Kraft 2012 Annual Report Download - page 20

• We entered into transactions with Mondele¯z International that did not exist prior to the Spin-Off, including certain
transition service agreements.
• Our historical financial information does not reflect changes that we expect to experience in the future as a result
of our separation from Mondele¯ z International, including changes in our cost structure, personnel needs, tax
structure, financing, and business operations. As part of Mondele¯z International, we enjoyed certain benefits from
Mondele¯z International’s operating diversity, size, purchasing power, and available capital for investments, and
we no longer receive these benefits. As an independent entity, we may be unable to purchase goods, services
and technologies, such as insurance and health care benefits and computer software licenses, on terms as
favorable to us as those we obtained as part of Mondele¯ z International prior to the Spin-Off.
Following the Spin-Off, we are also responsible for the additional costs associated with being an independent, publicly
traded company, including costs related to corporate governance, investor and public relations, and public reporting.
Therefore, our historical financial statements may not be indicative of our future performance as an independent company.
Mondele¯z International has a significant understanding of our business and may be uniquely positioned to
compete against us following the Spin-Off.
Prior to the Spin-Off, we operated as part of Mondele¯ z International, and many of its officers, directors, and employees
have participated in the development and execution of our corporate strategy and the management of our day-to-day
operations. Mondele¯z International has significant knowledge of our products, operations, strengths, weaknesses, and
strategies. It is also one of the largest food and beverage companies in the world, with a strong presence in North
America, and thus may be uniquely positioned to develop grocery products that compete against our products in North
America. Though, following the Spin-Off, Mondele¯ z International generally does not have rights to use trademarks related
to the North American grocery business in North America and is restricted from using certain shared patents and trade
secrets in North America for a period of time and under certain circumstances, it is not restricted from developing products
in the same product categories as our products and marketing these products under trademarks related to their global
snacks business or under new trademarks. Because of Mondele¯ z International’s competitive insight into our operations,
competition from Mondele¯ z International may adversely affect our product sales, financial condition, and results of
operations.
We incurred substantial indebtedness in connection with the Spin-Off, and the degree to which we are leveraged
may materially and adversely affect our business, financial condition, and results of operations.
We incurred substantial indebtedness in connection with the Spin-Off. As of December 29, 2012, we had total debt of
approximately $10 billion. Our ability to make payments on and to refinance our indebtedness, including the debt retained
or incurred pursuant to the Spin-Off as well as any future debt that we may incur, will depend on our ability to generate
cash in the future from operations, financings, or asset sales. Our ability to generate cash is subject to general economic,
financial, competitive, legislative, regulatory, and other factors that are beyond our control. We may not generate sufficient
funds to service our debt and meet our business needs, such as funding working capital or the expansion of our
operations. If we are not able to repay or refinance our debt as it becomes due, we may be forced to take
disadvantageous actions, including reducing spending on marketing, retail trade incentives, advertising and new product
innovation, reducing financing in the future for working capital, capital expenditures and general corporate purposes,
selling assets, or dedicating an unsustainable level of our cash flow from operations to the payment of principal and
interest on our indebtedness. The lenders who hold our debt could also accelerate amounts due in the event that we
default, which could potentially trigger a default or acceleration of the maturity of our other debt.
Our substantial indebtedness could also impair our ability to obtain additional financing for working capital, capital
expenditures, or general corporate purposes, especially if the ratings assigned to our debt securities by rating
organizations were revised downward. In addition, our substantial leverage could put us at a competitive disadvantage
compared to our competitors that are less leveraged. These competitors could have greater financial flexibility to pursue
strategic acquisitions and secure additional financing for their operations. Our ability to withstand competitive pressures
and to react to changes in the food and beverage industry could be impaired, making us more vulnerable in the event of a
general downturn in economic conditions, in our industry, or in our business.
Item 1B. Unresolved Staff Comments.
None.
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