Item 8. Financial Statements and Supplementary Data.

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Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Mondelēz International, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, comprehensive earnings, equity and cash flows present fairly, in all material respects, the financial position of Mondelēz International, Inc. and its subsidiaries at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness in internal control over financial reporting related to the ineffective monitoring and oversight of controls over income tax accounting existed as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in the Report of Management on Internal Control Over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2014 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in management’s report referred to above. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois

February 20, 2015

Mondelēz International, Inc. and Subsidiaries

Consolidated Statements of Earnings

For the Years Ended December 31

(in millions of U.S. dollars, except per share data)


	2014		2013			2012

Net revenues	$	34,244	$	35,299		$	35,015
Cost of sales		21,647		22,189			21,939

Gross profit		12,597		13,110			13,076

Selling, general and administrative expenses		8,457		8,679			9,176
Asset impairment and exit costs		692		273			153
Gains on acquisition and divestitures, net		–		(30	)		(107	)
Amortization of intangibles		206		217			217

Operating income		3,242		3,971			3,637

Interest and other expense, net		688		1,579			1,863

Earnings from continuing operations before income taxes		2,554		2,392			1,774

Provision for income taxes		353		60			168

Earnings from continuing operations		2,201		2,332			1,606

Earnings from discontinued operations, net of income taxes		–		1,603			1,488

Net earnings		2,201		3,935			3,094

Noncontrolling interest		17		20			27

Net earnings attributable to Mondelēz International	$	2,184	$	3,915		$	3,067


Per share data:
Basic earnings per share attributable to Mondelēz International:
Continuing operations	$	1.29	$	1.30		$	0.90
Discontinued operations		–		0.91			0.83

Net earnings attributable to Mondelēz International	$	1.29	$	2.21		$	1.73


Diluted earnings per share attributable to Mondelēz International:
Continuing operations	$	1.28	$	1.29		$	0.88
Discontinued operations		–		0.90			0.83

Net earnings attributable to Mondelēz International	$	1.28	$	2.19		$	1.71

Dividends declared	$	0.58	$	0.54		$	1.00

See notes to consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Earnings

For the Years Ended December 31

(in millions of U.S. dollars)


	2014			2013			2012

Net earnings	$	2,201		$	3,935		$	3,094
Other comprehensive earnings / (losses):
Currency translation adjustment:
Translation adjustment		(3,287	)		(1,080	)		759
Tax (expense) / benefit		(228	)		36			39
Pension and other benefits:
Net actuarial gain / (loss) arising during period		(1,388	)		713			(2,266	)
Reclassification of (gains) / losses into net earnings:
Amortization of experience losses and prior service costs		132			193			414
Settlement losses		42			4			135
Tax (expense) / benefit		386			(244	)		486
Derivatives accounted for as hedges:
Net derivative gains / (losses)		(166	)		169			(412	)
Reclassification of (gains) / losses into net earnings		(45	)		72			602
Tax (expense) / benefit		92			(86	)		(87	)

Total other comprehensive earnings / (losses)		(4,462	)		(223	)		(330	)

Comprehensive earnings / (losses)		(2,261	)		3,712			2,764
less: Comprehensive earnings / (losses) attributable to noncontrolling interests		(16	)		20			33

Comprehensive earnings / (losses) attributable to Mondelēz International	$	(2,245	)	$	3,692		$	2,731

See notes to consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

Consolidated Balance Sheets, as of December 31

(in millions of U.S. dollars, except share data)


	2014			2013

ASSETS
Cash and cash equivalents	$	1,631		$	2,622
Trade receivables (net of allowances of $66 at December 31, 2014 and $86 at December 31, 2013)		3,802			4,463
Other receivables (net of allowances of $91 at December 31, 2014 and $73 at December 31, 2013)		949			940
Inventories, net		3,480			3,743
Deferred income taxes		480			517
Other current assets		1,408			889

Total current assets		11,750			13,174

Property, plant and equipment, net		9,827			10,247
Goodwill		23,389			25,597
Intangible assets, net		20,335			21,994
Prepaid pension assets		53			54
Other assets		1,461			1,449

TOTAL ASSETS	$	66,815		$	72,515


LIABILITIES
Short-term borrowings	$	1,305		$	1,594
Current portion of long-term debt		1,530			1,003
Accounts payable		5,299			5,345
Accrued marketing		2,047			2,318
Accrued employment costs		946			1,043
Other current liabilities		2,880			3,051

Total current liabilities		14,007			14,354

Long-term debt		13,865			14,482
Deferred income taxes		5,512			6,282
Accrued pension costs		2,912			1,962
Accrued postretirement health care costs		526			412
Other liabilities		2,140			2,491

TOTAL LIABILITIES		38,962			39,983

Commitments and Contingencies (Note 11)

EQUITY
Common Stock, no par value (5,000,000,000 shares authorized and 1,996,537,778 shares issued at December 31, 2014 and December 31, 2013)		–			–
Additional paid-in capital		31,651			31,396
Retained earnings		14,529			13,419
Accumulated other comprehensive losses		(7,318	)		(2,889	)
Treasury stock, at cost (332,896,779 shares at December 31, 2014 and 291,141,184 shares at December 31, 2013)		(11,112	)		(9,553	)

Total Mondelēz International Shareholders’ Equity		27,750			32,373
Noncontrolling interest		103			159

TOTAL EQUITY		27,853			32,532


TOTAL LIABILITIES AND EQUITY	$	66,815		$	72,515

See notes to consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

Consolidated Statements of Equity

(in millions of U.S. dollars, except per share data)


	Mondelēz International Shareholders’ Equity
									Accumulated
									Other
			Additional						Comprehensive
	Common		Paid-in			Retained			Earnings/			Treasury			Noncontrolling			Total
	Stock		Capital			Earnings			(Losses)			Stock			Interest			Equity

Balances at January 1, 2012	$	–	$	31,318		$	18,067		$	(6,638	)	$	(7,476	)	$	111		$	35,382
Comprehensive earnings / (losses):
Net earnings		–		–			3,067			–			–			27			3,094
Other comprehensive earnings / (losses), net of income taxes		–		–			–			(336	)		–			6			(330	)
Exercise of stock options and issuance of other stock awards		–		141			(53	)		–			319			–			407
Cash dividends declared ($1.00 per share)		–		–			(1,775	)		–			–			–			(1,775	)
Spin-Off of Kraft Foods Group, Inc.		–		89			(8,755	)		4,308			–			–			(4,358	)
Dividends paid on noncontrolling interest and other activities		–		–			–			–			–			(4	)		(4	)

Balances at December 31, 2012	$	–	$	31,548		$	10,551		$	(2,666	)	$	(7,157	)	$	140		$	32,416

Comprehensive earnings / (losses):
Net earnings		–		–			3,915			–			–			20			3,935
Other comprehensive losses, net of income taxes		–		–			–			(223	)		–			–			(223	)
Exercise of stock options and issuance of other stock awards		–		10			(97	)		–			343			–			256
Common Stock repurchased		–		(161	)		–			–			(2,739	)		–			(2,900	)
Cash dividends declared ($0.54 per share)		–		–			(950	)		–			–			–			(950	)
Dividends paid on noncontrolling interest and other activities		–		(1	)		–			–			–			(1	)		(2	)

Balances at December 31, 2013	$	–	$	31,396		$	13,419		$	(2,889	)	$	(9,553	)	$	159		$	32,532

Comprehensive earnings / (losses):
Net earnings		–		–			2,184			–			–			17			2,201
Other comprehensive losses, net of income taxes		–		–			–			(4,429	)		–			(33	)		(4,462	)
Exercise of stock options and issuance of other stock awards		–		271			(98	)		–			332			–			505
Common Stock repurchased		–		–			–			–			(1,891	)		–			(1,891	)
Cash dividends declared ($0.58 per share)		–		–			(976	)		–			–			–			(976	)
Dividends paid on noncontrolling interest and other activities		–		(16	)		–			–			–			(40	)		(56	)

Balances at December 31, 2014	$	–	$	31,651		$	14,529		$	(7,318	)	$	(11,112	)	$	103		$	27,853

See notes to consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended December 31

(in millions of U.S. dollars)


	2014			2013			2012

CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES
Net earnings	$	2,201		$	3,935		$	3,094
Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization		1,059			1,077			1,345
Stock-based compensation expense		141			128			162
Deferred income tax (benefit) / provision		(186	)		(64	)		369
Gains on acquisition and divestitures, net		–			(30	)		(107	)
Asset impairments		240			97			126
Benefit from indemnification resolution		–			(385	)		–
Loss on early extinguishment of debt		493			608			–
Unrealized gain on planned coffee business divestiture currency hedge		(628	)		–			–
Other non-cash items, net		(184	)		(19	)		44
Change in assets and liabilities, net of acquisitions and divestitures:
Receivables, net		184			492			(599	)
Inventories, net		(188	)		(116	)		(129	)
Accounts payable		387			793			505
Other current assets		(86	)		(42	)		217
Other current liabilities		135			62			(1,160	)
Change in pension and postretirement assets and liabilities, net		(6	)		(126	)		56

Net cash provided by operating activities		3,562			6,410			3,923


CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES
Capital expenditures		(1,642	)		(1,622	)		(1,610	)
Acquisition, net of cash received		(7	)		(119	)		–
Proceeds from divestitures, net of disbursements		–			60			200
Cash received from / (transferred to) Kraft Foods Group related to the Spin-Off		–			55			(410	)
Proceeds from sale of property, plant and equipment and other		7			143			133

Net cash used in investing activities		(1,642	)		(1,483	)		(1,687	)


CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES
Issuances of commercial paper, maturities greater than 90 days		2,082			1,329			1,579
Repayments of commercial paper, maturities greater than 90 days		(2,713	)		(607	)		(1,581	)
Net issuances of other short-term borrowings, net		398			613			95
Long-term debt proceeds		3,032			3,248			6,775
Long-term debt repaid		(3,017	)		(7,559	)		(4,495	)
Repurchase of Common Stock		(1,700	)		(2,900	)		–
Dividends paid		(964	)		(943	)		(2,058	)
Other		194			132			(111	)

Net cash (used in) / provided by financing activities		(2,688	)		(6,687	)		204


Effect of exchange rate changes on cash and cash equivalents		(223	)		(93	)		61


Cash and cash equivalents:
Increase / (decrease)		(991	)		(1,853	)		2,501
Balance at beginning of period		2,622			4,475			1,974

Balance at end of period	$	1,631		$	2,622		$	4,475


Cash paid:
Interest	$	827		$	1,150		$	2,406

Income taxes	$	1,238		$	760		$	1,057

See notes to consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Description of Business:

Mondelēz International, Inc. (formerly Kraft Foods Inc.) was incorporated in 2000 in the Commonwealth of Virginia. Mondelēz International, Inc., through its subsidiaries (collectively “Mondelēz International,” “we,” “us” and “our”), sells food and beverage products to consumers in approximately 165 countries.

Discontinued Operation:

On October 1, 2012 (the “Distribution Date”), we completed the spin-off of our former North American grocery business, Kraft Foods Group, Inc. (“Kraft Foods Group”), by distributing 100% of the outstanding shares of common stock of Kraft Foods Group to holders of our Common Stock (the “Spin-Off”). We retained our global snacks business along with other food and beverage categories. The divested Kraft Foods Group business is presented as a discontinued operation on the consolidated statements of earnings for all periods presented. The Kraft Foods Group other comprehensive earnings, changes in equity and cash flows are included within our consolidated statements of comprehensive earnings, equity and cash flows through October 1, 2012. See Note 2, Divestitures and Acquisitions, for additional information.

Principles of Consolidation:

The consolidated financial statements include Mondelēz International, Inc. as well as our wholly owned and majority owned subsidiaries. We account for investments in which we exercise significant influence (20%-50% ownership interest) under the equity method of accounting. We use the cost method of accounting for investments in which we have an ownership interest of less than 20% and in which we do not exercise significant influence. The noncontrolling interest represents the non-controlling investors’ interests in the results of subsidiaries that we control and consolidate. All intercompany transactions are eliminated.

Accounting Calendar Change:

In connection with moving toward a common consolidation date across the Company, in the first quarter of 2013, we changed the consolidation date for our Europe segment, from predominantly the last Saturday of each period to the last calendar day of each period. The change had a favorable impact of $37 million on net revenues and $6 million on operating income in 2013.

At this time, the majority of our operating subsidiaries report results as of the last calendar day of the period except for our North America segment. The North America segment reported results as of the last Saturday of the period and beginning in the first quarter of 2015, reports results as of the last calendar day of the period.

We believe these changes to a common consolidation date are preferable and will improve business planning and financial reporting by better matching the close dates of the operating subsidiaries and bringing the reporting dates closer to the period-end date. As the effect to prior-period results was not material, we have not revised the prior-period results.

Use of Estimates:

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which require us to make estimates and assumptions that affect a number of amounts in our consolidated financial statements. Significant accounting policy elections, estimates and assumptions include, among others, pension and benefit plan assumptions, valuation assumptions of goodwill and intangible assets, useful lives of long-lived assets, restructuring program liabilities, marketing program accruals, insurance and self-insurance reserves and income taxes. We base our estimates on historical experience and other assumptions that we believe are reasonable. If actual amounts differ from estimates, we include the revisions in our consolidated results of operations in the period the actual amounts become known. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a material effect on our consolidated financial statements.

Currency Translation and Highly Inflationary Accounting:

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

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

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

On January 24, 2014, the Venezuelan government announced the expansion of the auction-based currency transaction program referred to as SICAD or SICAD I and new profit margin controls. The application of the SICAD I rate was extended to include foreign investments and significant operating activities, including contracts for leasing and services, use and exploitation of patents and trademarks, payments of royalties and contracts for technology import and technical assistance. As of December 31, 2014, the SICAD I exchange rate for the food segment auctions in which we participate was 11.50 bolivars to the U.S. dollar.

Additionally, on March 24, 2014, the Venezuelan government launched a new market-based currency exchange market, SICAD II. SICAD II may be used voluntarily to exchange bolivars into U.S. dollars. As of December 31, 2014, the SICAD II exchange rate was 49.99 bolivars to the U.S. dollar.

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

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

As of March 31, 2014, we began to apply the SICAD I exchange rate to remeasure our bolivar-denominated net monetary assets, and we began translating our Venezuelan operating results at the new rate in the second quarter of 2014. On March 31, 2014, we recognized a $142 million currency remeasurement loss within selling, general and administrative expenses of our Latin America segment as a result of revaluing our bolivar-denominated net monetary assets from the official exchange rate of 6.30 bolivars to the U.S. dollar to the then-prevailing SICAD I exchange rate of 10.70 bolivars to the U.S. dollar. As of December 31, 2014, the SICAD I exchange rate for the food segment auctions in which we participate was 11.50 bolivars to the U.S. dollar. Through December 31, 2014, we recognized $25 million of additional remeasurement charges related primarily to changes in the SICAD I rate.

The following table sets forth net revenues for our Venezuelan operations for the year ended December 31, 2014 (measured at the 6.30 official rate in the first quarter and at the SICAD I rate subsequent to the March 31, 2014 remeasurement), and cash, net monetary assets and net assets of our Venezuelan subsidiaries as of December 31, 2014 (translated at the SICAD I last exchange rate for food segment auctions in which we participate, which was 11.50 bolivars to the U.S. dollar):


Venezuela operations		For the Year Ended December 31, 2014
Net revenues		$760 million or 2.2% of consolidated net revenues

		As of December 31, 2014
Cash		$278 million
Net monetary assets		$236 million
Net assets		$500 million

Most recently, on February 10, 2015, the Venezuelan government announced changes in the currency exchange structure. While retaining the 6.30 official rate for food and other essentials and the SICAD I offered rate based on recently cleared auction transactions for specific sectors of the economy, the SICAD II exchange rate is expected to be replaced with a new market-based SIMADI rate. We will continue to monitor developments related to this currency structure. At this time, we continue to expect to use the SICAD I rate to remeasure our net monetary assets in Venezuela. A change in the SICAD I rate from 11.50 (our last SICAD I auction rate realized in 2014) to 12.00 (the opening SICAD I rate announced on February 10, 2015) would result in approximately a $10 million remeasurement loss based on our net monetary assets in Venezuela as of December 31, 2014. Depending on the SICAD I auctions that occur through March, 31, 2015, however, the amount of the remeasurement loss recorded in the first quarter of 2015 could change.

Unlike the official rate that is fixed at 6.30 bolivars to the U.S. dollar, the SICAD I rate is expected to vary over time. If any of the three-tier currency exchange rates, or the application of the rates to our business, were to change, we may recognize additional currency losses, or gains, which could be significant.

In light of the ongoing difficult macroeconomic environment in Venezuela, we continue to monitor and actively manage our investment and exposures in Venezuela. We plan to continue to do business in the country as long as we can successfully continue to operate our local business there. We strive to locally source and produce a significant amount of the products we sell in Venezuela. We have taken other protective measures against currency devaluation, such as converting monetary assets into non-monetary assets that we can use in our business. However, suitable protective measures have become less available and more expensive and may not offset further currency devaluation that could occur.

Argentina. On January 23, 2014, the Central Bank of Argentina adjusted its currency policy, removed its currency stabilization measures and allowed the Argentine peso exchange rate to float relative to the U.S. dollar. On that day, the value of the Argentine peso relative to the U.S. dollar fell by 15%, and from December 31, 2013 through December 31, 2014, the value of the peso declined 31%. In July 2014, Argentina had a technical default on its debt as the government was blocked from making payments on its restructured debt by certain creditors who did not participate in a debt restructuring in 2001. Based on the current state of the Argentine economy and its restricted liquidity, access to capital, currency rules and regulations, the business operating environment remains challenging. Further volatility and declines in the exchange rate are expected. We continue to monitor and actively manage our investment and exposures in Argentina. We continue refining our product portfolio to improve our product offerings, mix and profitability. We also continue to implement additional cost initiatives to protect the business. Further currency declines, economic controls or other business restrictions could have an adverse impact on our ongoing results of operations. Our Argentinian operations contributed approximately $693 million, or 2.0% of consolidated net revenues for the year ended December 31, 2014. As of December 31, 2014, the net monetary liabilities of our Argentina operations were not material and they could change over time. Argentina is not designated as a highly-inflationary economy for accounting purposes and so we continue to record currency translation adjustments within equity and realized exchange gains and losses on transactions in earnings.

Russia. During the fourth quarter of 2014, the value of the Russian ruble relative to the U.S. dollar declined 50%, and further volatility in the currency is expected. Russia continues to be a key market for us. We continue to take actions to protect our near-term operating results, financial condition and cash flow. Our operations in Russia contributed approximately $1,114 million, or 3.3% of consolidated net revenues for the year ended December 31, 2014. As of December 31, 2014, the net monetary assets of our Russia operations were not material and they could change over time. Russia is not designated as a highly-inflationary economy for accounting purposes and so we continue to record currency translation adjustments within equity and realized exchange gains and losses on transactions in earnings.

Ukraine. On February 5, 2015, the National Bank of Ukraine changed its currency policy by eliminating daily auctions, which effectively supported the exchange rate, and allowed the Ukrainian hryvnya exchange rate to float relative to the U.S. dollar. The value of the Ukrainian hryvnya relative to the U.S. dollar declined 61%, from the beginning of the year through February 11, 2015, and further volatility in the currency is expected. Ukraine is an important emerging market and we continue to take actions to protect our near-term operating results, cash flow and financial condition. Our Ukrainian operations contributed approximately $294 million, or 0.9% of consolidated net revenues for the year ended December 31, 2014. As of December 31, 2014, the net monetary assets of our Ukrainian operations were not material and they could change over time. Ukraine is not designated as a highly-inflationary economy for accounting purposes and so we continue to record currency translation adjustments within equity and realized exchange gains and losses on transactions in earnings.

Cash and Cash Equivalents:

Cash and cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less.

Inventories:

We value our inventory using the average cost method. We also record inventory allowances for overstock and obsolete inventories due to ingredient and packaging changes.

Long-Lived Assets:

Property, plant and equipment are stated at historical cost and depreciated by the straight-line method over the estimated useful lives of the assets. Machinery and equipment are depreciated over periods ranging from 3 to 20 years and buildings and building improvements over periods up to 40 years.

We review long-lived assets, including amortizable intangible assets, for realizability on an ongoing basis. Changes in depreciation, generally accelerated depreciation, are determined and recorded when estimates of the remaining useful lives or residual values of long-term assets change. We also review for impairment when conditions exist that indicate the carrying amount of the assets may not be fully recoverable. In those circumstances, we perform undiscounted operating cash flow analyses to determine if an impairment exists. When testing for asset impairment, we group assets and liabilities at the lowest level for which cash flows are separately identifiable. Any impairment loss is calculated as the excess of the asset’s carrying value over its estimated fair value. Fair value is estimated based on the undiscounted cash flows for the asset group over the remaining useful life or based on the expected cash proceeds for the asset less costs of disposal. Any significant impairment losses would be recorded within asset impairment and exit costs in the consolidated statements of earnings.

Software Costs:

We capitalize certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use. Capitalized software costs are included in property, plant and equipment and amortized on a straight-line basis over the estimated useful lives of the software, which do not exceed seven years.

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 the reporting units with goodwill. Annually, we may perform qualitative testing or elect to do quantitative testing instead, depending on prior test results, current year developments, current risk evaluations and other practical considerations. In the event that significant potential goodwill impairment risk exists for a specific reporting unit, we apply a two-step quantitative test. The first step compares the 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 reporting units in our Europe and North America segments, we used a market-based, weighted-average cost of capital of 6.9% to discount the projected cash flows of those operations. For our Latin America, Asia Pacific and EEMEA reporting units, we used a risk-rated discount rate of 9.9%. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, 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 apply the 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.

We test 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 fair value, we consider the asset impaired and reduce its carrying value to the estimated fair value. We amortize definite-lived intangible assets over their estimated useful lives and evaluate them for impairment as we do other long-lived assets.

Insurance and Self-Insurance:

We use a combination of insurance and self-insurance for a number of risks, including workers’ compensation, general liability, automobile liability, product liability and our obligation for employee healthcare benefits. We estimate the liabilities associated with these risks on an undiscounted basis by evaluating and making judgments about historical claims experience and other actuarial assumptions and the estimated impact on future results.

Revenue Recognition:

We recognize revenues when title and risk of loss pass to customers, which generally occurs upon shipment or delivery of goods. Revenues are recorded net of sales incentives and trade promotions and include all shipping and handling charges billed to customers. Our shipping and handling costs are classified as part of cost of sales. Provisions for product returns and other trade allowances are also recorded as reductions to revenues within the same period that the revenue is recognized.

Marketing and Research and Development:

We promote our products with advertising, marketing, sales incentives and trade promotions. These programs include, but are not limited to, cooperative advertising, in-store displays, consumer promotions, new product introduction fees, discounts, coupons, rebates and volume-based incentives. We expense advertising costs either in the period the advertising first takes place or as incurred. Sales incentive and trade promotion activities are recorded as a reduction to revenues based on amounts estimated due to customers and consumers at the end of a period. We base these estimates principally on historical utilization and redemption rates. For interim reporting purposes, advertising expenses and sales incentives are charged to operations as a percentage of volume, based on estimated volume and estimated program spending. We do not defer costs on our year-end consolidated balance sheet and all marketing costs are recorded as an expense in the year incurred. Advertising expense was $1,552 million in 2014, $1,721 million in 2013 and $1,815 million in 2012. We manage advertising and consumer promotions (marketing programs) on a combined basis. Advertising and consumer promotion costs were lower in 2014 due primarily to savings from consolidating media providers, reductions in non-working media costs and efficiencies gained by shifting spending to lower-cost, digital media outlets and currency, while we increased our spending on our global Power Brands and maintained working media spending. In 2013, advertising and consumer promotion costs were higher than in 2012. We expense product research and development costs as incurred. Research and development expense was $455 million in 2014, $471 million in 2013 and $462 million in 2012. We record marketing and research and development expenses within selling, general and administrative expenses.

Employee Benefit Plans:

We provide a range of benefits to our current and retired employees. These include pension benefits, postretirement health care benefits and postemployment benefits depending upon jurisdiction, tenure, job level and other factors. Local statutory requirements govern many of the benefit plans we provide around the world. Local government plans generally cover health care benefits for retirees outside the United States, Canada and United Kingdom. Our U.S., Canadian and U.K. subsidiaries provide health care and other benefits to most retired employees. Our postemployment benefit plans provide primarily severance benefits for eligible salaried and certain hourly employees. The cost for these plans is recognized in earnings primarily over the working life of the covered employee.

Financial Instruments:

We use financial instruments to manage our currency exchange rate, commodity price and interest rate risks. We monitor and manage these exposures as part of our overall risk management program, which focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our operating results. A principal objective of our risk management strategies is to reduce significant, unanticipated earnings fluctuations that may arise from volatility in currency exchange rates, commodity prices and interest rates, principally through the use of derivative instruments.

We use a combination of primarily currency forward contracts, futures, options and swaps; commodity forward contracts, futures and options; and interest rate swaps to manage our exposure to cash flow variability, protect the value of our existing currency assets and liabilities and protect the value of our debt. See Note 9, Financial Instruments, to the consolidated financial statements for more information on the types of derivative instruments we use.

We record derivative financial instruments on a gross basis and at fair value in our consolidated balance sheets within other current assets or other current liabilities due to their relatively short-term duration. Cash flows from derivative instruments are classified in the consolidated statements of cash flows based on the nature of the derivative instrument. Changes in the fair value of a derivative that is designated as a cash flow hedge, to the extent that the hedge is effective, are recorded in accumulated other comprehensive earnings / (losses) and reclassified to earnings when the hedged item affects earnings. Changes in fair value of economic hedges and the ineffective portion of all hedges are recognized in current period earnings. Changes in the fair value of a derivative that is designated as a fair value hedge, along with the changes in the fair value of the related hedged asset or liability, are recorded in earnings in the same period. We use non-U.S. dollar denominated debt to hedge a portion of our net investment in non-U.S. operations against adverse movements in exchange rates, with currency movements related to the debt and net investment and the related deferred taxes recorded within currency translation adjustment in accumulated other comprehensive earnings / (losses).

In order to qualify for hedge accounting, a specified level of hedging effectiveness between the derivative instrument and the item being hedged must exist at inception and throughout the hedged period. We must also formally document the nature of and relationship between the derivative and the hedged item, as well as our risk management objectives, strategies for undertaking the hedge transaction and method of assessing hedge effectiveness. Additionally, for a hedge of a forecasted transaction, the significant characteristics and expected term of the forecasted transaction must be specifically identified, and it must be probable that the forecasted transaction will occur. If it is no longer probable that the hedged forecasted transaction will occur, we would recognize the gain or loss related to the derivative in earnings.

When we use derivatives, we are exposed to credit and market risks. Credit risk exists when a counterparty to a derivative contract might fail to fulfill its performance obligations under the contract. We minimize our credit risk by entering into transactions with counterparties with high quality, investment grade credit ratings, limiting the amount of exposure with each counterparty and monitoring the financial condition of our counterparties. We also maintain a policy of requiring that all significant, non-exchange traded derivative contracts with a duration of one year or longer are governed by an International Swaps and Derivatives Association master agreement. Market risk exists when the value of a derivative or other financial instrument might be adversely affected by changes in market conditions and commodity prices, currency exchange rates or interest rates. We manage derivative market risk by limiting the types of derivative instruments and derivative strategies we use and the degree of market risk that we plan to hedge through the use of derivative instruments.

Commodity cash flow hedges – We are exposed to price risk related to forecasted purchases of certain commodities that we primarily use as raw materials. We enter into commodity forward contracts primarily for cocoa, wheat, coffee, soybean and vegetable oils, and sugar and other sweeteners. Commodity forward contracts generally are not subject to the accounting requirements for derivative instruments and hedging activities under the normal purchases exception. We also use commodity futures and options to hedge the price of certain input costs, including energy costs, coffee, sugar and other sweeteners, wheat, soybean and vegetable oils, cocoa and dairy. Some of these derivative instruments are highly effective and qualify for hedge accounting treatment. We also sell commodity futures to unprice future purchase commitments, and we occasionally use related futures to cross-hedge a commodity exposure. We are not a party to leveraged derivatives and, by policy, do not use financial instruments for speculative purposes.

Currency exchange cash flow hedges – We use various financial instruments to mitigate our exposure to changes in exchange rates from third-party and intercompany actual and forecasted transactions. These instruments may include currency exchange forward contracts, futures, options and swaps. Based on the size and location of our businesses, we use these instruments to hedge our exposure to certain currencies, including the euro, pound sterling and Canadian dollar.

Interest rate cash flow and fair value hedges – We manage interest rate volatility by modifying the pricing or maturity characteristics of certain liabilities so that the net impact on expense is not, on a material basis, adversely affected by movements in interest rates. As a result of interest rate fluctuations, hedged fixed-rate liabilities appreciate or depreciate in market value. We expect the effect of this unrealized appreciation or depreciation to be substantially offset by our gains or losses on the derivative instruments that are linked to these hedged liabilities. We use derivative instruments, including interest rate swaps that have indices related to the pricing of specific liabilities as part of our interest rate risk management strategy. As a matter of policy, we do not use highly leveraged derivative instruments for interest rate risk management. We use interest rate swaps to economically convert a portion of our fixed-rate debt into variable-rate debt. Under the interest rate swap contracts, we agree with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts, which is calculated based on an agreed-upon notional amount. We also use interest rate swaps to hedge the variability of interest payment cash flows on a portion of our future debt obligations. Substantially all of these derivative instruments are highly effective and qualify for hedge accounting treatment.

Hedges of net investments in non-U.S. operations – We have numerous investments outside the United States. The net assets of these subsidiaries are exposed to changes and volatility in currency exchange rates. We use local currency denominated debt to hedge our non-U.S. net investments against adverse movements in exchange rates. We designated our euro and pound sterling denominated borrowings as a net investment hedge of a portion of our overall European operations. The gains and losses on our net investment in these designated European operations are economically offset by losses and gains on our euro and pound sterling denominated borrowings. The change in the debt’s value, net of deferred taxes, is recorded in the currency translation adjustment component of accumulated other comprehensive earnings / (losses).

Income Taxes:

We recognize tax benefits in our financial statements when uncertain tax positions are assessed more likely than not to be sustained upon audit. The amount we recognize is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

We recognize deferred tax assets for deductible temporary differences, operating loss carryforwards and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

New Accounting Pronouncements:

In November 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) to clarify how current guidance should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. The ASU emphasizes that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. The ASU is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. We will adopt the new standard on January 1, 2016 and the standard is not expected to have a material impact on our consolidated financial statements.

In June 2014, the FASB issued an ASU to clarify the accounting for certain stock-based compensation grants in which a performance target can be achieved after a requisite service period is completed. Under this new guidance, entities are required to treat performance targets that affect vesting, and could be achieved after the requisite service period, as a performance condition. The performance targets are not reflected in estimating the grant-date fair value of the grants. Compensation cost is recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The ASU is effective for annual reporting periods beginning after December 15, 2015, with early adoption permitted. We will adopt the new standard on January 1, 2016 and the standard is not expected to have a material impact on our consolidated financial statements.

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

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

Reclassifications:

Certain amounts previously reported have been reclassified to conform to the current-year presentation. At December 31, 2014, we elected to net certain regional banking activity with a legal right of offset and have reflected the change in the prior periods presented in the consolidated statements of cash flows and prior-year cash, debt and weighted-average interest rates on our debt. During 2014, we realigned some of our products across our product categories. As a result, we have reclassified prior year product category revenues in Note 17, Segment Reporting, on a consistent basis. We have adjusted the presentation of certain commodity contracts in our economic hedge table to remove the impact of intercompany sales related to forward contracts for which we have taken physical delivery. We have reflected the change in the prior periods presented in Note 9, Financial Instruments—Economic Hedges, on a consistent basis. We have also provided greater detail on prior-year receivables and deferred taxes consistent with the current year presentation.

Note 2. Divestitures and Acquisitions

Planned Coffee Business Transactions:

On May 7, 2014, we announced that we entered into an agreement to combine our wholly owned coffee portfolio (outside of France) with D.E Master Blenders 1753 B.V. (“DEMB”). In conjunction with this transaction, Acorn Holdings B.V. (“AHBV”), owner of DEMB, has also made a binding offer to receive our coffee business in France. The parties have also invited our partners in certain joint ventures to join the new company.

Upon completion of all proposed transactions, we expect to receive cash of approximately €4 billion and a 49 percent equity interest in the new company, to be called Jacobs Douwe Egberts (“JDE”). AHBV will hold a majority share in the proposed combined company and will have a majority of the seats on the board, which will be chaired by current DEMB Chairman Bart Becht. We will have certain minority rights. AHBV is owned by an investor group led by JAB Holding Company s.à r.l.

Once we have contributed our coffee businesses to the joint venture, we expect to record our interest in the joint venture as an equity method investment on our consolidated balance sheet and to include our share of its earnings prospectively within our continuing results of operations. We also anticipate recording a gain on the divested assets of our coffee business portfolio. At this time, we do not expect the coffee business divestiture to qualify for discontinued operations presentation because it does not represent a strategic change in our business nor is it expected to have a major effect on our results of operations as we will retain an approximate 49% interest in the combined joint venture with the DEMB business.

The transactions remain subject to regulatory approvals and the completion of employee information and consultation requirements. We continue to expect the transactions to be completed in 2015, subject to closing conditions, including regulatory approvals. In December 2014, the European Commission announced its intention to further evaluate the proposed transaction against EU antitrust regulations and in order to make a final determination on merger clearance, which we currently expect in the second half of 2015. We and DEMB also continue to undertake consultations with Works Councils and employee representatives as required in connection with the transactions.

In connection with the expected receipt of approximately €4 billion upon closing, we entered into currency exchange forward contracts in the second quarter of 2014 to lock in an expected U.S. dollar value of approximately $5 billion. As of December 31, 2014, the forward contracts were recorded as derivative assets within other current assets and through December 31, 2014, we recognized $628 million of unrealized gains related to the hedges within interest and other expense, net. On February 11, 2015, we monetized the forward contracts and recorded an additional realized gain of $311 million in the first quarter of 2015, for a total realized gain of $939 million. We also entered into new currency exchange forward contracts to continue to lock in an expected U.S. dollar value of approximately $5 billion from the transactions. Based on changes in the euro/U.S. dollar exchange rate, the actual closing date of the planned JDE coffee transactions and the settlement dates of the hedges or other hedges we may put into place, the actual amount of U.S. dollars we receive could change. In addition to the hedges, we have also incurred incremental expenses related to readying our coffee businesses for the planned transactions which totaled $77 million through December 31, 2014 and were recorded within selling, general and administrative expenses of our Europe and EEMEA segments and within our general corporate expenses.

Spin-Off of Kraft Foods Group:

On the Distribution Date, we completed the Spin-Off of Kraft Foods Group. Each of our shareholders of record as of the close of business on September 19, 2012 (“the Record Date”) received one share of Kraft Foods Group common stock for every three shares of our Common Stock held as of the Record Date. The distribution was structured to be tax free to our U.S. shareholders for U.S. federal income tax purposes. Following the Spin-Off, Kraft Foods Group is an independent public company and we do not beneficially own any shares of Kraft Foods Group common stock.

The divested Kraft Foods Group business is presented as a discontinued operation on the consolidated statements of earnings in 2012 when the Spin-Off occurred and, as further noted below, in 2013 due to the resolution of the Starbucks arbitration and the gain we recognized related to the Kraft Foods Group business. The Kraft Foods Group other comprehensive earnings, changes in equity and cash flows are included within our consolidated statements of comprehensive earnings, equity and cash flows through October 1, 2012.

A summary of results related to the discontinued operation of Kraft Foods Group within our historical results is presented below:


	Fourth Quarter Ended		Nine Months Ended
	December 31, 2013		October 1, 2012
	(in millions)

Net revenues	$	–	$	13,768

Earnings before income taxes	$	2,522	$	2,266
Provision for income taxes		919		778

Earnings from discontinued operations, net of income taxes	$	1,603	$	1,488

The results of the Kraft Foods Group discontinued operation exclude certain corporate and business unit costs that were historically allocated to Kraft Foods Group and continued at Mondelēz International after the Spin-Off. These costs include primarily corporate overheads, information systems and sales force support. On a pre-tax basis, through the date of the Spin-Off, these costs were $150 million for the nine months ended October 1, 2012.

Interest expense relating to debt Kraft Foods Group incurred or assumed through the Distribution Date has been included in the results from discontinued operations for all periods presented and as follows:


	Nine Months Ended
	October 1, 2012
	(in millions)

$ 6.0 billion note issuance in June 2012	$	70
$ 3.6 billion notes exchanged in July 2012		171
$ 0.4 billion debt transferred in October 2012		24
Capital leases and other		13

	$	278

On the Distribution Date, we divested net assets totaling $4,358 million, or $4,111 million net of cash retained by Kraft Foods Group. Additionally, we distributed to Kraft Foods Group $4,308 million of accumulated other comprehensive losses primarily related to the pension and other benefit plan net liabilities transferred to Kraft Foods Group and $89 million of unearned compensation recorded within additional paid in capital. In total, we recorded a distribution of $8,755 million of retained earnings in connection with the Spin-Off.

In order to implement the Spin-Off, we entered into certain agreements with Kraft Foods Group to effect our legal and structural separation, govern the relationship between us, and allocate various assets, liabilities and obligations between us, including, among other things, employee benefits, intellectual property and tax-related assets and liabilities (see Note 15, Income Taxes, for additional information on the current and deferred tax assets and liabilities transferred or retained in the Spin-Off). In addition to executing the Spin-Off in the manner provided in the agreements, in November 2012, pursuant to these agreements, we paid Kraft Foods Group $163 million related to targeted cash flows (together with the $247 million of cash divested on the Distribution Date, a total of $410 million of cash was transferred to Kraft Foods Group in connection with the Spin-Off). To facilitate the management, including final payment and resolution, of certain obligations, Kraft Foods Group retained certain of our North American net trade payables and receivables.

We also retained approximately $140 million of workers’ compensation liabilities for claims incurred by Kraft Foods Group employees prior to the Spin-Off. In November 2012, we paid Kraft Foods Group $95 million to cash settle the net trade payables and receivables. In March 2013, we collected $55 million from Kraft Foods Group related to the cash settlement of stock awards held by our respective employees at the time of the Spin-Off as further described in Note 12, Stock Plans.

In 2014, we concluded our Spin-Off transition plans. Historically, we incurred Spin-Off transaction, transition and financing and related costs (“Spin-Off Costs”) within our operating results. We have recorded Spin-Off Costs of $35 million in 2014, $62 million in 2013 and $1,053 million in 2012 in pre-tax earnings as follows:


	For the Years Ended December 31,
	2014		2013		2012
	(in millions)

Selling, general and administrative expenses	$	35	$	62	$	444
Interest and other expense, net		–		–		609

Spin-Off Costs	$	35	$	62	$	1,053

Through the end of 2014, we incurred total Spin-Off Costs of approximately $1.2 billion, and we do not expect to incur additional Spin-Off Costs.

Resolution of Starbucks Arbitration:

On December 13, 2013, an independent arbitrator in our dispute with the Starbucks Coffee Company (“Starbucks”) issued a decision and Final Award that Kraft Foods Global, Inc. (now Kraft Foods Group), the named party in the proceeding, had proven that it was entitled to recover and that Starbucks was required to pay $2,764 million in total cash compensation for Starbucks’ unilateral termination of the Starbucks packaged coffee business license and supply agreement. The award included compensation for 135% of the determined fair market value of the agreement for improper termination as well as prejudgment interest of $521 million and Kraft Foods Group’s attorney’s fees, which the parties agreed would equal $15 million. Starbucks has paid all of the amount owed pursuant to the ruling. Under the Separation and Distribution Agreement between Kraft Foods Group and us, Kraft Foods Group directed the recovery awarded in the arbitration proceeding to us. The dispute arose within the Kraft Foods Group discontinued operation and was directed to Mondelēz International in connection with the Spin-Off recapitalization plans. Accordingly, the pre-tax gain on the resolution of the Starbucks arbitration of $2.5 billion ($1.6 billion net of tax) was recorded in earnings from discontinued operations during the fourth quarter of 2013.

Acquisitions, Other Divestitures and Sales of Property:

On November 11, 2014, we announced the pending acquisition of a biscuit operation in Vietnam. The biscuit operation will become a subsidiary within our Asia Pacific segment. The total consideration to be paid is expected to be up to 12,656 billion Vietnamese dong ($600 million U.S. dollars as of December 31, 2014). We expect to close the initial phase of the transaction in mid 2015 after regulatory and other matters are resolved. We deposited $46 million in escrow upon signing the purchase agreement on November 10, 2014. We expect to pay approximately 9,935 billion Vietnamese dong ($471 million U.S. dollars as of December 31, 2014) and deposit an additional 991 billion Vietnamese dong ($47 million U.S. dollars as of December 31, 2014) in escrow upon completing the initial phase of the transaction in mid 2015, which we expect to fund from current borrowing capacity. The balance will be paid upon the satisfaction of final conditions, including the resolution of warranty or other claims and purchase price adjustments. Legal expenses related to the planned acquisition were $2 million in 2014 and were recorded within selling, general and administrative expenses.

On February 22, 2013, we acquired the remaining interest in a biscuit operation in Morocco, which is now a wholly-owned subsidiary within our EEMEA segment. We paid net cash consideration of $119 million, consisting of $155 million purchase price net of cash acquired of $36 million. Prior to the acquisition, our interest in the operation was accounted for under the equity method. As a result of obtaining a controlling interest, we consolidated the operation and upon finalizing the valuation of the acquired net assets, as of December 31, 2013, we had recorded the fair value of acquired assets (including identifiable intangible assets of $48 million), the liabilities assumed and goodwill of $209 million. During the three months ended March 31, 2013, we also recorded a pre-tax gain of $22 million related to the remeasurement of our previously-held equity interest in the operation to fair value in accordance with U.S. GAAP and acquisition costs of $7 million in interest and other expense, net and selling, general and administrative expenses. We recorded integration charges of $4 million in 2014 and $4 million in 2013 within cost of sales and selling, general and administrative expenses.

In 2013, we completed several divestitures primarily in our EEMEA and Europe segments that generated cash proceeds of $60 million and pre-tax gains of $8 million. The divestitures included a salty snacks business in Turkey, a confectionery business in South Africa and a chocolate business in Spain.

In 2012, we completed several divestitures within our Europe segment that generated cash proceeds of $200 million and pre-tax gains of $107 million. The divestitures primarily included a dinners and sauces grocery business in Germany and Belgium and a canned meat business in Italy.

The aggregate operating results of the 2013 and 2012 divestitures were not material to our financial statements in any of the periods presented.

In 2013, we sold properties in India within our Asia Pacific segment and in Italy, the United Kingdom and Norway within our Europe segment. The India property sale generated a $39 million pre-tax gain and $53 million of cash proceeds. The Europe property sales generated $29 million in pre-tax net gains and $37 million of cash proceeds. We also have a $43 million receivable related to the United Kingdom property sale. The gains were recorded within selling, general and administrative expenses and cash proceeds were recorded in cash flows from other investing activities in the year ended December 31, 2013.

In 2012, we also sold property in Russia and Turkey within our EEMEA segment. The Russia property sale generated a $55 million pre-tax gain and $72 million of cash proceeds and the Turkey property sale generated a $22 million pre-tax gain and $29 million of cash proceeds. The gains were recorded within selling, general and administrative expenses and the cash proceeds were recorded in cash flows from other investing activities in the year ended December 31, 2012.

Note 3. Inventories

Inventories consisted of the following:


	As of December 31,
	2014		2013
	(in millions)

Raw materials	$	1,122	$	1,165
Finished product		2,358		2,578

Inventories, net	$	3,480	$	3,743

Note 4. Property, Plant and Equipment

Property, plant and equipment consisted of the following:


	As of December 31,
	2014			2013
	(in millions)

Land and land improvements	$	574		$	617
Buildings and building improvements		3,117			3,270
Machinery and equipment		11,737			12,351
Construction in progress		1,484			1,376

		16,912			17,614
Accumulated depreciation		(7,085	)		(7,367	)

Property, plant and equipment, net	$	9,827		$	10,247

In connection with our 2012-2014 Restructuring Program and 2014-2018 Restructuring Program (see Note 6, Restructuring Programs), we recorded non-cash asset write-downs (including accelerated depreciation and asset impairments) of $173 million in 2014 and $89 million in 2013. These charges were recorded in the consolidated statements of earnings within asset impairment and exit costs as follows and arose from restructuring activities further described in Note 6, Restructuring Programs.


	For the Years Ended December 31,
	2014		2013
	(in millions)

Latin America	$	14	$	–
Asia Pacific		23		2
EEMEA		16		–
Europe		37		27
North America		83		60

Total non-cash asset write-downs	$	173	$	89

Note 5. Goodwill and Intangible Assets

Goodwill by reportable segment was:


	As of December 31,
	2014		2013
	(in millions)

Latin America	$	1,127	$	1,262
Asia Pacific		2,395		2,504
EEMEA		1,942		2,764
Europe		8,952		10,026
North America		8,973		9,041

Goodwill	$	23,389	$	25,597

Intangible assets consisted of the following:


	As of December 31,
	2014			2013
	(in millions)

Non-amortizable intangible assets	$	18,810		$	20,067
Amortizable intangible assets		2,525			2,852

		21,335			22,919
Accumulated amortization		(1,000	)		(925	)

Intangible assets, net	$	20,335		$	21,994

Non-amortizable intangible assets consist principally of brand names purchased through our acquisitions of Nabisco Holdings Corp., the Spanish and Portuguese operations of United Biscuits, the global LU biscuit business of Groupe Danone S.A. and Cadbury Limited. Amortizable intangible assets consist primarily of trademarks, customer-related intangibles, process technology, licenses and non-compete agreements. At December 31, 2014, the weighted-average life of our amortizable intangible assets was 13.5 years.

Amortization expense for intangible assets was $206 million in 2014, $217 million in 2013 and $217 million in 2012. We currently estimate annual amortization expense for each of the next five years to be approximately $200 million.

Changes in goodwill and intangible assets consisted of:


	2014						2013
				Intangible						Intangible
	Goodwill			Assets, at cost			Goodwill			Assets, at cost
	(in millions)

Balance at January 1	$	25,597		$	22,919		$	25,740		$	23,269
Changes due to:
Currency		(2,256	)		(1,528	)		(336	)		(390	)
Divestitures		–			–			(13	)		(7	)
Acquisition		–			–			209			48
Asset impairments		–			(57	)		–			–
Other		48			1			(3	)		(1	)

Balance at December 31	$	23,389		$	21,335		$	25,597		$	22,919

Changes to goodwill and intangible assets were:

	•		Divestitures – In 2013, we reduced goodwill by $13 million and intangible assets by $7 million due to the divestitures of a chocolate business in Spain, a salty snacks business in Turkey and a confectionery business in South Africa.

	•		Acquisitions – In 2013, we increased goodwill by $209 million and intangible assets by $48 million due to the acquisition of our remaining interest in a biscuit operation in Morocco.

	•		Asset Impairments – In 2014, we recorded $57 million of charges related to two trademarks as described below.

On January 1, 2014, an organizational change occurred within our North America region from a country and product category structure to a regional product category structure. As a result, our North America region now has two instead of four reporting units. For any reporting units that were reorganized, the goodwill was allocated to the new reporting unit structure based on relative fair values of the related business units.

In 2014, 2013 and 2012, there were no impairments of goodwill. In connection with our 2014 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 expectations are not met or specific valuation factors outside of our control, such as discount rates, change significantly, then the estimated fair values of a reporting unit or reporting units might decline and lead to a goodwill impairment in the future.

During our 2014 review of non-amortizable intangible assets, we recorded $57 million of impairment charges related to two trademarks. In both cases, the impairments arose due to lower than expected product growth and decisions made in the fourth quarter to redirect support for the products to other regional brands. We recorded a $48 million charge related to a biscuit trademark in our Asia Pacific segment and a $9 million charge related to a candy trademark in our Europe segment. 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 2014 intangible asset impairment review, we also noted three brands with $341 million of aggregate book value as of December 31, 2014 that each had a fair value in excess of book value of 10% or less. While these intangible assets passed our annual impairment testing and we believe our current plans for each of these brands will allow them to continue to not be impaired, if expectations are not met or specific valuation factors outside of our control, such as discount rates, change significantly, then a brand or brands could become impaired in the future.

Note 6. Restructuring Programs

2014-2018 Restructuring Program

On May 6, 2014, our Board of Directors approved a $3.5 billion restructuring program, comprised of approximately $2.5 billion in cash costs and $1 billion in non-cash costs (the “2014-2018 Restructuring Program”), and up to $2.2 billion of capital expenditures. The primary objective of the 2014-2018 Restructuring Program is to reduce our operating cost structure in both our supply chain and overhead costs. The program is intended primarily to cover severance as well as asset disposals and other manufacturing-related one-time costs. We expect to incur the majority of the program’s charges in 2015 and 2016 and to complete the program by year-end 2018.

Restructuring Costs:

We recorded restructuring charges of $274 million in 2014 within asset impairment and exit costs. The activity for the 2014-2018 Restructuring Program liability for the year ended December 31, 2014 was:


	Severance
	and related			Asset
	costs			Write-downs			Total
				(in millions)

Liability balance, January 1, 2014	$	–		$	–		$	–
Charges		251			23			274
Cash spent		(17	)		–			(17	)
Non-cash settlements		(5	)		(23	)		(28	)
Currency		(5	)		–			(5	)

Liability balance, December 31, 2014	$	224		$	–		$	224

We spent $17 million in 2014 in cash severance and related costs. We also recognized non-cash pension plan settlement losses (see Note 10, Benefit Plans, for more details), non-cash asset write-downs (including accelerated depreciation and asset impairments) and other non-cash adjustments totaling $28 million in 2014. At December 31, 2014, $209 million of our net restructuring liability was recorded within other current liabilities and $15 million was recorded within other long-term liabilities.

Implementation Costs:

Implementation costs are directly attributable to restructuring activities; however, they do not qualify for special accounting treatment as exit or disposal activities. We believe the disclosure of implementation costs provides readers of our financial statements with more information on the total costs of our 2014-2018 Restructuring Program. Implementation costs primarily relate to reorganizing our operations and facilities in connection with our supply chain reinvention program and other identified productivity and cost saving initiatives. The costs include incremental expenses related to the closure of facilities, costs to terminate certain contracts and the simplification of our information systems. Within our continuing results of operations, we recorded implementation costs of $107 million in 2014. We recorded these costs within cost of sales and general corporate expense within selling, general and administrative expenses.

Restructuring and Implementation Costs in Operating Income:

During 2014, we recorded restructuring and implementation costs related to the 2014-2018 Restructuring Program within operating income as follows:


For the Year Ended December 31, 2014		Latin			Asia									North
	America			Pacific			EEMEA			Europe			America			Corporate (1)			Total
											(in millions)
Restructuring Costs		$	81		$	16		$	19		$	91		$	57		$	10		$	274
Implementation Costs			16			9			4			37			5			36			107

Total		$	97		$	25		$	23		$	128		$	62		$	46		$	381

	(1)	Includes adjustment for rounding.

2012-2014 Restructuring Program

In 2012, our Board of Directors approved $1.5 billion of restructuring and related implementation costs (the “2012-2014 Restructuring Program”) reflecting primarily severance, asset disposals and other manufacturing-related one-time costs. The primary objective of the 2012-2014 Restructuring Program was to ensure that Mondelēz International and Kraft Foods Group were each set up to operate efficiently and execute on our respective business strategies upon separation and in the future.

Of the $1.5 billion of 2012-2014 Restructuring Program costs, we retained approximately $925 million and Kraft Foods Group retained the balance of the program. Through the end of 2014, we have incurred total restructuring and related implementation charges of $899 million, and we do not expect to incur any additional charges on the 2012-2014 Restructuring Program.

Restructuring Costs:

We recorded restructuring charges of $360 million in 2014, $267 million in 2013 and $102 million in 2012 within asset impairment and exit costs. During 2014, we also recorded out-of-period accruals for $73 million of severance ($52 million related to 2014 and $21 million related to 2013) in connection with a change in the timing of accruals for ongoing negotiations with workers’ councils and labor unions.

The activity for the 2012-2014 Restructuring Program liability for the years ended December 31, 2014 and 2013 was:


	Severance
	and related			Asset
	costs			Write-downs			Total
	(in millions)

Liability balance, January 1, 2013	$	36		$	–		$	36
Charges		176			91			267
Cash spent		(108	)		–			(108	)
Non-cash settlements		(36	)		(91	)		(127	)

Liability balance, December 31, 2013	$	68		$	–		$	68

Charges		201			159			360
Cash spent		(130	)		–			(130	)
Non-cash settlements		(2	)		(159	)		(161	)
Currency		(9	)		–			(9	)

Liability balance, December 31, 2014	$	128		$	–		$	128

We spent $130 million in 2014, $108 million in 2013 and $33 million in 2012 in cash severance and related costs. We also recognized non-cash pension plan settlement losses (See Note 10, Benefit Plans), non-cash asset write-downs (including accelerated depreciation and asset impairments) and other non-cash adjustments totaling $161million in 2014, $127 million in 2013 and $33 million in 2012. At December 31, 2014, $98 million of our net restructuring liability was recorded within other current liabilities and $30 million was recorded within other long-term liabilities.

Implementation Costs:

Implementation costs related to our 2012-2014 Restructuring Program primarily relate to activities in connection with the Spin-Off such as reorganizing our operations and facilities, the discontinuance of certain product lines and incremental expenses related to the closure of facilities, replicating our information systems infrastructure and reorganizing our sales function. We recorded these costs within cost of sales and selling, general and administrative expenses primarily within our Europe and North America segments.

Restructuring and Implementation Costs in Operating Income:

During 2014, 2013 and 2012, we recorded restructuring and implementation costs related to the 2012-2014 Restructuring Program within operating income as follows:


For the Years Ended December 31,		Latin			Asia									North
	America			Pacific			EEMEA			Europe			America			Corporate (1)			Total
											(in millions)

2014
Restructuring Costs		$	8		$	34		$	57		$	148		$	113		$	–		$	360
Implementation Costs			3			6			2			52			32			4			99

Total		$	11		$	40		$	59		$	200		$	145		$	4		$	459

2013
Restructuring Costs		$	21		$	2		$	12		$	95		$	135		$	2		$	267
Implementation Costs			–			–			2			36			25			–			63

Total		$	21		$	2		$	14		$	131		$	160		$	2		$	330

2012
Restructuring Costs		$	7		$	–		$	–		$	6		$	89		$	–		$	102
Implementation Costs			–			–			–			–			8			–			8

Total		$	7		$	–		$	–		$	6		$	97		$	–		$	110

Total Project 2012-2014
Restructuring Costs		$	36		$	36		$	69		$	249		$	337		$	2		$	729
Implementation Costs			3			6			4			88			65			4			170

Total		$	39		$	42		$	73		$	337		$	402		$	6		$	899

	(1)	Includes adjustment for rounding.

Note 7. Integration Program and Cost Savings Initiatives

Cadbury Integration Program:

As a result of our combination with Cadbury Limited (formerly, Cadbury Plc or “Cadbury”) in 2010, we launched an integration program (the “Integration Program”) to combine the Cadbury operations with our operations and realize expected annual cost savings of approximately $750 million by the end of 2013 and revenue synergies from investments in distribution, marketing and product development. We achieved cost savings of approximately $800 million in 2012, a year ahead of schedule, and achieved our planned revenue synergies in 2013. Through the end of 2013, we incurred total integration charges of approximately $1.5 billion and completed incurring planned charges on the Integration Program.

We recorded reversals to the Integration Program charges of $8 million in 2014 related to accruals no longer required. We recorded Integration Program charges of $216 million in 2013 and $185 million in 2012 in cost of sales and selling, general and administrative expenses within our Europe, Asia Pacific, Latin America and EEMEA segments. Changes in the remaining Integration Program liability during 2014 and 2013 were:


	2014			2013
	(in millions)

Balance at January 1	$	145		$	202
Charges		(8	)		216
Cash spent		(69	)		(255	)
Currency / other		(10	)		(18	)

Balance at December 31	$	58		$	145

At December 31, 2014, $25 million of our net Integration Program liability was recorded within other current liabilities and $33 million, primarily related to leased facilities no longer in use, was recorded within other long-term liabilities.

Other Integration Costs:

In connection with our acquisition of a biscuit operation in Morocco in February 2013, we recorded integration charges of $4 million in 2014 and $4 million in 2013. We recorded these charges in cost of sales and selling, general and administrative expenses within our EEMEA segment. See Note 2, Divestitures and Acquisitions, for more information on the acquisition.

Cost Savings Initiatives:

Cost savings initiatives generally include exit, disposal and other project costs outside of our restructuring programs, Cadbury Integration Program and our other integration program costs and consist of the following specific initiatives:

	•		In 2013, we recorded a $20 million charge primarily within the segment operating income of Latin America related to severance benefits provided to terminated employees and one-time charges and within the segment operating income of North America related to supply chain reinvention team expenses.

	•		In 2012, we recorded a $21 million charge primarily within the segment operating income of Europe related to severance benefits provided to terminated employees and charges in connection with the reorganization in the Europe and EEMEA segments.

Note 8. Debt and Borrowing Arrangements

Short-Term Borrowings:

Our short-term borrowings and related weighted-average interest rates consisted of:


	As of December 31,
	2014				2013
	Amount		Weighted-		Amount		Weighted-
	Outstanding		Average Rate		Outstanding		Average Rate
	(in millions)				(in millions)

Commercial paper	$	1,101		0.4%	$	1,410		0.4%
Bank loans		204		8.8%		184		7.7%

Total short-term borrowings	$	1,305			$	1,594

As of December 31, 2014, the commercial paper issued and outstanding had between 2 and 86 days remaining to maturity. Bank loans include borrowings on primarily uncommitted credit lines maintained by some of our international subsidiaries to meet short-term working capital needs.

Borrowing Arrangements:

We maintain a revolving credit facility for general corporate purposes, including for working capital purposes and to support our commercial paper program. Our $4.5 billion five-year senior unsecured revolving credit facility expires on October 11, 2018. The revolving credit agreement includes a covenant that we maintain a minimum shareholders’ equity of at least $24.6 billion, excluding accumulated other comprehensive earnings / (losses) and the cumulative effects of any changes in accounting principles. At December 31, 2014, we met the covenant as our shareholders’ equity as defined by

the covenant was $35.1 billion. The revolving credit facility agreement also contains customary representations, covenants and events of default. There are no credit rating triggers, provisions or other financial covenants that could require us to post collateral as security. As of December 31, 2014, no amounts were drawn on the facility.

Some of our international subsidiaries maintain primarily uncommitted credit lines to meet short-term working capital needs. Collectively, these credit lines amounted to $2.1 billion at December 31, 2014 and $2.4 billion at December 31, 2013. Borrowings on these lines amounted to $204 million at December 31, 2014 and $184 million at December 31, 2013.

Long-Term Debt:

Our long-term debt consisted of (interest rates are as of December 31, 2014):


	As of December 31,
	2014			2013
	(in millions)

U.S. dollar notes, 0.76% to 7.00% (weighted-average effective rate 5.13%), due through 2040	$	10,873		$	9,907
Euro notes, 0.58% to 6.25% (weighted-average effective rate 3.03%), due through 2021		3,918			4,448
Pound sterling notes, 7.25% (weighted-average effective rate 5.44%), due through 2018		573			1,116
Capital leases and other obligations		31			14

Total		15,395			15,485
Less current portion of long-term debt		(1,530	)		(1,003	)

Long-term debt	$	13,865		$	14,482

As of December 31, 2014, aggregate maturities of our debt based on stated contractual maturities were (in millions):


2015		2016		2017		2018		2019		Thereafter		Total
$1,530		$1,763		$1,498		$1,697		$1,250		$7,667		$15,405

On December 11, 2014, £300 million of our 5.375% British pound sterling bonds matured. The bonds and accrued interest to date were paid with cash on hand and the issuance of commercial paper.

On February 19, 2014, $500 million of our 6.75% U.S. dollar notes matured. The notes and accrued interest to date were paid with cash on hand and the issuance of commercial paper.

On February 6, 2014, we completed a cash tender offer and retired $1.56 billion of our long-term U.S. dollar debt consisting of:

	•		$393 million of our 7.000% Notes due in August 2037

	•		$382 million of our 6.875% Notes due in February 2038

	•		$250 million of our 6.875% Notes due in January 2039

	•		$535 million of our 6.500% Notes due in February 2040

We financed the repurchase of these notes, including the payment of accrued interest and other costs incurred, from net proceeds received from the $3.0 billion notes issuance on January 16, 2014. In connection with retiring this debt, during the first six months of 2014, we recorded a $493 million loss on extinguishment of debt within interest expense related to the amount we paid to retire the debt in excess of its carrying value and from recognizing unamortized discounts and deferred financing costs in earnings at the time of the debt extinguishment. The loss on extinguishment is included in long-term debt repayments in the 2014 consolidated statement of cash flows. We also recognized $2 million in interest expense related to interest rate cash flow hedges that were deferred in accumulated other comprehensive losses and recognized into earnings over the life of the debt. Upon extinguishing the debt, the deferred cash flow hedge amounts were recorded in earnings.

On January 16, 2014, we issued $3.0 billion of U.S. dollar notes, consisting of:

	•		$400 million of floating rate notes that bear interest at three-month LIBOR plus 0.52% and mature on February 1, 2019

	•		$850 million of 2.250% fixed rate notes that mature on February 1, 2019

	•		$1,750 million of 4.000% fixed rate notes that mature on February 1, 2024

We received net proceeds of $2,982 million that were used to fund the February 2014 tender offer, pay down commercial paper borrowings and for other general corporate purposes. We recorded approximately $18 million of discounts and deferred financing costs, which will be amortized into interest expense over the life of the notes.

On December 18, 2013, we completed a cash tender offer and retired $3.4 billion of our long-term U.S. dollar debt consisting of:

	•		$910 million of our 6.500% Notes due in August 2017

	•		$729 million of our 6.125% Notes due in February 2018

	•		$334 million of our 6.125% Notes due in August 2018

	•		$1,467 million of our 5.375% Notes due in February 2020

We financed the repurchase of these notes, including the payment of accrued interest and other costs, with net proceeds received from the €2.4 billion notes issuance on December 11, 2013, cash on hand and commercial paper issuances. We recorded a $608 million loss on extinguishment of debt within interest expense related to the amount we paid to retire the debt in excess of its carrying value and from recognizing unamortized discounts and deferred financing costs in earnings at the time of the debt extinguishment. The loss on extinguishment is included in long-term debt repayments in the 2013 consolidated statement of cash flows. We also recognized $4 million in interest expense related to interest rate cash flow hedges that were deferred in accumulated other comprehensive losses and recognized into earnings over the life of the debt. Upon extinguishing the debt, the deferred cash flow hedge amounts were recorded in earnings.

On December 11, 2013, we issued €2.4 billion of Euro notes, or approximately $3.3 billion in U.S. dollars as of December 31, 2013, consisting of:

	•		€400 million (or $550 million) of floating rate notes that bear interest at three-month EURIBOR plus 0.50% and mature on June 11, 2015

	•		€750 million (or $1,031 million) of 1.125% fixed rate notes that mature on January 26, 2017

	•		€1,250 million (or $1,718 million) of 2.375% fixed rate notes that mature on January 26, 2021

We received net proceeds of €2,381 million, or $3,239 million in U.S. dollars, on December 11, 2013, that were used to partially fund the December 2013 tender offer. We also recorded approximately $27 million of discounts and deferred financing costs, which will be amortized into interest expense over the life of the notes.

On October 1, 2013, $1 billion of our 5.125% U.S. dollar notes and $800 million of our 5.250% U.S. dollar notes matured. The notes and accrued interest to date were paid with cash on hand and the issuance of commercial paper.

On May 8, 2013, $1 billion of our 2.625% U.S. dollar notes matured. The notes and accrued interest to date were paid with cash on hand and the issuance of commercial paper.

On February 11, 2013, $750 million of our 6.00% U.S. dollar notes matured. The notes and accrued interest to date were paid with cash on hand.

Our weighted-average interest rate on our total debt was 4.3% as of December 31, 2014, down from 4.8% as of December 31, 2013.

Fair Value of Our Debt:

The fair value of our short-term borrowings at December 31, 2014 and 2013 reflects current market interest rates and approximates the amounts we have recorded on our consolidated balance sheet. The fair value of our long-term debt was determined using quoted prices in active markets (Level 1 valuation data) for the publicly traded debt obligations. At December 31, 2014, the aggregate fair value of our total debt was $18,463 million and its carrying value was $16,700 million. At December 31, 2013, the aggregate fair value of our total debt was $18,807 million and its carrying value was $17,079 million.

Interest and Other Expense, Net:

Interest and other expense, net within our results of continuing operations consisted of:


	For the Years Ended December 31,
	2014			2013			2012
				(in millions)

Interest expense, debt	$	778		$	1,017		$	1,177
Loss on debt extinguishment and related expenses		495			612			–
Unrealized gain on planned coffee business transactions currency hedge		(628	)		–			–
Benefit from indemnification resolution		–			(49	)		–
Spin-Off-related financing fees		–			–			609
Other expense / (income), net		43			(1	)		77

Total interest and other expense, net	$	688		$	1,579		$	1,863

See Note 2, Divestitures and Acquisitions, and Note 9, Financial Instruments, for information on the currency exchange forward contracts associated with the planned coffee business transactions. See Note 11, Commitments and Contingencies, for information on the benefit from the resolution of the Cadbury acquisition-related indemnification. See Note 9, Financial Instruments, on the Spin-Off related financing fees of $556 million related to several interest rate swap settlements in 2012.

Note 9. Financial Instruments

Fair Value of Derivative Instruments:

Derivative instruments were recorded at fair value in the consolidated balance sheets as follows:


	As of December 31,
	2014				2013
	Asset		Liability		Asset		Liability
	Derivatives		Derivatives		Derivatives		Derivatives
	(in millions)

Derivatives designated as accounting hedges:
Currency exchange contracts	$	69	$	17	$	3	$	11
Commodity contracts		12		33		2		3
Interest rate contracts		13		42		209		–

	$	94	$	92	$	214	$	14

Derivatives not designated as accounting hedges:
Currency exchange contracts	$	735	$	24	$	84	$	8
Commodity contracts		90		194		60		51
Interest rate contracts		59		39		64		38

	$	884	$	257	$	208	$	97

Total fair value	$	978	$	349	$	422	$	111

During 2014 and 2013, derivatives designated as accounting hedges include cash flow and fair value hedges and derivatives not designated as accounting hedges include economic hedges. Non-U.S. debt designated as a hedge of our net investments in non-U.S. operations is not reflected in the table above, but is included in long-term debt summarized in Note 8, Debt and Borrowing Arrangements. We record derivative assets and liabilities on a gross basis in our consolidated balance sheet. The fair value of our asset derivatives is recorded within other current assets and the fair value of our liability derivatives is recorded within other current liabilities.

The fair values (asset / (liability)) of our derivative instruments were determined using:


	As of December 31, 2014
				Quoted Prices in
				Active Markets			Significant			Significant
	Total			for Identical			Other Observable			Unobservable
	Fair Value of Net			Assets			Inputs			Inputs
	Asset / (Liability)			(Level 1)			(Level 2)			(Level 3)
	(in millions)

Currency exchange contracts	$	763		$	–		$	763		$	–
Commodity contracts		(125	)		(49	)		(76	)		–
Interest rate contracts		(9	)		–			(9	)		–

Total derivatives	$	629		$	(49	)	$	678		$	–


	As of December 31, 2013
				Quoted Prices in
				Active Markets			Significant			Significant
	Total			for Identical			Other Observable			Unobservable
	Fair Value of Net			Assets			Inputs			Inputs
	Asset /(Liability)			(Level 1)			(Level 2)			(Level 3)
	(in millions)

Currency exchange contracts	$	68		$	–		$	68		$	–
Commodity contracts		8			(4	)		12			–
Interest rate contracts		235			–			235			–

Total derivatives	$	311		$	(4	)	$	315		$	–

Level 1 financial assets and liabilities consist of exchange-traded commodity futures and listed options. The fair value of these instruments is determined based on quoted market prices on commodity exchanges. Our exchange-traded derivatives are generally subject to master netting arrangements that permit net settlement of transactions with the same counterparty when certain criteria are met, such as in the event of default. We also are required to maintain cash margin accounts in connection with funding the settlement of our open positions, and the margin requirements generally fluctuate daily based on market conditions. We have recorded margin deposits related to our exchange-traded derivatives of $84 million as of December 31, 2014 and $21 million as of December 31, 2013 within other current assets. Based on our net asset or liability positions with individual counterparties, in the event of default and immediate net settlement of all of our open positions, for derivatives we have in a net liability position, we would owe $3 million as of December 31, 2014, and for derivatives we have in a net asset position, our counterparties would owe us a total of $38 million as of December 31, 2014 and $17 million as of December 31, 2013.

Level 2 financial assets and liabilities consist primarily of over-the-counter (“OTC”) currency exchange forwards, options and swaps; commodity forwards and options; and interest rate swaps. Our currency exchange contracts are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Commodity derivatives are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount or based on pricing models that rely on market observable inputs such as commodity prices. Our calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the observable market interest rate curve. Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including counterparty credit risk. Our OTC derivative transactions are governed by International Swap Dealers Association agreements and other standard industry contracts. Under these agreements, we do not post nor require collateral from our counterparties. The majority of our commodity and currency exchange OTC derivatives do not have a legal right of set-off. In connection with our OTC derivatives that could be net-settled in the event of default, assuming all parties were to fail to comply with the terms of the agreements, for derivatives we have in a net liability position, we would owe $156 million as of December 31, 2014 and $40 million as of December 31, 2013, and for derivatives we have in a net asset position, our counterparties would owe us a total of $72 million as of December 31, 2014 and $275 million as of December 31, 2013. We manage the credit risk in connection with these and all our derivatives by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure with each counterparty and monitoring the financial condition of our counterparties.

Derivative Volume:

The net notional values of our derivative instruments were:


	Notional Amount
	As of December 31,
	2014		2013
	(in millions)

Currency exchange contracts:
Intercompany loans and forecasted interest payments	$	3,640	$	4,369
Forecasted transactions		6,681		2,565
Commodity contracts		1,569		805
Interest rate contracts		3,970		2,273
Net investment hedge – euro notes		3,932		4,466
Net investment hedge – pound sterling notes		545		1,076

Cash Flow Hedges:

Cash flow hedge activity, net of taxes, within accumulated other comprehensive earnings / (losses) included:


	For the Years Ended December 31,
	2014			2013			2012
	(in millions)

Accumulated gain / (loss) at January 1	$	117		$	(38	)	$	(297	)
Transfer of realized (gains) / losses to earnings		(40	)		53			312
Unrealized gain / (loss)		(79	)		102			(75	)
Discontinued operations		–			–			(134	)
Impact of Spin-Off		–			–			156

Accumulated gain / (loss) at December 31	$	(2	)	$	117		$	(38	)

After-tax gains / (losses) reclassified from accumulated other comprehensive earnings / (losses) into net earnings were:


	For the Years Ended December 31,
	2014			2013			2012
	(in millions)
Currency exchange contracts - forecasted transactions	$	26		$	(26	)	$	58
Commodity contracts		16			(23	)		(10	)
Interest rate contracts		(2	)		(4	)		(360	)

Total	$	40		$	(53	)	$	(312	)

After-tax gains / (losses) recognized in other comprehensive earnings / (losses) were:


	For the Years Ended December 31,
	2014			2013			2012
	(in millions)
Currency exchange contracts - forecasted transactions	$	82		$	(23	)	$	(16	)
Commodity contracts		(2	)		3			(24	)
Interest rate contracts		(159	)		122			(35	)

Total	$	(79	)	$	102		$	75

Pre-tax gains / (losses) on ineffectiveness recognized in net earnings from continuing operations were:


	For the Years Ended December 31,
	2014			2013		2012
	(in millions)

Commodity contracts	$	(10	)	$	1	$	(3	)
Interest rate contracts		–			–		(23	)

Total	$	(10	)	$	1	$	(26	)

Pre-tax gains / (losses) on amounts excluded from effectiveness testing recognized in net earnings from continuing operations included a pre-tax loss of $556 million we recognized in 2012 within interest and other expense, net related to certain forward-starting interest rate swaps for which the planned timing of the related forecasted debt was changed in connection with our Spin-Off plans and related debt capitalization plans.

We record pre-tax and after-tax (i) gains or losses reclassified from accumulated other comprehensive earnings / (losses) into earnings, (ii) gains or losses on ineffectiveness and (iii) gains or losses on amounts excluded from effectiveness testing in:

	•		cost of sales for commodity contracts;

	•		cost of sales for currency exchange contracts related to forecasted transactions; and

	•		interest and other expense, net for interest rate contracts and currency exchange contracts related to intercompany loans.

Based on current market conditions, we would expect to transfer unrealized losses of $20 million (net of taxes) for commodity cash flow hedges, unrealized gains of $53 million (net of taxes) for currency cash flow hedges and unrealized losses of $1 million (net of taxes) for interest rate cash flow hedges to earnings during the next 12 months.

Hedge Coverage:

As of December 31, 2014, we hedged transactions forecasted to impact cash flows over the following periods:

	•		commodity transactions for periods not exceeding the next 15 months;

	•		interest rate transactions for periods not exceeding the next 31 years and 2 months; and

	•		currency exchange transactions for periods not exceeding the next 4 years and 10 months.

Fair Value Hedges:

Pre-tax gains / (losses) due to changes in fair value of our interest rate swaps and related hedged long-term debt were recorded in interest and other expense, net:


	For the Years Ended December 31,
	2014			2013		2012
				(in millions)

Derivatives	$	13		$	–	$	(2	)
Borrowings		(13	)		–		2

Fair value hedge ineffectiveness and amounts excluded from effectiveness testing were not material for all periods presented.

Economic Hedges:

Pre-tax gains / (losses) recorded in net earnings for economic hedges were:


	For the Years Ended December 31,									Location of Gain / (Loss) Recognized in Earnings
	2014			2013			2012
	(in millions)

Currency exchange contracts:
Intercompany loans and forecasted interest payments	$	4		$	18		$	24		Interest and other expense, net
Forecasted transactions		29			65			7		Cost of sales
Forecasted transactions		610			9			(17	)	Interest and other expense, net
Forecasted transactions		(4	)		4			–		Selling, general and administrative expenses
Interest rate contracts		–			–			3		Interest and other expense, net
Commodity contracts		(136	)		(40	)		(49	)	Cost of sales

Total	$	503		$	56		$	(32	)

In connection with the planned coffee business transactions, we entered into euro to U.S. dollar currency exchange forward contracts to hedge an expected cash receipt of €4 billion upon closing. As the forward contracts relate to a pending business divestiture, unrealized gains and losses on the derivative are recorded in earnings. We recorded a $628 million unrealized gain for the year ended December 31, 2014 within interest and other expense, net in connection with the forward contracts as the U.S. dollar strengthened relative to the euro. See Note 2, Divestitures and Acquisitions—Planned Coffee Business Transactions, for additional information on the monetization of the currency exchange forward contracts in the first quarter of 2015.

Hedges of Net Investments in International Operations:

After-tax gains / (losses) related to hedges of net investments in international operations in the form of euro and pound sterling-denominated debt were:


									Location of
	For the Years Ended December 31,								Gain / (Loss)
	2014		2013			2012			Recognized in AOCI
			(in millions)

Euro notes	$	328	$	(50	)	$	(41	)	Currency Translation
Pound sterling notes		39		(13	)		(29	)	Adjustment

Note 10. Benefit Plans

Pension Plans

Obligations and Funded Status:

The projected benefit obligations, plan assets and funded status of our pension plans were:


	U.S. Plans						Non-U.S. Plans
	2014			2013			2014			2013
	(in millions)

Benefit obligation at January 1	$	1,266		$	1,389		$	9,920		$	9,786
Service cost		57			71			184			172
Interest cost		67			60			388			358
Benefits paid		(20	)		(14	)		(446	)		(420	)
Settlements paid		(52	)		(59	)		–			–
Actuarial (gains) / losses		266			(182	)		1,604			(184	)
Currency		–			–			(949	)		183
Other		22			1			153			25

Benefit obligation at December 31		1,606			1,266			10,854			9,920

Fair value of plan assets at January 1		1,118			903			8,122			7,381
Actual return on plan assets		159			111			971			675
Contributions		11			178			353			350
Benefits paid		(20	)		(14	)		(446	)		(420	)
Settlements paid		(52	)		(59	)		–			–
Currency		–			–			(681	)		136
Other		–			(1	)		43			–

Fair value of plan assets at December 31		1,216			1,118			8,362			8,122

Net pension liability at December 31	$	(390	)	$	(148	)	$	(2,492	)	$	(1,798	)

The accumulated benefit obligation, which represents benefits earned to the measurement date, was $1,474 million at December 31, 2014 and $1,133 million at December 31, 2013 for the U.S. pension plans. The accumulated benefit obligation for the non-U.S. pension plans was $10,462 million at December 31, 2014 and $9,605 million at December 31, 2013.

For salaried and non-union hourly employees hired after January 1, 2009, we discontinued benefits under our U.S. pension plans and replaced them with an enhanced Company contribution to our employee defined contribution plan. Effective December 31, 2019, benefit accruals will cease under the U.S. non-union pension plan. For non-union employees participating in that plan on December 31, 2019, we will calculate the pension benefit obligation based on pay and service as of that date and no longer accrue new benefits.

The combined U.S. and non-U.S. pension plans resulted in a net pension liability of $2,882 million at December 31, 2014 and $1,946 million at December 31, 2013. We recognized these amounts in our consolidated balance sheets as follows:


	As of December 31,
	2014			2013
	(in millions)

Prepaid pension assets	$	53		$	54
Other accrued liabilities		(23	)		(38	)
Accrued pension costs		(2,912	)		(1,962	)

	$	(2,882	)	$	(1,946	)

Certain of our U.S. and non-U.S. plans are underfunded and have accumulated benefit obligations in excess of plan assets. For these plans, the projected benefit obligations, accumulated benefit obligations and the fair value of plan assets were:


	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
	2014		2013		2014		2013
	(in millions)

Projected benefit obligation	$	1,606	$	86	$	10,108	$	8,379
Accumulated benefit obligation		1,474		73		9,763		8,197
Fair value of plan assets		1,216		2		7,576		6,571

We used the following weighted-average assumptions to determine our benefit obligations under the pension plans:


	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
	2014		2013		2014		2013

Discount rate		4.20%		5.10%		2.99%		4.00%
Expected rate of return on plan assets		7.25%		7.75%		5.96%		6.18%
Rate of compensation increase		4.00%		4.00%		3.26%		3.61%

Year-end discount rates for our U.S., Canadian, Eurozone and U.K. plans were developed from a model portfolio of high quality, fixed-income debt instruments with durations that match the expected future cash flows of the benefit obligations. Year-end discount rates for our remaining non-U.S. plans were developed from local bond indices that match local benefit obligations as closely as possible. Changes in our discount rates were primarily the result of changes in bond yields year-over-year. We determine our expected rate of return on plan assets from the plan assets’ historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class.

Components of Net Pension Cost:

Net pension cost consisted of the following:


	U.S. Plans									Non-U.S. Plans
	For the Years Ended December 31,									For the Years Ended December 31,
	2014			2013			2012			2014			2013			2012
	(in millions)

Service cost	$	57		$	71		$	142		$	184		$	172		$	172
Interest cost		67			60			275			388			358			425
Expected return on plan assets		(81	)		(67	)		(358	)		(485	)		(435	)		(494	)
Amortization:
Net loss from experience differences		29			55			253			106			136			121
Prior service cost		2			2			6			–			1			3
Other expenses		28			1			113			14			3			22
Net pension costs related to discontinued operations		–			–			(263	)		–			–			(29	)

Net pension cost included in continuing operations	$	102		$	122		$	168		$	207		$	235		$	220

The following costs are included within other expenses above. Employees who elected lump-sum payments in connection with our 2012-2014 Restructuring Program and cost saving initiatives and retired employees who elected lump-sum payments resulted in net settlement losses for our U.S. plans of $28 million in 2014, $1 million in 2013, and $113 million in 2012 (2012 includes amounts related to the discontinued operation of Kraft Foods Group). Curtailment and settlement losses for our non-U.S. plans in 2014 included $12 million related to employees affected by our 2014-2018 Restructuring Program and retired employees who elected lump-sum payments. Non-U.S. plant closures and early retirement benefits resulted in curtailment and settlement losses of $2 million in 2013 and $9 million in 2012. In addition, we incurred special termination benefit costs of $2 million in 2014 and $1 million in 2013 in the non-U.S. plans related to the 2012-2014 Restructuring Program. We incurred special termination benefit costs of $13 million in 2012 in the non-U.S. plans related to the Cadbury integration.

For the U.S. plans, we determine the expected return on plan assets component of net periodic benefit cost using a calculated market return value that recognizes the cost over a four year period. For our non-U.S. plans, we utilize a similar approach with varying cost recognition periods for some plans, and with others, we determine the expected return on plan assets based on asset fair values as of the measurement date.

As of December 31, 2014, for the combined U.S. and non-U.S. pension plans, we expected to amortize from accumulated other comprehensive earnings / (losses) into net periodic pension cost during 2015:

	•		an estimated $224 million of net loss from experience differences; and

	•		less than $1 million of estimated prior service cost.

We used the following weighted-average assumptions to determine our net pension cost:


	U.S. Plans						Non-U.S. Plans
	For the Years Ended December 31,						For the Years Ended December 31,
	2014		2013		2012		2014		2013		2012
Discount rate		5.10%		4.20%		4.56%		4.03%		3.81%		4.62%
Expected rate of return on plan assets		7.75%		7.75%		8.00%		6.17%		6.08%		6.47%
Rate of compensation increase		4.00%		4.00%		4.00%		3.63%		3.47%		3.58%

Plan Assets:

The fair value of pension plan assets was determined using the following fair value measurements:


	As of December 31, 2014
			Quoted Prices		Significant
Asset Category	Total Fair Value		in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)

U.S. equity securities	$	124	$	124	$	–	$	–
Non-U.S. equity securities		698		698		–		–
Pooled funds - equity securities		2,192		538		1,654		–

Total equity securities		3,014		1,360		1,654		–

Government bonds		2,283		234		2,049		–
Pooled funds - fixed-income securities		1,151		311		743		97
Corporate bonds and other fixed-income securities		1,174		314		111		749

Total fixed-income securities		4,608		859		2,903		846

Real estate		406		110		4		292
Hedge funds		829		–		–		829
Private equity		237		–		–		237
Cash		253		246		7		–
Other		157		124		30		3

Total	$	9,504	$	2,699	$	4,598	$	2,207


	As of December 31, 2013
			Quoted Prices		Significant
Asset Category	Total Fair Value		in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in millions)

U.S. equity securities	$	104	$	104	$	–	$	–
Non-U.S. equity securities		665		665		–		–
Pooled funds - equity securities		2,571		799		1,772		–

Total equity securities		3,340		1,568		1,772		–

Government bonds		1,560		308		1,252		–
Pooled funds - fixed-income securities		1,176		311		850		15
Corporate bonds and other fixed-income securities		1,350		108		462		780

Total fixed-income securities		4,086		727		2,564		795

Real estate		381		110		4		267
Hedge funds		820		–		–		820
Private equity		227		–		–		227
Cash		251		251		–		–
Other		54		–		54		–

Total	$	9,159	$	2,656	$	4,394	$	2,109

We excluded plan assets of $74 million at December 31, 2014 and $81 million at December 31, 2013 from the above tables related to certain insurance contracts as they are reported at contract value, in accordance with authoritative guidance.

Fair value measurements:

	•		Level 1 – includes primarily U.S and non-U.S. equity securities and government bonds valued using quoted prices in active markets.

	•		Level 2 – includes primarily pooled funds, including assets in real estate pooled funds, valued using net asset values of participation units held in common collective trusts, as reported by the managers of the trusts and as supported by the unit prices of actual purchase and sale transactions. Level 2 plan assets also include corporate bonds and other fixed-income securities, valued using independent observable market inputs, such as matrix pricing, yield curves and indices.

	•		Level 3 – includes investments valued using unobservable inputs that reflect the plans’ assumptions that market participants would use in pricing the assets, based on the best information available.

	•		Fair value estimates for pooled funds are calculated by the investment advisor when reliable quotations or pricing services are not readily available for certain underlying securities. The estimated value is based on either cost, or last sale price for most of the securities valued in this fashion.

	•		Fair value estimates for private equity investments are calculated by the general partners using the market approach to estimate the fair value of private investments. The market approach utilizes prices and other relevant information generated by market transactions, type of security, degree of liquidity, restrictions on the disposition, latest round of financing data, company financial statements, relevant valuation multiples and discounted cash flow analyses.

	•		Fair value estimates for real estate investments are calculated by the investment managers using the present value of future cash flows expected to be received from the investments, based on valuation methodologies such as appraisals, local market conditions, and current and projected operating performance.

	•		Fair value estimates for investments in hedge fund-of-funds are calculated by the investment managers using the net asset value per share of the investment as reported by the money managers of the underlying funds.

	•		Fair value estimates for certain fixed-income securities such as insurance contracts are calculated based on the future stream of benefit payments discounted using prevailing interest rates based on the valuation date.

Changes in our Level 3 plan assets, which are recorded in other comprehensive earnings / (losses), included:


Asset Category	January 1, 2014 Balance		Net Realized and Unrealized Gains/(Losses)			Net Purchases, Issuances and Settlements			Net Transfers Into/(Out of) Level 3			Currency Impact			December 31, 2014 Balance
	(in millions)
Pooled funds- fixed-income securities	$	15	$	(15	)	$	15		$	87		$	(5	)	$	97
Corporate bond and other fixed-income securities		780		80			(64	)		–			(47	)		749
Real estate		267		37			(2	)		10			(20	)		292
Hedge funds		820		40			20			–			(51	)		829
Private equity		227		45			(19	)		2			(15	)		240

Total Level 3 investments	$	2,109	$	187		$	(50	)	$	99		$	(138	)	$	2,207


Asset Category	January 1, 2013 Balance		Net Realized and Unrealized Gains/(Losses)			Net Purchases, Issuances and Settlements			Net Transfers Into/(Out of) Level 3			Currency Impact			December 31, 2013 Balance
	(in millions)
Pooled funds- fixed-income securities	$	10	$	(1	)	$	2		$	4		$	–		$	15
Corporate bond and other fixed-income securities		794		17			(48	)		(1	)		18			780
Real estate		239		10			12			–			6			267
Hedge funds		263		(11	)		535			–			33			820
Private equity		210		15			(4	)		–			6			227

Total Level 3 investments	$	1,516	$	30		$	497		$	3		$	63		$	2,109

The increases in Level 3 pension plan investments during 2014 were primarily due to unrealized gains across most of the Level 3 asset categories and net transfers into pooled funds-fixed income securities offset by the effects of currency. The increases in Level 3 pension plan investments during 2013 were primarily due to net purchases in hedge funds.

The percentage of fair value of pension plan assets was:


	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
Asset Category	2014		2013		2014		2013

Equity securities		45%		53%		30%		34%
Fixed-income securities		52%		44%		48%		45%
Real estate		3%		3%		4%		4%
Hedge funds		–		–		10%		10%
Private equity		–		–		3%		3%
Cash		–		–		3%		3%
Other		–		–		2%		1%

Total		100%		100%		100%		100%

For our U.S. plans, our investment strategy is based on our expectation that equity securities will outperform fixed-income securities over the long term. We attempt to maintain our target asset allocation by rebalancing between asset classes as we make contributions and monthly benefit payments. Due to the nature and timing of our expected pension liabilities, in the first quarter of 2014, we strategically reduced the risk level of the investment portfolio relative to the liabilities of our plans by lowering our target allocation to equity securities (including investments in real estate) to 50% and increasing the fixed-income allocation target to 50%. Historically we targeted an allocation of approximately 60% of our plan assets in equity securities and approximately 40% in fixed-income securities. The strategy uses indexed U.S. equity securities, actively managed and indexed international equity securities and actively managed U.S. investment grade fixed-income securities (which constitute 95% or more of fixed-income securities) with lesser allocations to high yield fixed-income securities. At December 31, 2013, we had a higher allocation to fixed income due to a voluntary $163 million contribution that was made on December 27, 2013 and temporarily invested in a short-term fixed income investment at year-end.

For our non-U.S. plans, the investment strategy is subject to local regulations and the asset / liability profiles of the plans in each individual country. These specific circumstances result in a level of equity exposure that is typically less than the U.S. plans. In aggregate, the asset allocation targets of our non-U.S. plans are broadly characterized as a mix of approximately 35% equity securities (including investments in real estate), approximately 50% fixed-income securities and approximately 15% other alternative securities. Our investment strategy for our largest non-U.S. plan, which comprises 50% of our non-U.S. pension assets, is designed to balance risk and return by diversifying across a wide range of return-seeking and liability matching assets, invested in a range of both active and passive mandates. We target an allocation of approximately 15% in equity securities, 18% credit, 13% private markets, 16% other diversifying assets, and 38% liability matching assets. The strategy uses actively managed and indexed global developed and emerging market equities, actively managed global investment grade and alternative credit, global private equity and real estate, other diversifying assets including hedge funds, and other liability matching assets including a buy-in annuity policy. During 2013, the level of diversification was strategically increased by reducing the plan’s equity exposure by approximately 10% and investing the majority of the proceeds in hedge funds and other diversifying assets.

Employer Contributions:

In 2014, we contributed $11 million to our U.S. pension plans and $334 million to our non-U.S. pension plans. In addition, employees contributed $19 million to our non-U.S. plans. We make contributions to our U.S. and non-U.S. pension plans primarily to the extent that they are tax deductible and do not generate an excise tax liability.

In 2015, we estimate that our pension contributions will be $210 million to our U.S. plans and $319 million to our non-U.S. plans based on current tax laws. Of the total 2015 pension contributions, $200 million is expected to be voluntary. Our actual contributions may be different due to many factors, including changes in tax and other benefit laws, significant differences between expected and actual pension asset performance or interest rates, or other factors.

Future Benefit Payments:

The estimated future benefit payments from our pension plans at December 31, 2014 were (in millions):


Year ending:	2015		2016		2017		2018		2019		2020-2024

U.S. Plans	$	73	$	82	$	89	$	99	$	114	$	593
Non-U.S. Plans	$	434	$	437	$	451	$	462	$	476	$	2,569

Multiemployer Pension Plans:

We made contributions to multiemployer pension plans of $32 million in 2014, $32 million in 2013 and $30 million in 2012. These plans provide pension benefits to retirees under certain collective bargaining agreements. The following is the only individually significant multiemployer plan we participate in as of December 31, 2014:


									Expiration Date
			Pension		FIP / RP				of Collective-
	EIN / Pension		Protection Act		Status Pending /		Surcharge		Bargaining
Pension Fund	Plan Number		Zone Status		Implemented		Imposed		Agreements

Bakery and Confectionery Union and Industry International Pension Fund		526118572		Red		Implemented		Yes		2/29/2016

Our contributions exceeded 5% of total contributions to the Bakery and Confectionery Union and Industry International Pension Fund (the “Fund”) for fiscal years 2014, 2013 and 2012. Our contributions to the Fund were $25 million in 2014, $26 million in 2013 and $25 million in 2012. Our contribution to the Fund is based on our contribution rates under our collective bargaining agreements, the number of our eligible employees and Fund surcharges. We expect our contribution for the next year to be approximately $30 million under the current collective bargaining arrangements. The Fund’s actuarial valuation has been completed and the zone status was changed to “Red” in 2012. As a result of this certification, we are being charged a 10% surcharge on our contribution rates. Our expected future contributions include the surcharge. The Fund adopted a rehabilitation plan on November 7, 2012 that requires contribution increases and reduction to benefit provisions.

Our contributions to other multiemployer pension plans that were not individually significant were $7 million in 2014, $6 million in 2013 and $5 million in 2012. These contributions include contributions related to Kraft Foods Group employees who participated in our multiemployer pension plans through October 1, 2012 of $2 million in 2012.

Other Costs:

We sponsor and contribute to employee defined contribution plans. These plans cover eligible salaried, non-union and union employees. Our contributions and costs are determined by the matching of employee contributions, as defined by the plans. Amounts charged to expense in continuing operations for defined contribution plans totaled $46 million in 2014, $66 million in 2013 and $74 million in 2012.

Postretirement Benefit Plans

Obligations:

Our postretirement health care plans are not funded. The changes in and the amount of the accrued benefit obligation were:


	As of December 31,
	2014			2013
	(in millions)

Accrued benefit obligation at January 1	$	422		$	458
Service cost		13			15
Interest cost		22			20
Benefits paid		(9	)		(7	)
Plan amendments		–			(3	)
Currency		(11	)		(7	)
Assumption changes		75			(56	)
Actuarial (gains) / losses		14			(4	)
Other		12			6

Accrued benefit obligation at December 31	$	538		$	422

The current portion of our accrued postretirement benefit obligation of $11 million at December 31, 2014 and $9 million at December 31, 2013 was included in other accrued liabilities.

We used the following weighted-average assumptions to determine our postretirement benefit obligations:


	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
	2014		2013		2014		2013

Discount rate		4.20%		5.10%		4.52%		4.81%
Health care cost trend rate assumed for next year		6.50%		7.00%		5.18%		4.76%
Ultimate trend rate		5.00%		5.00%		5.53%		5.54%
Year that the rate reaches the ultimate trend rate		2018		2018		2018		2019

Year-end discount rates for our U.S., Canadian and U.K. plans were developed from a model portfolio of high quality, fixed-income debt instruments with durations that match the expected future cash flows of the benefit obligations. Year-end discount rates for our remaining non-U.S. plans were developed from local bond indices that match local benefit obligations as closely as possible. Changes in our discount rates were primarily the result of changes in bond yields year-over-year. Our expected health care cost trend rate is based on historical costs.

Assumed health care cost trend rates have a significant impact on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:


	As of December 31, 2014
	One-Percentage-Point
	Increase		Decrease
	(in millions)

Effect on postretirement benefit obligation	$	90	$	(71	)
Effect on annual service and interest cost	$	6	$	(5	)

Components of Net Postretirement Health Care Costs:

Net postretirement health care costs consisted of the following:


	For the Years Ended December 31,
	2014			2013			2012
				(in millions)

Service cost	$	13		$	15		$	35
Interest cost		22			20			121
Amortization:
Net loss from experience differences		5			12			65
Prior service credit		(10	)		(12	)		(31	)
Other(1)		–			–			29
Net postretirement health care costs related to discontinued operations		–			–			(135	)

Net postretirement health care costs included within continuing operations	$	30		$	35		$	84

	(1)	In 2012, we recorded a $23 million unfunded U.S. postretirement plan obligation related to long-term disability benefits.

As of December 31, 2014, we expected to amortize from accumulated other comprehensive earnings / (losses) into pre-tax net postretirement health care costs during 2015:

	•		an estimated $13 million of net loss from experience differences, and

	•		an estimated $7 million of prior service credit.

We used the following weighted-average assumptions to determine our net postretirement cost:


	U.S. Plans			Non-U.S. Plans
	For the Years Ended December 31,			For the Years Ended December 31,
	2014	2013	2012	2014	2013	2012

Discount rate	5.10%	4.20%	4.47%	5.17%	4.39%	4.14%
Health care cost trend rate	7.00%	7.50%	7.00%	5.11%	6.47%	6.21%

Future Benefit Payments:

Our estimated future benefit payments for our postretirement health care plans at December 31, 2014 were (in millions):


Year ending:	2015	2016	2017	2018	2019	2020-2024

U.S. Plans	$7	$8	$10	$11	$13	$86
Non-U.S. Plans	$5	$6	$6	$6	$7	$38

Other Costs:

We made contributions to multiemployer medical plans totaling $18 million in 2014, $18 million in 2013 and $31 million in 2012. The contributions include contributions related to Kraft Foods Group employees who participated in our multiemployer medical plans through October 1, 2012 of $13 million in 2012. These plans provide medical benefits to active employees and retirees under certain collective bargaining agreements.

Postemployment Benefit Plans

Obligations:

Our postemployment plans are primarily not funded. The changes in and the amount of the accrued benefit obligation at December 31, 2014 and 2013 were:


	2014			2013
	(in millions)

Accrued benefit obligation at January 1	$	103		$	100
Service cost		9			8
Interest cost		6			5
Benefits paid		(17	)		(21	)
Assumption changes		2			(2	)
Actuarial losses		(9	)		13

Accrued benefit obligation at December 31	$	94		$	103

The accrued benefit obligation was determined using a weighted-average discount rate of 5.6% in 2014 and 6.2% in 2013, an assumed weighted-average ultimate annual turnover rate of 0.3% in 2014 and 2013, assumed compensation cost increases of 4.0% in 2014 and 2013 and assumed benefits as defined in the respective plans.

Postemployment costs arising from actions that offer employees benefits in excess of those specified in the respective plans are charged to expense when incurred.

Components of Net Postemployment Costs:

Net postemployment costs consisted of the following:


	For the Years Ended December 31,
	2014		2013			2012
			(in millions)

Service cost	$	9	$	8		$	12
Interest cost		6		5			8
Amortization of net (gains) / losses		–		(1	)		(3	)
Other		–		(1	)		3
Net postemployment costs related to discontinued operations		–		–			(5	)

Net postemployment costs included in continuing operations	$	15	$	11		$	15

As of December 31, 2014, the estimated net gain for the postemployment benefit plans that we expected to amortize from accumulated other comprehensive earnings / (losses) into net postemployment costs during 2015 was insignificant.

Note 11. Commitments and Contingencies

Legal Proceedings:

We routinely are involved in legal proceedings, claims and governmental inspections or investigations (“Legal Matters”) arising in the ordinary course of our business.

A compliant and ethical corporate culture, which includes adhering to laws and industry regulations in all jurisdictions in which we do business, is integral to our success. Accordingly, after we acquired Cadbury in February 2010 we began reviewing and adjusting, as needed, Cadbury’s operations in light of applicable standards as well as our policies and practices. We initially focused on such high priority areas as food safety, the Foreign Corrupt Practices Act (“FCPA”) and antitrust. Based upon Cadbury’s pre-acquisition policies and compliance programs and our post-acquisition reviews, our preliminary findings indicated that Cadbury’s overall state of compliance was sound. Nonetheless, through our reviews, we determined that in certain jurisdictions, including India, there appeared to be facts and circumstances warranting further investigation. We are continuing our investigations in certain jurisdictions, including in India, and we continue to cooperate with governmental authorities.

As we previously disclosed, on February 1, 2011, we received a subpoena from the SEC in connection with an investigation under the FCPA, primarily related to a facility in India that we acquired in the Cadbury acquisition. The subpoena primarily requests information regarding dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility. We are continuing to cooperate with the U.S. and Indian governments in their investigations of these matters, including through ongoing meetings with the U.S. government to discuss potential conclusion of the U.S. government investigation.

On February 28, 2013, Cadbury India Limited (now known as Mondelez India Foods Limited), a subsidiary of Mondelēz International, and other parties received a show cause notice from the Indian Department of Central Excise Authority (the “Excise Authority”). The notice calls upon the parties to demonstrate why the Excise Authority should not collect 2.5 billion Indian rupee (approximately $40 million U.S. dollars as of December 31, 2014) of unpaid excise tax as well as 2.5 billion Indian rupee (approximately $40 million U.S. dollars as of December 31, 2014) of penalties and interest related to production at the same Indian facility. Subsequently, the Excise Authority issued another show cause notice, dated March 3, 2014, on the same issue but covering the period February to December 2013, thereby adding 1.2 billion Indian rupee (approximately $19 million U.S. dollars as of December 31, 2014) of unpaid excise taxes as well as 1.2 billion Indian rupee (approximately $19 million U.S. dollars as of December 31, 2014) of penalties and interest to the amount claimed by the Excise Authority. The latest notice includes an accruing claim for excise as finished products leave the facility on an ongoing basis. We believe that the decision to claim the excise tax benefit is valid and we are contesting the show cause notice through the administrative and judicial process.

In April 2013, the staff of the Commodity Futures Trading Commission (“CFTC”) advised us and Kraft Foods Group that it was investigating activities related to the trading of December 2011 wheat futures contracts that occurred prior to the Spin-Off of Kraft Foods Group. We are cooperating with the staff in its investigation. In October 2014, the staff advised us that the CFTC intends to commence a formal action against us and Kraft Foods Group. We continue to try to resolve this matter prior to any formal action being taken. It is not possible to predict the outcome of this matter; however, based on our Separation and Distribution Agreement with Kraft Foods Group dated as of September 27, 2012, we expect to predominantly bear any monetary penalties or other payments that the CFTC may impose.

While we cannot predict with certainty the results of any Legal Matters in which we are currently involved, we do not expect that the ultimate costs to resolve any of these Legal Matters, individually or in the aggregate, will have a material effect on our financial results.

Third-Party Guarantees:

We enter into third-party guarantees primarily to cover the long-term obligations of our vendors. As part of these transactions, we guarantee that third parties will make contractual payments or achieve performance measures. At December 31, 2014, we had no material third-party guarantees recorded on our consolidated balance sheet.

As part of our 2010 Cadbury acquisition, we became the responsible party for tax matters under the Cadbury Schweppes Plc and Dr Pepper Snapple Group, Inc. (“DPSG”) Tax Sharing and Indemnification Agreement dated May 1, 2008 (“Tax Indemnity”) for certain 2007 and 2008 transactions relating to the demerger of Cadbury’s Americas Beverage business. A U.S. federal tax audit of DPSG for the 2006-2008 tax years was concluded with the IRS in August 2013. As a result, we recorded a favorable impact of $336 million in selling, general and administrative expenses and $49 million in interest and other expense, net for a total pre-tax impact of $385 million ($363 million net of tax) in the three months ended September 30, 2013 due to the reversal of the accrued liability in excess of the amount we paid to DPSG under the Tax Indemnity in the third quarter of 2013.

Leases:

Rental expenses recorded in continuing operations were $399 million in 2014, $386 million in 2013 and $341 million in 2012. As of December 31, 2014, minimum rental commitments under non-cancelable operating leases in effect at year-end were (in millions):


Year ending:		2015		2016		2017		2018		2019		Thereafter		Total
		$309		$227		$182		$129		$102		$131		$1,080

Note 12. Stock Plans

On May 21, 2014, our shareholders approved the Amended and Restated 2005 Performance Incentive Plan (the “2005 Plan”). Under the amended plan, we now make grants to non-employee directors under the 2005 Plan, and we will no longer make any grants under the Amended and Restated 2006 Stock Compensation Plan for Non-Employee Directors (the “2006 Directors Plan”). We also increased the number of shares available for issuance under the 2005 Plan by 75.7 million, which includes the shares remaining available for issuance under the 2006 Directors Plan as of March 14, 2014. Under the 2005 Plan, we are now authorized to issue a maximum of 243.7 million shares of our Common Stock. We may not make any grants under the 2005 Plan after May 21, 2024. As of December 31, 2014, there were 90.6 million shares available to be granted under the 2005 Plan.

In connection with the Spin-Off and divestiture of Kraft Foods Group, under the provisions of our existing plans, employee stock option and restricted and deferred stock awards were adjusted to preserve the fair value of the awards immediately before and after the Spin-Off. As such, we did not record any incremental compensation expense related to the conversion of the awards. In connection with the stock awards held by our respective employees at the time of the Spin-Off, we collected a $55 million cash net settlement for the awards from Kraft Foods Group in March 2013.

Stock Options:

Stock options (including stock appreciation rights) are granted at an exercise price equal to the market value of the underlying stock on the grant date, generally become exercisable in three annual installments beginning on the first anniversary of the grant date and have a maximum term of ten years.

We account for our employee stock options under the fair value method of accounting using a Black-Scholes methodology to measure stock option expense at the date of grant. The fair value of the stock options at the date of grant is amortized to expense over the vesting period. We recorded compensation expense related to stock options held by our employees of $47 million in 2014, $39 million in 2013 and $39 million in 2012 in our results from continuing operations. The deferred tax benefit recorded related to this compensation expense was $12 million in 2014, $11 million in 2013 and $11 million in 2012. The unamortized compensation expense related to our employee stock options was $67 million at December 31, 2014 and is expected to be recognized over a weighted-average period of 2 years.

Our weighted-average Black-Scholes fair value assumptions were:


	Risk-Free Interest Rate		Expected Life		Expected Volatility		Expected Dividend Yield		Fair Value at Grant Date

2014		1.87%		6 years		21.48%		1.64%	$	6.60
2013		1.15%		6 years		20.36%		1.94%	$	4.31
2012		1.16%		6 years		20.13%		3.08%	$	4.78

The risk-free interest rate represents the constant maturity U.S. government treasuries rate with a remaining term equal to the expected life of the options. The expected life is the period over which our employees are expected to hold their options. Volatility reflects historical movements in our stock price for a period commensurate with the expected life of the options. The dividend yield reflects the dividend yield in place at the time of the historical grants and reflects a lower expected dividend yield for Mondelēz International for grants made following the Spin-Off of Kraft Foods Group.

Stock option activity is reflected below:


				Weighted-
				Average		Average
	Shares Subject			Exercise or Grant Price		Remaining Contractual	Aggregate Intrinsic
	to Option			Per Share		Term	Value

Balance at January 1, 2012		49,598,867		$	28.87

Annual grant to eligible employees		12,816,380			38.00
Additional options issued		696,459			37.60

Total options granted		13,512,839			37.97
Options exercised (1)		(8,168,062	)		26.39		$	93 million
Options cancelled		(2,440,601	)		30.20
Adjustment due to the Spin-Off (2)		249,996			19.59

Balance at December 31, 2012		52,753,039			20.45		$	264 million

Annual grant to eligible employees		11,644,280			27.05
Additional options issued		762,512			29.69

Total options granted		12,406,792			27.21
Options exercised (1)		(7,185,616	)		19.41		$	79 million
Options cancelled		(2,190,776	)		23.86

Balance at December 31, 2013		55,783,439			21.96		$	744 million

Annual grant to eligible employees		9,919,810			34.17
Additional options issued		500,250			33.65

Total options granted		10,420,060			34.14
Options exercised (1)		(8,076,550	)		20.85		$	125 million
Options cancelled		(1,695,398	)		27.65

Balance at December 31, 2014		56,431,551			24.19	7 years	$	685 million

Exercisable at December 31, 2014		34,811,236			20.66	6 years	$	545 million

	(1)	Cash received from options exercised was $168 million in 2014, $139 million in 2013 and $205 million in 2012. The actual tax benefit realized for the tax deductions from the option exercises totaled $29 million in 2014, $14 million in 2013 and $21 million in 2012.

	(2)	In 2012, as a result of the Spin-Off, existing employee stock option awards were converted into an equivalent amount of additional Mondelēz International stock options in order to preserve the fair value of the overall stock option awards granted.

Restricted Stock and Deferred Stock Units:

We may grant shares of restricted stock or deferred stock units to eligible employees, giving them, in most instances, all of the rights of shareholders, except that they may not sell, assign, pledge or otherwise encumber the shares and our deferred stock units do not have voting rights until vested. Shares of restricted stock and deferred stock units are subject to forfeiture if certain employment conditions are not met. Restricted stock and deferred stock units generally vest on the third anniversary of the grant date.

Performance share units granted in connection with our long-term incentive plan (“LTIP”) vest based on varying performance, market and service conditions. The unvested share units have no voting rights and do not pay dividends. Dividend equivalents accumulated over the vesting period are paid after the share units vest.

The fair value of the restricted stock and deferred stock units at the date of grant is amortized to earnings over the restriction period. We recorded compensation expense related to restricted stock and deferred stock units of $94 million in 2014, $94 million in 2013 and $90 million in 2012 in our results from continuing operations. The deferred tax benefit recorded related to this compensation expense was $26 million in 2014, $28 million in 2013 and $27 million in 2012. The unamortized compensation expense related to our restricted stock and deferred stock units was $128 million at December 31, 2014 and is expected to be recognized over a weighted-average period of 2 years.

Our restricted and deferred stock activity is reflected below:


					Weighted-Average		Weighted-Average
	Number				Fair Value		Aggregate
	of Shares			Grant Date	Per Share		Fair Value

Balance at January 1, 2012		13,617,173			$	28.43

LTIP shares granted		1,321,822		Jan. 3, 2012		37.63
Annual grant to eligible employees		2,171,330		Feb. 23, 2012		38.00
Additional shares issued		1,469,399		Various		29.18

Total shares granted		4,962,551				35.25	$	175 million
Vested		(5,007,098	)			24.80	$	189 million
Forfeited		(1,275,617	)			29.22
Adjustment due to the Spin-Off (1)		518,902				19.72

Balance at December 31, 2012		12,815,911				21.55

LTIP shares granted		1,542,600		Jan. 2, 2013		26.24
Annual grant to eligible employees		2,335,780		Feb. 20, 2013		27.05
Additional shares issued		1,353,057		Various		22.47

Total shares granted		5,231,437				25.63	$	134 million
Vested		(5,350,073	)			18.82	$	145 million
Forfeited		(1,048,688	)			23.23

Balance at December 31, 2013		11,648,587				24.48

LTIP shares granted		1,143,620		Jan. 2, 2014		34.97
Annual grant to eligible employees		1,991,230		Feb. 19, 2014		34.17
Additional shares issued		935,463		Various		33.15

Total shares granted		4,070,313				34.16	$	139 million
Vested		(4,380,452	)			22.98	$	151 million
Forfeited		(755,808	)			28.14

Balance at December 31, 2014		10,582,640				28.56

	(1)	In 2012, as a result of the Spin-Off, existing employee stock awards were converted into an equivalent amount of additional Mondelēz International stock awards in order to preserve the fair value of the overall stock award that was granted.

Note 13. Capital Stock

Our amended and restated articles of incorporation authorize 5.0 billion shares of Class A common stock (“Common Stock”) and 500 million shares of preferred stock. There were no preferred shares issued and outstanding at December 31, 2014, 2013 and 2012. Shares of Common Stock issued, in treasury and outstanding were:


						Shares
	Shares Issued		Treasury Shares			Outstanding

Balance at January 1, 2012		1,996,537,778		(228,641,089	)		1,767,896,689
Exercise of stock options and issuance of other stock awards		–		10,099,153			10,099,153

Balance at December 31, 2012		1,996,537,778		(218,541,936	)		1,777,995,842

Shares repurchased				(82,799,448	)		(82,799,448	)
Exercise of stock options and issuance of other stock awards		–		10,200,200			10,200,200

Balance at December 31, 2013		1,996,537,778		(291,141,184	)		1,705,396,594

Shares repurchased				(51,931,864	)		(51,931,864	)
Exercise of stock options and issuance of other stock awards		–		10,176,269			10,176,269

Balance at December 31, 2014		1,996,537,778		(332,896,779	)		1,663,640,999

Stock plan awards to employees and non-employee directors are issued from treasury shares. At December 31, 2014, 154.8 million shares of Common Stock held in treasury were reserved for stock options and other stock awards.

Share Repurchase Program:

During 2013, our Board of Directors authorized the repurchase of $7.7 billion of our Common Stock through December 31, 2016. Repurchases under the program are determined by management and are wholly discretionary. During 2014, we repurchased 51.9 million shares of Common Stock at an average cost of $36.43 per share, or an aggregate cost of $1.9 billion, of which $1.7 billion was paid during 2014 and $0.2 billion was prepaid in December 2013 at the inception of an accelerated share repurchase program. All share repurchases were funded through available cash and commercial paper issuances. During 2013, we repurchased 82.8 million shares of Common Stock at an average cost of $33.09 per share, or an aggregate cost of $2.7 billion. As of December 31, 2014, we have $3.1 billion in remaining share repurchase capacity.

In December 2013, we initiated an accelerated share repurchase (“ASR”) program. On December 3, 2013, we paid $1.7 billion and received an initial delivery of 44.8 million shares of Common Stock valued at $1.5 billion. We increased treasury stock by $1.5 billion, and the remaining $0.2 billion was recorded against additional paid in capital. In May 2014, the ASR program concluded and we received an additional 5.1 million shares, valued at $0.2 billion, for a total of 49.9 million shares with an average repurchase price of $34.10 per share over the life of the ASR program. The final settlement was based on the volume-weighted average price of our Common Stock during the purchase period less a fixed per share discount. Upon conclusion of the ASR program and receipt of the remaining repurchased shares, the $0.2 billion recorded in additional paid in capital was reclassified to treasury stock.

Note 14. Reclassifications from Accumulated Other Comprehensive Earnings / (Losses)

The components of accumulated other comprehensive earnings / (losses) attributable to Mondelēz International during 2014 and 2013 were:


	Currency						Derivatives
	Translation			Pension and			Accounted for
	Adjustments			Other Benefits			as Hedges			Total
	(in millions)
Balances at January 1, 2013	$	(399	)	$	(2,229	)	$	(38	)	$	(2,666	)
Other comprehensive earnings / (losses), before reclassifications:
Currency translation adjustment		(952	)		(29	)		–			(981	)
Pension and other benefits		–			713			–			713
Derivatives accounted for as hedges		(99	)		–			169			70
Losses / (gains) reclassified into net earnings		–			197			72			269
Tax (expense) / benefit		36			(244	)		(86	)		(294	)

Total other comprehensive earnings / (losses)											(223	)
Balances at December 31, 2013	$	(1,414	)	$	(1,592	)	$	117		$	(2,889	)

Other comprehensive earnings / (losses), before reclassifications:
Currency translation adjustment (1)		(3,995	)		146			–			(3,849	)
Pension and other benefits		–			(1,388	)		–			(1,388	)
Derivatives accounted for as hedges		595			–			(166	)		429
Losses / (gains) reclassified into net earnings		–			174			(45	)		129
Tax (expense) / benefit		(228	)		386			92			250

Total other comprehensive losses											(4,429	)
Balances at December 31, 2014	$	(5,042	)	$	(2,274	)	$	(2	)	$	(7,318	)

	(1)	The consolidated statement of comprehensive earnings for the year ended December 31, 2014 includes $(33) million of currency translation adjustment attributable to noncontrolling interests.

Amounts reclassified from accumulated other comprehensive earnings / (losses) and their locations in the consolidated financial statements were as follows:


							Location of
							Gain / (Loss)
	For the Years Ended December 31,						Recognized
	2014			2013			in Net Earnings
	(in millions)
Pension and other benefits:
Reclassification of losses / (gains) into net earnings:
Amortization of experience losses and prior service costs (1)	$	132		$	193
Settlement losses(1)		42			4
Tax impact		(56	)		(50	)	Provision for income taxes
Derivatives accounted for as hedges:
Reclassification of losses / (gains) into net earnings:
Currency exchange contracts - forecasted transactions		(27	)		28		Cost of sales
Commodity contracts		(21	)		38		Cost of sales
Interest rate contracts		3			6		Interest and other expense, net
Tax impact		6			(19	)	Provision for income taxes

Total reclassifications into net earnings, net of tax	$	79		$	200

	(1)	These items are included in the components of net periodic benefit costs disclosed in Note 10, Benefit Plans.

Note 15. Income Taxes

Earnings / (losses) from continuing operations before income taxes and the provision for income taxes consisted of the following:


	For the Years Ended December 31,
	2014			2013			2012
				(in millions)
Earnings / (losses) from continuing operations before income taxes:
United States	$	(135	)	$	(799	)	$	(1,822	)
Outside United States		2,689			3,191			3,596

Total	$	2,554		$	2,392		$	1,774


Provision for income taxes:
United States federal:
Current	$	(125	)	$	(489	)	$	(420	)
Deferred		28			103			(43	)

		(97	)		(386	)		(463	)
State and local:
Current		20			(35	)		(17	)
Deferred		11			22			(40	)

		31			(13	)		(57	)

Total United States		(66	)		(399	)		(520	)

Outside United States:
Current		644			648			896
Deferred		(225	)		(189	)		(208	)

Total outside United States		419			459			688

Total provision for income taxes	$	353		$	60		$	168

See Note 2, Divestitures and Acquisitions, for information on taxes presented as part of discontinued operations related to the resolution of the Starbucks arbitration and the Spin-Off of Kraft Foods Group.

During 2014, we recorded out-of-period adjustments of $31 million net expense that had an immaterial impact on the annual provision for income taxes. In addition, during the fourth quarter of 2014, we recorded a tax benefit of $43 million associated with the lapse of a statute of limitations that related to the third quarter of 2014. The out-of-period adjustments were not material to the consolidated financial statements for any prior period.

The effective income tax rate on pre-tax earnings differed from the U.S. federal statutory rate for the following reasons:


	For the Years Ended December 31,
	2014			2013			2012

U.S. federal statutory rate		35.0%			35.0%			35.0%
Increase / (decrease) resulting from:
State and local income taxes, net of federal tax benefit excluding IRS audit impacts		0.3%			(0.5%	)		(1.6%	)
Foreign rate differences		(14.5%	)		(16.3%	)		(20.6%	)
Reversal of other tax accruals no longer required		(10.5%	)		(9.6%	)		(4.3%	)
Indemnification resolution		–			(4.7%	)		–
Tax legislation		–			(2.2%	)		(3.9%	)
Divestitures		–			(2.1%	)		0.6%
Venezuela devaluation		1.7%			1.0%			–
Non-deductible expenses		1.5%			1.1%			3.6%
Other		0.3%			0.8%			0.7%

Effective tax rate		13.8%			2.5%			9.5%

Our 2014 effective tax rate of 13.8% was favorably impacted by the mix of pre-tax income in various non-U.S. tax jurisdictions and net tax benefits from $206 million of discrete one-time events. The discrete net tax benefits primarily related to favorable tax audit settlements and expirations of statues of limitations in several jurisdictions.

Our 2013 effective tax rate of 2.5% was favorably impacted by the mix of pre-tax income in various non-U.S. tax jurisdictions, net tax benefits from discrete one-time events and the non-taxable portion of the Cadbury acquisition related indemnification resolution, partially offset by an unfavorable tax law change. The $299 million of discrete one-time events primarily related to favorable tax audit settlements and expirations of statutes of limitations in several jurisdictions and the net reduction of U.K. deferred tax liabilities resulting from tax legislation enacted during 2013 that reduced U.K. corporate income tax rates.

Our 2012 revised effective tax rate of 9.5% was favorably impacted by the mix of pre-tax income in various non-U.S. tax jurisdictions and net tax benefits from discrete one-time tax events, partially offset by non-deductible expenses. The $140 million of discrete one-time events primarily related to the net reduction of U.K. deferred tax liabilities resulting from tax legislation enacted during 2012 that reduced U.K. corporate income tax rates and net favorable tax audit settlements.

The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of the following:


	As of December 31,
	2014			2013
	(in millions)

Deferred income tax assets:
Accrued postretirement and postemployment benefits	$	227		$	176
Accrued pension costs		588			417
Other employee benefits		272			259
Accrued expenses		410			364
Loss carryforwards		656			553
Other		431			428

Total deferred income tax assets		2,584			2,197

Valuation allowance		(345	)		(335	)

Net deferred income tax assets	$	2,239		$	1,862

Deferred income tax liabilities:
Intangible assets	$	(5,843	)	$	(6,094	)
Property, plant and equipment		(784	)		(876	)
Other		(439	)		(468	)

Total deferred income tax liabilities		(7,066	)		(7,438	)

Net deferred income tax liabilities	$	(4,827	)	$	(5,576	)

At December 31, 2014, the company has pre-tax loss carryforwards of $3,432 million, of which $1,430 million will expire at various dates between 2015 and 2033 and the remaining $2,002 million can be carried forward indefinitely.

Our significant valuation allowances reside within our operating subsidiaries in Mexico, Ireland and various other jurisdictions.

At December 31, 2014, applicable U.S. federal income taxes and foreign withholding taxes had not been provided on approximately $13.2 billion of accumulated earnings of non-U.S. subsidiaries that are expected to be indefinitely reinvested. It is impractical for us to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings. Future tax law changes or changes in the needs of our non-U.S. subsidiaries could require us to recognize deferred tax liabilities on a portion, or all, of our accumulated earnings that were previously expected to be indefinitely reinvested.

The changes in our unrecognized tax benefits were:


	For the Years Ended December 31,
	2014			2013			2012
				(in millions)

January 1	$	1,189		$	1,164		$	1,522
Increases from positions taken during prior periods		143			94			119
Decreases from positions taken during prior periods		(247	)		(132	)		(198	)
Increases from positions taken during the current period		147			131			264
Decreases relating to settlements with taxing authorities		(203	)		(7	)		(257	)
Reductions resulting from the lapse of the applicable statute of limitations		(64	)		(55	)		(23	)
Impact of Spin-Off		–			–			(261	)
Currency / other		(113	)		(6	)		(2	)

December 31	$	852		$	1,189		$	1,164

As of January 1, 2014, our unrecognized tax benefits were $1,189 million. If we had recognized all of these benefits, the net impact on our income tax provision would have been $1,110 million. Our unrecognized tax benefits were $852 million at December 31, 2014, and if we had recognized all of these benefits, the net impact on our income tax provision would have been $744 million. Within the next 12 months, our unrecognized tax benefits could increase by approximately $60 million due to unfavorable audit developments or decrease by approximately $145 million due to audit settlements and the expiration of statutes of limitations in various jurisdictions. We include accrued interest and penalties related to uncertain tax positions in our tax provision. We had accrued interest and penalties of $228 million as of January 1, 2014 and $184 million as of December 31, 2014. Our 2014 provision for income taxes included $2 million for interest and penalties.

Under the Tax Sharing and Indemnity Agreements between us and Kraft Foods Group, Kraft Foods Group generally assumes liability for all U.S. state income taxes and Canadian federal and provincial income taxes and we generally assume responsibility for all U.S. federal income taxes and substantially all non-U.S. income taxes, excluding Canadian income taxes, for all tax periods prior to the Spin-Off. In addition, we transferred to Kraft Foods Group all of its deferred tax assets and liabilities as of the Distribution Date. See Note 2, Divestitures and Acquisitions.

Our income tax filings are regularly examined by federal, state and non-U.S. tax authorities. Our 2010-2012 U.S. federal income tax filings are currently under examination by the IRS. U.S. state and non-U.S. jurisdictions have statutes of limitations generally ranging from three to five years; however, these statutes are often extended by mutual agreement with the tax authorities. Years still open to examination by non-U.S. tax authorities in major jurisdictions include (earliest open tax year in parentheses): Brazil (2009), France (2010), Germany (2005), India (2003), Italy (2009), United Kingdom (2012) and Russia (2011).

Note 16. Earnings Per Share

Basic and diluted earnings per share (“EPS”) from continuing and discontinued operations were calculated using the following:


	For the Years Ended December 31,
	2014		2013		2012
	(in millions, except per share data)

Earnings from continuing operations	$	2,201	$	2,332	$	1,606
Earnings from discontinued operations, net of income taxes		–		1,603		1,488

Net earnings		2,201		3,935		3,094
Noncontrolling interest		17		20		27

Net earnings attributable to Mondelēz International	$	2,184	$	3,915	$	3,067

Weighted-average shares for basic EPS		1,691		1,774		1,777
Plus incremental shares from assumed conversions of stock options and long-term incentive plan shares		18		15		12

Weighted-average shares for diluted EPS		1,709		1,789		1,789

Basic earnings per share attributable to Mondelēz International:
Continuing operations	$	1.29	$	1.30	$	0.90
Discontinued operations		–		0.91		0.83

Net earnings attributable to Mondelēz International	$	1.29	$	2.21	$	1.73

Diluted earnings per share attributable to Mondelēz International:
Continuing operations	$	1.28	$	1.29	$	0.88
Discontinued operations		–		0.90		0.83

Net earnings attributable to Mondelēz International	$	1.28	$	2.19	$	1.71

We exclude antidilutive Mondelēz International stock options from our calculation of weighted-average shares for diluted EPS. We excluded 8.6 million antidilutive stock options for the year ended December 31, 2014, 7.0 million antidilutive stock options for the year ended December 31, 2013, and 7.3 million antidilutive stock options for the year ended December 31, 2012.

Note 17. Segment Reporting

We manufacture and market primarily snack food and beverage products, including biscuits (cookies, crackers and salted snacks), chocolate, gum & candy, coffee & powdered beverages and various cheese & grocery products. We manage our global business and report operating results through geographic units.

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

	•		Latin America

	•		Asia Pacific

	•		EEMEA

	•		Europe

	•		North America

We manage our operations by region to leverage regional operating scale, manage different and changing business environments more effectively at a local level and pursue growth opportunities as they arise in our key markets. Beginning in 2015, within each region, we also manage by product category. The change will not affect our operating or reportable segments. In the historical periods within our consolidated financial statements, we managed our operations within Latin America, Asia Pacific and EEMEA by location and within Europe and North America by product category.

We use segment operating income to evaluate segment performance and allocate resources. We believe it is appropriate to disclose this measure to help investors analyze segment performance and trends. Segment operating income excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), general corporate expenses (which are a component of selling, general and administrative expenses), amortization of intangibles, the benefit from the Cadbury acquisition-related indemnification resolution (which is a component of selling, general and administrative expenses), gains and losses on divestitures or acquisitions and acquisition-related costs (which are a component of selling, general and administrative expenses) in all periods presented. We exclude these items from segment operating income in order to provide better transparency of our segment operating results. Furthermore, we centrally manage interest and other expense, net. Accordingly, we do not present these items by segment because they are excluded from the segment profitability measure that management reviews.

Our segment net revenues and earnings were:


	For the Years Ended December 31,
	2014			2013			2012
	(in millions)

Net revenues:
Latin America	$	5,153		$	5,382		$	5,396
Asia Pacific		4,605			4,952			5,164
EEMEA		3,638			3,915			3,735
Europe		13,912			14,059			13,817
North America		6,936			6,991			6,903

Net revenues	$	34,244		$	35,299		$	35,015


	For the Years Ended December 31,
	2014			2013			2012
				(in millions)

Earnings from continuing operations before income taxes:
Operating income:
Latin America	$	475		$	570		$	769
Asia Pacific		385			512			657
EEMEA		327			379			506
Europe		1,770			1,699			1,762
North America		922			889			781
Unrealized gains / (losses) on hedging activities		(112	)		62			1
General corporate expenses		(317	)		(287	)		(728	)
Amortization of intangibles		(206	)		(217	)		(217	)
Benefit from indemnification resolution		–			336			–
Gains on acquisition and divestitures, net		–			30			107
Acquisition-related costs		(2	)		(2	)		(1	)

Operating income		3,242			3,971			3,637
Interest and other expense, net		(688	)		(1,579	)		(1,863	)

Earnings from continuing operations before income taxes	$	2,554		$	2,392		$	1,774

No single customer accounted for 10% or more of our net revenues from continuing operations in 2014. Our five largest customers accounted for 15.7% and our ten largest customers accounted for 23.7% of net revenues from continuing operations in 2014.

Items impacting our segment operating results are discussed in Note 1, Summary of Significant Accounting Policies, including the Venezuelan currency devaluation, Note 2, Divestitures and Acquisitions, Note 5, Goodwill and Intangible Assets, Note 6, Restructuring Programs, and Note 7, Integration Program and Cost Saving Initiatives. Also see Note 8, Debt and Borrowing Arrangements, and Note 9, Financial Instruments, for more information on our interest and other expense, net for each period.

Total assets, depreciation expense and capital expenditures by segment were:


	As of December 31,
	2014		2013		2012
	(in millions)

Total assets:
Latin America	$	6,470	$	6,860	$	7,018
Asia Pacific		8,620		9,032		9,748
EEMEA		5,247		7,045		7,105
Europe		24,568		27,599		27,513
North America		21,303		21,723		22,158
Unallocated assets (1)		607		256		1,935

Total assets	$	66,815	$	72,515	$	75,477

	(1)	Unallocated assets consist primarily of cash and cash equivalents, deferred income taxes, centrally held property, plant and equipment, prepaid pension assets and derivative financial instrument balances.


	For the Years Ended December 31,
	2014		2013		2012
	(in millions)

Depreciation expense:
Latin America	$	118	$	107	$	98
Asia Pacific		112		107		100
EEMEA		90		88		77
Europe		359		359		368
North America		174		199		224

Total – continuing operations		853		860		867
Discontinued operations		–		–		261

Total depreciation expense	$	853	$	860	$	1,128


	For the Years Ended December 31,
	2014		2013		2012
	(in millions)

Capital Expenditures:
Latin America	$	460	$	412	$	220
Asia Pacific		356		268		250
EEMEA		219		254		227
Europe		429		478		414
North America		178		210		217

Total – continuing operations		1,642		1,622		1,328
Discontinued operations		–		–		282

Total capital expenditures	$	1,642	$	1,622	$	1,610

During 2014, we realigned some of our products across product categories and as such, we have reclassified the 2013 and 2012 product category net revenues below on a consistent basis.

Net revenues by product category were:


	For the Year Ended December 31, 2014
	Latin		Asia						North
	America		Pacific		EEMEA		Europe		America		Total
	(in millions)

Biscuits	$	1,322	$	1,177	$	642	$	2,882	$	5,486	$	11,509
Chocolate		1,054		1,555		1,082		5,394		296		9,381
Gum & Candy		1,176		776		646		908		1,154		4,660
Beverages		940		465		981		3,292		–		5,678
Cheese & Grocery		661		632		287		1,436		–		3,016

Total net revenues	$	5,153	$	4,605	$	3,638	$	13,912	$	6,936	$	34,244


	For the Year Ended December 31, 2013
	Latin		Asia						North
	America		Pacific		EEMEA		Europe		America		Total
	(in millions)

Biscuits	$	1,288	$	1,311	$	677	$	2,940	$	5,480	$	11,696
Chocolate		1,143		1,632		1,181		5,385		326		9,667
Gum & Candy		1,380		849		673		968		1,185		5,055
Beverages		907		470		1,113		3,340		–		5,830
Cheese & Grocery		664		690		271		1,426		–		3,051

Total net revenues	$	5,382	$	4,952	$	3,915	$	14,059	$	6,991	$	35,299


	For the Year Ended December 31, 2012
	Latin		Asia						North
	America		Pacific		EEMEA		Europe		America		Total
	(in millions)

Biscuits	$	1,208	$	1,374	$	595	$	2,709	$	5,267	$	11,153
Chocolate		1,127		1,686		1,139		5,067		336		9,355
Gum & Candy		1,433		899		726		1,000		1,280		5,338
Beverages		953		453		1,025		3,411		1		5,843
Cheese & Grocery		675		752		250		1,630		19		3,326

Total net revenues	$	5,396	$	5,164	$	3,735	$	13,817	$	6,903	$	35,015

Geographic data for net revenues and long-lived assets, excluding deferred tax, goodwill and intangible assets, were:


	For the Years Ended December 31,
	2014		2013		2012
	(in millions)

Net revenues:
United States	$	6,143	$	5,965	$	5,974
Other		28,101		29,334		29,041

Total net revenues	$	34,244	$	35,299	$	35,015


	As of December 31,
	2014		2013		2012
	(in millions)

Long-lived assets:
United States	$	1,270	$	1,375	$	1,475
Other		9,802		10,142		9,814

Total long-lived assets	$	11,072	$	11,517	$	11,289

No individual country within Other exceeded 10% of our net revenues or long-lived assets for all periods presented.

Note 18. Quarterly Financial Data (Unaudited)

Our summarized operating results by quarter are detailed below.


	2014 Quarters
	First			Second		Third		Fourth
	(in millions, except per share data)

Net revenues	$	8,641		$	8,436	$	8,337	$	8,830
Gross profit		3,204			3,105		3,142		3,146
(Benefit) / provision for income taxes (1)		(27	)		91		178		111

Net earnings	$	150		$	642	$	902	$	507
Noncontrolling interest		(13	)		20		3		7

Net earnings attributable to Mondelēz International	$	163		$	622	$	899	$	500


Weighted-average shares for basic EPS		1,704			1,694		1,688		1,677
Plus incremental shares from assumed conversions of stock options and long-term incentive plan shares		18			18		17		18

Weighted-average shares for diluted EPS		1,722			1,712		1,705		1,695


Per share data:
Basic EPS attributable to Mondelēz International:	$	0.10		$	0.37	$	0.53	$	0.30

Diluted EPS attributable to Mondelēz International:	$	0.09		$	0.36	$	0.53	$	0.29


Dividends declared	$	0.14		$	0.14	$	0.15	$	0.15

Market price - high	$	36.05		$	38.47	$	39.54	$	39.42
- low	$	31.84		$	34.03	$	33.93	$	31.83

(1)	In the fourth quarter of 2014, we recorded a tax benefit of $43 million associated with the lapse of a statute of limitations that related to the third quarter of 2014.


	2013 Quarters
	First		Second		Third		Fourth
	(in millions, except per share data)

Net revenues	$	8,744	$	8,595	$	8,472	$	9,488
Gross profit		3,242		3,231		3,144		3,493
Provision / (benefit) for income taxes		13		28		26		(7	)

Earnings from continuing operations	$	542	$	602	$	1,018	$	170
Earnings from discontinued operations, net of income taxes		–		–		–		1,603

Net earnings	$	542	$	602	$	1,018	$	1,773
Noncontrolling interest		6		1		6		7

Net earnings attributable to Mondelēz International	$	536	$	601	$	1,012	$	1,766


Weighted-average shares for basic EPS		1,784		1,788		1,779		1,743
Plus incremental shares from assumed conversions of stock options and long-term incentive plan shares		14		15		15		18

Weighted-average shares for diluted EPS		1,798		1,803		1,794		1,761


Per share data:
Basic EPS attributable to Mondelēz International:
Continuing operations	$	0.30	$	0.34	$	0.57	$	0.09
Discontinued operations		–		–		–		0.92

Net earnings attributable to Mondelēz International:	$	0.30	$	0.34	$	0.57	$	1.01

Diluted EPS attributable to Mondelēz International:
Continuing operations	$	0.30	$	0.33	$	0.56	$	0.09
Discontinued operations		–		–		–		0.91

Net earnings attributable to Mondelēz International:	$	0.30	$	0.33	$	0.56	$	1.00


Dividends declared	$	0.13	$	0.13	$	0.14	$	0.14

Market price - high	$	30.66	$	32.10	$	33.08	$	35.43
- low	$	25.78	$	28.22	$	28.50	$	30.07

(1)

In the third quarter of 2013, we recorded a $385 million pre-tax gain ($363 million net of tax) due to the resolution of a Cadbury acquisition-related indemnification. See Note 11, Commitments and Contingencies, for additional information. In the fourth quarter of 2013, we recorded a $608 million pre-tax loss ($386 million net of tax) in connection with extinguishing debt in the December 18, 2013 tender offer and a $2.5 billion pre-tax gain ($1.6 billion net of tax) on the resolution of the Starbucks arbitration. See Note 8, Debt and Borrowing Arrangements and Note 2, Divestitures and Acquisitions, for additional information.

Basic and diluted EPS are computed independently for each of the periods presented. Accordingly, the sum of the quarterly EPS amounts may not equal the total for the year.

During 2014 and 2013, we recorded the following pre-tax charges / (gains) in earnings from continuing operations:


	2014 Quarters
	First			Second			Third			Fourth
	(in millions)

Asset impairment and exit costs	$	42		$	55		$	188		$	407
Unrealized (gain) / loss on planned coffee business transactions currency hedge		–			7			(420	)		(215	)
Loss on early extinguishment of debt and related expenses		494			1			–			–

	$	536		$	63		$	(232	)	$	192


	2013 Quarters
	First			Second			Third			Fourth
	(in millions)

Asset impairment and exit costs	$	44		$	48		$	43		$	138
Benefit from indemnification resolution		–			–			(385	)		–
Loss on early extinguishment of debt and related expenses		–			–			–			612
(Gains) / losses on divestitures, net		(22	)		(6	)		–			(2	)

	$	22		$	42		$	(342	)	$	748

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