Kraft 2008 Annual Report Download - page 7

Cheese: Kraft, Velveeta, and Eden process cheeses; Kraft and Philadelphia cream cheese; Kraft natural cheese; and
Cheez Whiz process cheese spread.
Grocery: Royal dry packaged desserts; Post ready-to-eat cereals; Kraft spoonable and pourable salad dressings; Miracle
Whip spoonable dressings; Jell-O dessert toppings; Kraft peanut butter; and Vegemite yeast spread.
Convenient Meals: Kraft macaroni & cheese dinners.
(1) Note that foodservice products span all Kraft North America segments and sectors.
In February 2008, we announced the implementation of our new operating structure. Our new structure reflects our strategy to Rewire the Organization for
Growth. Within our new structure, business units now have full P&L accountability and are staffed accordingly. This also ensures that we are putting our
resources closer to where decisions are made that affect our consumers. Our corporate and shared service functions are streamlining their organizations and
focusing them on core activities that can more efficiently support the goals of the business units. Our new operating structure will result in changes to the
reportable business segments within our North America commercial unit, beginning in the first quarter of 2008. These changes are:
• Cheese has been organized as a standalone operating segment in order to create a more self-contained and integrated business unit in support of
faster growth.
• We are also moving our macaroni & cheese category as well as other dinner products from our Convenient Meals segment to our Grocery segment
to take advantage of operating synergies.
• Canada and North America Foodservice will be structured as a standalone reportable segment. This change will allow us to deliver on the unique
requirements of the Canadian consumer and customer while maintaining strong North American linkages to innovation, new product development
and new capabilities to drive our business. Furthermore, it will allow us to manage strategic customer decisions and continue to capture cross-border
sales and marketing synergies within our Foodservice operations.
As a result of implementing our new operating structure, we will report the results of operations under this new structure beginning in the first quarter of 2008
and we will restate results from prior periods in a consistent manner.
Significant Acquisitions and Divestitures
Danone Biscuit:
On November 30, 2007, we acquired the global biscuit business of Groupe Danone S.A. (“Danone Biscuit”) for €5.1 billion (approximately $7.6 billion) in cash
subject to purchase price adjustments. On October 12, 2007, we entered into a 364-day bridge facility agreement, and at closing, we borrowed €5.1 billion under
that facility in order to finance the acquisition. The acquisition included 32 manufacturing facilities and approximately 14,000 employees. Danone Biscuit
generated global revenues of approximately $2.8 billion during 2007. Danone Biscuit will report results from operations on a one month lag; as such, there was
no impact on our operating results in 2007. On a proforma basis, Danone Biscuit’s net earnings for the year ended December 31, 2007 would have been
insignificant to Kraft.
Post Distribution:
On November 15, 2007, we announced a definitive agreement to merge our Post cereals business (“Post Business”) into Ralcorp Holdings, Inc. (“Ralcorp”) after
a tax-free distribution to our shareholders (the “Post Distribution”). We have signed an agreement with Ralcorp to execute the Post Distribution by means of a
“Reverse-Morris Trust” transaction. This transaction is subject to customary closing conditions, including anti-trust approval, IRS tax-free ruling and Ralcorp
shareholder approvals. To date, the anti-trust approval has been obtained. We anticipate that this transaction will be completed in mid-2008.
The Post Business had net revenues of approximately $1.1 billion in 2007 and includes such cereals as Honey Bunches of Oats, Pebbles, Shredded Wheat,
Selects, Grape Nuts and Honeycomb. The brands in this transaction are distributed primarily in North America. In addition to the Post brands, the transaction
includes four manufacturing facilities and certain manufacturing equipment. We anticipate that approximately 1,250 employees will join Ralcorp following the
consummation of the transaction.
Our shareholders will receive at least 30.3 million shares of Ralcorp stock after the Post Distribution and the subsequent merger of the Post Business with
Ralcorp. Based on market conditions prior to closing, we will determine whether the shares will be distributed in a spin-off or a split-off transaction. Either type
of transaction is expected to be tax-free to our U.S. shareholders. In a spin-off transaction, our shareholders would receive a pro rata number of Ralcorp shares. In
a split-off transaction, our shareholders would have the option to exchange their Kraft shares and receive Ralcorp shares at closing, resulting in a reduction
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Source: KRAFT FOODS INC, 10-K, February 25, 2008 Powered by Morningstar® Document Research℠