Risk factors
Ahold might not be able to negotiate future collective
bargaining agreements on acceptable terms, which could
result in work stoppages.
A significant portion of Ahold's employees are represented
by unions and are covered by collective bargaining
agreements. As the collective bargaining agreements with
those unions expire, the Company might not be able to
negotiate extensions or replacements on terms acceptable
to the Company. For example, most of Ahold's collective
bargaining agreements for its employees in the Netherlands
will expire in April 2007. Although Ahold considers its
relations with the relevant trade unions stable, any failure
of its operating companies to effectively renegotiate these
agreements could result in work stoppages or other labor
actions. The Company may not be able to resolve any issues
in a timely manner and its contingency plans may not be
sufficient to avoid an impact on the business. A work
stoppage due to failure of one or more of its operating
companies to renegotiate a collective bargaining agreement,
or otherwise, could have a material adverse effect on Ahold's
financial position, results of operations and liquidity.
For additional information, see "Additional information -
Labor relations - Union relations and works council" in this
Annual Report.
Ahold faces 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 Ahold to record significant charges related to its
pension and benefit plans.
Adverse stock market developments may negatively affect
the assets of Ahold's pension funds and decreasing interest
rates may cause lower discount rates and increase its
pension liabilities. This will lead to higher pension charges,
pension premiums and contributions payable. Ahold has a
number of defined benefit pension plans, covering a
substantial number of its employees in the Netherlands and
in the United States. Pension expenses for defined benefit
plans in 2006 were EUR 32 million lower than in 2005.
Ahold's contributions to its Dutch defined benefit plans
in 2006 were EUR 40 million higher than in 2005 and the
Company's contributions to its U.S. defined benefit plans
in 2006 were EUR 251 million lower than in 2005. 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. Ahold's contributions for its U.S.
defined benefit plans are expected to decrease from
EUR 38 million in 2006 to EUR 29 million in 2007, and the
Company's contributions for its Dutch defined benefit plans
are expected to decrease from EUR 158 million in 2006
to EUR 150 million in 2007. Certain of Ahold's employees
in the United States are covered by multi-employer plans,
which have a total unfunded liability of EUR 18,890 million
as of January 1, 2005 (the latest year for which information
is available). Ahold estimates its proportionate share of the
total unfunded liability of these plans at EUR 614 million.
These unfunded liabilities are not recognized on Ahold's
consolidated balance sheets because sufficient information
is not available and the financial statements of these plans
are not based on the same accounting standards according
to which the Company's consolidated financial statements
are prepared. The unfunded liabilities of these plans may
result in increased future payments by Ahold and the other
participating employers. Ahold's 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 its participants of the plan.
For additional information, see Note 24 to Ahold's
consolidated financial statements included in this
Annual Report.
If Ahold is unable at any time to meet any required funding
obligations for some of its U.S. pension plans, or if the
Pension Benefit Guaranty Corporation (the "PBGC")
concludes that, as the insurer of certain U.S. plan benefits,
its risk may increase unreasonably if the plans continue,
under the U.S. Employee Retirement Income Security Act of
1974 ("ERISA") the PBGC could terminate the plans and
place liens on material amounts of the Company's assets.
Ahold's pension plans that cover its Dutch retail operations
are governed by the Dutch Central Bank (De Nederlandsche
Bank or "DNB"). DNB may require Ahold to make additional
contributions to its pension plans to meet the minimum
funding requirements as applied by DNB.
In addition, health care costs have risen significantly in
recent years and this trend is expected to continue. Ahold
may be required to expend significantly higher amounts to
fund employee health care plans in the future. Significant
increases in health care and pension funding requirements
could have a material adverse effect on the Company's
financial position, results of operations and liquidity.
Ahold may not be able to retain or attract personnel
who are integral to the success of its business.
As a result of the involuntary termination of employment of
certain staff, which is a part of Ahold's cost reduction
initiatives, it is possible that, for various reasons, other
employees may voluntarily terminate their employment.
Although the Company has an equity-based compensation
plan and retention agreements with key employees and
directors, these measures might not be effective in retaining
or attracting employees and directors who are integral to the
success of the business, which could materially hinder
Ahold's ability to successfully execute its operating strategy
and objectives, and thus have a material adverse effect on
its financial position, results of operations and liquidity.
34 Ahold Annual Report 2006
