Mondelez 2014 Annual Report Download - page 67

Table of Contents
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 sales 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. Provisions for product returns and other trade
allowances are 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, marketing, sales incentives and trade promotions. These programs include, but are not
limited to, cooperative advertising, in-store displays, consumer promotions, new product introduction fees, discounts, coupons,
rebates and volume-based incentives. We expense advertising costs either in the period the advertising first takes place or as
incurred. Sales incentive and trade promotion activities are recorded as a reduction to revenues based on amounts estimated 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 expenses and sales incentives are charged to operations as a percentage of
volume, based on estimated volume and estimated program spending. 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 $1,552 million in
2014, $1,721 million in 2013 and $1,815 million in 2012. We manage advertising and consumer promotions (marketing programs)
on a combined basis. Advertising and consumer promotion costs were lower in 2014 due primarily to savings from consolidating
media providers, reductions in non-working media costs and efficiencies gained by shifting spending to lower-cost, digital media
outlets and currency, while we increased our spending on our global Power Brands and maintained working media spending. In
2013, advertising and consumer promotion costs were higher than in 2012. We expense product research and development costs
as incurred. Research and development expense was $455 million in 2014, $471 million in 2013 and $462 million in 2012. We
record marketing and research and development expenses within selling, general and administrative expenses.
Employee Benefit Plans:
We provide a range of benefits to our current and retired employees. These include pension benefits, postretirement health care
benefits and postemployment benefits depending upon jurisdiction, tenure, job level and other factors. Local statutory requirements
govern many of the benefit plans we provide around the world. Local government plans generally cover health care benefits for
retirees outside the United States, Canada and United Kingdom. Our U.S., Canadian and U.K. subsidiaries provide health care and
other benefits to most retired employees. Our postemployment benefit plans provide primarily severance benefits for eligible
salaried and certain hourly employees. The cost for these plans is recognized in earnings primarily over the working life of the
covered employee.
Financial Instruments:
We use financial instruments to manage our 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 currency exchange rates, commodity prices and interest rates, principally through the use of derivative instruments.
We use a combination of primarily 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 currency
assets and liabilities and protect the value of our debt. See 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 on a gross basis and 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 non-U.S. dollar denominated debt to hedge a portion of our net investment in non-U.S.
operations against adverse movements in exchange rates, with currency movements related to the debt and net investment and
the related deferred taxes recorded within currency translation adjustment in accumulated other comprehensive earnings / (losses).
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