowboys too much.

But even without U.S. Foodservice, Ahold is well acquainted with aggressive accounting, opaque reports, tempting performance bonuses and other American-style trappings. Indeed, the Ahold scandal has given ammunition to the new U.S. Public Company Accounting Oversight Board, which is trying to assert authority over European bookkeepers.

Ahold was one of the first European companies to offer U.S.-style stock options to managers, and its cash flow statements show a steadily rising tide of options exercises from 1996 to 2001. Options helped van der Hoeven make more than $3 million in 2001.

The Center for Financial Research and Analysis in Rockville raised questions about Ahold's accounting as early as 2001.

Specifically, CFRA noted that historically Ahold had treated goodwill - the gap between the book value and the paid price for acquisitions - much differently than other companies, substantially boosting its reported profit. Ahold says that in late 2000 it began taking an amortized goodwill expense against earnings, like most other companies did at the time.

CFRA also criticized Ahold for counting capital gains from real estate sales as operating income and for recording expenses for internally developed software as an asset on the balance sheet instead of a cost on the income statement.

While neither practice is illegal, Ahold's accounting concoctions seem to have shown an international flair. Crab cakes and spreadsheets with a side of stampot, anyone?

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