How we manage risk (continued)
Compliance and regulatory
Ahold Annual Report 2012 57
Ahold at a glance
Our strategy
Our performance
Governance
Financials
Investors
In addition, U.S. healthcare costs have risen significantly in recent years
and this trend may continue. Ahold may be required to pay significantly
higher amounts to fund U.S. employee healthcare plans in the future.
Significant increases in healthcare and pension funding requirements
could have a material adverse effect on the Company's financial
position, results of operations and liquidity.
Other financial risks include:
Foreign currency translation risk arising from various currency
exposures, primarily with respect to the U.S. dollar, relating to cash
flows, including loan and interest payments, lease payments,
dividends and firm purchase commitments, and the value of assets
and liabilities denominated in foreign currency
Credit risk related to cash and cash equivalents, short-term deposits
and derivative financial instruments
Interest rate risk, arising primarily from debt
Contingent liabilities to third parties relating to lease guarantees
For further information relating to these financial risks, see Note 30
and Note 34 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. We seek to organize our affairs in a tax-efficient and
balanced manner, taking into account the applicable regulations of
the jurisdictions in which we operate. 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 and its businesses are subject to various federal, regional, state
and local laws and regulations in each country in which they operate,
relating to, among other areas: zoning; land use; antitrust restrictions;
work place safety; public health including food and non-food safety;
environmental protection; alcoholic beverage, tobacco and
pharmaceutical sales; and information security. Ahold and its
businesses are also subject to a variety of laws governing the
relationship with employees, including but not limited to minimum
wage, overtime, working conditions, health care, disabled access and
work permit requirements. The cost of compliance with, or changes in,
any of these laws could impact the operations and reduce the
profitability of Ahold or its businesses and thus could affect Ahold's
financial condition or results of operations. Ahold and its businesses
are also subject to a variety of antitrust and similar laws and
regulations in the jurisdictions in which they operate, which may impact
or limit Ahold's ability to realize certain acquisitions, divestments,
partnerships or mergers.
From time to time, Ahold and its businesses are parties to legal and
regulatory proceedings in a number of countries, including the United
States. Based on the prevailing regulatory environment or economic
conditions in the markets in which Ahold businesses operate, litigation
may increase in frequency and materiality. These legal and regulatory
proceedings may include matters involving personnel and employment
issues, personal injury, antitrust claims, contract claims and other
matters. We estimate our exposure to these legal proceedings and
establish accruals for the estimated liabilities where it is reasonably
possible to estimate and where the potential realization of a loss
contingency is more likely than not. The assessment of exposures and
ultimate outcomes of legal and regulatory proceedings involves
uncertainties. Adverse outcomes of these legal proceedings, or
changes in our assessments of proceedings, could potentially result in
material adverse effects on our financial results. For further
information, see Note 34 to the consolidated financial statements.
