Mondelez 2014 Annual Report Download - page 55

Table of Contents
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
As we operate globally, we are primarily exposed to currency exchange rate, commodity price and interest rate market risks. We
monitor and manage these exposures as part of our overall risk management program. Our risk management program 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. We principally utilize derivative instruments to reduce significant, unanticipated earnings fluctuations
that may arise from volatility in currency exchange rates, commodity prices and interest rates. For additional information on our
derivative activity and the types of derivative instruments we use to hedge our currency exchange, commodity price and interest
rate exposures, see Note 9, Financial Instruments .
Many of our non-U.S. subsidiaries operate in functional currencies other than the U.S. dollar. Fluctuations in currency exchange
rates create volatility in our reported results as we translate the balance sheets, operating results and cash flows of these
subsidiaries into the U.S. dollar for consolidated reporting purposes. The translation of non-
U.S. dollar denominated balance sheets
and statements of earnings of our subsidiaries into the U.S. dollar for consolidated reporting generally results in a cumulative
translation adjustment to other comprehensive income within equity. A stronger U.S. dollar relative to other functional currencies
adversely affects our consolidated earnings and net assets while a weaker U.S. dollar benefits our consolidated earnings and net
assets. While we hedge significant forecasted currency exchange transactions as well as certain net assets of non-U.S. operations
and other currency impacts, we cannot fully predict or eliminate volatility arising from changes in currency exchange rates on our
consolidated financial results. See Consolidated Results of Operations and Results of Operations by Reportable Segment under
Discussion and Analysis of Historical Results for currency exchange effects on our financial results during 2014. For additional
information on the impact of currency policies and the remeasurement of our Venezuelan net monetary assets on our financial
condition and results of operations, also see Note 1, Summary of Significant Accounting Policies—Currency Translation and Highly
Inflationary Accounting .
We also continually monitor the market for commodities that we use in our products. Input costs may fluctuate widely due to
international demand, weather conditions, government policy and regulation and unforeseen conditions. To manage the input cost
volatility, we enter into forward purchase agreements and other derivative financial instruments. We also pursue productivity and
cost saving measures and take pricing actions when necessary to mitigate the impact of higher input costs on earnings.
We regularly evaluate our variable and fixed-rate debt as well as current and expected interest rates in the markets in which we
raise capital. Our primary exposures include movements in U.S. Treasury rates, corporate credit spreads, London Interbank
Offered Rates (“LIBOR”), Euro Interbank Offered Rate (“EURIBOR”) and commercial paper rates. We periodically use interest rate
swaps and forward interest rate contracts to achieve a desired proportion of variable versus fixed rate debt based on current and
projected market conditions. In addition to using interest rate derivatives to manage future interest payments, earlier this year and in
the fourth quarter of 2013, we also retired $5 billion of our long-term debt and issued $6.3 billion of lower borrowing cost debt. Our
weighted
-average interest rate on our total debt as of December 31, 2014 was 4.3%, down from 4.8% as of December 31, 2013.
Value at Risk:
We use a value at risk (“VAR”) computation to estimate: 1) the potential one-day loss in the fair value of our interest rate-sensitive
financial instruments; and 2) the potential one-day loss in pre-tax earnings of our currency and commodity price-sensitive
derivative
financial instruments. The VAR analysis was done separately for our currency exchange, fixed income and commodity risk
portfolios as of each quarter end during 2014. The instruments included in the VAR computation were currency exchange forwards
and options for currency exchange risk, debt and swaps for interest rate risk, and commodity forwards, futures and options for
commodity risk. Excluded from the computation were anticipated transactions, currency trade payables and receivables, and net
investments in non-U.S. subsidiaries, which the abovementioned instruments are intended to hedge.
The VAR model assumes normal market conditions, a 95% confidence interval and a one-day holding period. A parametric delta-
gamma approximation technique was used to determine the expected return distribution in interest rates, currencies and commodity
prices for the purpose of calculating the fixed income, currency exchange and commodity VAR, respectively. The parameters used
for estimating the expected return distributions were determined by observing interest rate, currency exchange, and commodity
price movements over the prior quarter for the calculation of VAR amounts at December 31, 2014 and 2013, and over each of the
four prior quarters for the calculation of average VAR amounts during each year. The values of currency and commodity options do
not change on a one-to-one basis with the underlying currency or commodity and were valued accordingly in the VAR computation.
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