Albertsons 2014 Annual Report Download - page 24

Severe weather and natural disasters may harm the Company’s business.
Severe weather conditions such as hurricanes, earthquakes, floods, extended winter storms or tornadoes, as well as
other natural disasters, in areas in which the Company has stores or distribution facilities or from which the
Company obtains products may cause physical damage to the Company’s properties, closure of one or more of the
Company’s stores or distribution facilities, lack of an adequate work force in a market, temporary disruption in the
supply of products, disruption in the transport of goods, delays in the delivery of goods to the Company’s
distribution centers or stores, a reduction in customer volume and a reduction in the availability of products in the
Company’s stores. In addition, adverse climate conditions and adverse weather patterns, such as drought or flood,
that impact growing conditions and the quantity and quality of crops yielded by food producers may adversely
affect the availability or cost of certain products within the grocery supply chain. Any of these factors may disrupt
the Company’s businesses and adversely affect the Company’s financial condition and results of operations.
Disruption to the supply chain and distribution network could have an adverse impact on the Company’s
sales and operating results.
The Company’s sales and operating results could be adversely impacted if the Company is not able to provide
goods to the Company’s stores and its customers’ stores in a timely and cost-effective manner, to maintain
continued supply, pricing or access to new products or to identify alternative sources of merchandise without delay
and at similar cost and quality levels. Factors that may disrupt the Company’s ability to maintain an uninterrupted
supply chain and distribution network include weather, product recalls, crop conditions, regulatory actions, political
or financial instability for suppliers, transportation interruptions, labor supply or stoppages or vendor defaults or
disputes, as well as other risk factors mentioned, any of which could also have an adverse effect on the Company’s
sales and operating results. Disruptions to the national and international transportation infrastructure that lead to
delays or interruptions of deliveries could also negatively affect the Company’s business.
Changes in the military commissary system or decreases in governmental funding could negatively impact
the sales and operating performance of the Company’s military business.
The Company’s Independent Business segment sells and distributes grocery products to military commissaries
and exchanges in the United States. The Company’s military business faces competition from large national and
regional food distributors as well as smaller food distributors. Due to the narrow margins in the military food
distribution industry, it is of critical importance for distributors to achieve economies of scale. Any material
changes in the commissary system, the level of governmental funding to the Defense Commissary Agency
(“DeCA”), military staffing levels, or the locations of bases may have a corresponding impact on the sales and
operating performance of the Company’s military business. Mandated reductions in government expenditures,
including those imposed as a result of sequestration, may impact the level of funding to the DeCA and could
have a material impact on the Company’s operations.
The Company’s insurance and self-insurance programs may not be adequate to cover future claims.
The Company uses a combination of insurance and self-insurance to provide for potential liabilities for workers’
compensation, automobile and general liability, director and officer liability, property risk, cyber and privacy
risks and employee healthcare benefits. The Company estimates the liabilities associated with the risks retained
by the Company, in part, by considering historical claims experience, demographic and severity factors and other
actuarial assumptions which, by their nature, are subject to a degree of variability. Any actuarial projection of
losses concerning workers’ compensation and general and automobile liability is subject to a degree of
variability. Among the causes of this variability are unpredictable external factors affecting future inflation rates,
discount rates, litigation trends, legal interpretations, benefit level changes and actual claim settlement patterns.
Some of the many sources of uncertainty in the Company’s reserve estimates include changes in benefit levels,
medical fee schedules, medical utilization guidelines, vocation rehabilitation and apportionment. If the number or
severity of claims for which the Company is self-insured increases, or the Company is required to accrue or pay
additional amounts because the claims prove to be more severe than the Company’s original assessments, the
Company’s financial condition and results of operations may be adversely affected.
22