Mondelez 2012 Annual Report Download - page 44

Table of Contents
For our postretirement plans, our 2013 health care cost trend rate assumption increased to 7.50% from 7.00% for our U.S.
postretirement plans and increased to 7.68% from 7.42% for our non-U.S. postretirement plans. We established these rates based
upon our most recent experience as well as our expectation for health care trend rates going forward. We anticipate that our health
care cost trend rate assumption will be 5.00% for U.S. plans by 2018 and 5.58% for non-U.S. plans by 2018. Assumed health care
cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects on our costs and obligation as of December 31, 2012:
Our 2013 discount rate assumption decreased to 4.20% from 4.70% for our U.S. postretirement plans and decreased to 4.08%
from 4.29% for our non-U.S. postretirement plans. Our 2013 discount rate decreased to 4.20% from 4.85% for our U.S. pension
plans. We model these discount rates using a portfolio of high quality, fixed-income debt instruments with durations that match the
expected future cash flows of the benefit obligations. Our 2013 discount rate assumption for our non-U.S. pension plans decreased
to 3.81% from 4.62%. We developed the discount rates for our non-U.S. plans from local bond indices that match local benefit
obligations as closely as possible. Changes in our discount rates were primarily the result of changes in bond yields year-over-
year.
Our 2013 expected rate of return on plan assets decreased to 7.75% from 8.00% for our U.S. pension plans. We determine our
expected rate of return on plan assets from the plan assets’ historical long-term investment performance, current asset allocation
and estimates of future long-
term returns by asset class. We attempt to maintain our target asset allocation by rebalancing between
asset classes as we make contributions and monthly benefit payments. Our 2013 expected rate of return on plan assets decreased
to 6.08% from 6.47% for our non-U.S. pension plans. We determine our expected rate of return on plan assets from the plan
assets’ historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset
class.
While we do not anticipate further changes in the 2013 assumptions for our U.S. and non-U.S. pension and postretirement health
care plans, as a sensitivity measure, a fifty-basis point change in our discount rates or the expected rate of return on plan assets
would have the following effects, increase / (decrease) in cost, as of December 31, 2012:
Financial Instruments:
We use certain financial instruments to manage our foreign currency exchange rate, commodity price and interest rate risks. We
monitor and manage these exposures as part of our overall risk management program which focuses on the unpredictability of
financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our operating
results. A principal objective of our risk management strategies is to reduce significant, unanticipated earnings fluctuations that may
arise from volatility in foreign currency exchange rates, commodity prices and interest rates, principally through the use of derivative
instruments.
We use a combination of primarily foreign currency forward contracts, futures, options and swaps; commodity forward contracts,
futures and options; and interest rate swaps to manage our exposure to cash flow variability, protect the value of our existing
foreign currency assets and liabilities and protect the value of our debt. See Note 1, Summary of Significant Accounting Policies ,
and Note 9, Financial Instruments , to the consolidated financial statements for more information on the types of derivative
instruments we use.
41
One
-
Percentage
-
Point
Increase
Decrease
Effect on total of service and interest cost
13.8%
(11.2%
)
Effect on postretirement benefit obligation
16.8%
(13.4%
)
U.S. Plans
Non
-
U.S. Plans
Fifty
-
Basis
-
Point
Fifty
-
Basis
-
Point
Increase
Decrease
Increase
Decrease
(in millions)
Effect of change in discount rate on
pension costs
$
(13
)
$
14
$
(43
)
$
68
Effect of change in expected rate of
return on plan assets on pension costs
(4
)
4
(32
)
32
Effect of change in discount rate on
postretirement health care costs
(3
)
3
(1
)
1