Kraft 2005 Annual Report Download - page 42

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MERRILL CORPORATION ABLIJDE// 7-MAR-06 14:42 DISK126:[06CHI5.06CHI1135]DK1135A.;21
mrll.fmt Free: 1730DM/0D Foot: 0D/ 0D VJ RSeq: 12 Clr: 0
DISK024:[PAGER.PSTYLES]UNIVERSAL.BST;51
KRAFT FOODS-FSC CERTIFIED-10K/AR Proj: P1102CHI06 Job: 06CHI1135 File: DK1135A.;21
Merrill Corporation/Chicago (312) 786-6300 Page Dim: 8.250X 10.750Copy Dim: 38. X 54.3
beverages, volume increased, due primarily to refreshment beverage gains in the Philippines, Argentina
and Puerto Rico.
Net revenues increased $235 million (9.1%), due primarily to favorable currency ($126 million),
higher pricing, net of increased promotional spending ($83 million) and favorable volume/mix
($42 million, including the benefit of the 53rdweek), partially offset by the impact of divestitures
($17 million). Net revenues increased in several geographies, including volume and pricing gains in
Venezuela, and increased refreshment beverage and cheese shipments in the Philippines. Net revenues
declined in China, where the Company faced increased competitive activity in biscuits.
Operating companies income increased $74 million (29.6%), due primarily to higher pricing net of
unfavorable costs ($45 million, including increased promotional spending), favorable volume/mix
($28 million, including the benefit of the 53rd week), favorable currency ($27 million) and lower pre-tax
charges for asset impairment and exit costs ($15 million), partially offset by higher marketing,
administration and research costs ($23 million, including costs associated with the 53rd week, partially
offset by a $16 million recovery of receivables previously written off) and higher fixed manufacturing
costs ($18 million).
2004 compared with 2003
The following discussion compares Kraft International Commercial’s operating results for 2004 with
2003.
Volume decreased 1.1%, due primarily to the impact of the divestiture of a rice business and a
branded fresh cheese business in Europe in 2003, as well as price competition and trade inventory
reductions in several markets, partially offset by the impact of acquisitions.
Net revenues increased $547 million (5.7%), due primarily to favorable currency ($674 million), the
impact of acquisitions ($23 million) and favorable volume/mix ($23 million), partially offset by the impact
of divestitures ($126 million) and increased promotional spending, net of higher pricing ($47 million).
Lower pricing and higher promotional spending on coffee in Europe and lower shipments of refreshment
beverages in Mexico negatively impacted net revenues.
Operating companies income decreased $460 million (33.0%), due primarily to the pre-tax charges
for asset impairment and exit costs ($206 million), unfavorable costs and increased promotional
spending, net of higher pricing ($113 million), higher marketing, administration and research costs
($92 million, including higher benefit costs and infrastructure investment in developing markets), the
2004 equity investment impairment charge related to a joint venture in Turkey ($47 million), the
unfavorable net impact related to gains and losses on the sales of businesses ($34 million), the impact of
divestitures ($18 million) and the 2004 implementation costs associated with the restructuring program
($10 million), partially offset by favorable currency ($69 million).
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