Kraft 2001 Annual Report Download - page 39

Kraft Foods Inc.
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Reported operating companies income increased $21 million
(12.5%) over 1999, due primarily to higher volume/mix ($43 million)
and higher pricing ($14 million), partially offset by higher marketing,
administration and research costs ($20 million) and the shift in CDC
income ($10 million). On an underlying basis, operating companies
income increased 20.1%.
Financial Review
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $3.3 billion in 2001
and 2000, while $2.7 billion was provided by operating activities
in 1999. The increase in 2000 operating cash flows over 1999
primarily reflected increased net earnings of $248 million and
reduced levels of receivables and inventories of $318 million, which
included the shift in working capital attributable to the CDC.
Net Cash Used in Investing Activities
During 2001, 2000 and 1999, net cash used in investing activities
was $1.2 billion, $16.1 billion and $669 million, respectively. The
increase in 2000 primarily reflects the cash used for the acquisition
of Nabisco.
Capital expenditures, which were funded by operating activities,
were $1.1 billion, $906 million and $860 million in 2001, 2000 and
1999, respectively. The capital expenditures were primarily to
modernize the manufacturing facilities, lower cost of production
and expand production capacity 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, Morocco and Bulgaria and also acquired confectionery
businesses in Russia and Poland. The total cost of these and other
smaller acquisitions was $194 million.
During 2000, the Company purchased Boca Burger, Inc. and
Balance Bar Co. The total cost of these and other smaller
acquisitions was $365 million.
Net Cash Used in Financing Activities
During 2001, net cash of $2.1 billion was used in financing activities,
compared with $13.0 billion provided by financing activities
during 2000. During 2001, financing activities included net debt
repayments of $2.0 billion, excluding debt repayments made with
IPO proceeds. The net proceeds from the IPO were used to repay
debt to Philip Morris and, as a result, had no impact on financing
cash flows. In 2000, the Company’s financing activities provided
cash, as additional borrowings to finance the acquisition of
Nabisco exceeded the cash used to pay dividends. During 1999,
net cash of $2.0 billion was used in financing activities.
Debt and Liquidity
The SEC recently issued Financial Reporting Release No. 61, which
sets forth the views of the SEC regarding enhanced disclosures
relating to liquidity and capital resources. The information provided
below about the Company’s debt, credit facilities, guarantees and
future commitments is included here to facilitate a review of the
Company’s liquidity.
Debt: The Company’s total debt, including intercompany accounts
payable to Philip Morris, was $16.0 billion at December 31, 2001,
and $25.8 billion at December 31, 2000. The decrease was due
primarily to the repayment of $8.4 billion of long-term notes payable
to Philip Morris with the net proceeds from the IPO.
During 2001, the Company refinanced $2.6 billion, representing the
remaining portion of an $11.0 billion long-term note payable to Philip
Morris, with the proceeds from short-term borrowings. In addition,
the Company refinanced long-term, fixed-rate Swiss franc notes
payable to Philip Morris with short-term Swiss franc borrowings
from Philip Morris at variable interest rates.
During 2001, in anticipation of a public bond offering, the Company
converted its $4.0 billion, 7.40% note payable to Philip Morris,
originally maturing in December 2002, into a 3.56125% note
payable to Philip Morris maturing in November 2001. On November
2, 2001, the Company completed a $4.0 billion public global bond
offering at a weighted average interest rate of 5.48%, the net
proceeds of which were used to repay the 3.56125% short-term
note payable to Philip Morris.
As discussed in Notes 3, 7 and 8 to the consolidated financial
statements, the Company’s total debt of $16.0 billion at December
31, 2001 is due to be repaid as follows: in 2002, $4.9 billion; in
2003-2004, $0.5 billion; in 2005-2006, $2.0 billion; and thereafter,
$8.6 billion. Debt obligations due to be repaid in 2002 will be
satisfied with a combination of short-term borrowings, refinancing
transactions in the debt markets and operating cash flows. The
Company’s debt-to-equity ratio was 0.68 at December 31, 2001
and 1.84 at December 31, 2000.
Credit Ratings: The Company’s credit ratings by Moody’s at
December 31, 2001 were “P-1” in the commercial paper market and
“A2” for long-term debt obligations. The Company’s credit ratings
by Standard & Poor’s at December 31, 2001 were “A-1” in the
commercial paper market, and “A-” for long-term debt obligations.
The Company’s credit ratings by Fitch Rating Services at
December 31, 2001 were “F-1” in the commercial paper market and
“A” for long-term debt obligations. Changes in the Company’s credit
ratings, although none are currently anticipated, could result in
corresponding changes in the Company’s borrowing costs.
However, none of the Company’s debt agreements require
accelerated repayment in the event of a decrease in credit ratings.
Credit Facilities: In July 2001, reflecting the Company’s reduced
requirements for credit facilities following the IPO, Philip Morris
terminated an existing $9.0 billion 364-day revolving credit
agreement that could have been transferred to the Company. Upon