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Basis of Presentation (Policies)
 6 Months Ended
Jun. 30, 2014
Basis of Presentation

The condensed consolidated financial statements include Mondelēz International as well as our wholly owned and majority owned subsidiaries.

Our interim condensed consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted. It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of our financial position and operating results. Net revenues and net earnings for any interim period are not necessarily indicative of future or annual results.

We derived the condensed consolidated balance sheet data as of December 31, 2013 from audited financial statements, but do not include all disclosures required by U.S. GAAP. You should read these statements in conjunction with our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2013
Revision of Financial Statements

Revision of Financial Statements:

In finalizing our 2013 results, we identified certain out-of-period, non-cash, income tax-related errors in prior interim and annual periods. These errors were not material to any previously reported financial results; however, we revised our 2013 interim and prior-year financial statements and accompanying notes in our Annual Report on Form 10-K for the year ended December 31, 2013, to reflect these items in the appropriate periods. The net effect of the revision was to lower tax expense in years prior to 2013. The impact of the revision for the six months ended June 30, 2013 was a $47 million reduction of net earnings. The impact of the revision to fiscal years prior to 2013 was an increase in cumulative net earnings of $94 million.

We evaluated the cumulative impact of the errors on prior periods under the guidance in Accounting Standards Codification (“ASC”) 250-10, Accounting Changes and Error Corrections, and the guidance from the Securities and Exchange Commission (“SEC”) in Staff Accounting Bulletin (“SAB”) No. 99, Materiality. We also evaluated the impact of correcting the errors through an adjustment to our financial statements under the guidance in ASC 250-10 relating to SAB No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements. We concluded that these errors were not material, individually or in the aggregate, to any of the prior reporting periods and, therefore, amendments of previously filed reports were not required.

The effects of the revision on the condensed consolidated financial statements for the three and six months ended June 30, 2013 are detailed below.

Condensed Consolidated Statement of Earnings

 

                                                                                                                 
    For the Three Months Ended     For the Six Months Ended  
    June 30, 2013     June 30, 2013  
    Reported     Correction     Revised     Reported     Correction     Revised  
    (in millions, except per share data)  

Provision / (benefit) for
income taxes

   $ 13      $ 15      $ 28      $ (6 )    $ 47      $ 41   

Net earnings

     617        (15 )      602        1,191        (47 )      1,144   

Net earnings attributable to Mondelēz International

     616        (15 )      601        1,184        (47 )      1,137   

Net earnings attributable to Mondelēz International:

            

Per share, basic

   $ 0.34      $ –      $ 0.34      $ 0.66      $ (0.02 )    $ 0.64   

Per share, diluted

   $ 0.34      $ (0.01 )    $ 0.33      $ 0.66      $ (0.03 )    $ 0.63   

 

Condensed Consolidated Statement of Comprehensive Earnings

 

                                                                                                                 
    For the Three Months Ended     For the Six Months Ended  
    June 30, 2013     June 30, 2013  
    Reported     Correction     Revised     Reported     Correction     Revised  
    (in millions)  

Net earnings

   $ 617      $ (15 )    $ 602      $ 1,191      $ (47 )    $ 1,144   

Translation adjustment

     (938 )      5        (933 )      (1,709 )      7        (1,702 ) 

Total other comprehensive losses

     (828 )      5        (823 )      (1,556 )      7        (1,549 ) 

Comprehensive losses

     (211 )      (10 )      (221 )      (365 )      (40 )      (405 ) 

Comprehensive losses attributable to Mondelēz International

     (212 )      (10 )      (222 )      (365 )      (40 )      (405 ) 

Condensed Consolidated Statement of Cash Flows

 

                                                        
     For the Six Months Ended  
     June 30, 2013  
     Reported     Correction     Revised  
     (in millions)  

Net earnings

    $ 1,191      $ (47 )    $ 1,144   

Deferred income tax benefit

      (166 )      53        (113 ) 

Other non-cash items, net

      97        5        102   

Change in Other current assets

      (22 )      (1 )      (23 ) 

Change in Other current liabilities

      (807 )      (10 )      (817 ) 

Net cash provided by operating activities

      418        –        418   
Currency Translation and Highly Inflationary Accounting

Currency Translation and Highly Inflationary Accounting:

We translate the results of operations of our subsidiaries from multiple currencies using average exchange rates during each period and translate balance sheet accounts using exchange rates at the end of each period. We record currency translation adjustments as a component of equity and realized exchange gains and losses on transactions in earnings.

Venezuela. As prescribed by U.S. GAAP for highly inflationary economies, we have been accounting for the results of our Venezuelan subsidiaries using the U.S. dollar as the functional currency since January 1, 2010.

On February 8, 2013, the Venezuelan government announced the devaluation of the official Venezuelan bolivar exchange rate from 4.30 bolivars to 6.30 bolivars to the U.S. dollar and the elimination of the second-tier, government-regulated SITME exchange rate previously applied to value certain types of transactions. In connection with the announced changes, we recorded a $54 million currency remeasurement loss related to the devaluation of our net monetary assets in Venezuela within selling, general and administrative expenses in our Latin America segment during the three months ended March 31, 2013.

On January 24, 2014, the Venezuelan government announced the expansion of the auction-based currency transaction program referred to as SICAD or SICAD I and new profit margin controls. The application of the SICAD I rate was extended to include foreign investments and significant operating activities, including contracts for leasing and services, use and exploitation of patents and trademarks, payments of royalties and contracts for technology import and technical assistance. As of June 30, 2014, the SICAD I exchange rate was 10.60 bolivars to the U.S. dollar.

Additionally, on March 24, 2014, the Venezuelan government launched a new market-based currency exchange market, SICAD II. SICAD II may be used voluntarily to exchange bolivars into U.S. dollars. As of June 30, 2014, the SICAD II exchange rate was 49.98 bolivars to the U.S. dollar. There have been few market transactions to date and we continue to evaluate the new SICAD II market.

Our Venezuelan operations produce a wide range of biscuit, cheese & grocery, confectionery and beverage products. Based on the currency exchange developments this quarter, we have reviewed our domestic and international sourcing of goods and services and the exchange rates we believe will be applicable. We evaluated the level of primarily raw material imports that we believe would continue to be sourced in exchange for U.S. dollars converted at the official 6.30 exchange rate. Our remaining imported goods and services would primarily be valued at the SICAD I exchange rate. Imports that do not currently qualify for either the official rate or SICAD I rate may be sourced at the SICAD II rate.

 

We believe the SICAD I rate is the most appropriate rate to use as it is most representative of the various exchange rates at which U.S. dollars are currently available to our entire Venezuelan business. While some of our net monetary assets or liabilities qualify for settlement at the official exchange rate, other operations do not, and we have utilized both the SICAD I and SICAD II auction processes. In addition, there is significant uncertainty about our ability to secure approval for transactions and the limited availability of U.S. dollars offered at the official rate. As such, we believe it is more economically representative to use the SICAD I rate than the official rate to value our net monetary assets and translate future operating results.

As of March 31, 2014, we began to apply the SICAD I exchange rate to remeasure our bolivar-denominated net monetary assets, and we began translating our Venezuelan operating results at the new rate in the second quarter of 2014. On March 31, 2014, we recognized a $142 million currency remeasurement loss within selling, general and administrative expenses of our Latin America segment as a result of revaluing our bolivar-denominated net monetary assets from the official exchange rate of 6.30 bolivars to the U.S. dollar to the then-prevailing SICAD I exchange rate of 10.70 bolivars to the U.S. dollar. For the three months ended June 30, 2014, the impact of the SICAD I rate change was not significant and there were no additional remeasurement charges recorded in operating income.

The following table sets forth net revenues for our Venezuelan operations for the three and six months ended June 30, 2014 (with the first quarter translated at the 6.30 official rate prior to the remeasurement), and cash, net monetary assets and net assets of our Venezuelan subsidiaries as of June 30, 2014 (translated at 10.70 bolivars to the U.S. dollar):

 

Venezuela operations

   

Three Months Ended June 30, 2014
Net Revenues    $155 million or 1.8% of consolidated net revenue

 

     

Six Months Ended June 30, 2014
Net Revenues    $392 million or 2.3% of consolidated net revenue

 

    

As of June 30, 2014
Cash    $261 million
Net Monetary Assets    $227 million
Net Assets    $460 million

The SICAD I and II rates are variable rates. Unlike the official rate that was devalued and fixed at 6.30 bolivars to the U.S. dollar, the SICAD I rate reflects currently offered rates based on recently cleared auction transactions, and the SICAD II rate reflects voluntary market-based currency exchange transactions cleared by the Central Bank of Venezuela. As such, these rates are expected to vary over time. If any of the rates, or application of the rates to our business, were to change, we may recognize additional currency losses or gains, which could be significant.

In light of the current difficult macroeconomic environment in Venezuela, we continue to monitor and actively manage our investment and exposures in Venezuela. We have taken protective measures against currency devaluation, such as converting monetary assets into non-monetary assets that we can use in our business. However, suitable protective measures have become less available and more expensive and may not be available to offset further currency devaluation that could occur.

Argentina. On January 23, 2014, the Central Bank of Argentina adjusted its currency policy, removed its currency stabilization measures and allowed the Argentine peso exchange rate to float relative to the U.S. dollar. On that day, the value of the Argentine peso relative to the U.S. dollar fell by 15%, and from December 31, 2013 through June 30, 2014, the value of the peso declined 25%. Further volatility and declines in the exchange rate are expected. Based on the current state of Argentine currency rules and regulations, the business environment remains challenging; however, we do not expect the existing controls and restrictions to have a material adverse effect on our business, financial condition or results of operations. Our Argentinian operations contributed approximately $170 million, or 2.0% of consolidated net revenues, in the three months and $340 million, or 2.0% of consolidated net revenues, in the six months ended June 30, 2014. Argentina is not designated as a highly-inflationary economy at this time for accounting purposes, so we continue to record currency translation adjustments within equity and realized exchange gains and losses on transactions in earnings.
New Accounting Pronouncements

New Accounting Pronouncements:

In June 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) to clarify the accounting for certain stock-based compensation grants in which a performance target can be achieved after a requisite service period is completed. Under this new guidance, entities are required to treat performance targets that affect vesting, and could be achieved after the requisite service period, as a performance condition. The performance targets are not reflected in estimating the grant-date fair value of the grants. Compensation cost is recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The ASU is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. We are currently assessing the impact of the new standard on our consolidated financial statements.

In May 2014, the FASB issued an accounting standards update on revenue recognition from contracts with customers. The new ASU outlines a new, single comprehensive model for companies to use in accounting for revenue. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for the goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows from customer contracts, including significant judgments made in recognizing revenue. The guidance is effective for annual reporting periods beginning after December 15, 2016, with early adoption prohibited. The ASU may be applied retrospectively to historical periods presented or as a cumulative-effect adjustment as of the date of adoption. We will adopt the new standard on January 1, 2017 and are currently assessing the impact of the new standard on our consolidated financial statements.

In April 2014, the FASB issued an accounting standards update on the reporting of discontinued operations. The guidance changed the definition of a discontinued operation to include dispositions that represent a strategic shift and have a major effect on operations and financial results. Strategic shifts may include the disposal of operations in a major geographical area, a major line of business, a major investment accounted for under the equity method or other major parts of an entity. For disposals that qualify, additional disclosures, including cash flow and balance sheet information for the discontinued operation, will be required. The guidance is effective for fiscal years and interim reporting periods beginning on or after December 15, 2014, with early adoption permitted. We will apply these provisions to prospective divestitures beginning in 2015, including the planned coffee business transactions. Please see Note 2, Divestitures and Acquisition – Planned Coffee Business Transactions, for additional information.