Kraft 2006 Annual Report Download - page 49

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Net revenues increased $502 million (13.9%), due primarily to favorable volume/mix ($231 million, including the benefit of the 53rd week), favorable
currency ($163 million) and higher pricing, net of increased promotional spending ($124 million), partially offset by the impact of divestitures ($17 million). Net
revenues increased in several geographies due to growth in Russia, Ukraine and the Middle East, and increased refreshment beverage and cheese shipments in
Southeast Asia. Net revenues declined in China, where the Company faced increased competitive activity in biscuits.
Operating companies income increased $157 million (64.6%), due primarily to favorable volume/mix ($105 million, including the benefit of the 53rd week),
a 2004 equity investment impairment charge related to a joint venture in Turkey ($47 million), higher pricing, net of unfavorable costs ($46 million, including
increased promotional spending), favorable currency ($32 million) and lower pre-tax charges for asset impairment and exit costs ($15 million), partially offset by
higher marketing, administration and research costs ($60 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 ($24 million).
Financial Review
Net Cash Provided by Operating Activities
Net cash provided by operating activities was $3.7 billion in 2006, $3.5 billion in 2005 and $4.0 billion in 2004. The increase in 2006 operating cash flows
from 2005 is due primarily to the previously discussed tax reimbursement from Altria Group, Inc. and higher earnings, partially offset by a decrease in amounts
due to Altria Group, Inc. and higher pension contributions. The decrease in 2005 operating cash flows from 2004 was due primarily to an increase in income tax
payments (primarily related to the sale of the sugar confectionery business), an increase in the use of cash to fund working capital, due primarily to an increase in
cash payments associated with the restructuring plan, and lower earnings, partially offset by lower pension plan contributions.
Net Cash Provided by (Used in) Investing Activities
One element of the growth strategy of the Company is to strengthen its brand portfolios and/or expand its geographic reach through disciplined programs of
selective acquisitions and divestitures. The Company is constantly reviewing potential acquisition candidates and from time to time sells businesses to accelerate
the shift in its portfolio toward businesses—whether global, regional or local—that offer the Company a sustainable competitive advantage. The impact of future
acquisitions or divestitures could have a material impact on the Company's cash flows.
During 2006 and 2004, net cash used by investing activities was $116 million and $1.1 billion, respectively, as compared with net cash provided by
investing activities of $525 million in 2005. During 2006, the Company used cash for investing activities as the proceeds received from the sales of businesses
declined by approximately $720 million from the 2005 level. During 2006, the Company sold its rice brand and assets, pet snacks brand and assets, industrial
coconut assets, certain Canadian assets, a small U.S. biscuit brand and a U.S. coffee plant. During 2005, the Company sold its sugar confectionery business, fruit
snacks assets, U.K. desserts assets, U.S. yogurt assets, a small business in Colombia, a small equity investment in Turkey and a minor trademark in Mexico.
Capital expenditures, which were funded by operating activities, were $1.2 billion, $1.2 billion and $1.0 billion in 2006, 2005 and 2004, respectively. The
2006 capital expenditures were primarily to modernize manufacturing facilities, implement the restructuring program, and support new product and productivity
initiatives. In 2007, capital expenditures are currently expected to be flat to 2006 expenditures, including capital expenditures required for the restructuring
program. These expenditures are expected to be funded from operations.
45
Source: KRAFT FOODS INC, 10-K, March 01, 2007