Kraft won't pay for sibling's woes, exec says; Philip Morris case hurts foodmakers
Chicago Tribune, April 23, 2003

Kraft Foods Inc. tried to soothe investors' fears Tuesday when its chairman insisted the foodmaker will not foot the bill for parent company Altria Group Inc.'s tobacco litigation.

Shares of Kraft, the largest North American food company, have been pressured recently as potential investors feared that the company's assets could be tapped to defray the cost of class-action litigation against cigarette maker Philip Morris USA, an Altria unit.

"We have no intention of upstreaming cash from Kraft," Kraft Chairman Louis Camilleri told shareholders during the foodmaker's annual meeting in East Hanover, N.J.

Altria owns about 84 percent of Kraft, which it took public in June 2001. Camilleri is Altria's chief executive.

Kraft expects to see its free cash jump 10 percent this year to $2.8 billion, as costs for buying cookiemaker Nabisco go down and it rolls out a string of new products like Altoids breath-freshening strips and new flavors of Oreo cookies.

Andrew Lazar, food analyst at Lehman Brothers, said Camilleri's words may lift some of the concerns dogging Kraft.

"I don't think we've heard that level of commentary on this issue" in the past, he said. "As a Kraft analyst, that's pretty encouraging."

Moody's rating agency Tuesday cut Altria's long-term debt ratings but left Kraft's ratings unchanged, saying the company has governance policies in place to protect it from exposure to the tobacco lawsuits.

Earlier this month, Kraft's access to the short-term commercial paper lending market was cut off after its debt ratings were downgraded, along with Altria's, on risks of litigation surrounding Philip Morris USA. Camilleri told Kraft shareholders that Kraft's downgrades would not impair the company's plans to make acquisitions.

Kraft also plans to use cash to pay down debt, boost its dividend and buy back more shares, its co-chief executive, Roger Deromedi, said at the meeting.

"We want to fund future growth, guard our credit rating and reward shareholders," said Deromedi, who heads Kraft's international business.

Kraft shares rose 60 cents, or 2 percent, to $30.64 on the New York Stock Exchange Tuesday.

Philip Morris USA is appealing the $10.1 billion verdict in a class-action lawsuit it lost in March over the use of the word "light" to promote cigarettes.

The judge in the case had ordered Philip Morris to post a $12 billion bond to protect its assets from being depleted during the appeals process.

He later lowered that amount, removing immediate fears that Philip Morris would have to file for bankruptcy protection.
Shareholders also voiced frustration with the company's use of genetically engineered crops.

Comedian Chevy Chase, a Kraft shareholder who attended the meeting, was not looking for laughs as he described his concerns about biotechnology. "I don't want my family to accidentally ingest a pig vaccine when they eat an Oreo," he said.

Opinions differ on the safety of genetically engineered foods, and much of the science is still evolving. The U.S. Food and Drug Administration allows the use of genetically modified crops.

Other shareholders suggested Kraft label products that use these modified ingredients. Camilleri rejected the idea.

"If any consumer wants a product that excludes biotech, they can buy organic products," he said.