Mondelez 2013 Annual Report Download - page 55

Table of Contents
Our 2014 discount rate assumption increased to 5.10% from 4.20% for our U.S. postretirement plans and increased to 4.81% from
4.08% for our non-U.S. postretirement plans. Our 2014 discount rate increased to 5.10% from 4.20% for our U.S. pension plans
and increased to 4.00% from 3.81% for our non-U.S. pension plans. We model U.S., Canadian, Eurozone and United Kingdom
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. We developed the discount rates for the remaining 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 2014 expected rate of return on plan assets remained constant at 7.75% 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 2014 expected rate of return on plan assets increased
to 6.18% from 6.08% 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 2014 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, 2013:
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.
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).
48
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
$
(16
)
$
17
$
(36
)
$
57
Effect of change in expected rate of
return on plan assets on pension costs
(4
)
4
(35
)
35
Effect of change in discount rate on
postretirement health care costs
(3
)
4
(1
)
1