Kraft 2005 Annual Report Download - page 58

MERRILL CORPORATION EYOUNG// 8-MAR-06 09:45 DISK126:[06CHI5.06CHI1135]DU1135A.;17
mrll.fmt Free: 435D*/1155D Foot: 0D/ 0D VJ RSeq: 2 Clr: 0
DISK024:[PAGER.PSTYLES]UNIVERSAL.BST;51
KRAFT FOODS-FSC CERTIFIED-10K/AR Proj: P1102CHI06 Job: 06CHI1135 File: DU1135A.;17
Merrill Corporation/Chicago [phone] Page Dim: 8.250 X 10.750Copy Dim: 38. X 54.3
consolidated statement of earnings for the year ended December 31, 2005, versus fifty-two weeks for the
years ended December 31, 2004 and 2003.
As discussed in Note 13. Income Taxes, classification of certain prior years’ amounts have been
revised to conform with the current year’s presentation.
Note 2. Summary of Significant Accounting Policies:
Cash and cash equivalents:
Cash equivalents include demand deposits with banks and all highly liquid investments with original
maturities of three months or less.
Depreciation, amortization and goodwill valuation:
Property, plant and equipment are stated at historical cost and depreciated by the straight-line
method over the estimated useful lives of the assets. Machinery and equipment are depreciated over
periods ranging from 3 to 20 years, and buildings and building improvements over periods up to
40 years.
Definite life intangible assets are amortized over their estimated useful lives. The Company is
required to conduct an annual review of goodwill and intangible assets for potential impairment.
Goodwill impairment testing requires a comparison between the carrying value and fair value of each
reporting unit. If the carrying value exceeds the fair value, goodwill is considered impaired. The amount
of impairment loss is measured as the difference between the carrying value and implied fair value of
goodwill, which is determined using discounted cash flows. Impairment testing for non-amortizable
intangible assets requires a comparison between the fair value and carrying value of the intangible asset.
If the carrying value exceeds fair value, the intangible asset is considered impaired and is reduced to fair
value. During the first quarter of 2005, the Company completed its annual review of goodwill and
intangible assets and no impairment charges resulted from this review. However, as part of the sale or
pending sale of certain Canadian assets and two brands, the Company recorded total non-cash pre-tax
asset impairment charges of $269 million in 2005, which included impairment of goodwill and intangible
assets of $13 million and $118 million, respectively, as well as $138 million of asset write-downs. During
2004, the Company’s annual review of goodwill and intangible assets resulted in a $29 million non-cash
pre-tax charge related to an intangible asset impairment for a small confectionery business in the United
States and certain brands in Mexico. A portion of this charge, $12 million, was recorded as asset
impairment and exit costs on the consolidated statement of earnings. The remainder of the charge,
$17 million, was included in discontinued operations.
At December 31, 2005 and 2004, goodwill by reportable segment was as follows (in millions):
2005 2004
U.S. Beverages .............................................. $ 1,293 $ 1,293
U.S. Cheese, Canada & North America Foodservice .................... 5,366 5,382
U.S. Convenient Meals ......................................... 1,880 1,880
U.S. Grocery ................................................ 2,634 2,641
U.S. Snacks & Cereals ......................................... 8,630 8,658
Europe, Middle East & Africa ..................................... 4,487 5,014
Latin America & Asia Pacific ..................................... 358 309
Total goodwill .............................................. $24,648 $25,177
57
6 C Cs: 3278