Mondelez 2012 Annual Report Download - page 41

Table of Contents
Long-Lived Assets:
We review long-
lived assets, including amortizable intangible assets, for impairment when conditions exist that indicate the carrying
amount of the assets may not be fully recoverable. We perform undiscounted operating cash flow analyses to determine if an
impairment exists. When testing for impairment of assets held for use, we group assets and liabilities at the lowest level for which
cash flows are separately identifiable. If an impairment is determined to exist, the loss is calculated based on estimated fair value.
Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.
In 2012, we recorded impairment charges of $18 million within the 2012-2014 Restructuring Program. We did not record any asset
impairments in 2011. In 2010, we recorded an impairment of $12 million for certain property, plant and equipment in a biscuit plant
in France.
Goodwill and Non-Amortizable Intangible Assets:
We test goodwill and non-amortizable intangible assets for impairment at least annually on October 1. We assess goodwill
impairment risk by first performing a qualitative review of entity-specific, industry, market and general economic factors for each
reporting unit. If significant potential goodwill impairment risk exists for a specific reporting unit, we apply a two-step quantitative
test. The first step compares the reporting unit’s estimated fair value with its carrying value. We estimate a reporting unit’
s fair value
using a 20-year projection of discounted cash flows which incorporates planned growth rates, market-based discount rates and
estimates of residual value. For reporting units within our North America and Europe geographic units, we used a market-based,
weighted
-average cost of capital of 6.3% to discount the projected cash flows of those operations. For reporting units within our
Developing Markets geographic unit, we used a risk-rated discount rate of 9.3%. Estimating the fair value of individual reporting
units requires us to make assumptions and estimates regarding our future plans, industry and economic conditions. Our actual
results and conditions may differ over time. If the carrying value of a reporting unit’s net assets exceeds its fair value, the second
step is applied to measure the difference between the carrying value and implied fair value of goodwill. If the carrying value of
goodwill exceeds its implied fair value, the goodwill is considered impaired and reduced to its implied fair value.
In 2012, 2011 and 2010, there were no impairments of goodwill. In connection with our 2012 annual impairment testing, we noted
two reporting units which were more sensitive to near-term changes in discounted cash flow assumptions: U.S. Confections with
$2,177 million of goodwill as of December 31, 2012 and fair value in excess of its carrying value of net assets of 9% and Europe
Biscuits with $2,569 million of goodwill as of December 31, 2012 and fair value in excess of its carrying value of net assets of 16%.
While the reporting units passed the first step of the impairment test, if the segment operating income or another valuation
assumption for either reporting unit were to deteriorate significantly in the future, it could adversely affect the estimated fair value. If
we are unsuccessful in our plans to increase the profitability of these businesses, the estimated fair values could fall further and
lead to a potential goodwill impairment in the future.
We test non-amortizable intangible assets for impairment by first performing a qualitative review by assessing events and
circumstances that could affect the fair value or carrying value of the indefinite-lived intangible asset. If significant potential
impairment risk exists for a specific non-amortizable intangible asset, we quantitatively test for impairment by comparing the fair
value of each intangible asset with its carrying value. Fair value of non-amortizable intangible assets is determined using planned
growth rates, market-based discount rates and estimates of royalty rates. If the carrying value of the asset exceeds its fair value,
the intangible asset is considered impaired and is reduced to its estimated fair value. We record intangible asset impairment
charges within asset impairment and exit costs.
During our 2012 review of non-amortizable intangible assets, we recorded $52 million of charges related to a trademark on a
Japanese chewing gum product within our Developing Markets segment which had significantly lower revenue. The fair value of the
intangible asset was determined under a relief of royalty valuation, which models the cash flows from the trademark assuming
royalties were received under a licensing arrangement. The charge was calculated as the excess of the carrying value of the
intangible asset over its estimated fair value and was recorded within asset impairment and exit costs. During our 2011 review,
there were no impairments of non-amortizable intangible assets. During our 2010 review, we recorded a $13 million charge for the
impairment of intangible assets in the Netherlands and a $30 million charge for the impairment of intangible assets in China.
Insurance and Self-Insurance:
We use a combination of insurance and self-insurance for a number of risks, including workers’ compensation, general liability,
automobile liability, product liability and our obligation for employee health care benefits. We estimate the liabilities associated with
these risks by evaluating and making judgments about historical claims experience and other actuarial assumptions and the
estimated impact on future results.
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