Kraft 2002 Annual Report Download - page 55

deliverables contains more than one unit of accounting.
EITF Issue No. 00-21 is effective for the Company for revenue
arrangements entered into beginning July 1, 2003. The Company
does not expect the adoption of EITF Issue No. 00-21 to have a
material impact on its 2003 consolidated financial statements.
In January 2003, the FASB issued Interpretation No. 46,
“Consolidation of Variable Interest Entities.” Interpretation No. 46
requires that the assets, liabilities and results of the activity of
variable interest entities be consolidated into the financial
statements of the company that has the controlling financial
interest. Interpretation No. 46 also provides the framework for
determining whether a variable interest entity should be
consolidated based on voting interests or significant financial
support provided to it. Interpretation No. 46 will be effective for
the Company on February 1, 2003 for variable interest entities
created after January 31, 2003, and on July 1, 2003 for variable
interest entities created prior to February 1, 2003. The Company
does not expect the adoption of Interpretation No. 46 to have a
material impact on its 2003 consolidated financial statements.
Note 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 tax services. In 2001, the Company entered into a formal
agreement with Altria Corporate Services, Inc., providing for a
continuation of these services, the cost of which increased
$91 million during 2001 as Altria Corporate Services, Inc., provided
information technology and financial services, all of which were
previously performed by the Company at approximately the same
cost. Billings for these services, which were based on the cost to
Altria Corporate Services, Inc. to provide such services and a
management fee, were $327 million, $339 million and $248 million
for the years ended December 31, 2002, 2001 and 2000,
respectively. These costs were paid to Altria Corporate Services,
Inc. monthly. Although the cost of these services cannot be
quantified on a stand-alone basis, management believes that the
billings are reasonable based on the level of support provided by
Altria Corporate Services, Inc., and that they reflect all services
provided. The cost and nature of the services are reviewed
annually by the Company’s audit committee, which is comprised
of independent directors. The effects of these transactions are
included in operating cash flows in the Company’s consolidated
statements of cash flows.
In addition, the Company’s daily net cash or overdraft position
is transferred to Altria Group, Inc., or its European subsidiary.
The Company pays or receives interest based upon the applicable
London Interbank Offered Rate, on the amounts payable to, or
receivable from, Altria Group, Inc., or its European subsidiary.
The Company also has long-term notes payable to Altria Group,
Inc. and its affiliates as follows:
(in millions)
At December 31, 2002 2001
Notes payable in 2009, interest at 7.0% $1,150 $5,000
Short-term due to Altria Group, Inc. and
affiliates reclassified as long-term 1,410
$2,560 $5,000
The 7.0% notes have no prepayment penalty. During 2002, the
Company prepaid $3,850 million of the 7.0% long-term notes
payable. In addition, at December 31, 2002, the Company has
short-term debt totaling $2,305 million to Altria Group, Inc.
Interest on these borrowings is based on the average one-month
London Interbank Offered Rate. A portion of the debt, totaling
$1,410 million, was reclassified on the consolidated balance sheet
as long-term notes due to Altria Group, Inc. and affiliates based
upon the Company’s ability and intention to refinance on a long-
term basis.
Based on interest rates available to the Company for issuances of
debt with similar terms and remaining maturities, the aggregate
fair value of the Company’s long-term notes payable to Altria
Group, Inc. and affiliates, at December 31, 2002 and 2001, were
$2,764 million and $5,325 million, respectively. The fair values of
the Company’s current amounts due to Altria Group, Inc. and
affiliates approximate carrying amounts.
Note 4. Divestitures:
During 2002, the Company sold several small North American
food businesses, some of which were previously classified as
businesses held for sale. The net revenues and operating
results of the businesses held for sale, which were not significant,
were excluded from the Company’s consolidated statements
of earnings, and no gain or loss was recognized on these sales.
In addition, the Company sold its Latin American yeast and
industrial bakery ingredients business for approximately
$110 million and recorded a pre-tax gain of $69 million. The
aggregate proceeds received from sales of businesses were
$219 million, on which the Company recorded pre-tax gains of
$80 million.
During 2001, the Company sold several small food businesses.
The aggregate proceeds received in these transactions were
$21 million, on which the Company recorded pre-tax gains of
$8 million.
During 2000, the Company sold a French confectionery business
for proceeds of $251 million, on which a pre-tax gain of
$139 million was recorded. Several small international and North
American food businesses were also sold in 2000. The aggregate
proceeds received from sales of businesses were $300 million,
on which the Company recorded pre-tax gains of $172 million.
The operating results of the businesses sold were not material to
the Company’s consolidated operating results in any of the
periods presented.
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