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Acquisitions,Goodwill and Other Intangible Assets

9 Months Ended

Sep. 29, 2012

Acquisitions, Goodwill and Other Intangible Assets [Abstract]

Acquisitions, Goodwill and Other Intangibles [Text Block]

Note 2 Acquisitions, goodwill and other intangibles

Pringles® acquisition

On May 31, 2012, the Company completed its acquisition of the Pringles® business (Pringles) from The Procter & Gamble Company (P&G) for $2.695 billion, or $2.684 billion net of cash and cash equivalents, subject to certain purchase price adjustments. Through September 29, 2012, the net purchase price adjustments have resulted in a reduction of the purchase price by approximately $10 million. The purchase price, net of cash and cash equivalents, totals $2.674 billion. The acquisition was accounted for under the purchase method and was financed through a combination of cash on hand, and short-term and long-term debt. The assets and liabilities of Pringles are included in the Consolidated Balance Sheet as of September 29, 2012 and the results of the Pringles operations subsequent to the acquisition date are included in the Consolidated Statement of Income.

The acquired assets and assumed liabilities include the following:

(millions)			May 31, 2012
Accounts receivable, net		$	130
Inventories			103
Other prepaid assets			17
Property			317
Goodwill			1,375
Other intangibles:
	Definite-lived intangible assets		9
	Brand		776
Other assets:
	Deferred income taxes		19
	Other		16
Notes payable			(3)
Accounts payable			(9)
Other current liabilities			(25)
Other liabilities			(51)
		$	2,674

Goodwill of $647 million is expected to be deductible for statutory tax purposes.

Goodwill is calculated as the excess of the purchase price over the fair value of the net assets recognized. The goodwill recorded as part of the acquisition primarily reflects the value of providing an established platform to leverage the Company's existing brands in the international snacks category, synergies expected to arise from the combined brand portfolios, as well as any intangible assets that do not qualify for separate recognition.

The above amounts, including the allocation to reportable segments, represent the preliminary allocation of purchase price, and are subject to revision when the purchase price adjustments and the resulting valuations of fixed assets and intangible assets are finalized, which is expected to occur during the remainder of 2012.

As part of the Pringles acquisition, we incurred $18 million of integration-related costs in the third quarter of 2012 of which $17 million are recorded in selling, general and administrative (SGA) expense and $1 million are recorded in cost of goods sold (COGS). Transaction fees and other integration-related costs incurred since the acquisition were $48 million recorded in SGA and $1 million recorded in COGS. In addition, during the second quarter of 2012 we incurred $5 million in fees for a bridge financing facility which are recorded in other income (expense), net.

Pringles contributed net revenues of $376 million and net earnings of $31 million for the third quarter of 2012 and contributed net revenues of $495 million and net earnings of $16 million since the acquisition, including the transaction fees and other integration-related costs discussed above. The unaudited pro forma combined historical third quarter and year-to-date results, as if Pringles had been acquired at the beginning of fiscal 2011 are estimated to be:

	Quarter ended				Year-to-date period ended
		September 29,		October 01,		September 29,		October 01,
(millions, except per share data)		2012		2011		2012		2011
Net sales	$	3,720	$	3,696	$	11,299	$	11,314

Net income	$	296	$	322	$	1,003	$	1,075
Net income (loss) attributable to noncontrolling interests		-		-		-		(2)
Net income attributable to Kellogg Company	$	296	$	322	$	1,003	$	1,077

Net earnings per share	$	0.82	$	0.89	$	2.79	$	2.95

The pro forma results include transaction and bridge financing costs, interest expense on the debt issued to finance the acquisition, amortization of the definite lived intangible assets, and depreciation based on estimated fair value and useful lives. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of 2011, nor are they necessarily indicative of future consolidated results.

Changes in the carrying amount of goodwill, including the preliminary allocation of goodwill resulting from the Pringles acquisition to the Company's reportable segments for the year-to-date period ended September 29, 2012 are presented in the following table.

Carrying amount of goodwill

	U.S.
	Morning							North
	Foods &			U.S.		U.S.	America					Latin		Asia		Consoli-
(millions)	Kashi		Snacks			Specialty		Other		Europe	America			Pacific		dated
December 31, 2011	$	80	$	3,257	$	-	$	202	$	57	$	-	$	27	$	3,623
Pringles goodwill		147		399		43		58		488		76		164		1,375
Currency translation adjustment		-		-		-		-		23		-		4		27
September 29, 2012	$	227	$	3,656	$	43	$	260	$	568	$	76	$	195	$	5,025

Intangible assets subject to amortization
(millions)
		U.S.
		Morning						North
		Foods &		U.S.		U.S.		America				Latin		Asia		Consoli-
Gross carrying amount		Kashi		Snacks		Specialty		Other		Europe		America		Pacific		dated
December 31, 2011	$	33	$	18	$	-	$	-	$	2	$	7	$	-	$	60
Pringles customer relationships		-		3		-		-		5		-		1		9
September 29, 2012	$	33	$	21	$	-	$	-	$	7	$	7	$	1	$	69

Accumulated Amortization
December 31, 2011	$	31	$	9	$	-	$	-	$	2	$	7	$	-	$	49
Amortization		-		1		-		-		-		-		-		1
September 29, 2012	$	31	$	10	$	-	$	-	$	2	$	7	$	-	$	50

Intangible assets subject to amortization, net
December 31, 2011	$	2	$	9	$	-	$	-	$	-	$	-	$	-	$	11
Pringles customer relationships		-		3		-		-		5		-		1		9
Amortization		-		(1)		-		-		-		-		-		(1)
September 29, 2012	$	2	$	11	$	-	$	-	$	5	$	-	$	1	$	19

For intangible assets in the preceding table, amortization was $1 million for the current year-to-date period ended September 29, 2012, compared to $1 million for the prior year-to-date period ended October 1, 2011. The currently estimated aggregate annual amortization expense for full-year 2012 and each of the four succeeding fiscal years is approximately $2 million.

Intangible assets not subject to amortization

	U.S.
	Morning							North
	Foods &			U.S.		U.S.	America					Latin		Asia		Consoli-
(millions)	Kashi		Snacks			Specialty		Other		Europe	America			Pacific		dated
December 31, 2011	$	158	$	1,285	$	-	$	-	$	-	$	-	$	-	$	1,443
Pringles brand		-		340		-		-		436		-		-		776
Currency translation adjustment		-		-		-		-		17		-		-		17
September 29, 2012	$	158	$	1,625	$	-	$	-	$	453	$	-	$	-	$	2,236

- Definition

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities.The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

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