Kraft 2004 Annual Report Download - page 61

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assessed that the billings are reasonable based on the level of support provided by Altria Corporate
Services, Inc., and that they reflect all services provided. The cost and nature of the services are
reviewed annually by the Company’s Audit Committee, which is comprised of independent directors.
The effects of these transactions are included in operating cash flows in the Company’s consolidated
statements of cash flows.
In December 2004, the Company purchased two corporate aircraft from Altria Corporate
Services, Inc. for an aggregate purchase price of approximately $47 million. The Company also entered
into an Aircraft Management Agreement with Altria Corporate Services, Inc. in December 2004, pursuant
to which Altria Corporate Services, Inc. agreed to perform aircraft management, pilot services,
maintenance and other aviation services for the Company.
During 2004, Altria Corporate Services, Inc. provided to the Company certain financial services,
including payroll and accounts payable processing, at a cost of approximately $25 million, which was
included in the $310 million charge shown above. Beginning in 2005, the Company will perform these
functions for itself at a similar cost.
At December 31, 2004 and 2003, the Company had short-term amounts payable to Altria
Group, Inc. of $227 million and $543 million, respectively. Interest on these borrowings is based on the
applicable London Interbank Offered Rate.
The fair values of the Company’s short-term amounts due to Altria Group, Inc. and affiliates
approximate carrying amounts.
Note 5. Divestitures:
Discontinued Operations:
On November 15, 2004, the Company announced the sale of substantially all of its sugar
confectionery business for approximately $1.5 billion. The proposed sale includes the Life Savers,
Creme Savers, Altoids, Trolli and Sugus brands. The transaction, which is subject to regulatory approval,
is expected to be completed in the second quarter of 2005. The Company has reflected the results of its
sugar confectionery business as discontinued operations on the consolidated statements of earnings
for all years presented. Pursuant to the sugar confectionery sale agreement, the Company has agreed to
provide certain transition and supply services to the buyer. These service arrangements are primarily for
terms of one year or less, with the exception of one supply arrangement with a term of not more than
three years. The expected cash flow from this supply arrangement is not significant.
Summary results of operations for the sugar confectionery business were as follows:
For the Years Ended
December 31,
2004 2003 2002
(in millions)
Net revenues ............................................... $477 $512 $475
Earnings before income taxes ................................... $103 $151 $153
Impairment loss on assets of discontinued operations held for sale ........ (107)
Provision for income taxes ..................................... 54 56
(Loss) earnings from discontinued operations, net of income taxes ........ $ (4) $ 97 $ 97
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