Pepsi 2005 Annual Report Download - page 60

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2005 Restructuring Charges
In the fourth quarter of 2005, we incurred
a charge of $83 million ($55 million after-
tax or $0.03 per share) in conjunction with
actions taken to reduce costs in our opera-
tions, principally through headcount reduc-
tions. Of this charge, $34 million related
to FLNA, $21 million to PBNA, $16
million to PI and $12 million to Corporate
(recorded in corporate unallocated
expenses). Most of this charge related to
the termination of approximately 700
employees. We expect the substantial
portion of the cash payments related to
this charge to be paid in 2006.
2004 and 2003 Restructuring and
Impairment Charges
In the fourth quarter of 2004, we incurred
a charge of $150 million ($96 million
after-tax or $0.06 per share) in conjunc-
tion with the consolidation of FLNA’s
manufacturing network as part of its ongo-
ing productivity program. Of this charge,
$93 million related to asset impairment,
primarily reflecting the closure of four U.S.
plants. Production from these plants was
redeployed to other FLNA facilities in the
U.S. The remaining $57 million included
employee-related costs of $29 million,
contract termination costs of $8 million
and other exit costs of $20 million.
Employee-related costs primarily reflect
the termination costs for approximately
700 employees. Through December 31,
2005, we have paid $47 million and
incurred non-cash charges of $10 million,
leaving substantially no accrual.
In the fourth quarter of 2003, we
incurred a charge of $147 million
($100 million after-tax or $0.06 per share)
in conjunction with actions taken to
streamline our North American divisions
and PepsiCo International. These actions
were taken to increase focus and eliminate
redundancies at PBNA and PI and to
improve the efficiency of the supply chain
at FLNA. Of this charge, $81 million
related to asset impairment, reflecting
$57 million for the closure of a snack
plant in Kentucky, the retirement of snack
manufacturing lines in Maryland and
Arkansas and $24 million for the closure
of a PBNA office building in Florida. The
remaining $66 million included employee-
related costs of $54 million and facility
and other exit costs of $12 million.
Employee-related costs primarily reflect
the termination costs for approximately
850 sales, distribution, manufacturing,
research and marketing employees. As of
December 31, 2005, all terminations had
occurred and substantially no accrual
remains.
Merger-Related Costs
In connection with the Quaker merger in
2001, we recognized merger-related costs
of $59 million ($42 million after-tax or
$0.02 per share) in 2003.
Depreciation and amortization are
recognized on a straight-line basis over an
asset’s estimated useful life. Land is not
depreciated and construction in progress is
not depreciated until ready for service.
Amortization of intangible assets for each
of the next five years, based on average
2005 foreign exchange rates, is expected
to be $152 million in 2006, $35 million
in 2007, $35 million in 2008, $34 mil-
lion in 2009 and $33 million in 2010.
Depreciable and amortizable assets are
only evaluated for impairment upon a
significant change in the operating or
macroeconomic environment. In these
circumstances, if an evaluation of the
undiscounted cash flows indicates impair-
ment, the asset is written down to its
estimated fair value, which is based on
discounted future cash flows. Useful lives
are periodically evaluated to determine
whether events or circumstances have
occurred which indicate the need for revi-
sion. For additional unaudited information
on our amortizable brand policies, see
“Our Critical Accounting Policies” in
Management’s Discussion and Analysis.
Note 3 — Restructuring and Impairment Charges and Merger-Related Costs
Note 4 — Property, Plant and Equipment and Intangible Assets
Average Useful Life 2005 2004 2003
Property, plant and equipment, net
Land and improvements 10 – 30 yrs. $ 685 $ 646
Buildings and improvements 20 – 44 3,736 3,605
Machinery and equipment,
including fleet and software 5 – 15 11,658 10,950
Construction in progress 1,066 729
17,145 15,930
Accumulated depreciation (8,464) (7,781)
$ 8,681 $ 8,149
Depreciation expense $1,103 $1,062 $1,020
Amortizable intangible assets, net
Brands 5 – 40 $1,054 $1,008
Other identifiable intangibles 3 – 15 257 225
1,311 1,233
Accumulated amortization (781) (635)
$ 530 $ 598
Amortization expense $150 $147 $145