Notes to the consolidated financial statements
136
34 Commitments and contingencies
Capital investment commitments
Purchase commitments
Contingent liabilities
Ahold at a glance
Business review
Governance
Financials
Ahold
Annual Report 2015
As of January 3, 2016, Ahold had outstanding capital investment commitments for property, plant and equipment and investment property, and for intangible assets of approximately €228 million and €9 million, respectively
(December 28, 2014: €119 million and €8 million, respectively). Ahold's share in the capital investment commitments of its unconsolidated joint venture JMR amounted to €5 million as of January 3, 2016 (December 28,
2014: €6 million).
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 January 3, 2016, the Company's purchase commitments were approximately €821 million (December 28, 2014: €859 million). 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.
Guarantees
Guarantees to third parties issued by Ahold can be summarized as follows:
January 3,
December 28,
million
2016
2014
Lease guarantees
495
499
Lease guarantees backed by letters of credit
68
68
Corporate and buyback guarantees
36
34
Total 599 601
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 $73 million (€68 million) as of January 3, 2016
(2014: $83 million (€68 million)).
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 €495 million in the undiscounted lease guarantees, €223 million relates
to the BI-LO Bruno's divestment and €169 million to the Tops divestment. On a discounted basis the lease guarantees amount to €437 million and €434 million as of January 3, 2016, and December 28, 2014, respectively.
On February 5, 2009, and March 23, 2009, Bruno's Supermarkets, LLC and BI-LO, LLC, respectively, fled for protection under Chapter 11 of the U.S. Bankruptcy Code (the flings). As a result of the flings, 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 €109 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 16 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.
