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MERRILL CORPORATION MBLOUNT// 9-MAR-06 12:42 DISK126:[06CHI5.06CHI1135]DM1135A.;12
mrll.fmt Free: 115D*/120D Foot: 0D/ 0D VJ RSeq: 3 Clr: 0
DISK024:[PAGER.PSTYLES]UNIVERSAL.BST;51
KRAFT FOODS-FSC CERTIFIED-10K/AR Proj: P1102CHI06 Job: 06CHI1135 File: DM1135A.;12
Merrill Corporation/Chicago (312) 786-6300 Page Dim: 8.250X 10.750Copy Dim: 38. X 54.3
$750 million in third-party long-term debt, the net proceeds of which were used to refinance maturing
debt.
Debt and Liquidity
Debt. The Company’s total debt, including amounts due to Altria Group, Inc. and affiliates, was
$11.2 billion at December 31, 2005 and $12.5 billion at December 31, 2004. The Company’s
debt-to-equity ratio was 0.38 at December 31, 2005 and 0.42 at December 31, 2004. The Company’s
debt-to-capitalization ratio was 0.27 at December 31, 2005 and 0.30 at December 31, 2004.
In November 2004, the Company issued $750 million of 5-year notes bearing interest at 4.125%.
The net proceeds of the offering were used to refinance maturing debt. The Company has a Form S-3
shelf registration statement on file with the Securities and Exchange Commission (‘‘SEC’’) under which
the Company may sell debt securities and/or warrants to purchase debt securities in one or more
offerings up to a total amount of $4.0 billion. At December 31, 2005, the Company had $3.5 billion of
capacity remaining under its shelf registration.
At December 31, 2005 and 2004, the Company had short-term amounts payable to Altria
Group, Inc. and affiliates of $652 million and $227 million, respectively. The amounts payable to Altria
Group, Inc. generally include accrued dividends, taxes and service fees. Interest on intercompany
borrowings is based on the applicable London Interbank Offered Rate. The Company had no long-term
amounts payable to Altria Group, Inc. and affiliates.
Credit Ratings. Following a $10.1 billion judgment on March 21, 2003, against Altria Group, Inc.’s
domestic tobacco subsidiary, Philip Morris USA Inc., the three major credit rating agencies took a series
of ratings actions resulting in the lowering of the Company’s short-term and long-term debt ratings,
despite the fact the Company is neither a party to, nor has exposure to, this litigation. The Company’s
credit ratings by Moody’s at December 31, 2005, were ‘‘P-2’’ for short-term debt and ‘‘A3’’ for long-term
debt, with stable outlook. The Company’s credit ratings by Standard & Poor’s at December 31, 2005
were ‘‘A-2’’ for short-term debt and ‘‘BBB+’’ for long-term debt, with stable outlook. The Company’s
credit ratings by Fitch Rating Services at December 31, 2005 were ‘‘F-2’’ for short-term debt and
‘‘BBB+’’ for long-term debt, with stable outlook. As a result of the rating agencies’ actions, borrowing
costs have increased. None of the Company’s debt agreements requires accelerated repayment in the
event of a decrease in credit ratings. The credit rating downgrades by Moody’s, Standard & Poor’s and
Fitch Rating Services had no impact on any of the Company’s other existing third-party contracts.
Credit Lines. The Company maintains revolving credit facilities that have historically been used to
support the issuance of commercial paper. In April 2005, the Company terminated its $2.0 billion,
multi-year revolving credit facility expiring in July 2006 and its $2.5 billion, 364-day revolving credit facility
expiring in July 2005 and replaced them with a new $4.5 billion, multi-year revolving credit facility that
expires in April 2010. At December 31, 2005, the credit line for the Company and the related activity were
as follows (in billions of dollars):
December 31, 2005
Commercial Paper
Type Credit Lines Amount Drawn Outstanding
Multi-year ................................ $4.5 $— $0.4
The Company’s revolving credit facility, which is for its sole use, requires the maintenance of a
minimum net worth of $20.0 billion. At December 31, 2005, the Company’s net worth was $29.6 billion.
The Company expects to continue to meet this covenant. The revolving credit facility does not include
any other financial tests, any credit rating triggers or any provisions that could require the posting of
collateral. The Company expects to refinance long-term and short-term debt from time to time. The
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