Financial Statements of the Kraft and Cadbury Merger

For Kraft, the merger brought both financial costs and benefits to its operations. Although the merger set up Kraft to grow significantly in the long-term, the firm faced short-term costs that hampered its operations and affected its overall financial performance. Mainly, this was reflected within the financial statements of the company, as the firm demonstrated stalled growth and high one-time expenses associated with the merger. As a whole, the company faced high short-term costs due to the need to raise capital and the integration of both organizations. Much of the deal was financed, as Kraft was forced to borrow $11.5bn dollars in order to purchase the company, with additional capital coming from its own corporate accounts and the sale of its frozen pizza brand DiGiorno to Nestle.

Analysis of the merger through the use of financial statements is much difficult due to the split of the organization, which prevents a true comparison from occurring due to differing cost measures within both new organizations. However, current data demonstrates that although revenues increased between the fiscal year 2010 to 2011 from $31,48 billion to 35,7 billion, the company faced a decrease within the next two fiscal years. 2012 and 2013 performance was a decline in this regard, as net revenues decreased to $35,0 and 35,2 within the respective years. As such, although the company demonstrated growth in the immediate aftermath, Cadbury sales were seen to stall within the subsidiary. This was both due to the integration of the company and the damage in publicity that was done by the merger. However, Kraft as a whole performed well enough in order to mask the losses within the company, as revenues demonstrated an increase nonetheless.

Costs associated with integration were a particular item of note, as they totaled nearly $1 billion USD in aggregate, with the majority of the cost associated with the merger being spent within the first year. Although it is easy to blame the merger for the declined revenue in subsequent years, much of this is due to market effects rather than any particular strategic failings on part of Kraft. Commodity prices have significantly increased, which means that the general products offered by Kraft and Cadbury are much more expensive for consumers. This has hampered some of the demand for the company. Largely, the company strategy has been to expand market presence within the developing world, and as such, organizational assets have been focused on this goal despite decreased revenues within developed and developing markets. This is seen as an aberration rather than an error in forecasting, as the long-term trend continues to point to higher revenues for the company.

However, current report results have shown a troubling trend within the company, as although earnings have increased, much of the increase in earnings has been on the back of decreased revenue. As such, the company has achieved this through heavy reliance on cost cutting measures and price hikes for certain product categories. The company cannot continue to rely on this strategy for long, as real growth will require an increase in volume to sustain in the long-term. All company markets have faced a decline outside of North America, with Kraft particularly exposed within Europe, as nearly 40% of revenue is drawn from this market. Although the current strategy has validity in increasing revenues, there is potential for growth to tamper down as a result of commodity price increases and lowered demand. Price hikes on part of Kraft cannot be sustained in the long-term, as there is a maximum point at which further increases will alienate the consumer base.

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