Risk factors
We face risks related to our union or collective
bargaining agreements.
As of January 1, 2006, approximately 94,000 employees
in our U.S. retail operating companies and approximately
5,000 employees in our U.S. Foodservice operating
companies were represented by unions. Collective
bargaining agreements covering approximately 11% of our
total U.S. retail employees either expired in September
2005 or will expire at various dates during 2006. We are
continuing to honor the terms of one expired agreement on
a week-to-week basis and are simultaneously negotiating
one or several replacement agreements. Collective
bargaining agreements covering approximately 6% of our
total U.S. Foodservice employees either have expired in
2005 or will expire at various dates during 2006. A number
of these expired agreements have already been replaced,
while a majority are still being negotiated.
During 2005 most of our relevant collective bargaining
agreements relating to our Dutch operations were renewed
without industrial actions. Most of our collective bargaining
agreements for our employees in the Netherlands expire in
April 2007. The collective bargaining agreement covering
the majority of our distribution employees will expire in April
2006 and will have to be renewed. We expect to commence
the negotiation process with the relevant trade unions in
April 2006.
Furthermore, although only a minority of our employees in
the Czech Republic are union members, all of our employees
in the Czech Republic are covered by a collective bargaining
agreement that expires at the end of 2007. A very small
minority of our employees in Slovakia are union members.
For additional information, see "Additional information -
Labor relations - Union relations and works council."
Although we consider our relations with the relevant trade
unions stable, failure of our operating companies to
effectively renegotiate these agreements could result in work
stoppages. We may not be able to resolve any issues in a
timely manner and our contingency plans may not be
sufficient to avoid an impact on our business. A work
stoppage due to failure of one or more of our operating
companies to renegotiate a collective bargaining agreement,
or otherwise, could have a material adverse effect on our
financial position, results of operations and liquidity.
We face risks related to health care and pension
funding requirements.
Decreasing interest rates, poor performance of the stock
markets and rising cost of health care benefits may cause us
to record significant charges related to our existing pension
plans and benefit plans.
Adverse stock market developments may negatively affect
the assets of our pension funds and decreasing interest rates
may cause lower discount rates and increase our pension
liabilities. This will lead to higher pension charges, pension
premiums and contributions payable. We have a number of
defined benefit pension plans, covering a substantial
number of our employees in the Netherlands and in the U.S.
Pension expenses for defined benefit plans in 2005 were
EUR 17 million lower than in 2004. Our contributions to
our Dutch defined benefit plans in 2005 were EUR 14
million lower than in 2004 and our contributions to our U.S.
defined benefit plans in 2005 were EUR 212 million higher
than in 2004. In 2005 a one-time contribution of USD 288
million (EUR 236 million) was made to decrease the
unfunded status of several U.S. pension plans. While our
contributions for our U.S. defined benefit plans are
expected to decrease from EUR 289 million in 2005 to
EUR 40 million in 2006, our contributions for our Dutch
defined benefit plans are expected to increase from
EUR 118 million in 2005 to EUR 157 million in 2006.
Certain of our employees in the U.S. are covered by multi
employer plans, which have a total unfunded liability of
EUR 22,409 million as of January 1, 2004 (the latest year
for which information is available). We estimate our
proportionate share of the total unfunded liability of these
plans at EUR 637 million. These unfunded liabilities are
not recognized on our consolidated balance sheets because
sufficient information is generally not available and the
financial statements of these plans are not based on the
same accounting standards according to which our
consolidated financial statements are prepared. The
unfunded liabilities of these plans may result in increased
future payments by us and the other participating
employers. Our risk of such increased contributions may
be greater if any of the participating employers in an
underfunded multi-employer plan withdraws from the plan
due to insolvency and is not able to contribute an amount
sufficient to fund the unfunded liabilities associated with
the participants of the plan.
For additional information, see Note 24 to our consolidated
financial statements included in this annual report.
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