Kraft 2003 Annual Report Download - page 49

47
Net earnings, as reported, includes pre-tax compensation expense
related to restricted stock and rights to receive shares of stock of
$57 million, $4 million and $39 million for the years ended December
31, 2003, 2002 and 2001, respectively. The following table illustrates
the effect on net earnings and EPS if the Company had applied the
fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation for the years ended December 31, 2003,
2002, and 2001:
(in millions, except per share data)
2003 2002 2001
Net earnings, as reported $3,476 $3,394 $1,882
Deduct:
Total stock-based employee
compensation expense determined
under fair value method for all
stock option awards, net of related
tax effects 12 78 97
Pro forma net earnings $3,464 $3,316 $1,785
Earnings per share:
Basic—as reported $2.01 $1.96 $ 1.17
Basic—pro forma $2.01 $1.91 $ 1.11
Diluted—as reported $2.01 $1.96 $ 1.17
Diluted—pro forma $2.00 $1.91 $ 1.11
New accounting pronouncements: Several recent accounting
pronouncements not previously discussed became effective during
2003. The adoption of these pronouncements did not have a
material impact on the Company’s consolidated financial position,
results of operations or cash flows. The pronouncements were
as follows:
•SFAS No. 150, “Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity”;
•EITF Issue No. 03-3, “Applicability of EITF Abstracts, Topic No.
D-79, ‘Accounting for Retroactive Insurance Contracts Purchased
by Entities Other Than Insurance Enterprises,’ to Claims-Made
Insurance Policies”;
•EITF Issue No. 01-8, “Determining Whether an Arrangement
Contains a Lease”;
•SFAS No. 146, “Accounting for Costs Associated with Exit or
Disposal Activities”; and
•FASB Interpretation No. 46, “Consolidation of Variable
Interest Entities.”
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. Billings for these services, which were based on the
cost to Altria Corporate Services, Inc. to provide such services and a
management fee, were $318 million, $327 million and $339 million for
the years ended December 31, 2003, 2002 and 2001, 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 has assessed 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.
The Company had long-term notes payable to Altria Group, Inc. and
its affiliates as follows:
(in millions)
At December 31, 2003 2002
Notes payable in 2009, interest at 7.0% $— $1,150
Short-term due to Altria Group, Inc. and
affiliates reclassified as long-term 1,410
$— $2,560
During 2003, the Company repaid Altria Group, Inc. the remaining
$1,150 million on the 7.0% note as well as the $1,410 million of short-
term reclassified to long-term. In addition, at December 31, 2003
and 2002, the Company had short-term amounts payable to Altria
Group, Inc. of $543 million and $895 million, respectively. Interest on
these borrowings is based on the applicable London Interbank
Offered Rate.
The fair values of the Company’s short-term amounts due to Altria
Group, Inc. and affiliates approximate carrying amounts.
Note 4. Divestitures:
During 2003, the Company sold a European rice business and a
branded fresh cheese business in Italy. The aggregate proceeds
received from sales of businesses were $96 million, on which the
Company recorded pre-tax gains of $31 million.
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.
The operating results of the businesses sold were not material to the
Company’s consolidated financial position, results of operations or
cash flows in any of the periods presented.