Kristopher J.

Blanchard Crown College

KFT
www. kraftf oodscompa ny.com

The boarcl of clirectors of Krati Foocls Inc. declarecl a regnlal quarterl5' clividend of 50.29 lter courmon share of Class A stock payable on July l"+. 2009. Accorcling to theil advet'tising. Krafi Foods makes todal,delicious in l-50 countries arouncl the -elobe. Their 100.000 employees u'ork to make delicious loocls col'lsuurers can t-eel goocl about. Klaft's Arnet'icau blancl icons include Klaft chec'ses. clinners. ancl clressin-us. N{axrveli Hottse cotf'ees attd Oscar Nllayer nteats. to _elobal po$'erhouse b|auds like Oreo ancl LU biscuits. Phiiadelphia cream cheeses, Jacobs ar.rd Carte Noile coftees. Tan-g powdered beverages. and VIilka.
Cote cl'Or'. Lacta. artd Toblerone chocolates.

The largest fbod courpany in the Unitecl States. Kraft's iilst qualter'2009 protit increased 10 percent and its olganic re\leuues incleasecl 2.3 pelcent. The cornpanl"s Nortlt Aurericatt sales rose 2.9 percent, helped by r-nuch hi-ehel demand tbr its celeals. Krafi's secoucl qttat'ter 2009 earnings increased I I percent to 5827 million but sales clropped -5.9 perceut to Sl0. l6 billion. ]'he q'eakest perfrlrming se-qlnent of the compally was North Amelican Foodsen'ice. which leportecl a l0 percent clrop in sales. Krafi's European segmel)t reported a doublin-e ot'

profit of the qua|ter.

as the Krati Foocl Company in 1903 u'hen he sold a feu' standard valieties of cheese u,holesale in Chicago. The company grew aud rvas soon distributing some 30 r,arieties of cheese packa-eed under the brancl names of Krafi and Elkhorn. By l9l-1. the cheeses rvele ar,ailable in nrost to\vr1s acloss the Unifeci States. In 1916, Krafi rvas granted a patent tbr u,hat came to be knou'n as processed cheese. Kraft began to lnassproduce a number of specialty cheeses like Goucia and blue cheese and be-uau to export proclucts to Canacla arrd Eulope in 1920: plants u'ould later be established in both Englartd ancl
Jan.res

History Krati tbunclecl',vhat is nolv kno$'rl

Gerrttan\,.

A ke1, to the success of Kratt Foocl u'as James Krafi's commitrneut to developing 11s11' prodtucts and using innol'ative adveltising rnethods. Kraft u,as au earlv user of all courmunicatiotts meclia ancl. as ealll' as I 9 1 1 . ri'as atlvertising on Chicago elevatecl trains. using outdoor billboarcls
and mailing circnlals to retail gl'ocers. He u'as arnong the tirst to advertise in consnrneriourttals and was also tl.re t-lrst to use colorecl aclvertisernents in national magazitres. In 1933. the con.rpany stalfecl to use radio on an exteusive scale. It sponsoled the one-houl rveeklS, urusical ancl variety slrorv Krzrli X,lusit'ti Rcllerl u'hicli heacllined notable shorv business personalities. Klati's commitment to innor.ation n'as clenronstratecl thlough the valiety of proclucts that n,ere introdtlced. These proclucts include items like Velveeta (1928). Milacle Whip salacl ch'essin-e (1933), Kiati macaloni and cheese dinner'(1937). Parka)'nrar'-ualine (1940). sliced plocessed cheese (i95 1), and Cheez Whiz ( 1952 ). Even though Krati Foods has a failll' u'ell-documentecl company history. it has primarily operatecl as a subsicliar), to other lalger corporations. The tirst of these u,as the National Dairy Courpanf in 1930: Krati ri'oultl lirter be purchased b1'Philip Nlollis in 1988 fol S12.9 billion. In Malch 1989. PhilipMon'is mergecl Kraft ancl its Genelal Foods r-urit into one entity called Klafi General Foocls. Inc. As a result of the urelger'. the cornpan)' became tlre lar-uest fbocl cort.rpanf in

KRISTOPH ER J.

LANCHARD

the United States and the second largest in the rvorld. Initially the met-uet'cleated a competitive advanta-se fbr the nen'l)' fblmecl subsiclian,: the company u'as able to save 5400 million tht'ouglt
consol iciations ancl i ncreased purchasin-e po\\'er.

Philip llolris acquilecl Nabisco tbr S1.i.9 in cash plus the assurnptiorl of 54 billion in debt. Philip Nlolris con'rpletecl its acquisition of Nabisco in December' 2000 ancl irnrnediately began inte-sl'atiu-s the Nabisco opelations into those of Klal't Foods and Klatt Foods International. In 2001. Philip X,lorris created a neu, holclin-t cor.npany' tbl the combined operations kttorvtt as Klati
Foocls Inc. (lackin-s the comma of the pler,ious Krati Foocls. Inc.). The previ0us Krafi Foocls rvas Krali Foocls Nolth Anierica. givin-u the nerv Kraft Foods tu'o maitt rinits: Krali Footls North America ancl Klalt Foocls International. The trvo CEOs of these rinits. Betsy D. Holclen ancl Rogel K. Deromedi. lespectiveh'. \\/ere named co-CEOs of Krafi Foocls Inc. In June 2001. Philip N4otris solcl a 16. I percent stake in Kratt Foods to the public. retaining the retnainin-g shales. The seconcl largest initial public ofl-eling (IPO) in U.S. iristory. the oft-erin-s raised 58.68 billion. rvhich Philip l,lon'is ealmarkecl to recluce clebt it hacl incurred in acquiring Nabisco. The

reniimecl

result of this IPO is that Kt'afi Foods Inc. is a compall.y that is less than l0 yeats old.

lnternal Information
Organizational Structure It took several ),ears to complete the spin-otf of Klaii Foods Inc. tlorn the Philip N4orris Con.rpanl'. DLrring that pl'ocess. Klait Foods lrtc. san' a nuruber of changes in its ieadelship tealn. The most si,enificant u,as that Irene Rosenf'eld *'as appointed CEO in June 2006; she assumed the position of chairuran clf the boarcl in l,Iarch 1007. The organizational stnicture of the ntana-eelnent teattt is pror,iclecl in Exhibit l. Note the chart is clir.isional by geographic l'egion. Some atrall'sts t'eel that a by-ploduct clivisional structure u'ould be mole etl'ective fol Krati.
Company Mission and Ethics Statement

The Klatt Foods Inc. urission stilteulent was pl'eseuted to the general public dulin-u the CAGNY Cont'erence in Febmary 2009. Accordin-s to the Kratt Foods Inc. Web site (http://rvrvrv.klatifboclscoutpany.com/About/u'ho-u'e-ale/). the rnission stateurent consists of thlee u,ords ancl reads as iollorvs:

llake Today Delicious.

In order' lo tull'1ll this mission Kratt Foods Inc. focuses on consumers irt everythittg that they do. The colltpan)' also unclerstancls that actions speak louder tltatr u'ords. so at Klati Foods:

. . . . . . .

We iuspile tlusl. We act like ou'ners. \Ve keep it siurple. We itre open and irtclrtsive. \\re tell it like it is. We leacl ti'our the heacl ancl the heat't. l We cliscuss. \\'c clecicle. \\1e cleliver.

Structure of Management Team at Kraft Foods

lt1c.

iiiih.rrd Scrrci-

lliilv llcst \\ c:i

l:rr'c. \'lt ltntl t-hief .\I.ilkclirrir
(

\'i) .ttid illcritierti \r'r ili

l:rcc.
.\
tt.l

r.i

i.t

)liice

r'

CASE

KRAFT FOODS lNC.

*-2009

Kraft's Sales by Segment/Percent

For the Years Ended December 31 2008
2AA7

2006

(2007 & 2006 restated)

Kraft North Arnet'ica:

Li.S. Bet'erases
U. S. Che ese

8.50(,i
1-l 30qr
9

L60( t
9.60(:i
1

.+

.7 0(,'{

5.10,,i
9.5

LI.S. Convenient i\'leals

U. S. Grocer'\'

.10(,t

9,30r'i

0li

13.O(x,,i

lJ.
I

-1(X'i

I ti .80ri
1

Lr.S. Suacks Canada ct N.A. trooclsen'ice

12.)0(,r
r

+.5(X,i

0.l0tt
9.80"

0.00{a

9.70(,i

Krnft hlternational:
Eurolleart Uniou
IJer,c-l opi n g I,l lrrket s I

9.50%

I 3.601?

11.60(i

3.+0(t
I

il+0?
00.00(,c

9.20n
100.00{ii

Total Kraft Segnrent Operating

.Sorlle. n's
u'.

l(X).(X)ti

kr-atiiilrtdscorttpant'.coru. rtrci Corupitn-v F o n t l ( ) K.

Operating Segments Krafi Fclods Inc. rnirnages ovel 100 ditlelent bland-name tbocl products ancl tlacks operating income tcl tive specific consulnel' segmeuts. Exhibit 2 pror,ides a sunlmary of the Krati Brands
ancl

operating segnreuts.

Snacks-prinialily biscuits (cookies

tionery

ancl

crackels). saltecl snacks. ancl chocolate conf'ec-

. Ber,erages-prirnarilt'cofl'ee. packa-uecl juice clriuks. ancl pou,deled bevera-res o fhsgqs-plimarill' natulal. process. aurci cream cheeses . Grocely-plimarily s;roonabie and pourabie dlessings. cor.rcliments. and clesserts . Convenient Meals-primarily ti'ozen pizza. packa-red dinners. lunch combinations. and
processecl rneats

Exhibit 2 provides a pel'centage breakdorvn of the segn.rent sales tbr the U.S. ancl international opelatious. Note that U.S. Grocerl'conrprises the largest segrnent follou,ecl b1' U.S. Cheese. According to rhe Neilson Comiranv. Klati Foocis onlr, klst 0.3 pelcent malket share during 2008 rlespite t 9.8 pelcent ine rease in pricin-r:.
Marketing

The leintloduction of Krafi Foods Inc. in Febnrary 2009 u'as accompaniecl b1' the launch of a lue\\'corporate Web site: http://n'rvu'.neq,krafi.com. Visitors at tht-- site cau r,ielv commercials ti'om arouncl the g,orld rvhile learning about nerv ploclnct innovations. Krali Foocls lnc. has also launched sevelal Web sites that u't.rulcl be consiclelecl vilal iu uature. One of these is the Oreo Double Stuf Racin-u League (DSRL) site: http://u,n'n'.dsrl.coml visitors san u,atch r,ideos. play galnes. ancl of course the1, can join the league. Even the main Web site fbr Klati Foocls Inc. hiis uncler-uone a tirceliti. The neu, site acldless is httl'l://rvrvu'.kratitbocls.corn. In its revieu'of the site. blandchannel.com saicl the fbllou,itt,c:

The site is rvell conceived as a portal fbr an audience thal nright access the lnternet through a clial-up rnodem. Staf in-u au'ay tionr loll-ovc'r images. the HTN,IL-based honre page is etlicient. using tbilll,colnpact pictures-except tbl a plomotional 180 x 150 bannel that flirts s,ith a surprisin-rl1' high 30K, Surfing throu-rh the site. the visitol ri ill enjo1, the siune consisteut experit'nce. Besicles recipes. llote\\'orthv t'eatures inclucle Product Inlb and a Recipe Box. If the fbrmel is self-explanator)'. the latter is a snlafi u,ay of cleating some interactivitl, u,ith the visitor. The Recipe Box allorvs one to store

KRISTOPHER J. BLANCHARD

and retl.ie\ie tavorite recipes. u'hether personal ones (ttp to 100) or

tiom Klaii. The reg-

istfation pl'ocess is in line $'ith the overall bro$'sin,e experience: Ilainless alld respectful. To illustrate this point. it is u,orth mentionin-s thrit the visitot'is not askecl to provide ir lerst uame and the neu'sletter(s) options ale otT by' cletault.

Financials

Krafi'r.ecent income statelneuts are plovicied in Exhibit 3. Note the cotnpan;/'s reventle: ipcreasecl to S.12.2 billion 2008. rvhile eamin-us iucleased to 52.9 billion. Krafi rveatherecl the 2008 global recessior.l lealll' u'ell frotn a revetttte/earuin-us perspective' Kraft's recent balance sheets are plovidecl in Exhibit 4. Note the compauy has ovet' 527.,5 billi6l in gooclu,ill. u'hich is not good. ancl also ltas over $18.5 billion in long-terrtr clebt. rvhich is also not goocl. Kraft's long-term debt increased about 50 pelcent in 2008 flom 2007.
e

urrent Strategy

CEO lkrseutelcl has L'reen leadirlg the Kratt throu_uh a turil-arolltrci process tlesigned to retttrtl the colnpan\i tr) sllstainable gro\\'th.

Kraft Foods Inc. and Subsidiaries Consolidated Statements of Earnings

For the Years Ended December 31 (in millions of dollars, except per share data) 2008 Net revenucs
Ct-lst 2AQ7

2006
.s

$ -12.201
18.1 86

$ 30,t3+
24,05 7
12.{)7 7
7

33.156

tli'ritle s

I I .3-l,t
11,912
7

Glos\ lxofit \,lltrkctirtg. urhttitti:tt'atitttt ail(l researcil costs

;\sset intllrirrneltt
alt{-1

f-i.015
9.059
I

.613 4+0 (15)

.120
999

exit costs
B

.01'i
92
-!1 ,J

Gilin

()11

rc(1etlq)tit)ll

of Llniteti

iscuits itrvesttrtetlt

(251

I-osses/(gains ) ()lt clivcstitttt'es. tlet

.,\rt-tort iz

(n7)
-| I

atiort of i trtitttg ibles

Olreratins iltcoltte

--3..3

__

13

1?

3.9{16

4. 15-i 510_

Interc:t i.in(l ()thef e\l)ellst--. llct

E ulrtings fl'ottt c()ittiltllitt-u olteriltiolls hcfore ittcotne taxes

.l+0
-!

604 3.361

2.57

3.6-l-l 816 r.82

8

Pi'uvisiott 1or ittct)nle ta\es

L,ut'ttings tl'otu colttintrillg opel'atiotts

7rq
1.8-r9
s.

r.001

I.360
230

i:at'rtings alt(l gililt ll'ortr tli scotttitttretl olleflititlll

net rll'

i.051

231

Nct eut'ltitlss
irer'

s
I')e

1.90I

s s
$

1.590

3.060

:ititre rlittit:
IJirsic eilntittgs
l- sltitt'c:

Cottti ituiltg ()pet'lttiotr:

D i scr-lrtt
i

s
$

.l.l

1.50

s
$

t.72
t).

rtttetl operiitiolls

0.7 | 1.95

0 r1
1.64

l'l

Net earnings

1.86

Dilutetl eal'nirtgs pet' sltat'c,

Ccttt
i in

u i lt

g ()l)el'itti tttis

l.ll
0.7 4

l .+8 0. l-+

t.1
0.

I) :ctltt
N

ti tt tretl ()l)et'ttt i tllt s

et ciu'nin

{\
l'ril1t \'. c()

:_L?r_

Dir irlcrtris ilcc litl'etl

\\"

l.1l

s S

1.61
1.OJ

S iBi s t),96

l+

\\'\\, krat't ftlotlscrlttt

tll . Lttttl Ctltill

lLt tt

r f:rtt'nr I()K.

CASE

KRAFT FOODS lNC.

2009

Kraft Foods lnc. and Subsidiaries Consolidated Balance Sheets

at December 31 (in nrillions of dollars)
2008
ASSETS Cash ancl casit ecprivalent: Reccivable s (uet of alion,unces of .\ l2L) in l(]Ofi anti S9J in l(X)7t lrt! 2AA7

2006

567

l -1r)
3.869
35Ofi5
3,37

+. 7( )-{

5.r97
-i.096
575

Ittt'etttolies.

rtu't

3.719
8(r
I

Defen'cd iuconrc ti.r\es Othcr cLrrrt--nt asscts

,81,9
1

3t)l

153

Totiii cun'cnt

assets

r ilIL
9.1)17

*_!g?31
I0.778
3 r.193

8.I5-l
9.693

Prolrerf\'. planf arrcl eclrriprne rrt Gooclu'ili Intungible assets. net Prellaitl peusiou ilsscts Othcr itssct\ TOTAI-, ASST''TS

17.581
I

:5.553
1A.1,7]
I . 1{r,\

l.9l(r
56
I 11"r

ll.l00
I

.6-i8

t._J

'

l.-+37

7)q
t:\

$ 63.()78

t!1{5_ s
7.:185

.b

3f .5 /,+
-E

Bd

I-lAB II-l'f I f:S

S

ltort -terrtt l'lornttv

i rt g s

897
7(r5

1.715

Cun'e nt portion

of long-tenu delrt

72)
.i.065

1.4i8

,,\c ct'rLl t'rt s pltvalr le

3.373

160:
601

Due to Altriu Group. Inc. aucl all'iliutes

,,\cc

rtrcrl

tit itrkc-t i n g

1.803

i.s33

l.(rl6
75{) 1755

i\ccnrcd e mplovn"rcnt tosts

Othe r current liabilitie
s

95i
3.155
1r

9r3

l. I 6ll
| I

Total cur"r'eut liiibil ities I-ong-telur clebt

.0+-i

7.0ti6

r0+73
7.()8
I

1ti.589 -i.i)6-l
1.3(r7

l.9r)l
-r.876 810
1.S-lfr

Detclretl i ncornc tiixes

Aucrttctl pertsion c()sts Aeclircrl postretilclric-nt hciilth cill'c costs Otlrr:r liirhilitir-s TO-f.\I - LIABILITIES
Contin genc ies

3.930
1

.011

l.(r78
1.13(r
-10.8

3.0I+
_*1._192_.

t.1 7E
+0.698

7I

17.0 l 9

SFIAREHOLDERS' EQLiIT\'
Contntrlrt Stock. rlo llal' r alue ( 1 .735.00{).(XX) shitre s issuctl iu 1008 anci l(X)7 ) Aclclitionul paici-in callital
Rctainecl earniugs
r\ c c u nr
u i atc

13.5(r3
I

I3

."+-i5

13

.616

3.3J5

ll.l09
(1.835)
i
r

ll.llfi
3.069
)

cl ot

irc'

r'

co

nr llt'e he n s i ve I o s sr-

t {

5.99-i i li.7 l-t

r

'ft'eitsur'\' .\ttick. itf cr).\i

6.5]"i
I
7.

{:1.130}

TOTAL SI{;\REI IOLDERS' EQtilT\' TO1,.\I- I-IAI}II,ITTTIS AND

: l.100

t95

18.5s5

SHARIIHOT,DIIRS' EQUITY
.\rtttt'r '(,.' \\'\\ \\'.hntl'tfotttiscotttl-riit'I\'.c()nr. ltnrl Contl'llirt

$ 63.(|78 \ l:ttt'tii lOK,

$ 67.993

,5

b 3J.J /+
-E -q

KRISTOPHER J. BLANCHARD

At year-encl 1009. the colnpan\.hircl sar,ecl a total of Sl.l billion through streatt.tlinetl pranuthcful'iug ancl a sinrplilierl organizational stt'uetrrre. These savings wel'e realizecl. iu palt. to tl're closing of -16 plants ancl the eliurination of 19.000 positions. The contpanl' plaus to see an aclclitioual savitt,es of 5200 rnillion in 2009'

External lnformation
Industry Trends and Information

tr{orc people ale clining out. and toocl prochtcers are clevotiug lnore attentioll to pl'oducts ciesignecl tbl'restallraltts. r'enclin-u machines. ancl other tboclservice ploviders. Thus. cotnpref'elences at ltirnies ale spencling lllore nloue\. r'esearching consLltlrers' eating habits ancl honte iurcl af restaLll'allts. This is bncl neu's till grrrcery retailels" hut tbocl tllakers realize tbocl eateu a\\,a)' tr<xu hclme is still ibocl the,v can plovicle. urauy tittres at higher nlarsins. Anothel trencl in the inclustr'1'has Lreen the clevelopnrent of health foods. such as tl'tosecgltaining less trans tirt ol t'es,el cakx'ies. or those containiug ortii' olganic ittgreclients. Bottlecl \\'ater has become u,ell establishecl in the rnat'ket ancl enhanced \Yate1's contaillill-s vitanrins or snppletnetlts are -cainin-e poptllarit,r'. Relatecl to the cleveloprneut of health tbocls is the conceln of chilclhood obesitl'. u'hicl.t has leachecl epicleniic propoftions in the tu'enty first cer.rttu'1' u'ith t'ising rates in botlt tlte cler,el<4red ancl clevelopin-q u,orlcl, Rates of ol'resity in Canaclian boys iucreased ti'ortl t I pel'cellt in the l9tt0s to or,er'30 pel'cent in the 1990s: clurirtg this sartte litrle period t"ates increasecl tlom -1 to lJ pelcent in Blazilian chilclren, As u'ith obesity in aduits. rnarll'clii't'elelt thctors contlibute to the lising rates. Chauging diet ancl clecreasitr-u pltysical activit.v a1e believecl to be the t\\'(r llost ilup()rtcDt in causing the recent iucrease in the rate ol obesit1. Actilities florn scli'-pi'opclled trallspoft. to school physical education. ancl olganizecl spolts has be.en declinin-g in rrrirny countlies. Tl'eattnents usecl in chilclren ale primatily Iif'est1,'le interventions ancl behaviolal techniqttes. Risin_s costs of irr-.troleuni cilusL' a nvofolcl increase in cost for cotnparties in the lirocl inclustly: Costs have incleaseci at the a-sricultnre encl. u'ltich increases rarv tttatet'ials cc'rsts for tbocl pt'oeessols u'ho also deal rvith incleased proclttction aud tlansportation costs at their encl. Because the inclustrl'' is so competitive. it is clilficult ibr tirese companies to laise tlieir prices accorclingly. ancl plclfit rnar'-uirts htlte sttt'feled as a t'esult. At the sante tilne. consunrel prices fclr baked -soods increasecl 10.7 pefcent in January 2009 cornpared to .lanuar'\, 2008. clespite lon'el costs tbr bakelies. Iupttt costs for bakels. inclgtlecl comnrodities such as rvheat. eggs. ancl uatut'al -9as. have declined t'ecetrtly. Soute bakeries ltay be passin-e alclng the cost of supplies purchased on contracts si-etted belbre comntoclitl'prices be-san to tall in nricl-2008. As contracts expire ancl are retregotiatecl. sclme toocl manufacturing companies rnay cliscover that tltey have sligltt aclvantarge 1br a sholt time. The U.S. nralket tbl packagecl ancl processecl tbods has seetr large plotits in retail sales. ancl this numbcr is crpected to see steady gro\vih. Worlclu,ide. cletnaud is also on tlte rise fbr' this t1,1te of lirod as lllore people adopt a lit'estyle that inclucles less time tbt' the preparatiou of tboci. The greatest assci of an-v retail ancl consumer ploclttct colltpally is its reputation and perceir,ecl r.alue anrong consumers, Fol this l'eason. col?olate attcl bt'and reptltations are expecteci to beconte inct'easin-u11, in.rpoltant as collsumet's itre trf ilt-s to stretch their dollar firrther ancl conrpetition is increasing. Rrocl saf-ety prograttts have been a<loptecl recently as issues of chemical anrl bactet'ial contanrination and uerv tbocl-borne pathogens ret'uaitr a llublic he ultlt c()nceru. Workels at one of Klati's manutactulels in lllinois tut'uecl ttp a batch of tiuits arlcl luts that weLe colttal.ninatecl u,ith sahronella in December 2007. Another positive sanlple appealecl a,gain in Septenrber 1008. It u'as onl), aliel the colltpalt-Y concluctecl thonsantls cli tests that it ri,as abie to piupoint tlrc' source lbl the secot'tcl positive test. This test shgq,e{ t|at the tainted nuts caure liom a Calitbrnia-basecl sttpplier': nlore specifically fr'<tm setton Pistachio of Terla Bella. Inc. Even thougl.t there har'e tlot beell any l'epot'ts of

CASE

KRAFT FOODS lNC.

2009

pistachio-relatecl iilnesses. the cornpanl, r'oluntarily lecalled ntoLe thatt 2 ruilliorl pounds of ttttts ancl ternporarily shut dou,n its urattttiactttriu-s plants. Cnstorners today vieu' food as an expression of their cultitlal ancl social iclerttity aucl at'e therefbre asking a lot more ful'n ploducel's thall just good qualitl'. Etl'irotruetttal cotrceLu. social respotrsibiiitl'. anci economic viabilit)' are colnrnorlly identifiecl as the tht'ee pillals of sustainability. With global ineqrialities becomir.rg more pl'onouncecl. food costs clilnbilr-u, aucl rvarming becoming a ruajol political issue. food prclducers are siurttltaueotrsly cast as -elobal pel'petrator and potential healer. i\4eeting the neecls of the present $'ithoilt comprontising the

futule has to be faken into account by, the food industry rvithout undelmining bottom line
balance sheets.

Comoetitors Kratt Foods Inc. is the seconcl largest lbod processing company in the n'ollcl. secottcl otrll'to Nestie. Nestle is mole than just a tilod colllparlyl it also procluces healtl.r and beauty ancl pet care proclucts. The najot'ity clt Nestle's re\renues are frout intelnationatl sales. u4rereas Kraft Foods Inc. is 1 r'imarily a.North Amelican company. Doruesticalll' Kratt Foocis lnc. colllpetes t'ith a numbel of cotnpanies. a t-elv of n,hich ir.rclr-rde ConAgra Foods. I-leittz Company. ar.rd Sara Lee. Beyoncl othel packagecl fbod cornltanies. Klafi also fincls itself colt'Ipetill,s n'ith generic ploducts
letailer brands. rvholesalels. and coopet'atives. These prodilcts llre lnost likely goittg to be the largest col.npetitive thfeat to Krati Fnocls Inc. lvlany' consuntel's itre cLlttitlg back on their spencling by su'itching to store-bl'an(l proclucts. Aclclitionally. as the U.S. dollar -cains stlengtl.t overseas. this w,ill nrake Kratt Foocls ptoclttcts tttote expettsive.
ancl

ConAgra Foods

ConA-sra Foods. ticker symbol CAG. is the largest publicly held tlrm tirat Kratl Foods competes rl,ith in the ti.S. n.rarket. As indicatecl in Exhibit 5. ConAgla Foods is a leading branded fbocls compalty ancl is the truste(l name behincl rnan5, leading blands. incluclin-s Healthy Choice. Chef Boyaldee. Egg Beaters. Hebreu, National. Hunt's. Olviile Reclenbachet"s. Pr\N4. ancl Bancluet. allloug othel's. Theil consumel brancls ale tbuncl in 97 percent of U.S. housel.rolds. atrd 26 are rankecl first ol secontl in their categol'\,. ConAgra Foocls aiso has a vet')' si-uniiicant pt'eseuce iu courmelcial tbod products ancl is one of the nation's leadirt-s specialty potato pfoviclers to l'estiltlrants ancl othel tboclset'r'ice establishnlents. With a r.ision statemellt: "One cotnpan)r grorving b5' nourishin-c lives and finclin-c a bettel *'ny toclay one bite at a tirne." the courpauy is dedicated to provicling custorners ancl cousurnei's rvith tbocl they call coullt ol1 to t.rste great aucl provide good

nutlition at a tail r,alue. l,ike Kraft Foocls. ConA-tla Foocls has unclergoue a nuurber of changes since 2005. N'lan)' o1 these changes are the lesult of Gary Rodkin bein-rl namecl CEO in 2005. While aclch'essing indttstrl' leadels at the 2009 CAGNY cont'et'ence. Rodkin stated:

Kraft versus ConAgra

Kraft
37.5()R 98.000
+ r .558
33

ConAg ra
8.15

Food lnd ustry_

l,l1B
3

15.000
r

.50K
03B
7(X,t

t S-iB

t
33
.

.70,;?
1"1B

I I .l8ci l i9B
S 571i
555

127 ,e:1,1

i 1.5+r,i

13.68(.c

r 968
1.98 I

.60r{

N/A
I .98

r59

CAG

CottASi'it Frttttl:. Ittc.

Sorrrce . Bir:eti rln

iniot'rnittitrt

i.it \\'\\'\r'.litutttce .t';.tlttttt.etl11i.

10

KRISTOPHER J. BLANCHARD

Prior to 2006. ConAgra \\:as a holclin-e companl,. It rvas built ovel several decacles by dozens of acquisitions, But unlike rnost maior competitors. there rvas no strate-sy to inte-grate. The coltlpan\, -sren, much bigger'. but clevelopecl no scale lererage. It u'as charactelizecl bt, indepenclent operating compauies ancl lirnctkrnal silos. In large part. its success or failute rvas cleal cldven. Ancl thele rvas a rnartdate that all businesses. all brands nust grow antl wete hanclecl resources u'itl.tout uruclt segtnetttation ol' prioritization.

The most visible change that has occurrecl at ConAgla Foods rvas the sale of the cotnrnoditl'
trading -sroup: the lesult of this action is that ConAgra no\\r has a total fbcus on food rather than fbocl. t-eltilizer. ancl ethanol. Other changes include integlating the supply chaiu inti'astrtlcture. upgradin-u food sat'et1'. investin_s S2-5 million into training initiatir,es. tbcusin-q on research anci clevelopment. and investing S l70 million into rnanuthcturin-u automation and moclernization.

Conclusion Atier levieu'ing Krafi Foods' Fonn l1A. n,hich details executives'compensation for 2008..a
number of analy'sts have incleased their criticism of Rosent'elcl because her courpensation -ureu, bv more than 50 percellt in 2008. BLrt this \r,ouran is one of tlre top. if not the top (most efl'ective). l'emale nlauagers in the United States. Klattiust leporied silong second quartel'2009 r'esult although revenues declined -5.9 pelcent yeaf-o\rer-vciu'to Sl0.f billion. prinralill'clue to the unfhr,ourable negative 8.1 percent impact of lbreign cun'euc)' and a uegative 0.7 percent impact tiom clivestitures. Kraft's otganic l"eventles increasecl 2.9 percent. For that quarter. Krati's North Amelican se-srrent (KNAC) sales u,ere llat )/eal'-over-)/ear as gains in U.S. Convenient iVleals (7.1 pefcent). U.S. Grocery (6.7 percent). U.S. Bevela-ses (6.0 percent). ancl U.S. Snacks ( 1.3 percent) were offset by the cleclines in U.S. Cheese (8.7 pelcent)ancl Canacla & i.Jorth Amelican Foodserr,ice (10.0 percent). In the International segnleut. net l'e\.euues in the European Union clecreasecl 17.-l petcent. Baseclon the strong yea[-todate pertbrmance. CEO Rosenf'eld has raised guidance fbr 2009. She norv expects eat'triu-es of at least S I .93 per share cornpared to S 1.88 guiclecl eallier'.

rvrvrv.klaftfoodscornpany.com

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staiements tbr this cilse Are available at; 1r'lr'r:pe(l,nortglobaleditiotts.cutr/clrtvid