Kraft 2012 Annual Report Download - page 37

and trade promotion activities are recorded as a reduction to 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. Advertising
expense was $640 million in 2012, $535 million in 2011, and $540 million in 2010. We expense costs as incurred for
product research and development. Research and development expense was $178 million in 2012, $198 million in 2011,
and $185 million in 2010. We record marketing and research and development expenses within selling, general and
administrative expenses.
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 recovery of those costs is deemed probable. At December 29, 2012,
our subsidiaries were involved in 63 active actions in the U.S. under Superfund legislation (and other similar actions and
legislation) related to current operations and certain former or divested operations for which we retain liability. We are
subject to applicable multi-national, national, and local environmental laws and regulations in the countries in which we do
business. We have specific programs across our business units designed to meet applicable environmental compliance
requirements.
As of December 29, 2012, we had accrued an amount we deemed appropriate for environmental remediation. This
amount was insignificant to our balance sheet. 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 condition. However, we cannot quantify with certainty the
potential impact of future compliance efforts and environmental remediation actions.
Postemployment Benefit Plans:
Prior to the Spin-Off, Mondele¯z International provided defined benefit pension, postretirement health care, defined
contribution, and multiemployer pension and medical benefits to our eligible employees and retirees. As such, these
liabilities were not reflected in our consolidated balance sheets. We provided pension coverage for certain employees of
our Canadian operations through separate plans and certain pension and postemployment benefits of our Canadian
operations were included in our financial statements prior to the Spin-Off. When we became a stand-alone, independent
company, we assumed the obligations previously provided by Mondele¯z International. Mondele¯z International transferred
to us the plan assets and liabilities associated with our active and retired and other former employees. Additionally, we
assumed certain net benefit plan liabilities for most of the Mondele¯z International retired and other former North American
employees as of October 1, 2012. We assumed net benefit plan liabilities of $5.5 billion from Mondele¯z International,
which was in addition to the $0.1 billion of net benefit plan liabilities we had previously reported in our historical financial
statements, for a total liability of $5.6 billion on October 1, 2012.
Our consolidated statements of earnings include expense allocations for these benefits through September 30, 2012,
which were determined based on a review of personnel by business unit and based on allocations of corporate or other
shared functional personnel. We consider the expense allocation methodology and results to be reasonable for all periods
presented.
Total Mondele¯z International benefit plan costs allocated to us in the first nine months of 2012 prior to the Spin-Off, in
2011, and in 2010 were as follows:
Allocated from Mondele¯z International Plans
2012 2011 2010
(in millions)
Pension plan cost $ 283 $ 261 $ 248
Postretirement health care cost 142 160 166
Employee savings plan cost 49 54 52
Multiemployer pension plan cost 2 2 2
Multiemployer medical plan cost 15 20 18
Net expense for employee benefit plans $ 491 $ 497 $ 486
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