Kraft 2006 Annual Report Download - page 6

To the extent that employees of the remaining Altria Group, Inc. receive Kraft stock options, Altria Group, Inc. will reimburse the Company in cash for the
Black-Scholes fair value of the stock options to be received. To the extent that Kraft employees hold Altria Group, Inc. stock options, the Company will
reimburse Altria Group, Inc. in cash for the Black-Scholes fair value of the stock options. To the extent that holders of Altria Group, Inc. stock rights receive
Kraft stock rights, Altria Group, Inc. will pay to the Company the fair value of the Kraft stock rights less the value of projected forfeitures. Based upon the
number of Altria Group, Inc. stock awards outstanding at December 31, 2006, the net amount of these reimbursements would be a payment of approximately
$133 million from the Company to Altria Group, Inc. Based upon the number of Altria Group, Inc. stock awards outstanding at December 31, 2006, the
Company would have to issue 28 million stock options and 3 million shares of restricted stock and stock rights. The Company estimates that the issuance of these
awards would result in an approximate $0.02 decrease in diluted earnings per share. However, these estimates are subject to change as stock awards vest (in the
case of restricted stock) or are exercised (in the case of stock options) prior to the Record Date for the distribution.
As discussed in Note 2 to the Company's consolidated financial statements contained in Part II hereof, the Company is currently included in the Altria
Group, Inc. consolidated federal income tax return, and federal income tax contingencies are recorded as liabilities on the balance sheet of Altria Group, Inc.
Prior to the distribution of Kraft shares, Altria Group, Inc. will reimburse the Company in cash for these liabilities, which are approximately $300 million, plus
interest.
As discussed in Note 4 to the Company's consolidated financial statements contained in Part II hereof, a subsidiary of Altria Group, Inc. currently provides
the Company with certain services at cost plus a 5% management fee. After the Distribution Date, the Company will undertake these activities, and any
remaining limited services provided by a subsidiary of Altria Group, Inc. will cease in 2007. All intercompany accounts will be settled in cash within 30 days of
the Distribution Date.
Other:
In June 2005, the Company sold substantially all of its sugar confectionery business for pre-tax proceeds of approximately $1.4 billion. 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.
In October 2005, the Company announced that, effective January 1, 2006, its Canadian business would be realigned to better integrate it into the Company's
North American business by product category. Beginning in the first quarter of 2006, the operating results of the Canadian business were being reported
throughout the North American food segments. In addition, in the first quarter of 2006, the Company's international businesses were realigned to reflect the
reorganization announced within Europe in November 2005. The two revised international segments, which are reflected in the consolidated financial statements
and notes, are European Union; and Developing Markets, Oceania & North Asia, the latter to reflect the Company's increased management focus on developing
markets. Accordingly, prior period segment results have been restated.
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. In January 2006, the Company announced plans to expand its restructuring efforts through 2008.
The entire restructuring program is expected to result in $3.0 billion in pre-tax charges reflecting asset disposals, severance and implementation costs. The
decline of $700 million from the $3.7 billion in pre-tax charges previously announced was due primarily to lower than projected severance costs, the cancellation
of an initiative intended to generate sales efficiencies, and the sale of one plant that was originally planned to be closed. As part of this program, the Company
anticipates the closure of up to 40 facilities and the elimination of approximately 14,000 positions. Approximately $1.9 billion of the $3.0 billion in pre-tax
charges are expected to require cash payments. Pre-tax restructuring program charges, including implementation costs, for the years ended December 31, 2006,
2005 and 2004 were $673 million, $297 million and $641 million, respectively. Total pre-tax restructuring charges incurred since the inception of the program in
January 2004 were $1.6 billion.
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Source: KRAFT FOODS INC, 10-K, March 01, 2007