Kraft 2005 Annual Report Download - page 66

MERRILL CORPORATION EYOUNG// 8-MAR-06 09:45 DISK126:[06CHI5.06CHI1135]DU1135A.;17
mrll.fmt Free: 530DM/0D Foot: 0D/ 0D VJ RSeq: 10 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
which were based on the cost to Altria Corporate Services, Inc. to provide such services and a
management fee, were $237 million, $310 million and $318 million for the years ended December 31,
2005, 2004 and 2003, respectively. The Company performed at a similar cost various functions in 2005
that previously had been provided by Altria Corporate Services, Inc., resulting in a lower service charge
in 2005. These costs were paid to Altria Corporate Services, Inc. monthly. Although the cost of these
services cannot be quantified on a stand-alone basis, management has 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.
During 2005, the Company repatriated certain foreign earnings as part of Altria Group, Inc.’s
dividend repatriation plan under provisions of the American Jobs Creation Act. Increased taxes for this
repatriation of $21 million, were reimbursed by Altria Group, Inc. The reimbursement was reported in the
Company’s financial statements as an increase to additional paid-in capital.
In December 2005, the Company purchased an airport hangar and certain personal property
located at the hangar in Milwaukee, Wisconsin, from Altria Corporate Services, Inc. for an aggregate
purchase price of approximately $3.3 million.
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. In 2005, the Company performed these functions for
itself at a similar cost.
At December 31, 2005 and 2004, the Company had short-term amounts payable to Altria
Group, Inc. 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 fair values of the Company’s short-term amounts due to Altria Group, Inc. and affiliates
approximate carrying amounts.
Note 5. Divestitures:
Discontinued Operations:
In June 2005, the Company sold substantially all of its sugar confectionery business for pre-tax
proceeds of approximately $1.4 billion. The sale included the Life Savers, Creme Savers, Altoids, Trolli
and Sugus brands. The Company has reflected the results of its sugar confectionery business prior to
the closing date 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.
65
6 C Cs: 765