8-KFinancial Events

Mondelez International, Inc. 8-K Report, Material Impairment (Jan 8, 2007)

Filed January 8, 2007For Securities:MDLZ

Summary

Mondelez International, Inc. (operating as Kraft Foods Inc. at the time of this filing) announced a significant non-cash asset impairment charge of $245 million related to its Tassimo single-serve hot beverage system. This charge, approved by the Board on January 3, 2007, and to be reflected in the fourth quarter of 2006, stems from over-investment in Tassimo-related assets, specifically due to lower-than-anticipated utilization of manufacturing capacity. Despite the impairment, the company views Tassimo as a strategic component of its coffee business in the growing on-demand segment and has developed a revised, more targeted business strategy for the product based on consumer feedback and market learnings. The company anticipates minimal related cash expenditures of approximately $3 million for decommissioning idle production lines.

Key Highlights

  • 1Kraft Foods Inc. (now Mondelez International) recorded a $245 million non-cash asset impairment charge for its Tassimo single-serve hot beverage system.
  • 2The impairment charge relates to the Tassimo business model and lower-than-expected utilization of manufacturing capacity.
  • 3The company views Tassimo as strategically important to its coffee business within the growing on-demand coffee segment.
  • 4A revised, more targeted business strategy for Tassimo has been developed based on consumer feedback and market learnings.
  • 5The impairment charge will be recognized in the fourth quarter of 2006 financial results.
  • 6Associated cash expenditures are estimated to be approximately $3 million, primarily for decommissioning idle production lines.
  • 7The Tassimo system has achieved notable market share in the on-demand coffee segment where it is sold.

Frequently Asked Questions

The asset impairment charge of $245 million is primarily due to Kraft Foods Inc. being over-invested in Tassimo-related assets, specifically resulting from lower utilization of existing manufacturing capacity than originally projected.

The impairment itself is a non-cash charge. However, the company anticipates related cash expenditures of approximately $3 million, mainly for the decommissioning of idle production lines. This is a relatively small cash impact compared to the non-cash charge.

Despite the impairment, Kraft Foods Inc. views Tassimo as an important part of its coffee strategy in the growing on-demand segment. They have developed a revised, more targeted business strategy for Tassimo based on learnings and consumer feedback, indicating a continued commitment to the product, albeit on a smaller scale than initially envisioned.

The impairment charge of $245 million will be reflected in the company's fourth-quarter 2006 financial results.