Kraft 2002 Annual Report Download - page 56

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kraft foods inc. notes to consolidated financial statements
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 Altria Group, Inc., totaling
$15.0 billion, and short-term intercompany borrowings of
$255 million. The acquisition has been accounted for as a
purchase. Beginning January 1, 2001, Nabisco’s earnings have
been included in the consolidated operating results of the
Company. 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, 2002, 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
included approximately $11.7 billion related to trade names.
The Company also recorded deferred federal income taxes of
$3.9 billion related to trade names. During 2002, the Company
decreased goodwill by $76 million due primarily to the favorable
completion of the severance and exit programs.
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 the Nabisco purchase price. The closures
will result in the termination of approximately 7,500 employees
and will require total cash payments of $373 million, of
which approximately $190 million has been spent through
December 31, 2002. Substantially all of the closures were
completed as of December 31, 2002, and the remaining payments
relate to salary continuation payments for severed employees and
lease payments.
The integration of Nabisco into the operations of the Company
has also resulted in the closure or reconfiguration 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 were originally
estimated to be in the range of $200 million to $300 million.
During 2002, the Company recorded pre-tax integration related
charges of $115 million to consolidate production lines, close
facilities and for other consolidation programs. In addition, during
2001, the Company incurred pre-tax integration costs of
$53 million for site reconfigurations and other consolidation
programs in the United States. The integration related charges
of $168 million included $27 million relating to severance,
$117 million relating to asset write-offs and $24 million relating to
other cash exit costs. Cash payments relating to these charges
will approximate $51 million, of which $21 million has been
paid through December 31, 2002. In addition, during 2002,
approximately 700 salaried employees elected to retire or
terminate employment under voluntary retirement programs.
As a result, the Company recorded a pre-tax charge of
$142 million related to these programs. As of December 31, 2002,
the aggregate pre-tax charges to close or reconfigure the
Company’s facilities, including charges for early retirement
programs, were $310 million, slightly above the original estimate.
No additional pre-tax charges are expected to be recorded for
these programs.
During 2001, certain small Nabisco businesses were reclassified
to businesses held for sale, including their estimated results of
operations through anticipated sale dates. These businesses
have subsequently been sold, with the exception of one business
that had been held for sale since the acquisition of Nabisco. This
business, which is no longer held for sale, has been included in
2002 consolidated operating results.
Assuming the acquisition of Nabisco occurred at the beginning
of 2000, pro forma net revenues would have been approximately
$30 billion and pro forma net earnings would have been
$1.4 billion in 2000; while 2000 basic and diluted EPS would have
been $0.96. 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. 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 2000, nor are they necessarily
indicative of future consolidated operating results.