Kraft 2005 Annual Report Download - page 62

MERRILL CORPORATION EYOUNG// 8-MAR-06 09:45 DISK126:[06CHI5.06CHI1135]DU1135A.;17
mrll.fmt Free: 515D*/540D Foot: 0D/ 0D VJ RSeq: 6 Clr: 0
DISK024:[PAGER.PSTYLES]UNIVERSAL.BST;51
KRAFT FOODS-FSC CERTIFIED-10K/AR Proj: P1102CHI06 Job: 06CHI1135 File: DU1135A.;17
Merrill Corporation/Chicago [phone] Page Dim: 8.250 X 10.750Copy Dim: 38. X 54.3
earnings, as reported, includes pre-tax compensation expense related to restricted stock and rights to
receive shares of stock of $148 million, $106 million and $57 million for the years ended December 31,
2005, 2004 and 2003, respectively. The following table illustrates the effect on net earnings and earnings
per share (‘‘EPS’’) if the Company had applied the fair value recognition provisions of SFAS No. 123 to
measure compensation expense for outstanding stock option awards (using a modified Black-Scholes
methodology) for the years ended December 31, 2005, 2004 and 2003 (in millions, except per share
data):
2005 2004 2003
Net earnings, as reported .................................. $2,632 $2,665 $3,476
Deduct:
Total stock-based employee compensation expense determined under
fair value method for all stock option awards, net of related tax effects 7 7 12
Pro forma net earnings .................................... $2,625 $2,658 $3,464
Earnings per share:
Basic—as reported ..................................... $ 1.56 $ 1.56 $ 2.01
Basic—pro forma ...................................... $ 1.56 $ 1.56 $ 2.01
Diluted—as reported .................................... $ 1.55 $ 1.55 $ 2.01
Diluted—pro forma ..................................... $ 1.55 $ 1.55 $ 2.00
In 2004, the FASB issued SFAS No. 123 (revised 2004), ‘‘Share-Based Payment’’ (‘‘SFAS
No. 123R’’). SFAS No. 123R requires companies to measure compensation cost for share-based
payments at fair value. The Company will adopt this new standard prospectively, on January 1, 2006,
and the adoption of SFAS No. 123R will not have a material impact on its consolidated financial position,
results of operations or cash flows.
Note 3. Asset Impairment, Exit and Implementation Costs:
Restructuring Program:
In January 2004, the Company announced a three-year restructuring program with the objectives of
leveraging the Company’s global scale, realigning and lowering its cost structure, and optimizing
capacity utilization. As part of this program, the Company anticipates the closing or sale of up to 20
plants and the elimination of approximately 6,000 positions. From 2004 through 2006, the Company
expects to incur approximately $1.2 billion in pre-tax charges, reflecting asset disposals, severance and
other implementation costs, including $297 million and $641 million incurred in 2005 and 2004,
respectively. Approximately 60% of the pre-tax charges are expected to require cash payments. In
addition, in January 2006, the Company announced plans to continue its restructuring efforts beyond
those originally contemplated. Additional pre-tax charges are anticipated to be $2.5 billion from 2006 to
2009, of which approximately $1.6 billion are expected to require cash payments. These charges will
result in the anticipated closure of up to 20 additional facilities and the elimination of approximately 8,000
additional positions. Initiatives under the expanded program include additional organizational
streamlining and facility closures. The entire restructuring program is expected to ultimately result in
$3.7 billion in pre-tax charges, the closure of up to 40 facilities and the elimination of approximately
14,000 positions. Approximately $2.3 billion of the $3.7 billion in pre-tax charges are expected to require
cash payments.
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