Kraft 2004 Annual Report Download - page 17

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operation.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Description of the Company
The Company manufactures and markets packaged food products, consisting principally of
beverages, cheese, snacks, convenient meals and various packaged grocery products. Kraft manages
and reports operating results through two units, Kraft North America Commercial and Kraft International
Commercial. Reportable segments for Kraft North America Commercial are organized and managed
principally by product category. Kraft International Commercial’s operations are organized and
managed by geographic location. At December 31, 2004, Altria Group, Inc. held 98.0% of the combined
voting power of Kraft’s outstanding capital stock and owned 85.4% of the outstanding shares of Kraft’s
capital stock.
On November 15, 2004, the Company announced the sale of substantially all of its sugar
confectionery business for approximately $1.5 billion. The transaction, which is subject to regulatory
approval, is expected to be completed in the second quarter of 2005. The Company has reflected the
results of its sugar confectionery business as discontinued operations on the consolidated statements of
earnings for all years presented. Accordingly, historical statements of earnings amounts included in
Management’s Discussion and Analysis of Financial Condition and Results of Operations have been
restated to reflect the discontinued operation. The assets related to the sugar confectionery business
were reflected as assets of discontinued operations held for sale on the consolidated balance sheet at
December 31, 2004.
During January 2004, the Company announced a new global organization structure, which resulted
in new segments. During the fourth quarter of 2004, following the sale of its sugar confectionery
business, the Company realigned its North American segments. Kraft North America Commercial’s new
segments, which are reflected in this Management’s Discussion and Analysis, are U.S. Beverages;
U.S. Cheese, Canada & North America Foodservice; U.S. Convenient Meals; U.S. Grocery; and
U.S. Snacks & Cereals. Kraft International Commercial’s segments are Europe, Middle East & Africa; and
Latin America & Asia Pacific. The new segment structure in North America reflects a shift of certain
divisions and brands between segments to more closely align these businesses to consumer sectors, to
provide more focus on the separate beverage and grocery businesses, and to benefit from synergies in
grain based products. Historical data have been restated to reflect the new segment structure.
Executive Summary
The following executive summary is intended to provide significant highlights of the Discussion and
Analysis that follows.
Consolidated Operating Results—The changes in the Company’s earnings from continuing
operations and diluted earnings per share (‘‘EPS’’) from continuing operations for the year ended
16