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Running Head: KRAFT FOODS INC.
Kraft Foods Inc.: A Financial Analysis
Mandy Walter-Beam
Strayer University
BUS 499-10016: Senior Business Seminar
Professor Roy Nafarrete
March 18, 2009
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Executive Summary
Kraft Foods Inc. is among the leading manufacturers of
food and beverage products around the world. The brand name
encompasses products such as cheese, cookies, chocolate,
and meats, in addition to many other products. With nine
major brands under their corporate umbrella, it is not
difficult to see the need for constant growth and analysis.
This report provides a comprehensively detailed
analysis of Kraft Foods Inc. It encompasses their business
structure, a financial and strategic analysis, as well as
an in depth overview of the direction the company is taking
moving forward. After reading this report, the reader will
have a clear and concise understanding of both the
company’s past and current positions.
Throughout the scope of this document, the following
will be address:

Financial ratios, including profitability, liquidity,
margins, leverage, and ratios of efficiency.

Internal strength and weakness.

Potential opportunities and threats.

Company history to include an outline of successful
and non successful strategies.
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Kraft Foods Inc. was incorporated in 1989. Since that time,
the company has merged into or purchased nine major brands.
These brands include:
1.
Kraft Foods Inc.
2.
Oscar Mayer
3.
Philadelphia
4.
Maxwell House
5.
Nabisco
6.
Oreo
7.
Jacobs
8.
Milka
9.
LU
Financial performance is measured in eight segments.
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GOVERNMENT CONTRACT CLAUSES: The Application,
Ramifications, and Benefits
Within the realm of Government contracting, there is
an extensive amount of “boiler plate” clauses incorporated
into Government contracts. There are also many mandatory
clauses that are non-negotiable, meaning if a contractor is
unwilling to sign off on the clause, it would cost them the
contract. Federal procurement case law states that a
mandatory contract clause that affects any part of the
acquisition policy will be read into a contract, even if
the Government inadvertently omitted it.(Vacketta,
2008,Sec.3, para.1) Pursuant to the Office of Federal
Procurement Policy Act of 1974, (Pub. L. 93-400 and Title
41 of the United States Code, Chapter 7) the Federal
Acquisition Regulations (FAR) became the principle set of
rules for Government contracting. FAR Subpart 52.2 outlines
the text and provisions of such mandatory Government
contracting clauses.
FAR 52.2 contains twenty two standard clauses that are
incorporated into the text of most Government contracts.
Some such clauses are those such as the Definitions (FAR
Subpart 52.202-1). This clause establishes a standard set
of meanings for words or terms used throughout the
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contract. These definitions can be changed at the
discretion of both parties, and they serve as a reference
point for the entire contract.
Clauses such as Gratuities (FAR Subpart 52.203-3) and
Anti-Kickback Procedures (FAR Subpart 52.203-7) establish
specific policies as to the use of bribery in any form to
influence the Government in showing preference in the
contract award. These include anything of value and not
just monies. A violation of either clause could result in a
termination of the contract or fines. Along the same lines,
clauses such as those found in FAR Subpart 52.203-11 and
52.203-12 restrict even lobbyist from obtaining federally
appropriated funds to sway the preference of a Government
official causing them to show preference for a Contractor
bidding on a Government contract.
FAR Subpart 52.203-8 was revised in 1996 (National
Defense Authorization Act, 1996). The revision addressed
the circumstance of a Contractor or anyone working for the
Contractor being convicted of an offense including an
exchange of information for anything of value, or giving a
competitor an advantage in the award of contract. In the
event of either of these violations, the Government can
rescind the contract and recover any additional penalties
prescribed by the law. This safeguards the Government
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against any implications of impropriety within the
selection process. In addition, FAR Subpart 52.203-10
elaborates as to the penalties incurred should the
Contractor violate the previous clause. This clause states
a set amount by which the Government is allowed to reduce
to total cost of the contract.
While the majority of Government contract clauses are
meant to safeguard the best interests of the Government,
there are a few which also safeguard the Contractor. FAR
Subpart 52.203-13 requires the Contractor to supply the
Government with a company code of ethics. This clause also
maintains that ethics training must be completed by all
employees annually to ensure compliance. In the event that
an employee commits an unethical act, the Contractor has a
ground to relieve him or her of their duty. In showing due
diligence to avoid such an issue, the Contractor can now
report the breach to the Government and not be suspect to a
loss of credibility. Perhaps one of the most important
clauses to safeguard all parties is that of FAR Subpart
52.204-1. This clause addresses the subject of contract
approval. It is the responsibility of both the Contractor
and the Contracting Officer to know the limitations of
their authority. It is clearly stated within this clause
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that no contract is valid until it has been approved in
writing to be within the limitations of that authority.
There are other clauses that are intended solely for
the protection of the Government. Security Requirements
(FAR Subpart 52.204-2), Central Contractor Registration
(CCR) (FAR Subpart 52.204-7), and termination clauses (FAR
Subpart 49.5) are such clauses. Security clauses indicate
that any access to materials or information systems
containing sensitive or classified information, require the
Contractor to comply with the protocols outlined within the
Security Program Operating Manual. This safeguards
Government information with access being limited to only
those on a “need to know” basis. This is a means of
preventing information leaks both inadvertent and
intentional. Clauses such as the Central Contractor
Registration (CCR) require the Contractor to register with
a Government database. This database tracks all information
relative to current and previous contracts awarded to the
Contractor. This provides the Government a helpful means of
reviewing past performance and experience, as well as any
violations. Termination clauses provide the Government with
an efficient means of terminating the contract for a number
of reasons. The termination clause most unique is that of
the “Termination for Government Convenience” (FAR Subpart
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49.502). This clause allows the Government to terminate the
contract at any point at which the service or product
provided is no longer advantageous to the Government’s
mission. Additional termination clauses include termination
for failure to perform, termination for default, and
termination for excusable delays.
There are a variety of clauses instituted within
Government contracts, which may have nothing whatsoever to
do with the actual contract subject. An example of such a
clause is found in FAR Subpart 52.204-4. This clause
requires that all Contractors put forth a best effort to
utilize recycled materials and conserve resources in
compliance with the U.S. Environmental Protection Agency
(EPA) standards. This includes paper, electricity, water
and office supplies. This is a mandatory clause, instituted
in order to achieve a “greener” Government.
As one can see the Government utilizes a number of
clauses that are unheard of in commercial contracting.
Commercial contractors are governed by the Uniform
Commercial Code (UCC) and FAR regulations do not apply to
them. The UCC is according to our text, “a set of guides
and best practices to be considered, exercised and
contractually implemented by contracting parties in the
private and commercial sector.” (Hearn, 2006) The FAR
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however is a more extensive set of policies and statutes
designed specifically to be implemented in Government
contracting.
As commercial contractors are not based on
appropriated funds, many of the restricting clauses
utilized by the Government are not relevant to their
contract process. The commercial sector’s procurement
actions are based on the standards of the individual
company, whereas Government procurement actions are based
on applicable laws, policies, and regulations. Unlike
commercial contracting, the pricing of Government
contracts, are not a matter negotiated between a company
and a customer. Various branches of the Government are
involved in setting the procurement standards and
scrutinizing whether they are adhered to. This alone
affords the commercial contractor more leeway to take
liberties that are not available to the Government. It must
also be considered that as a governing body, many of the
strenuous restraints placed on Government contracting, are
necessary to maintain an exemplary reputation among the
people of our nation.
The commercial sector is only required to include
clauses that are part of commercial code, or agreed to by
all parties. This gives them the opportunity to structure
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their contracts in any means to accommodate their company
goals. The Government on the other hand is required to
implement mandatory clauses that can make or break a
negotiation, regardless of what might be the easiest or
most appeasing manner to structure the contract.
The Government requires contractors to include a
"changes clause" which allows the Government to have the
Contractor make changes within the scope of the original
contract. So long as the change is within the scope of
work, the Contractor is required to make the change without
the renegotiation of price. Often times the Government will
adjust the price of the contract, even though they are not
obligated to do so. Commercial contracts do not include a
changes clause. A Contractor is only obligated to the
extent of the wording of his contract unless the contract
is renegotiated.
Reporting clauses are also something that differs
greatly between the commercial and Government sectors. Due
to the accounting regulations and various performance
regulations, the Government requires Contractors to place
stringent reporting procedures on every aspect of the
contract. These procedures include but are not limited to;
employee time, production, milestones, performance reviews
and monthly summaries of work performed. This assists the
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Government in showing the progress of a project; it also
goes a long way in justifying the project and any
extensions thereafter. Commercial contracting does
incorporate some forms of reporting; however it is far less
structured and done on a less frequent basis.
Lastly, while commercial contracting can be political,
it is not obligated to be such. Since the Government often
uses contracting to further socio-economic policies
(Heberling & Kinsella, n.d.), it does due diligence to
ensure that small business owners, women owned businesses
and minority businesses are awarded a share of the
available contracts. Commercial contracting does not have
an obligation or as much of influence in furthering such
policies and therefore is not typically inclined to take
such into consideration.
While there are many clauses involved in the
contracting process that are unique to Government
contracting these clauses provide a number of benefits.
Definitive penalties are placed in each clause. This makes
it clear in no uncertain terms what the consequences to the
Contractor are for violating the clause. Not only are these
penalties a deterrent for possible violations, they are
also a means of eliminating additional work. If the
Government is able to terminate a contract for violation of
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a clause, they are able to swiftly move on to the next
eligible contractor and resume the project without the
process of appeals. In conclusion, the majority of the
clauses utilized within a Government contract, are with the
final goal of achieving the mission objective. Utilizing
such clauses allows the Government to achieve the mission
in the most cost effective, efficient, ethical and timely
manner possible.
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References
Hearn, Emmett E. (2006). Federal Acquisition and Contract
Management. Los Altos, Hearn Associates.
Heberling, M. & Kinsella, M., Complicating Issues in
Adopting Commercial Contracting Practices in Defense
Acquisition. Retrieved March 13, 2009 from:
http://74.125.47.132/search?q=cache:B3gPbnTJBWkJ:www.d
au.mil/registrar/_private/Heberling%2520document.doc+d
ifferences+between+government+and+commercial+contracti
ng&cd=8&hl=en&ct=clnk&gl=us
Office of Federal Procurement.
(1974). Office of Federal Procurement Policy Act of
1974.
(Publication L. 93-400).
Washington, DC: U.S.
Government Printing Office.
United States Congress.
(2004). United States Code, Title 41, Chapter 7-Office
of Federal Procurement Policy (Publication
L. 99-591)
Washington, DC: U.S. Government Printing Office.
United States Congress.
(1996). National Defense Authorization Act for Fiscal
Year 1996, Sec. 4304 (Publication
L. 104-106)
Washington, DC: U.S. Government Printing Office.
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Vacketta, Carl L. (2008). Federal Government Contract
Overview. Retrieved March 13, 2009,
http://library.findlaw.com/1999/Jan/1/241470.html