Kraft 2010 Annual Report Download - page 18

Business process improvement initiatives to harmonize our systems and processes may fail to operate as designed and intended.
We regularly implement business process improvement initiatives designed to harmonize our systems and processes and improve our performance.
Significant current business process improvement initiatives include reorganization of our European operations, delivery of a SAP enterprise resource
planning application, and outsourcing certain administrative functions. Our business process improvement initiatives may not be successful, or may interfere
with our core business operations or divert management attention from those operations. If we are unable to improve existing operations, achieve anticipated
cost savings and support future growth, our product sales, financial condition and results of operations may be materially and adversely affected.
Downgrades in our credit ratings and other effects of volatile economic conditions on the credit market could reduce our liquidity or increase our
borrowing costs and liquidity.
Our short- and long-term credit ratings affect our borrowing costs and access to financing. A downgrade in our credit ratings would increase our borrowing
costs and could affect our ability to issue commercial paper. We access the commercial paper market for regular funding requirements. Disruptions in the
commercial paper market or other effects of volatile economic conditions on the credit market also could reduce the amount of commercial paper that we
could issue and could raise our borrowing costs for both short- and long-term debt offerings.
Volatility in the equity markets or interest rates could substantially increase our pension costs and have a negative impact on our operating results
and profitability.
At the end of 2010, the projected benefit obligation of our defined benefit pension plans was $15.6 billion and assets were $13.3 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 affect the level of plan funding, cause volatility in the net periodic pension cost, and 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.
We expect to make approximately $940 million in contributions to our pension plans in 2011, which is approximately $550 million more than we made in
2010. We also expect that our net pension cost will remain flat at approximately $530 million in 2011. Volatile economic conditions increase the risk that we
may be required to make additional cash contributions to the pension plans and recognize further increases in our net pension cost beyond 2011.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
We have 223 manufacturing and processing facilities worldwide. This includes the 62 manufacturing and process facilities we obtained as part of our Cadbury
acquisition. These facilities are located in 57 countries. We have 57 facilities in Kraft Foods North America, 59 in Kraft Foods Europe and 107 In Kraft Foods
Developing Markets.
We own 214 and lease 9 of these manufacturing and processing facilities. It is our practice to maintain all of our plants and properties in good condition, and
we believe they are suitable and adequate for our present needs.
We also have 236 distribution centers and depots worldwide. We own 51 of these distribution centers and depots, and we lease 185 of these distribution
centers and depots. In North America, we have 139 distribution centers and depots, more than 60% of which support our direct store delivery systems.
Outside North America, we have 97 distribution centers and depots in 29 countries.
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