Albertsons 2015 Annual Report Download - page 22

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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’ and licensees’ 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, rising health care costs, litigation trends, legal interpretations, benefit level
changes and actual claim settlement patterns. For example, the Company believes that its insurance coverage will mitigate the
financial impact of the criminal intrusions to the Company’s information technology systems that it experienced in the second
quarter of fiscal 2015; however, the Company cannot be certain that its coverage will fully mitigate the financial impact of the
intrusions or that such coverage will not be disputed.
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.
Volatility in fuel and energy costs and risk associated with the Company’s compressed natural gas program could
adversely affect the Company’s results of operations.
The Company’s operations are dependent on the availability of a significant amount of energy and fuel to store and transport
products. Energy and fuel costs are influenced by international, political and economic circumstances and have experienced
volatility over time. To reduce the impact of volatile fuel and energy costs, the Company has entered into contracts to purchase
fuel, electricity and natural gas at fixed prices to satisfy a portion of its expected needs. Additionally, the Company has invested
in 60 semitrailer trucks powered by compressed natural gas, an increase of 25 from the original 35 semitrailer trucks in the pilot
program launched in December 2013. In the recent past, the price of natural gas has been volatile, and this volatility may
continue. Additionally, having compressed natural gas equipment and a fueling station entails inherent risks, including