Kraft 2008 Annual Report Download - page 36

in asset impairment and exit costs in the consolidated statement of earnings. During the first quarter of 2005, we completed our annual review of goodwill and
intangible assets. No impairments resulted from this review.
During the forth quarter of 2007, we acquired goodwill of $5,239 million and intangible assets of $2,196 million as part of the Danone Biscuit acquisition. These
amounts represent the preliminary allocation of purchase price and are subject to revision when appraisals are finalized, which will occur during 2008. The
application of FAS No. 141, Business Combinations, requires a number of significant judgments including the valuation of the cost of the acquisition and the
assignment of such costs based on the estimated fair values of asses acquired and liabilities assumed.
Insurance & Self-Insurance:
We use a combination of insurance and self-insurance for a number of risks, including workers’ compensation, general liability, automobile liability, product
liability and our obligation for employee healthcare benefits. Liabilities associated with the risks are estimated by considering historical claims experience and
other actuarial assumptions.
Revenue Recognition:
We recognize revenues when title and risk of loss pass to customers, which occurs upon shipment or delivery of goods. Revenues are recorded net of consumer
incentives and trade promotions and include all shipping and handling charges billed to customers. Kraft’s shipping and handling costs are classified as part of
cost of sales. We also record provisions and allowances for estimated sales returns and bad debts in our consolidated financial statements. The amounts recorded
for these provisions and related allowances are not significant to our financial statements.
Marketing costs:
We promote our products with advertising, consumer incentives and trade promotions. These programs include, but are not limited to, discounts, coupons,
rebates, in-store display incentives and volume-based incentives. We expense advertising costs either in the period the advertising first takes place or as incurred.
Consumer incentive and trade promotion activities are recorded as a reduction of revenues based on amounts estimated as being due to customers and consumers
at the end of a period. We base these estimates principally on historical utilization and redemption rates. For interim reporting 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. We do not
defer costs on our year-end consolidated balance sheet and all marketing costs are recorded as an expense in the year incurred.
Environmental Costs:
We are subject to laws and regulations relating to the protection of the environment. We accrue for environmental remediation obligations on an undiscounted
basis when amounts are probable and can be reasonably estimated. The accruals are adjusted as new information develops or circumstances change. Recoveries
of environmental remediation costs from third parties are recorded as assets when their receipt is deemed probable. As of December 31, 2007, our subsidiaries
were involved in 70 active Superfund and other similar actions in the U.S. related to current operations and certain former or divested operations for which we
retain liability.
Based on information currently available, we believe that the ultimate resolution of existing environmental remediation actions and our compliance in general
with environmental laws and regulations will not have a material effect on our financial results. However, we cannot quantify with certainty the potential impact
of future compliance efforts and environmental remediation actions.
Income Taxes:
We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Prior to the Distribution, we were included in Altria’s
consolidated federal income tax return. We generally computed income taxes on a separate company basis; however some of our foreign tax credits, capital
losses and other credits could not have been used on a separate company basis. To the extent that Altria used our foreign tax credits and other tax benefits in its
consolidated federal income tax return, we recognized the benefit in the calculation of our provision for income taxes. This benefit was approximately $270
million in 2007 (both through the date of Distribution as well as post-Distribution carryback claims to pre-Distribution periods), $195 million in 2006 and
$225 in 2005. We made payments to, or were reimbursed by, Altria for the tax effects resulting from being included in Altria’s tax return. As of March 31, 2007,
we are no longer a member of the Altria consolidated tax return group and will file our own federal consolidated income tax return.
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Source: KRAFT FOODS INC, 10-K, February 25, 2008 Powered by Morningstar® Document Research℠