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How we manage risk (continued)
Responsible retailing (S, O)
Insurance programs (F)
Other financial risks (F)
Unforeseen tax liabilities (C)
Risks related to the legislative and
regulatory environment and litigation (C)
Ahold at a glance
Business review
Governance
In addition to the principal risks and uncertainties
as linked to our strategy above, the Company has
risks in the following areas:
Increased regulatory demands, stakeholder
awareness and the growing sentiment that large
retailers must address sustainability issues across
the entire supply chain mean that Ahold's brands
and reputation may suffer if it does not adequately
address relevant corporate responsibility issues
affecting the food retail industry. Ahold has integrated
responsible retailing into its Reshaping Retail strategy
to ensure that responsible retailing is part of the
daily business. For more information see Ahold's
Responsible Retailing Report 2014.
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
which 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.
Other financial risks include foreign currency
translation risk, credit risk, interest rate risk, liquidity
risk and contingent liabilities to third parties relating
to lease guarantees.
For information relating to these financial risks,
see Note 30 and Note 34 to the consolidated
financial statements.
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.
Ahold
Annual Report 2014
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, franchise claims and other contract claims
and 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.