NOTE 2
ACQUISITIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

Acquisitions

During 2008 and 2007, the Company made acquisitions in order to expand its presence geographically and increase its manufacturing capacity.

Assets, liabilities, and results of operations of the acquired businesses have been included in the Company’s consolidated financial statements beginning on the dates of acquisition; such amounts were insignificant to the Company’s consolidated financial position and results of operations. In addition, the pro forma effect of these acquisitions on the Company’s results of operations, as though these business combinations had been completed at the beginning of 2007, would have been immaterial when considered individually or in the aggregate.

Specialty Cereals. In September 2008, the Company acquired Specialty Cereals of Sydney, Australia, a manufacturer and distributor of natural ready-to-eat cereals. The Company paid $37 million cash in connection with the transaction, including approximately $5 million to the seller’s lenders to settle debt of the acquired entity. Assets acquired consisted primarily of property, plant and equipment of $19 million and goodwill of $18 million (which will not be deductible for income tax purposes). This acquisition has been included in the Asia Pacific operating segment.

IndyBake Products/Brownie Products. In August 2008, the Company acquired certain assets and liabilities of the business of IndyBake Products and Brownie Products (collectively, IndyBake), located in Indiana and Illinois. IndyBake, a contract manufacturing business that produced cracker, cookie and frozen dough products, had been a partner to Kellogg for many years as a snacks contract manufacturer.

The Company paid approximately $42 million in cash in connection with the transaction, including approximately $8 million to the seller’s lenders. Assets acquired consisted primarily of property, plant and equipment of $12 million and goodwill of $25 million (which will be deductible for income tax purposes). Other assets acquired amounted to $5 million, net of other liabilities acquired. This acquisition has been included in the North America operating segment.

Navigable Foods. In June 2008, the Company acquired a majority interest in the business of Zhenghang Food Company Ltd. (Navigable Foods) for approximately $36 million (net of cash received). Navigable Foods, a manufacturer of cookies and crackers in the northern and northeastern regions of China, included approximately 1,800 employees, two manufacturing facilities and a sales and distribution network.

During 2008, the Company paid a total of $31 million in connection with the acquisition, including approximately $22 million to lenders and other third parties to settle debt and other obligations of the acquired entity. Assets acquired consisted primarily of property, plant and equipment of $23 million and goodwill of $19 million (which will be deductible for income tax purposes). Other liabilities acquired amounted to $6 million, net of other assets acquired. Additional purchase price payable in June 2011 amounted to $5 million and was recorded on the Company’s Consolidated Balance Sheet in other liabilities as of January 3, 2009. This acquisition has been included in the Asia Pacific operating segment.

The Company recorded noncontrolling interest of $6 million in connection with the acquisition, and obtained the option to purchase the noncontrolling interest beginning June 30, 2011. The noncontrolling interest holder also obtained the option to cause the Company to purchase its remaining interest. The options, which have similar terms, include an exercise price that is expected to approximate fair value on the date of exercise.

United Bakers. In January 2008, subsidiaries of the Company acquired substantially all of the equity interests in OJSC Kreker (doing business as United Bakers) and consolidated subsidiaries. United Bakers was a leading producer of cereal, cookie, and cracker products in Russia, with approximately 4,000 employees, six manufacturing facilities, and a broad distribution network.

The Company paid $110 million cash (net of $5 million cash acquired), including approximately $67 million to settle debt and other assumed obligations of the acquired entities. Of the total cash paid, $5 million was spent in 2007 for transaction fees and advances. This acquisition has been included in the Europe operating segment.

The purchase agreement between the Company and the seller provides for the payment of a currently undeterminable amount of contingent consideration at the end of three years, which will be calculated based on the growth of sales and earnings before income taxes, depreciation and amortization. Such payment will be recognized as additional purchase price when the contingency is resolved.

The purchase price allocation for United Bakers was as follows:

(millions)    Asset (liability)  

Cash

   $5   

Property, net

     60   

Goodwill (a)

     77   

Working capital, net (b)

     (11

Long-term debt

     (3

Deferred income taxes

     (8

Other

     (5

Total

   $115   

 

(a)  Goodwill is not expected to be tax deductible.
 
(b)  Inventory, receivables and other current assets less current liabilities.


Bear Naked, Inc. and Wholesome & Hearty Foods Company. In late 2007, the Company completed two separate business acquisitions for a total of approximately $123 million in cash, including related transaction costs. A subsidiary of the Company acquired 100% of the equity interests in Bear Naked, Inc., a leading seller of premium-branded natural granola products. Also, the Company acquired certain assets and liabilities of the Wholesome & Hearty Foods Company, a U.S. manufacturer of veggie foods marketed under the Gardenburger® brand. These acquisitions have been included in the North America operating segment.

Goodwill and other intangible assets

For the periods presented, the Company’s intangible assets consisted of the following:

Intangible assets subject to amortization
     

Gross

carrying

amount

   Accumulated
amortization
(millions)    2009    2008    2009    2008

Trademarks

   $19    $19    $15    $14

Other

     41      41      30      28

Total

   $60    $60    $45    $42

 

      2009    2008

Amortization expense (a)

   $3    $1

 

(a) The currently estimated aggregate amortization expense for each of the five succeeding fiscal years is approximately $2 million per year.

 



Intangible assets not subject to amortization
      Total carrying
amount
(millions)    2009    2008

Trademarks

   $1,443    $1,443

 



Changes in the carrying amount of goodwill  
(millions)   North
America
  Europe     Latin
America
  Asia
Pacific
(a)
    Consolidated  

December 29, 2007

  $3,513   $—      $—   $2      $3,515   

Purchase accounting adjustments

    1                       1   

Acquisitions

    25     77            37        139   

Currency translation adjustment

        (16         (2     (18

January 3, 2009

  $3,539   $61      $—   $37      $3,637   

Currency translation adjustment

        1            5        6   

January 2, 2010

  $3,539   $62      $—   $42      $3,643   

 

(a) Includes Australia, Asia and South Africa.