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Mondelez International, Inc. 10-K 2017
10-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark one)

  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

OR

 

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 1-16483

 

LOGO

Mondelēz International, Inc.

(Exact name of registrant as specified in its charter)

 

Virginia   52-2284372

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

Three Parkway North, Deerfield, Illinois   60015
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: 847-943-4000

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Class A Common Stock, no par value   The NASDAQ Global Select Market
1.125% Notes due 2017   New York Stock Exchange LLC
2.375% Notes due 2021   New York Stock Exchange LLC
1.000% Notes due 2022   New York Stock Exchange LLC
1.625% Notes due 2023   New York Stock Exchange LLC
1.625% Notes due 2027   New York Stock Exchange LLC
2.375% Notes due 2035   New York Stock Exchange LLC
4.500% Notes due 2035   New York Stock Exchange LLC
3.875% Notes due 2045   New York Stock Exchange LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  

Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer    

Accelerated filer  

   Non-accelerated filer     Smaller reporting company  
  (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  

The aggregate market value of the shares of Class A Common Stock held by non-affiliates of the registrant, computed by reference to the closing price of such stock on June 30, 2016, was $71 billion. At February 17, 2017, there were 1,526,612,169 shares of the registrant’s Class A Common Stock outstanding.

Documents Incorporated by Reference

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its annual meeting of shareholders expected to be held on May 17, 2017 are incorporated by reference into Part III hereof.

 

 

 


Table of Contents

Mondelēz International, Inc.

 

         Page No.  
Part I  –     
Item 1.  

Business

     1   
Item 1A.  

Risk Factors

     9   
Item 1B.  

Unresolved Staff Comments

     17   
Item 2.  

Properties

     18   
Item 3.  

Legal Proceedings

     18   
Item 4.  

Mine Safety Disclosures

     18   
Part II  –  
Item 5.  

Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities

     18   
Item 6.  

Selected Financial Data

     21   
Item 7.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations:

     22   
 

Summary of Results

     23   
 

Financial Outlook

     24   
 

Discussion and Analysis of Historical Results

     26   
 

Critical Accounting Estimates

     43   
 

Liquidity and Capital Resources

     46   
 

Commodity Trends

     47   
 

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

     48   
 

Equity and Dividends

     49   
 

Non-GAAP Financial Measures

     50   
Item 7A.  

Quantitative and Qualitative Disclosures about Market Risk

     58   
Item 8.  

Financial Statements and Supplementary Data:

     60   
 

Report of Independent Registered Public Accounting Firm

     60   
 

Consolidated Statements of Earnings
for the Years Ended December 31, 2016, 2015 and 2014

     61   
 

Consolidated Statements of Comprehensive Earnings
for the Years Ended December 31, 2016, 2015 and 2014

     62   
 

Consolidated Balance Sheets as of December 31, 2016 and 2015

     63   
 

Consolidated Statements of Equity
for the Years Ended December 31, 2016, 2015 and 2014

     64   
 

Consolidated Statements of Cash Flows
for the Years Ended December 31, 2016, 2015 and 2014

     65   
 

Notes to Consolidated Financial Statements

     66   
Item 9.  

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     117   
Item 9A.  

Controls and Procedures

     117   
Item 9B.  

Other Information

     118   
Part III  –     
Item 10.  

Directors, Executive Officers and Corporate Governance

     119   
Item 11.  

Executive Compensation

     119   
Item 12.  

Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters

     119   
Item 13.  

Certain Relationships and Related Transactions, and Director Independence

     119   
Item 14.  

Principal Accountant Fees and Services

     119   
Part IV  –     
Item 15.  

Exhibits and Financial Statement Schedules

     120   
 

Signatures

     125   
 

Report of Independent Registered Public Accounting Firm on Financial Statement Schedule

     S-1   
 

Valuation and Qualifying Accounts

     S-2   

In this report, for all periods presented, “we,” “us,” “our,” “the Company” and “Mondelēz International” refer to Mondelēz International, Inc. and subsidiaries. References to “Common Stock” refer to our Class A Common Stock.

 

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Forward-Looking Statements

This report contains a number of forward-looking statements. Words, and variations of words, such as “will,” “may,” “expect,” “would,” “could,” “might,” “intend,” “plan,” “believe,” “estimate,” “anticipate,” “deliver,” “seek,” “aim,” “potential,” “target,” “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 and margins; our strategy for growing our people, growing our business and growing our impact; price volatility and pricing actions; the cost environment and measures to address increased costs; the United Kingdom’s vote to exit the European Union and its effect on demand for our products and our financial results and operations; the costs of, timing of expenditures under and completion of our restructuring program; snack category growth, our effect on demand and our market position; consumer snacking behaviors; commodity prices and supply; investments; innovation; political and economic conditions and volatility; currency exchange rates, controls and restrictions; our operations in Venezuela and Argentina; integration of our EEMEA business into our Europe and Asia Pacific segments; overhead costs; pension liabilities related to the JDE coffee business transactions; our JDE ownership interest; the significance of the coffee category to our future results; the sale of most of our grocery business in Australia and New Zealand; matters related to the acquisition of a biscuit operation in Vietnam; completion of the sale of several manufacturing facilities in France and sale or license of several local confectionery brands; completion of the Keurig purchase price allocation; manufacturing and distribution capacity; legal matters; changes in laws and regulations and regulatory compliance; the estimated value of goodwill and 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; pension expenses, contributions and assumptions; employee benefit plan expenses, obligations and assumptions; our sustainability initiatives; tax positions; our liquidity, funding sources and uses of funding, including our use of commercial paper; reinvestment of earnings; our risk management program, including the use of financial instruments and the effectiveness of our hedging activities; capital expenditures and funding; share repurchases; dividends; long-term value and return on investment for our shareholders; compliance with financial and long-term debt covenants; guarantees; 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; 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 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.

PART I

Item 1. Business.

General

We are one of the world’s largest snack companies with global net revenues of $25.9 billion and net earnings of $1.7 billion in 2016. We manufacture and market delicious snack food and beverage products for consumers in approximately 165 countries around the world. Our portfolio includes many iconic snack brands including Nabisco, Oreo, LU and belVita biscuits; Cadbury, Milka, Cadbury Dairy Milk and Toblerone chocolate; Trident gum; Halls candy and Tang powdered beverages.

We are proud members of the Standard and Poor’s 500, NASDAQ 100 and Dow Jones Sustainability Index. Our Common Stock trades on The NASDAQ Global Select Market under the symbol “MDLZ.” We have been incorporated in the Commonwealth of Virginia since 2000.

 

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Strategy

We intend to leverage our core strengths, including our advantaged geographic footprint, market leadership positions and portfolio of iconic brands and innovation platforms, to achieve three primary goals of growing our people, growing our business and growing our impact.

 

    Grow our People: We hire and inspire our people to engage in challenging and rewarding career experiences and to contribute their talent to create a great place to work. We collaborate globally, scale ideas quickly and develop world-class capabilities. Our culture is fast-moving, bold, innovative and accountable, reflecting the traits and skills necessary to thrive in a competitive global marketplace. To support and build on the success of our people in a continually-evolving business environment, we invest in our people and their development, foster respect for one another, celebrate diversity and commit to authenticity at every level. We also work to create an environment in which our people can demonstrate innovative and courageous leadership to make a difference in every role they play in the Company. As reflected in our actions and our investments in our people, we value their contributions and are committed to their success.

 

    Grow our Business: We aim to deliver strong, profitable long-term growth by accelerating our core snacks business and expanding the reach of our Power Brands globally. Leveraging our Power brands – including Oreo, LU and belVita biscuits; Milka, Cadbury Dairy Milk and Toblerone chocolate; Trident gum and Halls candy – 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. As consumer consumption patterns change to more accessible, frequent and better-for-you snacking, we are enhancing the goodness of many of our brands (including providing simpler and wholesome ingredient-focused snacks), expanding the well-being offerings in our portfolio and inspiring consumers to snack mindfully by providing clear and simple nutrition information. 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 been working to optimize our cost structure. These efforts include reinventing our supply chain, including adding and upgrading to more efficient production lines, while reducing the complexity of our product offerings, ingredients and number of suppliers. We also continue to aggressively manage our overhead costs. We have embraced and embedded zero-based budgeting practices across the organization to identify potential areas of cost reductions and capture and sustain savings within our ongoing operating budgets. Through these actions, we’re leveraging our brands, platforms and capabilities to drive long-term value and return on investment for our shareholders.

 

    Grow our Impact: Our growth is linked to enhancing the well-being of the people who make and enjoy our products, the communities we serve and the planet and its limited resources. As consumers seek foods that taste delicious and match their lifestyle goals, we are committed to meeting their well-being needs by becoming a leader in tasty, accessible, well-being snacks. To ensure the safety of our people, we have implemented world-class safety programs, workplace wellness programs and policies to promote fair and equal treatment. We conduct business in compliance with the law, our company policies and accepted standards of business conduct. We also seek to improve consumers’ well-being by providing innovative community programs focused on learning about food choices, preparing healthy meals, growing nutritious foods and encouraging children to play. We encourage our people to contribute time and talent to community programs, and we provide humanitarian aid to communities in times of need. We also leverage our global operating scale to secure sustainable raw materials and work with suppliers to drive meaningful social and environmental changes.

Reportable Segments

Our operations and management structure are organized into four reportable operating segments:

    Latin America
    Asia, Middle East, and Africa (“AMEA”)
    Europe
    North America

On October 1, 2016, we integrated our Eastern Europe, Middle East, and Africa (“EEMEA”) operating segment into our Europe and Asia Pacific 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 region, while the remaining Middle East and African countries were combined within our Asia Pacific region to form the AMEA operating segment. We have reflected the segment change as if it had occurred in all periods presented.

 

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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.

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. For a definition and reconciliation of segment operating income to consolidated pre-tax earnings as well as other information on our segments, see Note 16, Segment Reporting.

Our segment net revenues for each of the last three years were:

 

                                         
     For the Years Ended December 31,  
     2016      2015      2014  
     (in millions)  

Net revenues:

        

Latin America

   $ 3,392       $ 4,988       $ 5,153   

AMEA

     5,816         6,002         6,367   

Europe

     9,755         11,672         15,788   

North America

     6,960         6,974         6,936   
  

 

 

    

 

 

    

 

 

 
   $ 25,923       $ 29,636       $ 34,244   
  

 

 

    

 

 

    

 

 

 

Our segment operating income for each of the last three years was:

 

                                                                                   
     For the Years Ended December 31,  
     2016      2015      2014  
     (in millions)             (in millions)             (in millions)         

Segment operating income:

                 

Latin America

   $ 271         8.7%       $ 485         14.6%       $ 475         12.3%   

AMEA

     506         16.2%         389         11.7%         530         13.6%   

Europe

     1,267         40.6%         1,350         40.5%         1,952         50.3%   

North America

     1,078         34.5%         1,105         33.2%         922         23.8%   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 3,122         100.0%       $ 3,329         100.0%       $ 3,879         100.0%   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The deconsolidation of our global coffee business in 2015, the deconsolidation of our Venezuela operations beginning with our 2016 results, currency and other items significantly affect the comparability of our consolidated and segment operating results from year to year. Please see Management’s Discussion and Analysis of Financial Condition and Results of Operations for a review of our operating results.

Our brands span five product categories:

    Biscuits (including cookies, crackers and salted snacks)
    Chocolate
    Gum & candy
    Beverages (including coffee through July 2, 2015 and powdered beverages)
    Cheese & grocery

During 2016, our segments contributed to our net revenues in the following product categories:

 

                                                                                   
     Percentage of 2016 Net Revenues by Product Category  
                   Gum &             Cheese &         

Segment

   Biscuits      Chocolate      Candy      Beverages      Grocery      Total  

Latin America

     2.8%         2.9%         3.6%         2.6%         1.2%         13.1%   

AMEA

     6.1%         7.3%         3.7%         2.4%         2.9%         22.4%   

Europe

     10.4%         18.7%         3.5%         0.7%         4.3%         37.6%   

North America

     21.6%         1.0%         4.3%                         26.9%   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     40.9%         29.9%         15.1%         5.7%         8.4%         100.0%   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Within our product categories, the classes of products that contributed 10% or more to consolidated net revenues were:

 

                                                                                              
                   For the Years Ended December 31,  
                   2016      2015      2014 (1)  

Biscuits - Cookies and crackers

           36%         34%         30%   

Chocolate - Tablets, bars and other

           30%         27%         28%   

Beverages - Coffee

                   6%         11%   

 

  (1) During 2014, we realigned some of our products across product categories and as such, we reclassified the product category net revenues on a basis consistent with the 2015 and 2016 presentation.

Significant Divestitures and Acquisitions

For information on our significant divestitures and acquisitions, please refer to Note 2, Divestitures and Acquisitions, and specifically, in connection with our global coffee business deconsolidation, see the discussions under JDE Coffee Business Transactions and Keurig Transaction.

Customers

No single customer accounted for 10% or more of our net revenues from continuing operations in 2016. Our five largest customers accounted for 16.6% and our ten largest customers accounted for 22.9% of net revenues from continuing operations in 2016.

Seasonality

Demand for our products is generally balanced over the first three quarters of the year and increases in the fourth quarter primarily because of holidays and other seasonal events. Depending on when Easter falls, there may also be a shift between the first and second quarter results. We build inventory based on expected demand and typically fill customer orders within a few days of receipt so the backlog of unfilled orders is not material. Funding for working capital items, including inventory and receivables, is normally sourced from operating cash flows and short-term commercial paper borrowings. For additional information on our liquidity, working capital management, cash flow and financing activities, see Liquidity and Capital Resources, Note 1, Summary of Significant Accounting Policies, and Note 7, Debt and Borrowing Arrangements, appearing later in this 10-K filing.

Competition

We face competition in all aspects of our business. Competitors include large multi-national as well as numerous local and regional companies. Some competitors have different profit objectives and investment time horizons than we do and therefore approach pricing and promotional decisions differently. We compete based on product quality, brand recognition and loyalty, service, product innovation, taste, convenience, the ability to identify and satisfy consumer preferences, effectiveness of sales and marketing, routes to market and distribution networks, promotional activity and price. Improving our market position or introducing a new product requires substantial research, development, advertising and promotional expenditures. We believe these investments lead to better products for the consumer and support our growth and market position.

Distribution and Marketing

Across our segments, we generally sell our products to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, gasoline stations, drug stores, value stores and other retail food outlets. We distribute our products through direct store delivery, company-owned and satellite warehouses, distribution centers and other facilities. We use the services of independent sales offices and agents in some of our international locations.

We also sell our products on a growing number of e-commerce platforms as consumer consumption patterns change (reflecting greater consumer time compression and technology use) and retail increasingly expands online. Within our digital and social marketing, we create opportunities for consumers to easily find and buy our products online. We have built relationships with several retailers to develop customized programs that fit their and our formats and provide consumers additional personalized offerings from our snacks portfolio.

 

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We conduct marketing efforts through three principal sets of activities: (i) consumer marketing and advertising including on-air, print, outdoor, digital and social media and other product promotions; (ii) consumer sales incentives such as coupons and rebates; and (iii) trade promotions to support price features, displays and other merchandising of our products by our customers.

Raw Materials and Packaging

We purchase and use large quantities of commodities, including cocoa, dairy, wheat, corn products, palm and other vegetable oils, sugar and other sweeteners and nuts. In addition, we purchase and use significant quantities of packaging materials to package our products and natural gas, fuels and electricity for our factories and warehouses. We monitor worldwide supply, commodity cost and currency trends so we can cost-effectively secure ingredients, packaging and fuel required for production.

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, and our hedging strategies may not protect us from increases in specific raw material costs.

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. For additional information on our commodity costs, refer to the Commodity Trends section within Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Intellectual Property

Our intellectual property rights (including trademarks, patents, copyrights, registered designs, proprietary trade secrets, technology and know-how) are material to our business.

We own numerous trademarks and patents in many countries around the world. Depending on the country, trademarks remain valid for as long as they are in use or their registration status is maintained. Trademark registrations generally are for renewable, fixed terms. We also have patents for a number of current and potential products. Our patents cover inventions ranging from basic packaging techniques to processes relating to specific products and to the products themselves. Our issued patents extend for varying periods according to the date of patent application filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage as determined by the patent office or courts in the country, and the availability of legal remedies in the country. While our patent portfolio is material to our business, the loss of one patent or a group of related patents would not have a material adverse effect on our business.

From time to time, we grant third parties licenses to use one or more of our trademarks in connection with the manufacture, sale or distribution of third party products. Similarly, we sell some products under brands we license from third parties. In our agreement with Kraft Foods Group, Inc. (“Kraft Foods Group,” which is now part of The Kraft Heinz Company), we each granted the other party various licenses to use certain of our and their respective intellectual property rights in named jurisdictions following the spin-off of our North American grocery business.

Research and Development

We pursue four objectives in research and development: product safety and quality, growth through new products, superior consumer satisfaction and reduced costs. Our innovation efforts focus on anticipating consumer demands and adapting quickly to changing market trends. Wellness products and healthy snacking are a significant focus of our current research and development initiatives. These initiatives aim to accelerate our growth and margins by addressing consumer needs and market trends and leveraging our global innovation platforms, Power Brands and breakthrough technologies. In September 2016, we announced our plan to invest $65 million over 2017-2018 to build out and modernize our network of global research and development facilities. We are focusing our technical resources at nine large locations to drive global growth and innovation. These global hubs will enable greater effectiveness, improved efficiency and accelerated project delivery. These locations are in Curitiba, Brazil; Suzhou, China; Thane, India; Mexico City, Mexico; East Hanover, New Jersey; Wroclaw, Poland; Jurong, Singapore; Bournville, United Kingdom and Reading, United Kingdom.

 

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At December 31, 2016, we had approximately 2,550 scientists and engineers, of which approximately 1,950 are primarily focused on research and development and the remainder are primarily focused on quality assurance and regulatory affairs. Our research and development expense was $376 million in 2016, $409 million in 2015 and $455 million in 2014. Our total research and development expense was lower in 2016 and 2015 primarily due to the deconsolidation of our global coffee business in July 2015, currency and cost optimization initiatives.

Regulation

Our food products and ingredients are subject to local, national and multi-national regulations related to labeling, packaging, pricing, marketing and advertising, privacy and related areas. In addition, various jurisdictions regulate our operations by licensing and inspecting our manufacturing plants and facilities, enforcing standards for selected food products, grading food products, and regulating trade practices related to the sale and pricing of our food products. Many of the food commodities we use in our operations are subject to government agricultural policy and intervention, and the scrutiny of human rights issues in industry supply chains has led to developing regulation in many countries. These policies have substantial effects on prices and supplies and are subject to periodic governmental and administrative review.

Examples of laws and regulations that affect our business include selective food taxes, labeling requirements such as nutrient profiling, marketing restrictions, potential withdrawal of trade concessions as dispute settlement retaliation and sanctions on sales or sourcing of raw materials. We will continue to monitor developments in laws and regulations. At this time, we do not expect the cost of complying with new laws and regulations will be material. Also refer to Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting, for additional information on government regulations and currency-related impacts on our operations in the United Kingdom, Argentina and other countries.

Environmental Regulation

Throughout the countries in which we do business, we are subject to local, national and multi-national environmental laws and regulations relating to the protection of the environment. We have programs across our business units designed to meet applicable environmental compliance requirements. In the United States, the laws and regulations include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation, and Liability Act. Based on information currently available, we believe that our compliance with environmental laws and regulations will not have a material effect on our financial results.

Sustainability

A key strategic goal for us is to Grow our Impact, and we seek to do that in part by sourcing our products sustainably, reducing the environmental impact of our operations and packaging, and being mindful of the limited resources available around the world. We continue to leverage our global operating scale to secure sustainable raw materials and work with suppliers to drive meaningful social and environmental changes, focusing on where we can make the most impact. For example, we have taken direct accountability for building a sustainable cocoa supply with our $400 million Cocoa Life program. And we’re improving sustainability in our wheat supply by working with farmers in North America and through our Harmony program in Europe.

Our 2020 sustainability goals aim to place us at the forefront in the fight against climate change with ambitious targets for an end-to-end approach to reduce our carbon footprint, including reducing our absolute CO2 emissions from manufacturing and addressing deforestation in key raw material supply chains. We are also working to cut our absolute water footprint in manufacturing, focusing on priority sites where water is most scarce, and we are working to reduce waste in manufacturing and packaging.

We have been recognized for our ongoing economic, environmental and social contributions and this year were listed again on the Dow Jones Sustainability Index (“DJSI”) – World and North American Indices. The DJSI selects the top 10% of global companies and top 20% of North American companies based on an extensive review of financial and sustainability programs within each industry. We improved our overall score to reach the 95th percentile of our industry and achieved perfect scores in health and nutrition, raw material sourcing and water-related risks.

 

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We also participate in the CDP Climate and Water disclosures and continue to work to reduce our carbon and water footprints. We ranked 4th in the Access to Nutrition Index, a global index that assesses and ranks the world’s largest food and beverage companies on their nutrition-related commitments, practices and performance. We are committed to continue this and other related work in the areas of sustainable resources and agriculture, mindful snacking, community partnerships and safety of our products and people.

Employees

We employed through our consolidated subsidiaries approximately 90,000 people worldwide at December 31, 2016 and approximately 99,000 at December 31, 2015. Employees represented by labor unions or workers’ councils represent approximately 65% of our 78,000 employees outside the United States and approximately 28% of our 12,000 U.S. employees. Our business units are subject to various local, national and multi-national laws and regulations relating to their relationships with their employees. In accordance with European Union requirements, we also have established a European Workers Council composed of management and elected members of our workforce. We or our subsidiaries are a party to numerous collective bargaining agreements and we work to renegotiate these collective bargaining agreements on satisfactory terms when they expire.

International Operations

Based on where we sell our products, we generated 75.6% of our 2016 net revenues, 78.7% of our 2015 net revenues and 82.1% of our 2014 net revenues from continuing operations outside the United States. We sell our products to consumers in approximately 165 countries. At December 31, 2016, we had operations in more than 80 countries and made our products at 150 manufacturing and processing facilities in 52 countries. Refer to Note 16, Segment Reporting, for additional information on our U.S. and non-U.S. operations. Refer to Item 2, Properties, for more information on our manufacturing and other facilities. Also, for a discussion of risks related to our operations outside the United States, see “Risk Factors” in Item 1A.

Executive Officers of the Registrant

The following are our executive officers as of February 24, 2017:

 

Name

 

Age

 

Title

Irene B. Rosenfeld   63   Chairman and Chief Executive Officer
Brian T. Gladden   51   Executive Vice President and Chief Financial Officer
Maurizio Brusadelli   48   Executive Vice President and President, Asia, Middle East and Africa
Timothy P. Cofer   48   Executive Vice President and Chief Growth Officer
Roberto de Oliveira Marques   51   Executive Vice President and President, North America
Robin S. Hargrove   51   Executive Vice President, Research, Development and Quality
Alejandro R. Lorenzo   45   Executive Vice President and President, Latin America
Karen J. May   58   Executive Vice President, Human Resources
Daniel P. Myers   61   Executive Vice President, Integrated Supply Chain
Gerhard W. Pleuhs   60   Executive Vice President and General Counsel
Hubert Weber   54   Executive Vice President and President, Europe

Ms. Rosenfeld became Chief Executive Officer and a director in June 2006 and became Chairman of the Board in March 2007. Prior to that, she served as Chairman and Chief Executive Officer of Frito-Lay, a division of PepsiCo, Inc., a food and beverage company, from September 2004 to June 2006. Ms. Rosenfeld was employed continuously by Mondelēz International and its predecessor, General Foods Corporation, in various capacities from 1981 until 2003, including President of Kraft Foods North America and President of Operations, Technology, Information Systems and Kraft Foods, Canada, Mexico and Puerto Rico.

Mr. Gladden became Executive Vice President and Chief Financial Officer in December 2014. He joined Mondelēz International in October 2014. Prior to that, he served as Senior Vice President and Chief Financial Officer of Dell Inc., a provider of technology products and services, from June 2008 until February 2014, and as President and Chief Executive Officer of SABIC Innovative Plastics, a manufacturer of industrial plastics, from August 2007 to May 2008. Mr. Gladden spent 19 years at the General Electric Company, a multinational conglomerate, in a variety of key leadership positions, including Vice President and General Manager, Resin Business and Chief Financial Officer, GE Plastics.

 

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Mr. Brusadelli became Executive Vice President and President, Asia Pacific in January 2016 and Executive Vice President and President, Asia, Middle East and Africa in October 2016. He previously served as President Biscuits Business, South East Asia, Japan and Sales Asia Pacific from September 2015 to December 2015, President Markets and Sales Asia Pacific from September 2014 to September 2015, President United Kingdom and Ireland from September 2012 to August 2014 and President Gum & Candy Europe from December 2010 until August 2012. Prior to that, Mr. Brusadelli held various positions of increasing responsibility around the world. Mr. Brusadelli joined Mondelēz International in 1993.

Mr. Cofer became Executive Vice President and Chief Growth Officer in January 2016. Prior to that, he served as Executive Vice President and President, Asia Pacific and EEMEA from September 2013 until December 2015, Executive Vice President and President, Europe from August 2011 until September 2013, Senior Vice President, Global Chocolate Category from June 2010 to August 2011, Senior Vice President, Strategy and Integration from January 2010 to June 2010, President of Pizza from January 2008 to January 2010, Senior Vice President and General Manager of Oscar Mayer from January 2007 to January 2008 and Vice President and General Manager of EU Chocolate from June 2003 to January 2007. Mr. Cofer joined Mondelēz International in 1992.

Mr. de Oliveira Marques became Executive Vice President and President, North America in March 2015. Prior to joining Mondelēz International, Mr. de Oliveira Marques worked at Johnson & Johnson, a global manufacturer of human health and well-being related products, for 27 years in a variety of leadership positions, most recently as Company Group Chairman, Consumer North America from January 2011 to February 2015 and as Company Group Chairman, Consumer Health Care, Global Design Unit from April 2007 to December 2010.

Mr. Hargrove became Executive Vice President, Research, Development & Quality in April 2015. Prior to that, he served as Senior Vice President, Research, Development & Quality for Mondelēz Europe from January 2013 to March 2015. Before joining Mondelēz International, Mr. Hargrove worked at PepsiCo, Inc., a global food and beverage company, for 19 years in a variety of leadership positions, most recently as Senior Vice President, Research and Development, Europe from December 2006 to December 2012.

Mr. Lorenzo became Executive Vice President and President, Latin America in January 2017. Prior to that, he served as President, Global Biscuits Category from January 2015 until December 2016; President, Brazil from September 2012 to December 2014; Vice President, Strategy & Marketing, Beverages and Groceries from January 2011 to August 2012; and Senior Category Director, Beverages and Groceries, Brazil from July 2008 until December 2010. Mr. Lorenzo joined Mondelēz International in 2003.

Ms. May became Executive Vice President, Human Resources in October 2005. Prior to that, she was Corporate Vice President, Human Resources for Baxter International Inc., a healthcare company, from February 2001 to September 2005.

Mr. Myers became Executive Vice President, Integrated Supply Chain in September 2011. Prior to that, he worked for Procter & Gamble, a consumer products company, for 33 years in a variety of leadership positions, most recently serving as Vice President, Product Supply for P&G’s Global Hair Care business from September 2007 to August 2011.

Mr. Pleuhs became Executive Vice President and General Counsel in April 2012. In this role, Mr. Pleuhs oversees the legal, compliance, security, corporate and governance affairs functions within Mondelēz International. Previously, Mr. Pleuhs served as Senior Vice President & Deputy General Counsel, Business Units from November 2007 to March 2012 and Senior Vice President and Deputy General Counsel, International for Kraft Foods Global, Inc. from July 2004 to November 2007. Before joining Mondelēz International in 1990, Mr. Pleuhs held a number of senior positions within the German Law Department of Jacobs Kaffee Deutschland GmbH, an international beverage and confectionery company, prior to and after its acquisition by Altria Group, the former parent company of Mondelēz International. Mr. Pleuhs has a law degree from the University of Kiel, Germany and is licensed to practice law in Germany and admitted as house counsel in Illinois.

Mr. Weber became Executive Vice President and President Europe in September 2013. Prior to that, he served as President of the European and Global Coffee category from September 2010 until September 2013, President of the DACH region (Germany, Austria and Switzerland) from February 2009 to August 2010, Managing Director, Spain from August 2007 to January 2009, Vice President of Global Tassimo Venture Team from July 2004 to July 2007 and Senior Director, International Sales, Kraft Foods International from January 2000 to June 2004. Mr. Weber joined Mondelēz International in 1988.

 

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Ethics and Governance

We adopted the Mondelēz International Code of Conduct, which qualifies as a code of ethics under Item 406 of Regulation S-K. The code applies to all of our employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Our code of ethics is available free of charge on our web site at www.mondelezinternational.com and will be provided free of charge to any shareholder submitting a written request to: Corporate Secretary, Mondelēz International, Inc., Three Parkway North, Deerfield, IL 60015. We will disclose any waiver we grant to an executive officer or director under our code of ethics, or certain amendments to the code of ethics, on our web site at www.mondelezinternational.com.

In addition, we adopted Corporate Governance Guidelines, charters for each of the Board’s four standing committees and the Code of Business Conduct and Ethics for Non-Employee Directors. All of these materials are available on our web site at www.mondelezinternational.com and will be provided free of charge to any shareholder requesting a copy by writing to: Corporate Secretary, Mondelēz International, Inc., Three Parkway North, Deerfield, IL 60015.

Available Information

Our Internet address is www.mondelezinternational.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge as soon as possible after we electronically file them with, or furnish them to, the U.S. Securities and Exchange Commission (the “SEC”). You can access our filings with the SEC by visiting www.mondelezinternational.com. The information on our web site is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any other filings we make with the SEC.

Item 1A.  Risk Factors.

You should read the following risk factors carefully when evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. Any of the following risks could materially and adversely affect our business, operating results, financial condition and the actual outcome of matters described in this Annual Report on Form 10-K. While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that we do not presently know or that we do not currently believe to be significant that may adversely affect our business, performance or financial condition in the future.

We operate in a highly competitive industry.

The food and snacking industry is highly competitive. Our principal competitors include major international food, snack and beverage companies that, like us, operate in multiple geographic areas as well as numerous local and regional companies. We compete based on product quality, brand recognition and loyalty, service, product innovation, taste, convenience, the ability to identify and satisfy consumer preferences, effectiveness of sales and marketing, routes to market and distribution networks, promotional activity and price. If we do not effectively respond to challenges from our competitors, our business could be adversely affected.

Competitor and customer pressures may require that we reduce our prices. These pressures may also restrict our ability to increase prices in response to commodity and other cost increases. Failure to effectively assess, timely change and set proper pricing or trade incentives may negatively impact the achievement of our strategic and financial goals. The rapid emergence of new distribution channels, such as e-commerce, may create consumer price deflation, affecting our retail customer relationships and presenting additional challenges to increasing prices in response to commodity or other cost increases. We may need to increase or reallocate spending on marketing, advertising and new product innovation to protect or increase market share. These expenditures might not result in trade and consumer acceptance of our efforts. If we reduce prices or our costs increase but we cannot increase sales volumes to offset those changes, then our financial condition and results of operations will suffer.

In addition, companies in our industry are under increasing pressure to improve the efficiency of their overall cost structures. We are pursuing a transformation agenda with the goals of focusing our portfolio, improving our cost structure and operating model, and accelerating our growth. If we do not achieve these objectives or do not implement transformation in a way that minimizes disruptions to our business, our financial condition and results of operations could be materially and adversely affected.

 

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Maintaining, extending and expanding our reputation and brand image is essential to our business success.

Our success depends on our ability to maintain brand image for our existing products, extend our brands into new geographies and to new distribution platforms, including e-commerce, and expand our brand image with new and renewed product offerings.

We seek to maintain, extend and expand our brand image through marketing investments, including advertising and consumer promotions, and both product renovation and innovation. Failure to effectively address the continuing global focus on well-being, including weight management, changing consumer perceptions of certain ingredients, and increasing attention from the media, shareholders, consumers, activists and other stakeholders on the role of food marketing could adversely affect our brand image. Undue caution on our part in addressing these challenges could weaken our competitive position. Such pressures could also lead to stricter regulations and increased focus on food and snacking marketing practices. Increased legal or regulatory restrictions on our advertising, consumer promotions and marketing, or our response to those restrictions, could limit our efforts to maintain, extend and expand our brands. Moreover, adverse publicity about regulatory or legal action against us, product quality and safety, where we manufacture our products or environmental and human and workplace rights risks in our supply chain could damage our reputation and brand image, undermine our customers’ confidence and reduce demand for our products, even if the regulatory or legal action is unfounded or these matters are immaterial to our operations. Our sponsorship relationships could also subject us to negative publicity.

In addition, our success in maintaining, extending and expanding our brand image depends on our ability to adapt to a rapidly changing marketing and media environment, including our increasing reliance on social media and online dissemination of marketing and advertising campaigns. A variety of legal and regulatory restrictions limit how and to whom we market our products. These restrictions may limit our ability to maintain, extend and expand our brand image, particularly as social media and the communications environment continue to evolve. Negative posts or comments about us on social networking web sites (whether factual or not) or security breaches related to use of our social media and failure to respond effectively to these posts, comments or activities could seriously damage our reputation and brand image across the various regions in which we operate. In addition, we might fail to invest sufficiently in maintaining, extending and expanding our brand image, and our marketing efforts might not achieve desired results. As a result, we might be required to recognize impairment charges on our intangible assets or goodwill. Furthermore, third parties may sell counterfeit or spurious versions of our products that are inferior or pose safety risks. If that happens, consumers could confuse these counterfeit products for our products or have a bad experience with the counterfeit brand, causing consumers to refrain from purchasing our brands. If we do not successfully maintain, extend and expand our reputation and brand image, then our brands, product sales, financial condition and results of operations could be materially and adversely affected.

We are subject to risks from operating globally.

We are a global company and generated 75.6% of our 2016 net revenues, 78.7% of our 2015 net revenues and 82.1% of our 2014 net revenues outside the United States. We manufacture and market our products in approximately 165 countries and have operations in more than 80 countries. Therefore, we are subject to risks inherent in global operations. Those risks include:

 

    compliance with U.S. laws affecting operations outside of the United States, including anti-bribery laws such as the Foreign Corrupt Practices Act (“FCPA”);
    compliance with antitrust and competition laws, trade laws, data privacy laws, anti-bribery laws, and a variety of other local, national and multi-national regulations and laws in multiple regimes;
    changes in tax laws, including enactment of new U.S. and foreign jurisdiction tax laws, interpretation of tax laws and tax audit outcomes;
    currency devaluations or fluctuations in currency values, including in developing markets such as Argentina, Brazil, China, Mexico, Russia, Turkey, Egypt, Nigeria, Ukraine and South Africa as well as in developed markets such as the United Kingdom and other countries within the European Union;
    the imposition of increased or new tariffs, quotas, trade barriers or similar restrictions on our sales or key commodities like cocoa, potential changes in U.S. trade programs and trade relations with other countries, or regulations, taxes or policies that might negatively affect our sales;
    changes in capital controls, including currency exchange controls, government currency policies such as demonetization in India or other limits on our ability to import raw materials or finished product into various countries or repatriate cash from outside the United States;
    increased sovereign risk, such as default by or deterioration in the economies and credit ratings of governments, particularly in our Latin America and AMEA regions;

 

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    changes in local regulations and laws, the uncertainty of enforcement of remedies in foreign jurisdictions, and foreign ownership restrictions and the potential for nationalization or expropriation of property or other resources;
    varying abilities to enforce intellectual property and contractual rights;
    discriminatory or conflicting fiscal policies;
    greater risk of uncollectible accounts and longer collection cycles; and
    design, implementation and use of effective control environment processes across our diverse operations and employee base.

In addition, political and economic changes or volatility, geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war, public corruption, expropriation and other economic or political uncertainties could interrupt and negatively affect our business operations or customer demand. High unemployment or the slowdown in economic growth in some markets could constrain consumer spending. As a branded food company that seeks to sell our products at a premium, declining consumer purchasing power could result in loss of market share and adversely impact our profitability. Continued instability in the banking and governmental sectors of certain countries or the dynamics and uncertainties associated with the United Kingdom’s vote to exit the European Union (“Brexit”), including currency exchange rate fluctuations and volatility in global stock markets, could have a negative effect on our business. All of these factors could result in increased costs or decreased revenues, and could materially and adversely affect our product sales, financial condition, results of operations, and our relationships with customers, suppliers and employees in the short or long term.

Our operations in certain emerging markets expose us to political, economic and regulatory risks.

Our growth strategy depends in part on our ability to expand our operations in emerging markets, including among others Brazil, China, India, Mexico, Russia, Argentina, Ukraine, the Middle East, Africa and Southeast Asia. However, some emerging markets have greater political, economic and currency volatility and greater vulnerability to infrastructure and labor disruptions than more established markets. In many countries, particularly those with emerging economies, engaging in business practices prohibited by laws and regulations with extraterritorial reach, such as the FCPA and the U.K. Bribery Act, or local anti-bribery laws may be more common. These laws generally prohibit companies and their employees, contractors or agents from making improper payments to government officials, including in connection with obtaining permits or engaging in other actions necessary to do business. Failure to comply with these laws could subject us to civil and criminal penalties that could materially and adversely affect our reputation, financial condition and results of operations.

In addition, competition in emerging markets is increasing as our competitors grow their global operations and low cost local manufacturers expand and improve their production capacities. Our success in emerging markets is critical to achieving our growth strategy. If we cannot successfully increase our business in emerging markets and manage associated political, economic and regulatory risks, our product sales, financial condition and results of operations could be adversely affected, such as occurred when we deconsolidated and changed to the cost method of accounting for our Venezuelan operations at the close of 2015 or any potential impact on our business in Venezuela from future economic or political developments.

Unanticipated business disruptions could adversely affect our ability to provide our products to our customers.

We manufacture and source products and materials on a global scale. We have a complex network of suppliers and material needs, owned manufacturing locations, co-manufacturing locations, distribution networks and information systems that support our ability to provide our products to our customers consistently. Factors that are hard to predict or beyond our control, like weather, natural disasters, supply and commodity shortages, fire, explosions, terrorism, political unrest, generalized labor unrest or health pandemics could damage or disrupt our operations or our suppliers’ or co-manufacturers’ operations. If we do not effectively respond to disruptions in our operations, for example, by finding alternative suppliers or replacing capacity at key manufacturing or distribution locations, or cannot quickly repair damage to our information, production or supply systems, we may be late in delivering or unable to deliver products to our customers and the quality and safety of our products might be negatively affected. If that occurs, we may lose our customers’ confidence or suffer damage to our reputation, and long-term consumer demand for our products could decline. In addition, we might not have the functions, processes or organizational capability necessary to achieve on our anticipated timeframes our strategic ambition to reconfigure our supply chain and drive efficiencies to fuel growth. Further, our ability to supply multiple markets with a streamlined manufacturing footprint may be negatively impacted by portfolio complexity, changes in volume produced and changes to regulatory restrictions or labor-related constraints on our ability to adjust production capacity in the markets in which we operate. These events could materially and adversely affect our product sales, financial condition and results of operations.

 

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We are subject to currency exchange rate fluctuations.

At December 31, 2016, we sold our products in approximately 165 countries and had operations in more than 80 countries. Consequently, a significant portion of our business is exposed to currency exchange rate fluctuations. Our financial results and capital ratios are sensitive to movements in currency exchange rates because a large portion of our assets, liabilities, revenue and expenses must be translated into U.S. dollars for reporting purposes or converted into U.S. dollars to service obligations such as our U.S. dollar-denominated indebtedness and to pay dividends to our shareholders. In addition, movements in currency exchange rates can affect transaction costs because we source product ingredients from various countries. We seek to mitigate our exposure to exchange rate fluctuations, primarily on cross-currency transactions, but our efforts may not be successful. Accordingly, changes in the currency exchange rates that we use to translate our results into U.S. dollars for financial reporting purposes or for transactions involving multiple currencies could materially and adversely affect our financial condition and results of operations.

Commodity and other input prices are volatile and may increase or decrease significantly or availability of commodities may become constrained.

We purchase and use large quantities of commodities, including cocoa, dairy, wheat, corn products, palm and other vegetable oils, sugar and other sweeteners, and nuts. In addition, we purchase and use significant quantities of packaging materials to package our products and natural gas, fuels and electricity for our factories and warehouses. Prices for these raw materials, other supplies and energy are volatile and can fluctuate due to conditions that are difficult to predict. These conditions include global competition for resources, currency fluctuations, political conditions, severe weather, the potential longer-term consequences of climate change on agricultural productivity, crop disease or pests, water risk, health pandemics, consumer or industrial demand, and changes in governmental trade, alternative energy and agricultural programs. Increasing focus on climate change, deforestation, water, animal welfare and human rights concerns and other risks associated with the global food system may lead to increased activism focusing on consumer goods companies, government intervention and consumer response, and could adversely affect our or our suppliers’ reputation and business and our ability to procure the materials we need to operate our business. Many of the commodities we purchase are grown by smallholder farmers, who might lack the capacity to invest to increase productivity or adapt to changing conditions. Although we monitor our exposure to commodity prices and hedge against input price increases, we cannot fully hedge against changes in commodity costs, and our hedging strategies may not protect us from increases in specific raw material costs. Continued volatility in the prices of commodities and other supplies we purchase could increase or decrease the costs of our products, and our profitability could suffer as a result. Moreover, increases in the price of our products, including increases to cover higher input costs, may result in lower sales volumes, while decreases in input costs could require us to lower our prices and thereby affect our revenues, profits or margins. Likewise, constraints in the supply of key commodities may limit our ability to grow our net revenues and earnings. If our mitigation activities are not effective, if we are unable to price to cover increased costs or must reduce our prices, or if we are limited by supply constraints, our financial condition and results of operations could be materially adversely affected.

Complying with changes in and inconsistencies among laws and regulations in many countries in which we operate could increase our costs.

Our activities throughout the world are highly regulated and subject to government oversight. Various laws and regulations govern food production, storage, distribution, sales, advertising, labeling and marketing, as well as licensing, trade, labor, tax and environmental matters, and health and safety practices. Government authorities regularly change laws and regulations and their interpretations. Our compliance with new or revised laws and regulations or the interpretation and application of existing laws and regulations could materially and adversely affect our product sales, financial condition and results of operations. For instance, our financial condition and results of operations could be negatively affected by the regulatory and economic impact of changes in taxation and trade relations among the United States and other countries or changes in the European Union such as Brexit.

We may be unable to hire or retain and develop key personnel or a highly skilled and diverse global workforce or manage changes in our workforce.

We must hire, retain and develop effective leaders and a highly skilled and diverse global workforce. We compete to hire new personnel in the many countries in which we manufacture and market our products and then to develop and retain their skills and competencies. Unplanned turnover or failure to develop adequate succession plans for leadership positions or to hire and retain a diverse global workforce with the skills and in the locations we need to operate and grow our business could deplete our institutional knowledge base and erode our competitiveness.

 

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We also face increased personnel-related risks in connection with implementing the changes in our transformation agenda related to our operating model and business processes, including building a global shared services capability and reconfiguring our supply chain. These risks could lead to operational challenges, including increased competition for employees with the skills we require to achieve our business goals; higher employee turnover, including of employees with key capabilities; and challenges in developing the capabilities necessary to build and effectively execute a shared services function and transform our business processes. Furthermore, we might be unable to manage appropriately changes in, or that affect, our workforce or satisfy the legal requirements associated with how we manage and compensate our employees. This includes our management of employees represented by labor unions or workers’ councils, who represent approximately 65% of our 78,000 employees outside the United States and approximately 28% of our 12,000 U.S. employees. Strikes, work stoppages or other forms of labor unrest by our employees or those of our suppliers or distributors, or situations like the re-negotiation of collective bargaining agreements covering eight U.S. facilities that expired in February 2016, could cause disruptions to our supply chain, manufacturing or distribution processes.

These risks could materially and adversely affect our reputation, ability to meet the needs of our customers, product sales, financial condition and results of operations.

Our retail customers are consolidating and we must leverage our value proposition in order to compete against retailer and other economy brands.

Retail customers, such as supermarkets, warehouse clubs and food distributors in the European Union, the United States and our other major markets continue to consolidate or form buying alliances, resulting in fewer, larger customers with whom we can conduct business. Large retail customers and customer alliances can resist our efforts to increase prices, delist our products or reduce the shelf space allotted to our products, and demand lower pricing, increased promotional programs, longer payment terms or specifically tailored products. Retail customers might also adopt these tactics in their dealings with us in response to the significant growth in online retailing for consumer products, which is outpacing the growth of traditional retail channels. In addition, larger retail customers have the scale to develop supply chains that permit them to operate with reduced inventories or to develop and market their own retailer and other economy brands that compete with some of our products. Our products must provide higher quality or value to our consumers than the less expensive alternatives, particularly during periods of economic uncertainty. Consumers may not buy our products if consumers perceive the difference in the quality or value between our products and the retailer or other economy brands has narrowed. If consumers switch to purchasing or otherwise prefer the retailer or other economy brands, then we could lose market share or sales volumes, or we may need to shift our product mix to lower margin offerings.

Retail consolidation also increases the risk that adverse changes in our customers’ business operations or financial performance will have a corresponding material adverse effect on us. For example, if our customers cannot access sufficient funds or financing, then they may delay, decrease or cancel purchases of our products, or delay or fail to pay us for previous purchases.

If we do not effectively respond to retail consolidation, increasing retail power and competition from retailer and other economy brands, our reputation, brands, product sales, financial condition and results of operations could be materially and adversely affected.

We are subject to changes in our relationships with significant customers or suppliers.

During 2016, our five largest customers accounted for 16.6% of our net revenues. There can be no assurance that our customers will continue to purchase our products in the same mix or quantities or on the same terms as in the past, particularly as increasingly powerful retailers continue to demand lower pricing and develop their own brands. The loss of or disruptions related to significant customers could result in a material reduction in sales or change in the mix of products we sell to a significant customer. This could materially and adversely affect our product sales, financial condition and results of operations.

Additionally, disputes with significant suppliers, including disputes related to pricing or performance, could adversely affect our ability to supply products to our customers or operate our business and could materially and adversely affect our product sales, financial condition and results of operations.

 

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We may decide or be required to recall products or be subjected to product liability claims.

We could decide, or laws or regulations could require us, to recall products due to suspected or confirmed and deliberate or unintentional product contamination, spoilage or other adulteration, product mislabeling or product tampering. In addition, if another company recalls or experiences negative publicity related to a product in a category in which we compete, consumers might reduce their overall consumption of products in this category. Any of these events could materially and adversely affect our reputation, brands, product sales, financial condition and results of operations.

We may also suffer losses if our products or operations or those of our suppliers violate applicable laws or regulations, or if our or our suppliers’ products cause injury, illness or death. In addition, our marketing could face claims of false or deceptive advertising or other criticism. A significant product liability or other legal judgment against us, a related regulatory enforcement action, a widespread product recall or attempts to manipulate us based on threats related to the safety of our products could materially and adversely affect our reputation and profitability. Moreover, even if a product liability, consumer fraud or other claim is unsuccessful, has no merit or is not pursued, the negative publicity surrounding assertions against our products or processes could materially and adversely affect our reputation, brands, product sales, financial condition and results of operations.

We could be subject to legal or tax claims or other regulatory enforcement actions.

We are a large snack food company operating in highly regulated environments and constantly evolving legal, tax and regulatory frameworks around the world. Consequently, we are subject to greater risk of litigation, legal or tax claims, or other regulatory enforcement actions. There can be no assurance that our employees, contractors or agents will not violate policies and procedures we have implemented to promote compliance with existing laws and regulations. Moreover, our failure to maintain effective control environment processes, including in connection with the development of our global shared services capability, could lead to violations, unintentional or otherwise, of laws and regulations. Litigation, legal or tax claims, or regulatory enforcement actions arising out of our failure or alleged failure to comply with applicable laws, regulations or controls could subject us to civil and criminal penalties that could materially and adversely affect our reputation, product sales, financial condition and results of operations.

We may not successfully identify, complete or manage strategic transactions.

We regularly evaluate a variety of potential strategic transactions, including acquisitions, divestitures, joint ventures, equity method investments and other strategic alliances that could further our strategic business objectives. We may not successfully identify, complete or manage the risks presented by these strategic transactions. Our success depends, in part, upon our ability to identify suitable transactions; negotiate favorable contractual terms; comply with applicable regulations and receive necessary consents, clearances and approvals (including regulatory and antitrust clearances and approvals); integrate or separate businesses; realize the full extent of the benefits, cost savings or synergies presented by strategic transactions; effectively implement control environment processes with employees joining us as a result of a transaction; minimize adverse effects on existing business relationships with suppliers and customers; achieve accurate estimates of fair value; minimize potential loss of customers or key employees; and minimize indemnities and potential disputes with buyers, sellers and strategic partners. In addition, execution or oversight of strategic transactions may result in the diversion of management attention from our existing business and may present financial, managerial and operational risks.

With respect to acquisitions and joint ventures in particular, we are also exposed to potential risks based on our ability to conform standards, controls, policies and procedures, and business cultures; consolidate and streamline operations and infrastructures; identify and eliminate redundant and underperforming operations and assets; manage inefficiencies associated with the integration of operations; and coordinate antitrust and competition laws in the United States, the European Union and other jurisdictions. Joint ventures and similar strategic alliances pose additional risks, as we share ownership and management responsibilities with one or more other parties who may not have the same objectives, priorities, strategies or resources as we do. Strategic alliances we have entered into include combining our wholly owned coffee businesses with those of D.E Master Blenders 1753 B.V. (“DEMB”) to create a new company, Jacobs Douwe Egberts (“JDE”), in July 2015 and exchanging a portion of our equity ownership in JDE for equity in the new holding company of Keurig Green Mountain, Inc. (“Keurig”) in March 2016. Transactions or ventures into which we enter might not meet our financial and non-financial control and compliance expectations or yield the anticipated benefits. Depending on the nature of the business ventures, including whether they operate globally, these ventures could also be subject to many of the same risks we are, including political, economic and regulatory risks, currency exchange rate fluctuations, and volatility of commodity and other input prices. Either partner might fail to recognize alliance relationships that could expose the business to higher risk or make the venture not as productive as expected.

 

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Furthermore, we may not be able to complete, on terms favorable to us, desired or proposed divestitures of businesses that do not meet our strategic objectives or our growth or profitability targets. Our divestiture activities, or related activities such as reorganizations, restructuring programs and transformation initiatives, may require us to recognize impairment charges or to take action to reduce costs that remain after we complete a divestiture. Gains or losses on the sales of, or lost operating income from, those businesses may also affect our profitability.

Any of these risks could materially and adversely affect our business, product sales, financial condition and results of operations.

We must correctly predict, identify and interpret changes in consumer preferences and demand and offer new products that meet those changes.

Consumer preferences for food and snacking products change continually. Our success depends on our ability to predict, identify and interpret the tastes, dietary habits, packaging, sales channel and other preferences of consumers around the world and to offer products that appeal to these preferences. Moreover, weak economic conditions, recession, equity market volatility or other factors could affect consumer preferences and demand. If we do not offer products that appeal to consumers or if we misjudge consumer demand for our products, our sales and market share will decrease and our profitability could suffer.

We must distinguish among short-term fads, mid-term trends and long-term changes in consumer preferences. If we do not accurately predict which shifts in consumer preferences will be long-term, or if we fail to introduce new and improved products to satisfy those changing preferences, our sales could decline. In addition, because of our varied consumer base, including by geography, we must offer an array of products that satisfy the broad spectrum of consumer preferences. If we fail to expand our product offerings successfully across product categories, or if we do not rapidly develop products in faster growing and more profitable categories, demand for our products could decrease and our profitability could suffer.

Prolonged negative perceptions concerning the health, environmental and social implications of certain food products and ingredients could influence consumer preferences and acceptance of some of our products and marketing programs. For example, consumers have increasingly focused on health and wellness, including weight management and reducing sodium and added sugar consumption. In addition, consumer preferences differ by region, and we must monitor and adjust our use of ingredients to respond to these regional preferences. We might be unsuccessful in our efforts to effectively respond to changing consumer preferences and social expectations. Continued negative perceptions and failure to satisfy consumer preferences could materially and adversely affect our reputation, product sales, financial condition and results of operations.

We could fail to maintain effective internal control over financial reporting.

The accuracy of our financial reporting depends on the effectiveness of our internal control over financial reporting. Internal control over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements and may not prevent or detect misstatements because of its inherent limitations. These limitations include, among others, the possibility of human error, inadequacy or circumvention of controls and fraud. If we do not maintain effective internal control over financial reporting or design and implement controls sufficient to provide reasonable assurance with respect to the preparation and fair presentation of our financial statements, including in connection with controls executed for us by third parties, we might fail to timely detect any misappropriation of corporate assets or inappropriate allocation or use of funds and could be unable to file accurate financial reports on a timely basis. As a result, our reputation, results of operations and stock price could be materially adversely affected.

We increasingly rely on information technology and third party service providers.

We rely on information technology and third party service providers to process, transmit and store company information via business applications, internal networks and the Internet. We use these technologies and third party service providers to support our global business processes and activities, including communicating with our employees, customers and suppliers; running critical business operations; engaging in mergers and acquisitions and other corporate transactions; conducting research and development activities; meeting regulatory, legal and tax requirements; and executing various digital marketing and consumer promotion activities.

 

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Working with these technologies and third party service providers creates risks related to confidentiality, integrity and continuity, and some of these risks may be outside of our control. Confidentiality and integrity of information may be jeopardized by deliberate or unintentional misuse, manipulation or disclosure of information; physical theft; or cybersecurity data breaches by our employees, suppliers, hackers, criminal groups, nation-state organizations, social-activist organizations or other third parties. We currently utilize third party e-commerce providers and request that they have the appropriate cybersecurity controls and meet regulatory requirements. Going forward, should we decide to transact e-commerce direct to consumers as the merchant, we would implement additional procedures, controls and technology to address cybersecurity and regulatory compliance. We might face increased risk if new initiatives such as e-commerce increase the amount of confidential information that we process and maintain, and the cybersecurity and compliance controls we or our third party providers implement are not effective. Continuity of business applications and services may be disrupted by errors in systems’ maintenance, migration of applications to the cloud, power outages, hardware or software failures, viruses or malware, denial of service and other cyber security attacks, telecommunication failures, natural disasters, terrorist attacks and other catastrophic events.

Should any of these risks materialize, the need to coordinate with various third party service providers might complicate our efforts to resolve the related issues. If our controls, disaster recovery and business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition and results of operations may be materially and adversely affected, and we may experience delays in reporting our financial results.

In addition, should confidential information belonging to us or our employees, customers, consumers, partners, suppliers, or governmental or regulatory authorities be misused or breached, we may suffer financial losses relating to remediation, damage to our reputation or brands, loss of intellectual property, or penalties or litigation related to violation of data privacy laws and regulations.

Weak financial performance, downgrades in our credit ratings, illiquid global capital markets and volatile global economic conditions could limit our access to the global capital markets, reduce our liquidity and increase our borrowing costs.

We access the long-term and short-term global capital markets to obtain financing. Our financial performance, our short- and long-term debt credit ratings, interest rates, the stability of financial institutions with which we partner, the liquidity of the overall global capital markets and the state of the global economy, including the food industry, could affect our access to, and the availability or cost of, financing on acceptable terms and conditions and our ability to pay dividends in the future. There can be no assurance that we will have access to the global capital markets on terms we find acceptable.

We regularly access the commercial paper markets in the United States and Europe for ongoing funding requirements. A downgrade in our credit ratings by a credit rating agency could increase our borrowing costs and adversely affect our ability to issue commercial paper. Disruptions in the global commercial paper market or other effects of volatile economic conditions on the global credit markets also could reduce the amount of commercial paper that we could issue and raise our borrowing costs for both short- and long-term debt offerings.

Limitations on our ability to access the global capital markets, a reduction in our liquidity or an increase in our borrowing costs could materially and adversely affect our financial condition and results of operations.

Volatility in the equity markets, interest rates, our participation in multi-employer pension plans or other factors could substantially increase our pension costs.

We sponsor a number of defined benefit pension plans for our employees throughout the world. At the end of 2016, the projected benefit obligation of our defined benefit pension plans was $11.4 billion and plan assets were $9.5 billion. The difference between plan obligations and assets, or the funded status of the plans, significantly affects the net periodic benefit costs of our pension plans and the ongoing funding requirements of those plans. Our largest funded defined benefit pension plans are funded with trust assets invested in a globally diversified portfolio of investments, including equities and corporate and government debt. Among other factors, changes in interest rates, mortality rates, early retirement rates, investment returns, funding requirements in the jurisdictions in which the plans operate, the viability of other employers in the multi-employer pension plans in which we participate and the market value of plan assets can affect the level of plan funding, cause volatility in the net periodic pension cost and increase our future funding requirements. Legislative and other governmental regulatory actions may also increase funding requirements for our pension plans’ benefits obligation.

 

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Volatility in the global capital markets may increase the risk that we are required to make additional cash contributions to the pension plans and recognize further increases in our net periodic pension cost.

Due to our participation in multi-employer pension plans, we may have exposure under those plans that extends beyond what our obligation would be with respect to our employees. Our contributions to a multi-employer plan may increase beyond our bargaining obligations depending on the financial condition of the multi-employer plan. We may be required to participate in funding the unfunded obligations of the plan allocable to a withdrawing employer, and our costs might increase as a result. Further, if we partially or completely withdraw from a multi-employer pension plan, we may be required to pay a partial or complete withdrawal liability. This withdrawal liability will generally increase if there is also a mass withdrawal of other participating employers or if the plan terminates. (See Note 9, Benefit Plans, to the consolidated financial statements for more information on our multi-employer pension plans.)

A significant increase in our pension benefit obligations or funding requirements could curtail our ability to invest in the business and adversely affect our financial condition and results of operations.

Our failure to protect our valuable intellectual property rights could reduce the value of our products and brands.

We consider our intellectual property rights, particularly and most notably our trademarks, but also our patents, trade secrets, copyrights and licensing agreements, to be a significant and valuable part of our business. We attempt to protect our intellectual property rights by taking advantage of a combination of patent, trademark, copyright and trade secret laws in various countries, as well as licensing agreements, third party nondisclosure and assignment agreements and policing of third party misuses of our intellectual property. Our failure to obtain or adequately protect our intellectual property rights, or any change in law or other changes that serve to lessen or remove the current legal protections of our intellectual property, may diminish our competitiveness and could materially harm our business.

We may be unaware of third party claims of intellectual property infringement relating to our technology, brands or products. Any litigation regarding patents or other intellectual property could be costly and time-consuming and could divert management’s and other key personnel’s attention from our business operations. Third party claims of intellectual property infringement might require us to pay monetary damages or enter into costly license agreements. We also may be subject to injunctions against development and sale of certain of our products. Any of these occurrences could materially and adversely affect our reputation, product sales, financial condition and results of operations.

Item 1B.  Unresolved Staff Comments.

None.

 

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Item 2.  Properties.

On December 31, 2016, we had 150 manufacturing and processing facilities in 52 countries and 130 distribution centers and depots worldwide. During 2016, we added 5 new manufacturing facilities and disposed of or ceased operations in 9 manufacturing facilities. We also added 4 new distribution facilities and no longer own or lease 12 distribution facilities. In addition, a decrease of 49 distribution facilities in predominantly EU and AMEA primarily reflects distribution facilities that are owned or leased by third party logistics partners. In addition to our owned or leased properties listed below, we also utilize a highly distributed network of warehouses and distribution centers that are owned or leased by third party logistics partners, contract manufacturers, co-packers or other strategic partners. We believe we have or will add sufficient capacity to meet our planned operating needs. It is our practice to maintain all of our plants and other facilities in good condition.

 

                                     
     As of December 31, 2016  
     Number of      Number of  
     Manufacturing      Distribution  
     Facilities      Facilities  

Latin America (1)

     17         5   

AMEA

     51         38   

Europe

     67         5   

North America

     15         82   
  

 

 

    

 

 

 

Total

     150         130   
  

 

 

    

 

 

 

Owned

     139         22   

Leased

     11         108   
  

 

 

    

 

 

 

Total

     150         130   
  

 

 

    

 

 

 

 

  (1) Excludes properties utilized by our Venezuelan businesses, which were deconsolidated effective as of the close of the 2015 fiscal year. Refer to Note 1, Summary of Significant Accounting Policies Currency Translation and Highly Inflationary Accounting: Venezuela, for more information.

Item 3.  Legal Proceedings.

Information regarding legal proceedings is available in Note 12, Commitments and Contingencies, to the consolidated financial statements in this report.

Item 4.  Mine Safety Disclosures.

Not applicable.

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

We have listed our Common Stock on The NASDAQ Global Select Market under the symbol “MDLZ.” At January 31, 2017, there were 56,105 holders of record of our Common Stock. Information regarding the market price of our Common Stock and dividends declared during the last two fiscal years is included in Note 17, Quarterly Financial Data (Unaudited), to the consolidated financial statements.

 

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Comparison of Five-Year Cumulative Total Return

The following graph compares the cumulative total return on our Common Stock with the cumulative total return of the S&P 500 Index and the Mondelēz International performance peer group index. The graph assumes, in each case, that an initial investment of $100 is made at the beginning of the five-year period. The cumulative total return reflects market prices at the end of each year and the reinvestment of dividends each year (and takes into account the value of Kraft Foods Group shares distributed in the spin-off of our grocery business). The vertical line below indicates the October 1, 2012 Spin-Off date and is intended to facilitate comparisons of performance against peers listed below and the stock market before and following the Spin-Off.

 

LOGO

 

                                                                           
     Mondelēz
International
     S&P 500      2016
Performance
Peer Group
     2015
Performance
Peer Group
 

Date

           

December 2011

   $ 100.00       $ 100.00       $ 100.00       $ 100.00   

December 2012

     107.06         116.00         110.47         110.47   

December 2013

     151.05         153.57         131.58         131.58   

December 2014

     157.97         174.60         141.57         141.57   

December 2015

     198.09         177.01         145.10         145.10   

December 2016

     199.21         198.18         151.78         149.60   

The Mondelēz International performance peer group consists of the following companies considered our market competitors or that have been selected on the basis of industry, global focus or industry leadership: Campbell Soup Company, The Coca-Cola Company, Colgate-Palmolive Company, Danone S.A., General Mills, Inc., The Hershey Company, Kellogg Company, Nestlé S.A., PepsiCo, Inc., The Procter & Gamble Company, Unilever PLC and The Kraft Heinz Company. We added The Kraft Heinz Company to our performance peer group in 2016 and its performance history is only included for 2016 because the company was formed in 2015.

This performance graph and other information furnished under this Part II Item 5(a) of this Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act.

 

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Issuer Purchases of Equity Securities

Our stock repurchase activity for each of the three months in the quarter ended December 31, 2016 was:

 

                                                                           
     Issuer Purchases of Equity Securities  

Period

   Total
Number
of Shares
Purchased (1)
     Average
Price Paid
per Share
     Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs (2)
     Approximate Dollar Value
of Shares That May Yet
Be Purchased Under
the Plans or Programs (2)
 

October 1-31, 2016

     2,270,497       $ 44.02         2,264,152       $ 3,559,545,482   

November 1-30, 2016

     12,524,719         42.83         12,522,439         3,023,387,254   

December 1-31, 2016

     4,269,081         41.82         4,264,741         2,845,045,875   
  

 

 

       

 

 

    

For the Quarter Ended December 31, 2016

     19,064,297         42.75         19,051,332      
  

 

 

       

 

 

    

 

  (1) The total number of shares purchased includes: (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 6,345 shares, 2,280 shares and 4,340 shares for the fiscal months of October, November and December 2016, 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 11, Capital Stock.

 

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Item 6.   Selected Financial Data

Mondelēz International, Inc.

Selected Financial Data – Five Year Review (1)

 

     2016      2015      2014      2013      2012  
     (in millions, except per share and employee data)  

Continuing Operations (2)

              

Net revenues

   $ 25,923       $ 29,636       $ 34,244       $ 35,299       $ 35,015   

Earnings from continuing operations, net of taxes

     1,669         7,291         2,201         2,332         1,606   

Net earnings attributable to Mondelēz International:

              

Per share, basic

     1.07         4.49         1.29         1.30         0.90   

Per share, diluted

     1.05         4.44         1.28         1.29         0.88   

Cash Flow and Financial Position (3)

              

Net cash provided by operating activities

     2,838         3,728         3,562         6,410         3,923   

Capital expenditures

     1,224         1,514         1,642         1,622         1,610   

Property, plant and equipment, net

     8,229         8,362         9,827         10,247         10,010   

Total assets

     61,538         62,843         66,771         72,464         75,421   

Long-term debt

     13,217         14,557         13,821         14,431         15,519   

Total Mondelēz International shareholders’ equity

     25,161         28,012         27,750         32,373         32,276   

Shares outstanding at year end (4)

     1,528         1,580         1,664         1,705         1,778   

Per Share and Other Data (5)

              

Book value per shares outstanding

     16.47         17.73         16.68         18.99         18.15   

Dividends declared per share (6)

     0.72         0.64         0.58         0.54         1.00   

Common Stock closing price at year end (7)

     44.33         44.84         36.33         35.30         25.45   

Number of employees

     90,000         99,000         104,000         107,000         110,000   

 

(1) The selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K and Annual Reports on Form 10-K for earlier periods. A significant portion of our business is exposed to currency exchange rate fluctuation as a large portion of our assets, liabilities, revenue and expenses must be translated into U.S. dollars for reporting purposes. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of operating results on a constant currency basis where noted.
(2) Significant items impacting the comparability of our results from continuing operations include: Spin-Off Costs in 2012-2014; Restructuring Programs in 2012-2016; Cost Savings Initiatives in 2013 and 2012; the contribution of our global coffee businesses and investment in JDE and related gain in 2015; the gain on Keurig equity method investment exchange in 2016;other divestitures and sales of property in 2016, 2015, 2013 and 2012; acquisitions in 2016, 2015 and 2013; the Cadbury acquisition-related Integration Program in 2012-2014; the benefit from the Cadbury acquisition-related indemnification resolution in 2013; losses on debt extinguishment in 2013-2016; unrealized gains on the coffee business transaction currency hedges in 2014 and 2015; debt tender offers completed in 2013-2016; loss on deconsolidation of Venezuela in 2015; the remeasurement of net monetary assets in Venezuela in 2013-2015; accounting calendar changes in 2015 and 2013; impairment charges related to intangible assets in 2016, 2015, 2014 and 2012; losses related to interest rate swaps in 2016 and 2015; and our provision for income taxes in all years. Please refer to Notes 1, Summary of Significant Accounting Policies; 2, Divestitures and Acquisitions; 5, Goodwill and Intangible Assets; 6, Restructuring Programs; 7, Debt and Borrowing Arrangements; 8, Financial Instruments; 12, Commitments and Contingencies; 14, Income Taxes; and 16, Segment Reporting, for additional information regarding items affecting comparability of our results from continuing operations.
(3) Our Cash Flow and Financial Position information includes Kraft Foods Group data for periods prior to the October 1, 2012 Spin-Off date. Refer to the Annual Report on Form 10-K for the year ended December 31, 2012 for information on the divested net assets and items impacting cash flow. Other items impacting comparability primarily relate to the Keurig and JDE coffee business transactions in 2014-2016, the loss on deconsolidation of Venezuela in 2015 and the receipt of net cash proceeds from the resolution of the Starbucks arbitration in 2013. Beginning in 2015, debt issuance costs related to recognized debt liabilities were recorded as a deduction from the related debt obligations instead of as long-term other assets on the consolidated balance sheet. We made this reclassification in the prior years presented to be consistent with the 2016 and 2015 presentation.
(4) Refer to Note 11, Capital Stock, for additional information on our share repurchase program in 2013-2016.
(5) Per Share and Other Data includes Kraft Foods Group data for periods prior to the October 1, 2012 Spin-Off date. Refer to the Annual Report on Form 10-K for the year ended December 31, 2015, for additional information on the resolution of the Starbucks arbitration in 2013.
(6) Refer to the Equity and Dividends section within Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information on our dividends following the October 1, 2012 Spin-Off.
(7) Closing prices reflect historical market prices and have not been adjusted for periods prior to October 1, 2012 to reflect the Spin-Off of Kraft Foods Group on that date.

 

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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis contains forward-looking statements. It should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, “Forward-Looking Statements” and “Risk Factors” contained in Item 1A.

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.

We aim to deliver strong, profitable long-term growth by accelerating our core snacks business and expanding the 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. As consumer consumption patterns change to more accessible, frequent and better-for-you snacking, we are enhancing the goodness of many of our brands (including providing simpler and wholesome ingredient-focused snacks), expanding the well-being offerings in our portfolio and inspiring consumers to snack mindfully by providing clear and simple nutrition information. 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 been working to optimize our cost structure. These efforts include reinventing our supply chain, including adding and upgrading to more efficient production lines, while reducing the complexity of our product offerings, ingredients and number of suppliers. We also continue to aggressively manage our overhead costs. We have embraced and embedded zero-based budgeting practices across the organization to identify potential areas of cost reductions and capture and sustain savings within our ongoing operating budgets. Through these actions, we’re leveraging our brands, platforms and capabilities to drive long-term value and return on investment for our shareholders.

Coffee Business Transactions

JDE Coffee Business Transactions:

On July 2, 2015, we completed transactions to combine our wholly owned coffee businesses with those of DEMB to create a new company, JDE. At that time, our equity interest in JDE was 43.5% with the remaining 56.5% held by a subsidiary of Acorn Holdings B.V. (“AHBV,” owner of DEMB prior to July 2, 2015). In connection with these transactions, in 2015, we recorded a final pre-tax gain of $6.8 billion ($6.6 billion after-tax) from the deconsolidation of our legacy coffee businesses. We also recorded approximately $1.0 billion of cumulative pre-tax net gains ($436 million in 2015 and $628 million in 2014) and cash related to currency hedging in connection with the expected cash consideration to be received in euros. We received 3.8 billion of cash ($4.2 billion) as of July 2, 2015 and with the cash from hedging currency, we effectively received $5.2 billion of cash. On July 5, 2016, we also received from JDE an expected $275 million cash payment to settle a receivable for tax formation costs that were part of the initial sales price. As part of our final sales price negotiations, we also 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. As further described below, following the March 2016 exchange of JDE shares for an investment in Keurig and stock-based compensation activity at JDE during 2016, as of December 31, 2016, our equity interest in JDE was 26.4%. We recorded equity earnings of $100 million in 2016 and equity losses of $58 million in 2015 related to our investment in JDE.

On June 30, 2016, we entered into agreements with AHBV and its affiliates to establish a new stock-based compensation arrangement tied to the issuance of JDE equity compensation awards 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 and to issue shares when JDE awards vest. As new shares of JDE are issued, the Class A and B ownership interests of JDE decrease. Under these arrangements, dilution of the JDE shares is limited to 2%. Based on estimated award achievement, we do not expect our JDE ownership interest to decrease below 26.27%. Following these stock-based compensation issuances, our ownership interest in JDE was 26.4% as of December 31, 2016.

See Note 2, Divestitures and Acquisitions, for additional details on the JDE coffee business transactions.

 

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Keurig Transaction:

On March 3, 2016, a subsidiary of AHBV completed a $13.9 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 the equity method investment exchange. Following the exchange, our ownership interest in JDE became 26.5% and we owned a 24.2% interest in Keurig. Both AHBV and we hold our investments in Keurig through a combination of equity and shareholder loan interests, with the same 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 consolidated balance sheet as of December 31, 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. Within equity earnings, we recorded equity earnings of $77 million and interest income from the shareholder loan of $20 million in 2016. Additionally, we received $14 million of interest payments on the shareholder loan and $4 million in dividends on our investment in Keurig in 2016. See Note 2, Divestitures and Acquisitions, for additional details on the Keurig transaction.

Coffee Business Equity Earnings:

We have reflected the results of our historical coffee businesses and equity earnings from JDE, Keurig and Dongsuh Foods Corporation (“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, in the third quarter of 2015, we began to recognize equity method investment earnings, consisting primarily of investments in coffee businesses, outside of operating income. For periods prior to the third 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 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. At that time, 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.

As of the start of 2016, we no longer include net revenues, earnings or net assets of our Venezuelan subsidiaries within our consolidated financial statements in our reported GAAP results (we exclude Venezuela in our non-GAAP results for all historical periods presented). Under the cost method of accounting, earnings are only recognized to the extent cash is received and we have not received any distributed cash from our Venezuela operations in 2016. 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 monitor the extent of our ability to control our Venezuelan operations and the liquidity and availability of cash and U.S. dollars needed to operate in Venezuela, as our current situation in Venezuela may change over time and lead to consolidation at a future date. See Discussion and Analysis of Historical Results – Items Affecting Comparability of Financial Results below, and Note 1, Summary of Significant Accounting Policies Currency Translation and Highly Inflationary Accounting: Venezuela, for more information on our historical Venezuelan operating results, including the remeasurement losses and loss on deconsolidation.

Summary of Results

 

    Net revenues decreased 12.5% to $25.9 billion in 2016 and decreased 13.5% to $29.6 billion in 2015. Net revenues in 2016 were significantly affected by the deconsolidation of our historical coffee business, 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 the accounting calendar change in 2015.

 

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    Organic Net Revenue increased 1.3% to $27.1 billion in 2016 and increased 1.4% to $30.1 billion in 2015 after recasting prior years to exclude the historical Venezuela deconsolidated operating results and historical operating results from a small 2016 divestiture in the Latin America region. Organic Net Revenue also excludes the impact of our historical global coffee business which was deconsolidated in the JDE coffee business transactions in July 2015. Organic Net Revenue is a non-GAAP financial measure and is on a constant currency basis. 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 within Non-GAAP Financial Measures appearing later in this section).

 

    Diluted EPS attributable to Mondelēz International decreased 76.4% to $1.05 in 2016 and increased 246.9% to $4.44 in 2015. The gain on the coffee business deconsolidation and other significant items affected the comparability of our reported results, as further described in the Discussion and Analysis of Historical Results appearing later in this section and in the notes to the consolidated financial statements.

 

    Adjusted EPS increased 19.8% to $1.94 in 2016 and decreased 6.4% to $1.62 in 2015 after recasting prior years to exclude the historical Venezuela deconsolidated operating results, historical operating results from a small 2016 divestiture in the Latin America region and historical mark-to-market impacts. On a constant currency basis, Adjusted EPS increased 24.1% to $2.01 in 2016 and increased 9.8% to $1.90 in 2015. Adjusted EPS and Adjusted EPS on a constant currency basis are non-GAAP financial measures. We use these measures as they provide improved year-over-year comparability of our underlying results (see the definition of Adjusted EPS and our reconciliation with diluted EPS within Non-GAAP Financial Measures appearing later in this section).

Financial Outlook

We seek to achieve profitable, long-term growth and manage our business to attain 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 near- 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 gain 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 in Non-GAAP Financial Measures which appears later in this section.

In addition to monitoring our key operating metrics, we monitor a number of developments or trends that could impact our revenue and profitability objectives.

Long-Term Demographics and Consumer Trends – Snack food consumption is highly correlated to GDP growth, urbanization of the population and rising discretionary income levels associated with a growing middle class, particularly in emerging markets. Over the long-term, we expect these trends to continue leading to growth in consumer behaviors such as migration to more frequent, smaller meals and snacks and greater use of convenience foods. In the near term, low GDP growth, economic recessionary pressures, weak consumer confidence, a strong U.S. dollar and changing consumer trends have slowed category and our net revenue growth. We recognize these factors and the changing consumer trends such as the increasing emphasis on well-being, time compression, growing income disparity, digital revolution and an evolving retail landscape, and we are investing in our well-being snacks portfolio, product and marketing innovation and new routes to market including e-commerce to position ourselves for future growth.

Demand – We monitor consumer spending and our market share within the food and beverage categories in which we sell our products. Growth in these global categories (excluding Venezuela) decreased from approximately 3.4% in 2015 to 2.4% in 2016. Over the long-term, we expect category growth to improve when the macroeconomic environment improves. We continue to make investments in our brand portfolio and build strong routes to market to address the needs of consumers in emerging and developed markets. In doing so, we anticipate driving demand in our categories and growing our position in these markets.

Volatility of Global Markets – Our growth strategy depends in part on our ability to expand our operations, particularly in emerging markets. Some of these markets have greater political and economic volatility, vulnerability to infrastructure and labor disruptions and sensitivity to world oil and energy prices, as we noted this past year in markets including Brazil, Russia, India, China, Ukraine, the Middle East and Nigeria. Volatility in these markets affects demand for and the costs of our products and requires frequent changes in how we operate our business. We expect continued volatility across our markets, particularly emerging markets. As such, we are focused on investing in our global Power Brands and routes to market while we protect our margins through the management of costs and pricing.

 

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Competition – We operate in highly competitive markets that include global, regional and local competitors. Our advantaged geographic footprint, operating scale and portfolio of brands have all significantly contributed to building our market-leading positions across most of the product categories in which we sell. To grow and maintain our market positions, we focus on meeting consumer needs and preferences through new product innovations and product quality. We also continue to optimize our manufacturing and other operations and invest in our brands through ongoing research and development, advertising, marketing and consumer promotions.

Pricing – We adjust our product prices based on a number of variables including demand, the competitive environment and changes in our product input costs. Our net revenue growth and profitability may be affected as we adjust prices to address new conditions. In 2015 and 2016, we generally increased prices in response to higher commodity costs, currency and other market factors. In 2017, we anticipate that we will adjust our prices in response to changing market conditions. Price competition or delayed price increases by competitors or customers may continue to affect net revenues or market share in the near term as the market adjusts to the changes in input costs and other market conditions.

Operating Costs – Our operating costs include raw materials, labor, selling, general and administrative expenses, taxes, currency impacts and financing costs. We manage these costs through cost saving and productivity initiatives, sourcing and hedging programs, pricing actions, refinancing and tax planning. We also continue to work on programs to expand our profitability and margins, such as our 2014-2018 Restructuring Program, which is designed to bring about significant reductions in our operating cost structure in both our supply chain and overhead costs. We also integrated our EEMEA business into our Europe and Asia Pacific segments effective October 1, 2016. We expect this change to have a favorable impact on our operating performance prospectively due to greater leverage of our European and AMEA regional businesses and resulting cost structure. We also began to re-negotiate collective bargaining agreements covering eight U.S. facilities that expired in February 2016. We continue to work toward reaching a new agreement and have plans to ensure business continuity during the re-negotiations.

Currency – As a global company with 75.6% of our net revenues generated outside the United States, we are exposed to changes in global economic conditions and currency movements. In the last three years, the U.S. dollar has generally strengthened relative to other currencies in which we operate, and several countries experienced significant declines in or devaluations of their currency. These currency movements had a significant negative effect on our reported results of operations. Our 2016 net revenues were $25.9 billion, down 12.5% from 2015, including a negative 4.6 percentage point impact from currency translation. Our 2015 net revenues were $29.6 billion, down 13.5% from 2014, including a negative 12.6 percentage point impact from currency translation (and a 12.0 percentage point impact excluding currency impacts related to Venezuela). Our 2014 net revenues were $34.2 billion, down 3.0% from 2013, including a negative 5.2 percentage point impact from currency translation (and a 3.9 percentage point impact excluding currency impacts related to Venezuela).

We have historically been exposed to currency devaluation risks impacting earnings particularly, but not only, in connection with our Venezuela operations that were deconsolidated at the close of the 2015 fiscal year. In the months following Brexit, there was significant volatility in the global stock markets and currency exchange rates, affecting the markets in which we conduct business. The value of the British pound sterling relative to the U.S. dollar declined significantly with further volatility in the exchange rate expected over the Brexit transition period. The devaluation of the British pound sterling negatively affected our translated results reported in U.S. dollars. To partially offset the translation of certain of our overseas operations, including the United Kingdom, we have net investment hedges in the form of local currency denominated debt. We generally do not hedge against currency translation and primarily seek to hedge against economic losses on cross-currency transactions. Due to limited markets for hedging currency transactions and other factors, we may not be able to effectively hedge all of our cross-currency transaction risks. The local economies, monetary policies and currency hedging availability can affect our ability to hedge against currency-related economic losses. While we work to mitigate our exposure to these currency risks, factors such as continued global and local market volatility, actions by foreign governments, political uncertainty, limited hedging opportunities and other factors could lead to further unfavorable currency impacts in the future. While we continue to monitor and work to safeguard our business, Brexit 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. We may not be able to fully offset the increased risks related to Brexit, which could impact profitability in the near-term or longer should these conditions continue. See Note 1, Summary of Significant Accounting Policies Currency Translation and Highly Inflationary Accounting: Venezuela and United Kingdom, for related information.

Financing Costs – We regularly evaluate our variable and fixed-rate debt. We continue to use lower-cost, short- and long-term debt to finance our ongoing working capital, capital expenditures and other investments, dividends and share repurchases. During 2016, we retired $6.2 billion of our long-term debt and related costs and issued lower-cost, long-term euro, Swiss franc and U.S. dollar-denominated debt. Our weighted-average interest rate on our total debt as of December 31, 2016 was 2.2%, down from 3.7% as of December 31, 2015 and down from 4.3% as of December 31, 2014. Refer to Note 7, Debt and Borrowing Arrangements, for additional debt activity in 2017.

 

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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 consolidated financial statements indicated below for more information. Refer also to the Consolidated 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 Years Ended December 31,  
     See Note      2016      2015      2014  
            (in millions, except percentages)  

JDE coffee business transactions:

     Note 2            

Gain on contribution

      $       $ 6,809       $   

Incremental costs for readying
the businesses

                (278      (77

Currency-related hedging net gains (1)

                436         628   

Gain on Keurig equity method investment exchange (2)

        43                   

Venezuela:

     Note 1            

Historical operating income (3)

                266         181   

Remeasurement of net monetary assets:

           

Q1 2014: 6.30 to 10.70 bolivars
to the U.S. dollar

                        (142

SICAD I remeasurements through December 31, 2014

                        (25

Q1 2015: 11.50 to 12.00 bolivars
to the U.S. dollar

                (11        

Loss on deconsolidation

                (778        

2014-2018 Restructuring Program:

     Note 6            

Restructuring charges

        (714      (711      (274

Implementation charges

        (372      (291      (107

2012-2014 Restructuring Program:

     Note 6            

Restructuring charges

                4         (360

Implementation charges

                        (99

Loss on debt extinguishment and
related expenses

     Note 7         (427      (753      (495

Loss related to interest rate swaps

     Note 7 & 8         (97      (34        

Intangible asset impairment charges

     Note 5         (137      (71      (57

Divestitures, acquisitions and
sales of property

     Note 2            

Gain on sale of trademarks

        15                   

Gain on divestiture

        9         13           

Divestiture-related costs

        (86                

Acquisition-related costs

        (1      (8      (2

Other acquisition integration costs

        (7      (9      (4

Gains on sales of property

        46                 7   

Mark-to-market (losses) / gains from derivatives (4)

     Note 16         (94      56         (73

Spin-Off Costs

     Note 2                         (35

Effective tax rate

     Note 14         8.9%         7.5%         13.8%   

 

  (1) To lock in an expected U.S. dollar value of the cash to be received in euros upon closing of the JDE coffee business transactions, we entered into currency exchange forward contracts beginning in May 2014, when the transaction was announced. We recognized related currency hedging net gains of $436 million in 2015 and $628 million in 2014. See Note 2, Divestitures and Acquisitions, for more information on the JDE coffee business transactions and related hedging transactions.
  (2) The gain on equity method investment exchange is recorded outside of pre-tax operating results on the consolidated statement of earnings as it relates to our after-tax equity method investments.
  (3) Excludes the impact of remeasurement losses and 2014-2018 Restructuring Program charges that are shown separately.
  (4) Unrealized gains or losses on commodity and forecasted currency transaction derivatives. 2015 and 2014 amounts exclude coffee commodity and currency derivative impacts that are included within the coffee operating results throughout the following sections.

 

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Consolidated Results of Operations

The following discussion compares our consolidated results of operations for 2016 with 2015 and 2015 with 2014.

2016 compared with 2015

 

 

                                                                           
     For the Years Ended
December 31,
               
     2016      2015      $ change      % change  
     (in millions, except per share data)         

Net revenues

   $ 25,923       $ 29,636       $ (3,713)         (12.5)%   

Operating income

     2,569         8,897         (6,328)         (71.1)%   

Earnings from continuing operations

     1,669         7,291         (5,622)         (77.1)%   

Net earnings attributable to
Mondelēz International

     1,659         7,267         (5,608)         (77.2)%   

Diluted earnings per share attributable to Mondelēz International

     1.05         4.44         (3.39)         (76.4)%   

Net Revenues – Net revenues decreased $3,713 million (12.5%) to $25,923 million in 2016, and Organic Net Revenue (1) increased $360 million (1.3%) to $27,067 million. Power Brands net revenues decreased 11.8%, 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 2.8%. Emerging markets net revenues decreased 19.1%, primarily due to the deconsolidation of our historical Venezuelan operations, unfavorable currency and the deconsolidation of our historical coffee business, and emerging markets Organic Net Revenue increased 2.7%. The underlying changes in net revenues and Organic Net Revenue are detailed below:

 

                  
     2016  

Change in net revenues (by percentage point)

  

Total change in net revenues

     (12.5)%   

Add back the following items affecting comparability:

  

Historical coffee business (1)

     5.6pp   

Unfavorable currency

     4.6pp   

Historical Venezuelan operations (2)

     3.7pp   

Impact of accounting calendar change

     0.2pp   

Impact of divestitures

       

Impact of acquisitions

     (0.3)pp   
  

 

 

 

Total change in Organic Net Revenue (3)

     1.3%   
  

 

 

 

Higher net pricing

     1.6pp   

Unfavorable volume/mix

     (0.3)pp   

 

  (1) Includes our historical global coffee business prior to the July 2, 2015 JDE coffee business transactions. Refer to Note 2, Divestitures and Acquisitions, and Non-GAAP Financial Measures appearing later in this section for more information.
  (2) Includes the historical results of our Venezuelan subsidiaries (including Venezuela currency impacts) prior to the December 31, 2015 deconsolidation. Refer to Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting: Venezuela, for more information.
  (3) Please see the Non-GAAP Financial Measures section at the end of this item.

 

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Net revenue decline of 12.5% was driven by the impact of the deconsolidation of our historical coffee business, unfavorable currency, the deconsolidation of our historical Venezuelan operations and the year-over-year impact of the 2015 accounting calendar change, partially offset by our underlying Organic Net Revenue growth of 1.3% and the impact of acquisitions. The adjustment for deconsolidating our historical coffee business resulted in a year-over-year decrease in net revenues of $1,627 million for 2016. Unfavorable currency impacts decreased net revenues by $1,244 million, due primarily to the strength of the U.S. dollar relative to several currencies, including the Argentinean peso, British pound sterling, Mexican peso, Brazilian real, Chinese yuan and Russian ruble. The deconsolidation of our historical Venezuelan operations resulted in a year-over-year decrease in net revenues of $1,217 million for 2016. The North America segment accounting calendar change in 2015 resulted in a year-over-year decrease in net revenues of $76 million for 2016. Our underlying Organic Net Revenue growth was driven by higher net pricing, partially offset by unfavorable volume / mix. Net pricing was up, which includes the benefit of carryover pricing from 2015 as well as the effects of input cost-driven pricing actions taken during 2016. Higher net pricing was reflected in Latin America and AMEA, partially offset by lower net pricing in Europe and North America. Unfavorable volume / mix was reflected in Latin America and AMEA, mostly offset by favorable volume / mix in Europe and North America. Unfavorable volume / mix in Latin America and AMEA was largely due to price elasticity as well as strategic decisions to exit certain low-margin product lines. The impact of acquisitions primarily includes the July 15, 2015 acquisition of a biscuit operation in Vietnam, which added $71 million of incremental net revenues for 2016, and the November 2, 2016 purchase of a license to manufacture, market and sell Cadbury-branded biscuits in additional key markets, which added $16 million of incremental net revenues for 2016.

 

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Operating Income – Operating income decreased $6,328 million (71.1%) to $2,569 million in 2016, Adjusted Operating Income (1) increased $463 million (13.3%) to $3,953 million and Adjusted Operating Income on a constant currency basis (1) increased $639 million (18.3%) to $4,129 million due to the following:

 

                                     
     Operating         
     Income      Change  
     (in millions)      (percentage point)  

Operating Income for the Year Ended December 31, 2015

   $ 8,897      

2012-2014 Restructuring Program costs (2)

     (4      (0.1)pp   

2014-2018 Restructuring Program costs (2)

     1,002         32.2pp   

Operating income from Venezuelan subsidiaries (3)

     (281      (9.8)pp   

Remeasurement of net monetary assets in Venezuela (3)

     11         0.3pp   

Loss on deconsolidation of Venezuela (3)

     778         33.4pp   

Costs associated with the JDE coffee business transactions (4)

     278         13.3pp   

Gain on the JDE coffee business transactions (4)

     (6,809      (94.1)pp   

Reclassification of historical coffee business operating income (5)

     (342      (15.3)pp   

Reclassification of equity method investment earnings (6)

     (51      (2.7)pp   

Operating income from divestiture (7)

     (8      (0.4)pp   

Gain on divestiture (7)

     (13      (0.4)pp   

Intangible asset impairment charges (8)

     71         2.1pp   

Acquisition integration costs (9)

     9         0.3pp   

Acquisition-related costs (9)

     8         0.3pp   

Mark-to-market gains from derivatives (10)

     (56      (1.7)pp   
  

 

 

    

Adjusted Operating Income (1) for the  Year Ended December 31, 2015

   $ 3,490      

Higher net pricing

     415         12.0pp   

Higher input costs

     (126      (3.6)pp   

Unfavorable volume/mix

     (9      (0.3)pp   

Lower selling, general and administrative expenses

     322         9.3pp   

Gains on sales of property (9)

     46         1.3pp   

Higher VAT-related settlements

     24         0.7pp   

Impact from acquisitions (9)

     4         0.1pp   

Impact of accounting calendar change (11)

     (36      (1.2)pp   

Other

     (1        
  

 

 

    

 

 

 

Total change in Adjusted Operating Income (constant currency) (1)

     639         18.3%   

Unfavorable currency - translation

     (176      (5.0)pp   
  

 

 

    

 

 

 

Total change in Adjusted Operating Income (1)

     463         13.3%   
  

 

 

    

Adjusted Operating Income (1) for the  Year Ended December 31, 2016

   $ 3,953      

2014-2018 Restructuring Program costs (2)

     (1,086      (33.3)pp   

Divestiture-related costs (12)

     (86      (2.5)pp   

Operating income from divestiture (7)

     2         0.1pp   

Gain on divestiture (7)

     9         0.3pp   

Gain on sale of intangible assets (9)

     15         0.4pp   

Intangible asset impairment charges (8)

     (137      (3.8)pp   

Acquisition integration costs (9)

     (7      (0.2)pp   

Acquisition-related costs (9)

     (1      (0.1)pp   

Mark-to-market losses from derivatives (10)

     (94      (2.7)pp   

Other / rounding

     1           
  

 

 

    

 

 

 

Operating Income for the Year Ended December 31, 2016

   $ 2,569         (71.1)%   
  

 

 

    

 

 

 

 

  (1) Refer to the Non-GAAP Financial Measures section at the end of this item.
  (2) Refer to Note 6, Restructuring Programs, for information on our 2014-2018 Restructuring Program and 2012-2014 Restructuring Program.
  (3) Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1, Summary of Significant Accounting Policies – 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) Includes our historical global coffee business prior to the July 2, 2015 deconsolidation. We reclassified the results of our historical coffee business from Adjusted Operating Income and included them with equity method investment earnings in Adjusted EPS to facilitate comparisons of past and future coffee operating results. Refer to Note 2, Divestitures and Acquisitions, and Non-GAAP Financial Measures appearing later in this section for more information.

 

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  (6) Historically, we 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.
  (7) Refer to Note 2, Divestitures and Acquisitions, for more information on the April 23, 2015 divestiture of Ajinomoto General Foods (“AGF”) and the December 1, 2016 sale of a confectionery business in Costa Rica. The divestiture of AGF generated a pre-tax gain of $13 million and after-tax loss of $9 million in 2015. The sale of the confectionery business in Costa Rica generated a pre-tax and after-tax gain of $9 million in 2016.
  (8) Refer to Note 2, Divestitures and Acquisitions, and Note 5, Goodwill and Intangible Assets, for more information on the impairment charges recorded in 2016 and 2015 related to trademarks.
  (9) 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, 2016 intangible asset sale in Finland, 2015 acquisitions of a biscuit operation in Vietnam and Enjoy Life Foods and other property sales in 2016.
  (10) Refer to Note 8, Financial Instruments, Note 16, 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.
  (11) Refer to Note 1, Summary of Significant Accounting Policies – Accounting Calendar Change, for more information on the accounting calendar change in 2015.
  (12) 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.

During 2016, we realized higher net pricing while input costs increased modestly. Higher net pricing, which included the carryover impact of pricing actions taken in 2015, was reflected in 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. Unfavorable volume / mix was driven by Latin America and AMEA, which was mostly offset by favorable volume / mix in Europe and North America.

Total selling, general and administrative expenses decreased $1,037 million from 2015, due to a number of factors noted in the table above, including in part, the deconsolidation of our historical coffee business, a favorable currency impact, 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, higher implementation costs incurred for the 2014-2018 Restructuring Program and the impact of acquisitions.

Excluding the factors noted above, selling, general and administrative expenses decreased $322 million from 2015. The decrease was driven primarily by lower overhead costs due to continued cost reduction efforts.

We recorded a benefit of $54 million in 2016 from VAT-related settlements in Latin America as compared to $30 million in 2015. Unfavorable currency impacts decreased operating income by $176 million due primarily to the strength of the U.S. dollar relative to most currencies, including the British pound sterling, Argentinean peso and Mexican peso.

Excluding the portion related to deconsolidating our historical coffee business, the change in mark-to-market gains / (losses) from derivatives decreased operating income by $150 million in 2016. In 2016, the net unrealized losses on commodity and forecasted currency transaction derivatives were $94 million, as compared to net unrealized gains of $56 million ($96 million including coffee related activity) in 2015.

Operating income margin decreased from 30.0% in 2015, to 9.9% in 2016. The decrease 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, the deconsolidation of our Venezuelan operations, the unfavorable year-over-year change in mark-to-market gains / losses from derivatives, higher costs incurred for the 2014-2018 Restructuring Program, divestiture-related costs associated with the planned sale of a confectionery business in France, higher intangible asset impairment charges and the reclassification of equity method earnings. The items that decreased our operating income margin were partially offset by the prior-year loss on the Venezuela deconsolidation, an increase in our Adjusted Operating Income margin and the absence of costs associated with the JDE coffee business transactions. Adjusted Operating Income margin increased from 13.0% in 2015 to 15.3% in 2016. The increase in Adjusted Operating Income margin was driven primarily by lower overheads from cost reduction programs, improved gross margin reflecting productivity efforts, gains on sales of property and VAT-related settlements.

 

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Net Earnings and Earnings per Share Attributable to Mondelēz International – Net earnings attributable to Mondelēz International of $1,659 million decreased by $5,608 million (77.2%) in 2016. Diluted EPS attributable to Mondelēz International was $1.05 in 2016, down $3.39 (76.4%) from 2015. Adjusted EPS (1) was $1.94 in 2016, up $0.32 (19.8%) from 2015. Adjusted EPS on a constant currency basis (1) was $2.01 in 2016, up $0.39 (24.1%) from 2015.

 

                  
     Diluted EPS  

Diluted EPS Attributable to Mondelēz International for the Year  Ended December 31, 2015

   $ 4.44   

2012-2014 Restructuring Program costs (2)

       

2014-2018 Restructuring Program costs (2)

     0.45   

Net earnings from Venezuelan subsidiaries (3)

     (0.10

Remeasurement of net monetary assets in Venezuela (3)

     0.01   

Loss on deconsolidation of Venezuela (3)

     0.48   

(Income) / costs associated with the JDE coffee business transactions (4)

     (0.01

Gain on the JDE coffee business transactions (4)

     (4.05

Net earnings from divestiture (5)

     0.02   

Loss on divestiture (5)

     0.01   

Intangible asset impairment charges (6)

     0.03   

Acquisition integration costs (7)

       

Acquisition-related costs (7)

       

Mark-to-market gains from derivatives (8)

     (0.03

Loss on debt extinguishment and related expenses (9)

     0.29   

Loss related to interest rate swaps (10)

     0.01   

Equity method investee acquisition-related and other adjustments (11)

     0.07   
  

 

 

 

Adjusted EPS (1) for the Year Ended December 31, 2015

   $ 1.62   

Increase in operations

     0.27   

Decrease in operations from historical coffee business,
net of increase in equity method investment net earnings (12)

     (0.05

Gains on sales of property (7)

     0.02   

VAT-related settlements

     0.03   

Impact of acquisitions (7)

       

Impact of accounting calendar change (13)

     (0.01

Lower interest and other expense, net (14)

       

Changes in shares outstanding (15)

     0.08   

Changes in income taxes (16)

     0.05   
  

 

 

 

Adjusted EPS (constant currency) (1) for the Year Ended December 31, 2016

   $ 2.01   

Unfavorable currency - translation

     (0.07
  

 

 

 

Adjusted EPS (1) for the Year Ended December 31, 2016

   $ 1.94   

2014-2018 Restructuring Program costs (2)

     (0.51

Divestiture-related costs (17)

     (0.05

Net earnings from divestiture (5)

       

Gain on divestiture (5)

       

Gain on sale of intangible asset (7)

     0.01   

Intangible asset impairment charges (11)

     (0.06

Acquisition integration costs (7)

     (0.01

Acquisition-related costs (7)

       

Mark-to-market losses from derivatives (8)

     (0.05

Loss related to interest rate swaps (10)

     (0.04

Loss on debt extinguishment and related expenses (9)

     (0.17

Gain on equity method investment exchange (7)

     0.03   

Equity method investee acquisition-related and other adjustments (11)

     (0.04
  

 

 

 

Diluted EPS Attributable to Mondelēz International for the Year  Ended December 31, 2016

   $ 1.05   
  

 

 

 

 

  (1) Refer to the Non-GAAP Financial Measures section appearing later in this section.
  (2) Refer to Note 6, Restructuring Programs, for more information on our 2014-2018 Restructuring Program and our 2012-2014 Restructuring Program.

 

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  (3) Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1, Summary of Significant Accounting Policies – 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 $(0.01) in the table above.
  (5) Refer to Note 2, Divestitures and Acquisitions, for more information on the April 23, 2015 divestiture of AGF and the December 1, 2016 sale of a confectionery business in Costa Rica. The divestiture of AGF generated a pre-tax gain of $13 million and after-tax loss of $9 million in 2015. The sale of the confectionery business in Costa Rica generated a pre-tax and after-tax gain of $9 million in 2016.
  (6) Refer to Note 2, Divestitures and Acquisitions, and Note 5, Goodwill and Intangible Assets, for more information on the impairment charges recorded in 2016 and 2015 related to trademarks.
  (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, 2016 intangible asset sale in Finland, 2015 acquisitions of a biscuit operation in Vietnam and Enjoy Life Foods and other property sales in 2016.
  (8) Refer to Note 8, Financial Instruments, Note 16, 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.
  (9) 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 tender offers.
  (10) 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 three months ended March 31, 2016 and 2015 due to changes in financing and hedging plans.
  (11) 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.
  (12) Includes our historical global coffee business prior to the July 2, 2015 deconsolidation. We reclassified the results of our historical coffee business from Adjusted Operating Income and included them with equity method investment earnings in Adjusted EPS to facilitate comparisons of past and future coffee operating results. Refer to Note 2, Divestitures and Acquisitions, and Non-GAAP Financial Measures appearing later in this section for more information.
  (13) Refer to Note 1, Summary of Significant Accounting Policies, for more information on the accounting calendar change in 2015.
  (14) Excludes the favorable currency impact on interest expense related to our non-U.S. dollar-denominated debt which is included in currency translation.
  (15) Refer to Note 10, Stock Plans, for more information on our equity compensation programs, Note 11, Capital Stock, for more information on our share repurchase program and Note 15, Earnings Per Share, for earnings per share weighted-average share information.
  (16) Refer to Note 14, Income Taxes, for more information on the change in our income taxes and effective tax rate.
  (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.

 

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2015 compared with 2014

 

                                                                           
     For the Years Ended
December 31,
               
     2015      2014      $ change      % change  
     (in millions, except per share data)         

Net revenues

   $ 29,636       $ 34,244       $ (4,608)         (13.5)%   

Operating income

     8,897         3,242         5,655         174.4%   

Earnings from continuing operations

     7,291         2,201         5,090         231.3%   

Net earnings attributable to
Mondelēz International

     7,267         2,184         5,083         232.7%   

Diluted earnings per share attributable to
Mondelēz International

     4.44         1.28         3.16         246.9%   

Net Revenues – Net revenues decreased $4,608 million (13.5%) to $29,636 million in 2015, and Organic Net Revenue (1) increased $407 million (1.4%) to $30,105 million. Power Brands net revenues decreased 12.6%, primarily due to unfavorable currency and the deconsolidation of our historical coffee business, and Power Brands Organic Net Revenue increased 3.3%. Emerging markets net revenues decreased 10.6%, primarily due to unfavorable currency and the deconsolidation of our historical coffee business, and emerging markets Organic Net Revenue increased 4.8%. The underlying changes in net revenues and Organic Net Revenue are detailed below:

 

                  
     2015  

Change in net revenues (by percentage point)

  

Total change in net revenues

     (13.5)%   

Add back of the following items affecting comparability:

  

Unfavorable currency

     12.0pp   

Historical coffee business (1)

     5.3pp   

Historical Venezuelan operations (2)

     (1.6)pp   

Impact of acquisitions

     (0.6)pp   

Impact of accounting calendar change

     (0.2)pp   
  

 

 

 

Total change in Organic Net Revenue (3)

     1.4%   
  

 

 

 

Higher net pricing

     3.9pp   

Unfavorable volume/mix

     (2.5)pp   

 

  (1) Includes our historical global coffee business prior to the July 2, 2015 coffee business transactions. Refer to Note 2, Divestitures and Acquisitions, and Non-GAAP Financial Measures appearing later in this section for more information.
  (2) Includes the historical results of our Venezuelan subsidiaries (including Venezuela currency impacts) prior to the December 31, 2015 deconsolidation. Refer to Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting: Venezuela, for more information.
  (3) Please see the Non-GAAP Financial Measures section at the end of this item.

Net revenue decline of 13.5% was driven by unfavorable currency and the impact of the deconsolidation of our historical coffee business, partially offset by the historical results of our Venezuelan operations, our underlying Organic Net Revenue growth of 1.4%, the impact of acquisitions and the impact of an accounting calendar change. Unfavorable currency impacts decreased net revenues by $3,565 million, due primarily to the strength of the U.S. dollar relative to several currencies, including the euro, Brazilian real, Russian ruble, Australian dollar and British pound sterling. The adjustment for deconsolidating our historical coffee business resulted in a year-over-year decrease in net revenues of $2,149 million for 2015. The historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation contributed a year-over year increase in net revenues of $457 million for 2015. Organic Net Revenue growth was driven by higher net pricing, partially offset by unfavorable volume / mix. Net pricing was up as we realized the effects of input cost-driven pricing actions taken during the year. Higher net pricing was reflected across all segments. Unfavorable volume / mix was largely due to price elasticity as well as strategic decisions to exit certain low-margin product lines. Unfavorable volume / mix was reflected in all segments except North America. The July 2015 acquisition of a biscuit operation in Vietnam added $128 million in incremental net revenues (constant currency basis) for the year. The February 2015 acquisition of the Enjoy Life Foods snack food business in North America added $37 million in incremental net revenues for the year. The North America segment accounting calendar change resulted in a year-over-year increase in net revenues of $78 million for the year.

 

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Operating Income – Operating income increased $5,655 million (174.4%) to $8,897 million in 2015, Adjusted Operating Income (1) decreased $65 million (1.8%) to $3,490 million and Adjusted Operating Income on a constant currency basis (1) increased $388 million (10.9%) to $3,943 million due to the following:

 

                                     
     Operating         
     Income      Change  
     (in millions)      (percentage point)  

Operating Income for the Year Ended December 31, 2014

   $ 3,242     

Spin-Off Costs (2)

     35        1.3pp  

2012-2014 Restructuring Program costs (3)

     459        14.5pp  

2014-2018 Restructuring Program costs (3)

     381        15.2pp  

Operating income from Venezuelan subsidiaries (4)

     (175      (5.0)pp  

Remeasurement of net monetary assets in Venezuela (4)

     167        7.1pp  

Costs associated with the coffee business transactions (5)

     77        3.1pp  

Reclassification of historical coffee business operating income (6)

     (646      (22.3)pp  

Reclassification of equity method investment earnings (7)

     (104      (4.2)pp  

Operating income from divestiture (8)

     (9      (0.3)pp  

Intangible asset impairment charges (9)

     57        2.1pp  

Integration Program and other acquisition integration costs (10)

     (4      (0.1)pp  

Acquisition-related costs (11)

     2        0.1pp  

Mark-to-market losses on derivatives (12)

     73        2.8pp  
  

 

 

    

Adjusted Operating Income (1) for the Year Ended December 31, 2014

   $ 3,555     

Higher net pricing

     1,146        32.2pp  

Higher input costs

     (186      (5.2)pp  

Unfavorable volume/mix

     (248      (7.0)pp  

Higher selling, general and administrative expenses

     (321      (9.0)pp  

Impact of accounting calendar change (4)

     37        1.1pp  

Impact from acquisitions (8)

     20        0.5pp  

Lower VAT-related settlements

     (54      (1.5)pp  

Gain on sale of property in 2014

     (7      (0.2)pp  

Other, net

     1         
  

 

 

    

 

 

 

Total change in Adjusted Operating Income (constant currency) (1)

     388        10.9%  

Unfavorable currency - translation

     (453      (12.7)pp  
  

 

 

    

 

 

 

Total change in Adjusted Operating Income (1)

     (65      (1.8)%  
  

 

 

    

 

 

 

Adjusted Operating Income (1) for the Year Ended December 31, 2015

   $ 3,490     

2012-2014 Restructuring Program costs (3)

     4        0.1pp  

2014-2018 Restructuring Program costs (3)

     (1,002      (37.3)pp  

Operating income from Venezuelan subsidiaries (4)

     281        9.1pp  

Remeasurement of net monetary assets in Venezuela (4)

     (11      (0.3)pp  

Loss on deconsolidation of Venezuela (4)

     (778      (24.0)pp  

Costs associated with the coffee business transactions (5)

     (278      (11.7)pp  

Gain on the coffee business transactions (5)

     6,809        210.0pp  

Reclassification of historical coffee business operating income (6)

     342        14.1pp  

Reclassification of equity method investment earnings (7)

     51        2.2pp  

Operating income from divestiture (8)

     8        0.3pp  

Gain on divestiture (8)

     13        0.4pp  

Intangible asset impairment charges (9)

     (71      (2.3)pp  

Acquisition integration costs (10)

     (9      (0.3)pp  

Acquisition-related costs (11)

     (8      (0.3)pp  

Mark-to-market gains on derivatives (12)

     56        1.9pp  
  

 

 

    

 

 

 

Operating Income for the Year Ended December 31, 2015

   $ 8,897        174.4%  
  

 

 

    

 

 

 

 

  (1) Refer to the Non-GAAP Financial Measures section at the end of this item.
  (2) Refer to Note 2, Divestitures and Acquisitions, for more information on Spin-Off Costs incurred in 2014 following the 2012 Kraft Foods Group divestiture.
  (3) Refer to Note 6, Restructuring Programs, for information on our 2014-2018 Restructuring Program and our 2012-2014 Restructuring Program.
  (4) Refer to Note 1, Summary of Significant Accounting Policies, for more information on the loss on deconsolidation of Venezuela in 2015, remeasurements of net monetary assets in Venezuela in 2015 and 2014 and the accounting calendar change in 2015.
  (5) Refer to Note 2, Divestitures and Acquisitions, for more information on the coffee business transactions.

 

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  (6) Includes our historical global coffee business prior to the July 2, 2015 divestiture. We reclassified the results of our historical coffee business from Adjusted Operating Income and included them with equity method investment earnings in Adjusted EPS to facilitate comparisons of past and future coffee operating results. Refer to Note 2, Divestitures and Acquisitions, and Non-GAAP Financial Measures appearing later in this section for more information.
  (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, to align with the accounting for JDE earnings, we began to record the earnings from our equity method investments in after-tax 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.
  (8) Refer to Note 2, Divestitures and Acquisitions, for more information on the April 23, 2015 divestiture of AGF and the December 1, 2016 sale of a confectionery business in Costa Rica. The divestiture of AGF generated a pre-tax gain of $13 million and after-tax loss of $9 million in 2015. The sale of the confectionery business in Costa Rica generated a pre-tax and after-tax gain of $9 million in 2016.
  (9) Refer to Note 5, Goodwill and Intangible Assets, for more information on the impairment charges recorded in 2015 and 2014 related to trademarks.
  (10) Refer to Note 7, Integration Program and Cost Savings Initiatives, to the consolidated financial statements in our Form 10-K for the year ended December 31, 2015 for more information on our integration costs in 2015 and 2014.
  (11) Refer to Note 2, Divestitures and Acquisitions, for more information on the acquisitions of a biscuit operation in Vietnam and Enjoy Life Foods.
  (12) Refer to Note 8, Financial Instruments, Note 16, 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.

During 2015, higher net pricing outpaced increased input costs. Higher net pricing, due to input-cost driven pricing actions taken during the year, was reflected across all segments. The increase in input costs was driven by higher raw material costs, in part due to higher currency exchange transaction costs on imported materials, partially offset by lower manufacturing costs. Unfavorable volume / mix was reflected across all segments.

Total selling, general and administrative expenses decreased $880 million from 2014, due to a number of factors noted in the table above, including in part, a favorable currency impact, the adjustment for deconsolidating our historical coffee business, lower devaluation charges related to our net monetary assets in Venezuela and the absence of 2012-2014 Restructuring Program costs. The decreases were partially offset by increases from higher costs incurred for the 2014-2018 Restructuring Program, costs associated with the coffee business transactions, lower value-added tax (“VAT”)-related settlements, the reclassification of equity method investment earnings, the impact of acquisitions and a gain on a sale of property in 2014.

Excluding the factors noted above, selling, general and administrative expenses increased $321 million from 2014. The increase was driven primarily by higher advertising and consumer promotions support, particularly behind our Power Brands.

We recorded a benefit of $30 million in 2015 from VAT-related settlements in Latin America as compared to $84 million in 2014. Unfavorable currency impacts decreased operating income by $453 million, due primarily to the strength of the U.S. dollar relative to most currencies, including the euro, Brazilian real, British pound sterling, Australian dollar and Russian ruble.

Excluding the portion related to deconsolidating our historical coffee business, the change in unrealized gains / (losses) increased operating income by $129 million in 2015. In 2015, the net unrealized gains on currency and commodity hedging activity were $56 million ($96 million including coffee related activity), as compared to net unrealized losses of $73 million ($112 million including coffee related activity) in 2014 related to currency and commodity hedging activity.

Operating income margin increased from 9.5% in 2014 to 30.0% in 2015. The increase in operating income margin was driven primarily by the pre-tax gain on the coffee business transactions, an increase in our Adjusted Operating Income margin, the absence of 2012-2014 Restructuring Program costs, the favorable year-over-year change in mark-to-market gains / losses from derivatives and lower devaluation charges related to our net monetary assets in Venezuela. The items that increased operating income margin were partially offset by the loss on deconsolidation of Venezuela, higher costs incurred for the 2014-2018 Restructuring Program and costs associated with the coffee business transactions. Adjusted Operating Income margin increased from 12.0% in 2014 to 13.0% in 2015. The increase in Adjusted Operating Income margin was driven primarily by improved gross margin, reflecting productivity efforts, and improved overhead leverage from cost reduction programs, partially offset by increased advertising and consumer promotions support.

 

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Net Earnings and Earnings per Share Attributable to Mondelēz International – Net earnings attributable to Mondelēz International of $7,267 million increased by $5,083 million (232.7%) in 2015. Diluted EPS attributable to Mondelēz International was $4.44 in 2015, up $3.16 (246.9%) from 2014. Adjusted EPS (1) was $1.62 in 2015, down $0.11 (6.4%) from 2014. Adjusted EPS on a constant currency basis (1) was $1.90 in 2015, up $0.17 (9.8%) from 2014.

 

                  
     Diluted EPS  

Diluted EPS Attributable to Mondelēz International for the Year Ended December 31, 2014

   $ 1.28  

Spin-Off Costs (2)

     0.01  

2012-2014 Restructuring Program costs (3)

     0.21  

2014-2018 Restructuring Program costs (3)

     0.16  

Net earnings from Venezuelan subsidiaries (4)

     (0.05

Remeasurement of net monetary assets in Venezuela (4)

     0.09  

(Income) / costs associated with the coffee business transactions (5)

     (0.19

Net earnings from divestiture (6)

     (0.01

Intangible asset impairment charges (7)

     0.02  

Integration Program and other acquisition integration costs (8)

      

Acquisition-related costs (9)

      

Mark-to-market losses from derivatives (10)

     0.03  

Loss on debt extinguishment and related expenses (11)

     0.18  
  

 

 

 

Adjusted EPS (1) for the Year Ended December 31, 2014

   $ 1.73  

Increase in operations

     0.18  

Decrease in operations from historical coffee business,
net of increase in equity method investment net earnings (12)

     (0.08

Impact of accounting calendar change (4)

     0.01  

Impact of acquisitions (10)

     0.01  

Lower VAT-related settlements

     (0.03

Gain on sale of property in 2014

      

Lower interest and other expense, net (13)

     0.06  

Changes in shares outstanding (14)

     0.07  

Changes in income taxes (15)

     (0.05
  

 

 

 

Adjusted EPS (constant currency) (1) for the Year Ended December 31, 2015

   $ 1.90  

Unfavorable currency - translation

     (0.28
  

 

 

 

Adjusted EPS (1) for the Year Ended December 31, 2015

   $ 1.62  

2012-2014 Restructuring Program costs (3)

      

2014-2018 Restructuring Program costs (3)

     (0.45

Net earnings from Venezuelan subsidiaries (4)

     0.10  

Remeasurement of net monetary assets in Venezuela (4)

     (0.01

Loss on deconsolidation of Venezuela (4)

     (0.48

Income / (costs) associated with the coffee business transactions (5)

     0.01  

Gain on the coffee business transactions (5)

     4.05  

Net earnings from divestiture (6)

     (0.02

Loss on divestiture (6)

     (0.01

Intangible asset impairment charges (7)

     (0.03

Acquisition integration costs (8)

      

Acquisition-related costs (9)

      

Mark-to-market gains from derivatives (10)

     0.03  

Loss on debt extinguishment and related expenses (11)

     (0.29

Loss related to interest rate swaps (16)

     (0.01

Equity method investee acquisition-related and other adjustments (17)

     (0.07
  

 

 

 

Diluted EPS Attributable to Mondelēz International for the Year Ended December 31, 2015

   $ 4.44  
  

 

 

 

 

  (1) Refer to the Non-GAAP Financial Measures section appearing later in this section.
  (2) Refer to Note 2, Divestitures and Acquisitions, for more information on Spin-Off Costs incurred in 2014 following the 2012 Kraft Foods Group divestiture.

 

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  (3) Refer to Note 6, Restructuring Programs, for more information on our 2014-2018 Restructuring Program and our 2012-2014 Restructuring Program.
  (4) Refer to Note 1, Summary of Significant Accounting Policies, for more information on the loss on deconsolidation of Venezuela in 2015, remeasurements of net monetary assets in Venezuela in 2015 and 2014 and the accounting calendar change in 2015.
  (5) Refer to Note 2, Divestitures and Acquisitions, for more information on the coffee business transactions. Net gains of $436 million in 2015 and $628 million in 2014 on the currency hedges related to the coffee business transactions were recorded in interest and other expense, net and are included in the income / (costs) associated with the coffee business transactions of $0.01 in 2015 and $(0.19) in 2014 above.
  (6) Includes the divestiture of AGF that closed on April 23, 2015 and the December 1, 2016 sale of a confectionery business in Costa Rica and does not include the deconsolidation of our coffee businesses. The divestiture of AGF generated a pre-tax gain of $13 million and after-tax loss of $9 million in 2015. The sale of the confectionery business in Costa Rica generated a pre-tax and after-tax gain of $9 million in 2016. Refer to Note 2, Divestitures and Acquisitions, and Non-GAAP Financial Measures appearing later in this section for more information.
  (7) Refer to Note 5, Goodwill and Intangible Assets, for more information on the impairment charges recorded in 2015 and 2014 related to trademarks.
  (8) Refer to Note 7, Integration Program and Cost Savings Initiatives, to the consolidated financial statements in our Form 10-K for the year ended December 31, 2015 for more information on our integration costs in 2015 and 2014.
  (9) Refer to Note 2, Divestitures and Acquisitions, for more information on the acquisitions of a biscuit operation in Vietnam and Enjoy Life Foods.
  (10) Refer to Note 8, Financial Instruments, Note 16, 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.
  (11) 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 tender offers.
  (12) Includes our historical global coffee business prior to the July 2, 2015 deconsolidation. We reclassified the results of our historical coffee business from Adjusted Operating Income and included them with equity method investment earnings in Adjusted EPS to facilitate comparisons of past and future coffee operating results. Refer to Note 2, Divestitures and Acquisitions, and Non-GAAP Financial Measures appearing later in this section for more information.
  (13) Excludes the favorable currency impact on interest expense related to our non-U.S. dollar-denominated debt which is included in currency translation.
  (14) Refer to Note 10, Stock Plans, for more information on our equity compensation programs and share repurchase program and Note 15, Earnings Per Share, for earnings per share weighted-average share information.
  (15) Refer to Note 14, Income Taxes, for more information on the change in our income taxes and effective tax rate.
  (16) 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 three months ended March 31, 2015 due to a change in financing and hedging plans.
  (17) Includes our proportionate share of unusual or infrequent items, such as acquisition and divestiture-related costs and restructuring program costs, recorded by our JDE equity method investee.

Results of Operations by Reportable Segment

Our operations and management structure are organized into four reportable operating segments:

    Latin America
    AMEA
    Europe
    North America

On October 1, 2016, we integrated our EEMEA operating segment into our Europe and Asia Pacific 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 region to form a new AMEA regional 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. For the six months ended December 31, 2015, after-tax equity method investment net earnings were less than $1 million on a combined basis. Earnings from equity method investments through July 2, 2015 recorded within segment operating income were $52 million in AMEA and $4 million in North America. For the year ended December 31, 2014 these earnings were $104 million in AMEA and $9 million in North America. See Note 1, Summary of Significant Accounting Policies – Principles of Consolidation, and Note 2, Divestitures and Acquisitions, for additional information.

 

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In 2015, we also began to report stock-based compensation for our corporate employees within general corporate expenses that were reported within our North America region. We reclassified $32 million of corporate stock-based compensation expense in 2015 from the North America segment to general corporate expenses.

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 16, Segment Reporting, for additional information on our segments and Items 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 Years Ended December 31,  
     2016      2015      2014  
     (in millions)  

Net revenues:

        

Latin America (1)

   $ 3,392       $ 4,988       $ 5,153   

AMEA (2)

     5,816         6,002         6,367   

Europe (2)

     9,755         11,672         15,788   

North America

     6,960         6,974         6,936   
  

 

 

    

 

 

    

 

 

 

Net revenues

   $ 25,923       $ 29,636       $ 34,244   
  

 

 

    

 

 

    

 

 

 

 

  (1) Net revenues of $1,217 million for 2015 and $760 million for 2014 from our Venezuelan subsidiaries are included in our 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 consolidated financial statements. Refer to Note 1, Summary of Significant Accounting Policies – 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 and AMEA segments. Net revenues of our global coffee business were $1,561 million in Europe and $66 million in AMEA for the year ended December 31, 2015. Refer to Note 2, Divestitures and Acquisitions – JDE Coffee Business Transactions, for more information.

 

                                                        
     For the Years Ended December 31,  
     2016      2015      2014  
     (in millions)  

Earnings before income taxes:

        

Operating income:

        

Latin America

   $ 271       $ 485       $ 475   

AMEA

     506         389         530   

Europe

     1,267         1,350         1,952   

North America

     1,078         1,105         922   

Unrealized (losses) / gains on hedging activities (mark-to-market impacts)

     (94      96         (112

General corporate expenses

     (291      (383      (317

Amortization of intangibles

     (176      (181      (206

Gains on divestitures and
JDE coffee business transactions

     9         6,822           

Loss on deconsolidation of Venezuela

             (778        

Acquisition-related costs

     (1      (8      (2
  

 

 

    

 

 

    

 

 

 

Operating income

     2,569         8,897         3,242   

Interest and other expense, net

     (1,115      (1,013      (688
  

 

 

    

 

 

    

 

 

 

Earnings before income taxes

   $ 1,454       $ 7,884       $ 2,554   
  

 

 

    

 

 

    

 

 

 

 

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Latin America

 

                                                                           
     For the Years Ended
December 31,
               
     2016      2015      $ change      % change  
     (in millions)         

Net revenues

   $ 3,392       $ 4,988       $ (1,596      (32.0)%   

Segment operating income

     271         485         (214      (44.1)%   
     For the Years Ended
December 31,
               
     2015      2014      $ change      % change  
     (in millions)         

Net revenues

   $ 4,988       $ 5,153       $ (165      (3.2)%   

Segment operating income

     485         475         10         2.1%   

2016 compared with 2015:

Net revenues decreased $1,596 million (32.0%), due to the deconsolidation of our Venezuelan operations (21.9 pp), unfavorable currency (14.8 pp), unfavorable volume / mix (5.3 pp) and the impact of a divestiture (0.1 pp), partially offset by higher net pricing (10.1 pp). The deconsolidation of our Venezuelan operations resulted in a year-over-year decrease in net revenues of $1,217 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 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 all categories except for cheese & grocery. Higher net pricing was reflected across all categories driven primarily by Argentina, Brazil and Mexico.

Segment operating income decreased $214 million (44.1%), 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 higher year-over year VAT-related settlements), lower manufacturing costs, lower advertising and consumer promotion costs, lower costs incurred for the 2014-2018 Restructuring Program and the absence of remeasurement losses in 2016 related to our net monetary assets in Venezuela.

2015 compared with 2014:

Net revenues decreased $165 million (3.2%), due to unfavorable currency (21.0 pp), unfavorable volume / mix (5.1 pp) and the adjustment for deconsolidating our historical coffee business (0.1 pp), partially offset by higher net pricing (12.0 pp) and the favorable historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation (11.0 pp). Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to most currencies in the region, including the Brazilian real, Mexican peso and Argentinean peso. 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 chocolate, refreshment beverages and cheese & grocery, partially offset by gains in biscuits, gum & candy. The adjustment for deconsolidating our historical coffee business resulted in a year-over-year decrease in net revenues of $5 million. Higher net pricing was reflected across all categories. Both the unfavorable volume / mix and higher net pricing were driven primarily by Brazil and Argentina.

Segment operating income increased $10 million (2.1%), primarily due to higher net pricing, higher remeasurement losses in 2014 related to our net monetary assets in Venezuela, the favorable historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation, lower manufacturing costs and the absence of 2012-2014 Restructuring Program costs. These favorable items were partially offset by higher raw material costs, unfavorable currency, higher advertising and consumer promotion costs, higher other selling, general and administrative expenses (including lower year-over-year VAT-related settlements), unfavorable volume / mix, higher costs incurred for the 2014-2018 Restructuring Program and an intangible asset impairment charge in 2015 related to a biscuit trademark.

 

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AMEA

 

                                                                           
     For the Years Ended
December 31,
               
     2016      2015      $ change      % change  
     (in millions)         

Net revenues

   $ 5,816       $ 6,002       $ (186      (3.1)%   

Segment operating income

     506         389         117         30.1%   
     For the Years Ended
December 31,
               
     2015      2014      $ change      % change  
     (in millions)         

Net revenues

   $ 6,002       $ 6,367       $ (365      (5.7)%   

Segment operating income

     389         530         (141      (26.6)%   

2016 compared with 2015:

Net revenues decreased $186 million (3.1%), due to unfavorable currency (3.7 pp), the adjustment for deconsolidating our historical coffee business (1.1 pp) and unfavorable volume / mix (1.0 pp), partially offset by higher net pricing (1.5 pp) and the impact of an acquisition (1.2 pp). 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, South African rand, Egyptian pound, Nigerian naira, Australian dollar and Philippine peso, 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 $66 million. Unfavorable volume / mix, including the unfavorable impact of strategic decisions to exit certain low-margin product lines, was driven by declines in candy, cheese & grocery, refreshment beverages and chocolate, partially offset by gains in biscuits and gum. Higher net pricing was driven by chocolate, candy, biscuits and refreshment beverages, partially offset by lower net pricing in cheese & grocery and gum. The acquisition of a biscuit operation in Vietnam in July 2015 added net revenues of $71 million (constant currency basis).

Segment operating income increased $117 million (30.1%), primarily due to lower manufacturing costs, higher net pricing, lower other selling, general and administrative expenses, lower costs incurred for the 2014-2018 Restructuring Program, the absence of costs associated with the coffee business transactions, the impact of the Vietnam acquisition and lower advertising and consumer promotion costs. These favorable items were partially offset by higher raw material costs, the reclassification of equity method investment earnings, unfavorable volume / mix, unfavorable currency, the deconsolidation of our historical coffee business, and the impact of divestitures.

2015 compared with 2014:

Net revenues decreased $365 million (5.7%), due to unfavorable currency (8.8 pp), unfavorable volume / mix (2.5 pp) and the adjustment for deconsolidating our historical coffee business (0.6 pp), partially offset by higher net pricing (4.2 pp) and the impact of an acquisition (2.0 pp). Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to most currencies in the region, including the Australian dollar, South African rand, Indian rupee, Japanese yen, Nigerian naira, Chinese yuan and Egyptian pound. Unfavorable volume / mix was due largely 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 except biscuits and gum. The adjustment for deconsolidating our historical coffee business resulted in a year-over-year decrease in net revenues of $49 million. Higher net pricing was reflected across all categories. The acquisition of a biscuit operation in Vietnam in July 2015 added net revenues of $128 million (constant currency basis).

Segment operating income decreased $141 million (26.6%), primarily due to higher raw material costs, higher costs incurred for the 2014-2018 Restructuring Program, higher advertising and consumer promotion costs, unfavorable currency, higher other selling, general and administrative expenses (including a phase-out of a local tax incentive program), the reclassification of equity method investment earnings, unfavorable volume / mix, the adjustment for deconsolidating our historical coffee business, costs associated with the coffee business transactions and higher other acquisition-related integration costs. These unfavorable items were partially offset by higher net pricing, lower manufacturing costs, the absence of 2012-2014 Restructuring Program costs, the impact of the Vietnam acquisition and lower intangible asset impairment charges (related to candy and biscuit trademarks in 2015 and a biscuit trademark in 2014).

 

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Europe

 

                                                                           
     For the Years Ended
December 31,
               
     2016      2015      $ change      % change  
     (in millions)         

Net revenues

   $ 9,755       $ 11,672       $ (1,917      (16.4)%   

Segment operating income

     1,267         1,350         (83      (6.1)%   
     For the Years Ended
December 31,
               
     2015      2014      $ change      % change  
     (in millions)         

Net revenues

   $ 11,672       $ 15,788       $ (4,116      (26.1)%   

Segment operating income

     1,350         1,952         (602      (30.8)%   

2016 compared with 2015:

Net revenues decreased $1,917 million (16.4%), due to the adjustment for deconsolidating our historical coffee business (12.9 pp), unfavorable currency (4.3 pp) and lower net pricing (0.4 pp), partially offset by favorable volume / mix (1.1 pp) and the impact of an acquisition (0.1 pp). The adjustment for deconsolidating our historical coffee business resulted in a year-over-year decrease in net revenues of $1,561 million. Unfavorable currency impacts reflected the strength of the U.S. dollar against most currencies in the region, primarily the British pound sterling. Lower net pricing was reflected across most categories except gum and refreshment beverages. Favorable volume / mix, including the unfavorable impact of strategic decisions to exit certain low-margin product lines, was driven by biscuits, chocolate and cheese & grocery, partially offset by declines in gum, refreshment beverages and candy. The purchase of the license to manufacture, market and sell Cadbury-branded biscuits in November 2016 added net revenues of $16 million (constant currency basis).

Segment operating income decreased $83 million (6.1%), primarily due to the deconsolidation of our historical coffee business, unfavorable currency, higher raw material costs, divestiture-related costs, higher costs incurred for the 2014-2018 Restructuring Program, lower net pricing and higher intangible asset impairment charges. These unfavorable items were partially offset by the absence of costs associated with the JDE coffee business transactions, lower manufacturing costs, lower other selling, general and administrative expenses and favorable volume / mix.

2015 compared with 2014:

Net revenues decreased $4,116 million (26.1%), due to unfavorable currency (16.2 pp), the adjustment for deconsolidating our historical coffee business (9.4 pp) and unfavorable volume / mix (3.3 pp), partially offset by higher net pricing (2.8 pp). Unfavorable currency impacts primarily reflected the strength of the U.S. dollar against most currencies in the region, including the euro and British pound sterling. The adjustment for deconsolidating our historical coffee business resulted in a year-over-year decrease in net revenues of $2,095 million. 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 chocolate, gum, refreshment beverages and cheese & grocery, partially offset by gains in biscuits. Higher net pricing was driven by chocolate, gum and candy, partially offset by lower net pricing in cheese & grocery and refreshment beverages.

Segment operating income decreased $602 million (30.8%), primarily due to the adjustment for deconsolidating our historical coffee business, unfavorable currency, higher raw material costs, higher costs incurred for the 2014-2018 Restructuring Program, costs associated with the coffee business transactions, unfavorable volume / mix, higher advertising and consumer promotion costs and higher intangible asset impairment charges related to a candy trademark. These unfavorable items were partially offset by higher net pricing, the lower manufacturing costs, absence of 2012-2014 Restructuring Program costs and lower other selling, general and administrative expenses (net of the unfavorable year-over-year impact from the 2014 gain on a sale of property in the United Kingdom).

 

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North America

 

                                                                           
     For the Years Ended
December 31,
               
     2016      2015      $ change      % change  
     (in millions)         

Net revenues

   $ 6,960       $ 6,974       $ (14      (0.2)%   

Segment operating income

     1,078         1,105         (27      (2.4)%   
     For the Years Ended
December 31,
               
     2015      2014      $ change      % change  
     (in millions)         

Net revenues

   $ 6,974       $ 6,936       $ 38         0.5%   

Segment operating income

     1,105         922         183         19.8%   

2016 compared with 2015:

Net revenues decreased $14 million (0.2%), due to the impact of an accounting calendar change made in the prior year (1.1 pp), unfavorable currency (0.3 pp) and lower net pricing (0.2 pp), partially offset by favorable volume/mix (1.4 pp). The prior-year change in North America’s accounting calendar resulted in a year-over-year decrease in net revenues of $76 million. Unfavorable currency impact was due to the strength of the U.S. dollar relative to the Canadian dollar. Lower net pricing was reflected in biscuits, partially offset by higher net pricing in chocolate, gum and candy. 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 $27 million (2.4%), primarily due to higher costs incurred for the 2014-2018 Restructuring Program, higher advertising and consumer promotion costs, intangible asset impairment charges, the year-over-year impact of the prior-year accounting calendar change, higher raw material costs and lower net pricing. These unfavorable items were mostly offset by lower other selling, general and administrative expenses (including the gain on sale of property), lower manufacturing costs, favorable volume/mix and the gain on the sale of an intangible asset.

2015 compared with 2014:

Net revenues increased $38 million (0.5%), due to an accounting calendar change (1.2 pp), an acquisition (0.5 pp), favorable volume / mix (0.5 pp) and higher net pricing (0.3 pp), partially offset by unfavorable currency (2.0 pp). The change in North America’s accounting calendar added net revenues of $78 million (constant currency basis). The acquisition of the Enjoy Life Foods snack food business in February 2015 added net revenues of $37 million. Favorable volume / mix was driven by gains in biscuits and candy, partially offset by declines in gum and chocolate. Higher net pricing was reflected in gum and chocolate, partially offset by lower net pricing in biscuits and candy. Unfavorable currency impact was due to the strength of the U.S. dollar relative to the Canadian dollar.

Segment operating income increased $183 million (19.8%), primarily due to the absence of 2012-2014 Restructuring Program costs, lower manufacturing costs, lower other selling, general and administrative expenses (including the reclassification of corporate stock-based compensation), the impact of an accounting calendar change, higher net pricing and lower raw material costs. These favorable items were partially offset by higher costs incurred for the 2014-2018 Restructuring Program, unfavorable currency, higher advertising and consumer promotion costs, unfavorable volume / mix and the reclassification of equity method investment earnings.

 

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Critical Accounting Estimates

We prepare our consolidated financial statements in conformity with U.S. GAAP. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements includes a summary of the significant accounting policies we used to prepare our consolidated financial statements. We have discussed the selection and disclosure of our critical accounting policies and estimates with our Audit Committee. The following is a review of our most significant assumptions and estimates.

Goodwill and Non-Amortizable Intangible Assets:

We test goodwill and non-amortizable intangible assets for impairment on an annual basis on October 1. We assess goodwill impairment risk throughout the year by performing a qualitative review of entity-specific, industry, market and general economic factors affecting our goodwill reporting units. We review our operating segment and reporting unit structure for goodwill testing annually or as significant changes in the organization occur. Annually, we may perform qualitative testing, or depending on factors such as prior-year test results, current year developments, current risk evaluations and other practical considerations, we may elect to do quantitative testing instead. Quantitative impairment testing consists of a two-step evaluation. The first step compares a reporting unit’s estimated fair value with its carrying value. We estimate a reporting unit’s fair value using a discounted cash flow method which incorporates planned growth rates, market-based discount rates and estimates of residual value. This year, for our Europe and North America reporting units, we used a market-based, weighted-average cost of capital of 6.7% 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 9.7%. 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 apply a second step to measure the difference between the carrying value and implied fair value of goodwill. If the carrying value of goodwill exceeds its implied fair value, the goodwill is impaired and its carrying value is reduced to the implied fair value of the goodwill.

On October 1, 2016, we integrated our EEMEA operating segment into our Europe and Asia Pacific operating segments. As a result, EEMEA goodwill of $1.3 billion was reallocated to new reporting units based on the relative fair value of the EEMEA component businesses that moved to the Europe and Asia Pacific segments. Goodwill by segment as of December 31, 2016 reflects the results of the reallocation and the December 31, 2015 goodwill by segment information was recast to reflect the October 1, 2016 reallocation of goodwill.

On July 2, 2015, we deconsolidated our global coffee businesses from our Europe and AMEA segments. Goodwill was deconsolidated from the impacted reporting units based on relative fair values of the coffee and remaining businesses. Intangible assets contributed with the coffee business transactions were specifically identified. We deconsolidated total goodwill of $1,664 million and intangible assets of less than $1 million during the third quarter of 2015. Refer to Note 2, Divestitures and Acquisitions – JDE Coffee Business Transactions, for more information.

In 2016, 2015 and 2014, there were no impairments of goodwill. In connection with our 2016 annual impairment testing, each of our reporting units had sufficient fair value in excess of 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.

Annually, we assess non-amortizable intangible assets for impairment by performing a qualitative review and assessing events and circumstances that could affect the fair value or carrying value of the indefinite-lived intangible assets. If significant potential impairment risk exists for a specific asset, we quantitatively test it for impairment by comparing its estimated fair value with its carrying value. We determine estimated fair value using planned growth rates, market-based discount rates and estimates of royalty rates. If the carrying value of the asset exceeds its estimated fair value, the asset is impaired and its carrying value is reduced to the estimated fair value.

 

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During our 2016 annual testing of non-amortizable intangible assets, we recorded $98 million of impairment charges related to five 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, as well as slowdowns in local economies. We recorded charges related to biscuits, candy and gum trademarks of $41 million in AMEA, $32 million in North America, $22 million in Europe, and $3 million in Latin 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. During our 2016 intangible asset impairment review, we noted nine brands, including the five impaired trademarks, with $630 million of aggregate book value as of December 31, 2016 that each had a fair value in excess of book value of 10% or less. While these other four intangible assets passed our annual impairment testing and we believe our current plans for each of these brands will allow them to continue to not be impaired, if planned business performance 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. In 2015, we recorded a charge related to candy and biscuit trademarks of $44 million in our AMEA segment, $22 million in Europe and $5 million in Latin America. Additionally, in connection with the deconsolidation of our Venezuelan operations on December 31, 2015, we recorded $12 million of impairment charges within the loss on deconsolidation of Venezuela related to a biscuit trademark. In 2014, we recorded a $48 million charge related to a biscuit trademark in our AMEA segment and a $9 million charge related to a candy trademark in our Europe segment.

Refer to Note 5, Goodwill and Intangible Assets, for additional information.

Trade and marketing programs:

We promote our products with advertising, marketing, sales incentives and trade promotions. These programs include, but are not limited to, cooperative advertising, in-store displays, consumer promotions, new product introduction fees, discounts, coupons, rebates and volume-based incentives. We expense advertising costs either in the period the advertising first takes place or as incurred. Sales incentive and trade promotion activities are recorded as a reduction to revenues based on amounts estimated due to customers and consumers at the end of a period. We base these estimates principally on historical utilization and redemption rates. For interim reporting purposes, advertising expenses and sales incentives are charged to operations as a percentage of volume, based on estimated volume and estimated program spending. We do not defer costs on our year-end consolidated balance sheet and all marketing costs are recorded as an expense in the year incurred.

Employee Benefit Plans:

We sponsor various employee benefit plans throughout the world. These include primarily pension plans and postretirement healthcare benefits. For accounting purposes, we estimate the pension and post-retirement healthcare benefit obligations utilizing assumptions and estimates for discount rates; expected returns on plan assets; expected compensation increases; employee-related factors such as turnover, retirement age and mortality; and health care cost trends. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate. Our assumptions also reflect our historical experiences and management’s best judgment regarding future expectations. These and other assumptions affect the annual expense and obligations recognized for the underlying plans.

As permitted by U.S. GAAP, we generally amortize the effect of changes in the assumptions over future periods. The cost or benefit of plan changes, such as increasing or decreasing benefits for prior employee service (prior service cost), is deferred and included in expense on a straight-line basis over the average remaining service period of the employees expected to receive benefits.

Since pension and post-retirement liabilities are measured on a discounted basis, the discount rate significantly affects our plan obligations and expenses. The expected return on plan assets assumption affects our pension plan expenses, as many of our pension plans are partially funded. The assumptions for discount rates and expected rates of return and our process for setting these assumptions are described in Note 9, Benefit Plans, to the consolidated financial statements.

 

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While we do not anticipate further changes in the 2017 assumptions for our U.S. and non-U.S. pension and postretirement health care plans, as a sensitivity measure, a fifty-basis point change in our discount rates or the expected rate of return on plan assets would have the following effects, increase / (decrease), on our annual benefit plan costs:

 

                                                                           
     As of December 31, 2016  
     U.S. Plans      Non-U.S. Plans  
   Fifty-Basis-Point      Fifty-Basis-Point  
     Increase      Decrease      Increase      Decrease  
     (in millions)  

Effect of change in discount rate on pension costs

   $ (14    $ 16       $ (63    $ 67   

Effect of change in expected rate of return on plan assets on pension costs

     (7      7         (39      39   

Effect of change in discount rate on postretirement health care costs

     (4      4         (1      1   

Income Taxes:

As a global company, we calculate and provide for income taxes in each tax jurisdiction in which we operate. The provision for income taxes includes the amounts payable or refundable for the current year, the effect of deferred taxes and impacts from uncertain tax positions. Our provision for income taxes is significantly affected by shifts in the geographic mix of our pre-tax earnings across tax jurisdictions, changes in tax laws and regulations, tax planning opportunities available in each tax jurisdiction and the ultimate outcome of various tax audits.

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement and tax bases of our assets and liabilities and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates that will apply to taxable income in the years in which those differences are expected to be recovered or settled. Valuation allowances are established for deferred tax assets when it is more likely than not that a tax benefit will not be realized.

We believe our tax positions comply with applicable tax laws and that we have properly accounted for uncertain tax positions. We recognize tax benefits in our financial statements from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by tax authorities based on the technical merits of the position. The amount we recognize is measured as the largest benefit that has a greater than 50 percent likelihood of being realized upon settlement. We evaluate uncertain tax positions on an ongoing basis and adjust the amount recognized in light of changing facts and circumstances, such as the progress of a tax audit or expiration of a statute of limitations. We believe the estimates and assumptions used to support our evaluation of uncertain tax positions are reasonable. However, final determination of historical tax liabilities, either by settlement with tax authorities or due to expiration of statutes of limitations, could be materially different from estimates reflected on our consolidated balance sheet and historical income tax provisions. The outcome of these final determinations could have a material effect on our provision for income taxes, net earnings or cash flows in the period in which the determination is made.

No taxes have been provided on undistributed foreign earnings that are planned to be indefinitely reinvested. If future events, such as material changes in long-term investment requirements, necessitate that these earnings be distributed, an additional provision for taxes may apply, which could materially affect our provision for income taxes, net earnings or cash flows.

See Note 14, Income Taxes, for additional information on our effective tax rate, current and deferred taxes, valuation allowances and unrecognized tax benefits.

Contingencies:

See Note 12, Commitments and Contingencies, to the consolidated financial statements.

New Accounting Guidance:

See Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements for a discussion of new accounting standards.

 

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Liquidity and Capital Resources

We believe that cash from operations, our $4.5 billion revolving credit facility 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 United States are considered indefinitely reinvested and no material tax liability has been accrued as of December 31, 2016. 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.

Net Cash Provided by Operating Activities:

Operating activities provided net cash of $2,838 million in 2016, $3,728 million in 2015 and $3,562 million in 2014. Cash flows from operating activities were lower in 2016 than 2015 due to higher contributions to our pension benefit plans in 2016 and higher working capital cash improvements in 2015 than in 2016. Cash flows from operating activities in all years were favorably impacted by working capital improvements, primarily due to continually decreasing our cash conversion cycle (a metric that measures working capital efficiency and utilizes days sales outstanding, days inventory on hand and days payables outstanding) to negative 28 days in 2016, negative 12 days in 2015 and positive 10 days in 2014. Cash flows from operating activities were favorable in 2015 relative to 2014 primarily due to higher relative working capital cash improvements than in 2014 and significant tax payments in 2014 related to the $2.6 billion Starbucks arbitration award we received in late 2013, partially offset by higher contributions to our pension benefit plans in 2015.

Net Cash Provided by / (Used in) Investing Activities:

Net cash used in investing activities was $1,029 million in 2016, net cash provided by investing activities was $2,649 million in 2015 and net cash used in investing activities was $1,642 million in 2014. The increase in net cash used in investing activities in 2016 relative to 2015 and the increase in net cash provided by investing activities in 2015 relative to 2014 primarily relate to $4.7 billion of proceeds, net of divested cash and transaction costs, from the contribution of our global coffee businesses, the divestiture of AGF and the cash receipt of $1.0 billion due to the settlement of currency exchange forward contracts related to our coffee business transactions in 2015. The increase in net cash used in investing activities in 2016 relative to 2015 is partially offset by lower capital expenditures in 2016 of $290 million. The increase in net cash provided by investing activities in 2015 relative to 2014 is also driven by lower capital expenditures in 2015 of $128 million, partially offset by the $611 million reduction of cash due to the Venezuela deconsolidation, $501 million of contributed JDE receivables and a $43 million cash payment to fund a capital increase in JDE and $527 million of payments to acquire a biscuit operation in Vietnam and the Enjoy Life Foods snack food business in 2015.

Capital expenditures were $1,224 million in 2016, $1,514 million in 2015 and $1,642 million in 2014. We continue to make capital expenditures primarily to modernize manufacturing facilities and support new product and productivity initiatives. We expect 2017 capital expenditures to be up to $1.2 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 in Financing Activities:

Net cash used in financing activities was $1,862 million in 2016, $5,883 million in 2015 and $2,688 million in 2014. The decrease in net cash used in financing activities in 2016 relative to 2015 was primarily due to higher net short-term debt issuances and $1.0 billion of lower share repurchases following the exceptional year of share repurchases using proceeds from the global coffee business transactions in 2015. The increase in net cash used in financing activities in 2015 relative to 2014 was primarily due to higher repayments of long-term debt in 2015 (including the tender offers and euro notes maturities), $1.9 billion of higher share repurchases and higher net short-term debt repayments, partially offset by higher proceeds received from long-term note issuances.

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 tender offers, debt issuances and maturities during 2016, 2015 and 2014. 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. 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 quarters of the year typically generate 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.

 

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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 74.1 percent (or $19.2 billion) of the $25.9 billion of consolidated net revenue during fiscal year 2016 and represented approximately 81.7 percent (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.

In the next 12 months, we expect $1.4 billion of long-term debt will mature as follows: 750 million ($789 million as of December 31, 2016) in January 2017, fr.175 million Swiss franc notes ($172 million as of December 31, 2016) in March 2017 and $488 million in August 2017. 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 $17.2 billion at December 31, 2016 and $15.4 billion at December 31, 2015. Our debt-to-capitalization ratio was 0.41 at December 31, 2016 and 0.35 at December 31, 2015. At December 31, 2016, the weighted-average term of our outstanding long-term debt was 6.6 years. Our average daily commercial borrowings were $2.2 billion in 2016, $2.2 billion in 2015 and $1.9 billion in 2014. We had $2.4 billion of commercial paper borrowings outstanding at December 31, 2016 and none outstanding as of December 31, 2015, as commercial paper interest rates continued to be favorable in late 2016 and we had a bond maturity refinanced with commercial paper in December 2016. We expect to continue to use commercial paper borrowings to finance various short or long-term financing needs. We expect to continue to use commercial paper to finance various short and long-term financing needs and 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 2016, the primary drivers of the increase in our aggregate commodity costs were higher currency-related costs on our commodity purchases and increased costs for packaging and other raw materials, partially offset by lower costs for nuts, dairy, energy, sugar, grains and oils and cocoa.

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, 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 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.

 

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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

We have no significant off-balance sheet arrangements other than the contractual obligations discussed below.

Guarantees:

As discussed in Note 12, Commitments and Contingencies, 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 December 31, 2016, we had no material third-party guarantees recorded on our consolidated balance sheet.

In addition, at December 31, 2016, we were contingently liable for $758 million of guarantees related to our own performance. These include letters of credit, surety bonds and guarantees related to the payment of custom duties and taxes.

Guarantees do not have, and we do not expect them to have, a material effect on our liquidity.

Aggregate Contractual Obligations:

The following table summarizes our contractual obligations at December 31, 2016.

 

                                                                                              
     Payments Due  
     Total      2017      2018-19      2020-21      2022 and
Thereafter
 
     (in millions)  

Debt (1)

   $ 14,732      $ 1,451      $ 3,792      $ 3,916      $ 5,573  

Interest expense (2)

     3,650        388        656        483        2,123  

Capital leases

     5               2        2        1  

Operating leases (3)

     921        241        318        205        157  

Purchase obligations: (4)

              

Inventory and production costs

     5,404        2,123        2,526        336        419  

Other

     713        628        75        9        1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     6,117        2,751        2,601        345        420  

Other long-term liabilities (5)

     409        21        137        102        149  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 25,834      $ 4,852      $ 7,506      $ 5,053      $ 8,423  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (1) Amounts include the expected cash payments of our debt excluding capital leases, which are presented separately in the table above. The amounts also exclude $69 million of net unamortized non-cash bond premiums and discounts and mark-to-market adjustments related to our interest rate swaps recorded in total debt.
  (2) Amounts represent the expected cash payments of our interest expense on our long-term debt. Interest calculated on our euro, British pound sterling and Swiss franc notes was forecasted using currency exchange rates as of December 31, 2016. An insignificant amount of interest expense was excluded from the table for a portion of our other non-U.S. debt obligations due to the complexities involved in forecasting expected interest payments.
  (3) Operating lease payments represent the minimum rental commitments under non-cancelable operating leases.
  (4) Purchase obligations for inventory and production costs (such as raw materials, indirect materials and supplies, packaging, co-manufacturing arrangements, storage and distribution) are commitments for projected needs to be utilized in the normal course of business. Other purchase obligations include commitments for marketing, advertising, capital expenditures, information technology and professional services. Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction. Most arrangements are cancelable without a significant penalty and with short notice (usually 30 days). Any amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above.
  (5) Other long-term liabilities include estimated future benefit payments for our postretirement health care plans through December 31, 2026 of $195 million. We are unable to reliably estimate the timing of the payments beyond 2026; as such, they are excluded from the above table. There are also another $179 million of various other long-term liabilities that are expected to be paid over the next 5 years. In addition, the following long-term liabilities included on the consolidated balance sheet are excluded from the table above: accrued pension costs, income taxes, insurance accruals and other accruals. We are unable to reliably estimate the timing of the payments (or contributions beyond 2017, in the case of accrued pension costs) for these items. We currently expect to make approximately $468 million in contributions to our pension plans in 2017. As of December 31, 2016, our total liability for income taxes, including uncertain tax positions and associated accrued interest and penalties, was $899 million. We currently estimate payments of approximately $232 million related to these positions over the next 12 months.

 

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Equity and Dividends

Stock Plans:

See Note 10, Stock Plans, to the consolidated financial statements for more information on our stock plans and grant activity during 2016, 2015 and 2014.

Share Repurchases:

See Note 11, Capital Stock, to the consolidated financial statements for more information on our share repurchase and accelerated share repurchase programs.

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 $10.8 billion of shares ($2.6 billion in 2016, $3.6 billion in 2015, $1.9 billion in 2014 and $2.7 billion in 2013) through December 31, 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 $1,094 million in 2016, $1,008 million in 2015 and $964 million in 2014. On July 19, 2016, our Board of Directors approved a 12% increase in the quarterly dividend to $0.19 per common share or $0.76 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 annual basis. On August 5, 2014, our Audit Committee, with authorization from our Board of Directors, approved a 7% increase at that time in the quarterly dividend to $0.15 per common share or $0.60 per common share on an annual 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.

For U.S. income tax purposes only, the Company has calculated that 100% of the distributions paid to its shareholders in January 2016 are characterized as a qualified dividend paid from U.S. earnings and profits. The distributions the Company paid to its shareholders in April, July and October are characterized as a return of capital to each shareholder, up to the extent of the shareholder’s tax basis. If a shareholder does not have sufficient tax basis, these distributions could result in taxable gains to the shareholder. Shareholders should consult their tax advisors for a full understanding of all of the tax consequences of the receipt of dividends, including distributions in excess of our U.S. earnings and profits.

 

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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 our Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-K.

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.

 

    “Organic Net Revenue” is defined as net revenues excluding the impacts of acquisitions, divestitures (1), our historical global coffee business (2), our historical Venezuelan operations, accounting calendar changes and currency rate fluctuations (3). We also evaluate Organic Net Revenue growth from emerging markets and our Power Brands.
    Our emerging markets include our Latin America region in its entirety; the AMEA 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 Power Brands include some of our largest global and regional brands such as Oreo, Chips Ahoy!, Ritz, TUC / Club Social and belVita biscuits; Cadbury Dairy Milk, Milka and Lacta chocolate; Trident gum; Hall’s candy; and Tang powdered beverages.

 

    “Adjusted Operating Income” is defined as operating income excluding the impacts of Spin-Off Costs (4); the 2012-2014 Restructuring 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) or acquisition gains or losses and related integration and acquisition costs; the JDE coffee business transactions (2) gain and net incremental costs; the operating results of divestitures (1); our historical global coffee business operating results (2); mark-to-market impacts from commodity and forecasted currency transaction derivative contracts (6); and equity method investment earnings historically reported within operating income (7). 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).

 

    “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 (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) or acquisition gains or losses and related integration and acquisition costs; the JDE coffee business transactions (2) gain, transaction hedging gains or losses and net incremental costs; gain on the equity method investment exchange; net earnings from divestitures (1); 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. Similarly, within Adjusted EPS, our equity method investment net earnings exclude our proportionate share of our investees’ unusual or infrequent items (8), 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).

 

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  (1) Divestitures include completed sales of businesses and exits of major product lines upon completion of a sale or licensing agreement.
  (2) 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 related Management’s Discussion and Analysis of Financial Condition and Results of Operations. We continue to have an ongoing interest in the coffee business and as such, we include the earnings of JDE, Keurig and our historical coffee business within continuing results of operations. Within Adjusted EPS, we included these earnings with equity method investment earnings and deconsolidated our historical coffee business results from Organic Net Revenue and Adjusted Operating Income to facilitate comparisons of past and future coffee operating results.
  (3) Constant currency operating results are calculated by dividing or multiplying, as appropriate, the current-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-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 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 and the 2012-2014 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.
  (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. We 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. See Note 1, Summary of Significant Accounting Policies – Principles of Consolidation, for more information. In periods prior to July 2, 2015, we have reclassified the equity method earnings from our Adjusted Operating Income to after-tax equity method investment earnings within Adjusted EPS to be consistent with the deconsolidation of our coffee business results on July 2, 2015 and in order to evaluate our operating results on a consistent basis.
  (8) We have excluded our proportionate share of our equity method investees’ unusual or infrequent items in order to provide investors with a comparable view of our performance across periods. Although we have shareholder rights and board representation commensurate with our ownership interests in our equity method investees 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 on an adjusted basis is not intended to imply that we have any such control. Our GAAP “diluted EPS attributable to Mondelēz International from continuing operations” includes all of the investees’ unusual and 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-K.

 

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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, our historical Venezuelan operations, the adjustment for deconsolidating our historical coffee business, an accounting calendar change, acquisitions and divestiture. 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 Year Ended December 31, 2016     For the Year Ended December 31, 2015  
     Emerging
Markets
    Developed
Markets
    Total     Emerging
Markets
    Developed
Markets
    Total  
     (in millions)     (in millions)  

Net Revenue

   $ 9,370      $ 16,553      $ 25,923      $ 11,585      $ 18,051      $ 29,636   

Impact of currency

     896        348        1,244                        

Historical Venezuelan operations (1)

                          (1,217            (1,217

Historical coffee business (2)

                          (442     (1,185     (1,627

Impact of accounting
calendar change

                                 (76     (76

Impact of acquisitions

     (71     (21     (92                     

Impact of divestiture

     (8            (8     (9            (9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Organic Net Revenue

   $ 10,187      $ 16,880      $ 27,067      $ 9,917      $ 16,790      $ 26,707   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     For the Year Ended December 31, 2016     For the Year Ended December 31, 2015 (3)  
     Power
Brands
    Non-Power
Brands
    Total     Power
Brands
    Non-Power
Brands
    Total  
     (in millions)     (in millions)  

Net Revenue

   $ 17,951      $ 7,972      $ 25,923      $ 20,350      $ 9,286      $ 29,636   

Impact of currency

     844        400        1,244                        

Historical Venezuelan operations (1)

                          (823     (394     (1,217

Historical coffee business (2)

                          (1,179     (448     (1,627

Impact of accounting
calendar change

                          (59     (17     (76

Impact of acquisitions

            (92     (92                     

Impact of divestiture

            (8     (8            (9     (9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Organic Net Revenue

   $ 18,795      $ 8,272      $ 27,067      $ 18,289      $ 8,418      $ 26,707   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     For the Year Ended December 31, 2015     For the Year Ended December 31, 2014  
     Emerging
Markets
    Developed
Markets
    Total     Emerging
Markets
    Developed
Markets
    Total  
     (in millions)     (in millions)  

Net Revenue

   $ 11,585      $ 18,051      $ 29,636      $ 12,961      $ 21,283      $ 34,244   

Impact of currency

     1,826        1,739        3,565                        

Historical Venezuelan operations (1)

     (1,217            (1,217     (760            (760

Historical coffee business (2)

     (442     (1,185     (1,627     (1,105     (2,671     (3,776

Impact of accounting
calendar change

            (78     (78                     

Impact of acquisitions

     (128     (37     (165                     

Impact of divestiture

     (9            (9     (10            (10
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Organic Net Revenue

   $ 11,615      $ 18,490      $ 30,105      $ 11,086      $ 18,612      $ 29,698   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
                                                                                                                 
     For the Year Ended December 31, 2015     For the Year Ended December 31, 2014 (3)  
     Power
Brands
    Non-Power
Brands
    Total     Power
Brands
    Non-Power
Brands
    Total  
     (in millions)     (in millions)  

Net Revenue

   $ 20,350      $ 9,286      $ 29,636      $ 23,282      $ 10,962      $ 34,244   

Impact of currency

     2,405        1,160        3,565                        

Historical Venezuelan operations (1)

     (823     (394     (1,217     (511     (249     (760

Historical coffee business (2)

     (1,179     (448     (1,627     (2,732     (1,044     (3,776

Impact of accounting
calendar change

     (60     (18     (78                     

Impact of acquisitions

            (165     (165                     

Impact of divestiture

            (9     (9            (10     (10
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Organic Net Revenue

   $ 20,693      $ 9,412      $ 30,105      $ 20,039      $ 9,659      $ 29,698   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting: Venezuela, for more information.
(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) 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, we made limited changes to our list of regional Power Brands and as such, we reclassified 2015 and 2014 Power Brand net revenues on a basis consistent with the current list of Power Brands.

 

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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 Spin-Off costs, 2012-2014 Restructuring Program costs, 2014-2018 Restructuring Program costs, Venezuela historical operating results and remeasurement and deconsolidation losses, the JDE coffee business transactions gain and net incremental costs, operating income from our historical coffee business, equity method investment earnings reclassified to after-tax earnings in Q3 2015 in connection with the coffee business transactions, operating results of the AGF divestiture, pre-tax gains on the AGF and Costa Rica confectionery business divestitures, divestiture-related costs incurred for the planned sale of a confectionery business in France, gain on sale of an intangible asset, impairment charges related to intangible assets, the Integration Program and other acquisition integration costs, acquisition-related costs and mark-to-market impacts from commodity and forecasted currency transaction derivative contracts. We also present “Adjusted Operating Income margin,” which is subject to the same adjustments as Adjusted Operating Income, and evaluate Adjusted Operating Income on a constant currency basis. We believe these measures provide improved comparability of underlying operating results.

 

                                                                           
    For the Years Ended              
    December 31,              
    2016     2015     $ Change     % Change  
    (in millions)        

Operating Income

  $  2,569     $ 8,897     $ (6,328     (71.1)%  

2012-2014 Restructuring Program costs (1)

          (4     4    

2014-2018 Restructuring Program costs (1)

    1,086       1,002       84    

Operating income from Venezuelan subsidiaries (2)

          (281     281    

Remeasurement of net monetary assets in Venezuela (2)

          11       (11  

Loss on deconsolidation of Venezuela (2)

          778       (778  

Costs associated with JDE coffee business transactions (3)

          278       (278  

Gain on the JDE coffee business transactions (3)

          (6,809     6,809    

Reclassification of historical coffee business operating income (4)

          (342     342    

Reclassification of equity method investment earnings (5)

          (51     51    

Operating income from divestiture (6)

    (2     (8     6    

Gain on divestiture (6)

    (9     (13     4    

Divestiture-related costs (7)

    86             86    

Gain on sale of intangible asset (8)

    (15           (15  

Intangible asset impairment charges (9)

    137       71       66    

Acquisition integration costs (8)

    7       9       (2  

Acquisition-related costs (8)

    1       8       (7  

Mark-to-market losses / (gains) from derivatives (10)

    94       (56     150    

Other / rounding

    (1           (1  
 

 

 

   

 

 

   

 

 

   

Adjusted Operating Income

  $ 3,953     $ 3,490     $ 463       13.3%  

Impact of unfavorable currency

    176             176    
 

 

 

   

 

 

   

 

 

   

Adjusted Operating Income (constant currency)

  $ 4,129     $ 3,490     $ 639       18.3%  
 

 

 

   

 

 

   

 

 

   

 

54


Table of Contents
                                                                           
    For the Years Ended              
    December 31,              
    2015     2014     $ Change     % Change  
    (in millions)        

Operating Income

  $ 8,897      $ 3,242      $ 5,655        174.4%   

Spin-Off Costs (11)

           35        (35  

2012-2014 Restructuring Program costs (1)

    (4     459        (463  

2014-2018 Restructuring Program costs (1)

    1,002        381        621     

Operating income from Venezuelan subsidiaries (2)

    (281     (175     (106  

Remeasurement of net monetary assets in Venezuela (2)

    11        167        (156  

Loss on deconsolidation of Venezuela (2)

    778               778     

Costs associated with JDE coffee business transactions (3)

    278        77        201     

Gain on the JDE coffee business transactions (3)

    (6,809            (6,809  

Reclassification of historical coffee business operating income (4)

    (342     (646     304     

Reclassification of equity method earnings (5)

    (51     (104     53     

Operating income from divestiture (6)

    (8     (9     1     

Gain on divestiture (6)

    (13            (13  

Intangible asset impairment charges (9)

    71        57        14     

Integration Program and other acquisition integration costs (8)

    9        (4     13     

Acquisition-related costs (8)

    8        2        6