Kraft 2008 Annual Report Download - page 15

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financial results could be adversely affected. In addition, from time to time, we divest businesses that do not meet our strategic objectives, or do not meet our
growth or profitability targets. Our profitability may be affected by either gains or losses on the sales of, or lost operating income from those businesses. Also,
we may not be able to complete desired or proposed divestitures on terms favorable to us. Moreover, we may incur asset impairment charges related to
acquisitions or divestitures which may reduce our profitability. Finally, our acquisition or divestiture activities may present financial, managerial and operational
risks, including diversion of management attention from existing core businesses, integrating or separating personnel and financial and other systems, adverse
effects on existing business relationships with suppliers and customers, inaccurate estimates of fair value made in the accounting for acquisitions and
amortization of acquired intangible assets which would reduce future reported earnings, potential loss of customers or key employees of acquired businesses, and
indemnities and potential disputes with the buyers or sellers. Any of these activities could affect our product sales, financial conditions and results of operations.
Product recalls, injuries caused by products or other legal claims could affect our reputation and profitability.
Selling products for human consumption involves inherent legal risks. We could be required to recall products due to product contamination, spoilage or other
adulteration, product misbranding or product tampering. We may also suffer losses if our products or operations violate applicable laws or regulations, or if our
products cause injury, illness or death. In addition, our advertising could be the target of claims of false or deceptive advertising. A significant product liability or
other legal judgment against us, or a widespread product recall may adversely affect our profitability. Moreover, even if a product liability or consumer fraud
claim is unsuccessful, has no merit or is not pursued, the negative publicity surrounding assertions against our products or processes could adversely affect
our reputation and brand image.
We operate in a highly regulated environment.
Food production and marketing are highly regulated by a variety of federal, state, local and foreign agencies. New regulations and changes to existing regulations
are issued regularly. Increased governmental regulation of the food industry, such as proposed requirements designed to enhance food safety or to regulate
imported ingredients, could increase our costs and adversely affect our profitability.
Changes in our credit ratings could increase our financing costs.
We maintain revolving credit facilities that historically have been used to support the issuance of commercial paper. A downgrade in our credit ratings,
particularly our short-term debt rating, would likely reduce the amount of commercial paper we could issue or it could raise our borrowing costs, or both.
Volatility in the equity markets or interest rates could substantially increase our pension costs.
At the end of 2007, the projected benefit obligation of our defined benefit pension plans was $10.2 billion and assets were $11.0 billion. The difference between
plan obligations and assets, or the funded status of the plans, significantly affects the net periodic benefit costs of our pension plans and the ongoing funding
requirements of those plans. Among other factors, changes in interest rates, mortality rates, early retirement rates, investment returns and the market value of plan
assets can (i) affect the level of plan funding; (ii) cause volatility in the net periodic pension cost; and (iii) increase our future funding requirements. In
addition, if we divest certain businesses, we may be required to increase future contributions to the benefit plans and the related net periodic pension cost could
increase. A significant increase in our funding requirements could have a negative impact on our results of operations and profitability.
Item 1B. Unresolved Staff Comments.
We have received no written comments regarding our quarterly, annual or current reports from the staff of the SEC that remain unresolved.
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Source: KRAFT FOODS INC, 10-K, February 25, 2008 Powered by Morningstar® Document Research℠