Mondelez 2014 Annual Report Download - page 44

Table of Contents
Critical Accounting Estimates
We prepare our condensed consolidated financial statements in conformity with U.S. GAAP. The preparation of these financial
statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results
could differ from those estimates and assumptions. Note 1, Summary of Significant Accounting Policies , to the consolidated
financial statements includes a summary of the significant accounting policies we used to prepare our consolidated financial
statements. We have discussed the selection and disclosure of our critical accounting policies and estimates with our Audit
Committee. The following is a review of our most significant assumptions and estimates.
Goodwill and Non-Amortizable Intangible Assets :
We test goodwill and non-
amortizable intangible assets for impairment on an annual basis in the fourth quarter. We assess goodwill
impairment risk throughout the year by performing a qualitative review of entity-specific, industry, market and general economic
factors affecting the reporting units with goodwill. Annually, we may perform qualitative testing, or depending on factors such as
prior-year test results, current year developments, current risk evaluations and other practical considerations, we may elect to do
quantitative testing instead. Quantitative impairment testing consists of a two-step evaluation. The first step compares a reporting
unit’s estimated fair value with its carrying value. We estimate a reporting unit’s fair value using a discounted cash flow method
which incorporates planned growth rates, market
-
based discount rates and estimates of residual value. This year, for reporting units
in our Europe and North America segments, we used a market-based, weighted-average cost of capital of 6.9% 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 9.9%. Estimating the fair value of individual reporting units requires us to make assumptions and estimates
regarding our future plans and 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, we apply the second step 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
impaired and its carrying value is reduced to the implied fair value of the goodwill.
On January 1, 2014, an organizational change occurred within our North America region from a country and product category
structure to a regional product category structure. As a result, our North America region now has two instead of four reporting units.
For any reporting units that were reorganized, the goodwill was allocated to the new reporting unit structure based on relative fair
values of the related business units.
In 2014, 2013 and 2012, all reporting units passed our annual goodwill impairment testing. If expectations are not met or specific
valuation factors outside of our control, such as discount rates, change significantly, then the estimated fair value of a reporting unit
or reporting units might decline and lead to a goodwill impairment in the future.
We test non-amortizable intangible assets for impairment by performing a qualitative review and assessing events and
circumstances that could affect the fair value or carrying value of the indefinite-lived intangible assets. If significant potential
impairment risk exists for a specific asset, we quantitatively test it for impairment by comparing its estimated fair value with its
carrying value. Estimated fair value is determined using planned growth rates, market-
based discount rates and estimates of royalty
rates. If the carrying value of the asset exceeds its estimated fair value, the asset is impaired and its carrying value is reduced to
the estimated fair value.
During our 2014 review of non-amortizable intangible assets, we recorded $57 million of impairment charges related to two
trademarks. In both cases, the impairments arose due to lower than expected product growth and decisions made in the fourth
quarter to redirect support for the products to other regional brands. We recorded a $48 million charge related to a biscuit
trademark in our Asia Pacific segment and a $9 million charge related to a candy trademark in our Europe segment. The
impairment charges were calculated as the excess of the carrying value over the estimated fair value of the intangible assets on a
global basis and were recorded within asset impairment and exit costs. We primarily use a relief of royalty valuation method,
which utilizes estimates of future sales, growth rates, royalty rates and discount rates in determining a brand
’s global fair
value. During our 2014 intangible asset impairment review, we also noted three brands with $341 million of aggregate book value
as of December 31, 2014 that each had a fair value in excess of book value of 10% or less. While these intangible assets passed
our annual impairment testing and we believe 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 could become impaired in the future.
Refer also to Note 5, Goodwill and Intangible Assets , for additional information.
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