This section includes discussion of:

• Significant factors affecting the results of Ahold's operations and financial position;
• Results of operations both on a consolidated and a business segment basis;
• Liquidity and capital resources;
• Contractual obligations;
• Off-balance sheet arrangements;
• Critical accounting policies and estimates;
• Future accounting changes; and
• Risk management and use of financial instruments and derivatives.

The following charts show the Company's 2006 consolidated net sales by business and geographical area:

The following market factors and trends affect Ahold and its competitors:

• Increased labor expense. The rate of increase of health care, pension and insurance costs in the United States is outpacing general inflation and the Company's sales growth.
• Competition. The food retail industry in the United States and Europe remained extremely competitive in 2006. Promotional activity by traditional supermarket competitors remained at high levels throughout the year while competition with alternative retail formats continued to intensify in the Company's markets. The food retail industry operates on relatively low profit margins that are subject to pressure from increasing competitive pressure on pricing and promotion. Conventional supermarkets are experiencing erosion of their markets as customers shift to alternative discount retail formats, natural and organic food outlets, and other "food-away-from-home" alternatives. In the United States, customers are visiting supermarkets less frequently. The foodservice industry in the United States is also highly fragmented and very competitive in price and service, as competitors continue to make significant investments in improving operating efficiencies. The Company expects that these markets will continue to be highly competitive.
• Foodservice industry growth. The foodservice market in the United States continues to experience a positive growth trend as consumer food purchases continue to shift toward "food-away-from-home." Foodservice industry growth, however, is higher in the less profitable multi-unit restaurant and fast food segment.
• Pressure on foodservice profit margins. The rapid fluctuation of costs of foodservice products impacts profit margins when those fluctuations cannot be incorporated in pricing promptly and fully. Furthermore, large customers and cooperative buying groups continue to place downward pressure on pricing.
• Energy cost increases. Profit margins and operating expenses are negatively impacted by increases in transportation costs, caused by high fuel prices and energy costs that exceed the rate of food price inflation. The increase in fuel costs has also affected the purchasing power of consumers, resulting in a negative impact on food sales.