Kraft 2002 Annual Report Download

Download and view the complete annual report

Please find the complete 2002 Kraft annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 70

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70

kraft foods inc. 2002 annual report
WE’RE AT HOME...

Table of contents

  • Page 1
    kraft foods inc. 2002 annual report WE'RE AT HOME...

  • Page 2
    ...ALL AROUND the world.

  • Page 3

  • Page 4
    ...in the industry. They live and work in countries around the world-seeing, hearing and tasting the things that will help them drive growth. Through their insights, we see- and meet-people's needs for high-quality, convenient and nutritious food. But we don't let the best ideas just sit in one country...

  • Page 5
    global understanding 3

  • Page 6
    people insight brands marketing customers efficiency integrity performance L O C A L taste 4

  • Page 7
    ... tub, a brick or the convenience of a snack bar. But whatever the flavor or form, people in 94 countries enjoy Philadelphia customized to their tastes, making it the No. 1 cream cheese in the world. And, just the same, you can find local flavors and forms of Maxwell House in 78 countries, Ritz in 49...

  • Page 8
    people insight brands marketing customers efficiency integrity performance L O C A L favorites 6

  • Page 9
    ... most important assets a food company has are its brands, and Kraft has the best in the food business. In fact, we have dozens of the world's most popular brands. And whether it's a local favorite or a global powerhouse, each brand is built on a firm foundation of trust, quality and convenience. It...

  • Page 10
    people insight brands marketing customers efficiency integrity performance L O C A L touch 8

  • Page 11
    ... not enough anymore. Today, successful food marketing is more than just selling products-it's about connecting with people in a personal way. We work hard to offer the services people need-whether it's our toll-free numbers, health & wellness information or on-line meal planners-when and where they...

  • Page 12
    people insight brands marketing customers efficiency integrity performance L O C A L relationships 10

  • Page 13
    ... their No. 1 partner among all consumer products companies. We know that our growth can't happen if it's not a winning opportunity for our retail partners, too. So whether it's a small shop in China, a supermarket in Chicago or a global team aligned with one of our global customers, we work with our...

  • Page 14
    people insight brands marketing customers efficiency integrity performance L O C A L ingenuity 12

  • Page 15
    ..., our people create new ways to work a little faster, a little smarter, a little better. We are constantly refining how we produce our products, how we distribute them and how we sell them. And then we apply the best of what we learn in one part of our business everywhere else we can. That's how...

  • Page 16
    people insight brands marketing customers efficiency integrity performance L O C A L commitment 14

  • Page 17
    global trust While, to some, the issue of corporate integrity may seem like a new concept, at Kraft, it's been part of our 100-year history all along. From our earliest beginnings, we have focused on delivering on our promises-to consumers, retail partners, suppliers, employees, communities and ...

  • Page 18
    people insight brands marketing customers efficiency integrity performance L O C A L opportunity +3.1 +5.5 % worldwide volume* % operating companies income* +15.4 + % earnings per share* 16

  • Page 19
    ... on opportunities added up to for Kraft in 2002*: Compared with 2001, worldwide volume was up 3.1%; operating companies income increased 5.5% to $6.4 billion; net earnings grew 15.2% to $3.5 billion; diluted earnings per share were up 15.4% to $2.02; and our total return to shareholders was 16...

  • Page 20
    T H E W O R L D ' S favorite foods for 10 0 years As we celebrate our 100th anniversary, we're proud of how far we've come and even prouder of where we're going. With a commitment to innovation, quality and growth at the heart of everything we do, we're looking forward to the next 100 years. 18

  • Page 21
    ® ® ® ® ® ® ®

  • Page 22
    ... El Caserío, Kraft makes the cheese that people love to eat. • New Double Delight Oreo helped drive Oreo, the world's best-selling cookie brand, to an all-time U.S. category share of 14.4%. • In September, we acquired Kar Gida, a leading salted-snacks producer in the key developing market of...

  • Page 23
    ... and taste, all at a great price-that's what the world wants for dinner. And that's just what we offer, including It's Pasta Anytime and Kraft Fresh Prep meal kits; DiGiorno, Delissio and Tombstone pizza; Kraft and Mirácoli dinners and Boca meat alternatives. Oh, and for lunch we've got Oscar Mayer...

  • Page 24
    ... per share Results by Business Segment North America Cheese, Meals and Enhancers Net revenues* Operating companies income Biscuits, Snacks and Confectionery Net revenues* Operating companies income Beverages, Desserts and Cereals Net revenues* Operating companies income Oscar Mayer and Pizza Net...

  • Page 25
    ...Asia Pacific segment due to the economic issues we faced in several Latin American markets. Kraft Foods North America Beverages, Desserts and Cereals-Volume was up a strong 8.4%, once again led by growth in ready-to-drink beverages, including Capri Sun and Kool-Aid Jammers. Both Maxwell House coffee...

  • Page 26
    ... Supporting all our brands with world-class marketing. Drive global category leadership by: • Using worldwide category councils to share best practices, fast-adapt product ideas, and optimize productivity and sourcing. • Stepping up our expansion in developing markets. • Building distribution...

  • Page 27
    ... world-class productivity, quality and service by: • Delivering annual productivity of 3.5% of cost of goods sold. • Achieving ongoing annual synergy savings from the integration of Nabisco. • Ensuring product quality and customer-service levels in all categories in all markets. Build employee...

  • Page 28
    ...Fund and United Way in support of community nonprofit organizations. • A wide range of employee volunteer activities, including Kraft Cares Day in the U.S., Brazil, Australia and the U.K. • Emergency food for victims of natural disasters on five continents. Addressing key issues The manufacture...

  • Page 29
    kraft foods inc. financial review Financial Contents Management's Discussion and Analysis of Financial Condition and Results of Operations ...26 Selected Financial Data-Five-Year Review ...43 Consolidated Balance Sheets ...44 Consolidated Statements of Earnings ...45 Consolidated Statements of ...

  • Page 30
    ...; 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. Critical Accounting Policies...

  • Page 31
    ... Group, Inc.'s subsidiary, Altria Corporate Services, Inc. (formerly Philip Morris Management Corp.), provides the Company with various services, including planning, legal, treasury, accounting, auditing, insurance, human resources, office of the secretary, corporate affairs, information technology...

  • Page 32
    ...to employees (rather than stock options) is more transparent to shareholders as the cost of the program is based upon the average market price of the stock on the date of grant, rather than a fair value generated by an option-pricing model. In Latin America, political unrest in Venezuela, as well as...

  • Page 33
    ... to the Company's consolidated operating results in any of the periods presented. Century Date Change: The Company did not experience any material disruptions to its business as a result of the Century Date Change ("CDC"). The Company's increases in 1999 year-end inventories and trade receivables...

  • Page 34
    ... Desserts 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 net revenues Reported operating companies income: Kraft Foods North America Cheese, Meals...

  • Page 35
    ... the 31 2002 Cheese, Meals and Enhancers Biscuits, Snacks and Confectionery Beverages, Desserts and Cereals Oscar Mayer and Pizza Latin America and Asia Pacific $ 30 1 56 7 17 $111 2001 $63 2 12 5 $82 • Separation Programs: During 2002, approximately 700 salaried employees elected to retire or...

  • Page 36
    ...Desserts and Cereals Oscar Mayer and Pizza Total reported net revenues Net revenues of businesses sold: Cheese, Meals and Enhancers Biscuits, Snacks and Confectionery Beverages, Desserts and Cereals Changes due to businesses held for sale: Cheese, Meals and Enhancers Estimated impact of century date...

  • Page 37
    ... and Cereals Oscar Mayer and Pizza Separation programs: Cheese, Meals and Enhancers Biscuits, Snacks and Confectionery Beverages, Desserts and Cereals Oscar Mayer and Pizza Changes due to businesses held for sale: Cheese, Meals and Enhancers Estimated impact of century date change: Cheese, Meals and...

  • Page 38
    ...retailers continued to reduce trade inventory levels, partially offset by higher volume in grated and natural cheese. In U.S. food service, shipments declined due to weakness in the economy and the Company's exit from lower-margin businesses. During 2001, reported net revenues increased $809 million...

  • Page 39
    ..., net revenues decreased 3.1%, reflecting commodity-related price reductions 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 lower marketing, administration and research costs...

  • Page 40
    ... Latin America and Asia Pacific Integration costs: Latin America and Asia Pacific Separation programs: Europe, Middle East and Africa Latin America and Asia Pacific Estimated impact of century date change: Europe, Middle East and Africa Latin America and Asia Pacific Nabisco operating companies...

  • Page 41
    ... over 2000. Excluding the 53rd week of shipments in 2000, volume increased 4.8%, benefiting from gains across most consumer sectors and driven by growth in the developing markets of Central and Eastern Europe, Latin America and Asia Pacific. During 2001, reported net revenues increased $654 million...

  • Page 42
    ... to dividends paid during 2002 and repurchases of the Company's Class A common stock. During 2002, the Company issued $2.5 billion of global bonds and $750 million of floating rate notes, the proceeds of which were used to repay outstanding indebtedness. Financing activities included net debt...

  • Page 43
    ... with the IPO, certain employees of Altria Group, Inc. and its subsidiaries (other than the Company) received a one-time grant of options to purchase shares of the Company's Class A common stock held by Altria Group, Inc. at the IPO price of $31.00 per share. In order to completely satisfy...

  • Page 44
    kraft foods inc. management's discussion and analysis of financial condition and results of operations Market Risk The Company operates globally, with manufacturing and sales facilities in various locations around the world, and utilizes certain financial instruments to manage its foreign currency...

  • Page 45
    ...in interest rates, foreign currency rates and commodity prices under normal market conditions. The computation does not purport to represent actual losses in fair value or earnings to be incurred by the Company, nor does it consider the effect of favorable changes in market rates. The Company cannot...

  • Page 46
    ... to new consumer trends, to develop new products and markets, to broaden brand portfolios in order to compete effectively with lower priced products in a consolidating environment at the retail and manufacturing levels, and to improve productivity. The Company's results are also dependent on its...

  • Page 47
    ... payable to Altria Group, Inc. 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 price per Class A common share-high/low Closing price...

  • Page 48
    ... Due to Altria Group, Inc. and affiliates Accounts payable Accrued liabilities: Marketing Employment costs Other Income taxes Total current liabilities Long-term debt Deferred income taxes Accrued postretirement health care costs Notes payable to Altria Group, Inc. and affiliates Other liabilities...

  • Page 49
    kraft foods inc. consolidated statements of earnings (in millions of dollars, except per share data) For the years ended December 31, Net revenues Cost of sales Gross profit Marketing, administration and research costs Integration costs and a loss on sale of a food factory Separation programs ...

  • Page 50
    ... Gains on sales of businesses Integration costs and a loss on sale of a food factory Separation programs Cash effects of changes, net of the effects from acquired and divested companies: Receivables, net Inventories Accounts payable Income taxes Other working capital items Increase in pension assets...

  • Page 51
    ... Additional minimum pension liability Change in fair value of derivatives accounted for as hedges Total other comprehensive losses Total comprehensive earnings Sale of Class A common stock to public Dividends declared ($0.26 per share) Balances, December 31, 2001 Comprehensive earnings: Net earnings...

  • Page 52
    ...is engaged in the manufacture and sale of branded foods and beverages in the United States, Canada, Europe, Latin America, Asia Pacific and Middle East and Africa. On December 11, 2000, the Company acquired all of the outstanding shares of Nabisco Holdings Corp. ("Nabisco") for $55 per share in cash...

  • Page 53
    ... the Company's consolidated financial position, results of operations or cash flows. Non-amortizable intangible assets are substantially comprised of brand names purchased through the Nabisco acquisition. Amortizable intangible assets consist primarily of certain trademark licenses and non-compete...

  • Page 54
    ...with developing or obtaining computer software for internal use. Capitalized software costs are amortized on a straight-line basis over the estimated useful lives of the software, which do not exceed five years. Stock-based compensation: The Company accounts for employee stock compensation plans in...

  • Page 55
    ... 3. Related Party Transactions: Altria Group, Inc.'s subsidiary, Altria Corporate Services, Inc., provides the Company with various services, including planning, legal, treasury, accounting, auditing, insurance, human resources, office of the secretary, corporate affairs, information technology and...

  • Page 56
    kraft foods inc. notes to consolidated financial statements Note 5. Acquisitions: Nabisco: On December 11, 2000, the Company acquired all of the outstanding shares of Nabisco for $55 per share in cash. The purchase of the outstanding shares, retirement of employee stock options and other payments ...

  • Page 57
    ... time to time of up to $500 million of the Company's Class A common stock solely to satisfy the obligations of the Company under the 2001 Kraft Performance Incentive Plan, the Kraft Director Plan for non-employee directors, and other plans where options to purchase the Company's Class A common stock...

  • Page 58
    ... Board of Directors who are not full-time employees of the Company or Altria Group, Inc., or their subsidiaries. Up to 500,000 shares of Class A common stock may be awarded under the Kraft Director Plan. During 2002 and 2001, 6,840 and 8,945 stock options were granted under the Kraft Director Plan...

  • Page 59
    ... share at December 31, 2000. Had compensation cost for stock option awards under the Kraft plans and Altria Group, Inc. plans been determined by using the fair value at the grant date, the Company's net earnings and EPS (basic and diluted) would have been $3,316 million and $1.91 for the year ended...

  • Page 60
    ..., Desserts and 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 operations are organized and managed by geographic location. KFI's segments are Europe...

  • Page 61
    ... the Years Ended December 31, Depreciation expense: Cheese, Meals and Enhancers Biscuits, Snacks 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...

  • Page 62
    .... In addition, Kraft'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. Pension Plans: Net pension (income) cost...

  • Page 63
    ... employees in the United States left the Company under a voluntary early retirement program instituted in 2001. This resulted in curtailment losses of $16 million, which are included in other expense above. The Company's postretirement health care plans are not funded. The changes in the benefit...

  • Page 64
    ... discount rate from 7 .75% to 7 .0%. Postemployment Benefit Plans: Kraft 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 covered employees...

  • Page 65
    ...hedged transactions are reported on the Company's consolidated statement of earnings. 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...

  • Page 66
    kraft foods inc. notes to consolidated financial statements Note 18. Quarterly Financial Data (Unaudited): (in millions, except per share data) First Net revenues Gross profit Net earnings Weighted average shares for diluted EPS Per share data: Basic EPS Diluted EPS Dividends declared Market ...

  • Page 67
    ...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 68
    ... President, Latin America Hugh H. Roberts Group Vice President, Kraft Foods International, Inc., and President, Asia Pacific Franz-Josef H. Vogelsang Senior Vice President, Operations, Procurement and Supply Chain, Kraft Foods International, Inc. Committees 1 Member of Compensation and Governance...

  • Page 69
    ...Foods Inc., Robert M. Schaeberle Technology Center, 188 River Road, East Hanover, NJ 07936. For further information, call toll-free: 1-800-295-1255. Independent Accountants PricewaterhouseCoopers LLP One North Wacker Drive Chicago, IL 60606-2807 Trademarks Trademarks and service marks in this report...

  • Page 70
    kraft foods inc. 100 years and counting www.kraft.com