Kraft 2001 Annual Report Download - page 52

Kraft Foods Inc.
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Note 5. Acquisitions:
Nabisco: On December 11, 2000, the Company acquired all of the
outstanding shares of Nabisco for $55 per share in cash. The
purchase of the outstanding shares, retirement of employee stock
options and other payments totaled approximately $15.2 billion. In
addition, the acquisition included the assumption of approximately
$4.0 billion of existing Nabisco debt. The Company financed the
acquisition through the issuance of two long-term notes payable to
Philip Morris totaling $15.0 billion and short-term intercompany
borrowings of $255 million. The acquisition has been accounted for
as a purchase. Nabisco’s balance sheet was consolidated with the
Company as of December 31, 2000, and beginning January 1,
2001, Nabisco’s earnings have been included in the consolidated
operating results of the Company; however, Nabisco’s earnings from
December 11, 2000 to December 31, 2000 were not included in the
consolidated operating results of the Company since such amounts
were insignificant. The Company’s interest cost associated with
acquiring Nabisco has been included in interest and other debt
expense, net, on the Company’s consolidated statements of
earnings for the years ended December 31, 2001 and 2000.
During 2001, the Company completed the allocation of excess
purchase price relating to Nabisco. As a result, the Company
recorded, among other things, the final valuations of property, plant
and equipment and intangible assets, primarily trade names,
amounts relating to the closure of Nabisco facilities and related
deferred income taxes. The final allocation of excess purchase
price at December 31, 2001 was as follows:
(in millions)
Purchase price $15,254
Historical value of tangible assets acquired and
liabilities assumed (1,271)
Excess of purchase price over assets acquired and
liabilities assumed at the date of acquisition 16,525
Increases for allocation of purchase price:
Property, plant and equipment 367
Other assets 347
Accrued postretirement health care costs 230
Pension liabilities 190
Debt 50
Legal, professional, lease and contract termination costs 129
Other liabilities, principally severance 602
Deferred income taxes 3,583
Goodwill and other intangible assets at December 31, 2001 $22,023
Goodwill and other intangible assets at December 31, 2001 include
approximately $11.7 billion related to trade names. The Company
also recorded deferred federal income taxes of $3.9 billion related
to trade names.
The closure of a number of Nabisco domestic and international
facilities resulted in severance and other exit costs of $379 million,
which are included in the above adjustments for the allocation of
purchase price. The closures will result in the elimination of
approximately 7,500 employees and will require total cash
payments of $373 million, of which approximately $74 million has
been spent through December 31, 2001.
The integration of Nabisco into the operations of the Company will
also result in the closure of several of the Company’s existing
facilities. The aggregate charges to the Company’s consolidated
statement of earnings to close or reconfigure its facilities and
integrate Nabisco are estimated to be in the range of $200 million
to $300 million. During 2001, the Company incurred pre-tax
integration costs of $53 million for site reconfigurations and other
consolidation programs in the United States. In October 2001, the
Company announced that it was offering a voluntary retirement
program to certain salaried employees in the United States. The
program is expected to eliminate approximately 750 employees
and will result in an estimated pre-tax charge of approximately $140
million upon final employee acceptance in the first quarter of 2002.
Assuming the acquisition of Nabisco occurred at the beginning of
2000 and 1999, pro forma operating revenues would have been
approximately $34 billion in each year; pro forma net earnings
would have been $1.4 billion in 2000 and $1.1 billion in 1999; while
basic and diluted EPS would have been $0.96 in 2000 and $0.77
in 1999. These pro forma results, which are unaudited, do not give
effect to any synergies expected to result from the merger of
Nabisco’s operations with those of the Company, nor do they give
effect to the reduction of interest expense from the repayment of
borrowings with the proceeds from the IPO. The pro forma results
also do not reflect the effects of SFAS No. 141 and 142 on the
amortization of goodwill or other intangible assets, or the EITF
Issues concerning the classification of certain expenses on the
consolidated statements of earnings. The pro forma results are not
necessarily indicative of what actually would have occurred if the
acquisition had been consummated and the IPO completed, at the
beginning of each year, nor are they necessarily indicative of future
consolidated operating results.
Other acquisitions: During 2001, the Company purchased coffee
businesses in Romania, Morocco and Bulgaria and also acquired
confectionery businesses in Russia and Poland. The total cost of
these and other smaller acquisitions was $194 million.
During 2000, the Company purchased the outstanding common
stock of Balance Bar Co., a maker of energy and nutrition snack
products. In a separate transaction, the Company also acquired
Boca Burger, Inc., a manufacturer and marketer of soy-based meat
alternatives. The total cost of these and other smaller acquisitions
was $365 million.
During 1999, the Company purchased several small North American
and international food businesses for $14 million.
The effects of these acquisitions were not material to the
Company’s consolidated financial position or results of operations
in any of the periods presented.