Kraft 2009 Annual Report Download - page 62

Kraft Foods Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Summary of Significant Accounting Policies:
Nature of Operations and Basis of Presentation:
Kraft Foods Inc. was incorporated in 2000 in the Commonwealth of Virginia. Kraft Foods Inc., through its subsidiaries (collectively “Kraft Foods,”
“we,” “us” and “our”), sells packaged food and beverage products to consumers in approximately 160 countries.
Prior to June 13, 2001, Kraft Foods was a wholly owned subsidiary of Altria Group, Inc. (“Altria”). On June 13, 2001, we completed an initial public
offering of 280,000,000 shares of our Class A common stock (“Common Stock”). In the first quarter of 2007, Altria spun off its remaining interest
(89.0%) in Kraft Foods on a pro rata basis to Altria stockholders in a tax-free transaction. Effective as of the close of business on March 30, 2007,
all Kraft Foods shares owned by Altria were distributed to Altria’s stockholders, and our separation from Altria was completed.
Principles of Consolidation:
The consolidated financial statements include Kraft Foods, as well as our wholly owned and majority owned subsidiaries. Our domestic operating
subsidiaries report year-end results as of the last Saturday of the year, and our international operating subsidiaries generally report year-end
results two weeks prior to the last Saturday of the year.
We account for investments in which we exercise significant influence (20%-50% ownership interest) under the equity method of accounting. We
use the cost method of accounting for investments in which we have an ownership interest of less than 20% and in which we do not exercise
significant influence. Noncontrolling interest in subsidiaries consists of the equity interest of noncontrolling investors in consolidated subsidiaries of
Kraft Foods. All intercompany transactions are eliminated.
Use of Estimates:
We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”),
which require us to make estimates and assumptions that affect a number of amounts in our financial statements. Significant accounting policy
elections, estimates and assumptions include, among others, pension and benefit plan assumptions, lives and valuation assumptions of goodwill
and intangible assets, marketing programs and income taxes. We base our estimates on historical experience and other assumptions that we
believe are reasonable. If actual amounts differ from estimates, we include the revisions in our consolidated results of operations in the period the
actual amounts become known. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not
had a significant impact on our consolidated financial statements.
Foreign Currencies:
We translate the results of operations of our foreign subsidiaries using average exchange rates during each period, whereas balance sheet
accounts are translated using exchange rates at the end of each period. We record currency translation adjustments as a component of equity.
Transaction gains and losses are recorded in earnings and were not significant for any of the periods presented.
Highly Inflationary Accounting:
In the fourth quarter of 2009, the Venezuelan economy was classified as highly inflationary under U.S. GAAP. Effective January 1, 2010, our
Venezuelan subsidiary is being accounted for under highly inflationary accounting rules, which principally means all transactions are recorded in
U.S. dollars. Venezuela has three exchange rates: the official rate, the consumer staples rate and the secondary (or parallel) rate. We have
historically used and will continue to use the official rate to translate our Venezuelan operations. However, prior to this change in accounting, cash
that we had exchanged into U.S. dollars using the secondary market was carried at that rate. Upon the change to highly inflationary accounting,
we were required to translate our U.S. dollars on hand using the official rate. Additionally, on January 8, 2010, the Venezuelan government
devalued its currency. Accordingly, we were required to revalue our net assets in Venezuela and we recorded an insignificant loss, which will be
reflected in our first quarter 2010 results. This disclosure does not reflect the impacts of our recent acquisition activity.
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Source: KRAFT FOODS INC, 10-K, February 25, 2010 Powered by Morningstar® Document Research℠