Kraft 2003 Annual Report Download - page 50

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Kraft Foods Inc. Notes to Consolidated Financial Statements
Note 5. Acquisitions:
During 2003, the Company acquired a biscuits business in Egypt
and trademarks associated with a small U.S.-based natural foods
business. The total cost of these and other smaller acquisitions was
$98 million.
During 2002, the Company acquired a snacks business in Turkey
and a biscuits business in Australia. The total cost of these and other
smaller acquisitions was $122 million.
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.
The effects of these acquisitions were not material to the Company’s
consolidated financial position, results of operations or cash flows in
any of the periods presented.
Note 6. Inventories:
The cost of approximately 39% and 43% of inventories in 2003 and
2002, respectively, was determined using the LIFO method. The
stated LIFO amounts of inventories were approximately $155 million
and $215 million higher than the current cost of inventories at
December 31, 2003 and 2002, respectively.
Note 7. Short-Term Borrowings and
Borrowing Arrangements:
At December 31, 2003 and 2002, the Company had short-term
borrowings of $2,453 million and $1,621 million, respectively,
consisting principally of commercial paper borrowings with an
average year-end interest rate of 1.4% and 1.3%, respectively. Of
these amounts, the Company reclassified $1,900 million and
$1,401 million, respectively, of the commercial paper borrowings to
long-term debt based upon its intent and ability to refinance these
borrowings on a long-term basis.
The fair values of the Company’s short-term borrowings at
December 31, 2003 and 2002, based upon current market interest
rates, approximate the amounts disclosed above.
Following a $10.1 billion judgment on March 21, 2003 against Altria
Group, Inc.’s domestic tobacco subsidiary, Philip Morris USA Inc.,
the three major credit rating agencies took a series of ratings actions
resulting in the lowering of the Company’s short-term and long-term
debt ratings, despite the fact the Company is neither a party to, nor
has exposure to, this litigation. Moody’s lowered the Company’s
short-term debt rating from “P-1” to “P-2” and its long-term debt
rating from “A2” to “A3,” with stable outlook. Standard & Poor’s
lowered the Company’s short-term debt rating from “A-1” to “A-2”
and its long-term debt rating from “A–” to “BBB+,” with stable
outlook. Fitch Rating Services lowered the Company’s short-term
debt rating from “F-1” to “F-2” and its long-term debt rating from “A”
to “BBB+,” with stable outlook. As a result of the credit rating
agencies’ actions, the Company temporarily lost access to the
commercial paper market, and borrowing costs increased. None of
the Company’s debt agreements requires accelerated repayment in
the event of a decrease in credit ratings.
The Company maintains revolving credit facilities that have
historically been used to support the issuance of commercial paper.
At December 31, 2003, credit lines for the Company and the related
activity were as follows:
(in billions of dollars)
Commercial
Credit Amount Paper
Type Lines Drawn Outstanding
364-day (expires July 2004) $2.5 $ — $0.3
Multi-year (expires July 2006) 2.0 1.9
$4.5 $ — $2.2
The Company’s revolving credit facilities, which are for its sole use,
require the maintenance of a minimum net worth of $18.2 billion. The
Company met this covenant at December 31, 2003 and expects to
continue to meet this covenant. The foregoing revolving credit
facilities do not include any other financial tests, any credit rating
triggers or any provisions that could require the posting of collateral.
In addition to the above, certain international subsidiaries of the
Company maintain uncommitted credit lines to meet the short-term
working capital needs of the international businesses. These credit
lines, which amounted to approximately $658 million as of
December 31, 2003, are for the sole use of the Company’s
international businesses. Borrowings on these lines amounted to
approximately $220 million at December 31, 2003 and 2002.
Note 8. Long-Term Debt:
At December 31, 2003 and 2002, the Company’s long-term debt
consisted of the following:
(in millions)
2003 2002
Short-term borrowings, reclassified as
long-term debt $1,900 $1,401
Notes, 4.00% to 7.55% (average effective
rate 5.37%), due through 2035 10,256 9,053
7% Debenture (effective rate 11.32%),
$200 million face amount, due 2011 157 153
Foreign currency obligations 16 117
Other 37 44
12,366 10,768
Less current portion of long-term debt (775) (352)
$11,591 $10,416