Mondelez 2012 Annual Report Download - page 45

Table of Contents
We record derivative financial instruments at fair value in our consolidated balance sheets within other current assets or other
current liabilities due to their relatively short-term duration. Cash flows from derivative instruments are classified in the consolidated
statements of cash flows based on the nature of the derivative instrument. Changes in the fair value of a derivative that is
designated as a cash flow hedge, to the extent that the hedge is effective, are recorded in accumulated other comprehensive
earnings / (losses) and reclassified to earnings when the hedged item affects earnings. Changes in fair value of economic hedges
and the ineffective portion of all hedges are recognized in current period earnings. Changes in the fair value of a derivative that is
designated as a fair value hedge, along with the changes in the fair value of the related hedged asset or liability, are recorded in
earnings in the same period. We use foreign currency denominated debt to hedge a portion of our net investment in foreign
operations against adverse movements in exchange rates, with changes in the value of the debt recorded within currency
translation adjustment in accumulated other comprehensive earnings / (losses).
In order to qualify for hedge accounting, a specified level of hedging effectiveness between the derivative instrument and the item
being hedged must exist at inception and throughout the hedged period. We must also formally document the nature of and
relationship between the derivative and the hedged item, as well as our risk management objectives, strategies for undertaking the
hedge transaction and method of assessing hedge effectiveness. Additionally, for a hedge of a forecasted transaction, the
significant characteristics and expected term of the forecasted transaction must be specifically identified, and it must be probable
that the forecasted transaction will occur. If it is no longer probable that the hedged forecasted transaction will occur, we would
recognize the gain or loss related to the derivative in earnings.
When we use derivatives, we are exposed to credit and market risks. Credit risk exists when a counterparty to a derivative contract
might fail to fulfill its performance obligations under the contract. We minimize our credit risk by entering into transactions with
counterparties with high quality, investment grade credit ratings, limiting the amount of exposure with each counterparty and
monitoring the financial condition of our counterparties. We also maintain a policy of requiring that all significant, non-exchange
traded derivative contracts with a duration of one year or longer are governed by an International Swaps and Derivatives
Association master agreement. Market risk exists when the value of a derivative or other financial instrument might be adversely
affected by changes in market conditions and foreign currency exchange rates, commodity prices, or interest rates. We manage
market risk by limiting the types of derivative instruments and derivative strategies we use and the degree of market risk that we
plan to hedge through the use of derivative instruments.
Income Taxes:
We recognize tax benefits in our financial statements when uncertain tax positions are assessed more likely than not to be
sustained upon audit. The amount we recognize is measured as the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement.
We recognize deferred tax assets for deductible temporary differences, operating loss carryforwards and tax credit carryforwards.
Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion, or all, of the deferred tax
assets will not be realized.
Contingencies
See Note 12, Commitments and Contingencies , to the consolidated financial statements.
New Accounting Guidance
See Note 1, Summary of Significant Accounting Policies , to the consolidated financial statements for a discussion of new
accounting standards.
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