Kraft 2009 Annual Report Download - page 209

Restructuring Costs:
Restructuring Costs:
(USD $)
12 Months Ended
12/31/2009
Restructuring Costs:
Note 6. Restructuring Costs:
Cost Savings Initiatives
We incurred costs associated with our Cost Savings Initiatives of $318 million in 2009. These charges were recorded in
operations, primarily within the segment operating income of Kraft Foods Europe with the remainder spread across all other
segments. The Kraft Foods Europe charges were largely a result of the reorganization of our European operations discussed
below. Cost Savings Initiatives include exit, disposal and implementation costs. Even though implementation costs were
directly attributable to exit and disposal costs, they did not qualify for special accounting treatment as exit or disposal
activities. In 2009, our Cost Savings Initiatives primarily included severance charges for benefits received by terminated
employees, associated benefit plan costs and other related activities.
2004-2008 Restructuring Program
In 2008, we completed our five-year restructuring program (the “Restructuring Program”). The Restructuring Program’s
objectives were to leverage our global scale, realign and lower our cost structure, and optimize capacity. As part of the
Restructuring Program, we:
• incurred $3.0 billion in pre-tax charges reflecting asset disposals, severance and implementation costs;
• announced the closure of 35 facilities and announced the elimination of approximately 18,600 positions; and
• will use cash to pay for $2.0 billion of the $3.0 billion in charges.
In 2009, we reversed $85 million of previously accrued Restructuring Program charges. Those reversals related to the
following:
• We sold a plant in Spain that we previously announced we would close under our Restructuring Program.
Accordingly, we reversed $35 million in Restructuring Program charges, primarily related to severance, and
recorded a $17 million loss on the divestiture of the plant in 2009. The reversal occurred in our Kraft Foods Europe
segment.
• We also reversed $50 million in Restructuring Program charges, primarily due to planned position eliminations that
did not occur. These were primarily the result of redeployment and natural attrition. The majority of these reversals
occurred in our Kraft Foods Europe segment, with the remainder spread across all other segments.
We incurred charges under the Restructuring Program of $989 million in 2008 and $459 million in 2007. Since the inception
of the Restructuring Program, we have paid cash of $1.7 billion of the $2.0 billion in expected cash payments, including $176
million paid in 2009. At December 31, 2009, we had an accrual of $270 million, and we had eliminated approximately 17,300
positions under the Restructuring Program.
In 2008, we implemented a new operating structure built on three core elements: business units, shared services that
leverage the scale of our global portfolio, and a streamlined corporate staff. Within the new structure, business units now
have full P&L accountability and are staffed accordingly. This also ensures that we are putting our resources closer to where
we make decisions that affect our consumers and customers. Our corporate and shared service functions streamlined their
organizations to focus on core activities that can more efficiently support the goals of the business units. The intent was to
simplify, streamline and increase accountability, with the ultimate goal of generating reliable growth for Kraft Foods. In total,
we eliminated approximately 1,400 positions as we streamlined our headquarter functions.
The reorganization of our European operations to function on a pan-European centralized category management and value
chain model was completed in 2009 for our Chocolate, Coffee and Cheese categories. Significant progress was made in
2009 related to the integration of our Europe Biscuits business, and we expect the integration to be completed by mid-2010.
The European Principal Company (“EPC”) will manage the European 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 been
incorporated as Kraft Foods Europe GmbH in Zurich, Switzerland. As part of the reorganization, we incurred $32 million of
severance costs, $25 million of implementation costs and $56 million of other non-recurring costs during 2009; we incurred
$16 million of restructuring costs, $39 million of implementation costs and $11 million of other non-recurring costs during
2008; and we incurred $21 million of restructuring costs, $24 million of implementation costs and $10 million of other
non-recurring costs during 2007. Through 2009, we have incurred aggregate charges of $241 million related to our Kraft
Foods Europe Reorganization, and we expect to incur approximately $40 million in additional charges in 2010 to complete
the integration of the Europe Biscuits business. In 2009, these charges were recorded within cost of sales and marketing,
administration and research costs. The 2008 and 2007 restructuring and implementation costs were included in the total
Restructuring Program charges. Other non-recurring costs relating to our Kraft Foods Europe Reorganization were 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 Kraft Foods
Europe Reorganization.
Source: KRAFT FOODS INC, 10-K, February 25, 2010 Powered by Morningstar® Document Research℠