Kraft 2006 Annual Report Download - page 46

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commodity-based pricing, favorable mix and higher shipments in Russia, Ukraine and Romania. In refreshment beverages, higher shipments in Brazil and
favorable pricing in Mexico drove higher net revenues. Cheese & dairy net revenue increases were driven by higher shipments in the Middle East. In convenient
meals, net revenues were up slightly. Grocery net revenues declined due to the impact of a divestiture in Colombia.
Operating companies income increased $16 million (4.0%), due primarily to higher pricing, net of unfavorable costs ($102 million), favorable volume/mix
($93 million, including the 53rd week in 2005), favorable currency ($16 million), the losses on sales of businesses in 2005 ($5 million) and lower implementation
costs ($4 million), partially offset by higher marketing, administration and research costs ($117 million, including costs associated with the 53rd week in 2005,
higher marketing spending in 2006 and the 2005 recovery of a previously written-off account receivable of $16 million), higher pre-tax asset impairment and exit
costs ($68 million, including the $11 million intangible asset impairment charge for biscuits assets in Egypt) and higher fixed manufacturing costs ($18 million).
2005 compared with 2004
The following discussion compares operating results within each of Kraft's reportable segments for 2005 with 2004.
North America Beverages. Volume increased 4.3% including the 53 rd week of shipments (representing approximately 2 percentage points of growth), due
primarily to refreshment beverages, partially offset by a decline in coffee. Refreshment beverages volume increased, due primarily to the 2004 acquisition of
Veryfine, partially offset by a shift to lower weight sugar-free powdered beverages. In coffee, volume declined due to the impact of commodity-driven price
increases on category consumption, although volume grew in premium brand coffee.
Net revenues increased $314 million (11.5%), due primarily to higher pricing and lower promotional spending ($158 million, reflecting commodity-driven
pricing in coffee), higher volume/mix ($106 million, including the benefit of the 53rd week), the impact of the 2004 Veryfine acquisition ($34 million) and
favorable currency ($14 million). Refreshment beverages net revenues increased, due primarily to expanded distribution ofVeryfine and new product
introductions in sugar-free powdered beverages. Coffee net revenues increased, due primarily to increased prices and positive mix driven by volume growth in
premium brands.
Operating companies income decreased $6 million (1.3%), due primarily to higher marketing, administration and research costs ($101 million, including
higher marketing and benefit costs, as well as costs associated with the 53rd week) and higher fixed manufacturing costs ($14 million), partially offset by
favorable volume/mix ($73 million, including the benefit of the 53rd week), lower pre-tax charges for asset impairment and exit costs ($25 million) and higher
pricing ($14 million, including higher commodity costs).
North America Cheese & Foodservice. Volume decreased 0.1% despite the 53 rd week of shipments (representing approximately 2 percentage points of
growth), due primarily to the impact of the divestiture of the U.S. yogurt assets, partially offset by gains in foodservice. In cheese, volume declined due primarily
to the impact of the yogurt divestiture, partially offset by gains in natural cheese, cream cheese, process loaves and cottage cheese. Volume in the foodservice
business increased due primarily to the 2004 acquisition of the Veryfine beverage business.
Net revenues increased $223 million (3.7%), due primarily to favorable volume/mix ($203 million, including the benefit of the 53rd week), favorable
currency ($58 million), higher pricing, net of higher promotional spending ($21 million, reflecting commodity-driven pricing in late 2004) and the impact of
acquisitions ($7 million), partially offset by the impact of divestitures ($66 million). Cheese net revenues increased, reflecting commodity-driven pricing from
2004 and favorable currency, partially offset by
42
Source: KRAFT FOODS INC, 10-K, March 01, 2007