Kraft 2005 Annual Report Download - page 16

Download and view the complete annual report

Please find page 16 of the 2005 Kraft annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 100

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100

MERRILL CORPORATION MBLOUNT// 9-MAR-06 14:03 DISK126:[06CHI5.06CHI1135]DE1135A.;25
mrll.fmt Free: 1910DM/0D Foot: 0D/ 0D VJ RSeq: 15 Clr: 0
DISK024:[PAGER.PSTYLES]UNIVERSAL.BST;51
KRAFT FOODS-FSC CERTIFIED-10K/AR Proj: P1102CHI06 Job: 06CHI1135 File: DE1135A.;25
Merrill Corporation/Chicago (312) 786-6300 Page Dim: 8.250X 10.750Copy Dim: 38. X 54.3
New regulations could adversely affect the Company’s business.
Food production and marketing are highly regulated by a variety of federal, state, local and foreign
agencies, and new regulations and changes to existing regulations are issued regularly. Increased
government regulation of the food industry, such as recent requirements regarding the labeling of
trans-fat content, could result in increased costs to the Company and adversely affect it’s profitability.
A possible spin-off from Altria may cause short-term volatility in the trading volume and
market price of the Company’s common stock.
At December 31, 2005, Altria held 98.3% of the combined voting power of the Company’s
outstanding capital stock and owned 87.2% of the outstanding shares of the Company’s capital stock.
Altria has publicly stated that it is considering a spin-off of the Company, which, if it were to occur, would
significantly change the profile of the Company’s stockholders. If a number of the Company’s new
stockholders choose to sell their shares, or if there is a perception that such sales might occur, this may
cause short-term volatility in the trading volume and market price of the Company’s common stock.
Changes in the Company’s credit ratings may have a negative impact on the Company’s
financing costs.
The Company maintains revolving credit facilities that have historically been used to support the
issuance of commercial paper. A downgrade in the Company’s credit ratings, particularly its short-term
credit rating, would likely reduce the amount of commercial paper the Company could issue, raise the
Company’s borrowing costs, or both. In addition, the credit ratings of Altria have impacted the
Company’s credit ratings in the past and they may do so in the future.
Volatility in the equity markets or interest rates could substantially increase the Company’s
pension costs.
The projected benefit obligation and assets of the Company’s defined benefit pension plans as of
the end of fiscal 2005 were $10.1 billion and $9.1 billion, respectively. The difference between plan
obligations and assets, or the funded status of the plans, is a significant factor in determining the net
periodic benefit costs of the Company’s pension plans and the ongoing funding requirements of those
plans. Changes in interest rates, mortality rates, early retirement rates, investment returns and the
market value of plan assets can impact the funded status of these plans and cause volatility in the net
periodic benefit cost and future funding requirements of these plans. In addition, any disposition of
certain businesses and the terms of those disposition transactions may impact future contributions to
the benefit plans and the related net periodic benefit cost. A significant increase in the Company’s
funding requirements could have a negative impact on its results of operations.
15
6 C Cs: 4522