Kraft 2003 Annual Report Download - page 53

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Note 11. Earnings Per Share:
Basic and diluted EPS were calculated using the following for the
years ended December 31, 2003, 2002 and 2001:
(in millions)
2003 2002 2001
Net earnings $3,476 $3,394 $1,882
Weighted average shares for
basic EPS 1,727 1,734 1,610
Plus incremental shares from
assumed conversions:
Restricted stock and stock rights 1
Stock options 2
Weighted average shares for
diluted EPS 1,728 1,736 1,610
For the 2003 computation, 18 million Class A common stock options
were excluded from the calculation of weighted average shares for
diluted EPS because their effects were antidilutive.
Note 12. Pre-tax Earnings and Provision for Income Taxes:
Pre-tax earnings and provision for income taxes consisted of the
following for the years ended December 31, 2003, 2002 and 2001:
(in millions)
2003 2002 2001
Pre-tax earnings:
United States $3,713 $3,692 $2,282
Outside United States 1,633 1,575 1,165
Total pre-tax earnings $5,346 $5,267 $3,447
Provision for income taxes:
United States federal:
Current $1,011 $825 $ 594
Deferred 153 265 299
1,164 1,090 893
State and local 151 138 112
To tal United States 1,315 1,228 1,005
Outside United States:
Current 460 628 445
Deferred 91 13 115
Total outside United States 551 641 560
Total provision for income taxes $1,866 $1,869 $1,565
At December 31, 2003, applicable United States federal income
taxes and foreign withholding taxes have not been provided on
approximately $3.3 billion of accumulated earnings of foreign
subsidiaries that are expected to be permanently reinvested. It is not
practical to estimate the amount of additional taxes that might be
payable on such undistributed earnings.
The effective income tax rate on pre-tax earnings differed from the
U.S. federal statutory rate for the following reasons for the years
ended December 31, 2003, 2002 and 2001:
2003 2002 2001
U.S. federal statutory rate 35.0% 35.0% 35.0%
Increase (decrease) resulting from:
State and local income taxes,
net of federal tax benefit 1.8 1.7 2.0
Goodwill amortization 9.4
Other (including reversal of taxes
no longer required) (1.9) (1.2) (1.0)
Effective tax rate 34.9% 35.5% 45.4%
Rate differences from foreign operations, which are included in other,
above, reduced the Company’s effective tax rate by 0.8% in 2003
and 0.4% in 2001. Rate differences from foreign operations had no
impact in 2002.
The tax effects of temporary differences that gave rise to deferred
income tax assets and liabilities consisted of the following at
December 31, 2003 and 2002:
(in millions)
2003 2002
Deferred income tax assets:
Accrued postretirement and
postemployment benefits $809 $759
Other 392 519
Total deferred income tax assets 1,201 1,278
Deferred income tax liabilities:
Trade names (3,839) (3,839)
Property, plant and equipment (1,636) (1,515)
Prepaid pension costs (901) (841)
To tal deferred income tax liabilities (6,376) (6,195)
Net deferred income tax liabilities $(5,175) $(4,917)
Note 13. Segment Reporting:
The Company manufactures and markets packaged retail food
products, consisting principally of beverages, cheese, snacks,
convenient meals and various packaged grocery products through
Kraft Foods North America, Inc. (“KFNA”) and Kraft Foods
International, Inc. (“KFI”). Reportable segments for KFNA are
organized and managed principally by product category. KFNA’s
segments are Cheese, Meals and Enhancers; Biscuits, Snacks and
Confectionery; Beverages, 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, Middle East and Africa; and Latin America and Asia Pacific.