Kraft 2013 Annual Report Download - page 22

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Items Affecting Comparability of Financial Results
Principles of Consolidation
Prior to the Spin-Off on October 1, 2012, our financial statements were prepared on a stand-alone basis and were
derived from the consolidated financial statements and accounting records of International. Our financial
statements for the years ended December 29, 2012 and December 31, 2011, included certain expenses of
International that were allocated to us. These allocations were not necessarily indicative of the actual
expenses we would have incurred as an independent public company or of the costs we will incur in the future, and
may differ substantially from the allocations we agreed to in the various separation agreements.
Cost Savings Initiatives
We incurred cost savings initiatives expenses of $290 million in 2013 and $303 million in 2012. Our costs savings
initiatives include a multi-year $650 million restructuring program consisting of restructuring costs, implementation
costs, and Spin-Off transition costs (the “Restructuring Program”), which was approved by our Board of Directors on
October 29, 2012. We have reduced our estimate of the total Restructuring Program costs to $625 million.
Approximately one-half of these costs will be cash expenditures. We spent cash of $150 million in 2013 and $111
million in 2012 related to our Restructuring Program. We expect to complete the Restructuring Program by the end
of 2014.
Debt
On May 18, 2012, we entered into a $3.0 billion five-year senior unsecured revolving credit facility in connection
with the Spin-Off. The agreement expires on May 17, 2017. On June 4, 2012, we issued $6.0 billion of senior
unsecured notes with a weighted average interest rate of 3.938% and transferred the net proceeds of $5.9 billion to
International. On July 18, 2012, International completed a debt exchange in which $3.6 billion
of International’s debt was exchanged for our debt as part of our Spin-Off-related capitalization plan.
There were no cash proceeds from the exchange. On October 1, 2012, International also transferred
approximately $0.4 billion of International’s 7.550% senior unsecured notes to us to complete the key
elements of the capitalization plan in connection with the Spin-Off.
Postemployment Benefit Plans
We remeasure all of our postemployment benefit plans at least annually at the end of our fiscal year. The
remeasurement as of December 28, 2013 resulted in an aggregate benefit from market-based impacts of $1.6
billion, primarily driven by an 80 basis point weighted average increase in the discount rate for our pension and
postretirement plans and excess asset returns in our pension plans. The annual remeasurement resulted in
expense from market-based impacts of $223 million as of December 29, 2012 and $70 million as of December 31,
2011. We disclose market-based impacts separately in order to provide better transparency of our operating results.
We define market-based impacts as the costs or benefits resulting from the change in discount rates, the difference
between our estimated and actual return on trust assets, and other assumption changes driven by changes in the
law or other external factors.
Starbucks CPG Business
On March 1, 2011, Starbucks took control of the Starbucks CPG business in grocery stores and other channels.
Starbucks did so without our authorization and in what we contended was a violation and breach of the Starbucks
Agreement. The dispute was arbitrated in Chicago, Illinois, and on November 12, 2013, the arbitrator issued a
decision awarding us compensation for Starbucks’ unilateral termination of the Starbucks Agreement. While we
remained the named party in the proceeding, pursuant to the Separation and Distribution Agreement between
International and us, International paid any costs and expenses incurred in connection with the
arbitration and we directed the payment of the recovery we were awarded in the arbitration proceeding to
International. The arbitration’s outcome did not have a material financial impact on us. The results of the Starbucks
CPG business were included our Beverages and Canada segments through March 1, 2011.
Provision for Income Taxes
Our effective tax rate was 33.6% in 2013, 33.1% in 2012, and 38.3% in 2011. Our 2013 effective tax rate was
unfavorably impacted by an increase in earnings due to the remeasurements of certain postemployment benefit
plans and favorably impacted by net discrete items totaling $61 million primarily from various U.S. federal, foreign,