Kraft 2005 Annual Report Download - page 34

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MERRILL CORPORATION ABLIJDE// 7-MAR-06 14:42 DISK126:[06CHI5.06CHI1135]DK1135A.;21
mrll.fmt Free: 290D*/420D Foot: 0D/ 0D VJ RSeq: 4 Clr: 0
DISK024:[PAGER.PSTYLES]UNIVERSAL.BST;51
KRAFT FOODS-FSC CERTIFIED-10K/AR Proj: P1102CHI06 Job: 06CHI1135 File: DK1135A.;21
Merrill Corporation/Chicago (312) 786-6300 Page Dim: 8.250X 10.750Copy Dim: 38. X 54.3
($110 million), unfavorable costs, net of higher pricing ($102 million, due primarily to higher commodity
costs and increased promotional spending), the net impact of higher implementation costs associated
with the restructuring program ($37 million), and the impact of divestitures ($33 million).
Currency movements increased net revenues by $533 million and operating income by $90 million.
These increases were due primarily to the weakness of the U.S. dollar against the euro, the Canadian
dollar, the Brazilian real and certain other currencies.
The Company’s reported effective income tax rate decreased by 2.9 percentage points to 29.4%,
due primarily to the settlement of an outstanding U.S. tax claim of $24 million; $82 million from the
resolution of outstanding items in the Company’s international operations; and $33 million in tax impacts
associated with the sale of a U.S. biscuit brand. The 2005 rate also includes a $53 million aggregate
benefit from the domestic manufacturers’ deduction provision and the dividend repatriation provision of
the American Jobs Creation Act. The tax provision in 2004 included the $81 million favorable resolution
of an outstanding tax item and the reversal of $35 million of tax accruals that were no longer required due
to tax events that occurred during 2004.
Earnings from continuing operations of $2,904 million increased $235 million (8.8%), due primarily
to higher operating income and a lower income tax rate. Diluted EPS from continuing operations, which
was $1.72, increased by 11.0%.
Loss from discontinued operations, net of income tax, increased $268 million, due primarily to a loss
on sale of $297 million in 2005. The loss from discontinued operations was due primarily to the recording
of additional tax expense that arose from the sale of the sugar confectionery business in the second
quarter of 2005.
Net earnings of $2,632 million decreased $33 million (1.2%). Diluted EPS from net earnings, which
was $1.55, was equal to 2004.
2004 compared with 2003
The following discussion compares consolidated operating results for 2004 with 2003.
Volume increased 509 million pounds (2.8%), due primarily to acquisitions and increased
shipments in the U.S. Cheese, Canada & North America Foodservice segment, partially offset by the
impact of divested businesses.
Net revenues increased $1,670 million (5.5%), due primarily to favorable currency ($838 million),
higher volume/mix ($560 million), higher net pricing ($265 million, reflecting commodity-driven pricing,
partially offset by increased promotional spending) and the impact of acquisitions ($140 million),
partially offset by the impact of divested businesses ($126 million).
Operating income decreased $1,248 million (21.3%), due primarily to the pre-tax charges for asset
impairment and exit costs ($597 million), unfavorable costs, net of higher pricing ($442 million, due
primarily to higher commodity costs and increased promotional spending), higher marketing,
administration and research costs ($306 million), the 2004 implementation costs associated with the
restructuring program ($50 million), the 2004 equity investment impairment charge relating to a joint
venture in Turkey ($47 million), the unfavorable net impact related to gains and losses on the sales of
businesses ($34 million), higher fixed manufacturing costs ($23 million, including higher benefit costs)
and the impact of divestitures ($18 million), partially offset by higher volume/mix ($187 million) and
favorable currency ($98 million).
Currency movements increased net revenues by $838 million and operating income by $98 million.
These increases were due primarily to the weakness of the U.S. dollar against the euro and the Canadian
dollar.
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