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How we manage risk (continued)
Responsible retailing
Insurance programs
Other financial risks
Unforeseen tax liabilities
Risks related to the legislative and
regulatory environment and litigation
Ahold at a glance I Business review I Governance I Financials I Investors
In addition to the principal risks and uncertainties
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. We have integrated
responsible retailing into our Reshaping Retail
strategy to ensure that it is part of our daily business.
For more information see Ahold's Responsible
Retailing Report 2015.
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, property, vehicle accident and certain
healthcare-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 sustainable 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 authorities in
the jurisdictions where Ahold operates may review
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 review by the authorities
could cause Ahold to incur significant legal expenses
and divert management's attention from the operation
of our business.
Ahold
Annual Report 2015
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; workplace 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 associates,
including but not limited to minimum wage, overtime,
working conditions, healthcare, 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 provisions 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.