Kraft 2005 Annual Report Download - page 63

MERRILL CORPORATION EYOUNG// 8-MAR-06 09:45 DISK126:[06CHI5.06CHI1135]DU1135A.;17
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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
Restructuring Costs:
During 2005 and 2004, pre-tax charges under the restructuring program of $210 million and
$583 million, respectively, were recorded as asset impairment and exit costs on the consolidated
statements of earnings. These pre-tax charges resulted from the announcement of the closing of 19
plants since January 2004, of which 6 occurred in 2005, the termination of co-manufacturing agreements
in 2004, and the continuation of a number of workforce reduction programs. Approximately $170 million
of the pre-tax charges incurred in 2005 will require cash payments.
Pre-tax restructuring liability activity for the years ended December 31, 2005 and 2004, was as
follows:
Asset
Severance Write-downs Other Total
(in millions)
Liability balance, January 1, 2004 .................... $ — $ — $ — $ —
Charges .................................... 176 363 44 583
Cash spent .................................. (84) (26) (110)
Charges against assets .......................... (5) (363) (368)
Currency .................................... 4 1 5
Liability balance, December 31, 2004 ................. 91 — 19 110
Charges .................................... 154 30 26 210
Cash spent .................................. (114) (50) (164)
Charges against assets .......................... (12) (30) (42)
Currency/other ................................ (5) 6 1
Liability balance, December 31, 2005 ................. $114 $ — $ 1 $115
Severance costs in the above schedule, which relate to the workforce reduction programs, include
the cost of related benefits. Specific programs announced during 2004 and 2005, as part of the overall
restructuring program, will result in the elimination of approximately 5,500 positions. At December 31,
2005, approximately 4,900 of these positions have been eliminated. Asset write-downs relate to the
impairment of assets caused by the plant closings and related activity. Other costs incurred relate
primarily to contract termination costs associated with the plant closings and the termination of
co-manufacturing and leasing agreements. Severance charges taken against assets relate to
incremental pension costs, which reduce prepaid pension assets.
Implementation Costs:
During 2005 and 2004, the Company recorded pre-tax implementation costs associated with the
restructuring program. These costs include the discontinuance of certain product lines and incremental
costs related to the integration and streamlining of functions and closure of facilities. Substantially all
implementation costs incurred in 2005 will require cash payments. These costs were recorded on the
consolidated statements of earnings as follows:
2005 2004
(in millions)
Net revenues ...................................................... $ 2 $ 7
Cost of sales ...................................................... 56 30
Marketing, administration and research costs ............................... 29 13
Total—continuing operations ........................................... 87 50
Discontinued operations .............................................. 8
Total implementation costs ............................................ $87 $58
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