45
Financial risks
Ahold
Annual Report 2011
Groupata glance
Performance
(Governance
Financials
Investors
How we manage risk continued
Risk related to the euro
This risk relates to the current euro crisis, which could potentially result in certain member states
exiting the euro group or (less likely) the total collapse of the euro. The crisis is already resulting
in a slowing of global growth and potential recession. A total break up or an exit of certain
member states could lead to a depression with high negative GDP, mass unemployment, and
high volatility of currencies. For Ahold specifically this could lead to consumers becoming more
price-sensitive and reducing their spending. A collapse of the European banking system as a
result of a euro break-up could disrupt our ability to channel liquidity to our employees and
suppliers. A project group has been installed to analyze and monitor potential effects of the euro
crisis for Ahold and to propose mitigating actions to deal with risks associated with our worst case
scenario; a complete break-up of the euro zone. A return to operating in a European business
environment of multiple currencies would result in increased management time and cost and
increased complexity in terms of accounting reporting, procurement, and store operations.
Risks related to contingent liabilities associated with lease guarantees
Following the divestment of subsidiary businesses, such as BI-LO Bruno's and Tops, and the
closure of certain other facilities, Ahold has retained contingent liabilities to third parties relating to
lease guarantees it has issued. Ahold may face potential financial liability in the event that some
of these divested businesses or their successors fail to perform their financial or other obligations
under these leases which could have a material adverse effect on Ahold's financial position,
results of operations, and liquidity. For further information, see Note 34 to the consolidated
financial statements.
Risks associated with insurance programs
Ahold manages its insurable risks through a combination of self-insurance and commercial
insurance coverage. Our U.S. operations are self-insured for workers' compensation, general
liability, vehicle accident, and certain health care-related claims. Self-insurance liabilities are
estimated based on actuarial valuations. While we believe that the actuarial estimates are
reasonable, they are subject to changes caused by claim reporting patterns, claim settlement
patterns, regulatory economic conditions and adverse litigation results. It is possible that the final
resolution of some claims may require us to make significant expenditures in excess of our
existing reserves. In addition, third-party insurance companies that provide the fronting insurance
that is part of our self-insurance programs require us to provide certain collateral. We take
measures to assess and monitor the financial strength and credit-worthiness of the commercial
insurers from whom we purchase insurance. However, we remain exposed to a degree of
counterparty credit risk with respect to such insurers. If conditions of economic distress were to
cause the liquidity or solvency of our counterparties to deteriorate, we may not be able to recover
collateral funds or be indemnified from the insurer in accordance with the terms and conditions of
our policies.
Risks related to health care and pension funding requirements
Ahold has a number of defined benefit pension plans covering a large number of its employees
in the Netherlands and in the United States. Decreased equity returns and decreases in interest
rates negatively affect Ahold's pension funds, which may lead to higher pension charges and
contributions payable. In addition, a significant number of union employees in the United States
are covered by multi-employer plans. The unfunded portion of the liabilities of these plans may
result in increased future payments by Ahold and the other participating employers. Ahold's risk
of such increased contributions may be greater if any of the participating employers in an
underfunded multi-employer plan withdraws from the plan due to insolvency and is not able to
contribute an amount sufficient to fund the unfunded liabilities associated with its participants of
the plan. For additional information, see Note 23 to the consolidated financial statements. If Ahold
is unable at any time to meet any required funding obligations for some of its U.S. pension plans,
or if the Pension Benefit Guaranty Corporation (the PBGC), as the insurer of certain U.S. plan
benefits, concludes that its risk may increase unreasonably if the plans continue, the PBGC could
terminate the plans and place liens on material amounts of the Company's assets, under the U.S.
Employee Retirement Income Security Act of 1974 (ERISA).
