Kraft 2008 Annual Report Download - page 25

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Management believes the disclosure of implementation charges provides readers of our financial statements greater transparency to the total costs of our
Restructuring Program.
In addition, we expect to spend approximately $550 million in capital to implement the Restructuring Program. We have spent $387 million in capital since the
inception of the Restructuring Program, including $142 million spent in 2007. Cumulative annualized cost savings resulting from the Restructuring Program
were approximately $540 million through 2006. Incremental cost savings totaled approximately $243 million in 2007, resulting in cumulative annualized savings
under the Restructuring Program of approximately $783 million to date. Refer to Note 2, Asset Impairment, Exit and Implementation Costs, for further details of
our Restructuring Program.
European Union Segment Reorganization
We are also in the process of reorganizing our European Union segment to function on a pan-European centralized category management and value chain model.
After the reorganization is complete, the European Principal Company (“EPC”) will manage the European Union segment categories centrally and make
decisions for all aspects of the value chain, except for sales and distribution. The European subsidiaries will execute sales and distribution locally, and the local
production companies will act as toll manufacturers on behalf of the EPC. The EPC legal entity has already been incorporated as Kraft Foods Europe GmbH in
Zurich, Switzerland.
As part of this reorganization, we incurred $21 million of restructuring costs, $24 million of implementation costs and $10 million of other non-recurring costs
during 2007, and incurred $7 million of restructuring costs during 2006. Restructuring and implementation costs are recorded as part of our overall Restructuring
Program. Other costs relating to our European Union segment reorganization are recorded as marketing, administration and research costs. Management believes
the disclosure of implementation and other non-recurring charges provides readers of our financial statements greater transparency to the total costs of our
European Union segment reorganization.
Asset Impairment Charges
During the first and fourth quarters of 2007, we completed our annual review of goodwill and intangible assets. No impairments resulted from these reviews.
Additionally, in 2007, we sold our flavored water and juice brand assets and related trademarks, and incurred an asset impairment charge of $120 million, or
$0.03 per diluted share, in recognition of the sale. The charge, which included the write-off of the associated goodwill of $3 million, intangible assets of $70
million and property, plant and equipment of $47 million, was recorded as asset impairment and exit costs on the consolidated statement of earnings.
We recorded aggregate asset impairment charges in 2006 amounting to $424 million, or $0.17 per diluted share. During our 2006 annual review of goodwill and
intangible assets we recorded a $24 million non-cash charge for impairment of biscuits assets in Egypt and hot cereal assets in the U.S. In addition, we incurred
an asset impairment charge of $69 million in 2006 in anticipation of the 2007 sale of our hot cereal assets and trademarks. The charge included the write-off of a
portion of the associated goodwill of $15 million, intangible assets of $52 million and property, plant and equipment of $2 million. No further charges were
incurred in 2007 related to this sale. Additionally, in 2006, we incurred an asset impairment charge of $86 million in recognition of the pet snacks brand and
assets sale. The charge included the write-off of a portion of the associated goodwill of $25 million, intangible assets of $55 million and property, plant and
equipment of $6 million. Also during 2006, we re-evaluated the business model for our Tassimo hot beverage system due to lagging revenues. This evaluation
resulted in a $245 million non-cash asset impairment charge from lower utilization of existing manufacturing capacity. We recorded these charges as asset
impairment and exit costs on the consolidated statement of earnings.
We recorded aggregate asset impairment charges in 2005 amounting to $269 million, or $0.08 per diluted share. During the first quarter of 2005, we completed
our annual review of goodwill and intangible assets. No impairments resulted from this review. In addition, we sold our fruit snacks assets during 2005 and
incurred an asset impairment charge of $93 million in recognition of the sale. We also incurred asset impairment charges of $176 million in 2005 in anticipation
of the 2006 sales of certain assets in Canada and a small biscuit brand in the U.S. These aggregate charges, which included the write-off of the associated
goodwill of $13 million, intangible assets of $118 million and asset write-downs of $138 million were recorded as asset impairment and exit costs on the
consolidated statement of earnings. Refer to Note 2, Asset Impairment, Exit and Implementation Costs, for further asset impairment details.
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Source: KRAFT FOODS INC, 10-K, February 25, 2008 Powered by Morningstar® Document Research℠