Kraft Foods Inc(Kft)
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KRAFT FOODS INC (KFT) 10-K Annual report pursuant to section 13 and 15(d) Filed on 02/28/2011 Filed Period 12/31/2010 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark one) FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2010 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-16483 Kraft Foods Inc. (Exact name of registrant as specified in its charter) Virginia 52-2284372 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) Three Lakes Drive, Northfield, Illinois 60093-2753 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 847-646-2000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Class A Common Stock, no par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨ (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x The aggregate market value of the shares of Class A Common Stock held by non-affiliates of the registrant, computed by reference to the closing price of such stock on June 30, 2010, was $49 billion. At January 31, 2011, there were 1,748,927,248 shares of the registrant's Class A Common Stock outstanding. Documents Incorporated by Reference Portions of the registrant's definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its annual meeting of shareholders to be held on May 24, 2011 are incorporated by reference into Part III hereof. Kraft Foods Inc. Table of Contents Page No. Part I - Item 1. Business 1 Item 1A. Risk Factors 10 Item 1B. Unresolved Staff Comments 15 Item 2. Properties 15 Item 3. Legal Proceedings 16 Part II - Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 17 Item 6. Selected Financial Data 19 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Discussion and Analysis 21 Critical Accounting Policies 39 Commodity Trends 45 Liquidity 46 Off-Balance Sheet Arrangements and Aggregate Contractual Obligations 48 Equity and Dividends 50 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 53 Item 8. Financial Statements and Supplementary Data Consolidated Statements of Earnings for the years ended December 31, 2009, 2008 and 2007 55 Consolidated Balance Sheets at December 31, 2009 and 2008 56 Consolidated Statements of Equity for the years ended December 31, 2009, 2008 and 2007 57 Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007 58 Notes to Consolidated Financial Statements 59 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 100 Item 9A. Controls and Procedures 100 Report of Management on Internal Control over Financial Reporting 101 Report of Independent Registered Public Accounting Firm 102 Item 9B. Other Information 103 Part III - Item 10. Directors, Executive Officers and Corporate Governance 103 Item 11. Executive Compensation 103 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 103 Item 13. Certain Relationships and Related Transactions, and Director Independence 103 Item 14. Principal Accountant Fees and Services 103 Part IV - Item 15. Exhibits and Financial Statement Schedules 104 Signatures 107 Report of Independent Registered Public Accounting Firm on Financial Statement Schedule S-1 Valuation and Qualifying Accounts S-2 In this report, "Kraft Foods," "we," "us" and "our" refers to Kraft Foods Inc. and subsidiaries, and "Common Stock" refers to Kraft Foods' Class A common stock. i Forward-looking Statements This report contains a number of forward-looking statements. Words, and variations of words, such as "expect," "goals," "plans," "believe," "continue," "may," "will," and similar expressions are intended to identify our forward-looking statements, including but not limited to those related to our strategy, in particular, our unrivaled brand portfolio, top-tier shareholder returns and financial results, substained profitable growth, robust top-line growth, overhead and cost savings, Post Cereals split-off; new food law regulations; our workforce and authorities; our properties; our combination with Cadbury, including expected receivables, intangible assets, synergies, cost savings and integration charges; our long-term strategy; with regard to our Restructuring Program, our expected cash payments for charges and cumulative annualized savings; the Venezuelan currency devaluation; asset impairments; our legal proceedings, including environmental remedial actions; our pension plans and other employee benefit plans, including expected contributions, obligations and costs; commodity costs; our liquidity, effects of guarantees on our liquidity and funding sources; future acquisitions and divestitures; our capital expenditures and funding; our revolving credit facility and long-term debt covenants; our plan to file an automatic shelf registration statement; our aggregate contractual obligations; our 2012 Outlook, including the challenging operating environment and consumer weakness, our strong business momentum, organic net revenue growth and Operating EPS; and our risk management program, including the use of financial instruments for hedging activities. These forward-looking statements are subject to a number of risks and uncertainties, and the cautionary statements contained in the "Risk Factors" found in this Annual Report on Form 10-K identify important factors that could cause actual results to differ materially from those in our forward-looking statements. Such factors include, but are not limited to, continued volatility of, and sharp increase in, commodity and other input costs, pricing actions, increased competition, our ability to differentiate our products from retailer brands, increased costs of sales, our indebtedness and our ability to pay our indebtedness, unexpected safety or manufacturing issues, regulatory or legal restrictions, actions or delays, unanticipated expenses such as litigation or legal settlement expenses, a shift in our product mix to lower margin offerings, risks from operating internationally, continued consumer weakness, weakness in economic conditions, our failure to successfully integrate the Cadbury business, performance in developing markets and tax law changes. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this report. PART I Item 1. Business. General Kraft Foods is the world's second largest food company with revenues of $49.2 billion and earnings from continuing operations before income taxes of $3.6 billion in 2010. Kraft Foods was incorporated in 2000 in the Commonwealth of Virginia. We have approximately 127,000 employees worldwide, and we manufacture and market packaged food products, including biscuits, confectionery, beverages, cheese, convenient meals and various packaged grocery products. We sell our products to consumers in approximately 170 countries. At December 31, 2010, we had operations in more than 75 countries and made our products at 223 manufacturing and processing facilities worldwide. At December 31, 2010, we had net assets of $35.9 billion and gross assets of $95.3 billion. We are a member of the Dow Jones Industrial Average, Standard & Poor's 500, the Dow Jones Sustainability Index and the Ethibel Sustainability Index. At December 31, 2010, our portfolio included eleven brands with annual revenues exceeding $1 billion each: Oreo, Nabisco and LU biscuits; Milka and Cadbury chocolates; Trident gum; Jacobs and Maxwell House coffees; Philadelphia cream cheeses; Kraft cheeses, dinners and dressings; and Oscar Mayer meats. Our portfolio included approximately 70 brands which each generate annual revenues of more than $100 million. Because Kraft Foods Inc. is a holding company, our principal source of funds is from our subsidiaries.