Contingent liabilities
Litigation
Representations, warranties and indemnities
In disposing of assets or businesses, we have provided in
the relevant sales agreements certain customary
representations and warranties including but not limited to,
completeness of books and records, title to assets, schedule
of material contracts and arrangements, litigation, permits,
labor matters and employee benefits and taxes. We also in
certain cases have agreed to indemnify the buyer against
certain risks. We are unable to estimate the potential
liability from such indemnities or claims relating to
representations and warranties because they relate to
unknown conditions. However, we have no reason to believe
that these uncertainties would have a material adverse
effect on our financial position, results of operations or
liquidity. For a more detailed discussion of such
representations, warranties and indemnities in connection
with our disposition of assets or businesses, see Note 35 to
our consolidated financial statements included in this
annual report.
Third-party leases
In connection with the spin-off of Bradlees Stores, Inc.
("Bradlees") in 1992, Stop Shop assigned to Bradlees
certain real property leases and guaranteed certain of such
leases under a Master Agreement and Guarantee, dated May
1, 1992 (the "Master Agreement"). In connection with the
Bradlees' bankruptcy in 2000, a number of the real property
leases assigned to Bradlees in 1992 were assumed and
assigned to third parties. Pursuant to applicable law, Stop
Shop may be contingently liable to landlords under certain
of these leases. For additional information with respect to
these leases, see Note 35 to our consolidated financial
statements included in this annual report.
We also are contingently liable for leases that have been
assigned to various third parties in connection with facility
closings and asset dispositions. We could be required to
assume leases if any of the assignees are unable to fulfill
their lease obligations. Since the assignments have been
made to numerous and different third parties and because
we have available various remedies, we believe the
likelihood that we will be required to assume a material
amount of these obligations is remote.
Insurance
U.S. Foodservice and our U.S. retail operating companies
are insured through our wholly owned, captive insurance
subsidiary, MollyAnna, for certain losses related to our self-
insurance and high deductible programs for general liability,
workers' compensation and commercial vehicle liability.
MollyAnna provides insurance policies to our operating
companies which have policy limits per occurrence of
USD 2 million for general liability, USD 5 million for workers'
compensation and USD 5 million for commercial vehicle
liability. The expected ultimate cost of claims is estimated
based upon analysis of historical data and actuarial
assumptions. Our future loss payments are therefore
inherently uncertain. We record a provision for this self-
insurance program on our balance sheets, which is
actuarially determined based on claims filed and an
estimate of claims incurred but not reported. See Note 25
to our consolidated financial statements included in this
annual report.
As a result of issues that were announced on February 24,
2003 and subsequently, we, some of our subsidiaries and
certain of our and their current and former directors, officers
and employees have been named in a number of civil
lawsuits and class actions.
In addition, we have indemnified the aforementioned
directors, officers and employees for expenses that they
have incurred as a result of the investigations and legal
proceedings discussed above. We expect to incur further
expenses to indemnify, advance to or reimburse such
persons for fines, liabilities, fees and expenses that they
may face as a result of related investigations and legal
proceedings.
We are a party to legal proceedings in connection with
certain Bradlees leases that we have guaranteed. In 2002,
the landlord made written demands to Stop Shop to pay
certain so-called "rental increases" allegedly due under the
Master Agreement in connection with certain leases. Stop
Shop disputes that it owes these amounts and instituted an
action seeking a declaration that it is not obligated to pay
the rental increases demanded by the landlord. We have not
recorded a liability for this matter because, based on the
information presently available to us, we cannot conclude
that a loss is probable.
We are also party to various other legal proceedings and
investigations relating to our businesses.
For a more detailed discussion of the various investigations
and legal proceedings in which we are involved, see "Risk
factors - Risks relating to pending investigations and legal
proceedings," and Note 35 to our consolidated financial
statements included in this annual report.
AHOLD ANNUAL REPORT 2005 79
