10-K 1 krft10-k122714.htm 10-K KRFT 10-K 12.27.14


 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 2014
OR
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to                    
Commission file number 1-35491
Kraft Foods Group, Inc.
(Exact name of registrant as specified in its charter)
Virginia
36-3083135
(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
Common Stock, no par value
  
The NASDAQ Stock Market LLC
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  ý    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  ý
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  ý    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  ý    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. ý
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 ý    Accelerated filer ¨    Non-accelerated filer ¨    Smaller reporting company ¨
(Do not check if smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    Yes  
¨     No  ý
The aggregate market value of the shares of common stock held by non-affiliates of the registrant, computed by reference to the closing price of such stock as of the last business day of the registrant's most recently completed second quarter, was $35 billion. At February 10, 2015, there were 587,988,695 shares of the registrant’s 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 expected to be held on May 5, 2015 are incorporated by reference into Part III hereof.
 
 
 
 
 




Kraft Foods Group, Inc
 
 
Page No.
Part I -
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Part II -
 
 
Item 5.
Item 6.
Item 7.
 
 
 
 
 
 
 
 
 
 
 
Item 7A.
Item 8.
 
 
 
 
 
 
 
Item 9.
Item 9A.
Item 9B.
Part III -
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Part IV -
 
 
Item 15.
 
 
S-1
In this report, “Kraft Foods Group,” “we,” “us,” and “our” refers to Kraft Foods Group, Inc.

i



Forward-looking Statements
This report contains a number of forward-looking statements. Words such as “anticipate,” “estimate,” “expect,” “plan,” “believe,” “may,” “will,” and variations of such words and similar expressions are intended to identify our forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. Examples of forward-looking statements include, but are not limited to, statements, beliefs, and expectations regarding our business, customers, consumers, dividends, projected market performance of our common stock related to performance share awards, new accounting pronouncements and accounting changes, commodity costs, cost savings initiatives, hedging activities, legal matters, goodwill and other intangible assets, price volatility and cost environment, liquidity, funding sources, postemployment benefit plans, including expected contributions, obligations, rates of return and costs, capital expenditures and funding, debt, off-balance sheet arrangements and contractual obligations, general views about future operating results, our risk management program, and other events or developments that we expect or anticipate will occur in the future.
These forward-looking statements are not guarantees of future performance and are subject to a number of risks and uncertainties, many of which are beyond our control. We discuss certain factors that affect our business and operations and that may cause our actual results to differ materially from these forward-looking statements under “Risk Factors” below in this Annual Report on Form 10-K. These factors include, but are not limited to, increased competition; our ability to maintain, extend and expand our reputation and brand image; our ability to differentiate our products from other brands; increasing consolidation of retail customers; changes in relationships with our significant customers and suppliers; our ability to predict, identify and interpret changes in consumer preferences and demand; our ability to drive revenue growth in our key product categories, increase our market share, or add products; an impairment of goodwill or other indefinite-lived intangible assets; volatility in commodity, energy and other input costs; changes in our management team or other key personnel; our geographic focus in North America; changes in regulations; legal claims or other regulatory enforcement actions; product recalls or product liability claims; unanticipated business disruptions; our ability to complete or realize the benefits from potential acquisitions, alliances, divestitures or joint ventures; our indebtedness and our ability to pay our indebtedness; disruptions in our information technology networks and systems; our inability to protect our intellectual property rights; weak economic conditions; tax law changes; volatility of market-based impacts to postemployment benefit plans; pricing actions; and other factors. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this report, except as required by applicable law or regulation.
PART I
Item 1. Business.
General
Kraft Foods Group is one of the largest consumer packaged food and beverage companies in North America and worldwide, with net revenues of $18.2 billion and earnings before income taxes of $1.4 billion in 2014. We manufacture and market food and beverage products, including cheese, meats, refreshment beverages, coffee, packaged dinners, refrigerated meals, snack nuts, dressings, and other grocery products, primarily in the United States and Canada, under a host of iconic brands. Our product categories span breakfast, lunch, and dinner meal occasions. At December 27, 2014, we had assets of $22.9 billion. We are listed on the NASDAQ Stock Market and included in the Standard & Poor’s 500 and the NASDAQ - 100 indices.
Our diverse brand portfolio consists of many of the most popular food brands in North America, including three brands with annual net revenues exceeding $1 billion each—Kraft cheeses, dinners, and dressings; Oscar Mayer meats; and Philadelphia cream cheese—plus over 25 brands with annual net revenues between $100 million and $1 billion each. In the United States, based on dollar share in 2014, we hold the number one branded market share position in 11 of our top 17 product categories and the number two branded market share position in the remaining six product categories. The 11 product categories with the number one branded share position contributed more than 50% of our 2014 U.S. retail net revenues while our top 17 product categories contributed more than 80% of our 2014 U.S. retail net revenues.
We were initially organized as a Delaware corporation in 1980. In March 2012, we redomesticated to Virginia and changed our name from “Kraft Foods Global, Inc.” to “Kraft Foods Group, Inc.” On October 1, 2012, Mondelēz International, Inc. ("Mondelēz International," formerly known as Kraft Foods Inc.) spun-off Kraft Foods Group to Mondelēz International’s shareholders (the “Spin-Off”). We were a wholly-owned subsidiary of Mondelēz

1



International prior to the Spin-Off. To effect the Spin-Off, Mondelēz International distributed all of the shares of Kraft Foods Group common stock owned by Mondelēz International to its shareholders on October 1, 2012. As a result of the Spin-Off, we began operating as an independent, publicly traded company on October 1, 2012.
Reportable Segments
We manage and report our operating results through six reportable segments: Cheese, Refrigerated Meals, Beverages, Meals & Desserts, Enhancers & Snack Nuts, and Canada. Our remaining businesses, including our Foodservice and Exports businesses, are aggregated and disclosed as “Other Businesses”.
Our principal brands and products at December 27, 2014 were:
 
 
 
Cheese
  
Kraft and Cracker Barrel natural cheeses; Philadelphia cream cheese; Kraft and Deli Deluxe processed cheese slices; Velveeta and Cheez Whiz processed cheeses; Kraft grated and shredded cheeses; Polly-O and Athenos cheeses; and Breakstone’s and Knudsen cottage cheese and sour cream.
 
 
Refrigerated Meals
  
Oscar Mayer cold cuts, hot dogs, bacon, and P3 Portable Protein Packs; Lunchables lunch combinations; Claussen pickles; and Boca meat alternatives.
 
 
Beverages
  
Maxwell House, Gevalia, and Yuban coffees; Tassimo hot beverage system (under license); Capri Sun (under license) and Kool-Aid packaged juice drinks; Crystal Light, Kool-Aid, and Country Time powdered beverages; and MiO, Crystal Light, and Kool-Aid liquid concentrates.
 
 
 
Meals & Desserts
  
Kraft and Kraft Deluxe macaroni and cheese dinners;Velveeta shells and cheese dinners; JELL-O dry packaged desserts; JELL-O refrigerated gelatin and pudding snacks; Cool Whip whipped topping; Stove Top stuffing mix; Jet-Puffed marshmallows; Velveeta Cheesy Skillets and Taco Bell Home Originals (under license) meal kits; Shake ‘N Bake coatings; and Baker’s chocolate and baking ingredients.
 
 
Enhancers & Snack Nuts
 
Planters nuts and trail mixes; Kraft Mayo and Miracle Whip spoonable dressings; Kraft and Good Seasons salad dressings; A.1. sauce; Kraft and Bull’s-Eye barbecue sauces; and Grey Poupon premium mustards.
 
 
 
Canada
  
Canadian brand offerings include Kraft peanut butter and Nabob coffee, as well as a range of products bearing brand names similar to those marketed in the U.S.
 
 
 
Other Businesses
 
Our other businesses, including our Foodservice and Exports businesses, sell primarily branded products including Philadelphia cream cheese, A.1. sauce, and a broad array of Kraft sauces, dressings and cheeses.
Net Revenues by Product Category
Product categories that contributed 10% or more to consolidated net revenues for the years ended December 27, 2014, December 28, 2013, or December 29, 2012, were:
 
 
For the Years Ended
 
 
December 27, 2014
 
December 28, 2013
 
December 29, 2012
Cheese and dairy
 
33
%
 
32
%
 
31
%
Meat and meat alternatives
 
15
%
 
15
%
 
15
%
Meals
 
11
%
 
11
%
 
11
%
Refreshment beverages
 
10
%
 
10
%
 
10
%
Enhancers
 
9
%
 
9
%
 
10
%

2



See Note 15, Segment Reporting, to the consolidated financial statements for net revenues, earnings before income taxes, and total assets by segment.
Customers
We sell our products primarily to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, drug stores, value stores, and other retail food outlets in the United States and Canada.
Our five largest customers accounted for approximately 42% of our net revenues in 2014. One of our customers, Wal-Mart Stores, Inc., accounted for approximately 26% of our net revenues in 2014.
Sales
Our direct customer teams work with the headquarter operations of our customers and manage our relationships. These teams collaborate on developing strategies for new item introduction, category and assortment management, shopper insights, shopper marketing, trade and promotional planning, and retail pricing solutions. We have dedicated headquarter teams covering all of our product lines for many of our largest customers, and we pool resources across our product lines to provide support to regional retailers.
Our breadth of product lines and scale throughout the retail environment are also supported primarily by two third-party sales agencies within our customers’ stores: Acosta Sales & Marketing for our grocery and mass channel customers and CROSSMARK for our convenience store retail partners. Both agencies act as extensions of our direct customer teams and are managed by our sales leadership. Both sales agencies provide in-store support of product placement, distribution, and promotional execution.
We also utilize exporters, distributors, consolidators, or other similar arrangements to sell and distribute our products outside of the United States and Canada.
Raw Materials and Packaging
We purchase and use large quantities of commodities, including dairy products, meat products, coffee beans, nuts, soybean and vegetable oils, sugar and other sweeteners, corn products and wheat to manufacture our products. In addition, we purchase and use significant quantities of resins and cardboard to package our products and natural gas to operate our facilities. For commodities that we use across many of our product categories, such as corrugated paper and energy, we coordinate sourcing requirements and centralize procurement to leverage our scale. In addition, some of our product lines and brands separately source raw materials that are specific to their operations.
We source these commodities from a variety of providers including large, international producers, and smaller, local independent sellers. We have preferred purchaser status and/or have developed strategic partnerships with many of our suppliers, and consequently enjoy favorable pricing and dependable supply for many of our commodities. The prices of raw materials and agricultural materials that we use in our products are affected by external factors, such as global competition for resources, currency fluctuations, severe weather or global climate change, consumer, industrial or investment demand, and changes in governmental regulation and trade, alternative energy, and agricultural programs.
The most significant cost components of our cheese products are dairy commodities, including milk and cheese. We purchase our dairy raw material requirements from independent third parties, such as agricultural cooperatives and independent processors. Market supply and demand, as well as government programs, significantly influence the prices for milk and other dairy products. The most significant cost component of our coffee products is coffee beans, which we purchase on world markets. Quality and availability of supply, currency fluctuations, and consumer demand for coffee products impact coffee bean prices. Significant cost components in our meat business include pork, beef, and poultry, which we primarily purchase from domestic markets. Livestock feed costs and the global supply and demand for U.S. meats influence the prices of these meat products. Additional significant cost components in our grocery products are grains (including wheat), sugar, and soybean oil.
Our risk management group works with our procurement teams to monitor worldwide supply and cost trends so we can obtain ingredients and packaging needed for production at competitive prices. Although the prices of our principal raw materials can be expected to fluctuate, we believe there will be an adequate supply of the raw materials we use and that they are generally available from numerous sources. Our risk management group uses a range of hedging techniques in an effort to limit the impact of price fluctuations on our principal raw materials.

3



However, we do not fully hedge against changes in commodity prices, and our hedging strategies may not protect us from increases in specific raw material costs. We actively monitor any changes to commodity costs so that we can seek to mitigate the effect through pricing and other operational measures.
Manufacturing and Processing
We manufacture our products in our network of manufacturing and processing facilities located throughout North America. As of December 27, 2014, we operated 36 manufacturing and processing facilities, 34 in the United States and two in Canada. We own all 36 of these facilities.
While some of our plants are dedicated to the production of specific products or brands, other plants can accommodate multiple product lines. We manufacture our Cheese products in 12 locations, our Refrigerated Meals products in nine locations, our Beverages products in eight locations, our Meals & Desserts products in 11 locations, and our Enhancers & Snack Nuts products in eight locations. We maintain all of our manufacturing and processing facilities in good condition and believe they are suitable and adequate for our present needs. We also enter into co-manufacturing arrangements with third parties if we determine it is advantageous to outsource the production of any of our products.
Distribution
As of December 27, 2014, we distributed our products through 36 distribution centers, of which 33 are in the United States and three are in Canada. We own four and lease 32 of these distribution centers. In addition, third-party logistics providers perform storage and distribution services for us to support our distribution network.
We rely on common carriers to transport our products from our manufacturing and processing facilities to our distribution facilities and on to our customers. Our distribution facilities generally accommodate all of our product lines and have the capacity to store refrigerated, dry, and frozen goods. We assemble customer orders for multiple products at the distribution facilities and deliver them by common carrier to our customers. We maintain all of our distribution facilities in good condition and believe they have sufficient capacity to meet our expected distribution needs.
Competition
We face competition in all aspects of our business. Competitors include large national and international companies and numerous local and regional companies. We also compete with generic products and retailer brands, wholesalers, and cooperatives. We compete primarily on the basis of product quality and innovation, brand recognition and loyalty, service, the ability to identify and satisfy consumer preferences, the introduction of new products and the effectiveness of our advertising campaigns and marketing programs, and price. Improving our market position or introducing a new product requires substantial advertising and promotional expenditures.
Trademarks and Intellectual Property
Our trademarks are material to our business and are among our most valuable assets. Some of our significant trademarks include A.1., Baker’s, Cheez Whiz, Cool Whip, Country Time, Cracker Barrel, Crystal Light, Grey Poupon, JELL-O, Kool-Aid, Kraft, Lunchables, MiO, Miracle Whip, Oscar Mayer, Planters, Shake ‘N Bake, Stove Top, and Velveeta. We own the rights to these trademarks in the United States, Canada, and many other countries throughout the world. In addition, we own the trademark rights to Philadelphia in the United States and the Caribbean, and to Gevalia and Maxwell House throughout North America and Latin America. We protect our trademarks by registration or otherwise in the United States, Canada, and other markets. From time to time, we grant third parties licenses to use one or more of our trademarks in particular locations. Similarly, as of December 27, 2014, we sell some products under brands we license from third parties, including:
Capri Sun packaged drink pouches for sale in the United States;
McCafé ground, whole bean and on-demand single cup coffees; and
Taco Bell Home Originals Mexican-style food products for sale in U.S. grocery stores.
In connection with the Spin-Off, we granted Mondelēz International licenses to use some of our trademarks in particular locations outside of the United States and Canada and we also may sell some products under brands we license from Mondelēz International.
Additionally, we own numerous patents worldwide. We consider our portfolio of patents, patent applications, patent licenses under patents owned by third parties, proprietary trade secrets, technology, know-how processes, and

4



related intellectual property rights to be material to our operations. While our patent portfolio is material to our business, the loss of one patent or a group of related patents would not have a material adverse effect on our business. We either have been issued patents or have patent applications pending that relate to a number of current and potential products, including products licensed to others. Patents, issued or applied for, cover inventions ranging from basic packaging techniques to processes relating to specific products and to the products themselves.
Our issued patents extend for varying periods according to the date of the patent application filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage as determined by the patent office or courts in the country, and the availability of legal remedies in the country. In connection with the Spin-Off, we granted Mondelēz International licenses to use some of our patents, and we also license certain patents from Mondelēz International.
Research and Development
Our research and development focuses on achieving the following four objectives:
growth through product improvements and renovations, new products, and line extensions,
uncompromising product safety and quality,
superior customer satisfaction, and
cost reduction.
Our research and development specialists have historically focused on both major product innovation and more modestly-scaled line extensions, such as the introduction of new flavors, colors, or package designs for established products. We have approximately 600 food scientists, chemists, and engineers, with teams dedicated to particular brands and products.
We maintain three key technology centers, each equipped with pilot plants and state-of-the-art instruments. Research and development expense was approximately $149 million in 2014, $142 million in 2013, and $143 million in 2012. The amounts disclosed in prior periods have been revised to conform with the current year presentation.
Seasonality
Overall sales of our products are fairly balanced throughout the year, although demand for certain products may be influenced by holidays, changes in seasons, or other annual events.
Employees
We have approximately 22,100 employees, of whom approximately 20,100 are located in the United States and approximately 2,000 are located in Canada. Approximately one-third of our hourly employees are represented under contracts primarily with the United Food and Commercial Workers International Union and the International Brotherhood of Teamsters. These contracts expire at various times throughout the next several years. We believe that our relationships with employees and their representative organizations are generally good.
Regulation
Our U.S. food and beverage products and packaging materials are primarily regulated by the U.S. Food and Drug Administration or, for products containing meat and poultry, the U.S. Food Safety and Inspection Service of the U.S. Department of Agriculture. Our Canadian food products and packaging materials are primarily regulated by the Canadian Food Inspection Agency and Health Canada. These agencies enact and enforce regulations relating to the manufacturing, distribution, and labeling of food products.
The U.S. Food Safety Modernization Act and the Safe Food for Canadians Act, both of which became laws in 2011, provide additional food safety authority to the applicable regulatory agency. We do not expect the cost of complying with these laws, and the implementing regulations expected to result from these laws, to be material.
In addition, various U.S. states and Canadian provinces regulate our operations by licensing plants, enforcing standards for selected food products, grading food products, inspecting plants and warehouses, regulating trade practices related to the sale of dairy products, and imposing their own labeling requirements on food products. Many of the food commodities we use in our operations are subject to governmental agricultural programs. These

5



programs have substantial effects on prices and supplies and are subject to periodic governmental and administrative review.
Environmental Regulation
We are subject to various federal, provincial, state, and local laws and regulations in the United States and Canada relating to the protection of the environment, including those governing discharges to air and water, the management and disposal of hazardous materials, and the cleanup of contaminated sites.
These laws and regulations include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, and the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). CERCLA imposes joint and severable liability on each potentially responsible party. As of December 27, 2014, we were involved in 56 active proceedings in the United States under CERCLA (and other similar state actions and legislation) related to our current operations and certain closed, inactive, or divested operations for which we retain liability. We do not currently expect these to have a material effect on our earnings or financial condition.
As of December 27, 2014, we had accrued an amount we deemed appropriate for environmental remediation. Based on information currently available, we believe that the ultimate resolution of existing environmental remediation actions and our compliance in general with environmental laws and regulations will not have a material effect on our earnings or financial condition. However, it is difficult to predict with certainty the potential impact of future compliance efforts and environmental remedial actions and thus future costs associated with such matters may exceed current reserves.
Foreign Operations
We sell our products primarily to consumers in the United States and Canada, but also sell our products to many other countries and territories across the globe. We generated approximately 13% of our 2014 consolidated net revenues and 14% of our 2013 and 2012 consolidated net revenues outside the United States, primarily in Canada. For additional information about our foreign operations, see Note 15, Segment Reporting, to the consolidated financial statements.
Executive Officers of the Registrant
The following are our executive officers as of February 19, 2015:
Name
 
Age
 
Title
John T. Cahill
 
57

 
Chairman and Chief Executive Officer
Georges El-Zoghbi
 
48

 
Chief Operating Officer
Diane Johnson May
 
56

 
Executive Vice President, Human Resources
Christopher J. Kempczinski
 
46

 
Executive Vice President, Growth Initiatives and President of International
Teri L. List-Stoll
 
52

 
Executive Vice President and Chief Financial Officer(1)
Kim K. W. Rucker
 
48

 
Executive Vice President, Corporate & Legal Affairs, General Counsel and Corporate Secretary
(1) Ms. List-Stoll will be leaving this role effective February 28, 2015.
Mr. Cahill was appointed as our Chairman and Chief Executive Officer effective December 28, 2014. Mr. Cahill had served as our non-executive Chairman from March 8, 2014 until this appointment. Prior to that, he served as our Executive Chairman since October 1, 2012. He joined Mondelēz International, a food and beverage company and our former parent, on January 2, 2012 as the Executive Chairman, North American Grocery, and served in that capacity until the Spin-Off. Prior to that, he served as an Industrial Partner at Ripplewood Holdings LLC, a private equity firm, from 2008 to 2011. Mr. Cahill spent nine years with The Pepsi Bottling Group, Inc., a beverage manufacturing company, most recently as Chairman and Chief Executive Officer from 2003 to 2006 and Executive Chairman until 2007. Mr. Cahill previously spent nine years with PepsiCo, Inc., a food and beverage company, in a variety of leadership positions. He currently serves as lead director of American Airlines Group and is also a director at Colgate-Palmolive Company.
Mr. El-Zoghbi has served as our Chief Operating Officer since February 10, 2015. He served as our Vice Chairman, Operations, R&D, Sales and Strategy from June 2014 until assuming his current role. He previously served as Executive Vice President and President, Cheese & Dairy and Exports from February 2013 until June 2014. Mr. El-Zoghbi served as Executive Vice President and President, Cheese and Dairy from October 1, 2012 to February

6



2013. Prior to that, he served as Mondelēz International’s President, Cheese and Dairy since October 2009. He also served as Mondelēz International's Vice President and Area Director, Kraft Foods Australia & New Zealand from October 2007 to September 2009.
Ms. Johnson May has served as our Executive Vice President, Human Resources since October 1, 2012. Prior to that, she served as Mondelēz International’s Senior Vice President, Human Resources, Kraft Foods North America since September 2010. She joined Mondelēz International in 1980 and has served in various roles, including Vice President, Human Resources at various Mondelēz International units from December 2006 to September 2010 and Senior Director, Human Resources from 2002 to 2006.
Mr. Kempczinski has served as our Executive Vice President, Growth Initiatives and President of International since February 10, 2015. He served as our Executive Vice President and President, Canada from January 2014 until assuming his current role. He previously served as Kraft Foods Group’s President, Canada from July 2012 until January 2014. From December 2008 until July 2012, he served as Mondelēz International’s Senior Vice President, Meals & Enhancers. Prior to joining Mondelēz International in December 2008, Mr. Kempczinski was Vice President, Non-Carbonated Beverages at PepsiCo, Inc.
Ms. List-Stoll has served as our Executive Vice President and Chief Financial Officer since December 29, 2013. She joined Kraft Foods Group on September 3, 2013 and served as Senior Vice President, Corporate Finance until assuming her current role. Prior to joining Kraft Foods Group, she worked for The Procter & Gamble Company for nearly 20 years, in various finance and accounting leadership positions. She had most recently served as Senior Vice President and Treasurer of Procter & Gamble from 2009 to 2013 and Vice President, Finance, Global Operations from 2007 to 2009. Ms. List-Stoll serves on the Board of Directors of Danaher Corporation and Microsoft Corporation.
Ms. Rucker has served as our Executive Vice President, Corporate & Legal Affairs, General Counsel and Corporate Secretary since October 1, 2012. She joined Mondelēz International as Executive Vice President, Corporate & Legal Affairs, Kraft Foods North America in September 2012. Prior to that, Ms. Rucker served as Senior Vice President, General Counsel and Chief Compliance Officer of Avon Products, Inc., a global manufacturer of beauty and related products, since March 2008 and as Corporate Secretary since February 2009. Ms. Rucker also served as Senior Vice President, Secretary and Chief Governance Officer of Energy Future Holdings Corp. (formerly TXU Corp.), an energy company, from 2004 to 2008.
Available Information
Our Web site address is www.kraftfoodsgroup.com. The information on our Web site is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any other filings we make with the Securities and Exchange Commission ("SEC"). Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") are or will be available free of charge on our Web site as soon as possible after we electronically file them with, or furnish them to, the SEC.
You can also read, access and copy any document that we file, including this Annual Report on Form 10-K, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Call the SEC at 1-800-SEC-0330 for information on the operation of the Public Reference Room. In addition, the SEC maintains a Web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including Kraft Foods Group, that are electronically filed with the SEC.
Item 1A. Risk Factors.
You should read the following risk factors carefully in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. Any of the following risks could materially and adversely affect our business, financial condition, operating results and the actual outcome of matters described in this Annual Report on Form 10-K. While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that we do not presently know or that we do not currently believe to be significant that may adversely affect our business, financial condition, or operating results in the future.
We operate in a highly competitive industry.
The food and beverage industry is highly competitive across all of our product offerings. We compete based on

7



product innovation, price, product quality, brand recognition and loyalty, effectiveness of marketing and distribution, promotional activity, and the ability to identify and satisfy consumer preferences.
We may need to reduce our prices in response to competitive and customer pressures. These pressures may also restrict our ability to increase prices in response to commodity and other cost increases. We may also need to increase or reallocate spending on marketing, retail trade incentives, advertising, and new product innovation to maintain or increase market share. These expenditures are subject to risks, including uncertainties about trade and consumer acceptance of our efforts. If we are unable to compete effectively, our profitability, financial condition, and operating results may suffer.
Maintaining, extending and expanding our reputation and brand image are essential to our business success.
We have many iconic brands with long-standing consumer recognition. Our success depends on our ability to maintain brand image for our existing products, extend our brands to new platforms, and expand our brand image with new product offerings.
We seek to maintain, extend, and expand our brand image through marketing investments, including advertising and consumer promotions, and product innovation. Increasing attention on the role of food and beverage marketing could adversely affect our brand image. It could also lead to stricter regulations and greater scrutiny of marketing practices. Existing or increased legal or regulatory restrictions on our advertising, consumer promotions and marketing, or our response to those restrictions, could limit our efforts to maintain, extend and expand our brands. Moreover, adverse publicity about regulatory or legal action against us could damage our reputation and brand image, undermine our customers’ confidence and reduce long-term demand for our products, even if the regulatory or legal action is unfounded or not material to our operations.
In addition, our success in maintaining, extending, and expanding our brand image depends on our ability to adapt to a rapidly changing media environment. We increasingly rely on social media and online dissemination of advertising campaigns. The growing use of social and digital media increases the speed and extent that information or misinformation and opinions can be shared. Negative posts or comments about us, our brands or our products on social or digital media, whether or not valid, could seriously damage our brands and reputation. If we do not maintain, extend, and expand our brand image, then our product sales, financial condition and operating results could be materially and adversely affected.
We must leverage our brand value to compete against retailer brands and other economy brands.
In nearly all of our product categories, we compete with well-branded products as well as retailer and other economy brands. Our products must provide higher value and/or quality to our consumers than alternatives, particularly during periods of economic uncertainty. Consumers may not buy our products if relative differences in value and/or quality between our products and retailer or other economy brands change in favor of competitors’ products or if consumers perceive this type of change. If consumers prefer retailer or other economy brands, then we could lose market share or sales volumes or shift our product mix to lower margin offerings, which could materially and adversely affect our product sales, financial condition, and operating results.
The consolidation of retail customers could adversely affect us.
Retail customers, such as supermarkets, warehouse clubs, and food distributors in our major markets, may consolidate, resulting in fewer customers for our business. Consolidation also produces larger retail customers that may seek to leverage their position to improve their profitability by demanding improved efficiency, lower pricing, increased promotional programs, or specifically tailored products. In addition, larger retailers have the scale to develop supply chains that permit them to operate with reduced inventories or to develop and market their own retailer brands. Retail consolidation and increasing retailer power could materially and adversely affect our product sales, financial condition, and operating results.
Retail consolidation also increases the risk that adverse changes in our customers’ business operations or financial performance will have a corresponding material and adverse effect on us. For example, if our customers cannot access sufficient funds or financing, then they may delay, decrease, or cancel purchases of our products, or delay or fail to pay us for previous purchases, which could materially and adversely affect our product sales, financial condition, and operating results.

8



Changes in our relationships with significant customers or suppliers could adversely impact us.
During 2014, our five largest customers accounted for approximately 42% of our net revenues, with our largest customer, Wal-Mart Stores, Inc., accounting for approximately 26% of our net revenues. There can be no assurance that all significant customers will continue to purchase our products in the same mix or quantities or on the same terms as in the past, particularly as increasingly powerful retailers may demand lower pricing and focus on developing their own brands. The loss of a significant customer or a material reduction in sales or a change in the mix of products we sell to a significant customer could materially and adversely affect our product sales, financial condition, and operating results.
Disputes with significant suppliers, including disputes related to pricing or performance, could adversely affect our ability to supply products to our customers and could materially and adversely affect our product sales, financial condition, and operating results.
Our financial success depends on our ability to correctly predict, identify, and interpret changes in consumer preferences and demand, to offer new products to meet those changes, and to respond to competitive innovation.
Consumer preferences for food and beverage products change continually. Our success depends on our ability to predict, identify, and interpret the tastes and dietary habits of consumers and to offer products that appeal to consumer preferences. If we do not offer products that appeal to consumers, our sales and market share will decrease, which could materially and adversely affect our product sales, financial condition, and operating results.
We must distinguish between short-term fads, mid-term trends, and long-term changes in consumer preferences. If we do not accurately predict which shifts in consumer preferences will be long-term, or if we fail to introduce new and improved products to satisfy those preferences, our sales could decline. In addition, because of our varied consumer base, we must offer an array of products that satisfy the broad spectrum of consumer preferences. If we fail to expand our product offerings successfully across product categories, or if we do not rapidly develop products in faster growing and more profitable categories, demand for our products could decrease, which could materially and adversely affect our product sales, financial condition, and operating results.
Prolonged negative perceptions concerning the health implications of certain food products could influence consumer preferences and acceptance of some of our products and marketing programs. We strive to respond to consumer preferences and social expectations, but we may not be successful in our efforts. Continued negative perceptions and failure to satisfy consumer preferences could materially and adversely affect our product sales, financial condition, and operating results.
In addition, achieving growth depends on our successful development, introduction, and marketing of innovative new products and line extensions. Successful innovation depends on our ability to correctly anticipate customer and consumer acceptance, to obtain, protect and maintain necessary intellectual property rights, and to avoid infringing the intellectual property rights of others. We must also be able to respond successfully to technological advances by and intellectual property rights of our competitors, and failure to do so could compromise our competitive position and impact our financial results.
We may be unable to drive revenue growth in our key product categories, increase our market share, or add products that are in faster growing and more profitable categories.
The food and beverage industry’s overall growth is generally linked to population growth. Our future results will depend on our ability to drive revenue growth in our key product categories. Because our operations are concentrated in North America, where growth in the food and beverage industry has been limited, our success also depends in part on our ability to enhance our portfolio by adding innovative new products in faster growing and more profitable categories. Our future results will also depend on our ability to increase market share in our existing product categories. Our failure to drive revenue growth, limit market share decreases in our key product categories or develop innovative products for new and existing categories could materially and adversely affect our product sales, financial condition, and operating results.
An impairment of the carrying value of goodwill or other indefinite-lived intangible assets could negatively affect our consolidated operating results.
Goodwill and indefinite-lived intangible assets are initially recorded at fair value and are not amortized, but we test goodwill and indefinite-lived intangible assets for impairment at least annually in the fourth quarter or when a

9



triggering event occurs. The first step of our goodwill impairment test compares the reporting unit’s estimated fair value with its carrying value. We estimate a reporting unit’s fair value using planned growth rates, market-based discount rates, estimates of residual value, and estimates of market multiples. If the carrying value of a reporting unit’s net assets exceeds its fair value, the second step would be applied to measure the difference between the carrying value and implied fair value of goodwill. We determine fair value of indefinite-lived intangible assets using planned growth rates, market-based discount rates, and estimates of royalty rates. If the carrying values of goodwill or indefinite-lived intangible assets exceed their fair value, the goodwill or indefinite-lived intangible assets would be considered impaired and reduced to their fair value. An impairment of the carrying value of goodwill or other indefinite-lived intangible assets could negatively affect our operating results or net worth. As of December 27, 2014, we had $13.6 billion of goodwill and other indefinite-lived intangible assets, in aggregate, which represented approximately 59% of total assets.
Commodity, energy, and other input prices are volatile and may rise significantly.
We purchase and use large quantities of commodities, including dairy products, meat products, coffee beans, nuts, soybean and vegetable oils, sugar and other sweeteners, corn products and wheat to manufacture our products. In addition, we purchase and use significant quantities of resins and cardboard to package our products and natural gas to operate our facilities. We are also exposed to changes in oil prices, which influence both our packaging and transportation costs. Prices for commodities, other supplies, and energy are volatile and can fluctuate due to conditions that are difficult to predict, including global competition for resources, currency fluctuations, severe weather or global climate change, consumer, industrial or investment demand, and changes in governmental regulation and trade, alternative energy, and agricultural programs. Rising commodity, energy, and other input costs could materially and adversely affect our cost of operations, including the manufacture, transportation, and distribution of our products, which could materially and adversely affect our financial condition and operating results.
Although we monitor our exposure to commodity prices as an integral part of our overall risk management program, and seek to hedge against input price increases to the extent we deem appropriate, we do not fully hedge against changes in commodity prices, and our hedging strategies may not protect us from increases in specific raw materials costs. For example, hedging our costs for one of our key commodities, dairy products, is difficult because dairy futures markets are not as developed as many other commodities futures markets. Continued volatility or sustained increases in the prices of commodities and other supplies we purchase could increase the costs of our products, and our profitability could suffer. Moreover, increases in the prices of our products to cover these increased costs may result in lower sales volumes. If we are not successful in our hedging activities, or if we are unable to price our products to cover increased costs, then commodity and other input price volatility or increases could materially and adversely affect our financial condition and operating results.
We rely on our management team and other key personnel.
We depend on the skills, working relationships, and continued services of key personnel, including our experienced management team. In addition, our ability to achieve our operating goals depends on our ability to identify, hire, train, and retain qualified individuals. We compete with other companies both within and outside of our industry for talented personnel, and we may lose key personnel or fail to attract, train, and retain other talented personnel. Any such loss or failure could adversely affect our product sales, financial condition, and operating results.
Our geographic focus makes us particularly vulnerable to economic and other events and trends in North America.
We operate primarily in North America and, therefore, are particularly susceptible to adverse regulations, economic climate, consumer trends, market fluctuations, including commodity price fluctuations or supply shortages for certain of our key ingredients, and other adverse events that are specific to the United States and Canada. The concentration of our businesses in North America could present challenges and may increase the likelihood that an adverse event in North America would materially and adversely affect our product sales, financial condition, and operating results.
Changes in laws and regulations could increase our costs.
Our activities are highly regulated and subject to government oversight. Various federal, state, provincial, and local laws and regulations govern food and beverage production, storage, distribution, sales, and marketing, as well as licensing, trade, tax, and environmental matters. Governing bodies regularly issue new regulations and changes to existing regulations. Our need to comply with new or revised regulations or their interpretation and application could materially and adversely affect our product sales, financial condition, and operating results.

10



Legal claims or other regulatory enforcement actions could subject us to civil and criminal penalties.
As a large food and beverage company, we operate in a highly regulated environment with constantly evolving legal and regulatory frameworks. Consequently, we are subject to heightened risk of legal claims or other regulatory enforcement actions. Although we have implemented policies and procedures designed to ensure compliance with existing laws and regulations, there can be no assurance that our employees, contractors, or agents will not violate our policies and procedures. Moreover, a failure to maintain effective control processes could lead to violations, unintentional or otherwise, of laws and regulations. Legal claims or regulatory enforcement actions arising out of our failure or alleged failure to comply with applicable laws and regulations could subject us to civil and criminal penalties that could materially and adversely affect our product sales, reputation, financial condition, and operating results.
Product recalls or other product liability claims could materially and adversely affect us.
Selling products for human consumption involves inherent legal and other risks, including product contamination, spoilage, product tampering, allergens, or other adulteration. We could decide to, or be required to, recall products due to suspected or confirmed product contamination, adulteration, misbranding, tampering, or other deficiencies. Product recalls or market withdrawals could result in significant losses due to their costs, the destruction of product inventory, and lost sales due to the unavailability of the product for a period of time. We could be adversely affected if consumers lose confidence in the safety and quality of certain food products or ingredients, or the food safety system generally. Adverse attention about these types of concerns, whether or not valid, may damage our reputation, discourage consumers from buying our products, or cause production and delivery disruptions.
We may also suffer losses if our products or operations violate applicable laws or regulations, or if our products cause injury, illness, or death. In addition, our marketing could face claims of false or deceptive advertising or other criticism. A significant product liability or other legal judgment or a related regulatory enforcement action against us, or a significant product recall, may materially and adversely affect our reputation and profitability. Moreover, even if a product liability or fraud claim is unsuccessful, has no merit, or is not pursued, the negative publicity surrounding assertions against our products or processes could materially and adversely affect our product sales, financial condition, and operating results.
Unanticipated business disruptions could adversely affect our ability to provide our products to our customers.
We have a complex network of suppliers, owned manufacturing locations, co-manufacturing locations, distribution networks, and information systems that support our ability to consistently provide our products to our customers. Factors that are hard to predict or beyond our control, like weather, raw material shortage, natural disasters, fire or explosion, terrorism, generalized labor unrest, or health pandemics, could damage or disrupt our operations or our suppliers’ or co-manufacturers’ operations. These disruptions may require additional resources to restore our supply chain or distribution network. If we cannot respond to disruptions in our operations, whether by finding alternative suppliers or replacing capacity at key manufacturing or distribution locations, or are unable to quickly repair damage to our information, production, or supply systems, we may be late in delivering, or unable to deliver, products to our customers and may also be unable to track orders, inventory, receivables, and payables. If that occurs, our customers’ confidence in us and long-term demand for our products could decline. Any of these events could materially and adversely affect our product sales, financial condition, and operating results.
We may not successfully identify or complete strategic acquisitions, alliances, divestitures or joint ventures.
From time to time, we may evaluate acquisition candidates, alliances or joint ventures that may strategically fit our business objectives or we may consider divesting businesses that do not meet our strategic objectives or growth or profitability targets. These activities may present financial, managerial, and operational risks including, but not limited to, diversion of management’s attention from existing core businesses, difficulties integrating or separating personnel and financial and other systems, inability to effectively and immediately implement control environment processes across a diverse employee population, adverse effects on existing or acquired customer and supplier business relationships, and potential disputes with buyers, sellers or partners. In addition, to the extent we undertake acquisitions, alliances or joint ventures or other developments outside our core geography or in new categories, we may face additional risks related to such developments. For example, risks related to foreign operations include compliance with U.S. laws affecting operations outside of the United States, such as the Foreign Corrupt Practices Act, currency rate fluctuations, compliance with foreign regulations and laws, including tax laws, and exposure to politically and economically volatile developing markets. Any of these factors could materially and

11



adversely affect our product sales, financial condition, and operating results.
Volatility of capital markets or macro-economic factors could adversely affect our business.
Changes in financial and capital markets, including market disruptions, limited liquidity, and interest rate volatility, may increase the cost of financing as well as the risks of refinancing maturing debt. In addition, our borrowing costs can be affected by short and long-term ratings assigned by rating organizations. A decrease in these ratings could limit our access to capital markets and increase our borrowing costs, which could materially and adversely affect our financial condition and operating results.
Adverse changes in the capital markets or interest rates, differences or changes in actuarial assumptions from actual experience, and legislative or other regulatory actions could substantially increase our postemployment obligations and materially and adversely affect our profitability and operating results.
We sponsor a number of benefit plans for employees in the United States and Canada, including defined benefit pension plans, retiree health and welfare, active health care, severance, and other postemployment benefits. As of December 27, 2014, the projected benefit obligation of our defined benefit pension plans was $8.3 billion and these plans had assets of $7.2 billion. The difference between plan obligations and assets, or the funded status of the plans, significantly affects the net periodic benefit costs of our pension plans and the ongoing funding requirements of those plans. Among other factors, changes in interest rates, mortality rates, early retirement rates, investment returns, minimum funding requirements, and the market value of plan assets can affect the level of plan funding, cause volatility in the net periodic pension cost, and consequently volatility in our reported net income, and increase our future funding requirements. Legislative and other governmental regulatory actions may also increase funding requirements for our pension plans’ benefits obligation.
We estimate the 2015 pension contributions will be approximately $195 million. Volatile economic conditions increase the risk that we will be required to make additional cash contributions to the pension plans and recognize further increases in our net pension cost. A significant increase in our pension funding requirements could negatively affect our ability to invest in our business or pay dividends on our common stock.
Volatility in the market value of all or a portion of the derivatives we use to manage exposures to fluctuations in commodity prices may cause volatility in our operating results and net earnings.
We use commodity futures and options to partially hedge the price of certain input costs, including dairy products, coffee beans, meat products, wheat, corn products, soybean oils, sugar, and natural gas. For derivatives not designated as hedging instruments, changes in the values of these derivatives are currently recorded in earnings, resulting in volatility in both gross profits and net earnings. We report these gains and losses in cost of sales in our consolidated statements of earnings to the extent we utilize the underlying input in our manufacturing process. We report these gains and losses in the unallocated corporate items line in our segment operating results until we utilize the underlying input in our manufacturing process, at which time we reclassify the gains and losses to segment operating income. We may experience volatile earnings as a result of these accounting treatments.
We are significantly dependent on information technology.
We rely on information technology networks and systems, including the Internet, to process, transmit, and store electronic and financial information, to manage a variety of business processes and activities, and to comply with regulatory, legal, and tax requirements. We also depend on our information technology infrastructure for digital marketing activities and for electronic communications among our locations, personnel, customers, and suppliers. These information technology systems, some of which are managed by third parties, may be susceptible to damage, disruptions, or shutdowns due to hardware failures, computer viruses, hacker attacks, telecommunication failures, user errors, catastrophic events or other factors. If our information technology systems suffer severe damage, disruption, or shutdown and our business continuity plans do not effectively resolve the issues in a timely manner, we could experience business disruptions, transaction errors, processing inefficiencies, and the loss of customers and sales, causing our product sales, financial condition, and operating results to be adversely affected and the reporting of our financial results to be delayed.
In addition, if we are unable to prevent security breaches or disclosure of non-public information, we may suffer financial and reputational damage, litigation or remediation costs or penalties because of the unauthorized disclosure of confidential information belonging to us or to our partners, customers, consumers, or suppliers.
Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our

12



products and brands.
We consider our intellectual property rights, particularly and most notably our trademarks, but also our patents, trade secrets, copyrights, and licensing agreements, to be a significant and valuable aspect of our business. We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright, and trade secret laws, as well as licensing agreements, third-party nondisclosure and assignment agreements, and policing of third-party misuses of our intellectual property. Our failure to obtain or adequately protect our trademarks, products, new features of our products, or our technology, or any change in law or other changes that serve to lessen or remove the current legal protections of our intellectual property, may diminish our competitiveness and could materially harm our business.
We may be unaware of intellectual property rights of others that may cover some of our technology, brands, or products. Any litigation regarding patents or other intellectual property could be costly and time-consuming and could divert the attention of our management and key personnel from our business operations. Third-party claims of intellectual property infringement might also require us to enter into costly license agreements. We also may be subject to significant damages or injunctions against development and sale of certain products.
Our indebtedness levels could impact our business.
As of December 27, 2014, we had total debt of approximately $10 billion. Our ability to make payments on and to refinance our indebtedness, including any future debt that we may incur, will depend on our ability to generate cash from operations, financings, or asset sales. Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control. We may not generate sufficient funds to service our debt and meet our business needs, such as funding working capital or the expansion of our operations. If we are not able to repay or refinance our debt as it becomes due, we may be forced to take disadvantageous actions, including reducing spending on marketing, retail trade incentives, advertising and product innovation, reducing financing in the future for working capital, capital expenditures and general corporate purposes, selling assets, or dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. The lenders who hold our debt could also accelerate amounts due in the event that we default, which could potentially trigger a default or acceleration of the maturity of our other debt.
Our indebtedness could also impair our ability to obtain additional financing for working capital, capital expenditures, or general corporate purposes, especially if the ratings assigned to our debt securities by rating organizations were revised downward. In addition, our leverage could put us at a competitive disadvantage compared to less-leveraged competitors that could have greater financial flexibility to pursue strategic acquisitions and secure additional financing for their operations. Our ability to withstand competitive pressures and to react to changes in the food and beverage industry could be impaired, making us more vulnerable in the event of a general downturn in economic conditions, in our industry, or in our business.
Item 1B.  Unresolved Staff Comments.
None.
Item 2.  Properties.
Our corporate headquarters are located in Northfield, Illinois. Our headquarters are leased and house our executive offices, certain U.S. business units, and our administrative, finance, and human resource functions. We maintain additional owned and leased offices and three technology centers in the United States and Canada.
We have 36 manufacturing and processing facilities, of which 34 are in the United States and two are in Canada. We own all 36 of these facilities. It is our practice to maintain all of our plants and properties in good condition, and we believe they are suitable and adequate for our present needs.
We also have 36 distribution centers, of which 33 are in the United States and three are in Canada. We own four and lease 32 of these distribution centers. These facilities are in good condition, and we believe they have sufficient capacity to meet our present distribution needs.
Item 3.  Legal Proceedings.
We are routinely involved in legal proceedings, claims, and governmental inquiries, inspections, or investigations (“Legal Matters”) arising in the ordinary course of our business.

13



We have been advised by the staff of the Commodity Futures Trading Commission (“CFTC”) that they are investigating activities related to the trading of December 2011 wheat futures contracts. These activities arose prior to the Spin-Off and involve the business now owned and operated by Mondelēz International or its affiliates. We are cooperating with the staff in its investigation. In October 2014, the staff advised us that the CFTC intends to commence a formal action. We and Mondelēz International continue to seek resolution of this matter. Our Separation and Distribution Agreement with Mondelēz International dated as of September 27, 2012, governs the allocation between Mondelēz International and us and, accordingly, Mondelēz International will predominantly bear the costs of this matter and any monetary penalties or other payments that the CFTC may impose. We do not expect this matter to have a material adverse effect on our financial condition or results of operations.
While we cannot predict with certainty the results of Legal Matters in which we are currently involved or may in the future be involved, we do not expect that the ultimate costs to resolve any of the Legal Matters that are currently pending will have a material adverse effect on our financial condition or results of operations.
Item 4.  Mine Safety Disclosures.
Not applicable.
PART II
Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is listed on the NASDAQ Global Select Market (“NASDAQ”). At February 10, 2015, there were approximately 65,000 holders of record of our common stock.
Information regarding our common stock high and low sales prices as reported on NASDAQ and dividends declared is included in Note 16, Quarterly Financial Data (Unaudited), to the consolidated financial statements.
Comparison of Cumulative Total Return
The following graph compares the cumulative total return on our common stock with the cumulative total return of the Standard & Poor’s 500 Index and our performance peer group index. This graph covers the period from September 17, 2012 (the first day our common stock began “when-issued” trading on the NASDAQ) through December 26, 2014 (the last trading day of our 2014 fiscal year). The graph shows total shareholder return assuming $100 was invested on September 17, 2012 and dividends were reinvested.

14



Date
 
Kraft Foods
Group
 
S&P 500
 
Performance
Peer Group
 
Former Performance Peer Group
September 17, 2012
 
$
100.00

 
$
100.00

 
$
100.00

 
$
100.00

December 28, 2012
 
99.59

 
96.64

 
98.42

 
102.40

December 27, 2013
 
125.20

 
129.60

 
124.25

 
136.73

December 26, 2014
 
154.53

 
150.02

 
143.14

 
159.03

In 2014, we selected a new Performance Peer Group, which is the same as our Compensation Benchmarking Peer Group and includes a broader spectrum of companies within our industry than in our Former Performance Peer Group. Our Performance Peer Group currently consists of the following companies: Altria Group Inc., Campbell Soup Company, Colgate-Palmolive Company, ConAgra Foods, Inc., General Mills, Inc., Hormel Foods Corporation, Kellogg Company, Keurig Green Mountain, Inc., Kimberly-Clark Corporation, McDonald’s Corporation, Mondelēz International, Inc., PepsiCo, Inc., The J.M. Smucker Company, Starbucks Corporation, The Coca-Cola Company, The Hershey Company, The Procter & Gamble Company, and Tyson Foods, Inc. Our Former Performance Peer Group consists of the companies in the Standard & Poor's Packaged Foods & Meats Index, as follows: Campbell Soup Company, ConAgra Foods, Inc., General Mills, Inc., The Hershey Company, Hormel Foods Corporation, Kellogg Company, Keurig Green Mountain, Inc., McCormick and Co. Inc., Mead Johnson Nutrition Company, Mondelēz International, Inc., The J.M. Smucker Company, and Tyson Foods, Inc. Companies included in the Standard & Poor's Packaged Foods & Meats Index change periodically. During 2014, Keurig Green Mountain, Inc. was added to the index and Archer Daniels Midland Company was excluded from the index.
The above performance graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act.
Issuer Purchases of Equity Securities during the Quarter ended December 27, 2014
Our share repurchase activity for the three months ended December 27, 2014 was:
 
 
Total Number
of Shares(1)
 
Average Price 
Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Program(2)
 
Dollar Value of Shares that May Yet be Purchased Under the Program(2)
9/28/2014 - 10/25/2014
 
1,812,616

 
$
55.94

 
1,697,190

 
 
10/26/2014 - 11/22/2014
 
1,219,402

 
57.63

 
1,207,147

 
 
11/23/2014 - 12/27/2014
 
966,953

 
60.23

 
954,280

 
$
2,254,120,747

For the Quarter Ended December 27, 2014
 
3,998,971

 
57.49

 
3,858,617

 
 
(1) Includes shares tendered by individuals who used shares to exercise options or to pay the related taxes for grants of restricted stock, restricted stock units, and performance based long-term incentive awards that vested.
(2) On December 17, 2013, our Board of Directors authorized a $3.0 billion share repurchase program with no expiration date. Under the share repurchase program, we are authorized to repurchase shares of our common stock in the open market or in privately negotiated transactions. The timing and amount of share repurchases are subject to management's evaluation of market conditions, applicable legal requirements, and other factors. We are not obligated to repurchase any shares of our common stock and may suspend the program at our discretion. As of December 27, 2014, we have repurchased approximately 13.1 million shares in the aggregate under this program since its inception.

15



Item 6.  Selected Financial Data.
Kraft Foods Group, Inc.
Selected Financial Data – Five Year Review
 
 
December 27,
2014
 
December 28,
2013
 
December 29, 2012 (1)
 
December 31, 2011 (1)
 
December 31, 2010 (1)
 
 
 
 
(in millions of dollars, except per share data)
Year Ended:
 
 
 
 
 
 
 
 
 
 
Net revenues
 
$
18,205

 
$
18,218

 
$
18,271

 
$
18,576

 
$
17,739

Earnings from continuing operations
 
1,043

 
2,715

 
1,642

 
1,775

 
1,890

Earnings and gain from discontinued operations, net of income taxes
 

 

 

 

 
1,644

Net earnings
 
$
1,043

 
$
2,715

 
$
1,642

 
$
1,775

 
$
3,534

Earnings from continuing operations per share(2):
 
 
 
 
 
 
 
 
 
 
Basic
 
$
1.75

 
$
4.55

 
$
2.77

 
$
3.00

 
$
3.20

Diluted
 
$
1.74

 
$
4.51

 
$
2.75

 
$
3.00

 
$
3.20

Net cash provided by operating activities
 
$
2,020

 
$
2,043

 
$
3,035

 
$
2,664

 
$
828

Capital expenditures
 
535

 
557

 
440

 
401

 
448

Depreciation and amortization
 
385

 
393

 
428

 
364

 
354

As of:
 
 
 
 
 
 
 
 
 
 
Total assets
 
22,947

 
23,148

 
23,179

 
21,389

 
21,448

Long-term debt(3)
 
8,627

 
9,976

 
9,966

 
27

 
31

Total equity
 
4,365

 
5,187

 
3,572

 
16,588

 
17,037

Dividends declared per share
 
$
2.15

 
$
2.05

 
$
0.50

 
$

 
$

(1)
Prior to the Spin-Off on October 1, 2012, our financial statements were prepared on a stand-alone basis and were derived from the consolidated financial statements and accounting records of Mondelēz International. Our financial statements for the years ended December 29, 2012, December 31, 2011 and December 31, 2010 included certain expenses of Mondelēz International that were allocated to us. These allocations were not necessarily indicative of the actual expenses we would have incurred as an independent public company or of the costs we will incur in the future, and may differ substantially from the allocations we agreed to in the various separation agreements.
(2)
On October 1, 2012, Mondelēz International distributed 592 million shares of Kraft Foods Group common stock to Mondelēz International’s shareholders. Basic and diluted earnings per common share and the average number of common shares outstanding were retrospectively restated for the years ended December 31, 2011 and December 31, 2010 for the number of Kraft Foods Group shares outstanding immediately following the Spin-Off.
(3)
Excludes current portion of long-term debt.
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8.
Description of the Company
We manufacture and market food and beverage products, including cheese, meats, refreshment beverages, coffee, packaged dinners, refrigerated meals, snack nuts, dressings, and other grocery products, primarily in the United States and Canada. Our product categories span breakfast, lunch, and dinner meal occasions.

16



Consolidated Results of Operations
Summary of Results
 
For the Years Ended
 
 
 
 
December 27,
2014
 
December 28,
2013
 
December 29,
2012
 
2014 v. 2013
 
2013 v. 2012
 
(in millions, except per share data)
 
 
 
 
Net revenues
$
18,205

 
$
18,218

 
$
18,271

 
(0.1
)%
 
(0.3
)%
Operating income
$
1,890

 
$
4,591

 
$
2,670

 
(58.8
)%
 
71.9
 %
Net earnings
$
1,043

 
$
2,715

 
$
1,642

 
(61.6
)%
 
65.3
 %
Diluted earnings per share
$
1.74

 
$
4.51

 
$
2.75

 
(61.4
)%
 
64.0
 %
Net Revenues
 
For the Years Ended
 
For the Years Ended
 
December 27,
2014
 
December 28,
2013
 
% Change
 
December 28,
2013
 
December 29,
2012
 
% Change
 
(in millions)
 
 
 
(in millions)
 
 
Net revenues
$
18,205

 
$
18,218

 
(0.1
)%
 
$
18,218

 
$
18,271

 
(0.3
)%
Impact of foreign currency
156

 

 
0.9
pp
 
73

 

 
0.4
pp
Sales to Mondelēz International
(134
)
 
(147
)
 
0.1
pp
 
(147
)
 
(114
)
 
(0.2
)pp
Organic Net Revenues (1)
$
18,227

 
$
18,071

 
0.9
 %
 
$
18,144

 
$
18,157

 
(0.1
)%
Net pricing
 
 
 
 
1.2
pp
 
 
 
 
 
(0.6
)pp
Volume/mix
 
 
 
 
(0.3
)pp
 
 
 
 
 
0.5
pp
(1)
Organic Net Revenues is a non-GAAP financial measure. See the Non-GAAP Financial Measures section at the end of this item.
Year Ended December 27, 2014 compared to Year Ended December 28, 2013
Net revenues were essentially flat. Organic Net Revenues increased by 0.9%, despite economic and consumer trends that continue to pressure the North American food and beverage industry. While we realized the benefit of significant pricing actions, our results also reflected the volume loss impact of those pricing actions. Higher net pricing (1.2 pp) was driven by commodity costs (primarily dairy), partially offset by increased promotional activity in Meals & Desserts and Beverages. Unfavorable volume/mix (0.3 pp) was driven by Meals & Desserts, reflecting changing consumer preferences and increased competitive activity, and Cheese, reflecting the volume loss from higher net pricing, mostly offset by favorable volume/mix in all other reportable segments.
Year Ended December 28, 2013 compared to Year Ended December 29, 2012
Net revenues and Organic Net Revenues were essentially flat as lower net pricing was generally offset by favorable volume/mix. Lower net pricing (0.6 pp) was due primarily to increased competitive activity in Beverages and Enhancers & Snack Nuts, partially offset by higher net pricing in Meals & Desserts and Refrigerated Meals. Favorable volume/mix (0.5 pp) was driven primarily by base business growth, despite an unfavorable product line pruning impact of approximately one percentage point.


17



Operating Income
 
Operating Income
 
Operating Income
 
2014 v. 2013
 
2013 v. 2012
 
(in millions)
 
(percentage point)
Operating Income for the Years Ended
December 28, 2013 and December 29, 2012
$
4,591

 
$
2,670

 
 
 
 
Change in volume/mix
(97
)
 
40

 
(2.9
) pp
 
1.2
 pp
Higher / (lower) net pricing
219

 
(109
)
 
6.6
 pp
 
(3.4
) pp
(Higher) / lower product costs
(173
)
 
72

 
(5.2
) pp
 
2.3
 pp
Lower selling, general and administrative expenses
200

 
131

 
6.1
 pp
 
4.1
 pp
Lower expenses for cost savings initiatives
183

 
13

 
6.1
 pp
 
0.8
 pp
Change in unrealized gains / losses on hedging activities
(100
)
 
8

 
(3.1
) pp
 
0.2
 pp
Change in market-based impacts to postemployment 
benefit plans
(2,902
)
 
1,784

 
(65.4
) pp
 
67.2
 pp
Change in other
(31
)
 
(18
)
 
(1.0
) pp
 
(0.5
) pp
Operating Income for the Years Ended
December 27, 2014 and December 28, 2013
$
1,890

 
$
4,591

 
(58.8
)%
 
71.9
%
Year Ended December 27, 2014 compared to Year Ended December 28, 2013
Higher product costs were driven by higher commodity costs (primarily dairy and packaging materials), partially offset by lower manufacturing costs driven by net productivity and favorable retirement-related benefit adjustments primarily resulting from lower-than-expected claims experience in 2014.
Lower selling, general and administrative expenses were driven primarily by lower marketing spending.
Cost savings initiatives expenses were $107 million in 2014 compared to $290 million in 2013. Cost savings initiatives are related to reorganization activities including severance, asset disposals, and other activities that do not qualify for special accounting treatment as exit or disposal activities. Included within cost savings initiatives are activities related to the previously disclosed multi-year restructuring program. For additional information about cost savings initiatives, see Note 5, Cost Savings Initiatives, to the consolidated financial statements.
Unrealized gains / losses on hedging activities, which includes unrealized gains and losses on our derivatives not designated as hedging instruments as well as the ineffective portion of unrealized gains and losses on our derivatives designated as hedging instruments, amounted to losses of $79 million in 2014 compared to gains of $21 million in 2013.
The $2,902 million unfavorable change in market-based impacts to postemployment benefit plans reflects 2014 losses of $1,341 million compared to 2013 gains of $1,561 million. The 2014 losses were due primarily to a 70 basis point weighted average decrease in the discount rate and an unfavorable impact from updated mortality assumptions, partially offset by excess asset returns. The 2013 gains were driven by an 80 basis point weighted average increase in the discount rate and excess asset returns, partially offset by unfavorable changes in actuarial assumptions.
Year Ended December 28, 2013 compared to Year Ended December 29, 2012
Lower product costs reflected lower manufacturing costs driven by net productivity, partially offset by higher commodity costs (primarily dairy and meat products).
Lower selling, general and administrative expenses reflected lower overhead costs driven by cost management efforts, partially offset by higher marketing spending and the costs of operating as an independent public company (which were not part of our cost profile in the first three quarters of 2012).
The $1,784 million favorable change in market-based impacts to postemployment benefit plans was due to 2013 gains of $1,561 million versus 2012 losses of $223 million. The 2013 gains were primarily driven by an 80 basis point weighted average increase in the discount rate and excess asset returns, partially offset by unfavorable changes in actuarial assumptions. The 2012 losses were due to unfavorable changes in actuarial assumptions, partially offset by excess asset returns.

18



Net Earnings and Diluted Earnings per Share
Net earnings decreased 61.6% to $1,043 million in 2014 and increased 65.3% to $2,715 million in 2013.
 
Diluted EPS
 
Diluted EPS
Diluted EPS for the Years Ended December 28, 2013 and December 29, 2012
$
4.51

 
$
2.75

Change in results from operations
0.16

 
0.14

Lower expenses for cost savings initiatives, net of taxes
0.18

 
0.02

Change in unrealized gains / losses on hedging activities
(0.11
)
 
0.01

Change in market-based impacts to postemployment benefit plans, net taxes
(3.08
)
 
1.90

Change in interest and other expense, net
0.02

 
(0.27
)
Change in royalty income from Mondelēz International

 
(0.04
)
Change in taxes
0.08

 
0.03

Change in other
(0.02
)
 
(0.03
)
Diluted EPS for the Years Ended December 27, 2014 and December 28, 2013
$
1.74

 
$
4.51

The increase in interest and other expense, net in 2013 compared to 2012 was due to the $6.0 billion debt issuance in June 2012, the $3.6 billion debt exchange in July 2012, and the $0.4 billion transfer of debt from Mondelēz International in October 2012. We incurred a full year of interest and other expense, net in 2013 compared to only a partial year in 2012 related to this debt.
Our effective tax rate was 25.8% in 2014, 33.6% in 2013, and 33.1% in 2012. See Note 12, Income Taxes, to the consolidated financial statements for a discussion of tax rates.
Results of Operations by Reportable Segment
We manage and report operating results through six reportable segments: Cheese, Refrigerated Meals, Beverages, Meals & Desserts, Enhancers & Snack Nuts, and Canada. Our remaining businesses, including our Foodservice and Exports businesses, are aggregated and disclosed as “Other Businesses”.
 
For the Years Ended
 
December 27,
2014
 
December 28,
2013
 
December 29,
2012
 
(in millions)
Net revenues:
 
 
 
 
 
Cheese
$
4,066

 
$
3,925

 
$
3,829

Refrigerated Meals
3,433

 
3,334

 
3,280

Beverages
2,627

 
2,681

 
2,718

Meals & Desserts
2,155

 
2,305

 
2,311

Enhancers & Snack Nuts
2,062

 
2,101

 
2,220

Canada
1,937

 
2,037

 
2,010

Other Businesses
1,925

 
1,835

 
1,903

Net revenues
$
18,205

 
$
18,218

 
$
18,271


19



 
For the Years Ended
 
December 27,
2014
 
December 28,
2013
 
December 29,
2012
 
(in millions)
Operating income:
 
 
 
 
 
Cheese
$
656

 
$
634

 
$
618

Refrigerated Meals
378

 
329

 
379

Beverages
384

 
349

 
260

Meals & Desserts
611

 
665

 
712

Enhancers & Snack Nuts
577

 
529

 
592

Canada
370

 
373

 
301

Other Businesses
263

 
227

 
180

Market-based impacts to postemployment benefit plans
(1,341
)
 
1,561

 
(223
)
Certain other postemployment benefit plan income / (expense)
164

 
61

 
(82
)
Unrealized (losses) / gains on hedging activities
(79
)
 
21

 
13

General corporate expenses
(93
)
 
(158
)
 
(80
)
Operating income
$
1,890

 
$
4,591

 
$
2,670

Management uses segment operating income to evaluate segment performance and allocate resources. We believe it is appropriate to disclose this measure to help investors analyze segment performance and trends. Segment operating income excludes the following for each of the periods presented:
Market-based impacts and certain other components of our postemployment benefit plans (which are a component of cost of sales and selling, general and administrative expenses) because we centrally manage postemployment benefit plan funding decisions and the determination of discount rates, expected rate of return on plan assets, and other actuarial assumptions.
Unrealized gains and losses on hedging activities (which are a component of cost of sales) in order to provide better transparency of our segment operating results. Unrealized gains and losses on hedging activities, which includes unrealized gains and losses on our derivatives not designated as hedging instruments as well as the ineffective portion of unrealized gains and losses on our derivatives designated as hedging instruments, are recorded in Corporate until realized. Once realized, the gains and losses are recorded within the applicable segment operating results.
Certain general corporate expenses (which are a component of selling, general and administrative expenses).
Cheese
 
For the Years Ended
 
For the Years Ended
 
December 27,
2014
 
December 28,
2013
 
% Change
 
December 28,
2013
 
December 29,
2012
 
% Change
 
(in millions)
 
 
 
(in millions)
 
 
Net revenues
$
4,066

 
$
3,925

 
3.6
%
 
$
3,925

 
$
3,829

 
2.5
%
Organic Net Revenues(1)
4,021

 
3,874

 
3.8
%
 
3,874

 
3,817

 
1.5
%
Segment operating income
656

 
634

 
3.5
%
 
634

 
618

 
2.6
%
(1)
See the Non-GAAP Financial Measures section at the end of this item.
Year Ended December 27, 2014 compared to Year Ended December 28, 2013
Net revenues increased 3.6%, driven by higher commodity cost-driven pricing (6.4 pp), partially offset by unfavorable volume/mix (2.6 pp). Unfavorable volume/mix reflected volume loss from price increases, particularly in recipe cheese, sandwich cheese, and cream cheese, partially offset by an increase in shipments of snacking cheese following a 2013 recall.

20



Segment operating income increased 3.5% due to higher net pricing and lower spending on both cost savings initiatives and marketing activities. This increase was partially offset by record high dairy costs, unfavorable volume/mix, and higher manufacturing costs.
Year Ended December 28, 2013 compared to Year Ended December 29, 2012
Net revenues increased 2.5%, which included the impact of higher sales to Mondelēz International (1.0 pp). Organic Net Revenues increased 1.5%, driven primarily by favorable volume/mix (1.6 pp) as higher shipments of natural cheese and sandwich cheese were partially offset by lower shipments of snacking cheese, due in part to a voluntary string cheese recall.
Segment operating income increased 2.6% as lower marketing spending, lower overhead costs, favorable volume/mix, and lower manufacturing costs driven by net productivity were partially offset by increased commodity costs.
Refrigerated Meals
 
For the Years Ended
 
For the Years Ended
 
December 27,
2014
 
December 28,
2013
 
% Change
 
December 28,
2013
 
December 29,
2012
 
% Change
 
(in millions)
 
 
 
(in millions)
 
 
Net revenues
$
3,433

 
$
3,334

 
3.0
%
 
$
3,334

 
$
3,280

 
1.6
 %
Organic Net Revenues(1)
3,433

 
3,334

 
3.0
%
 
3,334

 
3,280

 
1.6
 %
Segment operating income
378

 
329

 
14.9
%
 
329

 
379

 
(13.2
)%
(1)
See the Non-GAAP Financial Measures section at the end of this item.
Year Ended December 27, 2014 compared to Year Ended December 28, 2013
Net revenues increased 3.0%, as the business realized both higher net pricing (1.5 pp) and improved volume/mix (1.5 pp). Higher net pricing reflected commodity cost-driven pricing in both cold cuts and hot dogs, partially offset by lower net pricing in bacon. Favorable volume/mix was driven by higher shipments of bacon and lunch combinations, as well as the introduction of protein snacks, partially offset by unfavorable mix in cold cuts and lower shipments of hot dogs.
Segment operating income increased 14.9%, primarily due to lower manufacturing costs driven by net productivity and higher net pricing, partially offset by higher commodity costs and increased marketing investments primarily in new protein snacks and in lunch combinations.
Year Ended December 28, 2013 compared to Year Ended December 29, 2012
Net revenues increased 1.6%, driven primarily by higher net pricing (1.9 pp), primarily in bacon. Unfavorable volume/mix in cold cuts and meat alternatives driven by lower shipments was partially offset by gains in lunch combinations.
Segment operating income decreased 13.2%, as commodity cost increases and higher marketing spending in lunch combinations and cold cuts were partially offset by higher net pricing, lower manufacturing costs driven by net productivity and lower overhead costs.
Beverages
 
For the Years Ended
 
For the Years Ended
 
December 27,
2014
 
December 28,
2013
 
% Change
 
December 28,
2013
 
December 29,
2012
 
% Change
 
(in millions)
 
 
 
(in millions)
 
 
Net revenues
$
2,627

 
$
2,681

 
(2.0
)%
 
$
2,681

 
$
2,718

 
(1.4
)%
Organic Net Revenues(1)
2,627

 
2,681

 
(2.0
)%
 
2,681

 
2,718

 
(1.4
)%
Segment operating income
384

 
349

 
10.0
 %
 
349

 
260

 
34.2
 %
(1)
See the Non-GAAP Financial Measures section at the end of this item.

21



Year Ended December 27, 2014 compared to Year Ended December 28, 2013
Net revenues decreased 2.0%, as lower net pricing (3.2 pp) was partially offset by favorable volume/mix (1.2 pp). Lower net pricing reflected increased promotional spending in refreshment beverages and lower net pricing in roast and ground coffee. Favorable volume/mix was driven by growth in on-demand coffee products and ready-to-drink beverages, partially offset by lower shipments of roast and ground coffee, reflecting a shift in consumer preferences, and liquid concentrates, reflecting market share losses.
Segment operating income increased 10.0%, due primarily to lower commodity costs, marketing spending, cost savings initiatives spending, and manufacturing costs driven by net productivity. This increase was partially offset by lower net pricing, reflecting a shift from marketing spending to promotional spending.
Year Ended December 28, 2013 compared to Year Ended December 29, 2012
Net revenues decreased 1.4%, due to lower net pricing (6.1 pp), partially offset by favorable volume/mix (4.7 pp). Lower net pricing was due primarily to lower net pricing in coffee, increased promotions in ready-to-drink beverages, and increased competitive activity in liquid concentrates. Favorable volume/mix was driven primarily by growth in new on-demand coffee and liquid concentrate products as well as higher shipments of ready-to-drink beverages, partially offset by lower shipments of powdered beverages.
Segment operating income increased 34.2%, due primarily to lower commodity costs, lower manufacturing costs driven by net productivity, favorable volume/mix, and lower overhead costs, partially offset by lower net pricing and higher marketing spending on new products.
Meals & Desserts
 
For the Years Ended
 
For the Years Ended
 
December 27,
2014
 
December 28,
2013
 
% Change
 
December 28,
2013
 
December 29,
2012
 
% Change
 
(in millions)
 
 
 
(in millions)
 
 
Net revenues
$
2,155

 
$
2,305

 
(6.5
)%
 
$
2,305

 
$
2,311

 
(0.3
)%
Organic Net Revenues(1)
2,155

 
2,305

 
(6.5
)%
 
2,305

 
2,311

 
(0.3
)%
Segment operating income
611

 
665

 
(8.1
)%
 
665

 
712

 
(6.6
)%
(1)
See the Non-GAAP Financial Measures section at the end of this item.
Year Ended December 27, 2014 compared to Year Ended December 28, 2013
Net revenues decreased 6.5%, due to unfavorable volume/mix (4.6 pp) and lower net pricing (1.9 pp). Unfavorable volume/mix was due primarily to lower shipments of boxed dinners, refrigerated ready-to-eat desserts, and dry packaged desserts, resulting from changing consumer preferences and increased competitive activity in these categories. Lower net pricing primarily in refrigerated ready-to-eat desserts, dessert toppings, and macaroni and cheese was due to increased promotional activity.
Segment operating income decreased 8.1%, due primarily to lower net pricing, unfavorable volume/mix and higher commodity costs (primarily dairy and packaging materials), partially offset by lower marketing spending.
Year Ended December 28, 2013 compared to Year Ended December 29, 2012
Net revenues decreased 0.3%, due to unfavorable volume/mix (3.2 pp), partially offset by higher net pricing (2.9 pp). Unfavorable volume/mix was due primarily to lower shipments of refrigerated ready-to-eat desserts. Higher net pricing was driven primarily by pricing actions in macaroni and cheese and boxed dinners.
Segment operating income decreased 6.6%, due primarily to higher marketing spending as well as unfavorable volume/mix. This decrease was partially offset by higher net pricing in macaroni and cheese and boxed dinners and lower overhead costs.

22



Enhancers & Snack Nuts
 
For the Years Ended
 
For the Years Ended
 
December 27,
2014
 
December 28,
2013
 
% Change
 
December 28,
2013
 
December 29,
2012
 
% Change
 
(in millions)
 
 
 
(in millions)
 
 
Net revenues
$
2,062

 
$
2,101

 
(1.9
)%
 
$
2,101

 
$
2,220

 
(5.4
)%
Organic Net Revenues(1)
2,062

 
2,093

 
(1.5
)%
 
2,093

 
2,217

 
(5.6
)%
Segment operating income
577

 
529

 
9.1
 %
 
529

 
592

 
(10.6
)%
(1)
See the Non-GAAP Financial Measures section at the end of this item.
Year Ended December 27, 2014 compared to Year Ended December 28, 2013
Net revenues decreased 1.9%, including the impact of lower sales to Mondelēz International (0.4 pp). Organic Net Revenues decreased 1.5%, due primarily to lower net pricing (2.0 pp), partially offset by favorable volume/mix (0.5 pp). Lower net pricing was due primarily to increased promotional activity across the enhancers categories. Favorable volume/mix was driven by growth in snack nuts, partially offset by lower shipments of peanut butter.
Segment operating income increased 9.1%, due primarily to lower manufacturing costs driven by net productivity and lower spending on both marketing and cost savings initiatives, partially offset by lower net pricing.
Year Ended December 28, 2013 compared to Year Ended December 29, 2012
Net revenues decreased 5.4% due to lower net pricing (3.3 pp) and unfavorable volume/mix (2.3 pp). Lower net pricing was due primarily to increased competitive activity in spoonable and pourable dressings and commodity cost-driven pricing in snack nuts. Unfavorable volume/mix was due primarily to lower shipments of pourable and spoonable dressings, partially offset by higher shipments of snack nuts.
Segment operating income decreased 10.6%, due to lower net pricing and higher marketing spending across spoonable and pourable salad dressings and snack nuts, and unfavorable volume/mix. This decrease was partially offset by lower overhead costs and lower manufacturing costs driven by net productivity.
Canada
 
For the Years Ended
 
For the Years Ended
 
December 27,
2014
 
December 28,
2013
 
% Change
 
December 28,
2013
 
December 29,
2012
 
% Change
 
(in millions)
 
 
 
(in millions)
 
 
Net revenues
$
1,937

 
$
2,037

 
(4.9
)%
 
$
2,037

 
$
2,010

 
1.3
%
Organic Net Revenues(1)
2,060

 
2,021

 
1.9
 %
 
2,086

 
2,006

 
4.0
%
Segment operating income
370

 
373

 
(0.8
)%
 
373

 
301

 
23.9
%
(1)
See the Non-GAAP Financial Measures section at the end of this item.
Year Ended December 27, 2014 compared to Year Ended December 28, 2013
Net revenues decreased 4.9%, which included the unfavorable impact of foreign currency (6.8 pp). Organic Net Revenues increased 1.9%, as the business realized higher net pricing (1.2 pp) and favorable volume/mix (0.7 pp). Higher net pricing in cheese and coffee was partially offset by lower net pricing in refreshment beverages. Favorable volume/mix was driven by higher shipments of natural cheese and the launch of McCafé coffee, partially offset by lower shipments of processed cheese.
Segment operating income decreased 0.8%, due to higher commodity costs and an unfavorable impact of foreign currency, partially offset by lower marketing spending, higher net pricing and lower manufacturing costs driven by net productivity.

23



Year Ended December 28, 2013 compared to Year Ended December 29, 2012
Net revenues increased 1.3%, which included the unfavorable impacts of foreign currency (3.3 pp) and higher sales to Mondelēz International (0.6 pp). Organic Net Revenues increased 4.0%, driven by favorable volume/mix (5.3 pp), partially offset by lower net pricing (1.3 pp), primarily in peanut butter. Favorable volume/mix was driven by higher shipments of peanut butter and natural cheese as well as favorable mix from coffee.
Segment operating income increased 23.9%, driven primarily by favorable volume/mix, lower overhead costs, and lower commodity costs, partially offset by lower net pricing and higher investments in marketing driving volume/mix growth.
Other Businesses
 
For the Years Ended
 
For the Years Ended
 
December 27,
2014
 
December 28,
2013
 
% Change
 
December 28,
2013
 
December 29,
2012
 
% Change
 
(in millions)
 
 
 
(in millions)
 
 
Net revenues
$
1,925

 
$
1,835

 
4.9
%
 
$
1,835

 
$
1,903

 
(3.6
)%
Organic Net Revenues(1)
1,869

 
1,763

 
6.0
%
 
1,771

 
1,808

 
(2.0
)%
Segment operating income
263

 
227

 
15.9
%
 
227

 
180

 
26.1
 %
(1)
See the Non-GAAP Financial Measures section at the end of this item.
Year Ended December 27, 2014 compared to Year Ended December 28, 2013
Net revenues increased 4.9%, despite the impact of unfavorable foreign currency (0.9 pp). Organic Net Revenues increased 6.0%, driven by higher net pricing (3.9 pp) and favorable volume/mix (2.1 pp). Higher net pricing realized in our Foodservice business and higher shipments in our Exports business were partially offset by the unfavorable impact of planned Foodservice product line exits.
Segment operating income increased 15.9%, as higher net pricing, lower manufacturing costs driven by net productivity, and lower spending on cost savings initiatives were partially offset by increased commodity costs.
Year Ended December 28, 2013 compared to Year Ended December 29, 2012
Net revenues decreased 3.6%, which included the impacts of lower sales to Mondelēz International (1.1 pp) and unfavorable foreign currency (0.5 pp). Organic Net Revenues decreased 2.0%, due to unfavorable volume/mix (3.5 pp), partially offset by higher net pricing (1.5 pp), primarily in our Foodservice business. Unfavorable volume/mix was due primarily to Foodservice product line pruning, partially offset by higher shipments in our Exports business.
Segment operating income increased 26.1%, driven primarily by higher net pricing, lower manufacturing costs driven by net productivity, lower marketing spending, and favorable volume/mix due to growth in our Exports business. This increase was partially offset by higher commodity costs.
Critical Accounting Policies
Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements includes a summary of the significant accounting policies we used to prepare our consolidated financial statements. The following is a review of the more significant assumptions and estimates, as well as the accounting policies we used to prepare our consolidated financial statements.
Principles of Consolidation:
The consolidated financial statements include Kraft Foods Group, as well as our wholly-owned subsidiaries. All intercompany transactions are eliminated. Our period end date for financial reporting purposes is the last Saturday of the fiscal year, which aligns with the financial close dates of our operating segments.
Prior to the Spin-Off on October 1, 2012, our financial statements were prepared on a stand-alone basis and were derived from the consolidated financial statements and accounting records of Mondelēz International. Our financial statements included certain expenses of Mondelēz International that were allocated to us for certain functions,

24



including general corporate expenses related to finance, legal, information technology, human resources, compliance, shared services, insurance, employee benefits and incentives, and stock-based compensation. These expenses were allocated in our historical results of operations on the basis of direct usage when identifiable, with the remainder allocated on the basis of revenue, operating income, or headcount. We consider the expense allocation methodology and results to be reasonable for all periods presented. However, these allocations were not necessarily indicative of the actual expenses we would have incurred as an independent public company or of the costs we will incur in the future, and may differ substantially from the allocations we agreed to in the various separation agreements.
Revenue Recognition:
We recognize revenues when title and risk of loss pass to our customers. We record revenues net of consumer incentives and trade promotions and include all shipping and handling charges billed to customers. We also record provisions for estimated product returns and customer allowances as reductions to revenues within the same period that the revenue is recognized. We base these estimates principally on historical and current period experience, however, it is reasonably likely that actual experience will vary from the estimates we have made.
Marketing and Research and Development:
We promote our products with advertising and consumer promotions, consumer incentives, and trade promotions. Consumer incentives and trade promotions include, but are not limited to, discounts, coupons, rebates, in-store display incentives, and volume-based incentives. Consumer incentive and trade promotion activities are recorded as a reduction to revenues based on amounts estimated as being due to customers and consumers at the end of a period. We base these estimates principally on historical utilization and redemption rates.
For interim reporting purposes, we charge advertising and consumer promotion expenses to operations as a percentage of volume, based on estimated volume and related expense for the full year. We review and adjust these estimates each quarter based on actual experience and other information. Advertising expense was $652 million in 2014, $747 million in 2013, and $640 million in 2012. We record marketing expense in selling, general and administrative expense, except for consumer incentives and trade promotions, which are recorded in net revenues.
We expense costs as incurred for product research and development within selling, general and administrative expenses. Research and development expense was $149 million in 2014, $142 million in 2013, and $143 million in 2012. The amounts disclosed in prior periods have been revised to conform with the current year presentation.
Income Taxes:
We recognize income taxes based on amounts refundable or payable for the current year and record deferred tax assets or liabilities for any difference between accounting principles generally accepted in the United States of America (“U.S. GAAP”) and tax reporting. We also recognize deferred tax assets for temporary differences, operating loss carryforwards, and tax credit carryforwards. Inherent in determining our annual tax rate are judgments regarding business plans, planning opportunities, and expectations about future outcomes. Realization of certain deferred tax assets, primarily net operating loss and other carryforwards, is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods. See Note 12, Income Taxes, to the consolidated financial statements for additional information.
We apply a more-likely-than-not threshold to the recognition and derecognition of uncertain tax positions. Accordingly, we recognize the amount of tax benefit that has a greater than 50 percent likelihood of being ultimately realized upon settlement. Future changes in judgment related to the expected ultimate resolution of uncertain tax positions will affect earnings in the quarter of such change.
Goodwill and Intangible Assets:
We test goodwill and indefinite-lived intangible assets for impairment at least annually in the fourth quarter or when a triggering event occurs. The first step of the goodwill impairment test compares the reporting unit’s estimated fair value with its carrying value. We estimate a reporting unit’s fair value using planned growth rates, market-based discount rates, estimates of residual value, and estimates of market multiples. If the carrying value of a reporting unit’s net assets exceeds its fair value, the second step would be applied to measure the difference between the carrying value and implied fair value of goodwill. If the carrying value of goodwill exceeds its implied fair value, the goodwill would be considered impaired and reduced to its implied fair value.

25



We test indefinite-lived intangible assets for impairment by comparing the fair value of each intangible asset with its carrying value. We determine fair value of non-amortizing intangible assets using planned growth rates, market-based discount rates, and estimates of royalty rates. If the carrying value exceeds fair value, the intangible asset would be considered impaired and would be reduced to fair value.
There were no impairments of goodwill or intangible assets in 2014, 2013, or 2012. During our annual 2014 indefinite-lived intangible asset impairment test, we noted that a $958 million trademark and a $261 million trademark within our Enhancers business had excess fair values over their carrying values of less than 20%. While these trademarks passed the 2014 impairment test, if our projections of future operating income were to decline, or if valuation factors outside of our control, such as discount rates, change unfavorably, the estimated fair value of one or both of these trademarks could be adversely affected, leading to a potential impairment in the future.
Estimating the fair value of individual reporting units or intangible assets requires us to make assumptions and estimates regarding our future plans, as well as industry and economic conditions. These assumptions and estimates include projected revenues and income, interest rates, cost of capital, royalty rates, and tax rates. Many of the factors used in assessing fair value are outside the control of management and it is reasonably likely that assumptions and estimates will change in future periods. These changes could result in future impairments.
Postemployment Benefit Plans:
We provide a range of benefits to our employees and retirees. These include pension benefits, postretirement health care benefits, and other postemployment benefits, consisting primarily of severance. We recognize net actuarial gains or losses and changes in the fair value of plan assets immediately upon remeasurement, which is at least annually. The calculations of the amounts recorded require the use of various actuarial assumptions, such as discount rates, assumed rates of return on plan assets, compensation increases, and turnover rates. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate. We believe that the assumptions used in recording our pension, postretirement, and other postemployment benefit plan obligations are reasonable based on our experience and advice from our actuaries. See Note 9, Postemployment Benefit Plans, to the consolidated financial statements for a discussion of the assumptions used.
For our postretirement plans, our 2015 health care cost trend rate assumption will be 6.91%. We established this rate based upon our most recent experience as well as our expectation for health care trend rates going forward. We anticipate that our health care cost trend rate assumption will be 5.00% by 2023. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects as of December 27, 2014:
 
 
One-Percentage-Point
 
 
Increase
 
Decrease
 
 
(in millions)
Effect on annual service and interest cost
 
$
25

 
$
(20
)
Effect on postretirement benefit obligation
 
433

 
(355
)
Our 2015 discount rate assumption is 4.08% for our postretirement plans. Our 2015 discount rate assumption is 4.17% for our U.S. pension plans and 3.87% for our non-U.S. pension plans. We model these discount rates using a portfolio of high quality, fixed-income debt instruments with durations that match the expected future cash flows of the benefit obligations. Changes in our discount rates were primarily the result of changes in bond yields year-over-year.
Our 2015 expected rate of return on plan assets is 5.75% for our U.S. pension plans and 5.00% for our non-U.S. pension plans. We determine our expected rate of return on plan assets from the plan assets’ historical long-term investment performance, current and future asset allocation, and estimates of future long-term returns by asset class. We attempt to maintain our target asset allocation by rebalancing between asset classes as we make contributions and monthly benefit payments.

26



While we do not anticipate further changes in the 2015 assumptions for our U.S. and non-U.S. pension and postretirement health care plans, as a sensitivity measure, a fifty-basis point change in our discount rate or a fifty-basis point change in the actual rate of return on plan assets would have the following effects, increase / (decrease) in cost, as of December 27, 2014:
 
U.S. Plans
 
Non-US. Plans
 
Fifty-Basis-Point
 
Fifty-Basis-Point
 
Increase
 
Decrease
 
Increase
 
Decrease
 
(in millions)
Effect of change in discount rate on pension costs
$
(499
)
 
$
562

 
$
(99
)
 
$
111

Effect of change in actual rate of return on plan assets on pension costs
(29
)
 
29

 
(7
)
 
7

Effect of change in discount rate on postretirement health care costs
(205
)
 
229

 
(13
)
 
15

Prior to the Spin-Off, Mondelēz International provided defined benefit pension, postretirement health care, defined contribution, and multiemployer pension and medical benefits to our eligible employees and retirees. Our consolidated statements of earnings for the year ended December 29, 2012 included expense allocations for these benefits of $491 million through September 30, 2012, which were determined based on a review of personnel by business unit and based on allocations of corporate or other shared functional personnel. We consider the expense allocation methodology and results to be reasonable for all periods presented. These costs are reflected in cost of sales and selling, general and administrative expenses. These costs were funded through intercompany transactions with Mondelēz International and were reflected within the parent company investment equity balance.
New Accounting Pronouncements
See Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements for a discussion of new accounting pronouncements.
Contingencies
See Note 11, Commitments and Contingencies, to the consolidated financial statements for a discussion of contingencies.
Commodity Trends
We purchase and use large quantities of commodities, including dairy products, meat products, coffee beans, nuts, soybean and vegetable oils, sugar and other sweeteners, corn products and wheat to manufacture our products. In addition, we purchase and use significant quantities of resins and cardboard to package our products and natural gas to operate our facilities. We continuously monitor worldwide supply and cost trends of these commodities.
During 2014, our aggregate commodity costs increased over the prior year, primarily as a result of record high dairy costs as well as increases in packaging materials, nuts and meat product costs, partially offset by lower costs of coffee beans, soybean and vegetable oils, sugar and flour and grain costs. Our commodity costs increased approximately $430 million in 2014 and approximately $120 million in 2013 compared to the prior year. We expect commodity cost volatility to continue in 2015. We manage commodity cost volatility primarily through pricing and risk management strategies. As a result of these risk management strategies, our commodity cost experience may not immediately correlate with market price trends.
Liquidity and Capital Resources
We believe that cash generated from our operating activities and our $3.0 billion revolving credit facility with our commercial paper program will provide sufficient liquidity to meet our working capital needs, expected cost savings initiatives expenditures, planned capital expenditures and contributions to our postemployment benefit plans, purchases under our discretionary share repurchase program, future contractual obligations, and payment of our anticipated quarterly dividends. We will use our cash on hand and our commercial paper program for daily funding requirements. Overall, we do not expect any negative effects on our funding sources that would have a material effect on our short-term or long-term liquidity.

27



Net Cash Provided by Operating Activities:
Operating activities provided net cash of $2.0 billion in 2014, $2.0 billion in 2013, and $3.0 billion in 2012. Net earnings in 2014 included significant unfavorable non-cash market-based impacts to postemployment benefit plans and the related deferred tax effects. Operating cash flows in 2014 also reflected lower pension contributions. Net earnings in 2013 included significant favorable non-cash market-based impacts and the related deferred tax effects. Operating cash flows in 2013 also reflected pension contributions of $611 million and working capital improvements.
Net Cash Used in Investing Activities:
Net cash used in investing activities was $535 million in 2014, $426 million in 2013, and $422 million in 2012, comprised mainly of capital expenditures. Our cash used in investing activities in 2013 also included the receipt of proceeds of $101 million from the sale-leaseback of our headquarters facilities. We expect 2015 capital expenditures to be approximately $550 million to $600 million, including capital expenditures required for our ongoing cost savings initiatives. We expect to fund these expenditures with cash from operations.
Net Cash Used in Financing Activities:
Net cash used in financing activities was $1.9 billion in 2014, $1.2 billion in 2013, and $1.4 billion in 2012. Net cash used in 2014 and 2013 was comprised mainly of dividend payments. In addition, in 2014 we spent $740 million to repurchase shares of our common stock under our share repurchase program, which was authorized by our Board of Directors in December 2013. The net cash used in 2012 primarily related to $7.2 billion of net transfers to Mondelēz International partially offset by the net proceeds we received from our $6.0 billion debt issuance.
Total Debt:
Our total debt was $10.0 billion at December 27, 2014 and December 28, 2013. The weighted average remaining term of our debt was 12.2 years at December 27, 2014. We have $1.4 billion of long-term debt maturing in the next 12 months that is classified as current. Our long-term debt contains customary representations, covenants, and events of default. We were in compliance with all covenants at December 27, 2014. We believe that cash on hand, cash flows from operations, and available short- and long-term debt financing will be adequate to meet our contractual obligations.
On May 29, 2014, we entered into a new $3.0 billion five-year senior unsecured revolving credit facility that expires on May 29, 2019 unless extended. The credit facility enables us to borrow up to $3.0 billion, which may be increased by up to $1.0 billion in the aggregate with the agreement of the lenders providing any increased commitments. All committed borrowings under the facility bear interest at a variable annual rate based on the London Inter-Bank Offered Rate or a defined base rate, at our election, plus an applicable margin based on the ratings of our long-term senior unsecured indebtedness. The credit facility requires us to maintain a minimum total shareholders’ equity (excluding accumulated other comprehensive income or losses and any income or losses recognized in connection with “mark-to-market” accounting in respect of pension and other retirement plans) of at least $2.4 billion and also contains customary representations, covenants, and events of default. At December 27, 2014 and for the year ended December 27, 2014, no amounts were drawn on this credit facility. The credit facility replaced our $3.0 billion five-year credit agreement dated as of May 18, 2012. We expect to use the credit facility for general corporate purposes, including for working capital purposes and to support our commercial paper issuances.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
We have no material off-balance sheet arrangements other than the guarantees and contractual obligations that are discussed below.
As discussed in Note 11, Commitments and Contingencies, to the consolidated financial statements, we have third-party guarantees primarily covering long-term obligations related to leased properties. The carrying amount of our third-party guarantees was $22 million at December 27, 2014 and $24 million at December 28, 2013. The maximum potential payment under these guarantees was $42 million at December 27, 2014 and $53 million at December 28, 2013. Substantially all of these guarantees expire at various times through 2027.
In addition, we were contingently liable for guarantees related to our own performance totaling $87 million at December 27, 2014 and $86 million at December 28, 2013. These primarily include letters of credit related to dairy commodity purchases and other letters of credit.

28



Guarantees have not had, and we do not expect them to have, a material effect on our liquidity.
Aggregate Contractual Obligations:
The following table summarizes our contractual obligations at December 27, 2014.
 
 
Payments Due
 
 
Total
 
2015
 
2016-17
 
2018-19
 
2020 and
Thereafter
 
 
(in millions)
Long-term debt (1)
 
$
10,046

 
$
1,401

 
$
1,002

 
$
1,037

 
$
6,606

Interest expense (2)
 
6,683

 
441

 
824

 
727

 
4,691

Capital leases (3)
 
38

 
7

 
12

 
7

 
12

Operating leases (4)
 
427

 
106

 
147

 
90

 
84

Purchase obligations: (5)
 
 
 
 
 
 
 
 
 
 
Inventory and production costs
 
2,242

 
1,578

 
664

 

 

Other
 
735

 
313

 
287

 
98

 
37

 
 
2,977

 
1,891

 
951

 
98

 
37

Pension contributions (6)
 
995

 
195

 
400

 
400

 

Other long-term liabilities (7)
 
2,045

 
198

 
425

 
401

 
1,021

Total
 
$
23,211

 
$
4,239

 
$
3,761

 
$
2,760

 
$
12,451

 
(1)
Amounts represent the expected cash payments of our long-term debt and do not include unamortized bond premiums or discounts.
(2)
Amounts represent the expected cash payments of our interest expense on our long-term debt.
(3)
Amounts represent the expected cash payments of our capital leases, including the expected cash payments of interest expense of approximately $8 million on our capital leases.
(4)
Operating leases represent the minimum rental commitments under non-cancelable operating leases.
(5)
Purchase obligations for inventory and production costs (such as raw materials, indirect materials and supplies, packaging, co-manufacturing arrangements, storage, and distribution) are commitments for projected needs to be utilized in the normal course of business. Other purchase obligations include commitments for marketing, advertising, capital expenditures, information technology, and professional services. Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure, and approximate timing of the transaction. Any amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above.
(6)
We estimate that 2015 pension contributions would be approximately $195 million and approximately $200 million annually for the next four years thereafter. We cannot reasonably estimate our contributions to our pension plans beyond 2019.
(7)
Other long-term liabilities primarily consist of estimated future benefit payments for our postretirement health care plans through 2024 of approximately $2.0 billion. We are unable to reliably estimate the timing of the payments beyond 2024; as such, they are excluded from the above table. In addition, the following long-term liabilities included on the consolidated balance sheet are excluded from the table above: income taxes, insurance accruals, and other accruals. We are unable to reliably estimate the timing of the payments for these items. As of December 27, 2014, our total net liability for income taxes, including uncertain tax positions and associated accrued interest and penalties, was $279 million. We currently estimate paying up to approximately $187 million in the next 12 months related to our income tax obligations as of December 27, 2014.
Equity and Dividends
On December 17, 2013, our Board of Directors authorized a $3.0 billion share repurchase program with no expiration date. Under the share repurchase program, we are authorized to repurchase shares of our common stock in the open market or in privately negotiated transactions. The timing and amount of share repurchases are subject to management's evaluation of market conditions, applicable legal requirements, and other factors. We are not obligated to repurchase any shares of our common stock and may suspend the program at our discretion. As of December 27, 2014, we have repurchased approximately 13.1 million shares in the aggregate for approximately $746 million under this program since its inception.
See Note 8, Stock Plans, to the consolidated financial statements for a discussion of our share-based equity programs.

29



Dividends:
We paid dividends of $1,266 million in 2014 and $1,207 million in 2013. No dividends were paid in 2012. On December 16, 2014, our Board of Directors declared a cash dividend of $0.55 per share of common stock, which was paid on January 16, 2015 to shareholders of record on December 26, 2014. In connection with this dividend, we recorded $324 million of dividends payable as of December 27, 2014. The present annualized dividend rate is $2.20 per share of common stock. The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net earnings, financial condition, cash requirements, future prospects, and other factors that our Board of Directors deems relevant to its analysis and decision making.
Non-GAAP Financial Measures
To supplement our financial statements presented in accordance with U.S. GAAP, we present Organic Net Revenues, which is considered a non-GAAP financial measure. We define Organic Net Revenues as net revenues excluding the impact of transactions with Mondelēz International, acquisitions, divestitures (including the termination of a full line of business due to the loss of a licensing or distribution arrangement, and the complete exit of business out of a foreign country), currency and the 53rd week of shipments when it occurs. We calculate the impact of currency on net revenues by holding exchange rates constant at the previous year's exchange rate. We believe that presenting Organic Net Revenues is useful because it (1) provides both management and investors meaningful supplemental information regarding financial performance by excluding certain items, (2) permits investors to view our performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate our historical performance, and (3) otherwise provides supplemental information that may be useful to investors in evaluating us.
We believe that the presentation of Organic Net Revenues, when considered together with the corresponding U.S. GAAP financial measure and the reconciliation to that measure, provides investors with additional understanding of the factors and trends affecting our business than could be obtained absent these disclosures. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, our results prepared in accordance with U.S. GAAP. In addition, the non-GAAP measures we use may differ from non-GAAP measures used by other companies, and other companies may not define the non-GAAP measures we use in the same way. A reconciliation of Organic Net Revenues to net revenues is set forth below.
 
2014 Compared to 2013
 
Net
Revenues
 
Impact of
Currency
 
Sales to
Mondelēz
International
 
Organic
Net Revenues
 
(in millions)
Year Ended December 27, 2014
 
 
 
 
 
 
 
Cheese
$
4,066

 
$

 
$
(45
)
 
$
4,021

Refrigerated Meals
3,433

 

 

 
3,433

Beverages
2,627

 

 

 
2,627

Meals & Desserts
2,155

 

 

 
2,155

Enhancers & Snack Nuts
2,062

 

 

 
2,062

Canada
1,937

 
139

 
(16
)
 
2,060

Other Businesses
1,925

 
17

 
(73
)
 
1,869

Total
$
18,205

 
$
156

 
$
(134
)
 
$
18,227

Year Ended December 28, 2013
 
 
 
 
 
 
 
Cheese
$
3,925

 
$

 
$
(51
)
 
$
3,874

Refrigerated Meals
3,334

 

 

 
3,334

Beverages
2,681

 

 

 
2,681

Meals & Desserts
2,305

 

 

 
2,305

Enhancers & Snack Nuts
2,101

 

 
(8
)
 
2,093

Canada
2,037

 

 
(16
)
 
2,021

Other Businesses
1,835

 

 
(72
)
 
1,763

Total
$
18,218

 
$

 
$
(147
)
 
$
18,071


30




 
2013 Compared to 2012
 
Net
Revenues
 
Impact of
Currency
 
Sales to
Mondelēz
International
 
Organic
Net Revenues
 
(in millions)
Year Ended December 28, 2013
 
 
 
 
 
 
 
Cheese
$
3,925

 
$

 
$
(51
)
 
$
3,874

Refrigerated Meals
3,334

 

 

 
3,334

Beverages
2,681

 

 

 
2,681

Meals & Desserts
2,305

 

 

 
2,305

Enhancers & Snack Nuts
2,101

 

 
(8
)
 
2,093

Canada
2,037

 
65

 
(16
)
 
2,086

Other Businesses
1,835

 
8

 
(72
)
 
1,771

Total
$
18,218

 
$
73

 
$
(147
)
 
$
18,144

Year Ended December 29, 2012
 
 
 
 
 
 
 
Cheese
$
3,829

 
$

 
$
(12
)
 
$
3,817

Refrigerated Meals
3,280

 

 

 
3,280

Beverages
2,718

 

 

 
2,718

Meals & Desserts
2,311

 

 

 
2,311

Enhancers & Snack Nuts
2,220

 

 
(3
)
 
2,217

Canada
2,010

 

 
(4
)
 
2,006

Other Businesses
1,903

 

 
(95
)
 
1,808

Total
$
18,271

 
$

 
$
(114
)
 
$
18,157

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
As we operate primarily in North America but source our commodities from global markets and periodically enter into financing or other arrangements abroad, we use financial instruments to manage our primary market risk exposures, which are commodity price, foreign currency exchange rate, and interest rate risks. We monitor and manage these exposures as part of our overall risk management program. Our risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our operating results. We maintain commodity price, foreign currency, and interest rate risk management policies that principally use derivative instruments to reduce significant, unanticipated earnings fluctuations that may arise from volatility in commodity prices, foreign currency exchange rates, and interest rates. We also sell commodity futures to unprice future purchase commitments, and we occasionally use related futures to cross-hedge a commodity exposure. We are not a party to leveraged derivatives and, by policy, do not use financial instruments for speculative purposes. Refer to Note 1, Summary of Significant Accounting Policies, and Note 10, Financial Instruments, to the consolidated financial statements for further details of our commodity price, foreign currency, and interest rate risk management policies and the types of derivative instruments we use to hedge those exposures.
Value at Risk:
We use a value at risk (“VAR”) computation to estimate: (1) the potential one-day loss in pre-tax earnings of our commodity price and foreign currency-sensitive derivative financial instruments; and (2) the potential one-day loss in the fair value of our interest rate-sensitive financial instruments. We included our debt, commodity futures, forwards and options, foreign currency forwards, and interest rate swaps in our VAR computation. Excluded from the computation were anticipated transactions and foreign currency trade payables and receivables which the financial instruments are intended to hedge.
We made the VAR estimates assuming normal market conditions, using a 95% confidence interval. We used a “variance / co-variance” model to determine the observed interrelationships between movements in interest rates and various currencies. These interrelationships were determined by observing interest rate and forward currency

31



rate movements over the prior quarter for the calculation of VAR amounts at December 27, 2014, and December 28, 2013, and over each of the four prior quarters for the calculation of average VAR amounts during each year. The values of commodity options do not change on a one-to-one basis with the underlying currency or commodity, and were valued accordingly in the VAR computation.
As of December 27, 2014 and December 28, 2013, the estimated potential one-day loss in pre-tax earnings from our commodity and foreign currency instruments and the estimated potential one-day loss in fair value of our interest rate-sensitive instruments, as calculated in the VAR model, were (in millions):
 
 
Pre-Tax Earnings Impact
 
Fair Value Impact
 
 
At 12/27/14
 
Average
 
High
 
Low
 
At 12/27/14
 
Average
 
High
 
Low
Instruments sensitive to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency rates
 
$
1

 
$
2

 
$
2

 
$
1

 
 
 
 
 
 
 
 
Commodity prices
 
9

 
13

 
18

 
9

 
 
 
 
 
 
 
 
Interest rates
 
 
 
 
 
 
 
 
 
$
49

 
$
35

 
$
49

 
$
27

 
 
Pre-Tax Earnings Impact
 
Fair Value Impact
 
 
At 12/28/13
 
Average
 
High
 
Low
 
At 12/28/13
 
Average
 
High
 
Low
Instruments sensitive to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency rates
 
$
2

 
$
2

 
$
2

 
$
2

 
 
 
 
 
 
 
 
Commodity prices
 
7

 
7

 
8

 
7

 
 
 
 
 
 
 
 
Interest rates
 
 
 
 
 
 
 
 
 
$
32

 
$
46

 
$
71

 
$
32

This VAR computation is a risk analysis tool designed to statistically estimate the maximum probable daily loss from adverse movements in commodity prices, foreign currency rates, and interest rates under normal market conditions. The computation does not represent actual losses in fair value or earnings to be incurred by us, nor does it consider the effect of favorable changes in market rates. We cannot predict actual future movements in such market rates and do not present these VAR results to be indicative of future movements in such market rates or to be representative of any actual impact that future changes in market rates may have on our future financial results.

32



Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Kraft Foods Group, Inc.:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a) present fairly, in all material respects, the financial position of Kraft Foods Group, Inc. and its subsidiaries at December 27, 2014 and December 28, 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 27, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 27, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
February 19, 2015

33



Kraft Foods Group, Inc.
Consolidated Statements of Earnings
(in millions of U.S. dollars, except per share data)

 
For the Years Ended
 
December 27,
2014
 
December 28,
2013
 
December 29,
2012
Net revenues
$
18,205

 
$
18,218

 
$
18,271

Cost of sales
13,360

 
11,395

 
12,499

Gross profit
4,845

 
6,823

 
5,772

Selling, general and administrative expenses
2,956

 
2,124

 
2,961

Asset impairment and exit costs
(1
)
 
108

 
141

Operating income
1,890

 
4,591

 
2,670

Interest and other expense, net
(484
)
 
(501
)
 
(258
)
Royalty income from Mondelēz International

 

 
41

Earnings before income taxes
1,406

 
4,090

 
2,453

Provision for income taxes
363

 
1,375

 
811

Net earnings
$
1,043

 
$
2,715

 
$
1,642

Per share data:
 
 
 
 
 
Basic earnings per share
$
1.75

 
$
4.55

 
$
2.77

Diluted earnings per share
$
1.74

 
$
4.51

 
$
2.75

Dividends declared
$
2.15

 
$
2.05

 
$
0.50

See accompanying notes to the consolidated financial statements.

34



Kraft Foods Group, Inc.
Consolidated Statements of Comprehensive Earnings
(in millions of U.S. dollars)

 
For the Years Ended
 
December 27,
2014
 
December 28,
2013
 
December 29,
2012
Net earnings
$
1,043

 
$
2,715

 
$
1,642

Other comprehensive (losses) / earnings:
 
 
 
 
 
Currency translation adjustment
(91
)
 
(68
)
 
36

Postemployment benefits:
 
 
 
 
 
Prior service credits arising during the period
58

 
31

 

Amortization of prior service credits and other amounts reclassified from accumulated other comprehensive losses
(20
)
 
(22
)
 
(6
)
Tax (expense) / benefit
(14
)
 
(3
)
 
2

Derivatives accounted for as hedges:
 
 
 
 
 
Net derivative gains / (losses)
90

 
33

 
(322
)
Amounts reclassified from accumulated other comprehensive losses
(84
)
 
4

 
112

Tax (expense) / benefit
(2
)
 
(14
)
 
80

Total other comprehensive losses
(63
)
 
(39
)
 
(98
)
Comprehensive earnings
$
980

 
$
2,676

 
$
1,544

See accompanying notes to the consolidated financial statements.


35



Kraft Foods Group, Inc.
Consolidated Balance Sheets
(in millions of U.S. dollars)
 
 
December 27,
2014
 
December 28,
2013
ASSETS
 
 
 
Cash and cash equivalents
$
1,293

 
$
1,686

Receivables (net of allowances of $21 in 2014 and $26 in 2013)
1,080

 
1,048

Inventories
1,775

 
1,616

Deferred income taxes
384

 
360

Other current assets
259

 
198

Total current assets
4,791

 
4,908

Property, plant and equipment, net
4,192

 
4,115

Goodwill
11,404

 
11,505

Intangible assets, net
2,234

 
2,229

Other assets
326

 
391

TOTAL ASSETS
$
22,947

 
$
23,148

LIABILITIES
 
 
 
Current portion of long-term debt
$
1,405

 
$
4

Accounts payable
1,537

 
1,548

Accrued marketing
511

 
685

Accrued employment costs
163

 
184

Dividends payable
324

 
313

Accrued postretirement health care costs
192

 
197

Other current liabilities
641

 
479

Total current liabilities
4,773

 
3,410

Long-term debt
8,627

 
9,976

Deferred income taxes
340

 
662

Accrued pension costs
1,105

 
405

Accrued postretirement health care costs
3,399

 
3,080

Other liabilities
338

 
428

TOTAL LIABILITIES
18,582

 
17,961

Commitments and Contingencies (Note 11)

 

EQUITY
 
 
 
Common stock, no par value (5,000,000,000 shares authorized; 601,402,816 shares issued at December 27, 2014 and 596,843,449 at December 28, 2013)

 

Additional paid-in capital
4,678

 
4,434

Retained earnings
1,045

 
1,281

Accumulated other comprehensive losses
(562
)
 
(499
)
Treasury stock, at cost
(796
)
 
(29
)
TOTAL EQUITY
4,365

 
5,187

TOTAL LIABILITIES AND EQUITY
$
22,947

 
$
23,148

See accompanying notes to the consolidated financial statements.

36



Kraft Foods Group, Inc.
Consolidated Statements of Equity
(in millions of U.S. dollars, except per share data)
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
Parent Company Investment
 
Retained
Earnings
/ (Deficit)
 
Accumulated
Other
Comprehensive Losses
 
Treasury
Stock
 
Total
Equity
Balance at December 31, 2011
$

 
$

 
$
16,713

 
$

 
$
(125
)
 
$

 
$
16,588

Comprehensive earnings / (losses):
 
 
 
 
 
 
 
 
 
 
 
 
 
Net earnings

 

 
1,552

 
90