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How we manage risk - continued
Compliance and regulatory risks
Governance
Other financial risks:
Foreign currency translation risk arising from various currency exposures, primarily
with respect to the U.S. dollar, relating to cash flows, including lease payment
obligations, dividends and firm purchase commitments and assets and liabilities
denominated in foreign currencies;
Credit risk related to cash and cash equivalents, short-term deposits and derivative
financial instruments;
Interest rate risk, arising primarily from debt.
For further information in respect of these financial risks, see Note 30 to the consolidated
financial statements, which are incorporated and repeated here by reference.
Risks related to unforeseen tax liabilities
Because Ahold operates in a number of countries, its income is subject to taxation
in differing jurisdictions and at differing tax rates. Significant judgment is required in
determining the consolidated income tax position. Ahold seeks to organize its affairs
in a tax-efficient and balanced manner, taking into account the applicable regulations
of the jurisdictions in which it operates. As a result of Ahold's multi-jurisdictional
operations, it is exposed to a number of different tax risks including, but not limited
to, changes in tax laws or interpretations of such tax laws. The tax authorities in the
jurisdictions where Ahold operates may audit the Company's tax returns and may disagree
with the positions taken in those returns. An adverse outcome resulting from any
settlement or future examination of the Company's tax returns may result in additional
tax liabilities and may adversely affect its effective tax rate, which could have a material
adverse effect on Ahold's financial position, results of operations and liquidity. In addition,
any examination by the tax authorities could cause Ahold to incur significant legal
expenses and divert management's attention from the operation of its business.
Risks related to the legislative and regulatory environment and litigation
Ahold is subject to federal, regional, state and local laws and regulations in each country
in which it operates relating to, among others, zoning, land use, antitrust restrictions, work
place safety, public health including food safety, environmental protection, community
right-to-know, alcoholic beverage sales and pharmaceutical sales. A number of
jurisdictions regulate the licensing of supermarkets, which may entail the restriction or
prohibition of certain business operations. Employers are also subject to laws governing
their relationship with associates, including but not limited to minimum wage, overtime,
working conditions, health care, disabled access and work permit requirements.
Compliance with, or changes in, these laws could reduce the revenues and profitability
of Ahold's stores and could affect its business, financial condition or results of operations.
Ahold is subject to a variety of antitrust and similar laws and regulations in the jurisdictions
in which it operates. In a number of markets, Ahold has market positions that may
make future significant acquisitions more difficult and may limit its ability to expand by
acquisition or merger, if it wished to do so. Due to the wider scope of activity of various
regulatory and governing bodies, and the litigious environment that Ahold may experience
in the markets in which it operates, litigation may increase in frequency and materiality.
