Mondelez 2013 Annual Report Download - page 52

Table of Contents
In connection with our 2012-
2014 Restructuring Program, we recorded impairment charges of $91 million in 2013 and $18 million in
2012.
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 6.6% to discount the projected cash flows of those operations. For our Latin America, Asia
Pacific and EEMEA reporting units, we used a risk-rated discount rate of 9.6%. 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.
In 2013, 2012 and 2011, there were no impairments of goodwill. In connection with our 2013 annual impairment testing, we noted
one reporting unit which was more sensitive to near-term changes in discounted cash flow assumptions: U.S. Confections with
$2,177 million of goodwill as of December 31, 2013 and fair value in excess of its carrying value of net assets of 12%. While the
reporting unit passed the first step of the impairment test, if the segment operating income or another valuation assumption 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 this business, the estimated fair value could decline 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 2013 and 2011 reviews of non-amortizable intangible assets, there were no impairments identified. During our 2013
impairment testing, we noted 7 brands with $511 million of aggregate book value as of December 31, 2013 and fair value in excess
of book value of 10% or less. While these intangible assets passed our annual impairment testing and though we believe that our
current plans for each of these brands will allow them to continue to not be impaired, if expectations are not met or specific
valuation factors outside of our control, such as discount rates, change significantly, then a brand or brands might become impaired
in the future. In 2012, we recorded $52 million of charges related to a trademark on a Japanese chewing gum product within our
Asia Pacific segment.
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.
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