Kraft 2012 Annual Report Download - page 19

Notwithstanding the receipt of the advance income tax ruling, the CRA could determine that the separation should be
treated as a taxable transaction if it determines that any of the representations, assumptions, or covenants on which the
advance income tax ruling is based are untrue or have been violated. If the CRA ultimately were to determine that the
separation is taxable, our and/or Mondele¯z International’s Canadian subsidiaries could incur significant Canadian federal
and provincial income tax liabilities, and we are generally obligated to indemnify Mondele¯ z International and its affiliates
against such Canadian federal and provincial income taxes under the Tax Sharing and Indemnity Agreement.
We have agreed to numerous restrictions to preserve the non-recognition treatment of the transactions, which
may reduce our strategic and operating flexibility.
Even if the Distribution otherwise qualifies for non-recognition of gain or loss under Section 355 of the Code, it may be
taxable to Mondele¯ z International, but not Mondele¯ z International’s shareholders, under Section 355(e) of the Code if 50%
or more (by vote or value) of our common stock or Mondele¯z International’s common stock is acquired as part of a plan or
series of related transactions that include the Distribution. For this purpose, any acquisitions of our or Mondele¯z
International’s common stock within two years before or after the Distribution are presumed to be part of such a plan,
although we or Mondele¯z International may be able to rebut that presumption based on either applicable facts and
circumstances or a “safe harbor” described in the tax regulations. As a consequence, we agreed in the Tax Sharing and
Indemnity Agreement to covenants and indemnity obligations that address compliance with Section 355(e) of the Code.
These covenants and indemnity obligations may limit our ability to pursue strategic transactions or engage in new
business or other transactions that may maximize the value of our business, and might discourage or delay a strategic
transaction that you may consider favorable.
Similarly, even if the Canadian aspects of the Internal Spin-Off Transactions otherwise qualify for tax-deferred treatment in
Canada under the butterfly reorganization provisions of the Canadian Tax Act, this tax-deferred treatment may be lost
upon the occurrence of certain events after the Spin-Off. These would include an acquisition of control of our Canadian
subsidiary (which may occur upon an acquisition of control of us) that occurs as part of (or in some cases in contemplation
of) a series of transactions or events that includes the butterfly reorganization. These post-butterfly transaction restrictions
may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize
the value of our business, and might discourage or delay a strategic transaction that you may consider favorable.
We may be unable to achieve some or all of the benefits that we expect to achieve from the Spin-Off.
We believe that, as an independent, publicly traded company, we will be able to, among other matters, better focus our
financial and operational resources on our specific business, growth profile, and strategic priorities, design and implement
corporate strategies and policies targeted to our operational focus and strategic priorities, streamline our processes and
infrastructure to focus on our core “center of the store” strengths, implement and maintain a capital structure designed to
meet our specific needs, and more effectively respond to industry dynamics. However, we may be unable to achieve some
or all of these benefits. For example, in order to position ourselves for the Spin-Off, we undertook a series of strategic,
structural, and process realignment and restructuring actions within our operations, including significant cost-cutting
initiatives, including the Restructuring Program (as defined below). These actions may not provide the cost benefits we
currently expect, and could lead to disruption of our operations, loss of, or inability to recruit, key personnel needed to
operate and grow our businesses, weakening of our internal standards, controls, or procedures, and impairment of our key
customer and supplier relationships. If we fail to achieve some or all of the benefits that we expect to achieve as an
independent company, or do not achieve them in the time we expect, our business, financial condition, and results of
operations could be materially and adversely affected.
We have limited operating history as an independent, publicly traded company, and our historical financial
information is not necessarily representative of the results we would have achieved as an independent, publicly
traded company and may not be a reliable indicator of our future results.
Our historical financial statements do not necessarily reflect the results of operations, financial position, and cash flows we
would have achieved as an independent, publicly traded company during the periods presented, or those that we will
achieve in the future. This is primarily because of the following factors:
• Prior to the Spin-Off, we operated as part of Mondele¯ z International’s broader corporate organization, rather than
as an independent company. Mondele¯z International performed various corporate functions for us, including
information technology, research and development, finance, legal, insurance, compliance, and human resources
activities. Our historical financial information reflects allocations of corporate expenses from Mondele¯z
International for these and similar functions. These allocations may not reflect the costs we will incur for similar
services in the future as an independent company.
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