| | | | | | | | | | | As of September 30, | | | As of December 31, | | | | 2017 | | | 2016 | | | | (in millions) | | | | | Raw materials | | $ | 764 | | | $ | 722 | | Finished product | | | 2,154 | | | | 1,865 | | | | | | | | | | | | | | | | | 2,918 | | | | 2,587 | | Inventory reserves | | | (137 | ) | | | (118 | ) | | | | | | | | | | Inventories, net | | $ | 2,781 | | | $ | 2,469 | | | | | | | | | | | Note 4. Property, Plant and Equipment Property, plant and equipment consisted of the following: | | | | | | | | | | | As of September 30, | | | As of December 31, | | | | 20162017 | | | 20152016 | | | | (in millions) | | | | | Land and land improvements | | $ | 502469 | | | $ | 495471 | | Buildings and building improvements | | | 2,8722,971 | | | | 2,7532,801 | | Machinery and equipment | | | 10,41111,179 | | | | 10,04410,302 | | Construction in progress | | | 1,3831,014 | | | | 1,2621,113 | | | | | | | | | | | | | | 15,16815,633 | | | | 14,55414,687 | | Accumulated depreciation | | | (6,7037,095 | ) | | | (6,1926,458 | ) | | | | | | | | | | Property, plant and equipment, net | | $ | 8,465 8,538 | | | $ | 8,362 8,229 | | | | | | | | | | |
CapitalFor the nine months ended September 30, 2017, capital expenditures of $909$721 million excluded $220 million of accrued capital expenditures remaining unpaid at September 30, 2017 and included payment for a portion of the $343 million of capital expenditures that were accrued and unpaid at December 31, 2016. For the nine months ended September 30, 2016, excludecapital expenditures of $909 million excluded $274 million of accrued capital expenditures remaining unpaid at September 30, 2016 and includeincluded payment for $322 million of capital expenditures that were accrued and unpaid at December 31, 2015.
In connection with our restructuring program, we recorded non-cash asset write-downs (including accelerated depreciation and asset impairments) of $46 million in the three months and $164 million in the nine months ended September 30, 2017 and $120 million in the three months and $233 million in the nine months ended September 30, 2016 and $56 million in the three months and $191 million in the nine months ended September 30, 2015 (see Note 6,2014-2018 Restructuring Program). These charges were recorded in the condensed consolidated statements of earnings within asset impairment and exit costs and in the segment results as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | For the Three Months Ended | | | For the Nine Months Ended | | | | September 30, | | | September 30, | | | September 30, | | | September 30, | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | (in millions) | | | (in millions) | | | Latin America | | $ | 3 | | | $ | 6 | | | $ | 16 | | | $ | 40 | | | $ | 13 | | | $ | 3 | | | $ | 25 | | | $ | 16 | | Asia Pacific | | | 6 | | | | 18 | | | | 24 | | | | 46 | | | EEMEA | | | 10 | | | | 2 | | | | 16 | | | | 4 | | | AMEA | | | | 20 | | | | 9 | | | | 62 | | | | 30 | | Europe | | | 42 | | | | 14 | | | | 77 | | | | 51 | | | | 10 | | | | 49 | | | | 52 | | | | 87 | | North America | | | 59 | | | | 16 | | | | 98 | | | | 50 | | | | 3 | | | | 59 | | | | 25 | | | | 98 | | Corporate | | | – | | | | – | | | | 2 | | | | – | | | | – | | | | – | | | | – | | | | 2 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total non-cash asset write-downs | | $ | 120 | | | $ | 56 | | | $ | 233 | | | $ | 191 | | | $ | 46 | | | $ | 120 | | | $ | 164 | | | $ | 233 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Note 5. Goodwill and Intangible Assets Goodwill by reportable segment was:reflects our current segment structure for both periods presented: | | | | | | | | | | | As of September 30, | | | As of December 31, | | | | 2016 | | | 2015 | | | | (in millions) | | | | | Latin America | | $ | 917 | | | $ | 858 | | Asia Pacific | | | 2,489 | | | | 2,520 | | EEMEA | | | 1,337 | | | | 1,304 | | Europe | | | 7,107 | | | | 7,117 | | North America | | | 8,901 | | | | 8,865 | | | | | | | | | | | Goodwill | | $ | 20,751 | | | $ | 20,664 | | | | | | | | | | | Intangible assets consisted of the following: | | | | As of September 30, | | | As of December 31, | | | | 2016 | | | 2015 | | | | (in millions) | | | | | Non-amortizable intangible assets | | $ | 17,603 | | | $ | 17,527 | | Amortizable intangible assets | | | 2,340 | | | | 2,320 | | | | | | | | | | | | | | | | | 19,943 | | | | 19,847 | | Accumulated amortization | | | (1,222 | ) | | | (1,079 | ) | | | | | | | | | | Intangible assets, net | | $ | 18,721 | | | $ | 18,768 | | | | | | | | | | | Non-amortizable intangible assets consist principally of brand names purchased through our acquisitions of Nabisco Holdings Corp., the Spanish and Portuguese operations of United Biscuits, the globalLU biscuit business of Groupe Danone S.A. and Cadbury Limited. Amortizable intangible assets consist primarily of trademarks, customer-related intangibles, process technology, licenses and non-compete agreements. At September 30, 2016, the weighted-average life of our amortizable intangible assets was 13.6 years. Amortization expense for intangible assets was $44 million in the three months and $132 million in the nine months ended September 30, 2016 and $45 million in the three months and $137 million in the nine months ended September 30, 2015. We currently estimate annual amortization expense for each of the next five years to be approximately $185 million, estimated using September 30, 2016 exchange rates. Changes in goodwill and intangible assets consisted of: | | | | | | | Intangible | | | | Goodwill | | | Assets, at cost | | | | (in millions) | | | | | Balance at January 1, 2016 | | $ | 20,664 | | | $ | 19,847 | | Changes due to: | | | | | | | | | Currency | | | 163 | | | | 48 | | Acquisition | | | (76 | ) | | | 86 | | Asset impairments | | | – | | | | (30 | ) | Sale of business and assets | | | – | | | | (8 | ) | | | | | | | | | | Balance at September 30, 2016 | | $ | 20,751 | | | $ | 19,943 | | | | | | | | | | |
| | | | | | | | | | | As of September 30, | | | As of December 31, | | | | 2017 | | | 2016 | | | | (in millions) | | Latin America | | $ | 947 | | | $ | 897 | | AMEA | | | 3,349 | | | | 3,324 | | Europe | | | 7,837 | | | | 7,170 | | North America | | | 8,938 | | | | 8,885 | | | | | | | | | | | Goodwill | | $ | 21,071 | | | $ | 20,276 | | | | | | | | | | |
Intangible assets consisted of the following: | | | | | | | | | | | As of September 30, | | | As of December 31, | | | | 2017 | | | 2016 | | | | (in millions) | | Non-amortizable intangible assets | | $ | 17,625 | | | $ | 17,004 | | Amortizable intangible assets | | | 2,414 | | | | 2,315 | | | | | | | | | | | | | | 20,039 | | | | 19,319 | | Accumulated amortization | | | (1,401 | ) | | | (1,218 | ) | | | | | | | | | | Intangible assets, net | | $ | 18,638 | | | $ | 18,101 | | | | | | | | | | |
Non-amortizable intangible assets consist principally of brand names purchased through our acquisitions of Nabisco Holdings Corp., the Spanish and Portuguese operations of United Biscuits, the globalLU biscuit business of Groupe Danone S.A. and Cadbury Limited. Amortizable intangible assets consist primarily of trademarks, customer-related intangibles, process technology, licenses and non-compete agreements. At September 30, 2017, the weighted-average life of our amortizable intangible assets was 13.6 years. Amortization expense for intangible assets was $45 million for the three months and $133 million for the nine months ended September 30, 2017 and $44 million for the three months and $132 million for the nine months ended September 30, 2016. For the next five years, we currently estimate annual amortization expense of approximately $180 million for the next four years and approximately $90 million in year five, reflecting September 30, 2017 exchange rates. Changes in goodwill and intangible assets consisted of: | | | | | | | | | | | Goodwill | | | Intangible Assets, at cost | | | | (in millions) | | Balance at January 1, 2017 | | $ | 20,276 | | | $ | 19,319 | | Currency | | | 889 | | | | 898 | | Divestitures | | | (109 | ) | | | (62 | ) | Acquisition | | | 15 | | | | (7 | ) | Asset impairments | | | – | | | | (109 | ) | | | | | | | | | | Balance at September 30, 2017 | | $ | 21,071 | | | $ | 20,039 | | | | | | | | | | |
Changes to goodwill and intangibles were: | • | | AcquisitionDivestitures – During the first nine months of 2016,2017, we divested several manufacturing facilities, primarily in connection with the acquisition ofFrance, and as a biscuit operation in Vietnam, we recorded a final allocationresult of the consideration paid including $25divestiture, $23 million of goodwill and $62 million of amortizable intangible assets and $61 million of non-amortizable intangible assets. Intangible assets acquired included trademarks and customer-related intangibles with definite and indefinite lives. A preliminary goodwill balance recorded inIn the third quarter, we also completed a sale of 2015 was adjusted during the first nine monthsmost of 2016 to reflect intangible assetour grocery business in Australia and other asset fair valuations. See Note 2,Divestitures and Acquisitions – Other Divestitures and Acquisitions, for additional information. |
| • | | Asset impairments – During the nine months ended September 30, 2016, in connection with our global supply chain reinvention initiatives, we made a determination to discontinue manufacturing a candy product that resultedNew Zealand resulting in a $7 million impairment charge in our North America segment, we discontinued one biscuit product that resulted in a $4 million intangible asset impairment charge in our EEMEA segment and we recorded $19 milliongoodwill decrease of impairment charges related to two gum & candy trademarks in our Europe segment, both related to the planned sale of a confectionery business in France (see Note 2,Divestitures and Acquisitions – Other Divestitures and Acquisitions, for additional information). |
| • | | Sale of business and assets – During the first nine months of 2016, we sold $8 million of non-amortizable intangible assets in Finland.$86 million. See Note 2,Divestitures and Acquisitions, for additional information. |
| • | | Acquisition – During 2017, we recorded a $15 million adjustment to goodwill and a $7 million adjustment to indefinite lived assets in connection with finalizing the valuation and purchase price allocation for the Burton’s Biscuit Company purchase completed in the fourth quarter of 2016. See Note 2,Divestitures and Acquisitions, for additional information. |
Asset impairments – During the third quarter of 2017, we recorded $70 million of intangible asset impairments related to our annual testing of non-amortizable intangible assets as described further below and a $1 million impairment related to a transaction. During the second quarter of 2017, we recorded a $38 million intangible asset impairment charge resulting from a category decline and lower than expected product growth related to a gum trademark in our North America segment. We have historically annually tested goodwill and non-amortizable intangible assets for impairment as of October 1. This year, we voluntarily changed the annual impairment assessment date from October 1 to July 1. We believe this measurement date, which represents a change in the method of applying an accounting principle, is preferable because it better aligns with our strategic business planning process and financial forecasts which are key components of the annual impairment tests. The change in the measurement date did not delay, accelerate or prevent an impairment charge. Each quarter, we have evaluated goodwill and intangible asset impairment risks and recognized any related impairments to date. As such, the change in the annual test date was applied on July 1, 2017. As part of our goodwill quantitative annual impairment testing, we compare a reporting unit’s estimated fair value with its carrying value to evaluate the risk of potential goodwill impairment. 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 our Europe and North America reporting units, we used a market-based, weighted-average cost of capital of 7.2% to discount the projected cash flows of those operations. For our Latin America and AMEA reporting units, we used a risk-rated discount rate of 10.2%. 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 would record an impairment based on the difference between the carrying value and fair value of the reporting unit. In 2017 and 2016, there were no goodwill impairments and each of our reporting units had sufficient fair value in excess of its carrying value. While all reporting units passed our annual impairment testing, if planned business performance expectations are not met or specific valuation factors outside of our control, such as discount rates, change significantly, then the estimated fair values of a reporting unit or reporting units might decline and lead to a goodwill impairment in the future. During our 20152017 annual testing of non-amortizable intangible assets, we recorded $71$70 million of impairment charges in the three months ended December 31, 2015third quarter of 2017 related to fourfive trademarks. The impairments arose due to lower than expected product growth in part driven by decisions to redirect support from these trademarks to other regional and global brands. We recorded charges related to candy and gum trademarks of $52 million in Asia Pacific,AMEA, $11 million in Europe, $5 million in Latin America and Latin$2 million in North America. 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. We also noted seventhirteen brands, including the fourfive impaired trademarks, with $598$965 million of aggregate book value as of December 31, 2015September 30, 2017 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 weWe believe our current plans for each of these brands will allow them to continue to not be impaired, but if the product line 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. Note 6. 2014-2018 Restructuring Program On May 6, 2014, our Board of Directors approved a $3.5 billion restructuring program comprised of approximately $2.5 billion in cash costs and $1 billion in non-cash costs (the “2014-2018 Restructuring Program”), and up to $2.2 billion of capital expenditures. On August 31, 2016, our Board of Directors approved a reallocation within the program of $600 million of previously approved capital expenditures to be spent onreallocation between restructuring program cash costs resulting in $3.1and capital expenditures so that now the $5.7 billion program consists of approximately $4.1 billion of restructuring program costs ($3.1 billion cash costs to be expensedand $1 billion non-cash costs) and up to $1.6 billion of capital expenditures. There was no change to the total $5.7 billion of total program costs and no change to the total $4.7 billion of cash outlays. The primary objective of the 2014-2018 Restructuring Program is to reduce our operating cost structure in both our supply chain and overhead costs. The program is intended primarily to cover severance as well as asset disposals and other manufacturing-related one-time costs. Since inception, we have incurred total restructuring and related implementation charges of $2.1$3.1 billion related to the 2014-2018 Restructuring Program. We have incurred the majority of the program’s charges through the third quarter of 2016 and we expect to completeincur the full $4.1 billion of program charges by year-end 2018. Restructuring Costs: We recorded restructuring charges of $113 million in the three months and $418 million in the nine months ended September 30, 2017 and $187 million in the three months and $480 million in the nine months ended September 30, 2016 within asset impairment and $146exit costs. The 2014-2018 Restructuring Program liability activity for the nine months ended September 30, 2017 was: | | | | | | | | | | | | | | | Severance and related costs | | | Asset Write-downs | | | Total | | | | (in millions) | | Liability balance, January 1, 2017 | | $ | 464 | | | $ | – | | | $ | 464 | | Charges | | | 250 | | | | 168 | | | | 418 | | Cash spent | | | (245 | ) | | | – | | | | (245 | ) | Non-cash settlements/adjustments | | | (6 | ) | | | (168 | ) | | | (174 | ) | Currency | | | 30 | | | | – | | | | 30 | | | | | | | | | | | | | | | Liability balance, September 30, 2017 | | $ | 493 | | | $ | – | | | $ | 493 | | | | | | | | | | | | | | |
We spent $83 million in the three months and $442$245 million in the nine months ended September 30, 2015 within asset impairment2017 and exit costs. The activity for the 2014-2018 Restructuring Program liability for the nine months ended September 30, 2016 was: | | | | | | | | | | | | | | | Severance | | | | | | | | | | and related | | | Asset | | | | | | | costs | | | Write-downs | | | Total | | | | (in millions) | | | | | | Liability balance, January 1, 2016 | | $ | 395 | | | $ | – | | | $ | 395 | | Charges | | | 246 | | | | 234 | | | | 480 | | Cash spent | | | (249 | ) | | | – | | | | (249 | ) | Non-cash settlements / adjustments | | | (10 | ) | | | (234 | ) | | | (244 | ) | Currency | | | 7 | | | | – | | | | 7 | | | | | | | | | | | | | | | Liability balance, September 30, 2016 | | $ | 389 | | | $ | – | | | $ | 389 | | | | | | | | | | | | | | |
We spent $89 million in the three months and $249 million in the nine months ended September 30, 2016 and $51 million in the three months and $156 million in the nine months ended September 30, 2015 in cash severance and related costs. We also recognized non-cash pension settlement losses (See Note 9,Benefit PlansPlans)), non-cash asset write-downs (including accelerated depreciation and asset impairments) and other non-cash adjustments oftotaling $48 million in the three months and $174 million in the nine months ended September 30, 2017 and $120 million in the three months and $244 million in the nine months ended September 30, 2016 and $56 million in the three months and $196 million in the nine months ended September 30, 2015.2016. At September 30, 2016, $3022017, $431 million of our net restructuring liability was recorded within other current liabilities and $87$62 million was recorded within other long-term liabilities.
Implementation Costs: Implementation costs are directly attributable to restructuring activities; however, they do not qualify for special accounting treatment as exit or disposal activities. We believe the disclosure of implementation costs provides readers of our financial statements with more information on the total costs of our 2014-2018 Restructuring Program. Implementation costs primarily relate to reorganizing our operations and facilities in connection with our supply chain reinvention program and other identified productivity and cost saving initiatives. The costs include incremental expenses related to the closure of facilities, costs to terminate certain contracts and the simplification of our information systems. Within our continuing results of operations, we recorded implementation costs of $62 million in the three months and $179 million in the nine months ended September 30, 2017 and $114 million in the three months and $286 million in the nine months ended September 30, 2016 and $75 million in the three months and $185 million in the nine months ended September 30, 2015.2016. We recorded these costs within cost of sales and general corporate expense within selling, general and administrative expenses. Restructuring and Implementation Costs in Operating Income: During the three and nine months ended September 30, 20162017 and 2015September 30, 2016, and since inception of the 2014-2018 Restructuring Program, we recorded restructuring and implementation costs within operating income by segment (as revised to reflect our current segment structure) as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Latin | | Asia | | | | | | North | | | | | | | Latin | | | | | | | | | North | | | | | | | | | America | | Pacific | | EEMEA | | Europe | | America (1) | | Corporate (2) | | Total | | | America | | | AMEA | | | Europe | | | America (1) | | | Corporate (2) | | | Total | | | | | (in millions) | | | For the Three Months Ended September 30, 2017 | | | | | | | | | | | | | | Restructuring Costs | | | $ | 45 | | | $ | 32 | | | $ | 30 | | | $ | 7 | | | $ | (1 | ) | | $ | 113 | | Implementation Costs | | | | 8 | | | | 11 | | | | 18 | | | | 13 | | | | 12 | | | | 62 | | | | | | | | | | | | | | | | | | | | | | Total | | | $ | 53 | | | $ | 43 | | | $ | 48 | | | $ | 20 | | | $ | 11 | | | $ | 175 | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, 2017 | | | | | | | | | | | | | | Restructuring Costs | | | $ | 76 | | | $ | 106 | | | $ | 149 | | | $ | 79 | | | $ | 8 | | | $ | 418 | | Implementation Costs | | | | 28 | | | | 30 | | | | 49 | | | | 38 | | | | 34 | | | | 179 | | | | | | | | | | | | | | | | | | | | | | Total | | | $ | 104 | | | $ | 136 | | | $ | 198 | | | $ | 117 | | | $ | 42 | | | $ | 597 | | | | | | | | | | (in millions) | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | Restructuring Costs | | $ | 27 | | | $ | 10 | | | $ | 6 | | | $ | 69 | | | $ | 75 | | | $ | – | | | $ | 187 | | | $ | 27 | | | $ | 9 | | | $ | 76 | | | $ | 75 | | | $ | – | | | $ | 187 | | Implementation Costs | | 15 | | | 7 | | | 2 | | | 45 | | | 30 | | | 15 | | | 114 | | | | 15 | | | | 9 | | | | 45 | | | | 30 | | | | 15 | | | | 114 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 42 | | | $ | 17 | | | $ | 8 | | | $ | 114 | | | $ | 105 | | | $ | 15 | | | $ | 301 | | | $ | 42 | | | $ | 18 | | | $ | 121 | | | $ | 105 | | | $ | 15 | | | $ | 301 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | Restructuring Costs | | $ | 71 | | | $ | 51 | | | $ | 37 | | | $ | 172 | | | $ | 144 | | | $ | 5 | | | $ | 480 | | | $ | 71 | | | $ | 72 | | | $ | 188 | | | $ | 144 | | | $ | 5 | | | $ | 480 | | Implementation Costs | | 34 | | | 18 | | | 13 | | | 74 | | | 101 | | | 46 | | | 286 | | | | 34 | | | | 27 | | | | 78 | | | | 101 | | | | 46 | | | | 286 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 105 | | | $ | 69 | | | $ | 50 | | | $ | 246 | | | $ | 245 | | | $ | 51 | | | $ | 766 | | | $ | 105 | | | $ | 99 | | | $ | 266 | | | $ | 245 | | | $ | 51 | | | $ | 766 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, 2015 | | | | | | | | | | | | | | | | Total Project 2014-2017(3) | | | | | | | | | | | | | | Restructuring Costs | | $ | 30 | | | $ | 33 | | | $ | 7 | | | $ | 35 | | | $ | 39 | | | $ | 2 | | | $ | 146 | | | $ | 413 | | | $ | 413 | | | $ | 798 | | | $ | 433 | | | $ | 60 | | | $ | 2,117 | | Implementation Costs | | 6 | | | 3 | | | 1 | | | 19 | | | 19 | | | 27 | | | 75 | | | | 137 | | | | 116 | | | | 253 | | | | 233 | | | | 209 | | | | 948 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 36 | | | $ | 36 | | | $ | 8 | | | $ | 54 | | | $ | 58 | | | $ | 29 | | | $ | 221 | | | $ | 550 | | | $ | 529 | | | $ | 1,051 | | | $ | 666 | | | $ | 269 | | | $ | 3,065 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, 2015 | | | | | | | | | | | | | | | | Restructuring Costs | | $ | 79 | | | $ | 78 | | | $ | 21 | | | $ | 190 | | | $ | 70 | | | $ | 4 | | | $ | 442 | | | Implementation Costs | | 27 | | | 12 | | | 7 | | | 47 | | | 40 | | | 52 | | | 185 | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 106 | | | $ | 90 | | | $ | 28 | | | $ | 237 | | | $ | 110 | | | $ | 56 | | | $ | 627 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Project 2014-2016(3) | | | | | | | | | | | | | | | | Restructuring Costs | | $ | 297 | | | $ | 199 | | | $ | 120 | | | $ | 491 | | | $ | 313 | | | $ | 45 | | | $ | 1,465 | | | Implementation Costs | | 89 | | | 47 | | | 28 | | | 184 | | | 177 | | | 159 | | | 684 | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 386 | | | $ | 246 | | | $ | 148 | | | $ | 675 | | | $ | 490 | | | $ | 204 | | | $ | 2,149 | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | During the nine months ended September 30,2017 and 2016, our North America region implementation costs included incremental costs that we incurred related to re-negotiating collective bargaining agreements that expired at the end of February 2016 for eight U.S. facilities and related to executing business continuity plans for the North America business. We expect to incur additional costs related to these activities in the fourth quarter of 2016. |
| (2) | Includes adjustment for rounding. |
| (3) | Includes all charges recorded since program inception on May 6, 2014 through September 30, 2016.2017. |
Note 7. Debt and Borrowing Arrangements Short-Term Borrowings: Our short-term borrowings and related weighted-average interest rates consisted of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of September 30, 2016 | | | As of December 31, 2015 | | | As of September 30, 2017 | | | As of December 31, 2016 | | | | Amount | | | Weighted- | | | Amount | | | Weighted- | | | Amount | | | Weighted- | | | Amount | | | Weighted- | | | | Outstanding | | | Average Rate | | | Outstanding | | | Average Rate | | | Outstanding | | | Average Rate | | | Outstanding | | | Average Rate | | | | (in millions) | | | | | | (in millions) | | | | | | (in millions) | | | | | | (in millions) | | | | | | Commercial paper | | $ | 2,175 | | | | 0.8% | | | $ | – | | | | 0.0% | | | $ | 4,370 | | | | 1.3% | | | $ | 2,371 | | | | 1.0% | | Bank loans | | | 315 | | | | 8.9% | | | | 236 | | | | 9.5% | | | | 181 | | | | 10.6% | | | | 160 | | | | 10.6% | | | | | | | | | | | | | | | | | | | | | | | Total short-term borrowings | | $ | 2,490 | | | | | $ | 236 | | | | | $ | 4,551 | | | | | $ | 2,531 | | | | | | | | | | | | | | | | | | | | | | | | |
As of September 30, 2016, the2017, commercial paper issued and outstanding had between 32 and 8866 days remaining to maturity. Bank loans includeCommercial paper borrowings onincreased since year-end primarily as a result of issuances to finance the payment of long-term debt maturities, dividend payments and share repurchases during the year. Some of our international subsidiaries maintain primarily uncommitted credit lines maintained by some of our international subsidiaries to meet short-term working capital needs. Collectively, these credit lines amounted to $1.9 billion at September 30, 2017 and $1.8 billion at December 31, 2016. Borrowings on these lines were $181 million at September 30, 2017 and $160 million at December 31, 2016. Borrowing Arrangements: On March 1, 2017, to supplement our commercial paper program, we entered into a $1.5 billion revolving credit agreement for a 364-day senior unsecured credit facility that is scheduled to expire on February 28, 2018. The agreement includes the same terms and conditions as our existing $4.5 billion multi-year credit facility discussed below. As of September 30, 2017, no amounts were drawn on the facility. We also maintain a $4.5 billion multi-year senior unsecured revolving credit facility for general corporate purposes, including working capital needs, and to support our commercial paper program. On October 14, 2016, the revolving credit agreement, which was scheduled to expire on October 11, 2018, was extended through October 11, 2021. The revolving credit agreement includes a covenant that we maintain a minimum shareholders’ equity of at least $24.6 billion, excluding accumulated other comprehensive earnings / earnings/(losses) and the cumulative effects of any changes in accounting principles. At September 30, 2016,2017, we complied with this covenant as our shareholders’ equity, as defined by the covenant, was $37.2$35.9 billion. The revolving credit facility agreement also contains customary representations, covenants and events of default. There are no credit rating triggers, provisions or other financial covenants that could require us to post collateral as security. As of September 30, 2016,2017, no amounts were drawn on the facility. Some of our international subsidiaries maintain primarily uncommitted credit lines to meet short-term working capital needs. Collectively, these credit lines amounted to $1.8 billion at September 30, 2016 and $1.9 billion at December 31, 2015. Borrowings on these lines amounted to $315 million at September 30, 2016 and $236 million at December 31, 2015.
Long-Term Debt: On October 17, 2016,April 12, 2017, we announced a cash tender offer to retire some of our long-term debt. We expect to complete the tender in the fourth quarter of 2016. We have not yet determined the notes to be retired and the full impact to our operating results. We expect to finance the repurchase of these notes, including the payment of accrued interest and other costs incurred, from net proceeds received from the $3.75 billion note issuance, expected to close on October 28, 2016, and the term loans, both described below. On October 19, 2016, Mondelez International Holdings Netherlands B.V. (“MIHN”), a wholly owned subsidiary of Mondelēz International, Inc., launched an offering of $3.75 billion of notes, guaranteed by Mondelēz International, Inc. The $1.75 billion of 1.625% notes and the $500 million of floating rate notes will mature on October 28, 2019 and the $1.5 billion of 2.0% notes will mature on October 28, 2021. On October 28, 2016, we expect to receive proceeds, net of discounts and associated financing costs, of $3.73 billion. Proceeds from the notes issuance will be used for general corporate purposes, including to grant loans or make distributions to Mondelēz International, Inc. or its subsidiaries to fund all or a portion of the October 2016 cash tender offer and near-term debt maturities. We expect to amortize deferred financing costs into interest expense over the life of the notes. We entered into cross-currency swaps, serving as cash flow hedges, so that the U.S. dollar-denominated debt payments will effectively be paid in euros over the life of the debt.
On October 14, 2016, MIHN executed a $1.5 billion bank term loan facility. The loan facility consists of two $750 million loans, one with a three-year maturity and the other with a five-year maturity. The term loans can be drawn at any time for 60 days after signing. On October 25, 2016, we gave notice of our intent to fully draw on the loan with a five-year maturity, and we expect funding to occur on October 28, 2016. Proceeds from the $750 million term loan may be used for general corporate purposes, including funding of the tender offer or other debt. On October 25, 2016, we also gave notice of our intent to terminate the $750 million loan with the three-year maturity.
On February 9, 2016, $1,750discharged $488 million of our 4.125%6.500% U.S. dollardollar-denominated debt. We paid $504 million, representing principal as well as past and future interest accruals from February 2017 through the August 2017 maturity date. We recorded an $11 million loss on debt extinguishment within interest expense and a $5 million reduction in accrued interest.
On March 30, 2017,fr.175 million of our 0.000% Swiss franc-denominated notes matured. The notes and accrued interest to date were paid with net proceeds from thefr.400.350 million Swiss franc-denominated notes issued on January 26, 2016 and the€700 million euro-denominated notes issued on January 21, 2016, as well as cash on hand and the issuance of commercial paper. As we refinanced $1,150 million of the matured notes with net proceeds from the long-term debt issued in January 2016, we reflected this amount within long-term debt as of December 31, 2015.March 13, 2017. On January 26, 2016,March 13, 2017, we issuedlaunched an offering offr.400.350 million of Swiss franc-denominated notes, or $399$349 million in U.S. dollars locked in with a forward currency contract on January 12, 2016,as of March 31, 2017, consisting of: | • | | fr.250.225 million (or $249$224 million) of 0.080%0.050% fixed rate notes that mature on January 26, 2018March 30, 2020 |
| • | | fr.150.125 million (or $150$125 million) of 0.650%0.617% fixed rate notes that mature on July 26, 2022September 30, 2024 |
WeOn March 30, 2017, we received net proceeds net of premiums and deferred financing costs, of $398fr.349 million (or $349 million) that were used to partially fund the February 2016 note maturity and for other general corporate purposes. We recorded approximately $1 million of premiums and deferred financing costs, which will be amortized into interest expense over the life of the notes.
On January 21, 2016, we issued26, 2017,€700750 million of euro-denominated 1.625% notes, or $760 million in U.S. dollars locked in with a forward currency contract on January 13, 2016. Theour 1.125% euro-denominated notes will maturematured. The notes and accrued interest to date were paid with the issuance of commercial paper and cash on January 20, 2023. We received proceeds, net of discounts and deferred financing costs, of $752 million that were used to partially fund the February 2016 note maturity and for other general corporate purposes. We recorded approximately $8 million of discounts and deferred financing costs, which will be amortized into interest expense over the life of the notes.hand. Our weighted-average interest rate on our total debt was 3.1%2.0% as of September 30, 2017 and 2.2% as of December 31, 2016, following the refinancing of the February 9, 2016 debt maturity. Our weighted-average interest rate on our total debt wasdown from 3.7% as of December 31, 2015, down from 4.3% as of December 31, 2014.2015. Fair Value of Our Debt: The fair value of our short-term borrowings at September 30, 20162017 and December 31, 20152016 reflects current market interest rates and approximates the amounts we have recorded on our condensed consolidated balance sheet.sheets. The fair value of our long-term debt was determined using quoted prices in active markets (Level 1 valuation data) for the publicly traded debt obligations. At September 30, 2017, the aggregate fair value of our total debt was $19,367 million and its carrying value was $18,633 million. At December 31, 2016, the aggregate fair value of our total debt was $18,616$17,882 million and its carrying value was $17,106 million. At December 31, 2015, the aggregate fair value of our total debt was $15,908 million and its carrying value was $15,398$17,199 million. Interest and Other Expense, net: Interest and other expense, net within our results of continuing operations consisted of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | For the Three Months Ended | | | For the Nine Months Ended | | | | September 30, | | | September 30, | | | September 30, | | | September 30, | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | (in millions) | | | (in millions) | | | Interest expense, debt | | $ | 129 | | | $ | 139 | | | $ | 400 | | | $ | 461 | | | $ | 89 | | | $ | 129 | | | $ | 295 | | | $ | 400 | | Loss on debt extinguishment and related expenses | | | – | | | | – | | | | – | | | | 713 | | | JDE coffee business transactions currency-related net gain | | | – | | | | (29 | ) | | | – | | | | (436 | ) | | Loss on debt extinguishment | | | | – | | | | – | | | | 11 | | | | – | | Loss related to interest rate swaps | | | – | | | | – | | | | 97 | | | | 34 | | | | – | | | | – | | | | – | | | | 97 | | Other expense, net | | | 16 | | | | 4 | | | | 43 | | | | 42 | | | Other (income)/expense, net | | | | (70 | ) | | | 16 | | | | (44 | ) | | | 43 | | | | | | | | | | | | | | | | | | | | | | | | | | | Interest and other expense, net | | $ | 145 | | | $ | 114 | | | $ | 540 | | | $ | 814 | | | $ | 19 | | | $ | 145 | | | $ | 262 | | | $ | 540 | | | | | | | | | | | | | | | | | | | | | | | | | | |
See Note 2,Divestitures and Acquisitions, and Note 8,Financial Instruments,for information on the currency exchange forward contracts associated with the JDE coffee business transactions. Also see Note 8,Financial Instruments, for information on the loss related to U.S. dollar interest rate swaps no longer designated as accounting cash flow hedges during the first quartersquarter of 20162016. See Note 11,Commitments and 2015.Contingencies, for information on the $59 million of other income recorded in connection with the resolution of a Brazilian indirect tax matter and the reversal of related accrued interest. Note 8. Financial Instruments Fair Value of Derivative Instruments: Derivative instruments were recorded at fair value in the condensed consolidated balance sheets as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of September 30, 2016 | | | As of December 31, 2015 | | | As of September 30, 2017 | | | As of December 31, 2016 | | | | Asset | | | Liability | | | Asset | | | Liability | | | Asset | | | Liability | | | Asset | | | Liability | | | | Derivatives | | | Derivatives | | | Derivatives | | | Derivatives | | | Derivatives | | | Derivatives | | | Derivatives | | | Derivatives | | | | (in millions) | | | (in millions) | | | Derivatives designated as accounting hedges: | | | | | | | | | | | | | | | | | Currency exchange contracts | | $ | 4 | | | $ | 8 | | | $ | 20 | | | $ | 7 | | | $ | – | | | $ | 2 | | | $ | 19 | | | $ | 8 | | Commodity contracts | | | 38 | | | | 16 | | | | 37 | | | | 35 | | | | 1 | | | | – | | | | 17 | | | | 22 | | Interest rate contracts | | | 10 | | | | 16 | | | | 12 | | | | 57 | | | | 33 | | | | 421 | | | | 108 | | | | 19 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 52 | | | $ | 40 | | | $ | 69 | | | $ | 99 | | | $ | 34 | | | $ | 423 | | | $ | 144 | | | $ | 49 | | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivatives not designated as accounting hedges: | | | | | | | | | | | | | | | | | Currency exchange contracts | | $ | 14 | | | $ | 57 | | | $ | 61 | | | $ | 33 | | | $ | 70 | | | $ | 45 | | | $ | 29 | | | $ | 43 | | Commodity contracts | | | 52 | | | | 47 | | | | 70 | | | | 56 | | | | 35 | | | | 169 | | | | 112 | | | | 167 | | Interest rate contracts | | | 29 | | | | 20 | | | | 43 | | | | 28 | | | | 15 | | | | 10 | | | | 27 | | | | 19 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 95 | | | $ | 124 | | | $ | 174 | | | $ | 117 | | | $ | 120 | | | $ | 224 | | | $ | 168 | | | $ | 229 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total fair value | | $ | 147 | | | $ | 164 | | | $ | 243 | | | $ | 216 | | | $ | 154 | | | $ | 647 | | | $ | 312 | | | $ | 278 | | | | | | | | | | | | | | | | | | | | | | | | | | |
During the first nine months of 2016 and 2015, derivativesDerivatives designated as accounting hedges include cash flow and fair value hedges and derivatives not designated as accounting hedges include economic hedges. Non-U.S. dollar denominated debt, designated as a hedge of our net investments in non-U.S. operations, is not reflected in the table above, but is included in long-term debt summarized in Note 7,Debt and Borrowing Arrangements. We record derivative assets and liabilities on a gross basis inon our condensed consolidated balance sheet.sheets. The fair value of our asset derivatives is recorded within other current assets and the fair value of our liability derivatives is recorded within other current liabilities.
The fair values (asset / (asset/(liability)) of our derivative instruments were determined using: | | | | | | | | | | | | | | | | | | | | As of September 30, 2016 | | | | | | | | Quoted Prices in | | | | | | | | | | | | | | Active Markets | | | Significant | | | Significant | | | | | Total | | | for Identical | | | Other Observable | | | Unobservable | | | | | | | | | | | | | | | | | | | | Fair Value of Net | | | Assets | | | Inputs | | | Inputs | | | As of September 30, 2017 | | | | Asset / (Liability) | | | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total Fair Value of Net Asset/(Liability) | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | | (in millions) | | | (in millions) | | | Currency exchange contracts | | $ | (47 | ) | | $ | – | | | $ | (47 | ) | | $ | – | | | $ | 23 | | | $ | – | | | $ | 23 | | | $ | – | | Commodity contracts | | | 27 | | | | 17 | | | | 10 | | | | – | | | | (133 | ) | | | (133 | ) | | | – | | | | – | | Interest rate contracts | | | 3 | | | | – | | | | 3 | | | | – | | | | (383 | ) | | | – | | | | (383 | ) | | | – | | | | | | | | | | | | | | | | | | | | | | | | | | | Total derivatives | | $ | (17 | ) | | $ | 17 | | | $ | (34 | ) | | $ | – | | | $ | (493 | ) | | $ | (133 | ) | | $ | (360 | ) | | $ | – | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | As of December 31, 2015 | | | | | | | | Quoted Prices in | | | | | | | | | | | | | | Active Markets | | | Significant | | | Significant | | | | | Total | | | for Identical | | | Other Observable | | | Unobservable | | | | | Fair Value of Net | | | Assets | | | Inputs | | | Inputs | | | | | Asset / (Liability) | | | (Level 1) | | | (Level 2) | | | (Level 3) | | | | | (in millions) | | | | Currency exchange contracts | | $ | 41 | | | $ | – | | | $ | 41 | | | $ | – | | | Commodity contracts | | | 16 | | | | 29 | | | | (13 | ) | | | – | | | Interest rate contracts | | | (30 | ) | | | – | | | | (30 | ) | | | – | | | | | | | | | | | | | | | | | Total derivatives | | $ | 27 | | | $ | 29 | | | $ | (2 | ) | | $ | – | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | As of December 31, 2016 | | | | Total Fair Value of Net Asset/(Liability) | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | | (in millions) | | | | | | | Currency exchange contracts | | $ | (3 | ) | | $ | – | | | $ | (3 | ) | | $ | – | | Commodity contracts | | | (60 | ) | | | (86 | ) | | | 26 | | | | – | | Interest rate contracts | | | 97 | | | | – | | | | 97 | | | | – | | | | | | | | | | | | | | | | | | | Total derivatives | | $ | 34 | | | $ | (86 | ) | | $ | 120 | | | $ | – | | | | | | | | | | | | | | | | | | |
Level 1 financial assets and liabilities consist of exchange-traded commodity futures and listed options. The fair value of these instruments is determined based on quoted market prices on commodity exchanges. Our exchange-traded derivatives are generally subject to master netting arrangements that permit net settlement of transactions with the same counterparty when certain criteria are met, such as in the event of default. We also are required to maintain cash margin accounts in connection with funding the settlement of our open positions, and the margin requirements generally fluctuate daily based on market conditions. We have recorded margin deposits related to our exchange-traded derivatives of $16$198 million as of September 30, 20162017 and margin deposits of $22$133 million as of December 31, 20152016 within other current assets. Based on our net asset or liability positions with individual counterparties, in the event of default and immediate net settlement of all of our open positions, for derivatives we have in a net asset position, our counterparties would owe us a total of $32$65 million as of September 30, 20162017 and $52$48 million as of December 31, 2015. For derivatives2016. As of September 30, 2017, we have no derivatives in a net liability position, we would owe less than $1 millionand as of September 30, 2016. As of December 31, 2015, there were no Level 12016 we would have owed $2 million for derivatives in a net liability position. Level 2 financial assets and liabilities consist primarily of over-the-counter (“OTC”) currency exchange forwards, options and swaps; commodity forwards and options; and interest rate swaps. Our currency exchange contracts are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Commodity derivatives are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount or based on pricing models that rely on market observable inputs such as commodity prices. Our calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the observable market interest rate curve. Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including counterparty credit risk. Our OTC derivative transactions are governed by International Swap Dealers Association agreements and other standard industry contracts. Under these agreements, we do not post nor require collateral from our counterparties. The majority of our commodity and currency exchange OTC derivatives do not have a legal right of set-off. In connection with our OTC derivatives that could be net-settled in the event of default, assuming all parties were to fail to comply with the terms of the agreements, for derivatives we have in a net liability position, we would owe $36$409 million as of September 30, 20162017 and $101$40 million as of December 31, 2015,2016, and for derivatives we have in a net asset position, our counterparties would owe us a total of $54$25 million as of September 30, 20162017 and $64$162 million as of December 31, 2015.2016. We manage the credit risk in connection with these and all our derivatives by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure with each counterparty and monitoring the financial condition of our counterparties. Derivative Volume: The net notional values of our derivative instruments were: | | | | | | | | | | | | Notional Amount | | | | | | | | | | | | As of September 30, | | | As of December 31, | | | Notional Amount | | | | 2016 | | | 2015 | | | As of September 30, 2017 | | | As of December 31, 2016 | | | | (in millions) | | | (in millions) | | | Currency exchange contracts: | | | | | | | | | Intercompany loans and forecasted interest payments | | $ | 3,211 | | | $ | 4,148 | | | $ | 3,649 | | | $ | 3,343 | | Forecasted transactions | | | 1,318 | | | | 1,094 | | | | 2,066 | | | | 1,452 | | Commodity contracts | | | 654 | | | | 732 | | | | 1,137 | | | | 837 | | Interest rate contracts | | | 2,050 | | | | 3,033 | | | | 6,517 | | | | 6,365 | | Net investment hedge – euro notes | | | 5,280 | | | | 4,345 | | | | 3,975 | | | | 4,012 | | Net investment hedge – pound sterling notes | | | 1,236 | | | | 1,404 | | | | 454 | | | | 419 | | Net investment hedge – Swiss franc notes | | | 1,518 | | | | 1,073 | | | | 1,704 | | | | 1,447 | |
Cash Flow Hedges: Cash flow hedge activity, net of taxes, within accumulated other comprehensive earnings / earnings/(losses) included: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | | September 30, | | | September 30, | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | (in millions) | | | | (in millions) | | | Accumulated gain / (loss) at beginning of period | | $ | (36 | ) | | $ | (53 | ) | | $ | (45 | ) | | $ | (2 | ) | | Transfer of realized losses / (gains) in fair value to earnings | | | (2 | ) | | | 60 | | | | 64 | | | | 6 | | | Unrealized gain / (loss) in fair value | | | 4 | | | | (69 | ) | | | (53 | ) | | | (66 | ) | | Accumulated (loss)/gain at beginning of period | | | $ | (91 | ) | | $ | (36 | ) | | $ | (121 | ) | | $ | (45 | ) | Transfer of realized (gains)/losses in fair value to earnings | | | | (13 | ) | | | (2 | ) | | | (10 | ) | | | 64 | | Unrealized gain/(loss) in fair value | | | | (6 | ) | | | 4 | | | | 21 | | | | (53 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated gain / (loss) at end of period | | $ | (34 | ) | | $ | (62 | ) | | $ | (34 | ) | | $ | (62 | ) | | Accumulated (loss)/gain at end of period | | | $ | (110 | ) | | $ | (34 | ) | | $ | (110 | ) | | $ | (34 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | After-tax gains / (losses) reclassified from accumulated other comprehensive earnings / (losses) into net earnings were: | | | After-tax gains/(losses) reclassified from accumulated other comprehensive earnings/(losses) into net earnings were: | | After-tax gains/(losses) reclassified from accumulated other comprehensive earnings/(losses) into net earnings were: | | | | For the Three Months Ended | | | For the Nine Months Ended | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | | September 30, | | | September 30, | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | (in millions) | | | | (in millions) | | | Currency exchange contracts – forecasted transactions | | $ | (6 | ) | | $ | (11 | ) | | $ | (3 | ) | | $ | 73 | | | $ | (3 | ) | | $ | (6 | ) | | $ | (2 | ) | | $ | (3 | ) | Commodity contracts | | | 8 | | | | (49 | ) | | | (1 | ) | | | (53 | ) | | | 16 | | | | 8 | | | | 12 | | | | (1 | ) | Interest rate contracts | | | – | | | | – | | | | (60 | ) | | | (26 | ) | | | – | | | | – | | | | – | | | | (60 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 2 | | | $ | (60 | ) | | $ | (64 | ) | | $ | (6 | ) | | $ | 13 | | | $ | 2 | | | $ | 10 | | | $ | (64 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | After-tax gains / (losses) recognized in other comprehensive earnings / (losses) were: | | | After-tax gains/(losses) recognized in other comprehensive earnings/(losses) were: | | After-tax gains/(losses) recognized in other comprehensive earnings/(losses) were: | | | | For the Three Months Ended | | | For the Nine Months Ended | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | | September 30, | | | September 30, | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | (in millions) | | | | (in millions) | | | Currency exchange contracts – forecasted transactions | | $ | (11 | ) | | $ | 8 | | | $ | (21 | ) | | $ | 33 | | | $ | (11 | ) | | $ | (11 | ) | | $ | (37 | ) | | $ | (21 | ) | Commodity contracts | | | 10 | | | | (38 | ) | | | 19 | | | | (61 | ) | | | 25 | | | | 10 | | | | 31 | | | | 19 | | Interest rate contracts | | | 5 | | | | (39 | ) | | | (51 | ) | | | (38 | ) | | | (20 | ) | | | 5 | | | | 27 | | | | (51 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | 4 | | | $ | (69 | ) | | $ | (53 | ) | | $ | (66 | ) | | $ | (6 | ) | | $ | 4 | | | $ | 21 | | | $ | (53 | ) | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash flow hedge ineffectiveness was not material for all periods presented. Within interest and other expense, net, we recorded pre-tax losses of $97 million in the first quarter of 2016 and $34 million in the first quarter of 2015 related to amounts excluded from effectiveness testing. These amounts relateThis amount relates to interest rate swaps no longer designated as cash flow hedges due to changes in financing plans. Due to lower overall costs and our decision to hedge a greater portion of our net investments in operations that use currencies other than the U.S. dollar as their functional currencies, we changed our plans to issue U.S. dollar-denominated debt changed and we instead issued euro and Swiss franc-denominated notes in the current year first quarter and euro, British pound sterling and Swiss franc-denominated notes in the prior-year first quarter.of 2016. Amounts excluded from effectiveness testing were not material for the third quarter of 2016 and 2015.all other periods presented. We record pre-tax and after-tax (i) gains or losses reclassified from accumulated other comprehensive earnings / earnings/(losses) into earnings, (ii) gains or losses on ineffectiveness and (iii) gains or losses on amounts excluded from effectiveness testing in: cost of sales for commodity contracts; cost of sales for currency exchange contracts related to forecasted transactions; and interest and other expense, net for interest rate contracts and currency exchange contracts related to intercompany loans. Based on current market conditions, we would expect to transfer unrealized gainslosses of $11 million (net of taxes) for commodity cash flow hedges, unrealized losses of $11$2 million (net of taxes) for currency cash flow hedges and unrealized losses of less than $1 million (net of taxes) for interest rate cash flow hedges to earnings during the next 12 months. Cash Flow Hedge Coverage: As of September 30, 2016,2017, we hedged transactions forecasted to impact cash flows over the following periods: commodity transactions for periods not exceeding the next 153 months; interest rate transactions for periods not exceeding the next 76 years and 2 months;1 month; and currency exchange transactions for periods not exceeding the next 153 months. Fair Value Hedges: Pre-tax gains / gains/(losses) due to changes in fair value of our interest rate swaps and related hedged long-term debt were recorded in interest and other expense, net: | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | | | | September 30, | | | September 30, | | | | | | | | | | | | | | | | | | | | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | | | (in millions) | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | | (in millions) | | Derivatives | | $ | (11 | ) | | $ | 4 | | | $ | (2 | ) | | $ | 8 | | | | $ | (2 | ) | | $ | (11 | ) | | $ | (4 | ) | | $ | (2 | ) | | Borrowings | | | 11 | | | | (4 | ) | | | 2 | | | | (8 | ) | | | | | 2 | | | | 11 | | | | 4 | | | | 2 | | | | Fair value hedge ineffectiveness and amounts excluded from effectiveness testing were not material for all periods presented. Economic Hedges: Pre-tax gains / (losses) recorded in net earnings for economic hedges were: | | | | | | | | | | | | | | | | | Location of | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | Gain / (Loss) | | | | | September 30, | | | September 30, | | | Recognized | | | Fair value hedge ineffectiveness and amounts excluded from effectiveness testing were not material for all periods presented. Economic Hedges: Pre-tax gains/(losses) recorded in net earnings for economic hedges were: | | Fair value hedge ineffectiveness and amounts excluded from effectiveness testing were not material for all periods presented. Economic Hedges: Pre-tax gains/(losses) recorded in net earnings for economic hedges were: | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | in Earnings | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | Location of Gain/(Loss) Recognized in Earnings | | | (in millions) | | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | | | | (in millions) | | Currency exchange contracts: | | | | | | | | | | | | | | | | | | | | | Intercompany loans and forecasted interest payments | | $ | 7 | | | $ | 8 | | | $ | 18 | | | $ | 22 | | | | Interest and other expense, net | | | $ | (13 | ) | | $ | 7 | | | $ | (8 | ) | | $ | 18 | | | Interest and other expense, net | Forecasted transactions | | | (14 | ) | | | 43 | | | | (91 | ) | | | 33 | | | | Cost of sales | | | | (1 | ) | | | (14 | ) | | | – | | | | (91 | ) | | Cost of sales | Forecasted transactions | | | 2 | | | | 36 | | | | 10 | | | | 437 | | | | Interest and other expense, net | | | | 1 | | | | 2 | | | | (1 | ) | | | 10 | | | Interest and other expense, net | Forecasted transactions | | | 4 | | | | 5 | | | | 16 | | | | (11 | ) | | | Selling, general and administrative expenses | | | | – | | | | 4 | | | | 2 | | | | 16 | | | Selling, general and administrative expenses | Interest rate contracts | | | – | | | | – | | | | – | | | | – | | | | Interest and other expense, net | | | Commodity contracts | | | (13 | ) | | | (99 | ) | | | (26 | ) | | | (158 | ) | | | Cost of sales | | | | (17 | ) | | | (13 | ) | | | (176 | ) | | | (26 | ) | | Cost of sales | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | $ | (14 | ) | | $ | (7 | ) | | $ | (73 | ) | | $ | 323 | | | | | $ | (30 | ) | | $ | (14 | ) | | $ | (183 | ) | | $ | (73 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | In connection with the JDE coffee business transactions, we entered into a number of consecutive euro to U.S. dollar currency exchange forward contracts in 2015 to lock in an equivalent expected value in U.S. dollars. The mark-to-market gains and losses on the derivatives were recorded in earnings. We recorded net gains of $29 million for the three months and $436 million for the nine months ended September 30, 2015 within interest and other expense, net in connection with the forward contracts and the transferring of proceeds to our subsidiaries where coffee net assets and shares were deconsolidated. The currency hedge and related gains and losses were recorded within interest and other expense, net. See Note 2,Divestitures and Acquisitions — JDE Coffee Business Transactions, for additional information. Hedges of Net Investments in International Operations: After-tax gains / (losses) related to hedges of net investments in international operations in the form of euro, pound sterling and Swiss franc-denominated debt were: | | | | | | | | | | | Location of | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | Gain / (Loss) | | | | | September 30, | | | September 30, | | | Recognized in | | | Hedges of Net Investments in International Operations: After-tax gains/(losses) related to hedges of net investments in international operations in the form of euro, pound sterling and Swiss franc-denominated debt were: | | Hedges of Net Investments in International Operations: After-tax gains/(losses) related to hedges of net investments in international operations in the form of euro, pound sterling and Swiss franc-denominated debt were: | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | AOCI | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | Location of Gain/(Loss) Recognized in AOCI | | | (in millions) | | | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | | | | (in millions) | | Euro notes | | $ | (38 | ) | | $ | (8 | ) | | $ | (110 | ) | | $ | 188 | | | | Currency | | | $ | (83 | ) | | $ | (38 | ) | | $ | (279 | ) | | $ | (110 | ) | | Currency | Pound sterling notes | | | 21 | | | | 30 | | | | 107 | | | | 17 | | | | Translation | | | | (8 | ) | | | 21 | | | | (23 | ) | | | 107 | | | Translation | Swiss franc notes | | | (4 | ) | | | 18 | | | | (33 | ) | | | (13 | ) | | | Adjustment | | | | 12 | | | | (4 | ) | | | (53 | ) | | | (33 | ) | | Adjustment |
Note 9. Benefit Plans Pension Plans Components of Net Periodic Pension Cost: Net periodic pension cost consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Plans | | Non-U.S. Plans | | | | | For the Three Months Ended September 30, | | For the Three Months Ended September 30, | | | | | 2017 | | 2016 | | 2017 | | 2016 | | | | | (in millions) | | Service cost | | | $ | 12 | | | $ | 15 | | | $ | 40 | | | $ | 37 | | Interest cost | | | | 16 | | | 15 | | | 51 | | | 57 | | Expected return on plan assets | | | | (25 | ) | | (24 | ) | | (110 | ) | | (105 | ) | Amortization: | | | | | | | | | | Net loss from experience differences | | | | 10 | | | 12 | | | 43 | | | 31 | | Prior service credit | | | | – | | | | – | | | (1 | ) | | | – | | Settlement losses and other expenses | | | | 6 | | | 9 | | | | – | | | | – | | | | | | | | | | | | | | | | Net periodic pension cost | | | $ | 19 | | | $ | 27 | | | $ | 23 | | | $ | 20 | | | | U.S. Plans | | | Non-U.S. Plans | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Three Months Ended | | | | | September 30, | | | September 30, | | | U.S. Plans | | Non-U.S. Plans | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | For the Nine Months Ended September 30, | | For the Nine Months Ended September 30, | | | | (in millions) | | | 2017 | | 2016 | | 2017 | | 2016 | | | | | | | | | | | | | | | | (in millions) | | Service cost | | $ | 15 | | | $ | 16 | | | $ | 37 | | | $ | 44 | | | $ | 34 | | | $ | 42 | | | $ | 117 | | | $ | 114 | | Interest cost | | | 15 | | | | 16 | | | | 57 | | | | 77 | | | | 47 | | | 46 | | | 148 | | | 179 | | Expected return on plan assets | | | (24 | ) | | | (23 | ) | | | (105 | ) | | | (120 | ) | | | (75 | ) | | (72 | ) | | (322 | ) | | (326 | ) | Amortization: | | | | | | | | | | | | | | | | | Net loss from experience differences | | | 12 | | | | 11 | | | | 31 | | | | 33 | | | | 27 | | | 30 | | | 124 | | | 93 | | Prior service cost / (credit) | | | – | | | | – | | | | – | | | | – | | | Settlement losses and other expenses | | | 9 | | | | 2 | | | | – | | | | – | | | Prior service cost/(credit) | | | | 1 | | | 1 | | | (2 | ) | | (2 | ) | Settlement losses/(gains) and other expenses | | | | 27 | | | 25 | | | 2 | | | (1 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Net periodic pension cost | | $ | 27 | | | $ | 22 | | | $ | 20 | | | $ | 34 | | | $ | 61 | | | $ | 72 | | | $ | 67 | | | $ | 57 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. Plans | | | Non-U.S. Plans | | | | | For the Nine Months Ended | | | For the Nine Months Ended | | | | | September 30, | | | September 30, | | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | | | (in millions) | | | | | | | | | | | | | | | | | Service cost | | $ | 42 | | | $ | 48 | | | $ | 114 | | | $ | 145 | | | Interest cost | | | 46 | | | | 50 | | | | 179 | | | | 231 | | | Expected return on plan assets | | | (72 | ) | | | (70 | ) | | | (326 | ) | | | (358 | ) | | Amortization: | | | | | | | | | | Net loss from experience differences | | | 30 | | | | 33 | | | | 93 | | | | 110 | | | Prior service cost / (credit) | | | 1 | | | | 1 | | | | (2 | ) | | | 16 | | | Settlement losses / (gains) and other expenses | | | 25 | | | | 15 | | | | (1 | ) | | | – | | | | | | | | | | | | | | | | | Net periodic pension cost | | $ | 72 | | | $ | 77 | | | $ | 57 | | | $ | 144 | | | | | | | | | | | | | | | | |
Net periodic pension cost decreased in the nine months ended September 30, 2016 due to a combinationWithin settlement losses/(gains) and other expenses are losses of factors, including a decreased number of plan participants, changes in discount rates, company contributions to the plans and a change in our approach to measuring service and interest costs. For 2015, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. For 2016, we have elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. The impact of this change was a decrease in net periodic pension cost of approximately $16$1 million for the three months and $48$12 million for the nine months ended September 30, 2016. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate2017 and accordingly, have accounted for it on a prospective basis.
Net pension costs of our non-U.S. plans in the three and nine months ended September 30, 2016 were also favorably impacted by the reduction in our pension plan obligations due to the JDE coffee business transactions. Prior to the July 2, 2015 closing of the JDE coffee business transactions, certain active employees who transitioned to JDE participated in our non-U.S. pension plans. Following the transactions, benefits began to be provided directly by JDE to participants continuing with JDE. JDE assumed certain pension plan obligations and received the related plan assets. In 2015, we reduced our net benefit plan liabilities by $131 million and the related deferred tax assets by $24 million. Prior to the transactions, for the nine months ended September 30, 2015, amortization of prior service cost includes $17 million of pension curtailment losses related to employees who subsequently transitioned to JDE. Refer to Note 2,Divestitures and Acquisitions – JDE Coffee Business Transactions, for more information. For participants that elected not to transfer into the JDE plans, we retained the plan obligations and related plan assets.
Settlement losses also include pension settlement losses for employees who elected lump-sum payments in connection with our 2014-2018 Restructuring Program. These settlement losses were $3 million for the three months and $12 million for the nine months ended September 30, 2016, and $1 million for the three months and $7 million for the nine months ended September 30, 2015. See Note 6,that are related to our 2014-2018 Restructuring Program, for more information. We also and are recorded an additional $49 millionwithin asset impairment and exit costs on our condensed consolidated statements of pension settlement losses in the nine months ended September 30, 2015 related to the JDE coffee business transactions within the gain on the JDE coffee business transactions.earnings.
Employer Contributions: During the nine months ended September 30, 2016,2017, we contributed $169$19 million (of which, $150 million was voluntarily contributed) to our U.S. pension plans and $329$408 million (of which, $100 million wasto our non-U.S. pension plans. The non-U.S. amount included a non-recurring $250 million contribution related to merging our and legacy Cadbury plansmade in connection with a new funding agreement for a Company plan in the U.K.) We make contributions to our non-U.S. plans. pension plans in accordance with local funding arrangements and statutory minimum funding requirements. Discretionary contributions are made to the extent that they are tax deductible and do not generate an excise tax liability. As of September 30, 2016,2017, we plan to make further contributions of approximately $6$7 million to our U.S. plans and approximately $50$47 million to our non-U.S. plans during the remainder of 2016. However, our2017. Our actual contributions may differbe different due to many factors, including changes in tax and other benefit laws, or significant differences between expected and actual pension asset performance or interest rates. Postretirement Benefit Plans Net periodic postretirement health care costs consisted of the following: | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | September 30, | | | September 30, | | | | | | | | | | | | | | | | | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | | (in millions) | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | | | | | | | | | | | | | (in millions) | | Service cost | | $ | 3 | | | $ | 4 | | | $ | 9 | | | $ | 11 | | | $ | 1 | | | $ | 3 | | | $ | 5 | | | $ | 9 | | Interest cost | | | 6 | | | | 5 | | | | 16 | | | | 17 | | | | 4 | | | | 6 | | | | 11 | | | | 16 | | Amortization: | | | | | | | | | | | | | | | | | Net loss from experience differences | | | 2 | | | | 3 | | | | 5 | | | | 10 | | | | 4 | | | | 2 | | | | 11 | | | | 5 | | Prior service credit(1) | | | (11 | ) | | | (1 | ) | | | (14 | ) | | | (5 | ) | | | (10 | ) | | | (11 | ) | | | (30 | ) | | | (14 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Net periodic postretirement health care costs | | $ | – | | | $ | 11 | | | $ | 16 | | | $ | 33 | | | Net periodic postretirement health care (credits)/costs | | | $ | (1 | ) | | $ | – | | | $ | (3 | ) | | $ | 16 | | | | | | | | | | | | | | | | | | | | | | | | | | | (1) For the three and nine months ended September 30, 2016, amortization of prior service credit includes $8 million of curtailment gain related to a change in the eligibility requirement. Net periodic postretirement health care costs decreased in the three and nine months ended September 30, 2016 due to a combination of factors, including a decreased number of plan participants, changes in discount rates, company contributions to the plans and a change in our approach to measuring service and interest costs. For 2015, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. For 2016, we elected to measure service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. We believe the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. The impact of this change was a decrease in net periodic postretirement health care costs of approximately $1 million for the three months and $3 million for the nine months ended September 30, 2016. This change does not affect the measurement of our plan obligations. We have accounted for this change as a change in accounting estimate and, accordingly, have accounted for it on a prospective basis. Postemployment Benefit Plans Net periodic postemployment costs consisted of the following: | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | September 30, | | | September 30, | | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | | | (in millions) | | | | | | | | | | | | | | | | | Service cost | | $ | 2 | | | $ | 2 | | | $ | 5 | | | $ | 5 | | | Interest cost | | | 1 | | | | 1 | | | | 4 | | | | 4 | | | | | | | | | | | | | | | | | Net periodic postemployment costs | | $ | 3 | | | $ | 3 | | | $ | 9 | | | $ | 9 | | | | | | | | | | | | | | | | |
| (1) | For the three and nine months ended September 30, 2017, amortization of prior service credit includes an $8 million and $24 million gain respectively, related to a change in the eligibility requirement and a change in benefits to Medicare-eligible participants. |
Postemployment Benefit Plans Net periodic postemployment costs consisted of the following: | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | (in millions) | | Service cost | | $ | 1 | | | $ | 2 | | | $ | 4 | | | $ | 5 | | Interest cost | | | 1 | | | | 1 | | | | 3 | | | | 4 | | Amortization of net gains | | | (1 | ) | | | – | | | | (3 | ) | | | – | | | | | | | | | | | | | | | | | | | Net periodic postemployment costs | | $ | 1 | | | $ | 3 | | | $ | 4 | | | $ | 9 | | | | | | | | | | | | | | | | | | |
Note 10. Stock Plans Stock Options: Stock option activity is reflected below: | | | | | | | | | | | | | | | | | | | Shares Subject to Option | | | Weighted- Average Exercise or Grant Price Per Share | | | Average Remaining Contractual Term | | | Aggregate Intrinsic Value | | | | | | | Balance at January 1, 2017 | | | 53,601,612 | | | $ | 28.02 | | | | 6 years | | | $ | 874 million | | | | | | | | | | | | | | | | | | | Annual grant to eligible employees | | | 6,012,140 | | | | 43.20 | | | | | | | | | | Additional options issued | | | 29,300 | | | | 44.49 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total options granted | | | 6,041,440 | | | | 43.21 | | | | | | | | | | Options exercised(1) | | | (7,837,372 | ) | | | 26.49 | | | | | | | $ | 142 million | | Options cancelled | | | (1,536,249 | ) | | | 38.96 | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at September 30, 2017 | | | 50,269,431 | | | | 29.75 | | | | 6 years | | | $ | 563 million | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | Weighted- | | | | | | | | | | | | | Average | | | Average | | | | | | | | | | Exercise or | | | Remaining | | | Aggregate | | | | Shares Subject | | | Grant Price | | | Contractual | | | Intrinsic | | | | to Option | | | Per Share | | | Term | | | Value | | | | | | | Balance at January 1, 2016 | | | 57,034,108 | | | $ | 26.12 | | | | 6 years | | | $ | 229 million | | | | | | | | | | | | | | | | | | | Annual grant to eligible employees | | | 7,517,290 | | | | 39.70 | | | | | | | | | | Additional options issued | | | 97,680 | | | | 43.32 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total options granted | | | 7,614,970 | | | | 39.75 | | | | | | | | | | Options exercised | | | (7,094,555 | ) | | | 24.01 | | | | | | | $ | 139 million | | Options cancelled | | | (1,735,698 | ) | | | 35.39 | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at September 30, 2016 | | | 55,818,825 | | | | 27.95 | | | | 6 years | | | $ | 252 million | | | | | | | | | | | | | | | | | | | Deferred Stock Units, Performance Share Units and Restricted Stock: Historically we have made grants of deferred stock units, performance share units and restricted stock. Beginning in 2016, we only grant deferred stock units and performance share units and no longer grant restricted stock. Our deferred stock unit, performance share unit and restricted stock activity is reflected below: | | | | | | | | | | Weighted-Average | | | Weighted-Average | | | | Number of | | | | | | Fair Value | | | Aggregate | | | | Shares | | | Grant Date | | | Per Share | | | Fair Value | | | | | | | Balance at January 1, 2016 | | | 9,418,216 | | | | | | | $ | 28.00 | | | | | | | | | | | | | | | | | | | | | | | Annual grant to eligible employees: | | | | | | | Feb. 22, 2016 | | | | | | | | | | Performance share units | | | 1,406,500 | | | | | | | | 39.70 | | | | | | Deferred stock units | | | 1,040,790 | | | | | | | | 39.70 | | | | | | Additional shares granted(1) | | | 755,171 | | | | Various | | | | 29.51 | | | | | | | | | | | | | | | | | | | | | | | Total shares granted | | | 3,202,461 | | | | | | | | 37.30 | | | $ | 119 million | | Vested(2) | | | (3,903,681 | ) | | | | | | | 40.13 | | | $ | 157 million | | Forfeited(2) | | | (1,019,864 | ) | | | | | | | 37.47 | | | | | | | | | | | | | | | | | | | | | | | Balance at September 30, 2016 | | | 7,697,132 | | | | | | | | 24.46 | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Cash received from options exercised was $43 million in the three months and $213 million in the nine months ended September 30, 2017. The actual tax benefit realized and recorded in the provision for income taxes for the tax deductions from the option exercises totaled $6 million in the three months and $24 million in the nine months ended September 30, 2017. |
Performance Share Units and Other Stock-Based Awards: Our performance share unit, deferred stock unit and historically granted restricted stock activity is reflected below: | | | | | | | | | | | | | | | | | | | | | | | | | Weighted-Average | | | Weighted-Average | | | | Number | | | | | | Fair Value | | | Aggregate | | | | of Shares | | | Grant Date | | | Per Share(3) | | | Fair Value(3) | | | | | | | Balance at January 1, 2017 | | | 7,593,627 | | | | | | | $ | 36.90 | | | | | | | | | | | | | | | | | | | | | | | Annual grant to eligible employees: | | | | | | | Feb. 16, 2017 | | | | | | | | | | Performance share units | | | 1,087,010 | | | | | | | | 43.14 | | | | | | Deferred stock units | | | 845,550 | | | | | | | | 43.20 | | | | | | Additional shares granted(1) | | | 546,001 | | | | Various | | | | 33.81 | | | | | | | | | | | | | | | | | | | | | | | Total shares granted | | | 2,478,561 | | | | | | | | 41.11 | | | $ | 102 million | | Vested(2) | | | (2,522,072 | ) | | | | | | | 33.70 | | | $ | 84 million | | Forfeited(2) | | | (675,920 | ) | | | | | | | 38.43 | | | | | | | | | | | | | | | | | | | | | | | Balance at September 30, 2017 | | | 6,874,196 | | | | | | | | 39.44 | | | | | | | | | | | | | | | | | | | | | | |
| (1) | Includes performance share units and deferred stock units. |
| (2) | Includes performance share units, deferred stock units and historically granted restricted stock. The actual tax benefit realized and recorded in the provision for income taxes for the tax deductions from the shares vested totaled less than $1 million in the three months and $7 million in the nine months ended September 30, 2017. |
| (3) | Prior-year weighted average fair value per share has been revised. |
Share Repurchase Program: During 2013, our Board of Directors authorized the repurchase of $7.7 billion of our Common Stock through December 31, 2016. On July 29, 2015, our Finance Committee, with authorization delegated from our Board of Directors, approved an increase of $6.0 billion in the share repurchase program, raising the authorization to $13.7 billion of Common Stock repurchases, and extended the program through December 31, 2018. Repurchases under the program are determined by management and are wholly discretionary. Prior to January 1, 2016,2017, we had repurchased $8.2$10.8 billion of Common Stock pursuant to this authorization. During the nine months ended September 30, 2016,2017, we repurchased 42.9approximately 42 million shares of Common Stock at an average cost of $41.64$43.67 per share, or an aggregate cost of $1.8 billion,approximately $1,817 million, all of which $1.7 billion was paid during the period.period except for approximately $31 million settled in October 2017. All share repurchases were funded through available cash and commercial paper issuances. As of September 30, 2016,2017, we have $3.7approximately $1 billion in remaining share repurchase capacity. Note 11. Commitments and Contingencies Legal Proceedings: We routinely are involved in legal proceedings, claims and governmental inspections or investigations (“Legal Matters”) arising in the ordinary course of our business. A compliant and ethical corporate culture, which includes adhering to laws and industry regulations in all jurisdictions in which we do business, is integral to our success. Accordingly, after we acquired Cadbury in February 2010, we began reviewing and adjusting, as needed, Cadbury’s operations in light of applicable standards as well as our policies and practices. We initially focused on such high priority areas as food safety, the Foreign Corrupt Practices Act (“FCPA”) and antitrust. Based upon Cadbury’s pre-acquisition policies and compliance programs and our post-acquisition reviews, our preliminary findings indicated that Cadbury’s overall state of compliance was sound. Nonetheless, through our reviews, we determined that in certain jurisdictions, including India, there appeared to be facts and circumstances warranting further investigation. We are continuing our investigations in certain jurisdictions, including in India, and we continue to cooperate with governmental authorities.
As we previously disclosed, on February 1, 2011, we received a subpoena from the SEC in connection with an investigation under the FCPA, primarily related to a facility in India that we acquired in the Cadbury acquisition. The subpoena primarily requests information regarding dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility. We are continuing to cooperate with the U.S. and Indian governments in their investigations of these matters. On February 11, 2016, we received a “Wells” notice from the SEC indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against us for violations of the books and records and internal controls provisions of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in connection with the investigation. On March 18, 2016, we made a submission to the staff of the SEC in response to the notice. We have engaged in discussions with the SEC and with the U.S. Department of Justice to discuss potential resolution of their respective investigations. We have not reached a settlement to resolve these investigations, and we are unable to predict when or if we can reach a mutually satisfactory resolution.
In February 2013 and March 2014, Cadbury India Limited (now known as Mondelez India Foods Private Limited), a subsidiary of Mondelēz International, and other parties received show cause notices from the Indian Central Excise Authority (the “Excise Authority”) calling upon the parties to demonstrate why the Excise Authority should not collect a total of 3.7 billion Indian rupees ($5657 million as of September 30, 2016)2017) of unpaid excise tax and an equivalent amount of penalties, as well as interest, related to production at the same Indian facility. We contested these demands for unpaid excise taxes, penalties and interest. On March 27, 2015, after several hearings, the Commissioner of the Excise Authority issued an order denying the excise exemption that we claimed for the Indian facility and confirming the Excise Authority’s demands for total taxes and penalties in the amount of 5.8 billion Indian rupees ($8890 million as of September 30, 2016)2017). We have appealed this order. In addition, the Excise Authority issued additional show cause notices onin February 6,2015, December 2015 and December 8, 2015October 2017 on the same issue but covering the periods January to October 2014, and November 2014 to September 2015 and October 2015 to June 2017, respectively. These notices added a total of 2.44.9 billion Indian rupees ($3675 million as of September 30, 2016)2017) of unpaid excise taxes as well as penalties to be determined up to an amount equivalent to that claimed by the Excise Authority plus interest. With the implementation of the new Goods and interest.Services Tax in India in July 2017, we will not receive any further show cause notices for additional amounts on this issue. We believe that the decision to claim the excise tax benefit is valid and we are continuing to contest the show cause notices through the administrative and judicial process. In April 2013, the staff of the U.S. Commodity Futures Trading Commission (“CFTC”) advised us and Kraft Foods Group that it was investigating activities related to the trading of December 2011 wheat futures contracts that occurred prior to the Spin-Off of Kraft Foods Group. We cooperated with the staff in its investigation. On April 1, 2015, the CFTC filed a complaint against Kraft Foods Group and Mondelēz Global LLC (“Mondelēz Global”) in the U.S. District Court for the Northern District of Illinois, Eastern Division (the “CFTC action”). The complaint alleges that Kraft Foods Group and Mondelēz Global (1) manipulated or attempted to manipulate the wheat markets during the fall of 2011; (2) violated position limit levels for wheat futures and (3) engaged in non-competitive trades by trading both sides of exchange-for-physical Chicago Board of Trade wheat contracts. The CFTC seeks civil monetary penalties of either triple the monetary gain for each violation of the Commodity Exchange Act (the “Act”) or $1 million for each violation of Section 6(c)(1), 6(c)(3) or 9(a)(2) of the Act and $140,000 for each additional violation of the Act, plus post-judgment interest; an order of permanent injunction prohibiting Kraft Foods Group and Mondelēz Global from violating specified provisions of the Act; disgorgement of profits; and costs and fees. In December 2015, the court denied Mondelēz Global and Kraft Foods Group’s motion to dismiss the CFTC’s claims of market manipulation and attempted manipulation, and the parties are now in discovery. Additionally, several class action complaints were filed against Kraft Foods Group and Mondelēz Global in the U.S. District Court for the Northern District of Illinois by investors in wheat futures and options on behalf of themselves and others similarly situated. The complaints make similar allegations as those made in the CFTC action and seek class action certification; an unspecified amount for damages, interest and unjust enrichment; costs and fees; and injunctive, declaratory and other unspecified relief. In June 2015, these suits were consolidated in the Northern District of Illinois. In June 2016, the court denied Mondelēz Global and Kraft Foods Group’s motion to dismiss, and the parties are now in discovery. It is not possible to predict the outcome of these matters; however, based on our Separation and Distribution Agreement with Kraft Foods Group dated as of September 27, 2012, we expect to predominantly bear any monetary penalties or other payments in connection with the CFTC action. While we cannot predict with certainty the results of any Legal Matters in which we are currently involved, we do not expect that the ultimate costs to resolve any of these Legal Matters, individually or in the aggregate, will have a material effect on our financial results. Third-Party Guarantees: We enter into third-party guarantees primarily to cover the long-term obligations of our vendors. As part of these transactions, we guarantee that third parties will make contractual payments or achieve performance measures. At September 30, 2016,2017, we had no material third-party guarantees recorded on our condensed consolidated balance sheet. Tax Matters: As part of our 2010 Cadbury acquisition, we became the responsible party for tax matters under a February 2, 2006 dated Deed of Tax Covenant between the Cadbury Schweppes PLC and related entities (“Schweppes”) and Black Lion Beverages and related entities. The tax matters included an ongoing transfer pricing case with the Spanish tax authorities related to the Schweppes businesses Cadbury divested prior to our acquisition of Cadbury. During the first quarter of 2017, the Spanish Supreme Court decided the case in our favor. As a result of the final ruling, during the first quarter of 2017, we recorded a favorable earnings impact of $46 million in selling, general and administrative expenses and $12 million in interest and other expense, net, for a total pre-tax impact of $58 million due to the non-cash reversal of Cadbury-related accrued liabilities related to this matter. In the third quarter of 2017, we recorded additional income of $3 million related to a bank guarantee release within selling, general and administrative expenses and interest and other expense, net. During the first quarter of 2017, the Brazilian Supreme Court (the “Court”) ruled against the Brazilian tax authorities in a leading case related to the computation of certain indirect taxes. The Court ruled that the indirect tax base should not include a value-added tax known as “ICMS”. By removing the ICMS from the tax base, the Court effectively eliminated a “tax on a tax.” Our Brazilian subsidiary had received an injunction against making payments for the “tax on a tax” in 2008 and since that time until December 2016, had accrued this portion of the tax each quarter in the event that the tax was reaffirmed by the Brazilian courts. On September 30, 2017, based on legal advice and the publication of the Court’s decision related to this case, we determined that the likelihood that the increased tax base would be reinstated and assessed against us was remote. Accordingly, we reversed our accrual of 667 million Brazilian reais, or $212 million as of September 30, 2017, of which, $153 million was recorded within selling, general and administrative expenses and $59 million was recorded within interest and other expense, net. The Brazilian tax authority may appeal the Court’s decision, seeking potential clarification or adjustment of the terms of enforcement. We continue to monitor developments in this matter and currently do not expect a material future impact on our financial statements. Note 12. Reclassifications from Accumulated Other Comprehensive Income The following table summarizes the changes in the accumulated balances of each component of accumulated other comprehensive earnings / earnings/(losses) attributable to Mondelēz International. Amounts reclassified from accumulated other comprehensive earnings / earnings/(losses) to net earnings (net of tax) were net losses of $28 million in the three months and $206 million for the nine months ended September 30, 2016 and $134 million in the three months and $172$112 million in the nine months ended September 30, 2015.2017 and $28 million in the three months and $206 million in the nine months ended September 30, 2016. | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | September 30, | | | September 30, | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | | (in millions) | | Currency Translation Adjustments: | | | | | | | | | | | | | | | | | Balance at beginning of period | | $ | (7,867 | ) | | $ | (6,438 | ) | | $ | (8,006 | ) | | $ | (5,042 | ) | Currency translation adjustments attributable to: | | | | | | | | | | | | | | | | | Translation of international operations(1) | | | 52 | | | | (1,149 | ) | | | 171 | | | | (2,749 | ) | Pension and other benefit plans | | | 7 | | | | 46 | | | | 42 | | | | 97 | | Derivatives accounted for as net investment hedges | | | (35 | ) | | | 62 | | | | (58 | ) | | | 303 | | Noncontrolling interests | | | (2 | ) | | | (6 | ) | | | (3 | ) | | | (22 | ) | Tax (expense) / benefit | | | 13 | | | | (23 | ) | | | 21 | | | | (111 | ) | | | | | | | | | | | | | | | | | | Other comprehensive earnings / (losses) | | | 35 | | | | (1,070 | ) | | | 173 | | | | (2,482 | ) | Less: portion attributable to noncontrolling interests | | | (2 | ) | | | (6 | ) | | | (3 | ) | | | (22 | ) | | | | | | | | | | | | | | | | | | Balance at end of period | | | (7,830 | ) | | | (7,502 | ) | | | (7,830 | ) | | | (7,502 | ) | | | | | | | | | | | | | | | | | | Pension and Other Benefit Plans: | | | | | | | | | | | | | | | | | Balance at beginning of period | | $ | (1,865 | ) | | $ | (2,201 | ) | | $ | (1,934 | ) | | $ | (2,274 | ) | Net actuarial gain / (loss) arising during period | | | – | | | | 127 | | | | 24 | | | | 99 | | Tax (expense) / benefit on net actuarial gain / (loss) | | | – | | | | (40 | ) | | | (9 | ) | | | (35 | ) | Losses / (gains) reclassified into net earnings: | | | | | | | | | | | | | | | | | Amortization of experience losses and prior service costs(2) | | | 30 | | | | 46 | | | | 93 | | | | 165 | | Settlement losses(2) | | | 10 | | | | 51 | | | | 25 | | | | 64 | | Tax (expense) / benefit on reclassifications (3) | | | (10 | ) | | | (28 | ) | | | (34 | ) | | | (64 | ) | | | | | | | | | | | | | | | | | | Other comprehensive earnings / (losses) | | | 30 | | | | 156 | | | | 99 | | | | 229 | | | | | | | | | | | | | | | | | | | Balance at end of period | | | (1,835 | ) | | | (2,045 | ) | | | (1,835 | ) | | | (2,045 | ) | | | | | | | | | | | | | | | | | | Derivative Cash Flow Hedges: | | | | | | | | | | | | | | | | | Balance at beginning of period | | $ | (36 | ) | | $ | (53 | ) | | $ | (46 | ) | | $ | (2 | ) | Net derivative gains / (losses) | | | 6 | | | | (113 | ) | | | (78 | ) | | | (103 | ) | Tax (expense) / benefit on net derivative gain / (loss) | | | (2 | ) | | | 39 | | | | 25 | | | | 36 | | Losses / (gains) reclassified into net earnings: | | | | | | | | | | | | | | | | | Currency exchange contracts – forecasted transactions(4) | | | 7 | | | | 13 | | | | 3 | | | | (79 | ) | Commodity contracts(4) | | | (8 | ) | | | 62 | | | | 7 | | | | 65 | | Interest rate contracts(5) | | | – | | | | – | | | | 96 | | | | 41 | | Tax (expense) / benefit on reclassifications (3) | | | (1 | ) | | | (10 | ) | | | (41 | ) | | | (20 | ) | | | | | | | | | | | | | | | | | | Other comprehensive earnings / (losses) | | | 2 | | | | (9 | ) | | | 12 | | | | (60 | ) | | | | | | | | | | | | | | | | | | Balance at end of period | | | (34 | ) | | | (62 | ) | | | (34 | ) | | | (62 | ) | | | | | | | | | | | | | | | | | | Accumulated other comprehensive income attributable to Mondelēz International: | | | | | | | | | | | | | | | | | Balance at beginning of period | | $ | (9,768 | ) | | $ | (8,692 | ) | | $ | (9,986 | ) | | $ | (7,318 | ) | Total other comprehensive earnings / (losses) | | | 67 | | | | (923 | ) | | | 284 | | | | (2,313 | ) | Less: portion attributable to noncontrolling interests | | | (2 | ) | | | (6 | ) | | | (3 | ) | | | (22 | ) | | | | | | | | | | | | | | | | | | Other comprehensive earnings / (losses) attributable to Mondelēz International | | | 69 | | | | (917 | ) | | | 287 | | | | (2,291 | ) | | | | | | | | | | | | | | | | | | Balance at end of period | | $ | (9,699 | ) | | $ | (9,609 | ) | | $ | (9,699 | ) | | $ | (9,609 | ) | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | (in millions) | | Currency Translation Adjustments: | | | | | | | | | | | | | | | | | Balance at beginning of period | | $ | (8,007 | ) | | $ | (7,902 | ) | | $ | (8,914 | ) | | $ | (8,006 | ) | Currency translation adjustments | | | 291 | | | | 15 | | | | 1,055 | | | | 53 | | Reclassification to earnings related to: | | | | | | | | | | | | | | | | | Equity method investment exchange | | | – | | | | – | | | | – | | | | 57 | | Tax benefit/(expense) | | | 46 | | | | 13 | | | | 205 | | | | 21 | | | | | | | | | | | | | | | | | | | Other comprehensive earnings/(losses) | | | 337 | | | | 28 | | | | 1,260 | | | | 131 | | Less: (gain)/loss attributable to noncontrolling interests | | | (8 | ) | | | 2 | | | | (24 | ) | | | 3 | | | | | | | | | | | | | | | | | | | Balance at end of period | | | (7,678 | ) | | | (7,872 | ) | | | (7,678 | ) | | | (7,872 | ) | | | | | | | | | | | | | | | | | | Pension and Other Benefit Plans: | | | | | | | | | | | | | | | | | Balance at beginning of period | | $ | (2,119 | ) | | $ | (1,830 | ) | | $ | (2,087 | ) | | $ | (1,934 | ) | Net actuarial (loss)/gain arising during period | | | (28 | ) | | | – | | | | (19 | ) | | | 24 | | Tax benefit/(expense) on net actuarial loss | | | 25 | | | | – | | | | 25 | | | | (9 | ) | Losses/(gains) reclassified into net earnings: | | | | | | | | | | | | | | | | | Amortization of experience losses and prior service costs(1) | | | 47 | | | | 30 | | | | 130 | | | | 93 | | Settlement losses and other expenses(1) | | | 6 | | | | 10 | | | | 24 | | | | 25 | | Tax benefit on reclassifications (2) | | | (10 | ) | | | (10 | ) | | | (31 | ) | | | (34 | ) | Currency impact | | | (50 | ) | | | 7 | | | | (171 | ) | | | 42 | | | | | | | | | | | | | | | | | | | Other comprehensive (losses)/earnings | | | (10 | ) | | | 37 | | | | (42 | ) | | | 141 | | | | | | | | | | | | | | | | | | | Balance at end of period | | | (2,129 | ) | | | (1,793 | ) | | | (2,129 | ) | | | (1,793 | ) | | | | | | | | | | | | | | | | | | Derivative Cash Flow Hedges: | | | | | | | | | | | | | | | | | Balance at beginning of period | | $ | (91 | ) | | $ | (36 | ) | | $ | (121 | ) | | $ | (46 | ) | Net derivative gains/(losses) | | | 2 | | | | 6 | | | | 31 | | | | (77 | ) | Tax benefit on net derivative gain/(loss) | | | (5 | ) | | | (2 | ) | | | (1 | ) | | | 25 | | Losses/(gains) reclassified into net earnings: | | | | | | | | | | | | | | | | | Currency exchange contracts – forecasted transactions(3) | | | 2 | | | | 7 | | | | 2 | | | | 3 | | Commodity contracts(3) | | | (21 | ) | | | (8 | ) | | | (15 | ) | | | 7 | | Interest rate contracts(4) | | | – | | | | – | | | | – | | | | 96 | | Tax benefit on reclassifications (2) | | | 6 | | | | (1 | ) | | | 3 | | | | (41 | ) | Currency impact | | | (3 | ) | | | – | | | | (9 | ) | | | (1 | ) | | | | | | | | | | | | | | | | | | Other comprehensive earnings/(losses) | | | (19 | ) | | | 2 | | | | 11 | | | | 12 | | | | | | | | | | | | | | | | | | | Balance at end of period | | | (110 | ) | | | (34 | ) | | | (110 | ) | | | (34 | ) | | | | | | | | | | | | | | | | | | Accumulated other comprehensive income attributable to Mondelēz International: | | | | | | | | | | | | | | | | | Balance at beginning of period | | $ | (10,217 | ) | | $ | (9,768 | ) | | $ | (11,122 | ) | | $ | (9,986 | ) | Total other comprehensive earnings/(losses) | | | 308 | | | | 67 | | | | 1,229 | | | | 284 | | Less: loss/(gain) attributable to noncontrolling interests | | | (8 | ) | | | 2 | | | | (24 | ) | | | 3 | | | | | | | | | | | | | | | | | | | Other comprehensive earnings/(losses) attributable to Mondelēz International | | | 300 | | | | 69 | | | | 1,205 | | | | 287 | | | | | | | | | | | | | | | | | | | Balance at end of period | | $ | (9,917 | ) | | $ | (9,699 | ) | | $ | (9,917 | ) | | $ | (9,699 | ) | | | | | | | | | | | | | | | | | |
| (1) | For the nine months ended September 30, 2016 includes $57 million of historical cumulative transaction adjustments reclassified to net earnings within the gain on equity method investment exchange in the first quarter. See Note 2,Divestitures and Acquisitions – Keurig Transaction. |
| (2) | These reclassified gains or losses are included in the components of net periodic benefit costs disclosed in Note 9,Benefit Plans, and equity method investment net earnings.. |
| (3)(2) | Taxes relatedreclassified to reclassified gains or lossesearnings are recorded within the provision for income taxes. |
| (4)(3) | These reclassified gains or losses are recorded within cost of sales. |
| (5)(4) | These reclassified gains or losses are recorded within interest and other expense, net. |
Note 13. Income Taxes Based on current tax laws, our estimated annual effective tax rate for 2017, excluding the impacts from the sale of our Australian grocery business, is 25.8%, which reflects favorable impacts from the mix of pre-tax income in various non-U.S. tax jurisdictions, partially offset by an increase in domestic earnings as compared to the prior year. Our 2017 third quarter effective tax rate of 23.4% was favorably impacted by the divestiture of our Australian grocery business, which had a lower effective tax rate, resulting in a $27 million tax expense related to the pre-tax gain of $187 million. Our effective tax rate for the nine months ended September 30, 2017 of 21.3% was also favorably impacted by the sale of our Australian grocery business as well as other discrete one-time benefits. The discrete net tax benefits primarily consisted of a $74 million benefit from the release of uncertain tax positions due to expirations of statutes of limitations and audit settlements in various jurisdictions and a $16 million benefit related to the U.S. domestic production activities deduction. As of the third quarter of 2016, isour estimated annual effective tax rate for 2016 was 20.8%, reflecting favorable impacts from the mix of pre-tax income in various non-U.S. tax jurisdictions. Our 2016 third quarter effective tax rate of 7.2% includesincluded net benefit from discrete one-time events of $60 million, mainly due to $35 million from expirations of statutes of limitations and favorable audit settlements in several jurisdictions and a $17 million benefit from the reduction of U.K. net deferred tax liabilities resulting from tax legislation enacted during the third quarter of 2016 Q3 that reduced the U.K. corporate income tax rate. Our effective tax rate for the nine months ended September 30, 2016 of 13.6% was favorably impacted by net tax benefit frombenefits of $109 million offrom discrete one-time events. The discrete net tax benefitbenefits primarily consisted of benefits of $73 million due to expirations of statutes of limitations and favorable audit settlements in several jurisdictions and a $17 million benefit from the reduction of U.K. net deferred tax liabilities resulting from tax legislation enacted during the third quarter of 2016 that reduced the U.K. corporate income tax rate. As of the third quarter of 2015, our estimated annual effective tax rate for 2015 was 23.1%, reflecting favorable impacts from the mix of pre-tax income in various non-U.S. tax jurisdictions. Our 2015 third quarter effective tax rate of 4.5% benefitted from the one-time third quarter sale of our coffee business that resulted in a pre-tax gain of $7,122 million and $197 million of related tax expense, as well as $21 million of tax costs incurred to remit proceeds up from lower-tier foreign subsidiaries to allow cash to be redeployed within our retained foreign operations. Other discrete one-time events, which partially offset the costs associated with the sale of our coffee business, of $40 million primarily related to favorable audit settlements and expirations of statutes of limitations in several jurisdictions. Our effective tax rate for the nine months ended September 30, 2015 of 6.5% was favorably impacted by the sale of our coffee business in the third quarter. Other significant discrete one-time events consisted of $54 million of tax charges related to the sale of our interest in AGF ($32 million in the first quarter upon the investment’s change to held-for-sale status and an additional $22 million upon the closing of the sale in the second quarter), and $75 million from favorable audit settlements and expirations of statutes of limitations in several jurisdictions.
Note 14. Earnings Per Share Basic and diluted earnings per share (“EPS”) were calculated as follows: | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | September 30, | | | September 30, | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | | (in millions, except per share data) | | | | | | | Net earnings | | $ | 548 | | | $ | 7,268 | | | $ | 1,576 | | | $ | 8,007 | | Noncontrolling interest earnings | | | – | | | | (2 | ) | | | (10 | ) | | | (11 | ) | | | | | | | | | | | | | | | | | | Net earnings attributable to Mondelēz International | | $ | 548 | | | $ | 7,266 | | | $ | 1,566 | | | $ | 7,996 | | | | | | | | | | | | | | | | | | | Weighted-average shares for basic EPS | | | 1,557 | | | | 1,609 | | | | 1,561 | | | | 1,627 | | Plus incremental shares from assumed conversions of stock options and long-term incentive plan shares | | | 19 | | | | 20 | | | | 18 | | | | 19 | | | | | | | | | | | | | | | | | | | Weighted-average shares for diluted EPS | | | 1,576 | | | | 1,629 | | | | 1,579 | | | | 1,646 | | | | | | | | | | | | | | | | | | | Basic earnings per share attributable to Mondelēz International | | $ | 0.35 | | | $ | 4.52 | | | $ | 1.00 | | | $ | 4.91 | | Diluted earnings per share attributable to Mondelēz International | | $ | 0.35 | | | $ | 4.46 | | | $ | 0.99 | | | $ | 4.86 | |
| | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | (in millions, except per share data) | | | | | | | Net earnings | | $ | 993 | | | $ | 548 | | | $ | 2,126 | | | $ | 1,576 | | Noncontrolling interest (earnings) | | | (1 | ) | | | – | | | | (6 | ) | | | (10 | ) | | | | | | | | | | | | | | | | | | Net earnings attributable to Mondelēz International | | $ | 992 | | | $ | 548 | | | $ | 2,120 | | | $ | 1,566 | | | | | | | | | | | | | | | | | | | Weighted-average shares for basic EPS | | | 1,507 | | | | 1,557 | | | | 1,518 | | | | 1,561 | | Plus incremental shares from assumed conversions of stock options and long-term incentive plan shares | | | 17 | | | | 19 | | | | 19 | | | | 18 | | | | | | | | | | | | | | | | | | | Weighted-average shares for diluted EPS | | | 1,524 | | | | 1,576 | | | | 1,537 | | | | 1,579 | | | | | | | | | | | | | | | | | | | Basic earnings per share attributable to Mondelēz International | | $ | 0.66 | | | $ | 0.35 | | | $ | 1.40 | | | $ | 1.00 | | | | | | | | | | | | | | | | | | | Diluted earnings per share attributable to Mondelēz International | | $ | 0.65 | | | $ | 0.35 | | | $ | 1.38 | | | $ | 0.99 | | | | | | | | | | | | | | | | | | |
We exclude antidilutive Mondelēz International stock options from our calculation of weighted-average shares for diluted EPS. We excluded antidilutive stock options of 9.0 million for the three months and 8.0 million for the nine months ended September 30, 2017 and 4.3 million for the three months and 7.7 million for the nine months ended September 30, 2016 and less than 1 million for the three months and 10.8 million for the nine months ended September 30, 2015.2016. Note 15. Segment Reporting We manufacture and market primarily snack food products, including biscuits (cookies, crackers and salted snacks), chocolate, gum & candy and various cheese & grocery products, as well as powdered beverage products. We manage our global business and report operating results through geographic units. Our operations and management structure are organized into fivefour reportable operating segments: Latin America Asia Pacific
EEMEAAMEA
Europe North America On October 1, 2016, we integrated our EEMEA businessoperating segment into our Europe and Asia Pacific segments.operating segments to further leverage and optimize the operating scale built within the Europe and Asia Pacific regions. Russia, Ukraine, Turkey, Belarus, Georgia and Kazakhstan were combined within our Europe operating segment, while the remaining Middle East and African countries were combined within our Asia Pacific operating segmentregion to form a new Asia, Middle East and Africa (“AMEA”) regionalthe AMEA operating segment. We have reflected the segment change as if it had occurred in all periods presented. We manage our operations by region to leverage regional operating scale, manage different and changing business environments more effectively and pursue growth opportunities as they arise in our key markets. Our regional management teams have responsibility for the business, product categories and financial results in the regions. Historically, we have recorded income from equity method investments within our operating income as these investments were part of our base business. Beginning in the third quarter of 2015, to align with the accounting for our new coffee equity method investment in JDE, we began to record the earnings from our equity method investments in equity method investment earnings outside of segment operating income. Within segment operating income, equity method investment net earnings were $56 million for the nine months ended September 30, 2015, including $49 million in Asia Pacific, $3 million in EEMEA and $4 million in North America. See Note 1,Basis of Presentation – Principles of Consolidation,and Note 2,Divestitures and Acquisitions, for additional information.
We use segment operating income to evaluate segment performance and allocate resources. We believe it is appropriate to disclose this measure to help investors analyze segment performance and trends. Segment operating income excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), general corporate expenses (which are a component of selling, general and administrative expenses), amortization of intangibles and gains and losses on divestitures or acquisitions, gain on the JDE coffee business transactions, loss on deconsolidation of Venezuela and acquisition-related costs (which are a component of selling, general and administrative expenses) in all periods presented. We exclude these items from segment operating income in order to provide better transparency of our segment operating results. Furthermore, we centrally manage interest and other expense, net. Accordingly, we do not present these items by segment because they are excluded from the segment profitability measure that management reviews. Our segment net revenues and earnings, revised to reflect our new segment structure, were: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | | September 30, | | | September 30, | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | (in millions) | | | | (in millions) | | | Net revenues: | | | | | | | | | | | | | | | | | Latin America(1) | | $ | 868 | | | $ | 1,233 | | | $ | 2,528 | | | $ | 3,730 | | | $ | 908 | | | $ | 868 | | | $ | 2,666 | | | $ | 2,528 | | Asia Pacific(2) | | | 1,128 | | | | 1,101 | | | | 3,278 | | | | 3,278 | | | EEMEA(2) | | | 543 | | | | 586 | | | | 1,738 | | | | 2,150 | | | Europe(2) | | | 2,104 | | | | 2,173 | | | | 6,461 | | | | 7,963 | | | AMEA | | | | 1,405 | | | | 1,443 | | | | 4,290 | | | | 4,404 | | Europe | | | | 2,442 | | | | 2,332 | | | | 6,978 | | | | 7,073 | | North America | | | 1,753 | | | | 1,756 | | | | 5,148 | | | | 5,151 | | | | 1,775 | | | | 1,753 | | | | 4,996 | | | | 5,148 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net revenues | | $ | 6,396 | | | $ | 6,849 | | | $ | 19,153 | | | $ | 22,272 | | | $ | 6,530 | | | $ | 6,396 | | | $ | 18,930 | | | $ | 19,153 | | | | | | | | | | | | | | | | | | | | | | | | | | | (1) Net revenues of $315 million for the three months and $834 million for the nine months ended September 30, 2015 from our Venezuelan subsidiaries are included in our condensed consolidated financial statements. Beginning in 2016, we account for our Venezuelan subsidiaries using the cost method of accounting and no longer include net revenues of our Venezuelan subsidiaries within our condensed consolidated financial statements. Refer to Note 1,Basis of Presentation – Currency Translation and Highly Inflationary Accounting: Venezuela,for more information. (2) On July 2, 2015, we contributed our global coffee businesses primarily from our Europe, EEMEA and Asia Pacific segments. Net revenues of our global coffee business were $1,348 million in Europe, $246 million in EEMEA and $33 million in Asia Pacific for the nine months ended September 30, 2015. Refer to Note 2,Divestitures and Acquisitions – JDE Coffee Business Transactions, for more information. | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | September 30, | | | September 30, | | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | | | (in millions) | | | Earnings before income taxes: | | | | | | | | | | | | | | | | | Operating income: | | | | | | | | | | | | | | | | | Latin America | | $ | 92 | | | $ | 134 | | | $ | 191 | | | $ | 422 | | | $ | 255 | | | $ | 92 | | | $ | 469 | | | $ | 191 | | Asia Pacific | | | 135 | | | | 71 | | | | 378 | | | | 321 | | | EEMEA | | | 44 | | | | 52 | | | | 154 | | | | 184 | | | AMEA | | | | 82 | | | | 165 | | | | 425 | | | | 504 | | Europe | | | 302 | | | | 298 | | | | 896 | | | | 885 | | | | 410 | | | | 316 | | | | 1,158 | | | | 924 | | North America | | | 274 | | | | 275 | | | | 840 | | | | 817 | | | | 318 | | | | 274 | | | | 824 | | | | 840 | | Unrealized gains / (losses) on hedging activities (mark-to-market impacts) | | | (12 | ) | | | (4 | ) | | | (49 | ) | | | 75 | | | Unrealized gains/(losses) on hedging activities (mark-to-market impacts) | | | | 28 | | | | (12 | ) | | | (69 | ) | | | (49 | ) | General corporate expenses | | | (89 | ) | | | (95 | ) | | | (216 | ) | | | (240 | ) | | | (54 | ) | | | (89 | ) | | | (196 | ) | | | (216 | ) | Amortization of intangibles | | | (44 | ) | | | (45 | ) | | | (132 | ) | | | (137 | ) | | | (45 | ) | | | (44 | ) | | | (133 | ) | | | (132 | ) | Gains on JDE coffee business transactions and divestiture | | | – | | | | 7,122 | | | | – | | | | 7,135 | | | Acquisition-related costs | | | – | | | | (6 | ) | | | – | | | | (8 | ) | | Net gain on divestitures | | | | 187 | | | | – | | | | 184 | | | | – | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income | | | 702 | | | | 7,802 | | | | 2,062 | | | | 9,454 | | | | 1,181 | | | | 702 | | | | 2,662 | | | | 2,062 | | Interest and other expense, net | | | (145 | ) | | | (114 | ) | | | (540 | ) | | | (814 | ) | | | (19 | ) | | | (145 | ) | | | (262 | ) | | | (540 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Earnings before income taxes | | $ | 557 | | | $ | 7,688 | | | $ | 1,522 | | | $ | 8,640 | | | $ | 1,162 | | | $ | 557 | | | $ | 2,400 | | | $ | 1,522 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Items impacting our segment operating results are discussed in Note 1,Basis of Presentation including the Venezuela deconsolidation and currency devaluation,, Note 2,Divestitures and Acquisitions, Note 4,Property, Plant and Equipment,Note 5,Goodwill and Intangible Assets,and Note 6,2014-2018 Restructuring Program and Note 11,Commitments and Contingencies. Also see Note 7,Debt and Borrowing Arrangements, and Note 8,Financial Instruments, for more information on our interest and other expense, net for each period. Net revenues by product category, revised to reflect our new segment structure, were: | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, 2016 | | | | Latin | | | Asia | | | | | | | | | North | | | | | | America | | | Pacific | | | EEMEA | | | Europe | | | America | | | Total | | | | (in millions) | | | | | | | | | Biscuits | | $ | 191 | | | $ | 360 | | | $ | 125 | | | $ | 608 | | | $ | 1,403 | | | $ | 2,687 | | Chocolate | | | 185 | | | | 388 | | | | 223 | | | | 1,021 | | | | 65 | | | | 1,882 | | Gum & Candy | | | 247 | | | | 174 | | | | 120 | | | | 163 | | | | 285 | | | | 989 | | Beverages(1) | | | 164 | | | | 77 | | | | 31 | | | | 36 | | | | – | | | | 308 | | Cheese & Grocery | | | 81 | | | | 129 | | | | 44 | | | | 276 | | | | – | | | | 530 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total net revenues | | $ | 868 | | | $ | 1,128 | | | $ | 543 | | | $ | 2,104 | | | $ | 1,753 | | | $ | 6,396 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, 2015 | | | | Latin | | | Asia | | | | | | | | | North | | | | | | America (2) | | | Pacific | | | EEMEA | | | Europe (3) | | | America | | | Total | | | | (in millions) | | | | | | | | | Biscuits | | $ | 431 | | | $ | 356 | | | $ | 125 | | | $ | 592 | | | $ | 1,403 | | | $ | 2,907 | | Chocolate | | | 184 | | | | 370 | | | | 232 | | | | 1,074 | | | | 64 | | | | 1,924 | | Gum & Candy | | | 262 | | | | 171 | | | | 134 | | | | 177 | | | | 289 | | | | 1,033 | | Beverages(1) | | | 178 | | | | 76 | | | | 45 | | | | 43 | | | | – | | | | 342 | | Cheese & Grocery | | | 178 | | | | 128 | | | | 50 | | | | 287 | | | | – | | | | 643 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total net revenues | | $ | 1,233 | | | $ | 1,101 | | | $ | 586 | | | $ | 2,173 | | | $ | 1,756 | | | $ | 6,849 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, 2016 | | | | Latin | | | Asia | | | | | | | | | North | | | | | | America | | | Pacific | | | EEMEA | | | Europe | | | America | | | Total | | | | (in millions) | | | | | | | | | Biscuits | | $ | 551 | | | $ | 991 | | | $ | 379 | | | $ | 1,848 | | | $ | 4,162 | | | $ | 7,931 | | Chocolate | | | 562 | | | | 1,088 | | | | 549 | | | | 3,124 | | | | 153 | | | | 5,476 | | Gum & Candy | | | 713 | | | | 538 | | | | 383 | | | | 512 | | | | 833 | | | | 2,979 | | Beverages(1) | | | 466 | | | | 285 | | | | 229 | | | | 123 | | | | – | | | | 1,103 | | Cheese & Grocery | | | 236 | | | | 376 | | | | 198 | | | | 854 | | | | – | | | | 1,664 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total net revenues | | $ | 2,528 | | | $ | 3,278 | | | $ | 1,738 | | | $ | 6,461 | | | $ | 5,148 | | | $ | 19,153 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, 2015 | | | | Latin | | | Asia | | | | | | | | | North | | | | | | America (2) | | | Pacific | | | EEMEA | | | Europe (3) | | | America | | | Total | | | | (in millions) | | | | | | | | | Biscuits | | $ | 1,147 | | | $ | 940 | | | $ | 396 | | | $ | 1,828 | | | $ | 4,161 | | | $ | 8,472 | | Chocolate | | | 680 | | | | 1,074 | | | | 627 | | | | 3,204 | | | | 161 | | | | 5,746 | | Gum & Candy | | | 852 | | | | 550 | | | | 418 | | | | 558 | | | | 829 | | | | 3,207 | | Beverages(1) | | | 570 | | | | 324 | | | | 502 | | | | 1,493 | | | | – | | | | 2,889 | | Cheese & Grocery | | | 481 | | | | 390 | | | | 207 | | | | 880 | | | | – | | | | 1,958 | | | | | | | | | | | | | | | | | | | | | | | | | | | Total net revenues | | $ | 3,730 | | | $ | 3,278 | | | $ | 2,150 | | | $ | 7,963 | | | $ | 5,151 | | | $ | 22,272 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | On July 2, 2015, we contributed our global coffee businesses primarily from our Europe, EEMEA and Asia Pacific segment beverage categories. Net revenues of our global coffee business were $1,348 million in Europe, $246 million in EEMEA and $33 million in Asia Pacific for the nine months ended September 30, 2015. Refer to Note 2,Divestitures and Acquisitions – JDE Coffee Business Transactions, for more information. |
| (2) | Our Venezuelan subsidiaries net revenues of $209 million in biscuits, $95 million in cheese & grocery, $6 million in beverages and $5 million in gum & candy for the three months and $496 million in biscuits, $231 million in cheese & grocery, $66 million in gum & candy and $41 million in beverages for the nine months ended September 30, 2015 are included in our condensed consolidated financial statements. Beginning in 2016, we account for our Venezuelan subsidiaries using the cost method of accounting and no longer include net revenues of our Venezuelan subsidiaries within our condensed consolidated financial statements. Refer to Note 1,Basis of Presentation – Currency Translation and Highly Inflationary Accounting: Venezuela,for more information. |
| (3) | During 2016, we realigned some of our products across product categories primarily within our Europe segment and as such, we reclassified the product category net revenues on a basis consistent with the 2016 presentation. |
| | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, 2017 | | | | Latin America | | | AMEA | | | Europe | | | North America | | | Total | | | | (in millions) | | | | | | | | Biscuits | | $ | 210 | | | $ | 444 | | | $ | 761 | | | $ | 1,427 | | | $ | 2,842 | | Chocolate | | | 207 | | | | 520 | | | | 1,196 | | | | 74 | | | | 1,997 | | Gum & Candy | | | 247 | | | | 228 | | | | 185 | | | | 274 | | | | 934 | | Beverages | | | 155 | | | | 104 | | | | 23 | | | | – | | | | 282 | | Cheese & Grocery | | | 89 | | | | 109 | | | | 277 | | | | – | | | | 475 | | | | | | | | | | | | | | | | | | | | | | | Total net revenues | | $ | 908 | | | $ | 1,405 | | | $ | 2,442 | | | $ | 1,775 | | | $ | 6,530 | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, 2016 | | | | Latin America | | | AMEA | | | Europe | | | North America | | | Total | | | | (in millions) | | Biscuits | | $ | 191 | | | $ | 416 | | | $ | 677 | | | $ | 1,403 | | | $ | 2,687 | | Chocolate | | | 185 | | | | 508 | | | | 1,124 | | | | 65 | | | | 1,882 | | Gum & Candy | | | 247 | | | | 239 | | | | 218 | | | | 285 | | | | 989 | | Beverages | | | 164 | | | | 107 | | | | 37 | | | | – | | | | 308 | | Cheese & Grocery | | | 81 | | | | 173 | | | | 276 | | | | – | | | | 530 | | | | | | | | | | | | | | | | | | | | | | | Total net revenues | | $ | 868 | | | $ | 1,443 | | | $ | 2,332 | | | $ | 1,753 | | | $ | 6,396 | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, 2017 | | | | Latin America | | | AMEA | | | Europe | | | North America | | | Total | | | | (in millions) | | | | | | | | Biscuits | | $ | 580 | | | $ | 1,198 | | | $ | 2,130 | | | $ | 4,061 | | | $ | 7,969 | | Chocolate | | | 660 | | | | 1,460 | | | | 3,365 | | | | 194 | | | | 5,679 | | Gum & Candy | | | 701 | | | | 695 | | | | 582 | | | | 741 | | | | 2,719 | | Beverages | | | 477 | | | | 466 | | | | 88 | | | | – | | | | 1,031 | | Cheese & Grocery | | | 248 | | | | 471 | | | | 813 | | | | – | | | | 1,532 | | | | | | | | | | | | | | | | | | | | | | | Total net revenues | | $ | 2,666 | | | $ | 4,290 | | | $ | 6,978 | | | $ | 4,996 | | | $ | 18,930 | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, 2016 | | | | Latin America | | | AMEA | | | Europe | | | North America | | | Total | | | | (in millions) | | Biscuits | | $ | 551 | | | $ | 1,179 | | | $ | 2,039 | | | $ | 4,162 | | | $ | 7,931 | | Chocolate | | | 562 | | | | 1,393 | | | | 3,368 | | | | 153 | | | | 5,476 | | Gum & Candy | | | 713 | | | | 745 | | | | 688 | | | | 833 | | | | 2,979 | | Beverages | | | 466 | | | | 513 | | | | 124 | | | | – | | | | 1,103 | | Cheese & Grocery | | | 236 | | | | 574 | | | | 854 | | | | – | | | | 1,664 | | | | | | | | | | | | | | | | | | | | | | | Total net revenues | | $ | 2,528 | | | $ | 4,404 | | | $ | 7,073 | | | $ | 5,148 | | | $ | 19,153 | | | | | | | | | | | | | | | | | | | | | | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Description of the Company We manufacture and market primarily snack food products, including biscuits (cookies, crackers and salted snacks), chocolate, gum & candy and various cheese & grocery products, as well as powdered beverage products. We have operations in more than 80 countries and sell our products in approximately 165 countries. OverWe aim to deliver strong, profitable long-term growth by accelerating our core snacks business and expanding the last several years,reach of our Power Brands globally. Leveraging our Power Brands and our innovation platforms, we plan to innovate boldly and connect with our consumers wherever they are, including new markets around the world, using both traditional and digital channels. We monitor developments in consumer preferences, and as consumers in many markets seek better-for-you products, we continue to expand our portfolio through additional well-being offerings, including enhancing the goodness of existing brands. As shopping expands further online, we are also working to grow our e-commerce platform and on-line presence with consumers. To fuel these investments, we have built a presence inbeen working to optimize our cost structure. These efforts consist of reinventing our supply chain, including adding and upgrading to more efficient production lines, while reducing the snacking category.complexity of our product offerings, ingredients and number of suppliers. We also continue to aggressively manage our overhead costs. We have expanded geographicallyembraced and continueembedded zero-based budgeting practices across the organization to invest in product quality, marketing and innovation behind our iconic brands while also implementing a seriesidentify potential areas of cost saving initiatives. Our goals are to achieve industry-leading revenue growth over time driven by the higher expected growth rates of advantaged snack categories; leveragereductions and capture and sustain savings within our cost structure through supply chain reinvention, productivity programs, overhead streamlining, volume growthongoing operating budgets. Through these actions, we’re leveraging our brands, platforms and improved product mixcapabilities to drive margin gains;long-term value and grow earnings per share in the top-tier ofreturn on investment for our peer group.shareholders.
Significant Items Affecting Comparability of Financial Results
JDE Coffee Business Transactions:Malware Incident
On July 2, 2015, we completed transactions to combineJune 27, 2017, a global malware incident impacted our wholly owned coffee businesses with those of D.E Master Blenders 1753 B.V. (“DEMB”) to createbusiness. The malware affected a new company, Jacobs Douwe Egberts (“JDE”). Following the exchange of asignificant portion of our investment in JDE for an interest in Keurig Green Mountain Inc. (“Keurig”) in March 2016, we held a 26.5% equity interest in JDE. The remaining 73.5% equity interest in JDE was held by a subsidiary of Acorn Holdings B.V. (“AHBV,” owner of DEMB prior to July 2, 2015). Please see discussionglobal sales, distribution and financial networks. During the last four days of the acquisitionsecond quarter and early third quarter, we executed business continuity and contingency plans to contain the impact, minimize the damages and restore our systems environment. We do not expect, nor to date have we found, any instances of an interest in Keurig below underKeurig Transaction. AsCompany or personal data released externally. We restored our main operating systems and processes and we continue to further enhance the security of September 30, 2016,our systems. For the second quarter, we holdestimate that the malware incident had a 26.4% equity interest in JDEnegative impact of 2.3% on our net revenue growth and 2.4% on our Organic Net Revenue growth. While we are pleased with our recovery efforts following the transactions discussed underJDE Stock-Based Compensation Arrangementsbelow. The considerationmalware incident, restoring our North America systems has taken longer, resulting in additional lost revenue for the year. As a result, for the third quarter, we received inestimate that the JDE coffee business transactions completed on July 2, 2015, consistedrecovery of€3.8 billion of cash ($4.2 billion as of July 2, 2015), a 43.5% equity interest in JDE (prior to the decrease in ownership shipments delayed due to the Keurig transactionmalware incident had a net favorable impact of 0.6% on our net revenue and the compensation arrangements discussed below)and $794Organic Net Revenue growth. We also incurred incremental expenses of $47 million in receivables (related to sales price adjustments and tax formation cost payments). During the third quarter of 2015, we also recorded $283 million of cash and receivables from JDE related to reimbursement of costs that we incurred in separating our coffee businesses. The cash and equity consideration we received at closing reflects that we retained our interest inas a Korea-based joint venture, Dongsuh Foods Corporation (“DSF”). During the second quarter of 2015, we also completed the sale of our interest in a Japanese coffee joint venture, Ajinomoto General Foods, Inc. (“AGF”). In lieu of contributing our interest in the AGF joint venture to JDE, we contributed the net cash proceeds from the sale as partresult of the overall JDE coffee business transactions. Please see Note 2,Divestitures and Acquisitions – Other Divestitures and Acquisitions, for discussion of the divestiture of AGF.
On July 5, 2016, we received an expected cash payment of $275 million from JDE to settle the receivable related to tax formation costs that were part of the initial sales price.
In connection with the contribution of our global coffee businesses to JDE on July 2, 2015, we recorded a final pre-tax gain of $6.8 billion (or $6.6 billion after taxes) in 2015 after final adjustments as described below. We also recorded approximately $1.0 billion of pre-tax net gains related to hedging the expected cash proceeds from the transactions as described further below. During the fourth quarter of 2015, we and JDE concluded negotiations of a sales price adjustment and completed the valuation of our investment in JDE. Primarily due to the negotiated resolution of the sales price adjustment in the fourth quarter of 2015, we recorded a $313 million reduction in the pre-tax gain on the coffee transaction, reducing the $7.1 billion estimated gain in the third quarter of 2015 to the $6.8 billion final gain for 2015. As part of our sales price negotiations, we retained the right to collect future cash payments if certain estimated pension liabilities are realized over an agreed amount in the future. As such, we may recognize additional income related to this negotiated term in the future.
The final value of our investment in JDE on July 2, 2015 was€4.1 billion ($4.5 billion as of July 2, 2015). The fair value of the JDE investment was determined using both income-based and market-based valuation techniques. The discounted cash flow analysis reflected growth, discount and tax rates and other assumptions reflecting the underlying combined businesses and countries in which the combined coffee businesses operate. The fair value of the JDE investment also included the fair values of theCarte Noire andMerrild businesses, which JDE agreed to divest to comply with the conditioned approval by the European Commission related to the JDE coffee business transactions. As of the end of the first quarter of 2016, these businesses were sold by JDE. As the July 2, 2015 fair values for these businesses were recorded by JDE at their pending sales values, we did not record any gain or loss on the sales of these businesses in our share of JDE’s earnings.
In connection with the expected receipt of cash in euros at the time of closing, we entered into a number of consecutive currency exchange forward contracts in 2014 and 2015 to lock in an equivalent expected value in U.S. dollars as of the date the JDE coffee business transactions were first announced in May 2014. Cumulatively, we realized aggregate net gains and received cash of approximately $1.0 billion on these hedging contracts that increased the cash we received in connection with the JDE coffee business transactions from $4.2 billion in cash consideration received to $5.2 billion. In connection with these currency contracts, we recognized net gains of $29 millionincident in the three months and $436$54 million in the nine months ended September 30, 2015 within interest and other expense, net.
JDE Stock-Based Compensation Arrangements:
At the close of June 30, 2016, we entered into agreements with AHBV and its affiliates2017. We expect to establish a new stock-based compensation arrangement tiedincur additional incremental expenses related to the issuanceincident and recovery process during the fourth quarter of JDE equity compensation awards2017.
Summary of Results Net revenues increased 2.1% to JDE employees. This arrangement replaced a temporary equity compensation program tied to the issuance of AHBV equity compensation to JDE employees. New Class C, D and E JDE shares were authorized and issued for investments made by JDE employees. Under these arrangements, dilution of the JDE shares is limited to 2%. Upon execution of the agreements and the creation of the Class C, D and E JDE shares, as a percentage of the total JDE issued shares, our Class B shares changed from 26.5% to 26.4% and AHBV’s Class A shares changed from 73.5% to 73.22%, while the Class C, D and E shares, held by AHBV and its affiliates until the JDE employee awards vest, comprised 0.38% of JDE’s shares. Additional Class C shares are available to be issued when planned long-term incentive plan (“JDE LTIP”) awards vest, generally over the next five years. When the JDE Class C shares are issued in connection with the vested JDE LTIP awards, the Class A and B relative ownership interests will decrease. Based on estimated achievement and forfeiture assumptions, we do not expect our JDE ownership interest to decrease below 26.27%. As of September 30, 2016, our ownership interest in JDE was 26.4%.JDE Tax Matter Resolution:
On July 19, 2016, the Supreme Court of Spain reached a final resolution on a challenged JDE tax position held by a predecessor DEMB company that resulted in an unfavorable tax expense of€114 million ($128 million as of September 30, 2016). As a result, our earnings$6.5 billion in the third quarter of 2016 were negatively affected by€30 million ($34 million as of September 30, 2016).
Keurig Transaction:
On March 3, 2016, a subsidiary of AHBV completed the $13.92017 and decreased 1.2% to $18.9 billion acquisition of all of the outstanding common stock of Keurig through a merger transaction. On March 7, 2016, we exchanged with a subsidiary of AHBV a portion of our equity interest in JDE with a carrying value of€1.7 billion (approximately $2.0 billion as of March 7, 2016) for an interest in Keurig with a fair value of $2.0 billion based on the merger consideration per share for Keurig. We recorded the difference between the fair value of Keurig and our basis in JDE shares as a $43 million gain on equity method investment exchange in March 2016. Following the exchange, our ownership interest in JDE was 26.5% and our interest in Keurig was 24.2%. Both AHBV and we hold our investments in Keurig through a combination of equity and interests in a shareholder loan, with pro-rata ownership of each. Our initial $2.0 billion investment in Keurig includes a $1.6 billion Keurig equity interest and a $0.4 billion shareholder loan receivable, which are reported on a combined basis within equity method investments on our condensed consolidated balance sheet as of September 30, 2016. The shareholder loan has a 5.5% interest rate and is payable at the end of a seven-year term on February 27, 2023. We recorded equity earnings of $10 million for the three months and $39 million for the seven months ended September 30, 2016 and interest income from the shareholder loan of $6 million for the three months and $14 million for the seven months ended September 30, 2016 within equity method earnings. Additionally, we received $2 million in the threefirst nine months ended and $4 millionof 2017 as compared to the same periods in the seven months ended September 30, 2016 of dividends on our investment in Keurig. We continue to account for our investments in JDE and Keurig under the equity method and recognize our share of their earnings within equity method investment earnings and our share of their dividends within our cash flows. As of September 30, 2016, Keurig is working to finalize the acquisition purchase price allocation.
Coffee Business Equity Earnings:
We have reflected the results of our historical coffee businesses and equity earnings from JDE, Keurig and DSF in our results from continuing operations as the coffee category continues to be a significant part of our net earnings and business strategy going forward. Historically, our coffee businesses and the income from equity method investments were recorded within our operating income as these businesses were part of our base business. While we retain an ongoing interest in coffee through equity method investments including JDE, Keurig and DSF, and we have significant influence with our equity method investments, we do not control these operations directly. As such, inprior year. During the third quarter of 2015,2017, net revenue growth was positively affected by favorable currency translation as the U.S. dollar weakened against several currencies in which we beganoperate compared to recognize equity method investment earnings, consisting primarilyexchange rates in the prior year, as well as the recovery of investmentsshipments delayed in coffee businesses, outside of operating income. For periods prior to the thirdsecond quarter of 2015, our historical coffee business and equity method investment earnings were included within our operating income. See Note 2,Divestitures and Acquisitions, for more information.
Venezuela Deconsolidation:
Effective as a result of the close of the 2015 fiscal year, we concluded that we no longer met the accounting criteria for consolidation of our Venezuelan subsidiaries due to a loss of control over our Venezuelan operations and an other-than-temporary lack of currency exchangeability. As of the close of the 2015 fiscal year, we deconsolidated and changed to the cost method of accounting for our Venezuelan operations. We recorded a $778 million pre-tax loss on December 31, 2015 as we reduced the value of our cost method investment in Venezuela and all Venezuelan receivables held by our other subsidiaries to realizable fair value, resulting in full impairment. The recorded loss also included historical cumulative translation adjustments related to our Venezuelan operations that had previously been recorded in accumulated other comprehensive losses within equity.malware incident.
| • | | Organic Net Revenue, a non-GAAP financial measure on a constant currency basis, increased 2.8% to $6.4 billion in the third quarter of 2017 and increased 0.3% to $18.8 billion in the first nine months of 2017 as compared to the same periods in the prior year after recasting all periods to exclude the operating results from divestitures and an acquisition. (Refer toNon-GAAP Financial Measures appearing later in this section and Note 2,Divestitures and Acquisitions,for additional information.) We use Organic Net Revenue as it provides improved year-over-year comparability of our underlying results (see the definition of Organic Net Revenue and our reconciliation with net revenues withinNon-GAAP Financial Measures appearing later in this section). |
| • | | Diluted EPS attributable to Mondelēz International increased 85.7% to $0.65 in the third quarter of 2017 and increased 39.4% to $1.38 in the first nine months of 2017 as compared to the same periods in the prior year. During the third quarter and the first nine months of 2017, a benefit from the resolution of a Brazilian indirect tax matter and a gain on a divestiture significantly contributed to the increase in diluted EPS. See ourDiscussion and Analysis of Historical Resultsappearing later in this section for further details. |
Beginning in 2016, we no longer include net revenues, earnings or net assets of our Venezuelan subsidiaries within our condensed consolidated financial statements. Under the cost method of accounting, earnings are only recognized to the extent cash is received. Given the current and ongoing difficult economic, regulatory and business environment in Venezuela, there continues to be significant uncertainty related to our operations in Venezuela, and we expect these conditions will continue for the foreseeable future. We will monitor the extent of our ability to control our Venezuelan operations and the liquidity and availability of U.S. dollars at different rates as our current situation in Venezuela may change over time and lead to consolidation at a future date. See belowDiscussion and Analysis of Historical Results – Items Affecting Comparability of Financial Results, and Note 1,Basis of Presentation –Currency Translation and Highly Inflationary Accounting: Venezuela, for more information on our historical Venezuelan operating results, including the remeasurement loss recorded in the first quarter of 2015.
| • | | Adjusted EPS, a non-GAAP financial measure, increased 14.0% to $0.57 in the third quarter of 2017 and increased 10.6% to $1.57 in the first nine months of 2017 as compared to the same periods in the prior year after recasting all periods to exclude the operating results from divestitures and historical mark-to-market impacts. On a constant currency basis, Adjusted EPS increased 12.0% to $0.56 in the third quarter of 2017 and increased 12.0% to $1.59 in the first nine months of 2017. We use Adjusted EPS as it provides improved year-over-year comparability of our underlying results (see the definition of Adjusted EPS and our reconciliation with diluted EPS withinNon-GAAP Financial Measures appearing later in this section). See ourDiscussion and Analysis of Historical Resultsappearing later in this section for further details. |
Financial Outlook We seek to achieve top-tier financial performance. Weprofitable, long-term growth and manage our business to achieveattain this goal using our key operating metrics: Organic Net Revenue, Adjusted Operating Income and Adjusted EPS. We use these non-GAAP financial metrics and related computations such as margins internally to evaluate and manage our business and to plan and make nearnear- and long-term operating and strategic decisions. As such, we believe these metrics are useful to investors as they provide supplemental information in addition to our U.S. GAAP financial results. We believe providing investors with the same financial information that we use internally ensures that investors have the same data to make comparisons of our historical operating results, identify trends in our underlying operating results and havegain additional insight and transparency on how we evaluate our business. We believe our non-GAAP financial measures should always be considered in relation to our GAAP results, and we have provided reconciliations between our GAAP and non-GAAP financial measures inNon-GAAP Financial Measures, which appears later in this section. In addition to monitoring our key operating metrics, we monitor a number of developments orand trends that could impact our revenue and profitability objectives. | • | | Following the June 2016“Brexit”referendum vote, the United Kingdom (“U.K.”) is moving forwardobjectives, similar to those we highlighted in our most recently filed Annual Report on Form 10-K for the year ended December 31, 2016. Weak category growth and volatility in the global commodity and currency markets continue. As noted above, the malware incident resulted in an unfavorable impact to our 2017 revenue. We also expect to incur additional incremental expenses related to the incident and recovery process during the fourth quarter of 2017. We continue to monitor the U.K. planned exit from the E.U. (Brexit) and its impact on our results as well as currencies at risk of potential highly inflationary accounting, such as the Argentinian peso and the Ukrainian hryvnia. In connection with plans to exit the European Union (“E.U.”). When announced, Brexit caused volatility in global stock markets and currency exchange rates, affecting the markets in which we conduct business. Also, the value of the British pound sterling relative to the U.S. dollar declined, and the value of primarily the pound sterling continued to be negatively affected following the vote. Further volatility in the exchange rate is expected over the transition period. While we have not experienced significant business disruptions in our U.K. businesses immediately following the referendum, the devaluation of the British pound sterling adversely affected our translated results reported in U.S. dollars. We have a natural hedge in the form of pound-sterling denominated debt that acts as a net investment hedge, moving counter to adverse pound sterling currency translation impacts. British pound sterling currency transaction risks are also mitigated in part due to our global chocolate businesses buying cocoa in British pound sterling. In recent months, cocoa prices in British pound sterling have been volatile and trading above historic levels, largely in response to the recent devaluation of the pound. On a global basis, the impact to our chocolate businesses is mitigated as we purchase cocoa at a higher cost but with less expensive British pound sterling. We may not be able to fully offset the increased risks within the U.K., which could impact profitability in the near-term or longer should these conditions continue. While we continue to monitor and work to safeguard our business, the U.K. decision to leave the E.U. could adversely affect future demand for our products, our financial results and operations, and our relationships with customers, suppliers and employees in the short or long-term. |
On February 29, 2016, the collective bargaining agreements covering eight U.S. facilities that expired andon February 29, 2016, we began the re-negotiation of these agreements. We continue to work toward reaching an agreement with the union and have made plans to ensure business continuity during the re-negotiations.
In the fourth quarter For more information on these items, refer to ourDiscussion and Analysis of 2016, we began the integration of our EEMEA business into our EuropeHistorical Results and Asia Pacific segments. We expect this change to have a favorable impact on our operating performance beginning in late 2016 and prospectively due to the consolidation of offices and overhead reduction.
We also continue to note trends similar to those we highlighted in our most recently filed Annual Report on Form 10-K for the year ended December 31, 2015. In particular, volatility in the global commodity and currency markets continued through the third quarter of 2016, including most recently the impact from Brexit and currency devaluation issues noted in other countries. Refer toCommodity Trends appearing later in this section, andas well as Note 1,Basis of Presentation – Currency Translation and Highly Inflationary Accounting, for additional information on our commodity costs and specific currency risks we are monitoring. Also refer to Note 6,2014-2018 Restructuring Program, for additional information on the North America region collective bargaining agreement re-negotiations, and Note 15, Segment Reporting, for information on our segments and information on our EEMEA segment..
Summary of Results
Net revenues decreased 6.6% to $6.4 billion in the third quarter of 2016 and decreased 14.0% to $19.2 billion in the first nine months of 2016 as compared to the same periods in the prior year. Net revenues in 2016 were significantly affected by the July 2, 2015 contribution of our global coffee business to JDE, unfavorable currency translation as the U.S. dollar strengthened against most currencies in which we operate compared to exchange rates in the prior year, the deconsolidation of our historical Venezuelan operations and the year-over-year impact of last year’s accounting calendar change and the deconsolidation of our Venezuelan subsidiaries.
| • | | Organic Net Revenue increased 1.1% to $6.6 billion in the third quarter of 2016 and increased 1.6% to $20.1 billion in the first nine months of 2016 as compared to the same periods in the prior year. Organic Net Revenue is a non-GAAP financial measure we use to evaluate our underlying results (see the definition of Organic Net Revenue and our reconciliation with net revenues withinNon-GAAP Financial Measures appearing later in this section). |
| • | | Diluted EPS attributable to Mondelēz International decreased 92.2% to $0.35 in the third quarter of 2016 and decreased 79.6% to $0.99 in the first nine months of 2016 as compared to the same periods in the prior year. A number of significant items also affected the comparability of our reported results, as further described in theDiscussion and Analysis of Historical Results appearing later in this section and in the notes to the condensed consolidated financial statements. |
| • | | Adjusted EPS increased 36.8% to $0.52 in the third quarter of 2016 and increased 22.5% to $1.47 in the first nine months of 2016 as compared to the same periods in the prior year. On a constant currency basis, Adjusted EPS increased 42.1% to $0.54 in the third quarter of 2016 and increased 27.5% to $1.53 in the first nine months of 2016. Adjusted EPS and Adjusted EPS on a constant currency basis are non-GAAP financial measures we use to evaluate our underlying results (see the definition of Adjusted EPS and our reconciliation with diluted EPS withinNon-GAAP Financial Measures appearing later in this section). |
Discussion and Analysis of Historical Results Items Affecting Comparability of Financial Results The following table includes significant income or (expense) items that affected the comparability of our pre-tax results of operations and our effective tax rates. Please refer to the notes to the condensed consolidated financial statements indicated below for more information. Refer also to theConsolidated Results of Operations – Net Earnings and Earnings per Share Attributable to Mondelēz International table for the after-tax per share impacts of these items. | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | | September 30, | | | September 30, | | | | See Note | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | | | | (in millions) | | | | | | | | Coffee business transactions: | | Note 2 | | | | | | | | | | | | | | | | | Gain on contribution | | | | $ | – | | | $ | 7,122 | | | $ | – | | | $ | 7,122 | | Incremental costs for readying the businesses | | | | | – | | | | (54 | ) | | | – | | | | (239 | ) | Currency-related hedging net gain | | | | | – | | | | 29 | | | | – | | | | 436 | | Gain on Keurig equity method investment exchange(1) | | | | | – | | | | – | | | | 43 | | | | – | | | | | | | | Venezuela: | | Note 1 | | | | | | | | | | | | | | | | | Historical operating income(2) | | | | | – | | | | 73 | | | | – | | | | 188 | | Remeasurement of net monetary assets | | | | | – | | | | – | | | | – | | | | (11 | ) | | | | | | | 2014-2018 Restructuring Program: | | Note 6 | | | | | | | | | | | | | | | | | Restructuring charges | | | | | (187 | ) | | | (146 | ) | | | (480 | ) | | | (442 | ) | Implementation charges | | | | | (114 | ) | | | (75 | ) | | | (286 | ) | | | (185 | ) | | | | | | | Loss on debt extinguishment and related expenses | | Note 7 | | | – | | | | – | | | | – | | | | (713 | ) | | | | | | | Loss related to interest rate swaps | | Note 7 | | | – | | | | – | | | | (97 | ) | | | (34 | ) | | | | | | | Intangible asset impairment charges | | Note 5 | | | (4 | ) | | | – | | | | (30 | ) | | | – | | | | | | | | Divestitures, Acquisitions and Sales of Property | | Note 2 | | | | | | | | | | | | | | | | | Gain on sale of trademarks | | | | | 7 | | | | – | | | | 13 | | | | – | | Gain on divestiture | | | | | – | | | | – | | | | – | | | | 13 | | Divestiture-related costs | | | | | – | | | | – | | | | (84 | ) | | | – | | Gains on sales of property | | | | | 7 | | | | – | | | | 46 | | | | – | | | | | | | | Mark-to-market gains (losses) from derivatives(3) | | Note 8 & 15 | | | (12 | ) | | | (4 | ) | | | (49 | ) | | | 35 | | | | | | | | Effective tax rate | | Note 13 | | | 7.2 | % | | | 4.5 | % | | | 13.6 | % | | | 6.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | | See Note | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | | | | (in millions, except percentages) | | Gain on equity method investment exchange | | | Note 2 | | | $ | – | | | $ | – | | | $ | – | | | $ | 43 | | 2014-2018 Restructuring Program: | | | Note 6 | | | | | | | | | | | | | | | | | | Restructuring charges | | | | | | | (113 | ) | | | (187 | ) | | | (418 | ) | | | (480 | ) | Implementation charges | | | | | | | (62 | ) | | | (114 | ) | | | (179 | ) | | | (286 | ) | Loss related to interest rate swaps | | | Note 7 & 8 | | | | – | | | | – | | | | – | | | | (97 | ) | Loss on debt extinguishment | | | Note 7 | | | | – | | | | – | | | | (11 | ) | | | – | | Intangible asset impairment charges | | | Note 5 | | | | (71 | ) | | | (4 | ) | | | (109 | ) | | | (30 | ) | Divestitures and sales of property | | | Note 2 | | | | | | | | | | | | | | | | | | Net gain on divestitures | | | | | | | 187 | | | | – | | | | 184 | | | | – | | Gain on sale of intangible assets | | | | | | | – | | | | 7 | | | | – | | | | 13 | | Divestiture-related costs | | | | | | | 2 | | | | – | | | | (26 | ) | | | (84 | ) | Gains on sales of property | | | | | | | – | | | | 7 | | | | – | | | | 46 | | Mark-to-market gains/(losses) from derivatives | | | Note 15 | | | | 28 | | | | (12 | ) | | | (69 | ) | | | (49 | ) | Benefits from resolution of tax matters(1) | | | Note 11 | | | | 215 | | | | – | | | | 273 | | | | – | | Malware incident incremental expenses | | | | | | | (47 | ) | | | – | | | | (54 | ) | | | – | | Effective tax rate | | | Note 13 | | | | 23.4 | % | | | 7.2 | % | | | 21.3 | % | | | 13.6 | % |
| (1) | TheRefer to Note 11,Commitments and Contingencies – Tax Matters, for more information. During the first quarter of 2017, we recorded a $58 million gain on equity method investment exchange isthe settlement of a pre-acquisition Cadbury tax matter and during the third quarter of 2017, we recorded outsideadditional income of pre-tax$3 million. During the third quarter of 2017, we recorded a $212 million reversal of tax liabilities in connection with the resolution of a Brazilian indirect tax matter, with $153 million in operating results on the condensed consolidated statement of earnings as it relates to our after-tax equity method investments. |
| (2) | Excludes the impact of remeasurement lossesincome and 2014-2018 Restructuring Program charges that are shown separately. |
| (3) | Unrealized gains or losses on commodity and forecasted currency transaction derivatives.$59 million in interest income. |
Consolidated Results of Operations The following discussion compares our consolidated results of operations for the three and nine months ended September 30, 20162017 and 2015.2016. Three Months Ended September 30: | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2016 | | | 2015 | | | $ change | | | % change | | | | (in millions, except per share data) | | | | | | | | | | Net revenues | | $ | 6,396 | | | $ | 6,849 | | | $ | (453 | ) | | | (6.6 | )% | | | | | | Operating income | | | 702 | | | | 7,802 | | | | (7,100 | ) | | | (91.0 | )% | | | | | | Net earnings attributable to Mondelēz International | | | 548 | | | | 7,266 | | | | (6,718 | ) | | | (92.5 | )% | | | | | | Diluted earnings per share attributable to Mondelēz International | | | 0.35 | | | | 4.46 | | | | (4.11 | ) | | | (92.2 | )% | | Net Revenues – Net revenues decreased $453 million (6.6%) to $6,396 million in the third quarter of 2016, and Organic Net Revenue(1) increased $74 million (1.1%) to $6,589 million. Power Brands net revenues decreased 5.2%, due to the deconsolidation of our historical Venezuelan operations and unfavorable currency, and Power Brands Organic Net Revenue increased 2.5%. Emerging markets net revenues decreased 14.6%, due to the deconsolidation of our historical Venezuelan operations and unfavorable currency, and emerging markets Organic Net Revenue increased 2.0%. The underlying changes in net revenues and Organic Net Revenue are detailed below: | | | | | | | 2016 | | | | | Change in net revenues (by percentage point) | | | | | | | | | | Higher net pricing | | | | | | | 0.6 | pp | | Favorable volume/mix | | | | | | | 0.5 | pp | | | | | | | | | | | | Total change in Organic Net Revenue(1) | | | | | | | 1.1% | | | Historical Venezuelan operations(2) | | | | | | | (4.5 | )pp | | Unfavorable currency | | | | | | | (2.9 | )pp | | Impact of accounting calendar changes | | | | | | | (0.3 | )pp | | | | | | | | | | | | Total change in net revenues | | | | | | | (6.6 | )% | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2017 | | | 2016 | | | $ change | | | % change | | | | (in millions, except per share data) | | | | | | | | | | Net revenues | | $ | 6,530 | | | $ | 6,396 | | | $ | 134 | | | | 2.1% | | | | | | | Operating income | | | 1,181 | | | | 702 | | | | 479 | | | | 68.2% | | | | | | | Net earnings attributable to Mondelēz International | | | 992 | | | | 548 | | | | 444 | | | | 81.0% | | | | | | | Diluted earnings per share attributable to Mondelēz International | | | 0.65 | | | | 0.35 | | | | 0.30 | | | | 85.7% | |
Net Revenues– Net revenues increased $134 million (2.1%) to $6,530 million in the third quarter of 2017, and Organic Net Revenue(1) increased $176 million (2.8%) to $6,416 million. Power Brands net revenues increased 5.6%, including a favorable currency impact, and Power Brands Organic Net Revenue increased 3.8%. Emerging markets net revenues increased 4.5%, including an unfavorable currency impact, and emerging markets Organic Net Revenue increased 4.8%. The underlying changes in net revenues and Organic Net Revenue are detailed below: | | | | | | | | | | | | | | 2017 | | Change in net revenues (by percentage point) | | | | | | | | | Total change in net revenues | | | | | | | 2.1 | % | Add back the following items affecting comparability: | | | | | | | | | Favorable currency | | | | | | | (1.3 | )pp | Impact of acquisition | | | | | | | (0.3 | )pp | Impact of divestitures | | | | | | | 2.3 | pp | | | | | | | | | | Total change in Organic Net Revenue(1) | | | | | | | 2.8 | % | | | | | | | | | | Higher net pricing | | | | | | | 1.5 | pp | Favorable volume/mix | | | | | | | 1.3 | pp |
| (1) | Please see theNon-GAAP Financial Measures section at the end of this item. |
| (2) | Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1,Basis of Presentation – Currency Translation and Highly Inflationary Accounting: Venezuela,for more information. |
Net revenue declineincrease of 6.6%2.1% was driven by the deconsolidation of our historical Venezuelan operations, unfavorable currency and the year-over-year impact of last year’s accounting calendar change, partially offset by our underlying Organic Net Revenue growthincrease of 1.1%. The deconsolidation2.8%, favorable currency and the impact of our historical Venezuelan operations resulted in a year-over-year decrease in net revenues of $315 million for the quarter. Unfavorable currency impacts decreased net revenues by $193 million, due primarily to the strength of the U.S. dollar relative to several currencies, including the British pound sterling, Argentinean peso and Mexican peso,an acquisition, partially offset by the strengthimpact of the Brazilian real, Australian dollar and Japanese yen relative to the U.S. dollar. The North America segment accounting calendar change made in 2015 resulted in a year-over-year decrease in net revenues of $19 million in the quarter.divestitures. Our underlying Organic Net Revenue growthincrease was driven by higher net pricing and favorable volume/mix.mix, including the recovery of shipments delayed as a result of the second quarter malware incident that we estimate had a positive impact of 0.6% on our net revenue and Organic Net Revenue growth. Net pricing was up, which includesincluded the benefit of carryover pricing from 20152016 and the first half of 2017 as well as the effects of input cost-driven pricing actions taken during the quarter.third quarter of 2017. Higher net pricing was reflected in Latin America and EEMEA, partially offset by lower net pricing in Europe, North America and Asia Pacific.all segments except Europe. Favorable volume/mix was reflected in Europe and North America, and Asia Pacific, partially offset by unfavorable volume/mixdeclines in Latin America and EEMEA. Unfavorable volume/mixAMEA. Favorable year-over-year currency impacts increased net revenues by $80 million, due primarily to the strength of several currencies relative to the U.S. dollar, including the euro, Russian ruble, Brazilian real, Australian dollar and Indian rupee, partially offset by the strength of the U.S. dollar relative to several currencies, including the Egyptian pound and Argentinian peso. The November 2, 2016 acquisition of a business and license to manufacture, market and sell Cadbury-branded biscuits in Latin America and EEMEA was largely due to price elasticity as well as strategic decisions to exit certain low-margin product lines.additional key markets added $20 million (constant currency basis) of incremental net revenues for the third quarter of 2017. The impact of divestitures resulted in a year-over-year decline in net revenues of $142 million for the third quarter of 2017. Operating Income– Operating income decreased $7,100increased $479 million (91.0%(68.2%) to $702$1,181 million in the third quarter of 2016,2017, Adjusted Operating Income(1) increased $120$126 million (13.5%(12.9%) to $1,011$1,100 million and Adjusted Operating Income on a constant currency basis(1) increased $151$106 million (16.9%(10.9%) to $1,042$1,080 million due to the following: | | | | | | | | | | | Operating | | | | | | | Income | | | Change | | | | (in millions) | | | (percentage point) | | | | | Operating Income for the Three Months Ended September 30, 2015 | | $ | 7,802 | | | | | | 2014-2018 Restructuring Program costs(2) | | | 221 | | | | 28.9pp | | Operating income from Venezuelan subsidiaries(3) | | | (78 | ) | | | (13.4)pp | | Costs associated with the JDE coffee business transactions(4) | | | 54 | | | | 9.6pp | | Gain on the JDE coffee business transactions(4) | | | (7,122 | ) | | | (94.2)pp | | Acquisition integration costs(5) | | | 4 | | | | 0.5pp | | Acquisition-related costs(5) | | | 6 | | | | 0.7pp | | Mark-to-market losses from derivatives(6) | | | 4 | | | | 0.5pp | | | | | | | | | | | Adjusted Operating Income(1) for the Three Months Ended September 30, 2015 | | $ | 891 | | | | | | Higher net pricing | | | 41 | | | | 4.7pp | | Higher input costs | | | (23 | ) | | | (2.7)pp | | Favorable volume/mix | | | 25 | | | | 2.8pp | | Lower selling, general and administrative expenses | | | 75 | | | | 8.5pp | | VAT-related settlements | | | 34 | | | | 3.9pp | | Gains on sales of property(5) | | | 7 | | | | 0.8pp | | Impact from accounting calendar changes | | | (9 | ) | | | (1.2)pp | | Impact from acquisition(5) | | | 1 | | | | 0.1pp | | | | | | | | | | | Total change in Adjusted Operating Income (constant currency)(1) | | | 151 | | | | 16.9% | | Unfavorable currency—translation | | | (31 | ) | | | (3.4)pp | | | | | | | | | | | Total change in Adjusted Operating Income(1) | | | 120 | | | | 13.5% | | | | | | | | | | | Adjusted Operating Income(1) for the Three Months Ended September 30, 2016 | | $ | 1,011 | | | | | | 2014-2018 Restructuring Program costs(2) | | | (301 | ) | | | (36.3)pp | | Intangible asset impairment charges(7) | | | (4 | ) | | | (0.4)pp | | Gain on sale of intangible asset(5) | | | 7 | | | | 0.8pp | | Mark-to-market losses from derivatives (6) | | | (12 | ) | | | (1.4)pp | | Other / rounding | | | 1 | | | | 0.2pp | | | | | | | | | | | Operating Income for the Three Months Ended September 30, 2016 | | $ | 702 | | | | (91.0)% | | | | | | | | | | |
| | | | | | | | | | | Operating Income | | | % Change | | | | (in millions) | | | | | | | | Operating Income for the Three Months Ended September 30, 2016 | | $ | 702 | | | | | | 2014-2018 Restructuring Program costs(2) | | | 301 | | | | | | Intangible asset impairment charges(3) | | | 4 | | | | | | Mark-to-market losses from derivatives(4) | | | 12 | | | | | | Operating income from divestitures(5) | | | (37 | ) | | | | | Gain on sale of intangible assets(6) | | | (7 | ) | | | | | Other/rounding | | | (1 | ) | | | | | | | | | | | | | | Adjusted Operating Income(1) for the Three Months Ended September 30, 2016 | | $ | 974 | | | | | | Higher net pricing | | | 93 | | | | | | Higher input costs | | | (68 | ) | | | | | Favorable volume/mix | | | 14 | | | | | | Lower selling, general and administrative expenses | | | 107 | | | | | | VAT-related settlement | | | (34 | ) | | | | | Gains on sales of property(7) | | | (7 | ) | | | | | Impact from acquisition(7) | | | 1 | | | | | | | | | | | | | | | Total change in Adjusted Operating Income (constant currency) (1) | | | 106 | | | | 10.9% | | Favorable currency – translation | | | 20 | | | | | | | | | | | | | | | Total change in Adjusted Operating Income(1) | | | 126 | | | | 12.9% | | | | | | | | | | | Adjusted Operating Income(1) for the Three Months Ended September 30, 2017 | | $ | 1,100 | | | | | | 2014-2018 Restructuring Program costs(2) | | | (175 | ) | | | | | Intangible asset impairment charges(3) | | | (71 | ) | | | | | Mark-to-market gains from derivatives(4) | | | 28 | | | | | | Malware incident incremental expenses | | | (47 | ) | | | | | Acquisition integration costs(8) | | | (1 | ) | | | | | Operating income from divestitures(5) | | | 4 | | | | | | Gain on divestiture(5) | | | 187 | | | | | | Benefits from resolution of tax matters(9) | | | 155 | | | | | | Other/rounding | | | 1 | | | | | | | | | | | | | | | Operating Income for the Three Months Ended September 30, 2017 | | $ | 1,181 | | | | 68.2% | | | | | | | | | | |
| (1) | Refer to theNon-GAAP Financial Measures section at the end of this item. |
| (2) | Refer to Note 6,2014-2018 Restructuring Program, for more information on our 2014-2018 Restructuring Program.information. |
| (3) | Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1,2,Basis of Presentation – Currency TranslationDivestitures and Highly Inflationary Accounting: Venezuela,Acquisitions, and Note 5,Goodwill and Intangible Assets, for more information on the deconsolidation in 2015.trademark impairments. |
| (4) | Refer to Note 2,8,Divestitures and AcquisitionsFinancial Instruments, Note 15,Segment Reporting, andNon-GAAP Financial Measures appearing later in this section for more information on the JDE coffee business transactions.unrealized gains/losses on commodity and forecasted currency transaction derivatives. |
| (5) | Refer to Note 2,Divestitures and Acquisitions, for more information on the 2016 acquisition of an interest in Keurig, 2016 intangible asset sale in Finland, 2015 acquisitions2017 sales of a biscuit operationconfectionery business in VietnamFrance and Enjoy Life Foodsa grocery business in Australia and other propertyNew Zealand and 2016 sales of property. Refer to our Annual Report on Form 10-K for the year ended December 31, 2016 for more information on the 2016 sale of a confectionery business in 2016.Costa Rica. |
| (6) | Refer to Note 8,2,Financial InstrumentsDivestitures and Acquisitions, Note 15,Segment Reporting, and Non-GAAP Financial Measures appearing later in this section for more information on these unrealized losses on commodity and forecasted currency transaction derivatives.the 2016 intangible asset sale in Finland. |
| (7) | Refer to Note 2,Divestitures and Acquisitions, for more information on the 2016 purchase of a license to manufacture, market and sell Cadbury-branded biscuits in additional key markets and other property sale in 2016. |
| (8) | Refer to our Annual Report on Form 10-K for the year ended December 31, 2016, for information on the acquisition of a biscuit business in Vietnam. |
| (9) | Refer to Note 5,11,GoodwillCommitments and Intangible Assets,Contingencies – Tax Matters, for more information on the impairment charges recordedreversal of tax liabilities in 2016 for a trademark in North America, a trademark in EEMEA and a trademark in Europe related toconnection with the planned saleresolution of a confectionery business in France.Brazilian indirect tax matter and settlement of a pre-acquisition Cadbury tax matter. |
During the third quarter, we realized higher net pricing whileas input costs increased modestly. Higher net pricing, which included the carryover impact of pricing actions taken in 2015,2016 and the first half of 2017 as well as the effects of input cost-driven pricing actions taken during the third quarter of 2017, was reflected in Latin America and EEMEA, partially offset by lower net pricing in Europe, North America and Asia Pacific.all segments except Europe. The increase in input costs was driven by higher raw material costs in part due to higher currency exchange transaction costs on imported materials, which were partially offset by lower manufacturing costs due to productivity.productivity gains. Favorable volume/mix, in part due to the recovery of shipments delayed as a result of the second quarter malware incident, was driven by Europe, North America and Asia Pacific, partially offset by unfavorable volume/mix in AMEA, Latin America and EEMEA.North America. Total selling, general and administrative expenses decreased $238$222 million from the third quarter of 2015,2016, due to a number of factors noted in the table above, including in part, the benefit from the resolution of a Brazilian indirect tax matter and lower implementation costs associated withincurred for the JDE coffee business transactions, a favorable2014-2018 Restructuring Program. The decreases were partially offset by the VAT-related settlement in 2016, an unfavorable currency impact, value-added tax (VAT)-related settlements,incremental expenses related to the deconsolidation of our Venezuelan operations,malware incident and the gains on sales of property gain on the sale of an intangible asset and the absence of acquisition-related costs.in 2016. Excluding the factors noted above, selling, general and administrative expenses decreased $75$107 million from the third quarter of 2015.2016. The decrease was driven primarily by lower overhead costs due to continued cost reduction efforts, and lower advertising and consumer promotions costs.efforts. The change in mark-to-market gains / (losses) from derivatives decreasedFavorable currency impacts increased operating income by $8 million in the third quarter of 2016. In the third quarter of 2016, the net unrealized losses on commodity and forecasted currency transaction derivatives were $12 million, as compared to net unrealized losses of $4 million in the third quarter of 2015.
Unfavorable currency impacts decreased operating income by $31$20 million due primarily to the strength of several currencies relative to the U.S. dollar, including the euro, Russian ruble, Brazilian real, Indian rupee and Australian dollar, partially offset by the strength of the U.S. dollar relative to several currencies, including the BritishEgyptian pound sterling and Argentinean peso, partially offset by the strength of the Brazilian real, Australian dollar and Japanese yen relative to the U.S. dollar.Argentinian peso.
Operating income margin decreasedincreased from 113.9% in the third quarter of 2015 to 11.0% in the third quarter of 2016.2016 to 18.1% in the third quarter of 2017. The decreaseincrease in operating income margin was driven primarily by last year’s pre-taxthe net gain on divestitures, the JDE coffee business transactions, higher costs incurred forbenefit from the resolution of a Brazilian indirect tax matter, lower 2014-2018 Restructuring Program and the deconsolidation of our Venezuelan operations. The items that decreased our operating income margin were partially offset bycosts, an increase in our Adjusted Operating Income margin and the absenceyear-over-year favorable impact of unrealized gains/(losses) on currency and commodity hedging activities, partially offset by higher intangible asset impairment charges, incremental costs associated withrelated to the JDE coffee business transactions.malware incident and the impact from divestitures. Adjusted Operating Income margin increased from 13.6%15.6% in the third quarter of 20152016 to 15.8%16.9% in the third quarter of 2016.2017. The increase in Adjusted Operating Income margin was driven primarily by lower overhead costs resultingoverheads from ourcontinued cost reduction programs, lower advertising and consumer promotion costs and improved gross margin reflecting productivity efforts. Net Earnings and Earnings per Share Attributable to Mondelēz International– Net earnings attributable to Mondelēz International of $548$992 million decreasedincreased by $6,718$444 million (92.5%(81.0%) in the third quarter of 2016.2017. Diluted EPS attributable to Mondelēz International was $0.35$0.65 in the third quarter of 2016, down $4.11 (92.2%2017, up $0.30 (85.7%) from the third quarter of 2015.2016. Adjusted EPS(1) was $0.52$0.57 in the third quarter of 2016,2017, up $0.14 (36.8%$0.07 (14.0%) tofrom the third quarter of 2015.2016. Adjusted EPS on a constant currency basis(1) was $0.54$0.56 in the third quarter of 2016,2017, up $0.16 (42.1%$0.06 (12.0%) from the third quarter of 2015.2016. | | | | | | | Diluted EPS | | | | Diluted EPS Attributable to Mondelēz International for the
Three Months Ended September 30, 2015
| | $ | 4.46 | | 2014-2018 Restructuring Program costs (2)
| | | 0.11 | | Net earnings from Venezuelan subsidiaries(3)
| | | (0.04 | ) | (Income) / costs associated with the JDE coffee business transactions (4)
| | | 0.04 | | Gain on JDE coffee business transactions (4)
| | | (4.25 | ) | Acquisition integration costs(5)
| | | – | | Acquisition-related costs(5)
| | | – | | Mark-to-market losses from derivatives(6)
| | | – | | Equity method investee acquisition-related and other adjustments (7)
| | | 0.06 | | | | | | | Adjusted EPS(1) for the Three Months Ended September 30, 2015
| | $ | 0.38 | | Increase in operations
| | | 0.05 | | Increase in operations from historical coffee business and equity method investments(8)
| | | 0.03 | | VAT-related settlements
| | | 0.03 | | Gains on sales of property (5)
| | | – | | Impact of accounting calendar changes
| | | – | | Impact of acquisition (5)
| | | – | | Higher interest and other expense, net(9)
| | | (0.01 | ) | Changes in shares outstanding(10)
| | | 0.02 | | Changes in income taxes (11)
| | | 0.04 | | | | | | | Adjusted EPS (constant currency)(1) for the Three Months Ended September 30, 2016
| | $ | 0.54 | | Unfavorable currency – translation
| | | (0.02 | ) | | | | | | Adjusted EPS(1) for the Three Months Ended September 30, 2016
| | $ | 0.52 | | 2014-2018 Restructuring Program costs (2)
| | | (0.14 | ) | Intangible asset impairment charges(12)
| | | – | | Gain on sale of intangible asset(5)
| | | – | | Mark-to-market losses from derivatives(6)
| | | – | | Equity method investee acquisition-related and other adjustments (7)
| | | (0.03 | ) | Other / rounding
| | | – | | | | | | | Diluted EPS Attributable to Mondelēz International for the
Three Months Ended September 30, 2016
| | $ | 0.35 | | | | | | |
| | | | | | | Diluted EPS | | | | Diluted EPS Attributable to Mondelēz International for the Three Months Ended September 30, 2016 | | $ | 0.35 | | 2014-2018 Restructuring Program costs (2) | | | 0.14 | | Intangible asset impairment charges(2) | | | – | | Mark-to-market gains from derivatives(2) | | | – | | Net earnings from divestitures(2) | | | (0.02 | ) | Gain on sale of intangible assets(2) | | | – | | Equity method investee acquisition-related and other adjustments(3) | | | 0.03 | | | | | | | Adjusted EPS(1) for the Three Months Ended September 30, 2016 | | $ | 0.50 | | Increase in operations | | | 0.08 | | Increase in equity method investment net earnings | | | 0.01 | | VAT-related settlements | | | (0.02 | ) | Gains on sales of property(2) | | | – | | Impact from acquisition (2) | | | – | | Lower interest and other expense, net(4) | | | 0.03 | | Changes in shares outstanding(5) | | | 0.02 | | Changes in income taxes (6) | | | (0.06 | ) | | | | | | Adjusted EPS (constant currency)(1) for the Three Months Ended September 30, 2017 | | $ | 0.56 | | Favorable currency – translation | | | 0.01 | | | | | | | Adjusted EPS(1) for the Three Months Ended September 30, 2017 | | $ | 0.57 | | 2014-2018 Restructuring Program costs (2) | | | (0.08 | ) | Intangible asset impairment charges(2) | | | (0.04 | ) | Mark-to-market gains from derivatives(2) | | | 0.02 | | Malware incident incremental expenses | | | (0.02 | ) | Divestiture-related costs(7) | | | (0.01 | ) | Net earnings from divestitures(2) | | | – | | Gain on divestiture(2) | | | 0.12 | | Benefits from resolution of tax matters(2) | | | 0.09 | | Equity method investee acquisition-related and other adjustments (3) | | | – | | | | | | | Diluted EPS Attributable to Mondelēz International for the Three Months Ended September 30, 2017 | | $ | 0.65 | | | | | | |
| (1) | Refer to theNon-GAAP Financial Measures section at the end ofappearing later in this item.section. |
| (2) | Refer to Note 6,See the2014-2018 Restructuring ProgramOperating Income, table above and the related footnotes for more information on our 2014-2018 Restructuring Program.information. |
| (3) | Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1,Basis of Presentation – Currency Translation and Highly Inflationary Accounting: Venezuela,for more information on the deconsolidation and remeasurement loss in 2015. |
| (4) | Refer to Note 2,Divestitures and Acquisitions, for more information on the JDE coffee business transactions. |
| (5) | Refer to Note 2,Divestitures and Acquisitions, for more information on the 2016 acquisition of an interest in Keurig, 2016 intangible asset sale in Finland, 2015 acquisitions of a biscuit operation in Vietnam and Enjoy Life Foods and other property sales in 2016. |
| (6) | Refer to Note 8,Financial Instruments, Note 15,Segment Reporting, and Non-GAAP Financial Measures appearing later in this section for more information on these unrealized losses on commodity and forecasted currency transaction derivatives. |
| (7) | Includes our proportionate share of unusual or infrequent items, such as acquisition and divestiture-related costs and restructuring program costs, recorded by our JDE and Keurig equity method investees. |
| (8) | Includes our historical coffee business results and equity earnings from JDE and our other equity method investees. Refer to Note 2,Divestitures and Acquisitions, and Non-GAAP Financial Measures appearing later in this section for more information. |
| (9)(4) | Excludes the favorable currency impact on interest expense related to our non-U.S. dollar-denominated debt which is included in currency translation. |
| (10)(5) | Refer to Note 10,Stock Plans, for more information on our equity compensation programs and share repurchase program and Note 14,Earnings Per Share, for earnings per share weighted-average share information. |
| (11)(6) | Refer to Note 10,Stock Plans, for more information on a $7 million earnings impact (in the provision for income taxes) in the third quarter of 2017 related to adopting a new stock-based compensation accounting standard in 2017 and Note 13,Income Taxes, for more information on the change in our income taxes and effective tax rate. |
| (12)(7) | Refer to Note 2,Divestitures and AcquisitionsAcquisition, and Note 5,Goodwill and Intangible Assets, for more information on the impairment charges recorded in 2016 for a trademark in North America, a trademark in EEMEA and a trademark in Europe related to the planned sale of a confectionerygrocery business in France.Australia and New Zealand and related taxes as well as a related gain on a foreign currency hedge. |
Nine Months Ended September 30: | | | | | | | | | | | | | | | | | | | For the Nine Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2016 | | | 2015 | | | $ change | | | % change | | | | (in millions, except per share data) | | | | | | | | | | Net revenues | | $ | 19,153 | | | $ | 22,272 | | | $ | (3,119 | ) | | | (14.0)% | | | | | | | Operating income | | | 2,062 | | | | 9,454 | | | | (7,392 | ) | | | (78.2)% | | | | | | | Net earnings attributable to Mondelēz International | | | 1,566 | | | | 7,996 | | | | (6,430 | ) | | | (80.4)% | | | | | | | Diluted earnings per share attributable to Mondelēz International | | | 0.99 | | | | 4.86 | | | | (3.87 | ) | | | (79.6)% | | | Net Revenues– Net revenues decreased $3,119 million (14.0%) to $19,153 million in the first nine months of 2016, and Organic Net Revenue(1) increased $319 million (1.6%) to $20,073 million. Power Brands net revenues decreased 13.5%, primarily due to the deconsolidation of our historical coffee business, unfavorable currency and the deconsolidation of our historical Venezuelan operations, and Power Brands Organic Net Revenue increased 3.1%. Emerging markets net revenues decreased 20.1%, primarily due to the deconsolidation of our historical coffee business, unfavorable currency and the deconsolidation of our historical Venezuelan operations, and emerging markets Organic Net Revenue increased 3.1%. The underlying changes in net revenues and Organic Net Revenue are detailed below: | | | | | | | 2016 | | | | | Change in net revenues (by percentage point) | | | | | | | | | | Higher net pricing | | | | | | | 1.7 | pp | | Unfavorable volume/mix | | | | | | | (0.1 | )pp | | | | | | | | | | | | Total change in Organic Net Revenue(1) | | | | | | | 1.6% | | | Historical coffee business(2) | | | | | | | (7.4 | )pp | | Unfavorable currency | | | | | | | (5.0 | )pp | | Historical Venezuelan operations(3) | | | | | | | (3.3 | )pp | | Impact of accounting calendar change | | | | | | | (0.3 | )pp | | Impact of acquisitions | | | | | | | 0.4 | pp | | | | | | | | | | | | Total change in net revenues | | | | | | | (14.0 | )% | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, | | | | | | | | | | 2017 | | | 2016 | | | $ change | | | % change | | | | (in millions, except per share data) | | | | | | | | | | Net revenues | | $ | 18,930 | | | $ | 19,153 | | | $ | (223 | ) | | | (1.2)% | | | | | | | Operating income | | | 2,662 | | | | 2,062 | | | | 600 | | | | 29.1% | | | | | | | Net earnings attributable to Mondelēz International | | | 2,120 | | | | 1,566 | | | | 554 | | | | 35.4% | | | | | | | Diluted earnings per share attributable to Mondelēz International | | | 1.38 | | | | 0.99 | | | | 0.39 | | | | 39.4% | |
Net Revenues– Net revenues decreased $223 million (1.2%) to $18,930 million in the first nine months of 2017, and Organic Net Revenue(1) increased $55 million (0.3%) to $18,766 million. Power Brands net revenues increased 1.4%, including an unfavorable currency impact, and Power Brands Organic Net Revenue increased 1.5%. Emerging markets net revenues increased 2.4%, including an unfavorable currency impact, and emerging markets Organic Net Revenue increased 2.7%. The underlying changes in net revenues and Organic Net Revenue are detailed below: | | | | | | | | | | | | | | | | | | | | | 2017 | | Change in net revenues (by percentage point) | | | | | | | | | | Total change in net revenues | | | | | | | | | | | (1.2 | )% | Add back the following items affecting comparability: | | | | | | | | | | Impact of divestitures | | | | | | | | | | | 1.0 | pp | Unfavorable currency | | | | | | | | | | | 0.8 | pp | Impact of acquisitions | | | | | | | | | | | (0.3 | )pp | | | | | | | | | | | | | | Total change in Organic Net Revenue(1) | | | | | | | | | | | 0.3 | % | | | | | | | | | | | | | | Higher net pricing | | | | | | | | | | | 1.2 | pp | Unfavorable volume/mix | | | | | | | | | | | (0.9 | )pp |
| (1) | Please see theNon-GAAP Financial Measures section at the end of this item. |
| (2) | Includes our historical global coffee business prior to the July 2, 2015 JDE coffee business transactions. Refer to Note 2,Divestitures and Acquisitions,andNon-GAAP Financial Measuresappearing later in this section for more information. |
| (3) | Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1,Basis of Presentation – Currency Translation and Highly Inflationary Accounting: Venezuela,for more information. |
Net revenue decline of 14.0%1.2% was driven by the impact of the deconsolidation of our historical coffee business,divestitures and unfavorable currency, the deconsolidation of our historical Venezuelan operations and the year-over-year impact of last year’s accounting calendar change, partially offset by our underlying Organic Net Revenue growth of 1.6%0.3% and the impact of last year’s acquisitions.an acquisition. The adjustment for deconsolidating our historical coffee businessimpact of divestitures resulted in a year-over-year decreasedecline in net revenues of $1,627$193 million for the first nine months of 2016.2017. Unfavorable year-over-year currency impacts decreased net revenues by $996$135 million, due primarily to the strength of the U.S. dollar relative to several currencies, including the Argentinean peso, British pound sterling, Egyptian pound, Argentinian peso, Nigerian naira, Turkish lira and Chinese yuan, partially offset by the strength of several currencies relative to the U.S. dollar, including the Brazilian real, Mexican peso, Russian ruble, South African rand and Chinese yuan. The deconsolidation of our historical Venezuelan operations resulted in a year-over-year decrease in net revenues of $834 million for the first nine months of 2016. The North America segment accounting calendar change made in 2015 resulted in a year-over-year decrease in net revenues of $57 million for the first nine months of 2016.Australian dollar. Our underlying Organic Net Revenue growthincrease was driven by higher net pricing, partially offset by unfavorable volume/mix. Net pricing was up, which includes the benefit of carryover pricing from 20152016 as well as the effects of input cost-driven pricing actions taken during the first nine months of 2016.2017. Higher net pricing was reflected in Latin America EEMEA, and Asia Pacific,AMEA, partially offset by lower net pricing in Europe and North America. Unfavorable volume/mix was reflected in Latin America and EEMEA, mostly offset by favorable volume/mixall segments except Europe, in all other segments. Unfavorable volume/mix in Latin America and EEMEA was largelypart due to price elasticity as well as strategic decisions to exit certain low-margin product lines.expected shipments that we did not realize following the second quarter malware incident. The impact of acquisitions primarily includes the July 15, 2015November 2, 2016 acquisition of a biscuit operationbusiness and license to manufacture, market and sell Cadbury-branded biscuits in Vietnam, whichadditional key markets added $71$50 million (constant currency basis) of incremental net revenues for the first nine months of 2016.2017. Operating Income– Operating income decreased $7,392increased $600 million (78.2%(29.1%) to $2,062$2,662 million in the first nine months of 2016,2017, Adjusted Operating Income(1) increased $416$192 million (16.2%(6.7%) to $2,982$3,075 million and Adjusted Operating Income on a constant currency basis(1) increased $548$245 million (21.4%(8.5%) to $3,114$3,128 million due to the following: | | | | | | | | | | | Operating | | | | | | | Income | | | Change | | | | (in millions) | | | (percentage point) | | | | | Operating Income for the Nine Months Ended September 30, 2015 | | $ | 9,454 | | | | | | 2012-2014 Restructuring Program costs(2) | | | (3 | ) | | | (0.2)pp | | 2014-2018 Restructuring Program costs(2) | | | 627 | | | | 27.1pp | | Operating income from Venezuelan subsidiaries(3) | | | (208 | ) | | | (8.8)pp | | Remeasurement of net monetary assets in Venezuela(3) | | | 11 | | | | 0.5pp | | Operating income from historical coffee business(4) | | | (342 | ) | | | (18.9)pp | | Costs associated with the JDE coffee business transactions(5) | | | 239 | | | | 14.8pp | | Gain on the JDE coffee business transactions(5) | | | (7,122 | ) | | | (66.6)pp | | Reclassification of equity method investment earnings(6) | | | (51 | ) | | | (3.5)pp | | Operating income from divestiture(7) | | | (5 | ) | | | (0.3)pp | | Gain on divestiture(7) | | | (13 | ) | | | (0.5)pp | | Acquisition integration costs(8) | | | 5 | | | | 0.3pp | | Acquisition-related costs(8) | | | 8 | | | | 0.3pp | | Mark-to-market gains from derivatives(9) | | | (35 | ) | | | (1.5)pp | | Other / rounding | | | 1 | | | | 0.1pp | | | | | | | | | | | Adjusted Operating Income(1) for the Nine Months Ended September 30, 2015 | | $ | 2,566 | | | | | | Higher net pricing | | | 339 | | | | 13.3pp | | Higher input costs | | | (63 | ) | | | (2.5)pp | | Favorable volume/mix | | | 23 | | | | 0.9pp | | Lower selling, general and administrative expenses | | | 192 | | | | 7.6pp | | Gains on sales of property(8) | | | 46 | | | | 1.8pp | | VAT-related settlements | | | 34 | | | | 1.3pp | | Impact of accounting calendar change(10) | | | (27 | ) | | | (1.2)pp | | Impact from acquisitions(8) | | | 5 | | | | 0.2pp | | Other | | | (1 | ) | | | – | | | | | | | | | | | Total change in Adjusted Operating Income (constant currency)(1) | | | 548 | | | | 21.4% | | Unfavorable currency—translation | | | (132 | ) | | | (5.2)pp | | | | | | | | | | | Total change in Adjusted Operating Income(1) | | | 416 | | | | 16.2% | | | | | | | | | | | Adjusted Operating Income(1) for the Nine Months Ended September 30, 2016 | | $ | 2,982 | | | | | | 2014-2018 Restructuring Program costs(2) | | | (766 | ) | | | (31.2)pp | | Intangible asset impairment charges(11) | | | (30 | ) | | | (1.1)pp | | Gain on sale of intangible asset(8) | | | 13 | | | | 0.5pp | | Divestiture-related costs(12) | | | (84 | ) | | | (3.3)pp | | Acquisition integration costs(8) | | | (6 | ) | | | (0.3)pp | | Mark-to-market losses from derivatives(9) | | | (49 | ) | | | (1.9)pp | | Other / rounding | | | 2 | | | | 0.1pp | | | | | | | | | | | Operating Income for the Nine Months Ended September 30, 2016 | | $ | 2,062 | | | | (78.2)% | | | | | | | | | | |
| | | | | | | | | | | Operating Income | | | % Change | | | | (in millions) | | | | | | | | Operating Income for the Nine Months Ended September 30, 2016 | | $ | 2,062 | | | | | | 2014-2018 Restructuring Program costs(2) | | | 766 | | | | | | Intangible asset impairment charges(3) | | | 30 | | | | | | Mark-to-market losses from derivatives(4) | | | 49 | | | | | | Acquisition integration costs(5) | | | 6 | | | | | | Divestiture-related costs(6) | | | 84 | | | | | | Operating income from divestitures(6) | | | (99 | ) | | | | | Gain on sale of intangible assets(7) | | | (13 | ) | | | | | Other/rounding | | | (2 | ) | | | | | | | | | | | | | | Adjusted Operating Income(1) for the Nine Months Ended September 30, 2016 | | $ | 2,883 | | | | | | Higher net pricing | | | 233 | | | | | | Higher input costs | | | (116 | ) | | | | | Unfavorable volume/mix | | | (140 | ) | | | | | Lower selling, general and administrative expenses | | | 315 | | | | | | Gains on sales of property(8) | | | (46 | ) | | | | | VAT-related settlements | | | (34 | ) | | | | | Property insurance recovery | | | 27 | | | | | | Impact from acquisitions(8) | | | 7 | | | | | | Other | | | (1 | ) | | | | | | | | | | | | | | Total change in Adjusted Operating Income (constant currency) (1) | | | 245 | | | | 8.5% | | Unfavorable currency – translation | | | (53 | ) | | | | | | | | | | | | | | Total change in Adjusted Operating Income(1) | | | 192 | | | | 6.7% | | | | | | | | | | | Adjusted Operating Income(1) for the Nine Months Ended September 30, 2017 | | $ | 3,075 | | | | | | 2014-2018 Restructuring Program costs(2) | | | (597 | ) | | | | | Intangible asset impairment charges(3) | | | (109 | ) | | | | | Mark-to-market losses from derivatives(4) | | | (69 | ) | | | | | Malware incident incremental expenses | | | (54 | ) | | | | | Acquisition integration costs(5) | | | (2 | ) | | | | | Divestiture-related costs(6) | | | (23 | ) | | | | | Operating income from divestitures(6) | | | 55 | | | | | | Net gain on divestitures(6) | | | 184 | | | | | | Benefits from resolution of tax matters(9) | | | 201 | | | | | | Other/rounding | | | 1 | | | | | | | | | | | | | | | Operating Income for the Nine Months Ended September 30, 2017 | | $ | 2,662 | | | | 29.1% | | | | | | | | | | |
| (1) | Refer to theNon-GAAP Financial Measures section at the end of this item. |
| (2) | Refer to Note 6,2014-2018 Restructuring Program, for more information. |
| (3) | Refer to Note 2,Divestitures and Acquisitions, and Note 5,Goodwill and Intangible Assets, for more information on trademark impairments. |
| (4) | Refer to Note 8,Financial Instruments, Note 15,Segment Reporting, andNon-GAAP Financial Measures appearing later in this section for more information on the unrealized losses on commodity and forecasted currency transaction derivatives. |
| (5) | Refer to our 2014-2018 Restructuring Program and Note 6 to the consolidated financial statement in ourAnnual Report on Form 10-K for the year ended December 31, 20152016, for more information on our 2012-2014 Restructuring Program.the acquisition of a biscuit business in Vietnam. |
| (3) | Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1,Basis ofPresentation – Currency Translation and Highly Inflationary Accounting: Venezuela,for more information on the deconsolidation and remeasurement loss in 2015. |
| (4) | Includes our historical global coffee business prior to the July 2, 2015 deconsolidation. Refer to Note 2,Divestitures and Acquisitions,andNon-GAAP Financial Measuresappearing later in this section for more information. |
| (5)(6) | Refer to Note 2,Divestitures and Acquisitions, for more information on the JDE coffee2017 sales of a confectionery business transactions. |
| (6) | Historically, we recorded income from equity method investments withinin France and a grocery business in Australia and New Zealand. Refer to our operating income as these investments operated as extensionsAnnual Report on Form 10-K for the year ended December 31, 2016 for more information on the 2016 sale of our base business. Beginninga confectionery business in the third quarter of 2015, to align with the accounting for JDE earnings, we began to record the earnings from our equity method investments in equity method investment earnings outside of operating income. In periods prior to July 2, 2015, we have reclassified the equity method earnings from Adjusted Operating Income to evaluate our operating results on a consistent basis.Costa Rica. |
| (7) | Refer to Note 2,Divestitures and Acquisitions, for more information on the April 23, 2015 divestiture of AGF. The divestiture of AGF generated a pre-tax gain of $13 million and after-tax loss of $9 million2016 intangible asset sale in the second quarter of 2015.Finland. |
| (8) | Refer to Note 2,Divestitures and Acquisitions, for more information on the 2016 acquisition of an interest in Keurig, 2016 intangible asset sale in Finland, 2015 acquisitionspurchase of a biscuit operationlicense to manufacture, market and sell Cadbury-branded biscuits in Vietnam and Enjoy Life Foodsadditional key markets and other property sales in 2016. |
| (9) | Refer to Note 8,11,Financial Instruments, Note 15,Segment Reporting,Commitments and Non-GAAP Financial Measures appearing later in this section for more information on these unrealized gains and losses on commodity and forecasted currency transaction derivatives. |
| (10) | Refer to Note 1,Basis of Presentation, for more information on the accounting calendar change in 2015. |
| (11) | Refer to Note 2,Divestitures and Acquisitions, and Note 5,Goodwill and Intangible Assets,Contingencies – Tax Matters, for more information on the impairment charges recorded in 2016 for a trademark in North America, a trademark in EEMEA and two trademarks in Europe related to the planned salesettlement of a confectionery businesspre-acquisition Cadbury tax matter and the reversal of tax liabilities in France. |
| (12) | Includes costs incurred and accrued related toconnection with the planned saleresolution of a confectionery business in France. Refer to Note 2,Divestitures and Acquisitions, for more information.Brazilian indirect tax matter. |
During the first nine months of 2016,2017, we realized higher net pricing while input costs increased modestly. Higher net pricing, which included the carryover impact of pricing actions taken in 2015,2016 and the first half of 2017 as well as the effects of input cost-driven pricing actions taken during the third quarter of 2017, was reflected across all segments exceptdriven by Latin America and AMEA, partially offset by lower net pricing in Europe and North America. The increase in input costs was driven by higher raw material costs in part due to higher currency exchange transaction costs on imported materials, which were partially offset by lower manufacturing costs due to productivity. FavorableUnfavorable volume/mix, in part due to expected shipments that we did not realize following the second quarter malware incident, was driven by Europe, North America, AMEA, and Asia Pacific,Latin America, which was mostlypartially offset by unfavorablefavorable volume/mix in Latin America and EEMEA.Europe. Total selling, general and administrative expenses decreased $840$581 million from the first nine months of 2015,2016, due to a number of factors noted in the table above, including in part, the deconsolidationbenefits from the resolution of our historical coffee business, a favorable currency impact,tax matters, lower costs associated with the JDE coffee business transactions, the deconsolidation of our Venezuelan operations, gains on the sales of property, VAT-related settlements and the absence of devaluation charges related to our net monetary assets in Venezuela in 2016. The decreases were partially offset by increases from divestiture-related costs associated with the planned sale of a confectionery business in France, the reclassification of equity method investment earnings, higherimplementation costs incurred for the 2014-2018 Restructuring Program, lower divestiture-related costs and a property insurance recovery in AMEA. The decreases were partially offset by higher intangible asset impairment charges, gains on sales of property in 2016 and incremental expenses incurred due to the impact of acquisitions.malware incident. Excluding the factors noted above, selling, general and administrative expenses decreased $192$315 million from the first nine months of 2015.2016. The decrease was driven primarily by lower overhead costs and lower advertising and consumer promotion costs due to continued cost reduction efforts partially offset by higher advertising and consumer promotions support, particularly behind our Power Brands. Excluding the portion related to deconsolidating our historical coffee business, the change in mark-to-market gains / (losses) from derivatives decreased operating income by $84 million in the first nine months of 2016. In the first nine months of 2016, the net unrealized losses on commodity and forecasted currency transaction derivatives were $49 million, as compared to net unrealized gains of $35 million ($75 million including coffee related activity) in the first nine months of 2015.both areas.
Unfavorable currency impacts decreased operating income by $132$53 million, due primarily to the strength of the U.S. dollar relative to mostseveral currencies, including the Egyptian pound and British pound sterling, Argentinean pesopartially offset by the strength of several currencies relative to the U.S. dollar, including the Brazilian real, Russian ruble, Australian dollar and Brazilian real.South African rand. Operating income margin decreasedincreased from 42.4% in the first nine months of 2015, to 10.8% in the first nine months of 2016.2016 to 14.1% in the first nine months of 2017. The decreaseincrease in operating income margin was driven primarily by last year’s pre-tax gain on the JDE coffee business transactions, the deconsolidation of our historical coffee business, higher costs incurred for the 2014-2018 Restructuring Program, the deconsolidation of our Venezuelan operations, divestiture-related costs associated with the planned sale of a confectionery business in France, the change in mark-to-market gains/losses from derivatives, the reclassification of equity method earnings and intangible asset impairment charges. The items that decreased our operating income margin were partially offset by the absence of costs associated with the JDE coffee business transactions and an increase in our Adjusted Operating Income margin.margin, the benefits from the resolution of tax matters, the net gain on divestitures, lower 2014-2018 Restructuring Program costs and lower divestiture-related costs, partially offset by higher intangible asset impairment charges, incremental costs related to the malware incident and the year-over-year unfavorable impact of unrealized gains/(losses) on currency and commodity hedging activities. Adjusted Operating Income margin increased from 13.0%15.4% in the first nine months of 20152016 to 15.6%16.5% in the first nine months of 2016.2017. The increase in Adjusted Operating Income margin was driven primarily by lower overheads fromand lower advertising and consumer promotion costs due to continued cost reduction programs, improved gross margin reflecting productivity efforts gains on sales of property and VAT-related settlements.in both areas. Net Earnings and Earnings per Share Attributable to Mondelēz International– Net earnings attributable to Mondelēz International of $1,566$2,120 million decreasedincreased by $6,430$554 million (80.4%(35.4%) in the first nine months of 2016.2017. Diluted EPS attributable to Mondelēz International was $0.99$1.38 in the first nine months of 2016, down $3.87 (79.6%2017, up $0.39 (39.4%) from the first nine months of 2015.2016. Adjusted EPS(1) was $1.47$1.57 in the first nine months of 2016,2017, up $0.27 (22.5%$0.15 (10.6%) from the first nine months of 2015.2016. Adjusted EPS on a constant currency basis(1) was $1.53$1.59 in the first nine months of 2016,2017, up $0.33 (27.5%$0.17 (12.0%) from the first nine months of 2015.2016. | | | | | | | Diluted EPS | | Diluted EPS Attributable to Mondelēz International for the Nine Months Ended September 30, 2015 | | $ | 4.86 | | 2012-2014 Restructuring Program costs (2) | | | – | | 2014-2018 Restructuring Program costs (2) | | | 0.29 | | Net earnings from Venezuelan subsidiaries(3) | | | (0.08 | ) | Remeasurement of net monetary assets in Venezuela(3) | | | 0.01 | | (Income) / costs associated with the JDE coffee business transactions (4) | | | (0.03 | ) | Gain on the JDE coffee business transactions (4) | | | (4.21 | ) | Net earnings from divestiture (5) | | | 0.02 | | Loss on divestiture (5) | | | 0.01 | | Acquisition integration costs(6) | | | – | | Acquisition-related costs(6) | | | – | | Loss on debt extinguishment and related expenses(7) | | | 0.28 | | Loss related to interest rate swaps (8) | | | 0.01 | | Mark-to-market gains from derivatives(9) | | | (0.02 | ) | Equity method investee acquisition-related and other adjustments (10) | | | 0.06 | | Other / rounding | | | – | | | | | | | Adjusted EPS(1) for the Nine Months Ended September 30, 2015 | | $ | 1.20 | | Increase in operations | | | 0.22 | | Decrease in operations from historical coffee business and equity method investments(11) | | | (0.06 | ) | Gains on sales of property(6) | | | 0.02 | | VAT-related settlements | | | 0.03 | | Impact of accounting calendar change (12) | | | (0.01 | ) | Impact of acquisitions (6) | | | – | | Lower interest and other expense, net(13) | | | 0.01 | | Changes in shares outstanding(14) | | | 0.06 | | Changes in income taxes (15) | | | 0.06 | | | | | | | Adjusted EPS (constant currency)(1) for the Nine Months Ended September 30, 2016 | | $ | 1.53 | | Unfavorable currency—translation | | | (0.06 | ) | | | | | | Adjusted EPS(1) for the Nine Months Ended September 30, 2016 | | $ | 1.47 | | 2014-2018 Restructuring Program costs (2) | | | (0.36 | ) | Intangible asset impairment charges(16) | | | (0.01 | ) | Gain on sale of intangible asset(6) | | | – | | Divestiture-related costs(17) | | | (0.04 | ) | Acquisition integration costs(6) | | | – | | Gain on equity method investment exchange (6) | | | 0.03 | | Loss related to interest rate swaps(8) | | | (0.04 | ) | Mark-to-market losses from derivatives(9) | | | (0.03 | ) | Equity method investee acquisition-related and other adjustments (10) | | | (0.03 | ) | Other / rounding | | | – | | | | | | | Diluted EPS Attributable to Mondelēz International for the Nine Months Ended September 30, 2016 | | $ | 0.99 | | | | | | |
| | | | | | | Diluted EPS | | | | Diluted EPS Attributable to Mondelēz International for the Nine Months Ended September 30, 2016 | | $ | 0.99 | | 2014-2018 Restructuring Program costs (2) | | | 0.36 | | Intangible asset impairment charges(2) | | | 0.01 | | Mark-to-market losses from derivatives(2) | | | 0.03 | | Divestiture-related costs(2) | | | 0.04 | | Net earnings from divestitures(2) | | | (0.05 | ) | Gain on sale of intangible assets(2) | | | – | | Loss related to interest rate swaps(3) | | | 0.04 | | Gain on equity method investment exchange (4) | | | (0.03 | ) | Equity method investee acquisition-related and other adjustments (5) | | | 0.03 | | | | | | | Adjusted EPS(1) for the Nine Months Ended September 30, 2016 | | $ | 1.42 | | Increase in operations | | | 0.16 | | Increase in equity method investment earnings | | | 0.01 | | Gains on sales of property(2) | | | (0.02 | ) | VAT-related settlements | | | (0.02 | ) | Property insurance recovery | | | 0.01 | | Impact of acquisition(2) | | | – | | Lower interest and other expense, net(6) | | | 0.06 | | Changes in shares outstanding(7) | | | 0.04 | | Changes in income taxes(8) | | | (0.07 | ) | | | | | | Adjusted EPS (constant currency)(1) for the Nine Months Ended September 30, 2017 | | $ | 1.59 | | Unfavorable currency – translation | | | (0.02 | ) | | | | | | Adjusted EPS(1) for the Nine Months Ended September 30, 2017 | | $ | 1.57 | | 2014-2018 Restructuring Program costs (2) | | | (0.29 | ) | Intangible asset impairment charges(2) | | | (0.05 | ) | Mark-to-market losses from derivatives(2) | | | (0.04 | ) | Malware incident incremental expenses | | | (0.02 | ) | Divestiture-related costs(2) | | | (0.02 | ) | Net earnings from divestitures(2) | | | 0.03 | | Net gain on divestitures(2) | | | 0.11 | | Acquisition integration costs(2) | | | – | | Benefits from resolution of tax matters(2) | | | 0.13 | | Loss on debt extinguishment(9) | | | (0.01 | ) | Equity method investee acquisition-related and other adjustments (5) | | | (0.03 | ) | | | | | | Diluted EPS Attributable to Mondelēz International for the Nine Months Ended September 30, 2017 | | $ | 1.38 | | | | | | |
| (1) | Refer to theNon-GAAP Financial Measures section at the end of this item. |
| (2) | Refer to Note 6,See the2014-2018 Restructuring ProgramOperating Income, table above and the related footnotes for more information on our 2014-2018 Restructuring Program and Note 6 to the consolidated financial statement in our Form 10-K for the year ended December 31, 2015 for more information on our 2012-2014 Restructuring Program.information. |
| (3) | Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1,Basis of Presentation – Currency Translation and Highly Inflationary Accounting: Venezuela,for more information on the deconsolidation and remeasurement loss in 2015. |
| (4) | Refer to Note 2,Divestitures and Acquisitions, for more information on the JDE coffee business transactions. Net gains of $436 million in the first nine months of 2015 on the currency hedges related to the JDE coffee business transactions were recorded in interest and other expense, net and are included in the (income) / costs associated with the JDE coffee business transactions of $(0.03) in the table above. |
| (5) | Refer to Note 2,Divestitures and Acquisitions, for more information on the April 23, 2015 divestiture of AGF. The divestiture of AGF generated a pre-tax gain of $13 million and after-tax loss of $9 million in the second quarter of 2015. |
| (6) | Refer to Note 2,Divestitures and Acquisitions, for more information on the 2016 acquisition of an interest in Keurig, 2016 intangible asset sale in Finland, 2015 acquisitions of a biscuit operation in Vietnam and Enjoy Life Foods and other property sales in 2016. |
| (7) | Refer to Note 8 to the consolidated financial statements in our Form 10-K for the year ended December 31, 2015 for more information on our loss on debt extinguishment and related expenses in connection with our debt tender offer in March 2015. |
| (8) | Refer to Note 8,Financial Instruments, for more information on our interest rate swaps, which we no longer designatedesignated as cash flow hedges during the three months ended March 31,first quarter of 2016 and 2015 due to changes in financing and hedging plans. |
| (9)(4) | Refer to Note 8,2,Financial InstrumentsDivestitures and Acquisitions – Keurig Transaction, Note 15,Segment Reporting, and Non-GAAP Financial Measures appearing later in this section for more information on these unrealized gains and losses on commodity and forecasted currency transaction derivatives.the 2016 acquisition of an interest in Keurig. |
| (10)(5) | Includes our proportionate share of unusual or infrequent items, such as acquisition and divestiture-related costs and restructuring program costs, recorded by our JDE and Keurig equity method investees. |
| (11) | Includes our historical coffee business results and equity earnings from JDE and our other equity method investees. Refer to Note 2,Divestitures and Acquisitions, andNon-GAAP Financial Measures appearing later in this section for more information. |
| (12) | Refer to Note 1,Basis of Presentation, for more information on the accounting calendar change in 2015. |
| (13)(6) | Excludes the favorable currency impact on interest expense related to our non-U.S. dollar-denominated debt which is included in currency translation. |
| (14)(7) | Refer to Note 10,Stock Plans, for more information on our equity compensation programs and share repurchase program and Note 14,Earnings Per Share, for earnings per share weighted-average share information. |
| (15)(8) | Refer to Note 10,Stock Plans, for more information on a $31 million earnings impact (in the provision for income taxes) in the first nine months of 2017 related to adopting a new stock-based compensation accounting standard in 2017 and Note 13,Income Taxes, for more information on the change in our income taxes and effective tax rate. |
| (16)(9) | Refer to Note 2,7,DivestituresDebt and Acquisitions, and Note 5,Goodwill and Intangible AssetsBorrowing Arrangements, for more information on the impairment charges recordedour loss on debt extinguishment and related expenses in 2016 for a trademark in North America, a trademark in EEMEA and two trademarks in Europe related to the planned sale of a confectionery business in France. |
| (17) | Includes costs incurred and accrued related to the planned sale of a confectionery business in France. Refer to Note 2,Divestitures and Acquisitions, for more information.connection with our debt discharge. |
Results of Operations by Reportable Segment Our operations and management structure are organized into fivefour reportable operating segments: Latin America Asia Pacific
EEMEAAMEA
Europe North America On October 1, 2016, we integrated our EEMEA businessoperating segment into our Europe and Asia Pacific segments.operating segments to further leverage and optimize the operating scale built within the Europe and Asia Pacific regions. Russia, Ukraine, Turkey, Belarus, Georgia and Kazakhstan were combined within our Europe operating segment, while the remaining Middle East and African countries were combined within our Asia Pacific operating segmentregion to form a new Asia, Middle East and Africa (“AMEA”) regionalAMEA operating segment. We have reflected the segment change as if it had occurred in all periods presented. We manage our operations by region to leverage regional operating scale, manage different and changing business environments more effectively and pursue growth opportunities as they arise in our key markets. Our regional management teams have responsibility for the business, product categories and financial results in the regions. Historically, we have recorded income from equity method investments within our operating income as these investments were part of our base business. Beginning in the third quarter of 2015, to align with the accounting for our new coffee equity method investment in JDE, we began to record the earnings from our equity method investments in equity method investment earnings outside of segment operating income. Within segment operating income, equity method investment net earnings were $56 million for the nine months ended September 30, 2015, including $49 million in Asia Pacific, $3 million in EEMEA and $4 million in North America. See Note 1,Basis of Presentation – Principles of Consolidation,and Note 2,Divestitures and Acquisitionsfor additional information.
We use segment operating income to evaluate segment performance and allocate resources. We believe it is appropriate to disclose this measure to help investors analyze segment performance and trends. See Note 15, Segment Reporting,for additional information on our segments andItems Affecting Comparability of Financial Results earlier in this section for items affecting our segment operating results. Our segment net revenues and earnings, revised to reflect our new segment structure in all periods, were: | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | | | | | | | | | | | | | | | | September 30, | | | September 30, | | | For the Three Months Ended September 30, | | | For the Nine Months Ended September 30, | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | | (in millions) | | | (in millions) | | | Net revenues: | | | | | | | | | | | | | | | | | Latin America(1) | | $ | 868 | | | $ | 1,233 | | | $ | 2,528 | | | $ | 3,730 | | | Asia Pacific(2) | | | 1,128 | | | | 1,101 | | | | 3,278 | | | | 3,278 | | | EEMEA(2) | | | 543 | | | | 586 | | | | 1,738 | | | | 2,150 | | | Europe(2) | | | 2,104 | | | | 2,173 | | | | 6,461 | | | | 7,963 | | | Latin America | | | $ | 908 | | | $ | 868 | | | $ | 2,666 | | | $ | 2,528 | | AMEA | | | | 1,405 | | | | 1,443 | | | | 4,290 | | | | 4,404 | | Europe | | | | 2,442 | | | | 2,332 | | | | 6,978 | | | | 7,073 | | North America | | | 1,753 | | | | 1,756 | | | | 5,148 | | | | 5,151 | | | | 1,775 | | | | 1,753 | | | | 4,996 | | | | 5,148 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net revenues | | $ | 6,396 | | | $ | 6,849 | | | $ | 19,153 | | | $ | 22,272 | | | $ | 6,530 | | | $ | 6,396 | | | $ | 18,930 | | | $ | 19,153 | | | | | | | | | | | | | | | | | | | | | | | | | | | (1) Net revenues of $315 million for the three months and $834 million for the nine months ended September 30, 2015 from our Venezuelan subsidiaries are included in our condensed consolidated financial statements. Beginning in 2016, we account for our Venezuelan subsidiaries using the cost method of accounting and no longer include net revenues of our Venezuelan subsidiaries within our condensed consolidated financial statements. Refer to Note 1,Basis of Presentation – Currency Translation and Highly Inflationary Accounting: Venezuela,for more information. (2) On July 2, 2015, we contributed our global coffee businesses primarily from our Europe, EEMEA and Asia Pacific segments. Net revenues of our global coffee business were $1,348 million in Europe, $246 million in EEMEA and $33 million in Asia Pacific for the nine months ended September 30, 2015. Refer to Note 2,Divestitures and Acquisitions – JDE Coffee Business Transactions, for more information. | | | | | For the Three Months Ended | | | For the Nine Months Ended | | | | | September 30, | | | September 30, | | | | | 2016 | | | 2015 | | | 2016 | | | 2015 | | | | | (in millions) | | | | Earnings before income taxes: | | | | | | | | | | | | | | | | | Operating income: | | | | | | | | | | | | | | | | | Latin America | | $ | 92 | | | $ | 134 | | | $ | 191 | | | $ | 422 | | | $ | 255 | | | $ | 92 | | | $ | 469 | | | $ | 191 | | Asia Pacific | | | 135 | | | | 71 | | | | 378 | | | | 321 | | | EEMEA | | | 44 | | | | 52 | | | | 154 | | | | 184 | | | AMEA | | | | 82 | | | | 165 | | | | 425 | | | | 504 | | Europe | | | 302 | | | | 298 | | | | 896 | | | | 885 | | | | 410 | | | | 316 | | | | 1,158 | | | | 924 | | North America | | | 274 | | | | 275 | | | | 840 | | | | 817 | | | | 318 | | | | 274 | | | | 824 | | | | 840 | | Unrealized gains / (losses) on hedging activities (mark-to-market impacts) | | | (12 | ) | | | (4 | ) | | | (49 | ) | | | 75 | | | Unrealized gains/(losses) on hedging activities (mark-to-market impacts) | | | | 28 | | | | (12 | ) | | | (69 | ) | | | (49 | ) | General corporate expenses | | | (89 | ) | | | (95 | ) | | | (216 | ) | | | (240 | ) | | | (54 | ) | | | (89 | ) | | | (196 | ) | | | (216 | ) | Amortization of intangibles | | | (44 | ) | | | (45 | ) | | | (132 | ) | | | (137 | ) | | | (45 | ) | | | (44 | ) | | | (133 | ) | | | (132 | ) | Gains on JDE coffee business transactions and divestiture | | | – | | | | 7,122 | | | | – | | | | 7,135 | | | Acquisition-related costs | | | – | | | | (6 | ) | | | – | | | | (8 | ) | | Net gain on divestitures | | | | 187 | | | | – | | | | 184 | | | | – | | | | | | | | | | | | | | | | | | | | | | | | | | | Operating income | | | 702 | | | | 7,802 | | | | 2,062 | | | | 9,454 | | | | 1,181 | | | | 702 | | | | 2,662 | | | | 2,062 | | Interest and other expense, net | | | (145 | ) | | | (114 | ) | | | (540 | ) | | | (814 | ) | | | (19 | ) | | | (145 | ) | | | (262 | ) | | | (540 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Earnings before income taxes | | $ | 557 | | | $ | 7,688 | | | $ | 1,522 | | | $ | 8,640 | | | $ | 1,162 | | | $ | 557 | | | $ | 2,400 | | | $ | 1,522 | | | | | | | | | | | | | | | | | | | | | | | | | | |
Latin America | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | | | | | | �� | For the Three Months Ended | | | | | | | | | September 30, | | | | | | | | | September 30, | | | | | | | | | 2016 | | | 2015 | | | $ change | | | % change | | | 2017 | | | 2016 | | | $ change | | % change | | | | | | | (in millions) | | | | | | | | | | | | (in millions) | | | | | | | | Net revenues | | $ | 868 | | | $ | 1,233 | | | $ | (365 | ) | | | (29.6)% | | | $ | 908 | | | $ | 868 | | | $ | 40 | | | 4.6% | | Segment operating income | | | 92 | | | | 134 | | | | (42 | ) | | | (31.3)% | | | | 255 | | | | 92 | | | | 163 | | | 177.2% | | | | | For the Nine Months Ended | | | | | | | | | For the Nine Months Ended | | | | | | | | | September 30, | | | | | | | | | September 30, | | | | | | | | | 2016 | | | 2015 | | | $ change | | | % change | | | 2017 | | | 2016 | | | $ change | | % change | | | | | | | (in millions) | | | | | | | | | | | | (in millions) | | | | | | | | Net revenues | | $ | 2,528 | | | $ | 3,730 | | | $ | (1,202 | ) | | | (32.2)% | | | $ | 2,666 | | | $ | 2,528 | | | $ | 138 | | | 5.5% | | Segment operating income | | | 191 | | | | 422 | | | | (231 | ) | | | (54.7)% | | | | 469 | | | | 191 | | | | 278 | | | 145.5% | |
Three Months Ended September 30: Net revenues decreased $365increased $40 million (29.6%(4.6%), due to the deconsolidation of our Venezuelan operations (24.2 pp), unfavorable currencyhigher net pricing (8.3 pp) and unfavorable volume/mix (7.1 pp), partially offset by higherunfavorable volume/mix (2.9 pp), unfavorable currency (0.6 pp) and the impact of a divestiture (0.2 pp). Higher net pricing (10.0 pp). The deconsolidationwas reflected across all categories driven primarily by Brazil, Argentina and Mexico. Despite the benefit from the recovery of our Venezuelan operations resultedshipments delayed due to the second quarter malware incident, unfavorable volume/mix occurred across most of the region and was largely due to the impact of pricing-related elasticity. Unfavorable volume/mix was driven by declines in a year-over-year decreaserefreshment beverages, gum and cheese & grocery, partially offset by gains in net revenues of $315 million.chocolate, biscuits and candy. Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to most currencies in the region, including the Argentinean peso and MexicanArgentinian peso, partially offset by the strength of the Brazilian real and Mexico peso relative to the U.S. dollar. Unfavorable volume/mix, whichOn December 1, 2016, we sold a small confectionery business in Costa Rica. Segment operating income increased $163 million (177.2%), primarily occurred in Brazil and Argentina, was largely due to the benefit from the resolution of a Brazilian indirect tax matter of $153 million, higher net pricing and lower manufacturing costs. These favorable items were partially offset by higher raw material costs, higher advertising and consumer promotion costs, unfavorable volume/mix, higher costs incurred for the 2014-2018 Restructuring Program, higher other selling, general and administrative expenses and an intangible asset impairment charge. Nine Months Ended September 30: Net revenues increased $138 million (5.5%), due to higher net pricing (7.4 pp) and favorable currency (2.8 pp), partially offset by unfavorable volume/mix (4.5 pp) and the impact of pricing-related elasticity as well as strategic decisions to exit certain low-margin product lines. Unfavorable volume/mix was driven by declines in biscuits, refreshment beverages, chocolate and gum.a divestiture (0.2 pp). Higher net pricing was reflected across all categories driven primarily by Argentina, Brazil and Brazil.Mexico. Favorable currency impacts were due primarily to the strength of several currencies in the region relative to the U.S. dollar, primarily the Brazilian real, partially offset by the strength of the U.S. dollar relative to the Argentinian peso and Mexican peso. Unfavorable volume/mix, which occurred across most of the region, was largely due to the impact of pricing-related elasticity. In addition, only a portion of the shipments delayed at the end of the second quarter due to the malware incident was recovered. Unfavorable volume/mix was driven by declines in all categories except chocolate and candy. On December 1, 2016, we sold a small confectionery business in Costa Rica. Segment operating income increased $278 million (145.5%), primarily due to higher net pricing, the benefit from the resolution of a Brazilian indirect tax matter of $153 million, lower manufacturing costs, favorable currency, lower other selling, general and administrative expenses and lower advertising and consumer promotion costs. These favorable items were partially offset by higher raw material costs, unfavorable volume/mix and an intangible asset impairment charge. AMEA | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2017 | | | 2016 | | | $ change | | | % change | | | | | | | (in millions) | | | | | | | | | | | | | Net revenues | | $ | 1,405 | | | $ | 1,443 | | | $ | (38 | ) | | | (2.6 | )% | Segment operating income | | | 82 | | | | 165 | | | | (83 | ) | | | (50.3 | )% | | | | | | | For the Nine Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2017 | | | 2016 | | | $ change | | | % change | | | | | | | (in millions) | | | | | | | | | | | | | Net revenues | | $ | 4,290 | | | $ | 4,404 | | | $ | (114 | ) | | | (2.6 | )% | Segment operating income | | | 425 | | | | 504 | | | | (79 | ) | | | (15.7 | )% |
Three Months Ended September 30: Net revenues decreased $38 million (2.6%), due to the impact of divestitures (4.2 pp), unfavorable currency (1.3 pp) and unfavorable volume/mix (0.5 pp), partially offset by higher net pricing (3.4 pp). The impact of divestitures, primarily related to the grocery & cheese business in Australia and New Zealand that was divested on July 4, 2017, resulted in a year-over-year decline in net revenues of $60 million for the third quarter of 2017. Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to several currencies in the region, including the Egyptian pound, Philippine peso and Japanese yen, partially offset by the strength of several other currencies in the region relative to the U.S. dollar, including the Australian dollar, Indian rupee and South African rand. Despite the benefit from the recovery of shipments delayed due to the second quarter malware incident, unfavorable volume/mix was driven by declines in all categories except biscuits. Higher net pricing was reflected across all categories. Segment operating income decreased $42$83 million (31.3%(50.3%), primarily due to intangible asset impairment charges, higher raw material costs, higher costs incurred for the 2014-2018 Restructuring Program, unfavorable volume/mix and the impact of divestitures. These unfavorable items were partially offset by higher net pricing, lower manufacturing costs and lower advertising and consumer promotion costs. Nine Months Ended September 30: Net revenues decreased $114 million (2.6%), due to unfavorable currency (2.6 pp), the impact of divestitures (1.3 pp) and unfavorable volume/mix (1.3 pp), partially offset by higher net pricing (2.6 pp). Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to several currencies in the region, including the Egyptian pound, Nigerian naira, Chinese yuan, and Philippine peso, partially offset by the strength of several other currencies in the region relative to the U.S. dollar, including the South African rand, Australian dollar and Indian rupee. The impact of divestitures, primarily related to the grocery & cheese business in Australia and New Zealand that was divested on July 4, 2017, resulted in a year-over-year decline in net revenues of $60 million for the first nine months of 2017. Unfavorable volume/mix was driven by declines in cheese & grocery, refreshment beverages, gum and candy, partially offset by gains in biscuits and chocolate. In addition, only a portion of the shipments delayed at the end of the second quarter due to the malware incident was recovered. Higher net pricing was reflected across all categories. Segment operating income decreased $79 million (15.7%), primarily due to higher raw material costs, the deconsolidation of our Venezuelan operations, unfavorable volume/mix, intangible asset impairment charges, unfavorable currency, and higher costs incurred for the 2014-2018 Restructuring Program.Program and the impact of divestitures. These unfavorable items were partially offset by higher net pricing, lower other selling, general and administrative expenses (including $34 million of VAT-related settlements), lower advertising and consumer promotions costs and lower manufacturing costs. Nine Months Ended September 30:
Net revenues decreased $1,202 million (32.2%), due to the deconsolidation of our Venezuelan operations (19.5 pp), unfavorable currency (17.8 pp) and unfavorable volume/mix (5.8 pp), partially offset by higher net pricing (10.9 pp). The deconsolidation of our Venezuelan operations resulted in a year-over-year decrease in net revenues of $834 million. Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to most currencies in the region, including the Argentinean peso, Brazilian real and Mexican peso. Unfavorable volume/mix, which primarily occurred in Brazil and Argentina, was largely due to the impact of pricing-related elasticity as well as strategic decisions to exit certain low-margin product lines. Unfavorable volume/mix was driven by declines in refreshment beverages, chocolate, biscuits, gum and candy. Higher net pricing was reflected across all categories driven primarily by Argentina and Brazil.
Segment operating income decreased $231 million (54.7%), primarily due to higher raw material costs, the deconsolidation of our Venezuelan operations, unfavorable volume/mix and unfavorable currency. These unfavorable items were partially offset by higher net pricing, lower other selling, general and administrative expenses (including $34 million of VAT-related settlements)property insurance recovery), lower manufacturing costs and lower advertising and consumer promotion costs and the absence of remeasurement losses in the first nine months of 2016 related to our net monetary assets in Venezuela.costs.
Asia PacificEurope
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | | | | | | | | For the Three Months Ended September 30, | | | | | | | | | September 30, | | | | | | | | | | 2016 | | | 2015 | | | $ change | | | % change | | | 2017 | | | 2016 | | | $ change | | | % change | | | | | | | (in millions) | | | | | | | | | | | | (in millions) | | | | | | | | | Net revenues | | $ | 1,128 | | | $ | 1,101 | | | $ | 27 | | | | 2.5% | | | $ | 2,442 | | | $ | 2,332 | | | $ | 110 | | | | 4.7% | | Segment operating income | | | 135 | | | | 71 | | | | 64 | | | | 90.1% | | | | 410 | | | | 316 | | | | 94 | | | | 29.7% | | | | | For the Nine Months Ended | | | | | | | | | For the Nine Months Ended | | | | | | | | | | September 30, | | | | | | | | | September 30, | | | | | | | | | | 2016 | | | 2015 | | | $ change | | | % change | | | 2017 | | | 2016 | | | $ change | | | % change | | | | | | | (in millions) | | | | | | | | | | | | (in millions) | | | | | | | | | Net revenues | | $ | 3,278 | | | $ | 3,278 | | | $ | – | | | | 0.0% | | | $ | 6,978 | | | $ | 7,073 | | | $ | (95 | ) | | | (1.3 | )% | Segment operating income | | | 378 | | | | 321 | | | | 57 | | | | 17.8% | | | | 1,158 | | | | 924 | | | | 234 | | | | 25.3 | % |
Three Months Ended September 30: Net revenues increased $27$110 million (2.5%(4.7%), due to favorable volume/mix (2.0(4.6 pp), favorable currency (4.1 pp) and favorable currency (1.0the impact of an acquisition (0.9 pp), partially offset by the impact of divestitures (3.5 pp) and lower net pricing (0.5(1.4 pp). Favorable volume/mix, including the unfavorable impactrecovery of strategic decisionsthe majority of the shipments delayed at the end of the second quarter due to exit certain low-margin product lines,the malware incident, was driven by gains in chocolate, biscuits, candy, and refreshmentsrefreshment beverages, partially offset by declines in gum and cheese & grocery, candy and gum.grocery. Favorable currency impacts were due primarily toreflected the strength of several currencies in the Australian dollar and Japanese yenregion relative to the U.S. dollar, including the euro and Russian ruble, partially offset by the strength of the U.S. dollar relativeagainst several other currencies in the region, primarily the Turkish lira and the British pound sterling. The November 2016 acquisition of a business and license to manufacture, market and sell Cadbury-branded biscuits added net revenues of $20 million (constant currency basis). The impact of divestitures, primarily due to the Chinese yuan and Indian rupee.sale of a confectionery business in France, resulted in a year-over-year decline in net revenues of $75 million for the quarter. Lower net pricing was driven by chocolate, gum and refreshment beverages, partially offset by higher net pricing in candy and biscuits.reflected across all categories except cheese & grocery. Segment operating income increased $64$94 million (90.1%(29.7%), primarily due to lower costs incurred for the 2014-2018 Restructuring Program, favorable volume/mix, lower manufacturing costs, lower other selling, general and administrative expenses, lower costs incurred for the 2014-2018 Restructuring Programfavorable currency and lower advertising and consumer promotion costs. These favorable items were partially offset by lower net pricing and higher raw material costs. Nine Months Ended September 30:
Net revenues were flat to the prior year, due to the impact of an acquisition (2.1 pp), favorable volume/mix (1.6 pp) and higher net pricing (0.6 pp), offset by unfavorable currency (3.3 pp) and the adjustment for deconsolidating our historical coffee business (1.0 pp). The acquisition of a biscuit operation in Vietnam in July 2015 added net revenues of $71 million. Favorable volume/mix, including the unfavorable impact of strategic decisions to exit certain low-margin product lines, was driven by gains in chocolate, biscuits, gum and refreshment beverages, partially offset by declines in candy and cheese & grocery. Higher net pricing was driven by chocolate, candy, biscuits and refreshment beverages, partially offset by lower net pricing in gum. Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to most currencies in the region, including the Chinese yuan, Indian rupee and Australian dollar, partially offset by the strength of the Japanese yen relative to the U.S. dollar. The adjustment for deconsolidating our historical coffee business resulted in a year-over-year decrease in net revenues of $33 million.
Segment operating income increased $57 million (17.8%), primarily due to lower manufacturing costs, lower other selling, general and administrative expenses, lower costs incurred for the 2014-2018 Restructuring Program, higher net pricing, favorable volume/mix and the impact of the Vietnam acquisition. These favorable items were partially offset by the reclassification of equity method investment earnings, higher raw material costs, unfavorable currency and the deconsolidation of our historical coffee business andlower net pricing, the impact of divestitures.
EEMEA
| | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2016 | | | 2015 | | | $ change | | | % change | | | | | | | (in millions) | | | | | | | | | | | | | Net revenues | | $ | 543 | | | $ | 586 | | | $ | (43 | ) | | | (7.3)% | | Segment operating income | | | 44 | | | | 52 | | | | (8 | ) | | | (15.4)% | | | | | | | | For the Nine Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2016 | | | 2015 | | | $ change | | | % change | | | | | | | (in millions) | | | | | | | | | | | | | Net revenues | | $ | 1,738 | | | $ | 2,150 | | | $ | (412 | ) | | | (19.2)% | | Segment operating income | | | 154 | | | | 184 | | | | (30 | ) | | | (16.3)% | |
Three Months Ended September 30:
Net revenues decreased $43 million (7.3%), due to unfavorable volume/mix (6.7 pp) and unfavorable currency (6.1 pp), partially offset by higher net pricing (5.5 pp). Unfavorable volume/mix was largelydivestitures, incremental costs incurred due to the impact of pricing-related elasticity as well as strategic decisions to exit certain low-margin product lines. Unfavorable volume/mix was driven by declines in all categories. Unfavorable currency impacts were due to the strength of the U.S. dollar relative to most currencies in the region, primarily the Nigerian naira, Egyptian pound, South African randmalware incident and Ukrainian hryvnia. Higher net pricing was reflected across all categories.
Segment operating income decreased $8 million (15.4%), primarily due to higher raw material costs, unfavorable volume/mix, higher advertising and consumer promotion costs and unfavorable currency. These unfavorable items were mostly offset by higher net pricing, lower manufacturing costs and the absence of costs associated with the JDE coffee business transactions.intangible asset impairment charges.
Nine Months Ended September 30: Net revenues decreased $412$95 million (19.2%(1.3%), due to the adjustment for deconsolidating our historical coffee business (10.5 pp), unfavorable currency (8.8 pp) and unfavorable volume/mix (5.7 pp), partially offset by higher net pricing (5.8 pp). The adjustment for deconsolidating our historical coffee business resulted in a year-over-year decrease in net revenues of $246 million. Unfavorable currency impacts were due to the strength of the U.S. dollar relative to most currencies in the region, primarily the Russian ruble, South African rand, Egyptian pound, Nigerian naira, Turkish lira and Ukrainian hryvnia. Unfavorable volume/mix was largely due to the impact of pricing-related elasticity as well as strategic decisions to exit certain low-margin product lines. Unfavorable volume/mix was driven by declines in all categories. Higher net pricing was reflected across all categories. Segment operating income decreased $30 million (16.3%), primarily due to higher raw material costs, the deconsolidation of our historical coffee business, unfavorable volume/mix, higher costs incurred for the 2014-2018 Restructuring Program and unfavorable currency. These unfavorable items were partially offset by higher net pricing, lower manufacturing costs, lower other selling, general and administrative expenses and the absence of costs associated with the JDE coffee business transactions.
Europe
| | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2016 | | | 2015 | | | $ change | | | % change | | | | | | | (in millions) | | | | | | | | | | | | | Net revenues | | $ | 2,104 | | | $ | 2,173 | | | $ | (69 | ) | | | (3.2)% | | Segment operating income | | | 302 | | | | 298 | | | | 4 | | | | 1.3% | | | | | | | | For the Nine Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2016 | | | 2015 | | | $ change | | | % change | | | | | | | (in millions) | | | | | | | | | | | | | Net revenues | | $ | 6,461 | | | $ | 7,963 | | | $ | (1,502 | ) | | | (18.9)% | | Segment operating income | | | 896 | | | | 885 | | | | 11 | | | | 1.2% | |
Three Months Ended September 30:
Net revenues decreased $69 million (3.2%), due todivestitures (1.7 pp) unfavorable currency (4.2(1.6 pp), and lower net pricing (2.3(0.6 pp), partially offset by favorable volume/mix (3.3(1.8 pp) and the impact of an acquisition (0.8 pp). The impact of divestitures, primarily due to the sale of a confectionery business in France, resulted in a year-over-year decline in net revenues of $122 million for the first nine months of 2017. Unfavorable currency impacts reflected the strength of the U.S. dollar against mostseveral currencies in the region, primarilyincluding the British pound sterling.sterling, Turkish lira and euro, partially offset by the strength of several other currencies relative the U.S. dollar, primarily the Russian ruble. Lower net pricing was reflected across all categories except refreshment beverages.beverages and candy. Favorable volume/mix including the unfavorable impact of strategic decisions to exit certain low-margin product lines, was driven by biscuits, chocolate cheese & grocery and gum,biscuits, partially offset by declines in candygum, cheese & grocery, refreshment beverages and refreshment beverages.candy. In addition, a portion of the shipments delayed at the end of the second quarter due to the malware incident was not recovered. The November 2016 acquisition of a business and license to manufacture, market and sell Cadbury-branded biscuits added net revenues of $50 million (constant currency basis).
Segment operating income increased $4$234 million (1.3%(25.3%), primarily due to lower manufacturing costs, favorable volume/mix, the absence of costs associated with the JDE coffee business transactions, lower other selling, general and administrative expenses and lower raw material costs. These favorable items were mostly offset by higher costs incurred for the 2014-2018 Restructuring Program, lower divestiture-related costs, lower other selling, general and administrative expenses, favorable volume/mix, the benefit from the settlement of a Cadbury tax matter, lower advertising and consumer promotion costs and lower intangible asset impairment charges. These favorable items were partially offset by higher raw material costs, lower net pricing, unfavorable currency, the impact of divestitures, incremental costs incurred due to the malware incident and a prior-year gain on the sale of an intangible asset. North America | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2017 | | | 2016 | | | $ change | | | % change | | | | | | | (in millions) | | | | | | | | | | | | | Net revenues | | $ | 1,775 | | | $ | 1,753 | | | $ | 22 | | | | 1.3% | | Segment operating income | | | 318 | | | | 274 | | | | 44 | | | | 16.1% | | | | | | | | For the Nine Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2017 | | | 2016 | | | $ change | | | % change | | | | | | | (in millions) | | | | | | | | | | | | | Net revenues | | $ | 4,996 | | | $ | 5,148 | | | $ | (152 | ) | | | (3.0 | )% | Segment operating income | | | 824 | | | | 840 | | | | (16 | ) | | | (1.9 | )% |
Three Months Ended September 30: Net revenues increased $22 million (1.3%), due to favorable volume/mix (0.7 pp), favorable currency (0.5 pp) and higher net pricing (0.3 pp), partially offset by the impact of divestitures (0.2 pp). Favorable volume/mix, despite a negative impact from the second quarter malware incident, was driven by gains in biscuits, chocolate and candy, partially offset by a decline in gum. Favorable currency impact was due to the strength of the Canadian dollar relative to the U.S. dollar. Higher net pricing was reflected in candy and gum, partially offset by lower net pricing in biscuits and chocolate. Segment operating income increased $44 million (16.1%), primarily due to lower costs incurred for the 2014-2018 Restructuring Program, lower other selling, general and administrative expenses (net of the prior year’s gain on sale of property), lower raw material costs and higher net pricing. These favorable items were partially offset by incremental costs incurred due to the malware incident, higher advertising and consumer promotion costs.costs, higher manufacturing costs, prior-year gain on the sale of an intangible asset and unfavorable volume/mix. Nine Months Ended September 30: Net revenues decreased $1,502$152 million (18.9%(3.0%), due to the adjustment for deconsolidating our historical coffee business (16.6unfavorable volume/mix (2.5 pp), unfavorable currency (2.7 pp) and lower net pricing (1.3(0.5 pp) and the impact of divestitures (0.1 pp), partially offset by favorable currency (0.1 pp). Unfavorable volume/mix, (1.7 pp). The adjustment for deconsolidating our historical coffee business resulted in a year-over-year decrease in net revenues of $1,348 million. Unfavorable currency impacts reflectedprimarily caused by shipments delayed at the strengthend of the U.S. dollar against most currencies insecond quarter due to the region, primarily the British pound sterling. Lower net pricing was reflected across all categories except refreshment beverages. Favorable volume/mix, including the unfavorable impact of strategic decisions to exit certain low-margin product lines,malware incident that were not recovered, was driven by declines in gum, biscuits chocolate and cheese & grocery,candy, partially offset by declinesa gain in refreshment beverages, candy and gum. Segment operating income increased $11 million (1.2%), primarily due to the absence of costs associated with the JDE coffee business transactions, lower manufacturing costs, lower other selling, general and administrative expenses, favorable volume/mix and the gain on the sale of an intangible asset in Finland. These favorable items were mostly offset by the deconsolidation of our historical coffee business, divestiture-related costs and intangible asset impairment charges related to the planned sale of a confectionery business in France, lower net pricing, unfavorable currency, higher advertising and consumer promotion costs and higher costs incurred for the 2014-2018 Restructuring Program.
North America
| | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2016 | | | 2015 | | | $ change | | | % change | | | | | | | (in millions) | | | | | | | | | | | | | Net revenues | | $ | 1,753 | | | $ | 1,756 | | | $ | (3 | ) | | | (0.2)% | | Segment operating income | | | 274 | | | | 275 | | | | (1 | ) | | | (0.4)% | | | | | | | | For the Nine Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2016 | | | 2015 | | | $ change | | | % change | | | | | | | (in millions) | | | | | | | | | | | | | Net revenues | | $ | 5,148 | | | $ | 5,151 | | | $ | (3 | ) | | | (0.1)% | | Segment operating income | | | 840 | | | | 817 | | | | 23 | | | | 2.8% | |
Three Months Ended September 30:
Net revenues decreased $3 million (0.2%), due to lower net pricing (1.7 pp) and the impact of an accounting calendar change made in the prior year (1.1 pp), partially offset by favorable volume/mix (2.6 pp).chocolate. Lower net pricing was reflected in biscuits gum and candy,chocolate, partially offset by higher net pricing in chocolate. The prior-year change in North America’s accounting calendar resulted in a year-over-year decrease in net revenues of $19 million.candy and gum. Favorable volume/mix, including the unfavorable impact of strategic decisions to exit certain low-margin product lines, was driven by gains in biscuits and candy, partially offset by declines in gum and chocolate.
Segment operating income decreased $1 million (0.4%), primarily due to higher costs incurred for the 2014-2018 Restructuring Program, lower net pricing and higher raw material costs. These unfavorable items were mostly offset by lower manufacturing costs, lower other selling, general and administrative expenses (including the gain on sale of property), favorable volume/mix and the gain on the sale of an intangible asset.
Nine Months Ended September 30:
Net revenues decreased $3 million (0.1%), due to the impact of an accounting calendar change made in the prior year (1.1 pp), unfavorable currency (0.5 pp) and lower net pricing (0.4 pp), mostly offset by favorable volume/mix (1.8 pp) and an acquisition (0.1 pp). The prior-year change in North America’s accounting calendar resulted in a year-over-year decrease in net revenues of $57 million. Unfavorable currency impact was due to the strength of the U.S.Canadian dollar relative to the CanadianU.S. dollar. Lower net pricing was reflected in biscuits and candy, partially offset by higher net pricing in chocolate and gum. Favorable volume/mix, including the unfavorable impact of strategic decisions to exit certain low-margin product lines, was driven by gains in biscuits and candy, partially offset by declines in gum and chocolate. The acquisition of Enjoy Life Foods in March 2015 added net revenues of $5 million.
Segment operating income increased $23decreased $16 million (2.8%(1.9%), primarily due to unfavorable volume/mix, incremental costs incurred due to the malware incident, higher intangible asset impairment charges, lower net pricing, higher raw material costs and prior-year gain on the sale of an intangible asset. These unfavorable items were partially offset by lower costs incurred for the 2014-2018 Restructuring Program, lower manufacturing costs, lower advertising and consumer promotion costs and lower other selling, general and administrative expenses (including(net of the prior year’s gains on sales of property), lower manufacturing costs and favorable volume/mix. These favorable items were partially offset by higher costs incurred for the 2014-2018 Restructuring Program, the year-over-year impact of the prior-year accounting calendar change, higher advertising and consumer promotion costs and lower net pricing.. Liquidity and Capital Resources We believe that cash from operations, our $4.5 billion revolving credit facilityfacilities and our authorized long-term financing will provide sufficient liquidity for our working capital needs, planned capital expenditures, future contractual obligations, share repurchases and payment of our anticipated quarterly dividends. We continue to utilize our commercial paper program, international credit lines and long-term debt issuances for regular funding requirements. We also use intercompany loans with our international subsidiaries to improve financial flexibility. Earnings outside of the U.S. are considered indefinitely reinvested and no material tax liability has been accrued as of September 30, 2017. Overall, we do not expect any negative effects to our funding sources that would have a material effect on our liquidity, including the indefinite reinvestment of our earnings outside of the United States.U.S. Net Cash Provided Byby Operating Activities: Net cash provided by operating activities was $797 million in the first nine months of 2017 and $1,138 million in the first nine months of 20162016. The decrease in net cash provided by operating activities was due primarily to increases in working capital including higher tax and $1,412 millionVAT-related payments in the first nine months of 2015. The deconsolidation of our coffee businesses impacted our operating cash flows, as well as2017, partially offset by higher contributions related to our pension benefit plans in 2016 to date, including discretionary contributions of $250 million in 2016 and $200 million in 2015. After converting our coffee holdings into equity method investments, we will only recognize cash flows from coffee when the investments pay dividends. We received $4 million of dividends from our investment in Keurig in the first nine months of 2016. Our coffee investment in JDE did not distribute dividends in the first nine months of 2016.net earnings. Net Cash (Used in) / Provided byUsed in Investing Activities: Net cash used in investing activities was $128 million in the first nine months of 2017 and $521 million in the first nine months of 2016 and2016. The decrease in net cash provided byused in investing activities was $3,460primarily relates to net proceeds received from divestitures of $516 million and lower capital expenditures of $721 million in the first nine months of 2015. In the first nine months of 2015, we received $4.1 billion of cash, net of transaction costs, from the deconsolidation of our coffee business and the divestiture of AGF and $1.1 billion of cash related2017 compared to the settlement of currency exchange forward contracts related to our JDE coffee business transactions. This was partially offset by $536 million of payments to acquire a biscuit operation in Vietnam and Enjoy Life Foods in 2015, lower planned capital expenditures in 2016 and $73 million of proceeds from the sales of property in 2016. Capital expenditures were $909 million for the nine months ended September 30, 2016 and $1,178 million for the nine months ended September 30, 2015.prior-year same period. We continue to make capital expenditures primarily to modernize manufacturing facilities and support new product and productivity initiatives. We expect 20162017 capital expenditures to be up to $1.4$1.1 billion, including capital expenditures in connection with our 2014-2018 Restructuring Program. We expect to continue to fund these expenditures from operations.
Net Cash Used Inin Financing Activities: Net cash used in financing activities was $1,648 million in the first nine months of 2017 and $830 million in the first nine months of 2016 and $4,270 million2016. The increase in the first nine months of 2015. Cash flowsnet cash used in financing activities were lowerwas primarily due to higher short-term financing to fund working capital requirements, lower net debt issuances and increased share repurchases in 2016 to date and lower net repayments of long-term debt due to the decision to refinance maturing debt in 2016 to date than in the first nine months of 2015.dividends. Debt: From time to time we refinance long-term and short-term debt. Refer to Note 7,Debt and Borrowing Arrangements, for details of our debt issuances and maturitiesactivity during the first nine months of 2016 and for the subsequent debt activity in October 2016.2017. The nature and amount of our long-term and short-term debt and the proportionate amount of each varies as a result of current and expected business requirements, market conditions and other factors. Generally,Due to seasonality, in the first and second quarters of the year, our working capital requirements grow, increasing the need for short-term financing. The third and fourth quarterssecond half of the year typically generategenerates higher cash flows. As such, we may issue commercial paper or secure other forms of financing throughout the year to meet short-term working capital needs. In July 2015,During 2016, one of our subsidiaries, Mondelez International Holdings Netherlands B.V. (“MIHN”), issued debt totaling $4.5 billion. The operations held by MIHN generated approximately 74.2% (or $14.0 billion) of the $18.9 billion of consolidated net revenue in the nine months ended September 30, 2017. The operations held by MIHN represented approximately 72.8% (or $19.0 billion) of the $26.1 billion of net assets as of September 30, 2017 and 81.7% (or $20.6 billion) of the $25.2 billion of net assets as of December 31, 2016.
On February 3, 2017, our Board of Directors approved a new $5 billion long-term financing authority to replace the prior authority. As of September 30, 2016,2017, we had $2.8$4.7 billion of long-term financing authority remaining. Following our most recent October 2016 debt activity, inIn the next 12 months, we expect $1.5$1.2 billion of long-term debt will mature as follows:€750fr.250 million Swiss franc notes ($843258 million as of September 30, 2016)2017) in January 2017,fr.1752018, $478 million Swiss francin February 2018, £76 million sterling notes ($180102 million as of September 30, 2016)2017) in March 2017July 2018, and $488$322 million in August 2017.2018. We expect to fund these repayments with a combination of cash from operations and the issuance of commercial paper or long-term debt.
Our total debt was $17.1$18.6 billion at September 30, 20162017 and $15.4$17.2 billion at December 31, 2015.2016. Our debt-to-capitalization ratio was 0.380.42 at September 30, 20162017 and 0.350.41 at December 31, 2015.2016. At September 30, 2016,2017, the weighted-average term of our outstanding long-term debt was 8.46.5 years. Our average daily commercial paper borrowings outstanding were $4.4 billion in the first nine months of 2017 and $2.1 billion forin the first nine months endedof 2016. We had commercial paper outstanding totaling $4.4 billion as of September 30, 20162017 and $2.6$2.4 billion for the nine months ended September 30, 2015.as of December 31, 2016. We expect to continue to use commercial paper to finance various short-term financing needs. We continue to comply with our long-term debt covenants. Refer to Note 7,Debt and Borrowing Arrangements, for more information on our debt and debt covenants. Commodity Trends We regularly monitor worldwide supply, commodity cost and currency trends so we can cost-effectively secure ingredients, packaging and fuel required for production. During the first nine months ended September 30, 2016,of 2017, the primary drivers of the increase in our aggregate commodity costs were higher currency-related costs on our commodity purchases and increased costs for dairy, cocoa, sugar, packaging and grains & oils, energy and other raw materials, partially offset by lower costs for dairy, nuts, grains and oils, energy, sugar and cocoa.nuts. A number of external factors such as weather conditions, commodity market conditions, currency fluctuations and the effects of governmental agricultural or other programs affect the cost and availability of raw materials and agricultural materials used in our products. We address higher commodity costs and currency impacts primarily through hedging, higher pricing and manufacturing and overhead cost control. We use hedging techniques to limit the impact of fluctuations in the cost of our principal raw materials; however, we may not be able to fully hedge against commodity cost changes, such as dairy, where there is a limited ability to hedge, and our hedging strategies may not protect us from increases in specific raw material costs. Due to competitive or market conditions, planned trade or promotional incentives, fluctuations in currency exchange rates or other factors, our pricing actions may also lag commodity cost changes temporarily. We expect price volatility and a slightly higher aggregate cost environment to continue in 2016.2017. While the costs of our principal raw materials fluctuate, we believe there will continue to be an adequate supply of the raw materials we use and that they will generally remain available from numerous sources. Off-Balance Sheet Arrangements and Aggregate Contractual Obligations See Note 7,Debt and Borrowing Arrangements, for information on debt transactions during the first nine months of 2016 and subsequent debt activity in October 2016, February 9, 2016 refinancing and repayment of $1,750 million of matured U.S. dollar debt, the January 26, 2016 issuance offr.400 million of Swiss franc notes and the January 21, 2016 issuance of€700 million of euro notes.2017. There were no other material changes to our off-balance sheet arrangements and aggregate contractual obligations disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.2016. We also do not expect a material change in the effect of these arrangements and obligations will have on our liquidity. See Note 11,Commitments and Contingencies, for a discussion of guarantees. Equity and Dividends Stock Plans and Share Repurchases: See Note 10,Stock Plans, for more information on our stock plans, grant activity and share repurchase program for the nine months ended September 30, 2016.2017. We intend to continue to use a portion of our cash for share repurchases. On July 29, 2015, our Finance Committee, with authorization delegated from our Board of Directors, approved an increase of $6.0 billion in the share repurchase program, raising the authorization to $13.7 billion of Common Stock repurchases, and extended the program through December 31, 2018. We repurchased $10.0 billionshares at an aggregate cost of shares$12,673 million, or weighted-average cost of $38.74 per share, through September 30, 2017 ($1.8 billion1,817 million in the first nine months of 2017, $2,601 million in 2016, $3.6 billion$3,623 million in 2015, $1.9 billion$1,892 million in 2014 and $2.7 billion$2,740 in 2013) through September 30, 2016.. The number of shares that we ultimately repurchase under our share repurchase program may vary depending on numerous factors, including share price and other market conditions, our ongoing capital allocation planning, levels of cash and debt balances, other demands for cash, such as acquisition activity, general economic or business conditions and board and management discretion. Additionally, our share repurchase activity during any particular period may fluctuate. We may accelerate, suspend, delay or discontinue our share repurchase program at any time, without notice. Dividends: We paid dividends of $869 million in the first nine months of 2017 and $801 million in the first nine months of 2016 and $736 million in2016. On August 2, 2017, the first nine months of 2015. On July 19, 2016,Finance Committee, with authorization delegated from our Board of Directors, approved a 12%16% increase in the quarterly dividend to $0.19$0.22 per common share or $0.76$0.88 per common share on an annual basis. On July 23, 2015, our Board of Directors approved a 13% increase at that time in the quarterly dividend to $0.17 per common share or $0.68 per common share on an annualannualized basis. The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors that our Board of Directors deems relevant to its analysis and decision making. We will make a determination as to whether 20162017 distributions are taxablecharacterized as dividends, a return of basis, or both under U.S. federal income tax rules after the 20162017 calendar year-end. This determination will be reflected on an IRS Form 1099-DIV issued in early 2017.2018. Significant Accounting Estimates We prepare our condensed consolidated financial statements in accordanceconformity 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. Our significant accounting policies are described in Note 1 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2015.2016. Our significant accounting estimates are described in ourManagement’s Discussion and Analysis ofFinancial Condition and Results of Operationsin our Annual Report on Form 10-K for the year ended December 31, 2015.2016. See Note 1,Basis of Presentation, for a discussion of the impact of new accounting standards. Furthermore, see Note 5,Goodwill and Intangible Assets, for a discussion on the significant accounting estimates considered as part of the annual goodwill and intangibles asset impairment testing. There were no changes in our accounting policies in the current period that had a material impact on our financial statements. New Accounting GuidanceGuidance: See Note 1,Basis of Presentation, for a discussion of new accounting guidance.standards. ContingenciesContingencies:
See Note 11,Commitments and Contingencies, and Part II, Item 1.Legal Proceedingsfor a discussion of contingencies. Forward-Looking Statements This report contains a number of forward-looking statements. Words, and variations of words, such as “will,” “may,” “expect,” “would,” “could”,“could,” “might,” “intend,” “plan,” “believe,” “estimate,” “anticipate,” “deliver,” “seek,” “aim,” “predict,” “potential,” “objective,” “project,” “outlook” and similar expressions are intended to identify our forward-looking statements, including but not limited to statements about: our future performance, including our future revenue growth, margins and earnings per share; our goal to deliver top-tier financial performance; price volatility and pricing actions; the cost environment and measures to address increased costs; the U.K. vote toUnited Kingdom’s planned exit from the E.U.European Union and its effectimpact on demand for our products and our financial results and operations;results; the costs of, timing of expenditures under and completion of our restructuring program; snack category growth; consumer snacking behaviors; commodity prices and supply; investments; innovation; political and economic conditions;conditions and volatility; currency exchange rates, controls and restrictions; potential impacts from changing to highly inflationary accounting in selected countries; our operations in Venezuela and Argentina; pension liabilities related to the JDE coffee business transactions;Ukraine; overhead costs; our JDE ownership interest; the significance of the coffee category to our future results; completion of our biscuit brand divestiture, purchase of a license related to Cadbury-branded biscuits, and sales of a chocolate factory and a confectionery business; completion of the sale of several manufacturing facilities in France and sale or license of several local confectionery brands; costs we could incur related to re-negotiating collective bargaining agreements and executing business continuity plans for the North America business; legal matters; the estimated value of goodwill and intangible assets; amortization expense for intangible assets; impairment of goodwill and intangible assets and our projections of operating results and other factors that may affect our impairment testing; our accounting estimates and judgments;judgments and the impact of new accounting pronouncements; pension expenses, contributions and assumptions; our tax rate and tax positions; the Brazilian indirect tax matter; remediation efforts related to and the financial and other impacts of the malware incident; our liquidity, funding sources and uses of funding;funding, including our tender offer and MIHN’s note issuance and term loan facility;use of commercial paper; reinvestment of earnings; our risk management program, including the use of financial instruments and the effectiveness of our hedging activities; working capital; capital expenditures and funding; share repurchases; dividends; compliance with financiallong-term value and long-term debt covenants; taxes; guarantees;return on investment for our shareholders; and our contractual obligations. These forward-looking statements involve risks and uncertainties, many of which are beyond our control. Important factors that could cause actual results to differ materially from those described in our forward-looking statements include, but are not limited to, risks from operating globally including in emerging markets; changes in currency exchange rates, controls and restrictions; continued volatility of commodity and other input costs; weakness in economic conditions; weakness in consumer spending; pricing actions; unanticipated disruptions to our business;business, such as the malware incident, cyberattacks or other security breaches; competition; acquisitions and divestitures; the restructuring program and our other transformation initiatives not yielding the anticipated benefits; changes in the assumptions on which the restructuring program is based; protection of our reputation and brand image; management of our workforce; consolidation of retail customers and competition with retailer and other economy brands; changes in our relationships with suppliers or customers; legal, regulatory, tax or benefit law changes, claims or actions; strategic transactions; our ability to innovate and differentiate our products; significant changes in valuation factors that may adversely affect our impairment testing of goodwill and intangible assets; perceived or actual product quality issues or product recalls; failure to maintain effective internal control over financial reporting; volatility of and access to capital or other markets; pension costs; use of information technology and third party service providers; our ability to protect our intellectual property and intangible assets; a shift in our pre-tax income among jurisdictions, including the United States; and tax law changes. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this report except as required by applicable law or regulation. Non-GAAP Financial Measures We use non-GAAP financial information and believe it is useful to investors as it provides additional information to facilitate comparisons of historical operating results, identify trends in our underlying operating results and provide additional insight and transparency on how we evaluate our business. We use non-GAAP financial measures to budget, make operating and strategic decisions and evaluate our performance. We have detailed the non-GAAP adjustments that we make in our non-GAAP definitions below. The adjustments generally fall within the following categories: acquisition & divestiture activities, gains and losses on intangible asset sales and non-cash impairments, major program restructuring activities, constant currency and related adjustments, major program financing and hedging activities and other major items affecting comparability of operating results. We believe the non-GAAP measures should always be considered along with the related U.S. GAAP financial measures. We have provided the reconciliations between the GAAP and non-GAAP financial measures below, and we also discuss our underlying GAAP results throughout ourManagement’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q. Our primary non-GAAP financial measures are listed below and reflect how we evaluate our current and prior-year operating results. As new events or circumstances arise, these definitions could change. When our definitions change, we provide the updated definitions and present the related non-GAAP historical results on a comparable basis.basis(1). | • | | “Organic Net Revenue” is defined as net revenues excluding the impacts of acquisitions, divestitures(1)(2), our historical global coffee business(2)(3), our historical Venezuelan operations, accounting calendar changes and currency rate fluctuations(3)(4). We also evaluate Organic Net Revenue growth from emerging markets and our Power Brands. |
Our emerging markets include our Latin America and EEMEA regionsregion in theirits entirety; the Asia PacificAMEA region, excluding Australia, New Zealand and Japan; and the following countries from the Europe region: Russia, Ukraine, Turkey, Kazakhstan, Belarus, Georgia, Poland, Czech Republic, Slovak Republic, Hungary, Bulgaria, Romania, the Baltics and the East Adriatic countries. (Our developed markets include the entire North America region, the Europe region excluding the countries included in the emerging markets definition, and Australia, New Zealand and Japan from the AMEA region.) | • | | Our Power Brands include some of our largest global and regional brands such asOreo, Chips Ahoy!, Ritz, TUC/Club Social andbelVita biscuits;Cadbury Dairy Milk, Milka andLacta chocolate;Tridentgum;Hall’sHalls candy; andTang powdered beverages. |
| • | | “Adjusted Operating Income” is defined as operating income excluding the impacts of Spin-Off Costs(4); the 2012-2014 Restructuring Program;Program(5); the 2014-2018 Restructuring Program(5); Venezuela remeasurement and deconsolidation losses and historical operating results; gains or losses (including non-cash impairment charges) on goodwill and intangible assets; divestiture(1)(2) or acquisition gains or losses and related integration and acquisition costs; the JDE coffee business transactions(2)(3) gain and net incremental costs; the operating results of divestitures(1)(2); our historical global coffee business operating results(2)(3); mark-to-market impacts from commodity and forecasted currency transaction derivative contracts(6); and equity method investment earnings historically reported within operating income(7).; benefits from resolution of tax matters(8) and incremental expenses related to the malware incident. We also present “Adjusted Operating Income margin,” which is subject to the same adjustments as Adjusted Operating Income. We also evaluate growth in our Adjusted Operating Income on a constant currency basis(3)(4). |
| • | | “Adjusted EPS” is defined as diluted EPS attributable to Mondelēz International from continuing operations excluding the impacts of Spin-Off Costs(4); the 2012-2014 Restructuring Program;Program(5); the 2014-2018 Restructuring Program(5); Venezuela remeasurement and deconsolidation losses and historical operating results; losses on debt extinguishment and related expenses; gains or losses (including non-cash impairment charges) on goodwill and intangible assets; divestiture(1)(2) or acquisition gains or losses and related integration and acquisition costs; the JDE coffee business transactions(2)(3) gain, transaction hedging gains or losses and net incremental costs; gain on the equity method investment exchange; net earnings from divestitures(1)(2); mark-to-market impacts from commodity and forecasted currency transaction derivative contracts(6); and gains or losses on interest rate swaps no longer designated as accounting cash flow hedges due to changed financing and hedging plans.plans; benefits from resolution of tax matters(8) and incremental expenses related to the malware incident. Similarly, within Adjusted EPS, our equity method investment net earnings exclude our proportionate share of our investees’ unusual or infrequent items(9), such as acquisition and divestiture-related costs and restructuring program costs. We also evaluate growth in our Adjusted EPS on a constant currency basis(3)(4). |
| (1) | When items no longer impact our current or future presentation of non-GAAP operating results, we remove these items from our non-GAAP definitions. During 2017, we added to the non-GAAP definitions the exclusion of benefits from the resolution of tax matters (see footnote (8) below) and the exclusion of incremental expenses related to the malware incident. |
| (2) | Divestitures include completed sales of businesses and exits of major product lines upon completion of a sale or licensing agreement. On August 17, 2017, we entered into two agreements with The Kraft Heinz Company (“KHC”) to terminate the licenses of certain KHC-owned brands used in our grocery business within our Europe region and to transfer to KHC inventory and certain other assets. During the third and fourth quarter, the first and second transactions closed. Also, on October 2, 2017, we completed the sale of one of our equity method investments. See Note 2,Divestitures and Acquisitions, for additional information. As the transactions were substantially completed as of September 30, 2017, we removed the historical results related to these transactions from our Organic Net Revenue and adjusted results for all periods presented. |
| (2)(3) | In connection with the JDE coffee business transactions that closed on July 2, 2015, because we exchanged our coffee interests for similarly-sized coffee interests in JDE at the time of the transaction, we have deconsolidated and not included our historical global coffee business results within divestitures in our non-GAAP financial measures and in the relatedManagement’s Discussion and Analysis of Financial Condition and Results of Operations. We continue to have an ongoing interest in the legacy coffee business. Beginningbusiness we deconsolidated in 2015 as part of the third quarter ofJDE coffee business transactions. For historical periods prior to the July 15, 2015 coffee business deconsolidation, we have includedreclassified any net revenue or operating income from the after-tax earnings of JDE, Keurig and of our historical coffee business results within continuing results of operations. For Adjusted EPS, we have included these earnings inand include them where the coffee equity method investment earnings and have deconsolidated our historical coffee business results fromare presented within Adjusted EPS. As such, Organic Net Revenue and Adjusted Operating Income to facilitate comparisonsin all periods do not include the results of past and futureour legacy coffee operating results.businesses, which are shown within Adjusted EPS only. |
| (3)(4) | Constant currency operating results are calculated by dividing or multiplying, as appropriate, the current periodcurrent-period local currency operating results by the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current periodcurrent-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period. |
| (4) | Refer to Note 2,Divestitures and Acquisitions – Spin-Off of Kraft Foods Group, to the consolidated financial statements in our Form 10-K for the year ended December 31, 2015 for more information on Spin-Off Costs incurred in connection with the October 1, 2012 spin-off of the Kraft Foods Group grocery business. |
| (5) | Non-GAAP adjustments related to the 2014-2018 Restructuring Program reflect costs incurred that relate to the objectives of our program to transform our supply chain network and organizational structure. Costs that do not meet the program objectives are not reflected in the non-GAAP adjustments. Refer to our Annual Report on Form 10-K for the year ended December 31, 2016 for more information on the 2012-2014 Restructuring Program. |
| (6) | During the third quarter of 2016, we began to exclude unrealized gains and losses (mark-to-market impacts) from outstanding commodity and forecasted currency transaction derivatives from our non-GAAP earnings measures until such time that the related exposures impact our operating results. Since we purchase commodity and forecasted currency transaction contracts to mitigate price volatility primarily for inventory requirements in future periods, we made this adjustment to remove the volatility of these future inventory purchases on current operating results to facilitate comparisons of our underlying operating performance across periods. On a prospective basis, we will discontinueWe also discontinued designating commodity and forecasted currency transaction derivatives for hedge accounting treatment. To facilitate comparisons of our underlying operating results, we have recast all historical non-GAAP earnings measures to exclude the mark-to-market impacts. |
| (7) | Historically, we have recorded income from equity method investments within our operating income as these investments operated as extensions of our base business. Beginning in the third quarter of 2015, we began to record the earnings from our equity method investments in after-tax equity method investment earnings outside of operating income following the deconsolidation of our coffee business. SeeRefer to Note 1,BasisSummary of Presentation – Principles of ConsolidationSignificant Accounting Policies,,in our Annual Report on Form 10-K for the year ended December 31, 2016 for more information. In periods prior |
| (8) | During the first nine months of 2017, we recorded benefits from the settlement of a pre-acquisition Cadbury tax matter and from the reversal of tax liabilities in connection with the resolution of a Brazilian indirect tax matter. See Note 11,Commitments and Contingencies – Tax Matters. |
| (9) | We have excluded our proportionate share of our equity method investees’ unusual or infrequent items in order to July 2, 2015,provide investors with a comparable view of our performance across periods. Although we have reclassified theshareholder rights and board representation commensurate with our ownership interests in our equity method earnings from our Adjusted Operating Income to after-taxinvestees and review the underlying operating results and unusual or infrequent items with them each reporting period, we do not have direct control over their operations or resulting revenue and expenses. Our use of equity method investment net earnings within Adjustedon an adjusted basis is not intended to imply that we have any such control. Our GAAP “diluted EPS attributable to be consistent withMondelēz International from continuing operations” includes all of the deconsolidation of our coffee business results on July 2, 2015investees’ unusual and in order to evaluate our operating results on a consistent basis.infrequent items. |
We believe that the presentation of these non-GAAP financial measures, when considered together with our U.S. GAAP financial measures and the reconciliations to the corresponding U.S. GAAP financial measures, provides you with a more complete understanding of the factors and trends affecting our business than could be obtained absent these disclosures. Because non-GAAP financial measures vary among companies, the non-GAAP financial measures presented in this report may not be comparable to similarly titled measures used by other companies. Our use of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for any U.S. GAAP financial measure. A limitation of these non-GAAP financial measures is they exclude items detailed below that have an impact on our U.S. GAAP reported results. The best way this limitation can be addressed is by evaluating our non-GAAP financial measures in combination with our U.S. GAAP reported results and carefully evaluating the following tables that reconcile U.S. GAAP reported figures to the non-GAAP financial measures in this Form 10-Q. Organic Net Revenue: Applying the definition of “Organic Net Revenue”, the adjustments made to “net revenues” (the most comparable U.S. GAAP financial measure) were to exclude the impact of currency, the adjustment for deconsolidating our historical coffee business, our historical Venezuelan operations, an accounting calendar changeacquisition and acquisitions.divestitures. We believe that Organic Net Revenue reflects the underlying growth from the ongoing activities of our business and provides improved comparability of results. We also evaluate our Organic Net Revenue growth from emerging markets and Power Brands, and these underlying measures are also reconciled to U.S. GAAP below. | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, 2017 | | | For the Three Months Ended September 30, 2016 (1) | | | | Emerging | | | Developed | | | | | | Emerging | | | Developed | | | | | | | Markets | | | Markets | | | Total | | | Markets | | | Markets | | | Total | | | | (in millions) | | | (in millions) | | Net Revenue | | $ | 2,445 | | | $ | 4,085 | | | $ | 6,530 | | | $ | 2,340 | | | $ | 4,056 | | | $ | 6,396 | | Impact of currency | | | 4 | | | | (84 | ) | | | (80 | ) | | | – | | | | – | | | | – | | Impact of acquisition | | | – | | | | (20 | ) | | | (20 | ) | | | – | | | | – | | | | – | | Impact of divestitures | | | – | | | | (14 | ) | | | (14 | ) | | | (4 | ) | | | (152 | ) | | | (156 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Organic Net Revenue | | $ | 2,449 | | | $ | 3,967 | | | $ | 6,416 | | | $ | 2,336 | | | $ | 3,904 | | | $ | 6,240 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, 2017 | | | For the Three Months Ended September 30, 2016 (2) | | | | Power | | | Non-Power | | | | | | Power | | | Non-Power | | | | | | | Brands | | | Brands | | | Total | | | Brands | | | Brands | | | Total | | | | (in millions) | | | (in millions) | | Net Revenue | | $ | 4,771 | | | $ | 1,759 | | | $ | 6,530 | | | $ | 4,517 | | | $ | 1,879 | | | $ | 6,396 | | Impact of currency | | | (62 | ) | | | (18 | ) | | | (80 | ) | | | – | | | | – | | | | – | | Impact of acquisition | | | (20 | ) | | | – | | | | (20 | ) | | | – | | | | – | | | | – | | Impact of divestitures | | | – | | | | (14 | ) | | | (14 | ) | | | – | | | | (156 | ) | | | (156 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Organic Net Revenue | | $ | 4,689 | | | $ | 1,727 | | | $ | 6,416 | | | $ | 4,517 | | | $ | 1,723 | | | $ | 6,240 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, 2017 | | | For the Nine Months Ended September 30, 2016 (1) | | | | Emerging | | | Developed | | | | | | Emerging | | | Developed | | | | | | | Markets | | | Markets | | | Total | | | Markets | | | Markets | | | Total | | | | (in millions) | | | (in millions) | | Net Revenue | | $ | 7,151 | | | $ | 11,779 | | | $ | 18,930 | | | $ | 6,982 | | | $ | 12,171 | | | $ | 19,153 | | Impact of currency | | | 12 | | | | 123 | | | | 135 | | | | – | | | | – | | | | – | | Impact of acquisition | | | – | | | | (50 | ) | | | (50 | ) | | | – | | | | – | | | | – | | Impact of divestitures | | | – | | | | (249 | ) | | | (249 | ) | | | (8 | ) | | | (434 | ) | | | (442 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Organic Net Revenue | | $ | 7,163 | | | $ | 11,603 | | | $ | 18,766 | | | $ | 6,974 | | | $ | 11,737 | | | $ | 18,711 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, 2017 | | | For the Nine Months Ended September 30, 2016 (2) | | | | Power | | | Non-Power | | | | | | Power | | | Non-Power | | | | | | | Brands | | | Brands | | | Total | | | Brands | | | Brands | | | Total | | | | (in millions) | | | (in millions) | | Net Revenue | | $ | 13,784 | | | $ | 5,146 | | | $ | 18,930 | | | $ | 13,587 | | | $ | 5,566 | | | $ | 19,153 | | Impact of currency | | | 63 | | | | 72 | | | | 135 | | | | – | | | | – | | | | – | | Impact of acquisition | | | (50 | ) | | | – | | | | (50 | ) | | | – | | | | – | | | | – | | Impact of divestitures | | | – | | | | (249 | ) | | | (249 | ) | | | – | | | | (442 | ) | | | (442 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | Organic Net Revenue | | $ | 13,797 | | | $ | 4,969 | | | $ | 18,766 | | | $ | 13,587 | | | $ | 5,124 | | | $ | 18,711 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, 2016 | | | For the Three Months Ended September 30, 2015 | | | | Emerging | | | Developed | | | | | | Emerging | | | Developed | | | | | | | Markets | | | Markets | | | Total | | | Markets | | | Markets | | | Total | | | | (in millions) | | | (in millions) | | | | | | | | | Organic Net Revenue | | $ | 2,475 | | | $ | 4,114 | | | $ | 6,589 | | | $ | 2,427 | | | $ | 4,088 | | | $ | 6,515 | | Impact of currency | | | (133 | ) | | | (60 | ) | | | (193 | ) | | | – | | | | – | | | | – | | Historical Venezuelan operations(1) | | | – | | | | – | | | | – | | | | 315 | | | | – | | | | 315 | | Impact of accounting calendar change | | | – | | | | – | | | | – | | | | – | | | | 19 | | | | 19 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net revenues | | $ | 2,342 | | | $ | 4,054 | | | $ | 6,396 | | | $ | 2,742 | | | $ | 4,107 | | | $ | 6,849 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, 2016 | | | For the Three Months Ended September 30, 2015(3) | | | | Power | | | Non-Power | | | | | | Power | | | Non-Power | | | | | | | Brands | | | Brands | | | Total | | | Brands | | | Brands | | | Total | | | | (in millions) | | | (in millions) | | | | | | | | | Organic Net Revenue | | $ | 4,520 | | | $ | 2,069 | | | $ | 6,589 | | | $ | 4,409 | | | $ | 2,106 | | | $ | 6,515 | | Impact of currency | | | (125 | ) | | | (68 | ) | | | (193 | ) | | | – | | | | – | | | | – | | Historical Venezuelan operations(1) | | | – | | | | – | | | | – | | | | 211 | | | | 104 | | | | 315 | | Impact of accounting calendar change | | | – | | | | – | | | | – | | | | 15 | | | | 4 | | | | 19 | | | | | | | | | | | | | | | | | | | | | | | | | | | Net revenues | | $ | 4,395 | | | $ | 2,001 | | | $ | 6,396 | | | $ | 4,635 | | | $ | 2,214 | | | $ | 6,849 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, 2016 | | | For the Nine Months Ended September 30, 2015 | | | | Emerging | | | Developed | | | | | | Emerging | | | Developed | | | | | | | Markets | | | Markets | | | Total | | | Markets | | | Markets | | | Total | | | | (in millions) | | | (in millions) | | | | | | | | | Organic Net Revenue | | $ | 7,713 | | | $ | 12,360 | | | $ | 20,073 | | | $ | 7,478 | | | $ | 12,276 | | | $ | 19,754 | | Impact of currency | | | (792 | ) | | | (204 | ) | | | (996 | ) | | | – | | | | – | | | | – | | Historical coffee business(2) | | | – | | | | – | | | | – | | | | 442 | | | | 1,185 | | | | 1,627 | | Historical Venezuelan operations(1) | | | – | | | | – | | | | – | | | | 834 | | | | – | | | | 834 | | Impact of accounting calendar change | | | – | | | | – | | | | – | | | | – | | | | 57 | | | | 57 | | Impact of acquisitions | | | 71 | | | | 5 | | | | 76 | | | | – | | | | – | | | | – | | | | | | | | | | | | | | | | | | | | | | | | | | | Net revenues | | $ | 6,992 | | | $ | 12,161 | | | $ | 19,153 | | | $ | 8,754 | | | $ | 13,518 | | | $ | 22,272 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, 2016 | | | For the Nine Months Ended September 30, 2015(3) | | | | Power | | | Non-Power | | | | | | Power | | | Non-Power | | | | | | | Brands | | | Brands | | | Total | | | Brands | | | Brands | | | Total | | | | (in millions) | | | (in millions) | | | | | | | | | Organic Net Revenue | | $ | 13,974 | | | $ | 6,099 | | | $ | 20,073 | | | $ | 13,552 | | | $ | 6,202 | | | $ | 19,754 | | Impact of currency | | | (688 | ) | | | (308 | ) | | | (996 | ) | | | – | | | | – | | | | – | | Historical coffee business(2) | | | – | | | | – | | | | – | | | | 1,179 | | | | 448 | | | | 1,627 | | Historical Venezuelan operations(1) | | | – | | | | – | | | | – | | | | 576 | | | | 258 | | | | 834 | | Impact of accounting calendar change | | | – | | | | – | | | | – | | | | 44 | | | | 13 | | | | 57 | | Impact of acquisitions | | | – | | | | 76 | | | | 76 | | | | – | | | | – | | | | – | | | | | | | | | | | | | | | | | | | | | | | | | | | Net revenues | | $ | 13,286 | | | $ | 5,867 | | | $ | 19,153 | | | $ | 15,351 | | | $ | 6,921 | | | $ | 22,272 | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | IncludesAs a result of the historical results of our Venezuelan subsidiaries priorOctober 1, 2016 segment change described in Note 15,Segment Reporting, prior-year amounts were updated to reflect the December 31, 2015 deconsolidation. Refer to Note 1,Basis of Presentation – Currency Translation and Highly Inflationary Accounting: Venezuela,for more information.new segment structure. |
(2) | Includes our historical global coffee business prior to the July 2, 2015 JDE coffee business transactions. Refer to Note 2,Divestitures and Acquisitions, and our non-GAAP definitions appearing earlier in this section for more information. |
(3)(2) | Each year we reevaluate our Power Brands and confirm the brands in which we will continue to make disproportionate investments. As such, we may make changes in our planned investments in primarily regional Power Brands following our annual review cycles. For 2016,2017, we made limited changes to our list of regional Power Brands and as such, we reclassified 20152016 Power Brand net revenues on a basis consistent with the current list of Power Brands. |
Adjusted Operating Income: Applying the definition of “Adjusted Operating Income”, the adjustments made to “operating income” (the most comparable U.S. GAAP financial measure) were to exclude 2012-2014 Restructuring Program costs, 2014-2018 Restructuring Program costs, Venezuela historical operating results and remeasurement loss, operating income from our historical coffee business, the JDE coffee business transactions gain and net incremental costs, equity method investment earnings reclassified to after-tax earnings in Q3 2015 in connection with the coffee business transactions,costs; impairment charges related to intangible assets, gain on sale of an intangible asset, operating results of the AGF divestiture, pre-tax gain on the AGF divestiture, divestiture-related costs incurred for the planned sale of a confectionery business in France, acquisition integration costs, acquisition-related costs andassets; mark-to-market impacts from commodity and forecasted currency transaction derivative contracts.contracts; incremental expenses related to the malware incident; acquisition integration costs; divestiture-related costs; the operating results of divestitures; net gain on divestitures; gain on sale of intangible assets and the benefits from the resolution of tax matters. We also present “Adjusted Operating Income margin,” which is subject to the same adjustments as Adjusted Operating Income. We alsoIncome, and evaluate Adjusted Operating Income on a constant currency basis. We believe these measures provide improved comparability of underlying operating results. | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2016 | | | 2015 | | | $ Change | | | % Change | | | | | | | (in millions) | | | | | | | | | | | | | Adjusted Operating Income (constant currency) | | $ | 1,042 | | | $ | 891 | | | $ | 151 | | | | 16.9% | | Impact of unfavorable currency | | | (31 | ) | | | – | | | | (31 | ) | | | | | | | | | | | | | | | | | | | | | | Adjusted Operating Income | | $ | 1,011 | | | $ | 891 | | | $ | 120 | | | | 13.5% | | 2014-2018 Restructuring Program costs(1) | | | (301 | ) | | | (221 | ) | | | (80 | ) | | | | | Operating income from Venezuelan subsidiaries(2) | | | – | | | | 78 | | | | (78 | ) | | | | | Costs associated with JDE coffee business transactions(3) | | | – | | | | (54 | ) | | | 54 | | | | | | Gain on the JDE coffee business transactions(3) | | | – | | | | 7,122 | | | | (7,122 | ) | | | | | Intangible asset impairment charges(4) | | | (4 | ) | | | – | | | | (4 | ) | | | | | Gain on sale of intangible asset(5) | | | 7 | | | | – | | | | 7 | | | | | | Acquisition integration costs(5) | | | – | | | | (4 | ) | | | 4 | | | | | | Acquisition-related costs(5) | | | – | | | | (6 | ) | | | 6 | | | | | | Mark-to-market losses from derivatives(6) | | | (12 | ) | | | (4 | ) | | | (8 | ) | | | | | Other / rounding | | | 1 | | | | – | | | | 1 | | | | | | | | | | | | | | | | | | | | | | | Operating income | | $ | 702 | | | $ | 7,802 | | | $ | (7,100 | ) | | | (91.0)% | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | | | | | | | | 2017 | | | 2016 | | | $ Change | | | % Change | | | | (in millions) | | | | | | | | | | Operating Income | | $ | 1,181 | | | $ | 702 | | | $ | 479 | | | | 68.2% | | 2014-2018 Restructuring Program costs (1) | | | 175 | | | | 301 | | | | (126 | ) | | | | | Intangible asset impairment charges (2) | | | 71 | | | | 4 | | | | 67 | | | | | | Mark-to-market (gains)/losses from derivatives (3) | | | (28 | ) | | | 12 | | | | (40 | ) | | | | | Malware incident incremental expenses | | | 47 | | | | – | | | | 47 | | | | | | Acquisition integration costs (4) | | | 1 | | | | – | | | | 1 | | | | | | Operating income from divestitures(5) | | | (4 | ) | | | (37 | ) | | | 33 | | | | | | Gain on divestiture(5) | | | (187 | ) | | | – | | | | (187 | ) | | | | | Gain on sale of intangible assets(6) | | | – | | | | (7 | ) | | | 7 | | | | | | Benefits from resolution of tax matters (7) | | | (155 | ) | | | – | | | | (155 | ) | | | | | Other/rounding | | | (1 | ) | | | (1 | ) | | | – | | | | | | | | | | | | | | | | | | | | | | | Adjusted Operating Income | | $ | 1,100 | | | $ | 974 | | | $ | 126 | | | | 12.9% | | Impact of favorable currency | | | (20 | ) | | | – | | | | (20 | ) | | | | | | | | | | | | | | | | | | | | | | Adjusted Operating Income (constant currency) | | $ | 1,080 | | | $ | 974 | | | $ | 106 | | | | 10.9% | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | For the Nine Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2016 | | | 2015 | | | $ Change | | | % Change | | | | | | | (in millions) | | | | | | | | | | | | | Adjusted Operating Income (constant currency) | | $ | 3,114 | | | $ | 2,566 | | | $ | 548 | | | | 21.4% | | Impact of unfavorable currency | | | (132 | ) | | | – | | | | (132 | ) | | | | | | | | | | | | | | | | | | | | | | Adjusted Operating Income | | $ | 2,982 | | | $ | 2,566 | | | $ | 416 | | | | 16.2% | | 2012-2014 Restructuring Program costs (1) | | | – | | | | 3 | | | | (3 | ) | | | | | 2014-2018 Restructuring Program costs(1) | | | (766 | ) | | | (627 | ) | | | (139 | ) | | | | | Operating income from Venezuelan subsidiaries(2) | | | – | | | | 208 | | | | (208 | ) | | | | | Remeasurement of net monetary assets in Venezuela(2) | | | – | | | | (11 | ) | | | 11 | | | | | | Operating income from historical coffee business (7) | | | – | | | | 342 | | | | (342 | ) | | | | | Costs associated with JDE coffee business transactions (3) | | | – | | | | (239 | ) | | | 239 | | | | | | Gain on the JDE coffee business transactions(3) | | | – | | | | 7,122 | | | | (7,122 | ) | | | | | Reclassification of equity method earnings(8) | | | – | | | | 51 | | | | (51 | ) | | | | | Intangible asset impairment charges(4) | | | (30 | ) | | | – | | | | (30 | ) | | | | | Gain on sale of intangible asset(5) | | | 13 | | | | – | | | | 13 | | | | | | Operating income from divestiture(9) | | | – | | | | 5 | | | | (5 | ) | | | | | Gain on divestiture(9) | | | – | | | | 13 | | | | (13 | ) | | | | | Divestiture-related costs(10) | | | (84 | ) | | | – | | | | (84 | ) | | | | | Acquisition integration costs(5) | | | – | | | | (5 | ) | | | 5 | | | | | | Acquisition-related costs(5) | | | (6 | ) | | | (8 | ) | | | 2 | | | | | | Mark-to-market gains / (losses) from derivatives(6) | | | (49 | ) | | | 35 | | | | (84 | ) | | | | | Other / rounding | | | 2 | | | | (1 | ) | | | 3 | | | | | | | | | | | | | | | | | | | | | | | Operating income | | $ | 2,062 | | | $ | 9,454 | | | $ | (7,392 | ) | | | (78.2)% | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, | | | | | | | | | | 2017 | | | 2016 | | | $ Change | | | % Change | | | | (in millions) | | | | | | | | | | Operating Income | | $ | 2,662 | | | $ | 2,062 | | | $ | 600 | | | | 29.1% | | 2014-2018 Restructuring Program costs (1) | | | 597 | | | | 766 | | | | (169 | ) | | | | | Intangible asset impairment charges(2) | | | 109 | | | | 30 | | | | 79 | | | | | | Mark-to-market losses from derivatives (3) | | | 69 | | | | 49 | | | | 20 | | | | | | Malware incident incremental expenses | | | 54 | | | | – | | | | 54 | | | | | | Acquisition integration costs(4) | | | 2 | | | | 6 | | | | (4 | ) | | | | | Divestiture-related costs(5) | | | 23 | | | | 84 | | | | (61 | ) | | | | | Operating income from divestitures(5) | | | (55 | ) | | | (99 | ) | | | 44 | | | | | | Net gain on divestitures(5) | | | (184 | ) | | | – | | | | (184 | ) | | | | | Gain on sale of intangible assets(6) | | | – | | | | (13 | ) | | | 13 | | | | | | Benefits from resolution of tax matters (7) | | | (201 | ) | | | – | | | | (201 | ) | | | | | Other/rounding | | | (1 | ) | | | (2 | ) | | | 1 | | | | | | | | | | | | | | | | | | | | | | | Adjusted Operating Income | | $ | 3,075 | | | $ | 2,883 | | | $ | 192 | | | | 6.7% | | Impact of unfavorable currency | | | 53 | | | | – | | | | 53 | | | | | | | | | | | | | | | | | | | | | | | Adjusted Operating Income (constant currency) | | $ | 3,128 | | | $ | 2,883 | | | $ | 245 | | | | 8.5% | | | | | | | | | | | | | | | | | | |
| (1) | Refer to Note 6,2014-2018 Restructuring Program,, for more information on our 2014-2018 Restructuring Program and Note 6 to the consolidated financial statement in our Form 10-K for the year ended December 31, 2015 for more information on our 2012-2014 Restructuring Program.information. |
| (2) | Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1,Basis of Presentation – Currency Translation and Highly Inflationary Accounting: Venezuela,for more information on the deconsolidation and remeasurement loss in 2015. |
| (3) | Refer to Note 2,Divestitures and Acquisitions,, for more information on the JDE coffee business transactions. Net gains of $436 million in the first nine months of 2015 on the currency hedges related to the JDE coffee business transactions were recorded in interest and other expense, net and are included in the (income) / costs associated with the JDE coffee business transactions of $(0.03) in the table above. |
| (4) | Refer to Note 2,Divestitures and Acquisitions, and Note 5,Goodwill and Intangible Assets, for more information on trademark impairments. |
| (3) | Refer to Note 8,Financial Instruments, Note 15,Segment Reporting, andNon-GAAP Financial Measures appearing earlier in this section for more information on these unrealized losses/gains on commodity and forecasted currency transaction derivatives. |
| (4) | Refer to our Annual Report on Form 10-K for the impairment charges recorded inyear ended December 31, 2016, for information on the acquisition of a trademarkbiscuit business in North America,Vietnam. |
| (5) | Refer to Note 2,Divestitures and Acquisitions, for more information on the 2017 sales of a trademarkconfectionery business in EEMEAFrance, a grocery business in Australia and two trademarksNew Zealand, and certain licenses of KHC-owned brands used in our grocery business within our Europe relatedregion. Refer to our Annual Report on Form 10-K for the plannedyear ended December 31, 2016 for more information on the 2016 sale of a confectionery business in France.Costa Rica. |
| (5)(6) | Refer to Note 2,Divestitures and Acquisitions, for more information on the 2016 acquisition of an interest in Keurig, 2016 intangible asset sale in Finland, 2015 acquisitions of a biscuit operation in Vietnam and Enjoy Life Foods and other property sales in 2016. |
| (6) | Refer to Note 8,Financial Instruments, Note 15,Segment Reporting, and Non-GAAP Financial Measures appearing later in this section for more information on these unrealized gains and losses on commodity and forecasted currency transaction derivatives.Finland. |
| (7) | Includes our historical global coffee business prior to the July 2, 2015 JDE coffee business transactions. Refer to Note 2,11,DivestituresCommitments and AcquisitionsContingencies – Tax Matters,, and our non-GAAP definitions appearing earlier in this section for more information. |
| (8) | Historically, we have recorded income from equity method investments within our operating income as these investments operated as extensions of our base business. Beginning in the third quarter of 2015, to align with the accounting for JDE earnings, we began to record the earnings from our equity method investments in equity method investment earnings outside of operating income. In periods prior to July 2, 2015, we have reclassified the equity method earnings from Adjusted Operating Income to evaluate our operating results on a consistent basis. |
| (9) | Refer to Note 2,Divestitures and Acquisitions, for more information on the April 23, 2015 divestiture of AGF. The divestiture of AGF generated a pre-tax gain of $13 million and after-tax loss of $9 million in the second quarter of 2015. |
| (10) | Includes costs incurred related to the planned salesettlement of a confectionery businesspre-acquisition Cadbury tax matter and the reversal of tax liabilities in France. Refer to Note 2,Divestitures and Acquisitions, for more information.connection with the resolution of a Brazilian indirect tax matter. |
Adjusted EPS: Applying the definition of “Adjusted EPS”(1), the adjustments made to “diluted EPS attributable to Mondelēz International” (the most comparable U.S. GAAP financial measure) were to exclude 2012-2014 Restructuring Program costs, 2014-2018 Restructuring Program costs, Venezuela historical operating results and remeasurement loss, the JDE coffee business transactions hedging gains and incremental costs, gain on the equity method investment exchange, acquisition integration costs, acquisition-related costs,costs; impairment charges related to intangible assets, gain on sale of an intangible asset, net earnings from the AGF divestiture, after-tax loss on the AGF divestiture, divestiture-related costs incurred for the planned sale of a confectionery business in France, a loss on debt extinguishment and related expenses, losses on interest rate swaps no longer designated as accounting cash flow hedges due to changed financing and hedging plans,assets; mark-to-market impacts from commodity and forecasted currency transaction derivative contractscontracts; incremental expenses related to the malware incident; acquisition integration costs; divestiture-related costs; net earnings from divestitures; net gain on divestitures; the benefits from the resolution of tax matters; loss on interest rate swaps; loss on debt extinguishment; gain on the equity method investment exchange and our proportionate share of unusual or infrequent items recorded by our JDE and Keurig equity method investees. We also evaluate Adjusted EPS on a constant currency basis. We believe Adjusted EPS provides improved comparability of underlying operating results. | | | | | | | | | | | | | | | | | | | For the Three Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2016 | | | 2015 | | | $ Change | | | % Change | | | | | | | Adjusted EPS (constant currency) | | $ | 0.54 | | | $ | 0.38 | | | $ | 0.16 | | | | 42.1% | | Impact of unfavorable currency | | | (0.02 | ) | | | – | | | | (0.02 | ) | | | | | | | | | | | | | | | | | | | | | | Adjusted EPS | | $ | 0.52 | | | $ | 0.38 | | | $ | 0.14 | | | | 36.8% | | 2014-2018 Restructuring Program costs | | | (0.14 | ) | | | (0.11 | ) | | | (0.03 | ) | | | | | Net earnings from Venezuelan subsidiaries | | | – | | | | 0.04 | | | | (0.04 | ) | | | | | Income / (costs) associated with the JDE coffee business transactions(2) | | | – | | | | (0.04 | ) | | | 0.04 | | | | | | Gain on the JDE coffee business transactions(2) | | | – | | | | 4.25 | | | | (4.25 | ) | | | | | Intangible asset impairment charges | | | – | | | | – | | | | – | | | | | | Gain on sale of intangible asset | | | – | | | | – | | | | – | | | | | | Acquisition integration costs | | | – | | | | – | | | | – | | | | | | Acquisition-related costs | | | – | | | | – | | | | – | | | | | | Mark-to-market gains / (losses) from derivatives | | | – | | | | – | | | | – | | | | | | Equity method investee acquisition-related and other adjustments(3) | | | (0.03 | ) | | | (0.06 | ) | | | 0.03 | | | | | | | | | | | | | | | | | | | | | | | Diluted EPS attributable to Mondelēz International | | $ | 0.35 | | | $ | 4.46 | | | $ | (4.11 | ) | | | (92.2)% | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | | | | | | | | | 2017 | | | 2016 | | | $ Change | | | % Change | | | | | | | Diluted EPS attributable to Mondelēz International | | $ | 0.65 | | | $ | 0.35 | | | $ | 0.30 | | | | 85.7% | | 2014-2018 Restructuring Program costs (2) | | | 0.08 | | | | 0.14 | | | | (0.06 | ) | | | | | Intangible asset impairment charges(2) | | | 0.04 | | | | – | | | | 0.04 | | | | | | Mark-to-market (gains)/losses from derivatives(2) | | | (0.02 | ) | | | – | | | | (0.02 | ) | | | | | Malware incident incremental expenses | | | 0.02 | | | | – | | | | 0.02 | | | | | | Divestiture-related costs(2) | | | 0.01 | | | | – | | | | 0.01 | | | | | | Net earnings from divestitures(2) | | | – | | | | (0.02 | ) | | | 0.02 | | | | | | Gain on divestiture(2) | | | (0.12 | ) | | | – | | | | (0.12 | ) | | | | | Benefits from resolution of tax matters (2) | | | (0.09 | ) | | | – | | | | (0.09 | ) | | | | | Equity method investee acquisition-related and other adjustments(3) | | | – | | | | 0.03 | | | | (0.03 | ) | | | | | | | | | | | | | | | | | | | | | | Adjusted EPS | | $ | 0.57 | | | $ | 0.50 | | | $ | 0.07 | | | | 14.0% | | Impact of favorable currency | | | (0.01 | ) | | | – | | | | (0.01 | ) | | | | | | | | | | | | | | | | | | | | | | Adjusted EPS (constant currency) | | $ | 0.56 | | | $ | 0.50 | | | $ | 0.06 | | | | 12.0% | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | For the Nine Months Ended | | | | | | | | | | September 30, | | | | | | | | | | 2016 | | | 2015 | | | $ Change | | | % Change | | | | | | | Adjusted EPS (constant currency) | | $ | 1.53 | | | $ | 1.20 | | | $ | 0.33 | | | | 27.5% | | Impact of unfavorable currency | | | (0.06 | ) | | | – | | | | (0.06 | ) | | | | | | | | | | | | | | | | | | | | | | Adjusted EPS | | $ | 1.47 | | | $ | 1.20 | | | $ | 0.27 | | | | 22.5% | | 2012-2014 Restructuring Program costs | | | – | | | | – | | | | – | | | | | | 2014-2018 Restructuring Program costs | | | (0.36 | ) | | | (0.29 | ) | | | (0.07 | ) | | | | | Net earnings from Venezuelan subsidiaries | | | – | | | | 0.08 | | | | (0.08 | ) | | | | | Remeasurement of net monetary assets in Venezuela | | | – | | | | (0.01 | ) | | | 0.01 | | | | | | Income / (costs) associated with the JDE coffee business transactions(2) | | | – | | | | 0.03 | | | | (0.03 | ) | | | | | Gain on the JDE coffee business transactions(2) | | | – | | | | 4.21 | | | | (4.21 | ) | | | | | Gain on equity method investment exchange(4) | | | 0.03 | | | | – | | | | 0.03 | | | | | | Acquisition integration costs | | | – | | | | – | | | | – | | | | | | Acquisition-related costs | | | – | | | | – | | | | – | | | | | | Intangible asset impairment charges | | | (0.01 | ) | | | – | | | | (0.01 | ) | | | | | Gain on sale of intangible asset | | | – | | | | – | | | | – | | | | | | Net earnings from divestiture(5) | | | – | | | | (0.02 | ) | | | 0.02 | | | | | | Loss on divestiture (5) | | | – | | | | (0.01 | ) | | | 0.01 | | | | | | Divestiture-related costs(6) | | | (0.04 | ) | | | – | | | | (0.04 | ) | | | | | Loss on debt extinguishment and related expenses | | | – | | | | (0.28 | ) | | | 0.28 | | | | | | Loss related to interest rate swaps | | | (0.04 | ) | | | (0.01 | ) | | | (0.03 | ) | | | | | Mark-to-market gains / (losses) from derivatives | | | (0.03 | ) | | | 0.02 | | | | (0.05 | ) | | | | | Equity method investee acquisition-related and other adjustments(3) | | | (0.03 | ) | | | (0.06 | ) | | | 0.03 | | | | | | | | | | | | | | | | | | | | | | | Diluted EPS attributable to Mondelēz International | | $ | 0.99 | | | $ | 4.86 | | | $ | (3.87 | ) | | | (79.6)% | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | For the Nine Months Ended September 30, | | | | | | | | | | 2017 | | | 2016 | | | $ Change | | | % Change | | | | | | | Diluted EPS attributable to Mondelēz International | | $ | 1.38 | | | $ | 0.99 | | | $ | 0.39 | | | | 39.4% | | 2014-2018 Restructuring Program costs (2) | | | 0.29 | | | | 0.36 | | | | (0.07 | ) | | | | | Intangible asset impairment charges(2) | | | 0.05 | | | | 0.01 | | | | 0.04 | | | | | | Mark-to-market losses from derivatives (2) | | | 0.04 | | | | 0.03 | | | | 0.01 | | | | | | Malware incident incremental expenses | | | 0.02 | | | | – | | | | 0.02 | | | | | | Divestiture-related costs(2) | | | 0.02 | | | | 0.04 | | | | (0.02 | ) | | | | | Net earnings from divestitures(2) | | | (0.03 | ) | | | (0.05 | ) | | | 0.02 | | | | | | Net gain on divestitures(2) | | | (0.11 | ) | | | – | | | | (0.11 | ) | | | | | Acquisition integration costs(2) | | | – | | | | – | | | | – | | | | | | Benefits from resolution of tax matters (2) | | | (0.13 | ) | | | – | | | | (0.13 | ) | | | | | Loss related to interest rate swaps(4) | | | – | | | | 0.04 | | | | (0.04 | ) | | | | | Loss on debt extinguishment(5) | | | 0.01 | | | | – | | | | 0.01 | | | | | | Gain on equity method investment exchange (6) | | | – | | | | (0.03 | ) | | | 0.03 | | | | | | Equity method investee acquisition-related and other adjustments(3) | | | 0.03 | | | | 0.03 | | | | – | | | | | | | | | | | | | | | | | | | | | | | Adjusted EPS | | $ | 1.57 | | | $ | 1.42 | | | $ | 0.15 | | | | 10.6% | | Impact of unfavorable currency | | | 0.02 | | | | – | | | | 0.02 | | | | | | | | | | | | | | | | | | | | | | | Adjusted EPS (constant currency) | | $ | 1.59 | | | $ | 1.42 | | | $ | 0.17 | | | | 12.0% | | | | | | | | | | | | | | | | | | |
| (1) | The tax impactexpense/(benefit) of each of the pretaxpre-tax items excluded from our GAAP results was computed based on the facts and tax assumptions associated with each item, and such impacts have also been excluded from Adjusted EPS. |
For the three months ended September 30, 2016,2017, taxes for theon the: 2014-2018 Restructuring Program costs were $82$(49) million, intangible asset impairment charges were $(16) million, mark-to-market gains from derivatives were $3 million, malware incident incremental expenses were $(15) million, net earnings from divestitures were $(1) million, divestiture-related costs were $18 million, net gain on divestitures were $8 million, benefits from resolution of tax matters were $72 million and equity method investee adjustments were $(2) million. For the three months ended September 30, 2015,2016, taxes foron the: 2014-2018 Restructuring Program costs were $62$(82) million, income /costs associated with the JDE coffee business transactionsmark-to-market losses from derivatives were ($41)$(4) million, net earnings from Venezuelan subsidiariesdivestitures were $24$11 million, and equity method investee adjustments were $(4) million. For the nine months ended September 30, 2017, taxes on the: 2014-2018 Restructuring Program costs were $(155) million, intangible asset impairment charges were $(30) million, malware incident incremental expenses were $(17) million, net earnings from divestitures were $13 million, divestiture-related costs were $13 million, net gain on the JDE coffee business transactionsdivestitures were $197$12 million, benefits from resolution of tax matters were $72 million, loss on debt extinguishment were $(4) million, and equity method investee adjustments were $(8) million. For the nine months ended September 30, 2016, taxes for the: 2014-2018 Restructuring Program costs were $199$(199) million, intangible asset impairment charges were $(8) million, mark-to-market losses from derivatives were $(6) million, divestiture-related costs were $(20) million, net earnings from divestitures were $26 million, loss related to interest rate swaps were $(35) million, gain on equity method investment exchange were $2 million intangible asset impairment chargesand equity method investee adjustments were $8 million, divestiture-related costs were $20 million, loss related to interest rate swaps were $35 million and mark-to-market gains / (losses) from derivatives were $6 million. For the nine months ended September 30, 2015, taxes for the: 2014-2018 Restructuring Program costs were $158 million, net earnings from Venezuelan subsidiaries were $77 million, remeasurement of net monetary assets in Venezuela were $1 million, income / (costs) associated with the JDE coffee business transactions were $155 million, gain on the JDE coffee business transactions were $197 million, net earnings from divestitures were $32 million, loss on divestiture were $22 million, loss on debt extinguishment and related expenses were $261 million, loss related to interest rate swaps were ($13) million and mark-to-market gains / (losses) from derivatives were $10$(5) million.
| (2) | Refer to Note 2,See theDivestituresAdjusted Operating Income table above and Acquisitions,the related footnotes for more information on the JDE coffee business transactions.information. |
| (3) | Includes our proportionate share of unusual or infrequent items, such as acquisition and divestiture-related costs and restructuring program costs, recorded by our JDE and Keurig equity method investeesinvestees. |
| (4) | Refer to Note 8,Financial Instruments, for more information on our interest rate swaps, which we no longer designate as cash flow hedges during the first quarter of 2016 due to changes in financing and hedging plans. |
| (5) | Refer to Note 7, Debt and Borrowing Arrangements, for more information on our loss on debt extinguishment and related expenses in connection with our debt discharge. |
| (6) | Refer to Note 2,Divestitures and Acquisitions – Keurig Transaction, for more information on the 2016 acquisition of an interest in Keurig. |
| (5) | Refer to Note 2,Divestitures and Acquisitions, for more information on the April 23, 2015 divestiture of AGF. The divestiture of AGF generated a pre-tax gain of $13 million and after-tax loss of $9 million in the second quarter of 2015. |
| (6) | Includes costs incurred related to the planned sale of a confectionery business in France. Refer to Note 2,Divestitures and Acquisitions, for more information. |
Item 3. 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 8,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. SeeConsolidated Results of Operations andResults of Operations by Reportable Segment underDiscussion and Analysis of Historical Results for currency exchange effects on our financial results during the nine months ended September 30, 2016.2017. For additional information on highly inflationary country currencies and the impact of currency policies the recent U.K. referendum to exit the E.U.,and recent currency devaluations, the deconsolidation of our Venezuelan operation and the historical remeasurement of our Venezuelan net monetary assetsvolatility on our financial condition and results of operations, also see Note 1,Basis of Presentation – 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, in the first quarter of 2016, we retired $1.8 billion of our long-term debt and issued $1.2 billion of lower borrowing cost debt. Our weighted-average interest rate on our total debt was 2.0% as of September 30, 2016 was 3.1%, down from 3.7%2017 and 2.2% as of December 31, 2015.2016. For more information on our 2017 debt activity, see Note 7,Debt and Borrowing Arrangements. There were no significant changes in the types of derivative instruments we use to hedge our exposures between December 31, 20152016 and September 30, 2016.2017. See Note 8,Financial Instruments, for more information on 2016our 2017 derivative activity. For additional information on our hedging strategies, policies and practices on an ongoing basis, also refer to our Annual Report on Form 10-K for the year ended December 31, 2015.2016. Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures We have established disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure. Management, together with our CEO and CFO, evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2016.2017. Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2016.2017. Changes in Internal Control Over Financial Reporting Management, together with our CEO and CFO, evaluated the changes in our internal control over financial reporting during the quarter ended September 30, 2016.2017. During the quarter, ended September 30, 2016,due to the malware incident, we workedsupplemented or temporarily replaced some of our normal control procedures in order to maintain our existing IT and financial controls over financial reporting. Additionally, we continued to work with outsourced partners to further simplify and standardize processes and focus on scalable, transactional processes across all regions. We continued to migrate some of our procurement administration functions for the EEMEA, Europe and Asia Pacific regions to an outsourced partner. Additionally, we continued to transition some of our transactional data processing as well as financial and financiallocal tax reporting for a number of countries inacross all regions (including order-to-cash in our Europe and Latin America regions) to three outsourced partners. Pursuant to our service agreements, the controls previously established around these accounting functions will be maintained by our outsourced partners or by us, and they are subject to management’s internal control testing. During the quarter, we also transitioned some of our human resources data processing performed in country and marketing procurement administration processes to our internal shared service centers in the Asia Pacific and Europe regions. Additionally, we successfully transitioned the Argentina, Uruguay and Chile entities onto our accounting system. There were no other changes in our internal control over financial reporting during the quarter ended September 30, 2016,2017, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II—II – OTHER INFORMATION Item 1. Legal Proceedings. Information regarding legal proceedings is available in Note 11,Commitments and Contingencies, to the condensed consolidated financial statements in this report. Item 1A. Risk Factors. There were no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.2016. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Our stock repurchase activity for each of the three months in the quarter ended September 30, 20162017 was: | | | | | | | | | | | | | | | | | | | Issuer Purchases of Equity Securities | | | | | | | | | | Total Number of | | | | | | | Total | | | | | | Shares Purchased | | | Approximate Dollar Value | | | | Number | | | Average | | | as Part of Publicly | | | of Shares That May Yet | | | | of Shares | | | Price Paid | | | Announced Plans | | | Be Purchased Under the | | Period | | Purchased(1) | | | per Share | | | or Programs(2) | | | Plans or Programs(2) | | July 1-31, 2016 | | | 4,845 | | | $ | 44.44 | | | | – | | | $ | 4,134,056,806 | | August 1-31, 2016 | | | 464,530 | | | | 45.65 | | | | 445,411 | | | | 4,114,056,828 | | September 1-30, 2016 | | | 10,541,973 | | | | 43.23 | | | | 10,523,964 | | | | 3,659,128,984 | | | | | | | | | | | | | | | | | | | For the Quarter Ended September 30, 2016 | | | 11,011,348 | | | | 43.33 | | | | 10,969,375 | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | Issuer Purchases of Equity Securities | | | | | | | | | | Total Number of | | | | | | | Total | | | | | | Shares Purchased | | | Approximate Dollar Value | | | | Number | | | Average | | | as Part of Publicly | | | of Shares That May Yet | | | | of Shares | | | Price Paid | | | Announced Plans | | | Be Purchased Under the | | Period | | Purchased(1) | | | per Share (1) | | | or Programs(2) | | | Plans or Programs(2) | | | | | | | July 1-31, 2017 | | | 3,475,099 | | | $ | 43.22 | | | | 3,471,070 | | | $ | 1,585,235,871 | | August 1-31, 2017 | | | 8,577,563 | | | | 42.78 | | | | 8,569,093 | | | | 1,218,677,932 | | September 1-30, 2017 | | | 4,685,783 | | | | 40.62 | | | | 4,677,115 | | | | 1,028,685,599 | | | | | | | | | | | | | | | | | | | For the Quarter Ended September 30, 2017 | | | 16,738,445 | | | | 42.27 | | | | 16,717,278 | | | | | | | | | | | | | | | | | | | | | | |
| (1) | The total number of shares purchased includes:(and the average price paid per share) reflects: (i) shares purchased pursuant to the repurchase program described in (2) below; and (ii) shares tendered to us by employees who used shares to exercise options and to pay the related taxes for grants of restricted and deferred stock that vested, totaling 4,8454,029 shares, 19,1198,470 shares and 18,0098,668 shares for the fiscal months of July, August and September 2016,2017, respectively. |
| (2) | Our Board of Directors authorized the repurchase of $13.7 billion of our Common Stock through December 31, 2018. Specifically, on March 12, 2013, our Board of Directors authorized the repurchase of up to the lesser of 40 million shares or $1.2 billion of our Common Stock through March 12, 2016. On August 6, 2013, our Audit Committee, with authorization delegated from our Board of Directors, increased the repurchase program capacity to $6.0 billion of Common Stock repurchases and extended the expiration date to December 31, 2016. On December 3, 2013, our Board of Directors approved an increase of $1.7 billion to the program related to a new accelerated share repurchase program, which concluded in May 2014. On July 29, 2015, our Finance Committee, with authorization delegated from our Board of Directors, approved a $6.0 billion increase that raised the repurchase program capacity to $13.7 billion and extended the program through December 31, 2018. See related information in Note 10,Stock Plans, for additional information.. |
Item 6. Exhibits. | | | Exhibit
Number | | Description | | | 10.1 | | Offer of Employment Letter, between the Registrant and Dirk Van de Put, dated July 27, 2017 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 2, 2017). + | | | 12.1 | | Computation of Ratios of Earnings to Fixed Charges. | | | 31.1 | | Certification of Chief Executive Officer pursuant to Rule13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. | | | 31.2 | | Certification of Chief Financial Officer pursuant to Rule13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. | | | 32.1 | | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | 101.1 | | The following materials from Mondelēz International’s Quarterly Report on Form 10-Q for the quarter ended September 30, 20162017 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Earnings, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements. |
+ Indicates a management contract or compensatory plan or arrangement. Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | | | MONDELĒZ INTERNATIONAL, INC. | | | | | By: /s/ BRIAN T. GLADDEN | | | Brian T. Gladden | | | Executive Vice President and | | | Chief Financial Officer | | | | | October 26, 201631, 2017 |
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