Kraft 2013 Annual Report Download - page 35

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Revenue Recognition:
We recognize revenues when title and risk of loss pass to customers. We record revenues net of consumer
incentives and trade promotions and include all shipping and handling charges billed to customers. We also record
provisions for estimated product returns and customer allowances as reductions to revenues within the same period
that the revenue is recognized. We base these estimates principally on historical and current period experience,
however it is reasonably likely that actual experience will vary from the estimates we have made. Shipping and
handling costs related to product returns are included in cost of sales and were not material in 2013, 2012 or 2011.
Marketing and Research and Development:
We promote our products with advertising, consumer incentives, and trade promotions. Consumer incentives and
trade promotions include, but are not limited to, discounts, coupons, rebates, in-store display incentives, and
volume-based incentives. Consumer incentive 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, we charge
advertising and consumer incentive expenses to operations as a percentage of volume, based on estimated volume
and related expense for the full year. We review and adjust these estimates each quarter based on actual
experience and other information. We do not defer these costs on our year-end consolidated balance sheet and all
marketing costs are recorded as an expense in the year incurred. Advertising expense was $747 million in 2013,
$640 million in 2012, and $535 million in 2011. We record marketing expense in selling, general and administrative
expense, except for consumer incentives and trade promotions, which are recorded in net revenues.
We expense costs as incurred for product research and development. Research and development expense was
$118 million (including a benefit from market-based impacts related to our postemployment benefit plans of $55
million) in 2013, $178 million (including expense from market-based impacts related to our postemployment benefit
plans of $6 million) in 2012, and $198 million in 2011. Market-based impacts related to our postemployment benefit
plans recorded in research and development were insignificant in the year ended December 31, 2011. We record
research and development expenses within selling, general and administrative expenses.
Environmental Costs:
We are subject to various laws and regulations in the United States and Canada 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 based on new information or as
circumstances change. We record recoveries of environmental remediation costs from third parties as assets when
we believe these amounts are receivable. As of December 28, 2013, we were involved in 60 active proceedings in
the United States under CERCLA (and other similar state actions and legislation) related to our current operations
and certain closed, inactive or divested operations for which we retain liability.
As of December 28, 2013, we had accrued an amount we deemed appropriate for environmental remediation.
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 or results from operations. However, we cannot quantify with certainty the potential
impact of future compliance efforts and environmental remediation actions.
Postemployment Benefit Plans:
We provide a range of benefits to our employees and retirees. These include pension benefits, postretirement
health care benefits, and other postemployment benefits, consisting primarily of severance. We recognize net
actuarial gains or losses and changes in the fair value of plan assets immediately upon remeasurement, which is at
least annually. The calculations of the amounts recorded require the use of various actuarial assumptions, such as
discount rates, assumed rates of return on plan assets, compensation increases, and turnover rates. We review our
actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and
trends when appropriate. We believe that the assumptions used in recording our pension, postretirement, and other
postemployment benefit plan obligations are reasonable based on our experience and advice from our actuaries.
See Note 9, Postemployment Benefit Plans, to the consolidated financial statements for a discussion of the
assumptions used.