Mondelez 2012 Annual Report Download - page 65

Table of Contents
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 and 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.
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.
Definite-lived intangible assets are amortized over their estimated useful lives and evaluated for impairment as long-lived assets.
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 healthcare 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.
Revenue Recognition:
We recognize revenues when title and risk of loss pass to customers, which generally occurs upon shipment or delivery of goods.
Revenues are recorded net of consumer incentives and trade promotions and include all shipping and handling charges billed to
customers. Our shipping and handling costs are classified as part of cost of sales. A provision for product returns and allowances
for bad debts is also recorded as reductions to revenues within the same period that the revenue is recognized.
Marketing and Research and Development:
We promote our products with advertising, consumer incentives and trade promotions. These programs include, but are not limited
to, discounts, coupons, rebates, in-store display incentives and volume-based incentives. We expense advertising costs either in
the period the advertising first takes place or as incurred. Consumer incentive and trade promotion activities are recorded as a
reduction to revenues based on amounts estimated as being due to customers and consumers at the end of a period. We base
these estimates principally on historical utilization and redemption rates. For interim reporting purposes, advertising and consumer
incentive expenses are charged to operations as a percentage of volume, based on estimated volume and related expense for the
full year. We do not defer costs on our year-end consolidated balance sheet and all marketing costs are recorded as an expense in
the year incurred. Advertising expense was $1,815 million in 2012, $1,860 million in 2011 and $1,729 million in 2010. We expense
product research and development costs as incurred. Research and development expense was $462 million in 2012, $511 million
in 2011 and $404 million in 2010. We record marketing and research and development expenses within selling, general and
administrative expenses.
Environmental Costs:
Throughout the countries in which we do business, we are subject to local, national and multi-national environmental laws and
regulations relating to the protection of the environment. We have programs across our business units designed to meet applicable
environmental compliance requirements.
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