Food Lion 2006 Annual Report Download - page 47

DELHAIZE GROUP / ANNUAL REPORT 2006 45
insider trading. As a result, it will continue to invest necessary
resources to comply with evolving laws, regulations and
standards and manage its risks related to its stock exchange
listing.
TAX AUDIT RISK
Delhaize Group is regularly audited in the various jurisdictions
in which it does business, which it considers to be part of
its ongoing business activity. While the ultimate outcome of
these audits is not certain, Delhaize Group has considered
the merits of its fi ling positions in its overall evaluation of
potential tax liabilities, and believes it has adequate liabilities
recorded in its consolidated fi nancial statements for potential
exposures. Unexpected outcomes as a result of these audits
could adversely affect Delhaize Group’s fi nancial statements.
PRODUCT LIABILITY RISK
The packaging, marketing, distribution and sale of food
products entail an inherent risk of product liability, product
recall and resultant adverse publicity. Such products may
contain contaminants that may be inadvertently redistributed
by Delhaize Group. These contaminants may, in certain cases,
result in illness, injury or death.
As a consequence, Delhaize Group has an exposure to product
liability claims. If a product liability claim is successful, the
Group’s insurance may not be adequate to cover all liabilities it
may incur, and it may not be able to continue to maintain such
insurance or obtain comparable insurance at a reasonable
cost, if at all.
In addition, even if a product liability claim is not successful
or is not fully pursued, the negative publicity surrounding any
assertion that the Group’s products caused illness or injury
could affect the Group’s reputation and its business and
fi nancial condition and results of operations.
Delhaize Group takes an active stance towards food safety in
order to offer customers safe food products. The Group has
worldwide food safety guidelines in place, and their application
is vigorously followed.
RISK OF ENVIRONMENTAL LIABILITY
Delhaize Group is subject to laws and regulations that govern
activities that may have adverse environmental effects.
Delhaize Group may be responsible for the remediation of such
environmental conditions and may be subject to associated
liabilities relating to its stores and the land on which its
stores, warehouses and offi ces are situated, regardless of
whether the Group leases, subleases or owns the stores,
warehouses or land in question and regardless of whether
such environmental conditions were created by the Group or
by a prior owner or tenant.
SELF-INSURANCE RISK
The Group manages its insurable risk through a combination
of external insurance coverage and self-insurance. In deciding
whether to purchase external insurance or manage risk
through self-insurance, the Company considers its success
in managing risk through safety and other internal programs
and the cost of external insurance coverage.
External insurance is used when available at a reasonable
cost. The associated insurance levels are set using exposure
data gained through risk assessment, by comparison with
standard industry practices and by assessment of the available
fi nancing capacity in the insurance market.
The main risks covered by our insurance policies are the
following:
• Property damage and business interruption caused by fi re,
explosion, natural events or other perils.
• Liability incurred because of damage caused to others by
our operations, products and services.
In addition to Group policies, Delhaize Group purchases, in the
various countries where it is present, policies of insurance of
a mandatory nature or designed to cover specifi c risks such
as vehicle or workers’ compensation or employers’ liability.
The U.S. operations of Delhaize Group are self-insured for
workers’ compensation, general liability, vehicle accident,
druggist claims and healthcare (including medical, pharmacy,
dental and short-term disability). The self-insured reserves
related to workers’ compensation, general liability and vehicle
coverage are reinsured by The Pride Reinsurance Company,
an Irish reinsurance captive wholly-owned by Delhaize Group.
The purpose for implementing the captive reinsurance
program was to provide Delhaize Group’s U.S. operations with
continuing fl exibility in their risk program, while providing
certain excess loss protection through anticipated reinsurance
contracts with Pride.
Self-insurance liabilities are estimated based on actuarial
valuations of claims fi led and an estimate of claims incurred
but not yet reported. Delhaize Group believes that the
actuarial estimates are reasonable; however, these estimates
are subject to changes in claim reporting patterns, claim
settlement patterns and legislative and economic conditions,
making it possible that the fi nal resolution of some of these
claims may require Delhaize Group to make signifi cant
expenditures in excess of its existing reserves.
Self-insurance reserves of EUR 117.5 million are included
as liabilities on the balance sheet. More information on self-
insurance can be found in Note 22 to the Financial Statements,
“Self-Insurance Provision” (p. 83).