Kraft 2006 Annual Report Download - page 33

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purposes, advertising and consumer incentive expenses are charged to operations as a percentage of volume, based on estimated volume and related expense for
the full year.
Related Party Transactions. As discussed in Note 4 to the consolidated financial statements, Altria Group, Inc.'s subsidiary, Altria Corporate
Services, Inc., provides the Company with various services, including planning, legal, treasury, auditing, insurance, human resources, office of the secretary,
corporate affairs, information technology, aviation and tax services. Billings for these services, which were based on the cost to Altria Corporate Services, Inc. to
provide such services and a 5% management fee based on wages and benefits, were $178 million, $237 million and $310 million for the years ended
December 31, 2006, 2005 and 2004, respectively. These costs were paid to Altria Corporate Services, Inc. monthly. The Company performed at a similar cost
various functions in 2006 and 2005 that previously had been provided by Altria Corporate Services, Inc., resulting in lower service charges in 2006 and 2005.
The Company plans to undertake all remaining services currently provided by Altria Corporate Services, Inc. at a similar cost in 2007. Although the cost of these
services cannot be quantified on a stand-alone basis, management has assessed that the billings are reasonable based on the level of support provided by Altria
Corporate Services, Inc., and that they reflect all services provided. The cost and nature of the services are reviewed annually by the Company's Audit
Committee, which is comprised of independent directors. The effects of these transactions are included in operating cash flows in the Company's consolidated
statements of cash flows.
During 2006, the Company purchased certain real estate and personal property located in Wilkes Barre, Pennsylvania, from Altria Corporate Services, Inc.,
for an aggregate purchase price of $9.3 million. In addition, the Company assumed all of Altria Corporate Services, Inc.'s rights under a lease for certain real
property located in San Antonio, Texas. The Company also purchased certain personal property located in San Antonio, Texas from Altria Corporate
Services, Inc., for an aggregate purchase price of $6.0 million.
Also, see Note 13.Income Taxes regarding the impact to the Company of the closure of an Internal Revenue Service review of Altria Group, Inc.'s
consolidated federal income tax return recorded during 2006.
During 2005, the Company repatriated certain foreign earnings as part of Altria Group, Inc.'s dividend repatriation plan under provisions of the American
Jobs Creation Act. Increased taxes for this repatriation of $21 million were reimbursed by Altria Group, Inc. The reimbursement was reported in the Company's
financial statements as an increase to additional paid-in capital.
In December 2005, the Company purchased an airport hangar and certain personal property located at the hangar in Milwaukee, Wisconsin, from Altria
Corporate Services, Inc. for an aggregate purchase price of approximately $3.3 million.
In December 2004, the Company purchased two corporate aircraft from Altria Corporate Services, Inc. for an aggregate purchase price of approximately
$47 million. The Company also entered into an Aircraft Management Agreement with Altria Corporate Services, Inc. in December 2004, pursuant to which
Altria Corporate Services, Inc. agreed to perform aircraft management, pilot services, maintenance and other aviation services for the Company.
At December 31, 2006 and 2005, the Company had short-term amounts payable to Altria Group, Inc. of $607 million and $652 million, respectively. The
amounts payable to Altria Group, Inc. generally include accrued dividends, taxes and service fees. Interest on intercompany borrowings is based on the
applicable London Interbank Offered Rate.
Income Taxes. The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." The U.S. accounts of the
Company are included in the consolidated federal income tax return of Altria Group, Inc. Income taxes are generally computed on a separate company basis. To
the extent that foreign tax credits, capital losses and other credits generated by the
29
Source: KRAFT FOODS INC, 10-K, March 01, 2007