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34 Commitments and contingencies (continued)
Our strategy
Our performance
Governan
Financials
Investors
Ahold Annual Report 2013
Purchase commitments
Ahold enters into purchase commitments with vendors in the ordinary course of business. Ahold has purchase contracts with some vendors for varying terms that require Ahold to buy services
and predetermined volumes of goods and goods not-for-resale at fixed prices. As of December 29, 2013, the Company's purchase commitments were approximately €1,220 million
(December 30, 2012: €1,509 million). The decrease in 2013 is primarily due to the expiry of a single purchase commitment with a three-year term. Not included in the purchase commitments
are those purchase contracts for which Ahold has received advance vendor allowances, such as up-front signing payments in consideration of its purchase commitments. These contracts
generally may be terminated without satisfying the purchase commitments upon the repayment of the unearned portions of the advance vendor allowances. The unearned portion of these
advance vendor allowances is recorded as a liability on the balance sheet.
Contingent liabilities
Guarantees
Guarantees to third parties issued by Ahold can be summarized as follows:
December 29,
December 30,
million
2013
2012
Lease guarantees
491
579
Lease guarantees backed by letters of credit 67 78
Corporate and buyback guarantees 46 52
Loan guarantees 3 5
Total 607 714
The amounts included in the table above are the maximum undiscounted amounts the Group could be forced to settle under the arrangement for the full guaranteed amount, if that amount
is claimed by the counterparty to the guarantee. As part of the divestment of U.S. Foodservice in 2007, Ahold received an irrevocable standby letter of credit for $216 million (€163 million),
which was reduced to $93 million (€67 million) as of December 29, 2013.
Ahold is contingently liable for leases that have been assigned to third parties in connection with facility closings and asset disposals. Ahold could be required to assume the financial obligations
under these leases if any of the assignees are unable to fulfill their lease obligations. The lease guarantees are based on the nominal value of future minimum lease payments of the assigned
leases, which extend through 2040. The amounts of the lease guarantees exclude the cost of common area maintenance and real estate taxes; such amounts may vary in time, per region, and
per property. Of the €491 million in the undiscounted lease guarantees, €229 million relates to the BI-LO Bruno's divestment and €175 million to the Tops divestment. On a discounted
basis the total lease guarantees amount to €424 million and €485 million as of December 29, 2013, and December 30, 2012, respectively.
On February 5, 2009, and March 23, 2009, Bruno's Supermarkets, LLC and BI-LO, LLC, respectively, filed for protection under Chapter 1 1 of the U.S. Bankruptcy Code (the filings). As a
result of the filings, Ahold has made an assessment of its potential obligations under the lease guarantees based upon the remaining initial term of each lease, an assessment of the possibility
that Ahold would have to pay under a guarantee and any potential remedies that Ahold may have to limit future lease payments. Consequently, in 2009, Ahold recognized provisions of
€1 09 million and related tax benefit offsets of €47 million within results on divestments.
On May 12, 2010, the reorganized BI-LO exited bankruptcy protection and BI-LO assumed 149 operating locations that are guaranteed by Ahold. During the BI-LO bankruptcy, BI-LO
rejected a total of 1 6 leases which are guaranteed by Ahold and Ahold also took assignment of 12 other BI-LO leases with Ahold guarantees. Based on the foregoing developments, Ahold
recognized a reduction of €23 million in its provision, after tax, within results on divestments in the first half of 2010. Since the end of the second quarter of 2010, Ahold has entered into
settlements with a number of landlords relating to leases of former BI-LO or Bruno's stores that are guaranteed by Ahold.
At the end of 2013, the remaining provision relating to BI-LO and Bruno's was €25 million (2012: €35 million) with a related tax benefit offset of €11 million (2012: €15 million). This amount
represents Ahold's best estimate of the discounted aggregate amount of the remaining lease obligations and associated charges, net of known mitigation offsets, which could result in cash
outflows for Ahold under the various lease guarantees. Ahold continues to pursue its mitigation efforts with respect to these lease guarantee liabilities and to closely monitor any developments
with respect to Bruno's and BI-LO.
