Kraft 2001 Annual Report Download

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Of course we’re big...
2001 ANNUAL REPORT

Table of contents

  • Page 1
    Of course we're big... 2001 ANNUAL REPORT

  • Page 2
    ...but that's a small part of our story.

  • Page 3

  • Page 4
    ..., we are the largest food company in North America and the second largest worldwide. 35 of our brands have been delighting consumers for more than 100 years. The care and quality that J. L. Kraft, Johann Jacobs, Oscar Mayer and C. W. Post first put into their products live in our brands today. 2

  • Page 5

  • Page 6
    ... 2.5 million people to learn how to better meet consumers' needs. Each month, 12 million people visit our websites for product, menu and nutrition information. A billion people see our advertising around the world. We're building a future on innovations in taste, nutrition, convenience, variety and...

  • Page 7

  • Page 8
    ... food-related patents than any other food company. We invest more in advertising than any other U.S. food company. In the last six years, we've received more than 100 advertising awards around the world. Our focus is on four key growth areas: snacks, beverages, convenient meals and health & wellness...

  • Page 9

  • Page 10
    ... categories elsewhere in the world. We have operations in 68 countries. In developing markets, our volume grew 11% in 2001. We have a global sales force of more than 19,000 professionals. Last year, we supported the communities we live in around the world with more than $25 million in food and...

  • Page 11

  • Page 12
    ... more opportunity to innovate. At every step, from the purchase of raw materials to the final product on the shelf, we find ways to create a competitive advantage. Our cost control breakthroughs generated savings of 3.5% of cost of goods sold in 2001 to reinvest in growth and build the bottom line...

  • Page 13

  • Page 14
    ... units and countries around the world. The Wall Street Journal reported, "In the food world, Kraft is considered the Harvard of career management." U.S. grocery retailers ranked Kraft #1 in Best Combination of Growth and Profitability, Most Innovative Marketing Programs and Best Sales Force/Customer...

  • Page 15

  • Page 16
    ... integration of Nabisco, our reported revenues increased by 28%. Our volume increased 3.7%* and once again our earnings growth was among the best in the food industry. In 2001, our return on sales was 18.1%, an increase of 7.6 percentage points since 1991. For the 28 weeks Kraft stock traded in 2001...

  • Page 17
    3.7% 2001 8.9% 2001 Volume 52-week Pro Forma* Operating Companies Income Pro Forma* 2000 2000 19.9% 2001 10.6% 12/31/01 Net Earnings Pro Forma* Total Shareholder Return 2000 6/13/01

  • Page 18
    ... CROWN, CRYSTAL LIGHT, DAIM, DELI DELUXE, REAM WHIP, DUET, D-ZERTA, EASY CHEESE, EASY MAC, EL QUESOSISIMO, FIG NEWTONS, FLAVOR CRISPS, FLAVOR SNACKS, FLEISCHMANN'S, FRESHMADE CREATI FIBRE, GENERAL FOODS INTERNATIONAL COFFEES, GEVALIA, GOLDEN CRISP, GOOD SEASONS, GRAPE-NUTS, GREAT GRAINS, GREY-POUPON...

  • Page 19
    ..., DELI DELUXE, DIGIORNO, DREAM ADE CREATIONS, FRUIT & FIBRE, GENERAL FOODS INTERNATIONAL COFFEES, GEVALIA, GOLDEN CRISP, GOOD SEASONS, GRAPE-NUTS, GREAT GRAINS, GREY NA DOONE, LOUIS RICH, LUNCHABLES, MALLOMARS, MAXWELL HOUSE, MILKA, MILK-BONE, MINUTE, MIRABELL, MIRACLE WHIP, MISTER SALTY, NABISCO...

  • Page 20
    ..., DELI DELUXE, DIGIO FRESHMADE CREATIONS, FRUIT & FIBRE, GENERAL FOODS INTERNATIONAL COFFEES, GEVALIA, GOLDEN CRISP, GOOD SEASONS, GRAPE-NUTS, GREAT GRAINS LORNA DOONE, LOUIS RICH, LUNCHABLES, MALLOMARS, MAXWELL HOUSE, MILKA, MILK-BONE, MINUTE, MIRABELL, MIRACLE WHIP, MISTER SALTY, NABISCO, POLLY...

  • Page 21
    ... the world. And along with our products come great food and nutrition ideas. Our websites, which are among the most popular of any consumer goods company, offer recipes, menu planning, kitchen basics and in-depth health & wellness information. With the best brands and a range of helpful services, we...

  • Page 22
    ...process cheese, Kraft makes the cheese that pleases the world. • Our ready-to-drink beverages continued their double-digit growth in the U.S., with strong performances from Capri Sun, Tang, Crystal Light and Kool-Aid Jammers. • We expanded our leading global position in coffee with acquisitions...

  • Page 23
    ... and turkey products. • We joined together the Kraft and Oscar Mayer brands to launch three new bacon-flavored pourable salad dressings, increasing our number one share in the U.S. • In Germany we offered health-conscious consumers new low-fat Miracle Whip with yogurt. • In Latin America, we...

  • Page 24
    ... Oscar Mayer and Pizza Operating revenues Operating companies income Total North America Operating revenues Operating companies income International Europe, Middle East and Africa Operating revenues Operating companies income Latin America and Asia Pacific Operating revenues Operating companies...

  • Page 25
    ...earnings per share up 19.8% to $1.21. Our results were strong across the company. All six of our business segments increased volume and operating companies income for the year. Kraft Foods North America: Beverages, Desserts and Cereals - Volume was up 9.3%, powered by double-digit gains in our ready...

  • Page 26
    ... top lines with five enduring strategies: Our Strategies Accelerate growth of core brands Drive global category leadership Optimize our portfolio Drive world-class productivity, quality and service Build employee and organizational excellence Accelerate growth of core brands - To drive growth, we...

  • Page 27
    ... of cost of goods sold, while helping us improve product quality and customer-service levels. We're also on track to achieve $600 million in ongoing annual synergy savings from the integration of Nabisco. Build employee and organizational excellence - Even with our great brand strength and global...

  • Page 28
    ... Cereals; and Oscar Mayer and Pizza. KFNA's food service business within the United States and its businesses in Canada and Mexico are reported through the Cheese, Meals and Enhancers segment. KFI's segments are Europe, Middle East and Africa; and Latin America and Asia Pacific. Financial Reporting...

  • Page 29
    ... other things, employee benefit costs and related disclosures, inventories under the last-in-first-out ("LIFO") method, marketing costs (advertising, consumer incentives and trade promotions), environmental costs and income taxes. The Company bases its estimates on historical experience and other...

  • Page 30
    ... 2000, the Company purchased the outstanding common stock of Balance Bar Co., a maker of energy and nutrition snack products. In a separate transaction, the Company also acquired Boca Burger, Inc., a privately held manufacturer and marketer of soy-based meat alternatives. The total cost of these and...

  • Page 31
    ...and Cereals Oscar Mayer and Pizza Total Kraft Foods North America Kraft Foods International Europe, Middle East and Africa Latin America and Asia Pacific Total Kraft Foods International Total reported operating revenues Reported operating companies income: Kraft Foods North America Cheese, Meals and...

  • Page 32
    ... of earnings for the following segments: Cheese, Meals and Enhancers, $63 million; Biscuits, Snacks and Confectionery, $2 million; Beverages, Desserts and Cereals, $12 million; and Oscar Mayer and Pizza, $5 million. • Sale of French Confectionery Business: During 2000, the Company sold a French...

  • Page 33
    ... and Cereals Oscar Mayer and Pizza Total reported operating revenues Operating revenues of businesses sold: Cheese, Meals and Enhancers Estimated impact of century date change: Cheese, Meals and Enhancers Biscuits, Snacks and Confectionery Beverages, Desserts and Cereals Oscar Mayer and Pizza...

  • Page 34
    ...and Pizza Total reported operating companies income Operating companies income of businesses sold: Cheese, Meals and Enhancers Estimated impact of century date change: Cheese, Meals and Enhancers Biscuits, Snacks and Confectionery Beverages, Desserts and Cereals Oscar Mayer and Pizza Loss on sale of...

  • Page 35
    ... on coffee products and lower shipments in desserts and cereals. Reported operating companies income for 2001 increased $102 million (9.4%) over 2000, primarily reflecting higher margins ($87 million), the acquisition of Nabisco ($32 million), lower marketing, administration and research costs ($21...

  • Page 36
    ..., operating companies income increased 6.6%. Kraft Foods International (in millions) Year Ended December 31, Reported volume (in pounds): Europe, Middle East and Africa Latin America and Asia Pacific Total reported volume (in pounds) Volume of businesses sold: Europe, Middle East and Africa Latin...

  • Page 37
    ... America and Asia Pacific Total reported operating companies income Gain on sale of a French confectionery business: Europe, Middle East and Africa Operating companies income of businesses sold: Europe, Middle East and Africa Latin America and Asia Pacific Estimated impact of century date change...

  • Page 38
    ...basis, operating companies income increased 32.7%, due primarily to productivity savings and Nabisco synergies. 2000 compared with 1999 KFI's reported volume for 2000 increased 1.5% over 1999, due primarily to volume increases in both the Europe, Middle East & Africa and Latin America & Asia Pacific...

  • Page 39
    ... for growing product lines. The additional expenditures in 2001 were due primarily to the acquisition of Nabisco. Capital expenditures are expected to be approximately $1.2 billion in 2002 and are expected to be funded from operations. During 2001, the Company purchased coffee businesses in Romania...

  • Page 40
    .... Market Risk The Company operates internationally, with manufacturing and sales facilities in various locations around the world, and utilizes certain financial instruments to manage its foreign currency and commodity exposures, which primarily relate to forecasted transactions and interest rate...

  • Page 41
    Kraft Foods Inc. Commodities: The Company is exposed to price risk related to forecasted purchases of certain commodities used as raw materials by the Company's businesses. Accordingly, the Company uses commodity forward contracts, as cash flow hedges, primarily for coffee, cocoa, milk, cheese and ...

  • Page 42
    ... of the Vendor's Products." As a result, certain items previously included in marketing, administration and research costs on the consolidated statement of earnings will either be recorded as a reduction of operating revenues or as an increase in cost of sales. These EITF Issues will be effective in...

  • Page 43
    ... to successfully integrate and derive cost savings from the integration of Nabisco's operations with the Company. In addition, the Company is subject to the effects of foreign economies, currency movements and fluctuations in levels of customer inventories. The food industry continues to be subject...

  • Page 44
    ...equipment, net Inventories Total assets Total long-term debt Notes payable to parent and affiliates Total debt Total deferred income taxes Shareholders' equity Common dividends declared as a % of Basic EPS Common dividends declared as a % of Diluted EPS Book value per common share outstanding Market...

  • Page 45
    ...: Marketing Employment costs Other Income taxes Total current liabilities Long-term debt Deferred income taxes Accrued postretirement health care costs Notes payable to parent and affiliates Other liabilities Total liabilities Contingencies (Note 17) Shareholders' Equity Class A common stock...

  • Page 46
    ...of sales Gross profit Marketing, administration and research costs Amortization of goodwill and other intangible assets Operating income Interest and other debt expense, net Earnings before income taxes Provision for income taxes Net earnings Per share data: Basic earnings per share Diluted earnings...

  • Page 47
    ... sale of Class A common stock Proceeds from issuance of notes payable to parent and affiliates Repayment of notes payable to parent and affiliates Increase in amounts due to parent and affiliates Dividends paid Other Net cash (used in) provided by financing activities Effect of exchange rate changes...

  • Page 48
    Kraft Foods Inc. Consolidated Statements of Shareholders' Equity (in millions of dollars, except per share data) Accumulated Other Comprehensive Losses Class A and B Common Stock Additional Paid-in Capital Earnings Reinvested in the Business Currency Translation Adjustments Total Shareholders' ...

  • Page 49
    ... to as the "Company"), is engaged in the manufacture and sale of retail packaged foods in the United States, Canada, Europe, Latin America and Asia Pacific. On December 11, 2000, the Company acquired all of the outstanding shares of Nabisco Holdings Corp. ("Nabisco") for $55 per share in cash. See...

  • Page 50
    ...: The Company recognizes operating revenue upon shipment of goods when title and risk of loss pass to customers. The Company classifies shipping and handling costs as part of cost of sales. The Emerging Issues Task Force ("EITF") issued EITF Issue No. 00-14, "Accounting for Certain Sales Incentives...

  • Page 51
    ..., Philip Morris or its European subsidiary. The Company also has long-term notes payable to its parent, Philip Morris, and its affiliates as follows: (in millions) The two notes maturing in 2002 were related to the financing for the acquisition of Nabisco and were at market interest rates available...

  • Page 52
    ...total cost of these and other smaller acquisitions was $194 million. During 2000, the Company purchased the outstanding common stock of Balance Bar Co., a maker of energy and nutrition snack products. In a separate transaction, the Company also acquired Boca Burger, Inc., a manufacturer and marketer...

  • Page 53
    ...common stock, as well as performance-based annual and longterm incentive awards. Up to 75 million shares of the Company's Class A common stock may be issued under the Plan. The Company's Board of Directors granted options for 21,029,777 shares of Class A common stock concurrent with the closing date...

  • Page 54
    ... Philip Morris accounts for its plans in accordance with the intrinsic value-based method permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," which does not result in compensation cost. The Company's employees held options to purchase the following number of shares of Philip Morris...

  • Page 55
    ... and Cereals; and Oscar Mayer and Pizza. Kraft Foods North America's food service business within the United States and its businesses in Canada and Mexico are managed through the Cheese, Meals and Enhancers segment. International operations are organized and managed by geographic location. The...

  • Page 56
    ... and Confectionery Beverages, Desserts and Cereals Oscar Mayer and Pizza Total Kraft Foods North America Europe, Middle East and Africa Latin America and Asia Pacific Total Kraft Foods International Total operating revenues Operating companies income: Cheese, Meals and Enhancers Biscuits, Snacks and...

  • Page 57
    ..., the Company's U.S. and Canadian subsidiaries provide health care and other benefits to substantially all retired employees. Health care benefits for retirees outside the United States and Canada are generally covered through local government plans. In 2001 and 2000, retiring employees elected...

  • Page 58
    ... changes in benefit obligations and plan assets, as well as the funded status of the Company's pension plans at December 31, 2001 and 2000, were as follows: (in millions) U.S. Plans Non-U.S. Plans 2001 Benefit obligation at January 1 Service cost Interest cost Benefits paid Acquisitions Settlements...

  • Page 59
    ... Plans: The Company and certain of its affiliates sponsor postemployment benefit plans covering substantially all salaried and certain hourly employees. The cost of these plans is charged to expense over the working lives of the 2001 Accumulated benefit obligation at January 1 Service cost Benefits...

  • Page 60
    ...instruments: The Company operates internationally, with manufacturing and sales facilities in various locations around the world and utilizes certain financial instruments to manage its foreign currency and commodity exposures, primarily related to forecasted transactions and interest rate exposures...

  • Page 61
    ...(Unaudited): (in millions, except per share data) First Operating revenues Gross profit Net earnings Weighted average shares for diluted EPS Per share data: Basic EPS Diluted EPS Dividends declared Market price-high -low (in millions, except per share data) 2001 Quarters Second Third $8,692 $4,300...

  • Page 62
    ...of Independent Accountants Company Report on Financial Statements To the Board of Directors and Shareholders of Kraft Foods Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, shareholders' equity and cash flows present fairly, in...

  • Page 63
    ..., Kraft Foods North America, Inc., and President, Operations, Technology, Information Systems, Kraft Foods Canada, Mexico and Puerto Rico Richard G. Searer Group Vice President, Kraft Foods North America, Inc., and President, Oscar Mayer, Pizza and Food Service Group Kraft Foods International...

  • Page 64
    ... the tragic events of September 11, Kraft was making arrangements to rush 14 truckloads of food to New York and Washington. Whether it's through corporate support, employee involvement or disaster relief, all of us at Kraft want to help find innovative solutions to society's most pressing needs. 58

  • Page 65
    ..., reports and Securities and Exchange Commission (SEC) filings available to its shareholders. For copies, please visit our website at: www.kraft.com. If you do not have Internet access, you can call our Shareholder Publications Center toll-free: 1-800-295-1255. Stock Exchange Listing Kraft Foods Inc...

  • Page 66
    ...but being better drives our future. WWW.KRAFT.COM