Kraft 2004 Annual Report Download - page 40

and $59 million, respectively. These transactions, which are subject to regulatory approval, are expected
to be completed during the first half of 2005.
Net Cash Used in Financing Activities
During 2004, net cash of $3.2 billion was used in financing activities, compared with $2.8 billion
during 2003. The increase in cash used in 2004 was due primarily to an increase in the Company’s
Class A share repurchases and dividend payments. In November 2004, the Company issued
$750 million in third-party long-term debt, the net proceeds of which was used to refinance maturing
debt.
During 2003, net cash of $2.8 billion was used in financing activities, compared with $2.6 billion
during 2002. The increase in cash used in 2003 was due primarily to an increase in the Company’s
Class A share repurchases and an increase in dividend payments, partially offset by a decrease in net
debt repayments in 2003 (including amounts due to Altria Group, Inc. and affiliates). During 2003, the
Company issued $1.5 billion of third-party long-term debt, the net proceeds of which were used to repay
outstanding related party indebtedness. Financing activities included net debt repayments of
approximately $1.4 billion in 2003.
Debt and Liquidity
Debt. The Company’s total debt, including amounts due to Altria Group, Inc. and affiliates, was
$12.5 billion at December 31, 2004 and $13.5 billion at December 31, 2003. The Company’s
debt-to-equity ratio was 0.42 at December 31, 2004 and 0.47 at December 31, 2003. The Company’s
debt-to-capitalization ratio was 0.30 at December 31, 2004 and 0.32 at December 31, 2003.
In November 2004, the Company issued $750 million of 5-year notes bearing interest at 4.125%.
The net proceeds of the offering were used to refinance maturing debt. The Company has a Form S-3
shelf registration statement on file with the Securities and Exchange Commission (‘‘SEC’’) under which
the Company may sell debt securities and/or warrants to purchase debt securities in one or more
offerings up to a total amount of $4.0 billion. At December 31, 2004, the Company had $3.5 billion of
capacity remaining under its shelf registration.
At December 31, 2004 and 2003, the Company had short-term amounts payable to Altria
Group, Inc. of $227 million and $543 million, respectively. Interest on these borrowings is based on the
applicable London Interbank Offered Rate.
Credit Ratings. 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. The Company’s
credit ratings by Moody’s at December 31, 2004, were ‘‘P-2’’ for short-term debt and ‘‘A3’’ for long-term
debt, with stable outlook. The Company’s credit ratings by Standard & Poor’s at December 31, 2004
were ‘‘A-2’’ for short-term debt and ‘‘BBB+’’ for long-term debt, with stable outlook. The Company’s
credit ratings by Fitch Rating Services at December 31, 2004 were ‘‘F-2’’ for short-term debt and
‘‘BBB+’’ for long-term debt, with stable outlook. As a result of the rating agencies’ actions, borrowing
costs have increased. None of the Company’s debt agreements requires accelerated repayment in the
event of a decrease in credit ratings. The credit rating downgrades by Moody’s, Standard & Poor’s and
Fitch Rating Services had no impact on any of the Company’s other existing third-party contracts.
Credit Lines. The Company maintains revolving credit facilities that have historically been used to
support the issuance of commercial paper. The 364-day revolving credit facility expires in July 2005,
although it contains a provision allowing the Company to extend the maturity of outstanding borrowings
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