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

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

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

Description of the Company

We manufacture and market primarily snack food products, including biscuits (cookies, crackers and salted snacks), chocolate, gum & candy and various cheese & grocery products, as well as powdered beverage products. We have operations in more than 80 countries and sell our products in approximately 160 countries.

We aim to deliver strong, profitable long-term growth by accelerating our core snacks business and expanding the reach of our Power Brands globally. To fuel investments in our Power Brands and global and digital reach, we have been working to optimize our cost structure. These efforts include reinventing our supply chain operations and aggressively managing overhead costs. Through these actions, we’re leveraging our brands, platforms and capabilities to drive long-term value and return on investment for our shareholders.

U.S. Tax Reform

On December 22, 2017, the United States enacted tax reform legislation that included a broad range of business tax provisions, including but not limited to a reduction in the U.S. federal tax rate from 35% to 21% as well as provisions that limit or eliminate various deductions or credits. The legislation also causes U.S. allocated expenses (e.g. interest and general administrative expenses) to be taxed and imposes a new tax on U.S. cross-border payments. Furthermore, the legislation includes a one-time transition tax on accumulated foreign earnings and profits.

In response to the enactment of U.S. tax reform, the SEC issued guidance to address the complexity in accounting for this new legislation. When the initial accounting for items under the new legislation is incomplete, the guidance allows us to recognize provisional amounts when reasonable estimates can be made or to continue to apply the prior tax law if a reasonable estimate of the impact cannot be made. The SEC has provided up to a one-year window for companies to finalize the accounting for the impacts of this new legislation and we anticipate finalizing our accounting during 2018.

While our accounting for the new U.S. tax legislation is not complete, we have made reasonable estimates for some provisions and recognized a $59 million discrete net tax benefit in our 2017 financial statements. This net benefit is primarily comprised of a $1,311 million provisional deferred tax benefit from revaluing our net U.S. deferred tax liabilities to reflect the new U.S. corporate tax rate as well as an additional $61 million provisional deferred tax benefit related to changes in our indefinite reinvestment assertion, partially offset by a $1,317 million provisional charge for the estimated transition tax. However, as of the date of this Form 10-K, we are continuing to evaluate the accounting impacts of the legislation, as we continue to assemble and analyze all the information required to prepare and analyze these effects and await additional guidance from the U.S. Treasury Department, the IRS or other standard-setting bodies. Additionally, we continue to analyze other information and regulatory guidance, and accordingly we may record additional provisional amounts or adjustments to provisional amounts in future periods. See Note 14, Income Taxes, for further details on the impacts of U.S. tax reform.

Malware Incident

On June 27, 2017, a global malware incident impacted our business. The malware affected a significant portion of our global sales, distribution and financial networks. In the last four days of the second quarter and during the third quarter, we executed business continuity and contingency plans to contain the impact, minimize damages and restore our systems environment. To date, we have not found, nor do we expect to find, any instances of Company or personal data released externally. We have now restored our main operating systems and processes as well as enhanced our system security.

During 2017, we estimate that the loss of revenue as a result of the malware incident had a negative impact of 0.4% on our net revenue and Organic Net Revenue growth. We also incurred incremental expenses of $84 million predominantly during the second half of 2017 as part of the recovery effort. We believe the recovery from this incident is largely resolved, and we do not expect significant ongoing impacts or incremental expenses from this incident in future periods. We also continue to make progress on our efforts to strengthen our security measures and mitigate cybersecurity risk. Refer to our Risk Factors section for a discussion of potential risks to our operations from cybersecurity threats.

Coffee Business Transactions

JDE Coffee Business Transactions:

On July 2, 2015, we completed transactions to combine our wholly owned coffee businesses with those of D.E Master Blenders 1753 B.V. to create a new company, Jacob Douwe Egberts (“JDE”). In connection with these transactions, in 2015, we recorded a final pre-tax gain of $6.8 billion ($6.6 billion after-tax) from the deconsolidation of our legacy coffee businesses. We also recorded approximately $1.0 billion of cumulative pre-tax net gains ($436 million in 2015 and $628 million in 2014) and cash related to currency hedging. See Note 2, Divestitures and Acquisitions—JDE Coffee Business Transactions, for additional details. As further described below, in March 2016, we exchanged a portion of our investment in JDE for an investment in Keurig Green Mountain Inc. (“Keurig”). As of December 31, 2017, we hold a 26.5% voting interest, a 26.4% ownership interest and a 26.2% profit and dividend sharing interest in JDE. We recorded JDE equity earnings of $129 million in 2017 and $100 million in 2016 and equity losses of $58 million in 2015. We also recorded $49 million of cash dividends received during the first quarter of 2017.

Keurig Transaction:

Following the March 3, 2016 Acorn Holdings B.V. acquisition of Keurig, on March 7, 2016, we exchanged a portion of our equity interest in JDE for an interest in Keurig valued at $2.0 billion. We recorded the difference between the fair value of the Keurig interest and our basis in JDE shares as a $43 million gain. Following the exchange, our ownership interest in JDE became 26.5% and we owned a 24.2% interest in Keurig. Our initial $2.0 billion investment in Keurig includes a $1.6 billion Keurig equity interest and a $0.4 billion shareholder loan receivable, which are reported on a combined basis within equity method investments on our consolidated balance sheet. The shareholder loan has a 5.5% interest rate and is payable at the end of a seven-year term on February 27, 2023. We recorded Keurig equity earnings of $208 million in 2017 (of which, approximately $119 million relates to the provisional tax benefit Keurig recorded as a result of U.S. tax reform), and $77 million in 2016. We recorded shareholder loan interest of $24 million in 2017 and $20 million in 2016. Additionally, we received shareholder loan interest payments of $30 million in 2017 and $14 million in 2016 and dividends of $14 million in 2017 and $4 million in 2016. See Note 2, Divestitures and Acquisitions, for additional details on the Keurig transaction.

Planned Keurig Dr Pepper Transaction:

On January 29, 2018, we announced that we would exchange our ownership interest in Keurig for equity in Keurig Dr Pepper, which is contingent upon the successful completion of a planned merger of Keurig with Dr Pepper Snapple Group, Inc. Following the close of the merger in mid-2018, we expect our ownership in Keurig Dr Pepper to be 13-14%. We expect to account for this new investment under the equity method as we have for Keurig, resulting in our recognizing our share of their earnings within our earnings and our share of their dividends within our cash flows. We will have the right to nominate two directors to the board of Keurig Dr Pepper and will have certain governance rights over Keurig Dr Pepper following the transaction.

Venezuela Deconsolidation

Effective as of the close of the 2015 fiscal year, we deconsolidated our Venezuelan subsidiaries due to a loss of control over our Venezuelan operations and an other-than-temporary lack of currency exchangeability. We recorded a $778 million pretax loss on December 31, 2015 as we reduced the value of our investment in Venezuela and all Venezuelan receivables held by our other subsidiaries to realizable fair value, resulting in full impairment.

As of the start of 2016, we no longer included net revenues, earnings or net assets of our Venezuelan subsidiaries within our GAAP consolidated financial statements and we excluded Venezuela from our non-GAAP results for all historical periods presented to facilitate comparisons of operating results. See Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting: Venezuela, for more information on our Venezuela operations, including currency remeasurement losses and the loss on deconsolidation.

Summary of Results

	•		Net revenues were approximately $25.9 billion in both 2017 and 2016, a decrease of 0.1% in 2017 and a decrease of 12.5% in 2016. Business deconsolidations and divestitures reduced net revenues during 2015-2017, with net revenues in 2016 most significantly affected by the deconsolidations of our historical coffee business and Venezuelan operations in 2015 as well as significant unfavorable currency translation impacts in 2016 and 2015.

	•		Organic Net Revenue increased 0.9% to $25.5 billion in 2017 and increased 1.5% to $26.4 billion in 2016. Organic Net Revenue is on a constant currency basis and excludes revenue from deconsolidated coffee and Venezuelan operations, divestitures and an acquisition. We use Organic Net Revenue as it provides improved year-over-year comparability of our underlying operating results (see the definition of Organic Net Revenue and our reconciliation with net revenues within Non-GAAP Financial Measures appearing later in this section).

	•		Diluted EPS attributable to Mondelēz International increased 81.9% to $1.91 in 2017 and decreased 76.4% to $1.05 in 2016. Diluted EPS increased in 2017 as prior-year refinancing and higher restructuring activities drove lower interest and overhead costs in 2017. We also recorded benefits from resolving two local indirect tax matters and gains from divesting non-core businesses during 2017. Diluted EPS was significantly lower in 2016 primarily as a result of the $6.8 billion gain recorded in 2015 in connection with the JDE coffee business transactions as well as a number of other significant items that affected the comparability of our reported results. See our Discussion and Analysis of Historical Results appearing later in this section for further details.

	•		Adjusted EPS increased 15.1% to $2.14 in 2017 and increased 21.6% to $1.86 in 2016. On a constant currency basis, Adjusted EPS increased 14.5% to $2.13 in 2017 and increased 25.5% to $1.92 in 2016. Lower manufacturing costs and overhead costs, driven by strong productivity efforts, were significant drivers of Adjusted EPS growth in both years. Adjusted EPS and Adjusted EPS on a constant currency basis are non-GAAP financial measures. We use these measures as they provide improved year-over-year comparability of our underlying results (see the definition of Adjusted EPS and our reconciliation with diluted EPS within Non-GAAP Financial Measures appearing later in this section).

Financial Outlook

We seek to achieve profitable, long-term growth and manage our business to attain this goal using our key operating metrics: Organic Net Revenue, Adjusted Operating Income and Adjusted EPS. We use these non-GAAP financial metrics and related computations such as margins internally to evaluate and manage our business and to plan and make near-and long-term operating and strategic decisions. As such, we believe these metrics are useful to investors as they provide supplemental information in addition to our U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) financial results. We believe providing investors with the same financial information that we use internally ensures that investors have the same data to make comparisons of our historical operating results, identify trends in our underlying operating results and gain additional insight and transparency on how we evaluate our business. We believe our non-GAAP financial measures should always be considered in relation to our GAAP results and we have provided reconciliations between our GAAP and non-GAAP financial measures within Non-GAAP Financial Measures appearing later in this section.

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

Long-Term Demographics and Consumer Trends – Snack food consumption is highly correlated to GDP growth, urbanization of populations and rising discretionary income levels associated with a growing middle class, particularly in emerging markets. Over the long term, we expect these trends to continue leading to growth in consumer behaviors such as more frequent, smaller meals, snacking and greater use of convenience foods. We also recognize changing consumer trends such as the increased emphasis on well-being, time compression and wide participation across an evolving retail and digital landscape. To position ourselves for long-term growth, we are investing in our well-being and other snack offerings, product and marketing innovation and new routes to market including e-commerce.

Demand – We monitor consumer spending and our market share within the food and beverage categories in which we sell our products. In recent years, low GDP growth, economic recessionary pressures, weak consumer confidence, a historically strong U.S. dollar and changing consumer trends have slowed category and our net revenue growth. While we have begun to see some improvements in global economic growth and a weaker U.S. dollar in 2017, there are still geopolitical and economic uncertainties, and category growth continues to be soft. Growth in our global snacking categories (excluding Venezuela) decreased from approximately 3.4% in 2015 and 2.4% in 2016 to 2.1% in 2017. We continue to make investments in our brand and snacks portfolio, while building strong routes to market to address the needs of consumers in emerging and developed markets. In doing so, we anticipate driving demand in our categories and growing our position in these markets.

Volatility of Global Markets – Our growth strategy depends in part on our ability to expand our operations, particularly in emerging markets. Some emerging markets have greater political, economic and currency volatility and greater vulnerability to infrastructure and labor disruptions than more established markets. Volatility in these markets affects demand for and the costs of our products and requires frequent changes in how we operate our business. Refer to Note 1, Summary of Significant Accounting Policies—Venezuela, for further discussion of these issues and their impacts on our Venezuela operations. We expect continued volatility across our markets, particularly emerging markets. As such, we are focused on investing in our global Power Brands and routes to market while we protect our margins through the management of costs and pricing.

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

Pricing – We adjust our product prices based on a number of variables including demand, the competitive environment and changes in our product input costs. Our net revenue growth and profitability may be affected as we adjust prices to address new conditions. Over 2015-2017, we generally increased prices in response to higher commodity costs, currency and other market factors. In 2018, we anticipate changing market conditions to continue to impact pricing. Price competition may continue to affect net revenues or market share in the near term as the market adjusts to changes in input costs and other market conditions.

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

Taxes – While the 2017 U.S. tax reform reduced the U.S. corporate tax rate and included beneficial depreciation provisions, other provisions could have an adverse effect on our results. Specifically, new provisions that cause U.S. allocated expenses (e.g. interest and general administrative expenses) to be taxed and impose a tax on U.S. cross-border payments could adversely impact our effective tax rate. We will continue to evaluate the impacts as additional guidance on implementing the legislation becomes available.

Currency – As a global company with 75.8% of our net revenues generated outside the United States, we are continually exposed to changes in global economic conditions and currency movements. In 2017, the U.S. dollar began to weaken relative to other currencies in which we operate, while in 2015 and 2016, the U.S. dollar generally was stronger as a number of countries experienced significant declines in or devaluations of their currency. The currency movements created volatility in our reported results of operations. Unfavorable currency translation impacts were 12.6 percentage points (or 12.0 percentage points excluding currency impacts related to Venezuela) of the 13.5% net revenue decrease in 2015 and 4.6 percentage points of the 12.5% net revenue decrease in 2016. In 2017, the 0.1% net revenue decrease reflected 0.3 percentage points of favorable currency translation impacts as the U.S. dollar generally weakened against a number of currencies this past year. As currency movements can make comparisons of year-over-year operating performance challenging, we isolate the impact of currency and also report growth on a constant currency basis, holding prior-year currency exchange rates constant, so that prior-year and current-year results can be compared on a consistent basis.

Historically, we have also been exposed to currency devaluation risks impacting earnings particularly, but not only, in connection with our Venezuela operations that were deconsolidated at the close of the 2015 fiscal year. In the months following the Brexit vote in June 2016, there was significant volatility in the global stock markets and currency exchange rates. The value of the British pound sterling relative to the U.S. dollar declined significantly and negatively affected our translated results reported in U.S. dollars. In December 2017, the European Union and United Kingdom agreed to begin trade negotiations, and we could experience additional volatility in the British pound sterling as the Brexit negotiations move forward.

To partially offset the translation of certain of our overseas operations, including the United Kingdom, we enter into net investment hedges primarily in the form of local currency denominated debt and cross-currency swaps and other financial instruments. We generally do not hedge against currency translation and primarily seek to hedge against economic losses on cross-currency transactions. Due to limited markets for hedging currency transactions and other factors, we may not be able to effectively hedge all of our cross-currency transaction risks. Local economies, monetary policies and currency hedging availability can affect our ability to hedge against currency-related economic losses. While we work to mitigate our exposure to currency risks, factors such as continued global and local market volatility, actions by foreign governments, political uncertainty, limited hedging opportunities and other factors could lead to unfavorable currency impacts in the future. We monitor currency-related risks and economies at risk of qualifying for highly inflationary accounting under U.S. GAAP, such as Argentina and Ukraine. While we work to safeguard our business, currency devaluations could adversely affect future demand for our products, our financial results and operations, and our relationships with customers, suppliers and employees in the short or long-term. We may not be able to fully offset the increased risks related to currency devaluations and Brexit, which could impact profitability should the currency-related conditions continue. See Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting, and Note 8, Financial Instruments, for additional information.

Financing Costs – We regularly evaluate our variable and fixed-rate debt. We continue to use low-cost, short- and long-term debt to finance our ongoing working capital, capital expenditures and other investments, dividends and share repurchases. We also expect to use existing cash or short-term borrowings to finance the estimated $1.3 billion U.S. tax reform transition tax liability payable through 2026. During 2017, we retired $1.5 billion of long-term debt and issued lower-cost, short-term commercial paper and long-term Swiss franc debt. During 2016, we retired $6.2 billion of our long-term debt and issued lower-cost, long-term euro, Swiss franc and U.S. dollar-denominated debt. Our weighted-average interest rate on our total debt as of December 31, 2017 was 2.1%, down from 2.2% as of December 31, 2016 and down from 3.7% as of December 31, 2015. We also continue to use interest rate swaps and other financial instruments to manage our exposure to interest rate and cash flow variability, protect the value of our existing currency assets and liabilities and protect the value of our debt. For example, through February 8, 2018, we entered into cross-currency interest rate swaps and forwards with an aggregate notional value of $3.2 billion to hedge our non-U.S. net investments against adverse movements in exchange rates. We designated these swaps and forwards as net investment hedges related to our operations in our Europe and AMEA regions. We expect a favorable impact on our prospective financing costs as we reduce some of the financing costs and related currency impacts within our interest costs. Refer to Note 7, Debt and Borrowing Arrangements, and Note 8, Financial Instruments, for additional information on our debt and derivative activity.

Discussion and Analysis of Historical Results

Items Affecting Comparability of Financial Results

The following table includes significant income or (expense) items that affected the comparability of our results of operations and our effective tax rates. Please refer to the notes to the consolidated financial statements indicated below for more information. Refer also to the Consolidated Results of Operations – Net Earnings and Earnings per Share Attributable to Mondel__ē__z International table for the after-tax per share impacts of these items.


			For the Years Ended December 31,
	See Note		2017			2016			2015
			(in millions, except percentages)
JDE coffee business transactions:		Note 2
Gain on contribution			$	–		$	–		$	6,809
Incremental costs for readying the businesses				–			–			(278	)
Currency-related hedging net gains (1)				–			–			436
Venezuela:		Note 1
Historical operating income (2)				–			–			266
Remeasurement of net monetary assets:
Q1 2015: 11.50 to 12.00 bolivars to the U.S. dollar				–			–			(11	)
Loss on deconsolidation				–			–			(778	)
2014-2018 Restructuring Program:		Note 6
Restructuring charges				(535	)		(714	)		(711	)
Implementation charges				(257	)		(372	)		(291	)
Gain on equity method investment transactions (3)		Note 2		40			43			–
Loss on debt extinguishment and related expenses		Note 7		(11	)		(427	)		(753	)
Loss related to interest rate swaps		Note 7 & 8		–			(97	)		(34	)
CEO transition remuneration (4)		See (4) below		(14	)		–			–
Intangible asset impairment charges		Note 5		(109	)		(137	)		(71	)
Divestitures, acquisitions and sales of property		Note 2
Gain on sale of intangible assets				–			15			–
Net gain on divestitures				186			9			13
Divestiture-related costs (5)				(34	)		(86	)		–
Acquisition-related costs				–			(1	)		(8	)
Other acquisition integration costs				(3	)		(7	)		(9	)
Gains on sales of property				–			46			–
Mark-to-market (losses)/gains from derivatives (6)		Note 8		(96	)		(94	)		56
Benefits from the resolution of tax matters (7)		Note 12		281			–			–
Malware incident incremental expenses				(84	)		–			–
U.S. tax reform discrete net tax benefit (8)		Note 14		59			–			–
Effective tax rate		Note 14		22.0%			8.9%			7.5%

	(1)	To lock in an expected U.S. dollar value of the cash to be received in euros upon closing of the JDE coffee business transactions, we entered into currency exchange forward contracts beginning in May 2014, when the transaction was announced. We recognized related currency hedging net gains of $436 million in 2015. See Note 2, Divestitures and Acquisitions, for more information on the JDE coffee business transactions and related hedging transactions.

	(2)	Excludes the impact of remeasurement losses and 2014-2018 Restructuring Program charges that are shown separately.

	(3)	The gain on equity method investment transactions is recorded outside of pre-tax operating results on the consolidated statement of earnings.

	(4)	Please see the Non-GAAP Financial Measures section at the end of this item for additional discussion of CEO transition remuneration.

	(5)	Divestiture-related costs in 2017 totaled $34 million ($31 million in operating income and $3 million in interest and other expense, net).

	(6)	Unrealized gains or losses on commodity and forecasted currency transaction derivatives. 2015 amounts exclude coffee commodity and currency derivative impacts that are included within the coffee operating results throughout the following sections.

	(7)	Refer to Note 12, Commitments and Contingencies – Tax Matters, for more information. Primarily includes the reversal of tax liabilities in connection with the resolution of a Brazilian indirect tax matter and settlement of pre-acquisition Cadbury tax matters.

	(8)	Refer to Note 14, Income Taxes, for more information on the impact of the U.S. tax reform.

Consolidated Results of Operations

The following discussion compares our consolidated results of operations for 2017 with 2016 and 2016 with 2015.

2017 compared with 2016


	For the Years Ended December 31,
	2017		2016		$ change		% change
	(in millions, except per share data)

Net revenues	$	25,896	$	25,923	$	(27)		(0.1)%

Operating income		3,506		2,569		937		36.5%

Earnings from continuing operations		2,936		1,669		1,267		75.9%

Net earnings attributable to Mondelēz International		2,922		1,659		1,263		76.1%

Diluted earnings per share attributable to Mondelēz International		1.91		1.05		0.86		81.9%

Net Revenues – Net revenues decreased $27 million (0.1%) to $25,896 million in 2017, and Organic Net Revenue (1) increased $220 million (0.9%) to $25,490 million. Power Brands net revenues increased 2.9%, including a favorable currency impact, and Power Brands Organic Net Revenue increased 2.1%. Emerging markets net revenues increased 3.7%, including a favorable currency impact, and emerging markets Organic Net Revenue increased 3.6%. The underlying changes in net revenues and Organic Net Revenue are detailed below:


	2017
Change in net revenues (by percentage point)
Total change in net revenues		(0.1)%
Add back the following items affecting comparability:
Favorable currency		(0.3)pp
Impact of acquisition		(0.2)pp
Impact of divestitures		1.5pp

Total change in Organic Net Revenue (1)		0.9%

Higher net pricing		1.5pp
Unfavorable volume/mix		(0.6)pp

	(1)	Please see the Non-GAAP Financial Measures section at the end of this item.

Net revenue decline of 0.1% was driven by the impact of divestitures, partially offset by our underlying Organic Net Revenue growth of 0.9%, favorable currency and the impact of an acquisition. The impact of divestitures resulted in a year-over-year decline in net revenues of $383 million for 2017. Our underlying Organic Net Revenue increase was driven by higher net pricing, partially offset by unfavorable volume/mix. Net pricing was up, which includes the benefit of carryover pricing from 2016 as well as the effects of input cost-driven pricing actions taken during 2017. Higher net pricing was reflected in Latin America and AMEA, partially offset by lower net pricing in North America and Europe. Unfavorable volume/mix was reflected in all segments except Europe, in part due to expected shipments that we did not realize following the second quarter malware incident. Favorable year-over-year currency impacts increased net revenues by $77 million, due primarily to the strength of several currencies relative to the U.S. dollar, including the Brazilian real, euro, Russian ruble, Australian dollar, Indian rupee and South African rand, partially offset by the strength of the U.S. dollar relative to several currencies, including the Egyptian pound, British pound sterling, Argentinean peso, Nigerian naira, Turkish lira, Philippine peso and Chinese yuan. The November 2, 2016 acquisition of a business and license to manufacture, market and sell Cadbury-branded biscuits in additional key markets added $59 million (constant currency basis) of incremental net revenues for 2017.

Operating Income – Operating income increased $937 million (36.5%) to $3,506 million in 2017, Adjusted Operating Income (1) increased $376 million (9.9%) to $4,178 million and Adjusted Operating Income on a constant currency basis (1) increased $376 million (9.9%) to $4,178 million due to the following:


	Operating
	Income			Change
	(in millions)
Operating Income for the Year Ended December 31, 2016	$	2,569
2014-2018 Restructuring Program costs (2)		1,086
Intangible asset impairment charges (3)		137
Mark-to-market losses from derivatives (4)		94
Acquisition integration costs (5)		7
Acquisition-related costs (5)		1
Divestiture-related costs (6)		86
Operating income from divestitures (6)		(153	)
Gain on divestiture (6)		(9	)
Gain on sale of intangible assets (7)		(15	)
Other/rounding		(1	)

Adjusted Operating Income (1) for the Year Ended December 31, 2016	$	3,802
Higher net pricing		370
Higher input costs		(173	)
Unfavorable volume/mix		(160	)
Lower selling, general and administrative expenses		405
Gains on sales of property in 2016 (8)		(46	)
VAT-related settlement in 2016		(54	)
Property insurance recovery		27
Impact from acquisition (8)		8
Other		(1	)

Total change in Adjusted Operating Income (constant currency) (1)		376			9.9%
Currency translation		–

Total change in Adjusted Operating Income (1)		376			9.9%

Adjusted Operating Income (1) for the Year Ended December 31, 2017	$	4,178
2014-2018 Restructuring Program costs (2)		(792	)
Intangible asset impairment charges (3)		(109	)
Mark-to-market losses from derivatives (4)		(96	)
Malware incident incremental expenses		(84	)
Acquisition integration costs (5)		(3	)
Divestiture-related costs (6)		(31	)
Operating income from divestitures (6)		61
Net gain on divestitures (6)		186
Benefits from resolution of tax matters (9)		209
CEO transition remuneration		(14	)
Other/rounding		1

Operating Income for the Year Ended December 31, 2017	$	3,506			36.5%

	(1)	Refer to the Non-GAAP Financial Measures section at the end of this item.

	(2)	Refer to Note 6, 2014-2018 Restructuring Program, for more information.

	(3)	Refer to Note 2, Divestitures and Acquisitions, and Note 5, Goodwill and Intangible Assets, for more information on trademark impairments.

	(4)	Refer to Note 8, Financial Instruments, Note 16, Segment Reporting, and Non-GAAP Financial Measures appearing later in this section for more information on the unrealized gains/losses on commodity and forecasted currency transaction derivatives.

	(5)	Refer to Note 2, Divestitures and Acquisitions, for more information on the acquisition of a biscuit business in Vietnam.

	(6)	Refer to Note 2, Divestitures and Acquisitions, for more information on the 2017 sales of a confectionery business in France, a grocery business in Australia and New Zealand, certain licenses of KHC-owned brands used in our grocery business within our Europe region, sale of one of our equity method investments and sale of a confectionary business in Japan. Additionally, the 2016 amount includes a sale of a confectionery business in Costa Rica.

	(7)	Refer to Note 2, Divestitures and Acquisitions, for more information on the 2016 intangible asset sale in Finland.

	(8)	Refer to Note 2, Divestitures and Acquisitions, for more information on the 2016 purchase of a license to manufacture, market and sell Cadbury-branded biscuits in additional key markets and other property sales in 2016.

	(9)	Refer to Note 12, Commitments and Contingencies – Tax Matters, for more information. Primarily includes the reversal of tax liabilities in connection with the resolution of a Brazilian indirect tax matter and settlement of pre-acquisition Cadbury tax matters.

During 2017, we realized higher net pricing while input costs increased modestly. Higher net pricing, which included the carryover impact of pricing actions taken in 2016 as well as the effects of input cost-driven pricing actions taken during 2017, was driven by Latin America and AMEA, partially offset by lower net pricing in North America and Europe. The increase in input costs was driven by higher raw material costs which were partially offset by lower manufacturing costs due to productivity. Unfavorable volume/mix was driven by North America, Latin America and AMEA, which was partially offset by favorable volume/mix in Europe.

Total selling, general and administrative expenses decreased $629 million from 2016, due to a number of factors noted in the table above, including in part, the benefits from the resolution of tax matters, lower implementation costs incurred for the 2014-2018 Restructuring Program, lower divestiture-related costs, a property insurance recovery in AMEA and lower intangible asset impairment charges. The decreases were partially offset by gains on sales of property in 2016, unfavorable currency impact, Value-added tax (“VAT”) related settlements in 2016 and incremental expenses incurred due to the malware incident.

Excluding the factors noted above, selling, general and administrative expenses decreased $405 million from 2016. The decrease was driven primarily by lower overhead costs and lower advertising and consumer promotion costs due to continued cost reduction efforts in both areas.

Currency changes during the year did not impact operating income as the strength of the U.S. dollar relative to several currencies, including the Egyptian pound, British pound sterling and Argentinean peso, was offset by the strength of several currencies relative to the U.S. dollar, including the euro, Brazilian real, Russian ruble, Australian dollar, Indian rupee and South African rand.

Operating income margin increased from 9.9% in 2016 to 13.5% in 2017. The increase in operating income margin was driven primarily by an increase in our Adjusted Operating Income margin, lower 2014-2018 Restructuring Program costs, the benefits from the resolution of tax matters, the net gain on divestitures and lower divestiture-related costs, partially offset by incremental costs related to the malware incident and CEO transition remuneration costs. Adjusted Operating Income margin increased from 15.0% in 2016 to 16.3% in 2017. The increase in Adjusted Operating Income margin was driven primarily by lower overheads and lower advertising and consumer promotion costs due to continued cost reduction efforts in both areas.

Net Earnings and Earnings per Share Attributable to Mondel__ē__z International – Net earnings attributable to Mondelēz International of $2,922 million increased by $1,263 million (76.1%) in 2017. Diluted EPS attributable to Mondelēz International was $1.91 in 2017, up $0.86 (81.9%) from 2016. Adjusted EPS (1) was $2.14 in 2017, up $0.28 (15.1%) from 2016. Adjusted EPS on a constant currency basis (1) was $2.13 in 2017, up $0.27 (14.5%) from 2016.


	Diluted EPS

Diluted EPS Attributable to Mondelēz International for the Year Ended December 31, 2016	$	1.05
2014-2018 Restructuring Program costs (2)		0.51
Intangible asset impairment charges (2)		0.06
Mark-to-market losses from derivatives (2)		0.05
Acquisition integration costs (2)		0.01
Divestiture-related costs (2)		0.05
Net earnings from divestitures (2)		(0.08	)
Gain on sale of intangible assets (2)		(0.01	)
Loss related to interest rate swaps (3)		0.04
Loss on debt extinguishment and related expenses (4)		0.17
Gain on equity method investment transaction (5)		(0.03	)
Equity method investee acquisition-related and other adjustments (6)		0.04

Adjusted EPS (1) for the Year Ended December 31, 2016	$	1.86
Increase in operations		0.22
Increase in equity method investment net earnings		0.02
Gains on sales of property in 2016 (2)		(0.02	)
VAT-related settlements in 2016		(0.04	)
Property insurance recovery		0.01
Impact from acquisition (2)		–
Lower interest and other expense, net (7)		0.08
Changes in shares outstanding (8)		0.05
Changes in income taxes (9)		(0.05	)

Adjusted EPS (constant currency) (1) for the Year Ended December 31, 2017	$	2.13
Favorable currency translation		0.01

Adjusted EPS (1) for the Year Ended December 31, 2017	$	2.14
2014-2018 Restructuring Program costs (2)		(0.39	)
Intangible asset impairment charges (2)		(0.05	)
Mark-to-market losses from derivatives (2)		(0.06	)
Malware incident incremental expenses		(0.04	)
Acquisition integration costs (2)		–
Divestiture-related costs (2)		(0.02	)
Net earnings from divestitures (2)		0.03
Net gain on divestitures (2)		0.11
Benefits from resolution of tax matters (2)		0.13
CEO transition remuneration		(0.01	)
U.S. tax reform discrete net tax benefit (10)		0.04
Gain on equity method investment transaction (11)		0.02
Equity method investee acquisition-related and other adjustments (6)		0.01

Diluted EPS Attributable to Mondelēz International for the Year Ended December 31, 2017	$	1.91

	(1)	Refer to the Non-GAAP Financial Measures section appearing later in this section.

	(2)	See the Operating Income table above and the related footnotes for more information.

	(3)	Refer to Note 8, Financial Instruments, for more information on our interest rate swaps, which we no longer designate as cash flow hedges effective the first quarter of 2016 due to changes in financing and hedging plans.

	(4)	Refer to Note 7, Debt and Borrowing Arrangements, for more information on our loss on debt extinguishment and related expenses in connection with our debt tender offers.

	(5)	Refer to Note 2, Divestitures and Acquisitions – Keurig Transaction, for more information on the 2016 acquisition of an interest in Keurig.

	(6)	Includes our proportionate share of unusual or infrequent items, such as acquisition and divestiture-related costs, restructuring program costs and discrete U.S. tax reform impacts recorded by our JDE and Keurig equity method investees.

	(7)	Excludes the currency impact on interest expense related to our non-U.S. dollar-denominated debt which is included in currency translation.

	(8)	Refer to Note 10, Stock Plans, for more information on our equity compensation programs, Note 11, Capital Stock, for more information on our share repurchase program and Note 15, Earnings Per Share, for earnings per share weighted-average share information.

	(9)	Refer to Note 14, Income Taxes, for more information on the items affecting income taxes.

	(10)	Refer to Note 14, Income Taxes, for more information on the impact of the U.S. tax reform.

	(11)	Refer to Note 2, Divestitures and Acquisitions, for more information on the 2017 sale of an interest in one of our equity method investments.

2016 compared with 2015


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

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

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

Earnings from continuing operations		1,669		7,291		(5,622	)		(77.1)%

Net earnings attributable to Mondelēz International		1,659		7,267		(5,608	)		(77.2)%

Diluted earnings per share attributable to Mondelēz International		1.05		4.44		(3.39	)		(76.4)%

Net Revenues – Net revenues decreased $3,713 million (12.5%) to $25,923 million in 2016, and Organic Net Revenue (1) increased $390 million (1.5%) to $26,411 million. Power Brands net revenues decreased 10.9%, primarily due to the deconsolidation of our historical coffee business, unfavorable currency and the deconsolidation of our historical Venezuelan operations, and Power Brands Organic Net Revenue increased 3.3%. Emerging markets net revenues decreased 19.1%, primarily due to the deconsolidation of our historical Venezuelan operations, unfavorable currency and the deconsolidation of our historical coffee business, and emerging markets Organic Net Revenue increased 2.7%. The underlying changes in net revenues and Organic Net Revenue are detailed below:


	2016
Change in net revenues (by percentage point)
Total change in net revenues		(12.5)%
Add back of the following items affecting comparability:
Historical coffee business (1)		5.6pp
Unfavorable currency		4.8pp
Historical Venezuelan operations (2)		3.7pp
Impact of accounting calendar change		0.3pp
Impact of acquisitions		(0.4)pp
Impact of divestitures		–

Total change in Organic Net Revenue (3)		1.5%

Higher net pricing		1.6pp
Unfavorable volume/mix		(0.1)pp

	(1)	Includes our historical global coffee business prior to the July 2, 2015 JDE coffee business transactions. Refer to Note 2, Divestitures and Acquisitions, and Non-GAAP Financial Measures appearing later in this section for more information.

	(2)	Includes the historical results of our Venezuelan subsidiaries (including Venezuela currency impacts) prior to the December 31, 2015 deconsolidation. Refer to Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting: Venezuela, for more information.

	(3)	Please see the Non-GAAP Financial Measures section at the end of this item.

Net revenue decline of 12.5% was driven by the impact of the deconsolidation of our historical coffee business, unfavorable currency, the deconsolidation of our historical Venezuelan operations and the year-over-year impact of the 2015 accounting calendar change, partially offset by our underlying Organic Net Revenue growth of 1.5%, and the impact of acquisitions. The adjustment for deconsolidating our historical coffee business resulted in a year-over-year decrease in net revenues of $1,627 million for 2016. Unfavorable currency impacts decreased net revenues by $1,233 million, due primarily to the strength of the U.S. dollar relative to several currencies, including the Argentinean peso, British pound sterling, Mexican peso, Brazilian real, Chinese yuan and Russian ruble. The deconsolidation of our historical Venezuelan operations resulted in a year-over-year decrease in net revenues of $1,217 million for 2016. The North America segment accounting calendar change in 2015 resulted in a year-over-year decrease in net revenues of $76 million for 2016. Our underlying Organic Net Revenue growth was driven by higher net pricing, partially offset by unfavorable volume/mix. Net pricing was up, which includes the benefit of carryover pricing from 2015 as well as the effects of input cost-driven pricing actions taken during 2016. Higher net pricing was reflected in Latin America and AMEA, partially offset by lower net pricing in Europe and North America. Unfavorable volume/mix was reflected in Latin America and AMEA, mostly offset by favorable volume/mix in Europe and North America. Unfavorable volume/mix in Latin America and AMEA was largely due to price elasticity as well as strategic decisions to exit certain low-margin product lines. The impact of acquisitions primarily includes the July 15, 2015 acquisition of a biscuit operation in Vietnam, which added $71 million of incremental net revenues for 2016, and the November 2, 2016 acquisition of a business and a license to manufacture, market and sell Cadbury-branded biscuits in additional key markets, which added $16 million of incremental net revenues for 2016.

Operating Income – Operating income decreased $6,328 million (71.1%) to $2,569 million in 2016, Adjusted Operating Income (1) increased $486 million (14.7%) to $3,802 million and Adjusted Operating Income on a constant currency basis (1) increased $657 million (19.8%) to $3,973 million due to the following:


	Operating Income			Change
	(in millions)
Operating Income for the Year Ended December 31, 2015	$	8,897
2012-2014 Restructuring Program costs (2)		(4	)
2014-2018 Restructuring Program costs (2)		1,002
Intangible asset impairment charges (3)		71
Mark-to-market gains from derivatives (4)		(56	)
Acquisition integration costs (5)		9
Acquisition-related costs (5)		8
Operating income from divestiture (6)		(182	)
Gain on divestiture (6)		(13	)
Operating income from Venezuelan subsidiaries (7)		(281	)
Remeasurement of net monetary assets in Venezuela (7)		11
Loss on deconsolidation of Venezuela (7)		778
Costs associated with the coffee business transactions (8)		278
Gain on the JDE coffee business transactions (8)		(6,809	)
Reclassification of historical coffee business operating income (9)		(342	)
Reclassification of equity method investment earnings (10)		(51	)

Adjusted Operating Income (1) for the Year Ended December 31, 2015	$	3,316
Higher net pricing		422
Higher input costs		(131	)
Favorable volume/mix		11
Lower selling, general and administrative expenses		318
Gains on sales of property (11)		46
Higher VAT-related settlements		24
Impact from acquisitions (11)		4
Impact of accounting calendar change (12)		(36	)
Other		(1	)

Total change in Adjusted Operating Income (constant currency) (1)		657			19.8	%
Unfavorable currency translation		(171	)

Total change in Adjusted Operating Income (1)		486			14.7	%

Adjusted Operating Income (1) for the Year Ended December 31, 2016	$	3,802
2014-2018 Restructuring Program costs (2)		(1,086	)
Intangible asset impairment charges (3)		(137	)
Mark-to-market losses from derivatives (4)		(94	)
Acquisition integration costs (5)		(7	)
Acquisition-related costs (5)		(1	)
Divestiture-related costs (13)		(86	)
Operating income from divestiture (6)		153
Gain on divestiture (6)		9
Gain on sale of intangible assets (14)		15
Other/rounding		1

Operating Income for the Year Ended December 31, 2016	$	2,569			(71.1	)%

	(1)	Refer to the Non-GAAP Financial Measures section at the end of this item.

	(2)	Refer to Note 6, 2014-2018 Restructuring Program, for more information. Refer to the Annual Report on Form 10-K for the year ended December 31, 2016 for additional information in Note 6, Restructuring Programs.

	(3)	Refer to Note 5, Goodwill and Intangible Assets, for more information on the impairment charges recorded in 2016 and 2015 related to trademarks.

	(4)	Refer to Note 8, Financial Instruments, Note 16, Segment Reporting, and Non-GAAP Financial Measures appearing later in this section for more information on these unrealized gains and losses on commodity and forecasted currency transaction derivatives.

	(5)	Refer to Note 2, Divestitures and Acquisitions, for more information on the acquisition of a biscuit business in Vietnam.

	(6)	Refer to Note 2, Divestitures and Acquisitions, for more information on the December 1, 2016 sale of a confectionery business in Costa Rica. The sale of the confectionery business in Costa Rica generated a pre-tax and after-tax gain of $9 million in 2016. Refer to our Annual Report on Form 10-K for the year ended December 31, 2016 for more information on the April 23, 2015 divestiture of Ajinomoto General Foods, Inc. (“AGF”). The divestiture of AGF generated a pre-tax gain of $13 million and after-tax loss of $9 million in 2015.

	(7)	Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting: Venezuela, for more information on the deconsolidation and remeasurement loss in 2015.

	(8)	Refer to Note 2, Divestitures and Acquisitions, for more information on the JDE coffee business transactions.

	(9)	Includes our historical global coffee business prior to the July 2, 2015 divestiture. We reclassified the results of our historical coffee business from Adjusted Operating Income and included them with equity method investment earnings in Adjusted EPS to facilitate comparisons of past and future coffee operating results. Refer to Note 2, Divestitures and Acquisitions, and Non-GAAP Financial Measures appearing later in this section for more information.

	(10)	Historically, we have recorded income from equity method investments within our operating income as these investments operated as extensions of our base business. Beginning in the third quarter of 2015, to align with the accounting for JDE earnings, we began to record the earnings from our equity method investments in after-tax equity method investment earnings outside of operating income. In periods prior to July 2, 2015, we have reclassified the equity method earnings from Adjusted Operating Income to evaluate our operating results on a consistent basis.

	(11)	Refer to Note 2, Divestitures and Acquisitions, for more information on the 2016 purchase of a license to manufacture, market and sell Cadbury-branded biscuits in additional key markets and other property sales in 2016.

	(12)	Refer to Note 1, Summary of Significant Accounting Policies – Accounting Calendar Change, for more information on the accounting calendar change in 2015.

	(13)	Includes costs incurred and accrued related to the planned sale of a confectionery business in France. Refer to Note 2, Divestitures and Acquisitions, for more information.

	(14)	Refer to Note 2, Divestitures and Acquisitions, for more information on the 2016 intangible asset sale in Finland.

During 2016, we realized higher net pricing while input costs increased modestly. Higher net pricing, which included the carryover impact of pricing actions taken in 2015, was reflected in Latin America and AMEA, partially offset by lower net pricing in Europe and North America. The increase in input costs was driven by higher raw material costs, in part due to higher currency exchange transaction costs on imported materials, which were partially offset by lower manufacturing costs due to productivity. Favorable volume/mix was driven by Europe and North America, which was mostly offset by unfavorable volume/mix in Latin America and AMEA.

Total selling, general and administrative expenses decreased $1,037 million from 2015, due to a number of factors noted in the table above, including in part, the deconsolidation of our historical coffee business, a favorable currency impact, lower costs associated with the JDE coffee business transactions, the deconsolidation of our Venezuelan operations, gains on the sales of property, VAT-related settlements and the absence of devaluation charges related to our net monetary assets in Venezuela in 2016. The decreases were partially offset by increases from divestiture-related costs associated with the planned sale of a confectionery business in France, the reclassification of equity method investment earnings, higher implementation costs incurred for the 2014-2018 Restructuring Program and the impact of acquisitions.

Excluding the factors noted above, selling, general and administrative expenses decreased $318 million from 2015. The decrease was driven primarily by lower overhead costs due to continued cost reduction efforts.

We recorded a benefit of $54 million in 2016 from VAT-related settlements in Latin America as compared to $30 million in 2015. Unfavorable currency impacts decreased operating income by $171 million due primarily to the strength of the U.S. dollar relative to most currencies, including the British pound sterling, Argentinean peso and Mexican peso.

Operating income margin decreased from 30.0% in 2015 to 9.9% in 2016. The decrease in operating income margin was driven primarily by last year’s pre-tax gain on the JDE coffee business transactions, the deconsolidation of our historical coffee business, the deconsolidation of our Venezuelan operations, the unfavorable year-over-year change in mark-to-market gains/losses from derivatives, higher costs incurred for the 2014-2018 Restructuring Program, divestiture-related costs associated with the planned sale of a confectionery business in France, higher intangible asset impairment charges and the reclassification of equity method earnings. The items that decreased our operating income margin were partially offset by the prior-year loss on the Venezuela deconsolidation, an increase in our Adjusted Operating Income margin and the absence of costs associated with the JDE coffee business transactions. Adjusted Operating Income margin increased from 12.7% in 2015 to 15.0% in 2016. The increase in Adjusted Operating Income margin was driven primarily by lower overheads from cost reduction programs, improved gross margin reflecting productivity efforts, gains on sales of property and VAT-related settlements.

Net Earnings and Earnings per Share Attributable to Mondel__ē__z International – Net earnings attributable to Mondelēz International of $1,659 million decreased by $5,608 million (77.2%) in 2016. Diluted EPS attributable to Mondelēz International was $1.05 in 2016, down $3.39 (76.4%) from 2015. Adjusted EPS (1) was $1.86 in 2016, up $0.33 (21.6%) from 2015. Adjusted EPS on a constant currency basis (1) was $1.92 in 2016, up $0.39 (25.5%) from 2015.


	Diluted EPS

Diluted EPS Attributable to Mondelēz International for the Year Ended December 31, 2015	$	4.44
2014-2018 Restructuring Program costs (2)		0.45
Intangible asset impairment charges (3)		0.03
Mark-to-market gains from derivatives (4)		(0.03	)
Acquisition integration costs (5)		–
Acquisition-related costs (5)		–
Net earnings from divestiture (6)		(0.07	)
Loss on divestiture (6)		0.01
Net earnings from Venezuelan subsidiaries (7)		(0.10	)
Remeasurement of net monetary assets in Venezuela (7)		0.01
Loss on deconsolidation of Venezuela (7)		0.48
Gain on the JDE coffee business transactions (8)		(4.05	)
(Income) / costs associated with the JDE coffee business transactions (8)		(0.01	)
Loss related to interest rate swaps (9)		0.01
Loss on debt extinguishment and related expenses (10)		0.29
Equity method investee acquisition-related and other adjustments (11)		0.07

Adjusted EPS (1) for the Year Ended December 31, 2015	$	1.53
Increase in operations		0.28
Decrease in operations from historical coffee business, net of increase in equity method investment net earnings (12)		(0.05	)
Gains on sales of property (5)		0.02
VAT-related settlements		0.03
Impact of acquisitions (5)		–
Impact of accounting calendar change (13)		(0.01	)
Lower interest and other expense, net (14)		–
Changes in shares outstanding (15)		0.08
Changes in income taxes (16)		0.04

Adjusted EPS (constant currency) (1) for the Year Ended December 31, 2016	$	1.92
Unfavorable currency translation		(0.06	)

Adjusted EPS (1) for the Year Ended December 31, 2016	$	1.86
2014-2018 Restructuring Program costs (2)		(0.51	)
Intangible asset impairment charges (3)		(0.06	)
Mark-to-market losses from derivatives (4)		(0.05	)
Acquisition integration costs (5)		(0.01	)
Acquisition-related costs (5)		–
Divestiture-related costs (17)		(0.05	)
Net earnings from divestiture (6)		0.08
Gain on divestiture (6)		–
Gain on sale of intangible assets (5)		0.01
Loss related to interest rate swaps (9)		(0.04	)
Loss on debt extinguishment and related expenses (10)		(0.17	)
Gain on equity method investment transaction (18)		0.03
Equity method investee acquisition-related and other adjustments (11)		(0.04	)

Diluted EPS Attributable to Mondelēz International for the Year Ended December 31, 2016	$	1.05

	(1)	Refer to the Non-GAAP Financial Measures section appearing later in this section.

	(2)	Refer to Note 6, 2014-2018 Restructuring Program, for more information.

	(3)	Refer to Note 5, Goodwill and Intangible Assets, for more information on the impairment charges recorded in 2016 and 2015 related to trademarks.

	(4)	Refer to Note 8, Financial Instruments, Note 16, Segment Reporting, and Non-GAAP Financial Measures appearing later in this section for more information on these unrealized gains and losses on commodity and forecasted currency transaction derivatives.

	(5)	Refer to Note 2, Divestitures and Acquisitions, for more information on the 2016 purchase of a license to manufacture, market and sell Cadbury-branded biscuits in additional key markets, 2016 intangible asset sale in Finland, 2015 acquisitions of a biscuit operation in Vietnam and Enjoy Life Foods and other property sales in 2016.

	(6)	Refer to Note 2, Divestitures and Acquisitions, for more information on the December 1, 2016 sale of a confectionery business in Costa Rica. The sale of the confectionery business in Costa Rica generated a pre-tax and after-tax gain of $9 million in 2016. Refer to our Annual Report on Form 10-K for the year ended December 31, 2016 for more information on the April 23, 2015 divestiture of AGF. The divestiture of AGF generated a pre-tax gain of $13 million and after-tax loss of $9 million in 2015.

	(7)	Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting: Venezuela, for more information on the deconsolidation and remeasurement loss in 2015.

	(8)	Refer to Note 2, Divestitures and Acquisitions, for more information on the JDE coffee business transactions. Net gains of $436 million in 2015 on the currency hedges related to the coffee business transactions were recorded in interest and other expense, net and are included in the income/(costs) associated with the coffee business transactions of $(0.01) in the table above.

	(9)	Refer to Note 8, Financial Instruments, for more information on our interest rate swaps, which we no longer designate as cash flow hedges due to a change in financing and hedging plans.

	(10)	Refer to Note 7, Debt and Borrowing Arrangements, for more information on our loss on debt extinguishment and related expenses in connection with our debt tender offers.

	(11)	Includes our proportionate share of unusual or infrequent items, such as acquisition and divestiture-related costs and restructuring program costs, recorded by our JDE and Keurig equity method investees.

	(12)	Includes our historical global coffee business prior to the July 2, 2015 deconsolidation. We reclassified the results of our historical coffee business from Adjusted Operating Income and included them with equity method investment earnings in Adjusted EPS to facilitate comparisons of past and future coffee operating results. Refer to Note 2, Divestitures and Acquisitions, and Non-GAAP Financial Measures appearing later in this section for more information.

	(13)	Refer to Note 1, Summary of Significant Accounting Policies, for more information on the accounting calendar change in 2015.

	(14)	Excludes the favorable currency impact on interest expense related to our non-U.S. dollar-denominated debt which is included in currency translation.

	(15)	Refer to Note 10, Stock Plans, for more information on our equity compensation programs, Note 11, Capital Stock, for more information on our share repurchase program and Note 15, Earnings Per Share, for earnings per share weighted-average share information.

	(16)	Refer to Note 14, Income Taxes, for more information on items affecting income taxes.

	(17)	Includes costs incurred and accrued related to the planned sale of a confectionery business in France. Refer to Note 2, Divestitures and Acquisitions, for more information.

	(18)	Refer to Note 2, Divestitures and Acquisitions – Keurig Transaction, for more information on the 2016 acquisition of an interest in Keurig.

Results of Operations by Reportable Segment

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

	•		Latin America

	•		AMEA

	•		Europe

	•		North America

On October 1, 2016, we integrated our EEMEA operating segment into our Europe and Asia Pacific operating segments to further leverage and optimize the operating scale built within the Europe and Asia Pacific regions. Russia, Ukraine, Turkey, Belarus, Georgia and Kazakhstan were combined within our Europe operating segment, while the remaining Middle East and African countries were combined within our Asia Pacific region to form a new AMEA regional operating segment. We have reflected the segment change as if it had occurred in all periods presented.

We manage our operations by region to leverage regional operating scale, manage different and changing business environments more effectively and pursue growth opportunities as they arise in our key markets. Our regional management teams have responsibility for the business, product categories and financial results in the regions.

Historically, we have recorded income from equity method investments within our operating income as these investments were part of our base business. Beginning in the third quarter of 2015, to align with the accounting for our new coffee equity method investment in JDE, we began to record the earnings from our equity method investments in equity method investment earnings outside of segment operating income. For the six months ended December 31, 2015, after-tax equity method investment net earnings were less than $1 million on a combined basis. Earnings from equity method investments through July 2, 2015 recorded within segment operating income were $52 million in AMEA and $4 million in North America. See Note 1, Summary of Significant Accounting Policies – Principles of Consolidation, and Note 2, Divestitures and Acquisitions, for additional information.

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

We use segment operating income to evaluate segment performance and allocate resources. We believe it is appropriate to disclose this measure to help investors analyze segment performance and trends. See Note 16, Segment Reporting, for additional information on our segments and Items Affecting Comparability of Financial Results earlier in this section for items affecting our segment operating results.

Our segment net revenues and earnings, reflecting our current segment structure for all periods presented, were:


	For the Years Ended December 31,
	2017		2016		2015
	(in millions)

Net revenues:
Latin America (1)	$	3,566	$	3,392	$	4,988
AMEA (2)		5,739		5,816		6,002
Europe (2)		9,794		9,755		11,672
North America		6,797		6,960		6,974

Net revenues	$	25,896	$	25,923	$	29,636

	(1)	Net revenues of $1,217 million for 2015 from our Venezuelan subsidiaries are included in our consolidated financial statements. Beginning in 2016, we account for our Venezuelan subsidiaries using the cost method of accounting and no longer include net revenues of our Venezuelan subsidiaries within our consolidated financial statements. Refer to Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting: Venezuela, for more information.

	(2)	On July 2, 2015, we contributed our global coffee businesses primarily from our Europe and AMEA segments. Net revenues of our global coffee business were $1,561 million in Europe and $66 million in AMEA for the year ended December 31, 2015. Refer to Note 2, Divestitures and Acquisitions – JDE Coffee Business Transactions, for more information.


	For the Years Ended December 31,
	2017			2016			2015
	(in millions)

Earnings before income taxes:
Operating income:
Latin America	$	565		$	271		$	485
AMEA		516			506			389
Europe		1,680			1,267			1,350
North America		1,120			1,078			1,105
Unrealized (losses)/gains on hedging activities (mark-to-market impacts)		(96	)		(94	)		96
General corporate expenses		(287	)		(291	)		(383	)
Amortization of intangibles		(178	)		(176	)		(181	)
Net gain on divestitures		186			9			6,822
Loss on deconsolidation of Venezuela		–			–			(778	)
Acquisition-related costs		–			(1	)		(8	)

Operating income		3,506			2,569			8,897
Interest and other expense, net		(382	)		(1,115	)		(1,013	)

Earnings before income taxes	$	3,124		$	1,454		$	7,884

Latin America


	For the Years Ended December 31,
	2017		2016		$ change		% change
	(in millions)

Net revenues	$	3,566	$	3,392	$	174		5.1%
Segment operating income		565		271		294		108.5%

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

Net revenues	$	3,392	$	4,988	$	(1,596)		(32.0)%
Segment operating income		271		485		(214)		(44.1)%

2017 compared with 2016:

Net revenues increased $174 million (5.1%), due to higher net pricing (7.7 pp) and favorable currency (1.9 pp), partially offset by unfavorable volume/mix (4.2 pp) and the impact of a divestiture (0.3 pp). Higher net pricing was reflected across all categories driven primarily by Argentina, Brazil and Mexico. Favorable currency impacts were due primarily to the strength of several currencies in the region relative to the U.S. dollar, primarily the Brazilian real, partially offset by the strength of the U.S. dollar relative to the Argentinean peso and Mexican peso. Unfavorable volume/mix, which occurred across most of the region, was largely due to the impact of pricing-related elasticity. In addition, only a portion of the shipments delayed at the end of the second quarter due to the malware incident was recovered. Unfavorable volume/mix was driven by declines in all categories except chocolate and candy. On December 1, 2016, we sold a small confectionery business in Costa Rica.

Segment operating income increased $294 million (108.5%), primarily due to higher net pricing, the benefit from the resolution of a Brazilian indirect tax matter of $153 million, lower manufacturing costs, lower costs incurred for the 2014-2018 Restructuring Program, favorable currency and lower advertising and consumer promotion costs. These favorable items were partially offset by higher raw material costs, unfavorable volume/mix and higher other selling, general and administrative expenses (net of prior-year VAT-related settlements).

2016 compared with 2015:

Net revenues decreased $1,596 million (32.0%), due to the deconsolidation of our Venezuelan operations (21.9 pp), unfavorable currency (14.8 pp), unfavorable volume/mix (5.3 pp) and the impact of a divestiture (0.1 pp), partially offset by higher net pricing (10.1 pp). The deconsolidation of our Venezuelan operations resulted in a year-over-year decrease in net revenues of $1,217 million. Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to most currencies in the region, including the Argentinean peso and Mexican peso. Unfavorable volume/mix, which primarily occurred in Brazil and Argentina, was largely due to the impact of pricing-related elasticity as well as strategic decisions to exit certain low-margin product lines. Unfavorable volume/mix was driven by declines in all categories except for cheese & grocery. Higher net pricing was reflected across all categories driven primarily by Argentina, Brazil and Mexico.

Segment operating income decreased $214 million (44.1%), primarily due to higher raw material costs, the deconsolidation of our Venezuelan operations, unfavorable volume/mix and unfavorable currency. These unfavorable items were partially offset by higher net pricing, lower other selling, general and administrative expenses (including higher year-over year VAT-related settlements), lower manufacturing costs, lower advertising and consumer promotion costs, lower costs incurred for the 2014-2018 Restructuring Program and the absence of remeasurement losses in 2016 related to our net monetary assets in Venezuela.

AMEA


	For the Years Ended December 31,
	2017		2016		$ change		% change
	(in millions)

Net revenues	$	5,739	$	5,816	$	(77)		(1.3)%
Segment operating income		516		506		10		2.0%

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

Net revenues	$	5,816	$	6,002	$	(186)		(3.1)%
Segment operating income		506		389		117		30.1%

2017 compared with 2016:

Net revenues decreased $77 million (1.3%), due to the impact of divestitures (2.2 pp), unfavorable currency (1.8 pp) and unfavorable volume/mix (0.2 pp), partially offset by higher net pricing (2.9 pp). The impact of divestitures, primarily related to the grocery & cheese business in Australia and New Zealand that was divested on July 4, 2017, resulted in a year-over-year decline in net revenues of $128 million for 2017. Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to several currencies in the region, including the Egyptian pound, Nigerian naira, Philippine peso, Chinese yuan and Japanese yen, partially offset by the strength of several other currencies in the region relative to the U.S. dollar, including the Australian dollar, Indian rupee and South African rand. Unfavorable volume/mix was driven by declines in refreshment beverages, cheese & grocery, gum and candy, partially offset by gains in chocolate and biscuits. In addition, only a portion of the shipments delayed at the end of the second quarter due to the malware incident was recovered. Higher net pricing was reflected across all categories except cheese & grocery.

Segment operating income increased $10 million (2.0%), primarily due to higher net pricing, lower other selling, general and administrative expenses (including a property insurance recovery), lower manufacturing costs and lower advertising and consumer promotion costs. These favorable items were mostly offset by higher raw material costs, unfavorable currency, unfavorable volume/mix, higher costs incurred for the 2014-2018 Restructuring Program, the impact of divestitures and higher intangible asset impairment charges.

2016 compared with 2015:

Net revenues decreased $186 million (3.1%), due to unfavorable currency (3.9 pp), the adjustment for deconsolidating our historical coffee business (1.1 pp) and unfavorable volume/mix (1.0 pp), partially offset by higher net pricing (1.7 pp) and the impact of an acquisition (1.2 pp). Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to most currencies in the region, including the Chinese yuan, Indian rupee, South African rand, Egyptian pound, Nigerian naira, Philippine peso and Australian dollar, partially offset by the strength of the Japanese yen relative to the U.S. dollar. The adjustment for deconsolidating our historical coffee business resulted in a year-over-year decrease in net revenues of $66 million. Unfavorable volume/mix, including the unfavorable impact of strategic decisions to exit certain low-margin product lines, was driven by declines in candy, refreshment beverages, cheese & grocery and chocolate, partially offset by gains in biscuits and gum. Higher net pricing was driven by chocolate, candy, biscuits and refreshment beverages, partially offset by lower net pricing in gum and cheese & grocery. The acquisition of a biscuit operation in Vietnam in July 2015 added net revenues of $71 million (constant currency basis).

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

Europe


	For the Years Ended December 31,
	2017		2016		$ change		% change
	(in millions)

Net revenues	$	9,794	$	9,755	$	39		0.4%
Segment operating income		1,680		1,267		413		32.6%

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

Net revenues	$	9,755	$	11,672	$	(1,917)		(16.4)%
Segment operating income		1,267		1,350		(83)		(6.1)%

2017 compared with 2016:

Net revenues increased $39 million (0.4%), due to favorable volume/mix (1.4 pp), favorable currency (1.0 pp), and the impact of an acquisition (0.6 pp), partially offset by the impact of divestitures (2.5 pp) and lower net pricing (0.1 pp). Favorable volume/mix was driven by chocolate and biscuits, partially offset by declines in gum, cheese & grocery, candy and refreshment beverages. In addition, a portion of the shipments delayed at the end of the second quarter due to the malware incident was not recovered. Favorable currency impacts reflected the strength of several other currencies relative to the U.S. dollar, primarily the euro and Russian ruble, partially offset by the strength of the U.S. dollar against several currencies in the region, including the British pound sterling and Turkish lira. The November 2016 acquisition of a business and license to manufacture, market and sell Cadbury-branded biscuits added net revenues of $59 million (constant currency basis). The impact of divestitures, primarily due to the sale of a confectionery business in France, resulted in a year-over-year decline in net revenues of $234 million for 2017. Lower net pricing was driven by biscuits, mostly offset by higher net pricing in all other categories.

Segment operating income increased $413 million (32.6%), primarily due to lower manufacturing costs, lower costs incurred for the 2014-2018 Restructuring Program, lower other selling, general and administrative expenses, lower divestiture-related costs, lower advertising and consumer promotion costs, the benefit from the settlement of a Cadbury tax matter, favorable volume/mix, lower intangible asset impairment charges, favorable currency and the impact of an acquisition. These favorable items were partially offset by higher raw material costs, the impact of divestitures, incremental costs incurred due to the malware incident, lower net pricing and a prior-year gain on the sale of an intangible asset.

2016 compared with 2015:

Net revenues decreased $1,917 million (16.4%), due to the adjustment for deconsolidating our historical coffee business (12.9 pp), unfavorable currency (4.4 pp), lower net pricing (0.4 pp) and the impact of divestitures (0.2 pp), partially offset by favorable volume/mix (1.3 pp) and the impact of an acquisition (0.2 pp). The adjustment for deconsolidating our historical coffee business resulted in a year-over-year decrease in net revenues of $1,561 million. Unfavorable currency impacts reflected the strength of the U.S. dollar against most currencies in the region, primarily the British pound sterling. Lower net pricing was reflected across most categories except candy and gum. Favorable volume/mix, including the unfavorable impact of strategic decisions to exit certain low-margin product lines, was driven by biscuits, chocolate and cheese & grocery, partially offset by declines in gum, candy and refreshment beverages. The purchase of the license to manufacture, market and sell Cadbury-branded biscuits in November 2016 added net revenues of $16 million (constant currency basis).

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

North America


	For the Years Ended
	December 31,
	2017		2016		$ change			% change
	(in millions)

Net revenues	$	6,797	$	6,960	$	(163	)		(2.3)%
Segment operating income		1,120		1,078		42			3.9 %

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

Net revenues	$	6,960	$	6,974	$	(14	)		(0.2)%
Segment operating income		1,078		1,105		(27	)		(2.4)%

2017 compared with 2016:

Net revenues decreased $163 million (2.3%), due to unfavorable volume/mix (1.8 pp), lower net pricing (0.6 pp) and the impact of divestitures (0.1 pp), partially offset by favorable currency (0.2 pp). Unfavorable volume/mix, primarily caused by shipments delayed at the end of the second quarter due to the malware incident that were not recovered, was driven by declines in gum, biscuits and candy, partially offset by a gain in chocolate. Lower net pricing was reflected in biscuits and chocolate, partially offset by higher net pricing in candy and gum. Favorable currency impact was due to the strength of the Canadian dollar relative to the U.S. dollar.

Segment operating income increased $42 million (3.9%), primarily due to lower costs incurred for the 2014-2018 Restructuring Program, lower other selling, general and administrative expenses (net of the prior-year’s gain on sale of property), lower manufacturing costs, lower advertising and consumer promotion costs and lower raw material costs. These favorable items were partially offset by unfavorable volume/mix, incremental costs incurred due to the malware incident, lower net pricing, the impact of divestitures and prior-year gain on the sale of an intangible asset.

2016 compared with 2015:

Net revenues decreased $14 million (0.2%), due to the impact of an accounting calendar change made in the prior year (1.1 pp), unfavorable currency (0.3 pp) and lower net pricing (0.2 pp), mostly offset by favorable volume/mix (1.4 pp). The prior-year change in North America’s accounting calendar resulted in a year-over-year decrease in net revenues of $76 million. Unfavorable currency impact was due to the strength of the U.S. dollar relative to the Canadian dollar. Lower net pricing was reflected in biscuits and candy, partially offset by higher net pricing in chocolate and gum. Favorable volume/ mix, including the unfavorable impact of strategic decisions to exit certain low-margin product lines, was driven by gains in biscuits and candy, partially offset by declines in gum and chocolate.

Segment operating income decreased $27 million (2.4%), primarily due to higher costs incurred for the 2014-2018 Restructuring Program, higher advertising and consumer promotion costs, intangible asset impairment charges, the year-over-year impact of the prior-year accounting calendar change, higher raw material costs and lower net pricing. These unfavorable items were mostly offset by lower other selling, general and administrative expenses (including the gain on sale of property), lower manufacturing costs, favorable volume/mix and the gain on the sale of an intangible asset.

Critical Accounting Estimates

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

Goodwill and Non-Amortizable Intangible Assets:

We have historically annually tested goodwill and non-amortizable intangible assets for impairment as of October 1. This year, we voluntarily changed the annual impairment assessment date from October 1 to July 1. We believe this measurement date, which represents a change in the method of applying an accounting principle, is preferable because it better aligns with our strategic business planning process and financial forecasts which are key components of the annual impairment tests. The change in the measurement date did not delay, accelerate or prevent an impairment charge. Each quarter, we have evaluated goodwill and intangible asset impairment risks and recognized any related impairments to date. As such, the change in the annual test date was applied on July 1, 2017.

We assess goodwill impairment risk throughout the year by performing a qualitative review of entity-specific, industry, market and general economic factors affecting our goodwill reporting units. We review our operating segment and reporting unit structure for goodwill testing annually or as significant changes in the organization occur. Annually, we may perform qualitative testing, or depending on factors such as prior-year test results, current year developments, current risk evaluations and other practical considerations, we may elect to do quantitative testing instead. In our quantitative testing, we compare a reporting unit’s estimated fair value with its carrying value. We estimate a reporting unit’s fair value using a discounted cash flow method which incorporates planned growth rates, market-based discount rates and estimates of residual value. This year, for our Europe and North America reporting units, we used a market-based, weighted-average cost of capital of 7.2% to discount the projected cash flows of those operations. For our Latin America and AMEA reporting units, we used a risk-rated discount rate of 10.2%. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans and industry and economic conditions, and our actual results and conditions may differ over time. If the carrying value of a reporting unit’s net assets exceeds its fair value, we would recognize an impairment charge for the amount by which the carrying value exceeds the reporting unit fair value.

In 2017, 2016 and 2015, there were no impairments of goodwill. In connection with our 2017 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 we do not meet business performance expectations or specific valuation factors outside of our control, such as discount rates, change significantly, then the estimated fair values of a reporting unit or reporting units might decline and lead to a goodwill impairment in the future.

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

During our 2017 annual testing of non-amortizable intangible assets, we recorded $70 million of impairment charges in the third quarter of 2017 related to five trademarks. The impairments arose due to lower than expected product growth in part driven by decisions to redirect support from these trademarks to other regional and global brands. We recorded charges related to candy and gum trademarks of $52 million in AMEA, $11 million in Europe, $5 million in Latin America and $2 million in North America. The impairment charges were calculated as the excess of the carrying value over the estimated fair value of the intangible assets on a global basis and were recorded within asset impairment and exit costs. We primarily use a relief of royalty valuation method, which utilizes estimates of future sales, growth rates, royalty rates and discount rates in determining a brand’s global fair value. We also noted thirteen brands, including the five impaired trademarks, with $963 million of aggregate book value as of December 31, 2017 that each had a fair value in excess of book value of 10% or less. We believe our current plans for each of these brands will allow them to continue to not be impaired, but if we do not meet the product line expectations or specific valuation factors outside of our control, such as discount rates, change significantly, then a brand or brands could become impaired in the future. In 2016, we recorded charges related to biscuits, candy and gum trademarks of $41 million in AMEA, $32 million in North America, $22 million in Europe, and $3 million in Latin America. In 2015, we recorded a $44 million charge related to candy and biscuit trademarks in AMEA, $22 million in Europe and $5 million in Latin America.

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

Trade and marketing programs:

We promote our products with trade and sales incentives as well as marketing and advertising programs. These programs include, but are not limited to, new product introduction fees, discounts, coupons, rebates and volume-based incentives as well as cooperative advertising, in-store displays and consumer marketing promotions. Trade and sales incentives 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 and consumer promotion expenses are charged to operations as a percentage of volume, based on estimated sales volume and estimated program spending. We do not defer costs on our year-end consolidated balance sheet and all marketing and advertising costs are recorded as an expense in the year incurred.

Employee Benefit Plans:

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

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

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

While we do not anticipate further changes in the 2018 assumptions for our U.S. and non-U.S. pension and postretirement health care plans, as a sensitivity measure, a fifty-basis point change in our discount rates or the expected rate of return on plan assets would have the following effects, increase/(decrease), on our annual benefit plan costs:


		As of December 31, 2017
		U.S. Plans						Non-U.S. Plans
	Fifty-Basis-Point						Fifty-Basis-Point
		Increase			Decrease			Increase			Decrease
		(in millions)
Effect of change in discount rate on pension costs		$	(16	)	$	17		$	(67	)	$	76
Effect of change in expected rate of return on plan assets on pension costs			(8	)		8			(43	)		43
Effect of change in discount rate on postretirement health care costs			(3	)		4			(1	)		1

Income Taxes:

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

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

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

As a result of the U.S. tax reform and the related SEC guidance, we included provisional estimates in our consolidated financial statements for some impacts of the new tax legislation. We were unable to make a reasonable estimate for other provisions of the legislation and did not include an estimate in our consolidated financial statements. See Note 14, Income Taxes, for further discussion of the provisional amounts related to U.S. tax reform included in our financial statements and a discussion of the items for which no estimate could be made, as well as additional information on our effective tax rate, current and deferred taxes, valuation allowances and unrecognized tax benefits.

Contingencies:

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

New Accounting Guidance:

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

Liquidity and Capital Resources

We believe that cash from operations, our revolving credit facilities and our authorized long-term financing will provide sufficient liquidity for our working capital needs, planned capital expenditures, future contractual obligations, share repurchases, transition tax liability on our historical accumulated foreign earnings due to the U.S. tax reform and payment of our anticipated quarterly dividends. We continue to utilize our commercial paper program, international credit lines and long-term debt issuances for regular funding requirements. We also use intercompany loans with our international subsidiaries to improve financial flexibility. Overall, we do not expect any negative effects to our funding sources that would have a material effect on our liquidity.

Net Cash Provided by Operating Activities:

Operating activities provided net cash of $2,593 million in 2017, $2,838 million in 2016 and $3,728 million in 2015. Cash flows from operating activities were lower in 2017 than 2016 primarily due to increases in working capital including higher tax and VAT-related payments in 2017 and lower operating cash flows from divested businesses, partially offset by higher net earnings and lower pension contributions in 2017. Cash flows from operating activities were lower in 2016 than 2015 due to higher contributions to our pension benefit plans in 2016 and higher working capital cash improvements in 2015 than in 2016.

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

Net cash used in investing activities was $301 million in 2017 and $1,029 million in 2016 and net cash provided by investing activities was $2,649 million in 2015. The decrease in net cash used in investing activities in 2017 relative to 2016 was due to higher net proceeds received from divestitures in 2017, no acquisition-related payments in 2017 as in 2016, and lower capital expenditures in 2017. The increase in net cash used in investing activities in 2016 relative to 2015 primarily relates to $4.7 billion of proceeds, net of divested cash and transaction costs, from the contribution of our global coffee businesses to JDE, the divestiture of AGF and the cash receipt of $1.0 billion due to the settlement of currency exchange forward contracts related to our coffee business transactions in 2015.

Capital expenditures were $1,014 million in 2017, $1,224 million in 2016 and $1,514 million in 2015. We continue to make capital expenditures primarily to modernize manufacturing facilities and support new product and productivity initiatives. We expect 2018 capital expenditures to be up to $1.0 billion, including capital expenditures in connection with our 2014-2018 Restructuring Program. We expect to continue to fund these expenditures from operations.

Net Cash Used in Financing Activities:

Net cash used in financing activities was $3,361 million in 2017, $1,862 million in 2016 and $5,883 million in 2015. The increase in net cash used in financing activities in 2017 relative to 2016 was primarily due to lower net issuances of short-term and long-term debt as well as an increase in dividends paid, partly offset by lower Common Stock repurchases compared to the prior year. The decrease in net cash used in financing activities in 2016 relative to 2015 was primarily due to higher short-term debt issuances and $1.0 billion of lower share repurchases following the exceptional year of share repurchases using proceeds from the global coffee business transactions in 2015.

Debt:

From time to time we refinance long-term and short-term debt. Refer to Note 7, Debt and Borrowing Arrangements, for details of our tender offers, debt issuances and maturities during 2016-2017. The nature and amount of our long-term and short-term debt and the proportionate amount of each varies as a result of current and expected business requirements, market conditions and other factors. Due to seasonality, in the first and second quarters of the year, our working capital requirements grow, increasing the need for short-term financing. The second half of the year typically generates higher cash flows. As such, we may issue commercial paper or secure other forms of financing throughout the year to meet short-term working capital needs.

During 2016, one of our subsidiaries, Mondelez International Holdings Netherlands B.V. (“MIHN”), issued debt totaling $4.5 billion. The operations held by MIHN generated approximately 74.5% (or $19.3 billion) of the $25.9 billion of consolidated net revenue during fiscal year 2017 and represented approximately 75.5% (or $19.8 billion) of the $26.2 billion of net assets as of December 31, 2017.

On February 3, 2017, our Board of Directors approved a new $5 billion long-term financing authority to replace the prior authority. As of December 31, 2017, we had $4.7 billion of long-term financing authority remaining.

In the next 12 months, we expect $1.2 billion of long-term debt will mature as follows: fr.250 million Swiss franc notes ($257 million as of December 31, 2017) in January 2018, $478 million in February 2018, £76 million sterling notes ($103 million as of December 31, 2017) in July 2018, and $322 million in August 2018. We expect to fund these repayments with a combination of cash from operations and the issuance of commercial paper or long-term debt.

Our total debt was $17.7 billion at December 31, 2017 and $17.2 billion at December 31, 2016. Our debt-to-capitalization ratio was 0.40 at December 31, 2017 and 0.41 at December 31, 2016. At December 31, 2017, the weighted-average term of our outstanding long-term debt was 6.2 years. Our average daily commercial borrowings were $4.4 billion in 2017, $2.2 billion in 2016 and $2.2 billion in 2015. We had $3.4 billion of commercial paper borrowings outstanding at December 31, 2017 and $2.4 billion outstanding as of December 31, 2016. We expect to continue to use commercial paper to finance various short and long-term financing needs and to continue to comply with our long-term debt covenants. Refer to Note 7, Debt and Borrowing Arrangements, for more information on our debt and debt covenants.

Commodity Trends

We regularly monitor worldwide supply, commodity cost and currency trends so we can cost-effectively secure ingredients, packaging and fuel required for production. During 2017, the primary drivers of the increase in our aggregate commodity costs were higher currency-related costs on our commodity purchases and increased costs for dairy, cocoa, sugar, packaging and other raw materials.

A number of external factors such as weather conditions, commodity market conditions, currency fluctuations and the effects of governmental agricultural or other programs affect the cost and availability of raw materials and agricultural materials used in our products. We address higher commodity costs and currency impacts primarily through hedging, higher pricing and manufacturing and overhead cost control. We use hedging techniques to limit the impact of fluctuations in the cost of our principal raw materials; however, we may not be able to fully hedge against commodity cost changes, such as dairy, where there is a limited ability to hedge, and our hedging strategies may not protect us from increases in specific raw material costs. Due to competitive or market conditions, planned trade or promotional incentives, fluctuations in currency exchange rates or other factors, our pricing actions may also lag commodity cost changes temporarily.

We expect price volatility and a slightly higher aggregate cost environment to continue in 2018. While the costs of our principal raw materials fluctuate, we believe there will continue to be an adequate supply of the raw materials we use and that they will generally remain available from numerous sources.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

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

Guarantees:

As discussed in Note 12, Commitments and Contingencies, we enter into third-party guarantees primarily to cover the long-term obligations of our vendors. As part of these transactions, we guarantee that third parties will make contractual payments or achieve performance measures. At December 31, 2017, we had no material third-party guarantees recorded on our consolidated balance sheet.

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

Aggregate Contractual Obligations:

The following table summarizes our contractual obligations at December 31, 2017.


	Payments Due
	Total		2018		2019-20		2021-22		2023 and Thereafter
	(in millions)
Debt (1)	$	14,196	$	1,162	$	3,545	$	4,127	$	5,362
Interest expense (2)		3,330		348		556		431		1,995
Capital leases		3		1		2		–		–
Operating leases (3)		920		245		352		169		154
Purchase obligations: (4)
Inventory and production costs		5,328		3,083		1,645		256		344
Other		831		694		130		6		1

		6,159		3,777		1,775		262		345
U.S. tax reform transition liability (5)		1,317		128		200		200		789
Other long-term liabilities (6)		423		21		135		65		202

Total	$	26,348	$	5,682	$	6,565	$	5,254	$	8,847

	(1)	Amounts include the expected cash payments of our debt excluding capital leases, which are presented separately in the table above. The amounts also exclude $64 million of net unamortized non-cash bond premiums, discounts, bank fees and mark-to-market adjustments related to our interest rate swaps recorded in total debt.

	(2)	Amounts represent the expected cash payments of our interest expense on our long-term debt. Interest calculated on our euro, British pound sterling and Swiss franc notes was forecasted using currency exchange rates as of December 31, 2017. An insignificant amount of interest expense was excluded from the table for a portion of our other non-U.S. debt obligations due to the complexities involved in forecasting expected interest payments.

	(3)	Operating lease payments represent the minimum rental commitments under non-cancelable operating leases.

	(4)	Purchase obligations for inventory and production costs (such as raw materials, indirect materials and supplies, packaging, co-manufacturing arrangements, storage and distribution) are commitments for projected needs to be utilized in the normal course of business. Other purchase obligations include commitments for marketing, advertising, capital expenditures, information technology and professional services. Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction. Most arrangements are cancelable without a significant penalty and with short notice (usually 30 days). Any amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above.

	(5)	In connection with the U.S. tax reform, we currently estimate paying a $1.3 billion transition tax liability through 2026. The amounts and timing of our tax payments are likely to change as a result of additional guidance expected to be issued in 2018. See Note 14, Income Taxes, for additional information on the U.S. tax reform and its impact on our financial statements.

	(6)	Other long-term liabilities include estimated future benefit payments for our postretirement health care plans through December 31, 2027 of $235 million. We are unable to reliably estimate the timing of the payments beyond 2027; as such, they are excluded from the above table. There are also another $126 million of various other long-term liabilities that are expected to be paid over the next 5 years. In addition, the following long-term liabilities included on the consolidated balance sheet are excluded from the table above: accrued pension costs, unrecognized tax benefits, insurance accruals and other accruals. As of December 31, 2017, our unrecognized tax benefit, including associated interest and penalties, classified as a long-term payable is $649 million. We currently expect to make approximately $289 million in contributions to our pension plans in 2018.

Equity and Dividends

Stock Plans:

See Note 10, Stock Plans, to the consolidated financial statements for more information on our stock plans and grant activity during 2015-2017.

Share Repurchases:

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

Between 2013 and 2017, our Board of Directors authorized the repurchase of a total of $13.7 billion of our Common Stock through December 31, 2018. On January 31, 2018, our Finance Committee, with authorization delegated from our Board of Directors, approved an increase of $6.0 billion in the share repurchase program, raising the authorization to $19.7 billion of Common Stock repurchases, and extended the program through December 31, 2020. We repurchased approximately $13 billion of shares ($2.2 billion in 2017, $2.6 billion in 2016, $3.6 billion in 2015, $1.9 billion in 2014 and $2.7 billion in 2013), at a weighted-average cost of $38.86 per share, through December 31, 2017. The number of shares that we ultimately repurchase under our share repurchase program may vary depending on numerous factors, including share price and other market conditions, our ongoing capital allocation planning, levels of cash and debt balances, other demands for cash, such as acquisition activity, general economic or business conditions and board and management discretion. Additionally, our share repurchase activity during any particular period may fluctuate. We may accelerate, suspend, delay or discontinue our share repurchase program at any time, without notice.

Dividends:

We paid dividends of $1,198 million in 2017, $1,094 million in 2016 and $1,008 million in 2015. On August 2, 2017, the Finance Committee, with authorization delegated from our Board of Directors, approved a 16% increase in the quarterly dividend to $0.22 per common share or $0.88 per common share on an annualized basis. On July 19, 2016, our Board of Directors approved a 12% increase in the quarterly dividend to $0.19 per common share or $0.76 per common share on an annual basis. On July 23, 2015, our Board of Directors approved a 13% increase in the quarterly dividend to $0.17 per common share or $0.68 per common share on an annual basis. The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors that our Board of Directors deems relevant to its analysis and decision making.

For U.S. income tax purposes only, the Company has determined that 100% of the distributions paid to its shareholders in 2017 are characterized as a qualified dividend paid from U.S. earnings and profits. Shareholders should consult their tax advisors for a full understanding of the tax consequences of the receipt of dividends.

Non-GAAP Financial Measures

We use non-GAAP financial information and believe it is useful to investors as it provides additional information to facilitate comparisons of historical operating results, identify trends in our underlying operating results and provide additional insight and transparency on how we evaluate our business. We use non-GAAP financial measures to budget, make operating and strategic decisions and evaluate our performance. We have detailed the non-GAAP adjustments that we make in our non-GAAP definitions below. The adjustments generally fall within the following categories: acquisition & divestiture activities, gains and losses on intangible asset sales and non-cash impairments, major program restructuring activities, constant currency and related adjustments, major program financing and hedging activities and other major items affecting comparability of operating results. We believe the non-GAAP measures should always be considered along with the related U.S. GAAP financial measures. We have provided the reconciliations between the GAAP and non-GAAP financial measures below, and we also discuss our underlying GAAP results throughout our Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-K.

Our primary non-GAAP financial measures are listed below and reflect how we evaluate our current and prior-year operating results. As new events or circumstances arise, these definitions could change. When our definitions change, we provide the updated definitions and present the related non-GAAP historical results on a comparable basis (1).

	•		“Organic Net Revenue” is defined as net revenues excluding the impacts of acquisitions, divestitures (2), our historical global coffee business (3), our historical Venezuelan operations, accounting calendar changes and currency rate fluctuations (4). We also evaluate Organic Net Revenue growth from emerging markets and our Power Brands.

	•		Our emerging markets include our Latin America region in its entirety; the AMEA region, excluding Australia, New Zealand and Japan; and the following countries from the Europe region: Russia, Ukraine, Turkey, Kazakhstan, Belarus, Georgia, Poland, Czech Republic, Slovak Republic, Hungary, Bulgaria, Romania, the Baltics and the East Adriatic countries. (Our developed markets include the entire North America region, the Europe region excluding the countries included in the emerging markets definition, and Australia, New Zealand and Japan from the AMEA region.)

	•		Our Power Brands include some of our largest global and regional brands such as Oreo, Chips Ahoy!, Ritz, TUC/Club Social and belVita biscuits; Cadbury Dairy Milk, Milka and Lacta chocolate; Trident gum; Halls candy and Tang powdered beverages.

	•		“Adjusted Operating Income” is defined as operating income excluding the impacts of the 2012-2014 Restructuring Program (5); the 2014-2018 Restructuring Program (5); Venezuela remeasurement and deconsolidation losses and historical operating results; gains or losses (including non-cash impairment charges) on goodwill and intangible assets; divestiture (2) or acquisition gains or losses and related integration and acquisition costs; the JDE coffee business transactions (3) gain and net incremental costs; the operating results of divestitures (2); our historical global coffee business operating results (3); mark-to-market impacts from commodity and forecasted currency transaction derivative contracts (6); equity method investment earnings historically reported within operating income (7); benefits from resolution of tax matters (8) ; CEO transition remuneration (9) and incremental expenses related to the malware incident. We also present “Adjusted Operating Income margin,” which is subject to the same adjustments as Adjusted Operating Income. We also evaluate growth in our Adjusted Operating Income on a constant currency basis (4).

	•		“Adjusted EPS” is defined as diluted EPS attributable to Mondelēz International from continuing operations excluding the impacts of the 2012-2014 Restructuring Program (5); the 2014-2018 Restructuring Program (5); Venezuela remeasurement and deconsolidation losses and historical operating results; losses on debt extinguishment and related expenses; gains or losses (including non-cash impairment charges) on goodwill and intangible assets; divestiture (2) or acquisition gains or losses and related integration and acquisition costs; the JDE coffee business transactions (3) gain, transaction hedging gains or losses and net incremental costs; gain on equity method investment transactions; net earnings from divestitures (2); mark-to-market impacts from commodity and forecasted currency transaction derivative contracts (6); gains or losses on interest rate swaps no longer designated as accounting cash flow hedges due to changed financing and hedging plans; benefits from resolution of tax matters (8); CEO transition remuneration (9); incremental expenses related to the malware incident and the U.S. tax reform discrete impacts (10). Similarly, within Adjusted EPS, our equity method investment net earnings exclude our proportionate share of our investees’ unusual or infrequent items (11). We also evaluate growth in our Adjusted EPS on a constant currency basis (4).

	(1)	When items no longer impact our current or future presentation of non-GAAP operating results, we remove these items from our non-GAAP definitions. During 2017, we added to the non-GAAP definitions the exclusion of: benefits from the resolution of tax matters (see footnote (8) below), CEO transition remuneration (see footnote (9) below), incremental expenses related to the malware incident (discussed under Malware Incident) and the U.S. tax reform discrete impacts (see footnote (10) below).

	(2)	Divestitures include completed sales of businesses and exits of major product lines upon completion of a sale or licensing agreement.

	(3)	We continue to have an ongoing interest in the legacy coffee business we deconsolidated in 2015 as part of the JDE coffee business transactions. For historical periods prior to the July 15, 2015 coffee business deconsolidation, we have reclassified any net revenue or operating income from the historical coffee business and included them where the coffee equity method investment earnings are presented within Adjusted EPS. As such, Organic Net Revenue and Adjusted Operating Income in all periods do not include the results of our legacy coffee businesses, which are shown within Adjusted EPS.

	(4)	Constant currency operating results are calculated by dividing or multiplying, as appropriate, the current-period local currency operating results by the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.

	(5)	Non-GAAP adjustments related to the 2014-2018 Restructuring Program reflect costs incurred that relate to the objectives of our program to transform our supply chain network and organizational structure. Costs that do not meet the program objectives are not reflected in the non-GAAP adjustments. Refer to our Annual Report on Form 10-K for the year ended December 31, 2016 for more information on the 2012-2014 Restructuring Program.

	(6)	During the third quarter of 2016, we began to exclude unrealized gains and losses (mark-to-market impacts) from outstanding commodity and forecasted currency transaction derivatives from our non-GAAP earnings measures until such time that the related exposures impact our operating results. Since we purchase commodity and forecasted currency transaction contracts to mitigate price volatility primarily for inventory requirements in future periods, we made this adjustment to remove the volatility of these future inventory purchases on current operating results to facilitate comparisons of our underlying operating performance across periods. We also discontinued designating commodity and forecasted currency transaction derivatives for hedge accounting treatment. To facilitate comparisons of our underlying operating results, we have recast all historical non-GAAP earnings measures to exclude the mark-to-market impacts.

	(7)	Historically, we have recorded income from equity method investments within our operating income as these investments operated as extensions of our base business. Beginning in the third quarter of 2015, we began to record the earnings from our equity method investments in after-tax equity method investment earnings outside of operating income following the deconsolidation of our coffee business. Refer to Note 1, Summary of Significant Accounting Policies, in our Annual Report on Form 10-K for the year ended December 31, 2016 for more information.

	(8)	During 2017, we recorded benefits from the reversal of tax liabilities in connection with the resolution of a Brazilian indirect tax matter and settlement of pre-acquisition Cadbury tax matters. See Note 12, Commitments and Contingencies—Tax Matters, for additional information.

	(9)	On November 20, 2017, Dirk Van de Put succeeded Irene Rosenfeld as CEO of Mondelēz International in advance of her retirement at the end of March 2018. In order to incent Mr. Van de Put to join us, we provided him compensation with a total combined target value of $42.5 million to make him whole for incentive awards he forfeited or grants that were not made to him when he left his former employer. The compensation we granted took the form of cash, deferred stock units, performance share units and stock options. In connection with Irene Rosenfeld’s retirement, we made her outstanding grants of performance share units for the 2016-2018 and 2017-2019 performance cycles eligible for continued vesting and approved a $0.5 million salary for her service as Chairman from January through March 2018. We refer to these elements of Mr. Van de Put’s and Ms. Rosenfeld’s compensation arrangements together as “CEO transition remuneration.” We are excluding amounts we expense as CEO transition remuneration from our 2017 and future non-GAAP results because those amounts are not part of our regular compensation program and are incremental to amounts we would have incurred as ongoing CEO compensation. As a result, in 2017, we excluded amounts expensed for the cash payment to Mr. Van de Put and partial vesting of his equity grants. In 2018, we expect to exclude amounts paid for Ms. Rosenfeld’s service as Chairman and partial vesting of Mr. Van de Put’s and Ms. Rosenfeld’s equity grants.

	(10)	On December 22, 2017, the United States enacted tax reform legislation that included a broad range of business tax provisions. As further detailed in Note 14, Income Taxes, our accounting for the new legislation is not complete and we have made reasonable estimates for some tax provisions. We exclude the discrete U.S. tax reform impacts from our Adjusted EPS as they do not reflect our ongoing tax obligations under U.S. tax reform.

	(11)	We have excluded our proportionate share of our equity method investees’ unusual or infrequent items such as acquisition and divestiture related costs, restructuring program costs and discrete U.S. tax reform impacts, in order to provide investors with a comparable view of our performance across periods. Although we have shareholder rights and board representation commensurate with our ownership interests in our equity method investees and review the underlying operating results and unusual or infrequent items with them each reporting period, we do not have direct control over their operations or resulting revenue and expenses. Our use of equity method investment net earnings on an adjusted basis is not intended to imply that we have any such control. Our GAAP “diluted EPS attributable to Mondelēz International from continuing operations” includes all of the investees’ unusual and infrequent items.

We believe that the presentation of these non-GAAP financial measures, when considered together with our U.S. GAAP financial measures and the reconciliations to the corresponding U.S. GAAP financial measures, provides you with a more complete understanding of the factors and trends affecting our business than could be obtained absent these disclosures. Because non-GAAP financial measures vary among companies, the non-GAAP financial measures presented in this report may not be comparable to similarly titled measures used by other companies. Our use of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for any U.S. GAAP financial measure. A limitation of these non-GAAP financial measures is they exclude items detailed below that have an impact on our U.S. GAAP reported results. The best way this limitation can be addressed is by evaluating our non-GAAP financial measures in combination with our U.S. GAAP reported results and carefully evaluating the following tables that reconcile U.S. GAAP reported figures to the non-GAAP financial measures in this Form 10-K.

Organic Net Revenue:

Applying the definition of “Organic Net Revenue”, the adjustments made to “net revenues” (the most comparable U.S. GAAP financial measure) were to exclude the impact of currency, our historical Venezuelan operations, the adjustment for deconsolidating our historical coffee business, an accounting calendar change, acquisitions and divestitures. We believe that Organic Net Revenue reflects the underlying growth from the ongoing activities of our business and provides improved comparability of results. We also evaluate our Organic Net Revenue growth from emerging markets and Power Brands, and these underlying measures are also reconciled to U.S. GAAP below.


	For the Year Ended December 31, 2017									For the Year Ended December 31, 2016
	Emerging			Developed						Emerging			Developed
	Markets			Markets			Total			Markets			Markets			Total
	(in millions)									(in millions)
Net Revenue	$	9,707		$	16,189		$	25,896		$	9,357		$	16,566		$	25,923
Impact of currency		(19	)		(58	)		(77	)		–			–			–
Impact of acquisitions		–			(59	)		(59	)		–			–			–
Impact of divestitures		–			(270	)		(270	)		(10	)		(643	)		(653	)

Organic Net Revenue	$	9,688		$	15,802		$	25,490		$	9,347		$	15,923		$	25,270


	For the Year Ended December 31, 2017									For the Year Ended December 31, 2016 (3)
	Power			Non-Power						Power			Non-Power
	Brands			Brands			Total			Brands			Brands			Total
	(in millions)									(in millions)
Net Revenue	$	18,913		$	6,983		$	25,896		$	18,372		$	7,551		$	25,923
Impact of currency		(97	)		20			(77	)		–			–			–
Impact of acquisitions		(59	)		–			(59	)		–			–			–
Impact of divestitures		–			(270	)		(270	)		–			(653	)		(653	)

Organic Net Revenue	$	18,757		$	6,733		$	25,490		$	18,372		$	6,898		$	25,270


	For the Year Ended December 31, 2016									For the Year Ended December 31, 2015
	Emerging			Developed						Emerging			Developed
	Markets			Markets			Total			Markets			Markets			Total
	(in millions)									(in millions)
Net Revenue	$	9,357		$	16,566		$	25,923		$	11,570		$	18,066		$	29,636
Impact of currency		895			338			1,233			–			–			–
Historical Venezuelan operations (1)		–			–			–			(1,217	)		–			(1,217	)
Historical coffee business (2)		–			–			–			(442	)		(1,185	)		(1,627	)
Impact of accounting calendar change		–			–			–			–			(76	)		(76	)
Impact of acquisitions		(71	)		(21	)		(92	)		–			–			–
Impact of divestitures		(10	)		(643	)		(653	)		(8	)		(687	)		(695	)

Organic Net Revenue	$	10,171		$	16,240		$	26,411		$	9,903		$	16,118		$	26,021


	For the Year Ended December 31, 2016									For the Year Ended December 31, 2015 (3)
	Power			Non-Power						Power			Non-Power
	Brands			Brands			Total			Brands			Brands			Total
	(in millions)									(in millions)
Net Revenue	$	18,372		$	7,551		$	25,923		$	20,612		$	9,024		$	29,636
Impact of currency		856			377			1,233			–			–			–
Historical Venezuelan operations (1)		–			–			–			(823	)		(394	)		(1,217	)
Historical coffee business (2)		–			–			–			(1,199	)		(428	)		(1,627	)
Impact of accounting calendar change		–			–			–			(59	)		(17	)		(76	)
Impact of acquisitions		(92	)		–			(92	)		–			–			–
Impact of divestitures		–			(653	)		(653	)		–			(695	)		(695	)

Organic Net Revenue	$	19,136		$	7,275		$	26,411		$	18,531		$	7,490		$	26,021

(1)	Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting: Venezuela, for more information.

(2)	Includes our historical global coffee business prior to the July 2, 2015 JDE coffee business transactions. Refer to Note 2, Divestitures and Acquisitions, and our non-GAAP definitions appearing earlier in this section for more information.

(3)

Each year we reevaluate our Power Brands and confirm the brands in which we will continue to make disproportionate investments. As such, we may make changes in our planned investments in primarily regional Power Brands following our annual review cycles. For 2017, we made limited changes to our list of regional Power Brands and as such, we reclassified 2016 and 2015 Power Brand net revenues on a basis consistent with the current list of Power Brands.

Adjusted Operating Income:

Applying the definition of “Adjusted Operating Income”, the adjustments made to “operating income” (the most comparable U.S. GAAP financial measure) were to exclude 2012-2014 Restructuring Program costs; 2014-2018 Restructuring Program costs; impairment charges related to intangible assets; mark-to-market impacts from commodity and forecasted currency transaction derivative contracts; incremental expenses related to the malware incident; acquisition integration costs; acquisition-related costs; divestiture-related costs; the operating results of divestitures; net gain on divestitures; gain on sale of intangible assets; benefits from the resolution of tax matters; CEO transition remuneration; Venezuela historical operating results and remeasurement and deconsolidation losses; the JDE coffee business transactions gain and net incremental costs; operating income from our historical coffee business and equity method investment earnings reclassified to after-tax earnings in Q3 2015 in connection with the coffee business transactions. We also present “Adjusted Operating Income margin,” which is subject to the same adjustments as Adjusted Operating Income, and evaluate Adjusted Operating Income on a constant currency basis. We believe these measures provide improved comparability of underlying operating results.


	For the Years Ended
	December 31,
	2017			2016			$ Change			% Change
	(in millions)

Operating Income	$	3,506		$	2,569		$	937			36.5%
2014-2018 Restructuring Program costs (1)		792			1,086			(294	)
Intangible asset impairment charges (2)		109			137			(28	)
Mark-to-market losses from derivatives (3)		96			94			2
Malware incident incremental expenses		84			–			84
Acquisition integration costs (4)		3			7			(4	)
Acquisition-related costs (4)		–			1			(1	)
Divestiture-related costs (5)		31			86			(55	)
Operating income from divestiture (5)		(61	)		(153	)		92
Net gain on divestitures (5)		(186	)		(9	)		(177	)
Gain on sale of intangible assets (6)		–			(15	)		15
Benefits from resolution of tax matters (7)		(209	)		–			(209	)
CEO transition remuneration		14			–			14
Other/rounding		(1	)		(1	)		–

Adjusted Operating Income	$	4,178		$	3,802		$	376			9.9%
Currency translation		–			–			–

Adjusted Operating Income (constant currency)	$	4,178		$	3,802		$	376			9.9%


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

Operating Income	$	2,569		$	8,897		$	(6,328	)		(71.1)%
2012-2014 Restructuring Program costs (1)		–			(4	)		4
2014-2018 Restructuring Program costs (1)		1,086			1,002			84
Intangible asset impairment charges (2)		137			71			66
Mark-to-market losses/(gains) from derivatives (3)		94			(56	)		150
Acquisition integration costs (4)		7			9			(2	)
Acquisition-related costs (4)		1			8			(7	)
Divestiture-related costs (5)		86			–			86
Operating income from divestiture (5)		(153	)		(182	)		29
Net gain on divestiture (5)		(9	)		(13	)		4
Gain on sale of intangible assets (6)		(15	)		–			(15	)
Operating income from Venezuelan subsidiaries (8)		–			(281	)		281
Remeasurement of net monetary assets in Venezuela (8)		–			11			(11	)
Loss on deconsolidation of Venezuela (8)		–			778			(778	)
Costs associated with JDE coffee business transactions (9)		–			278			(278	)
Gain on the JDE coffee business transactions (9)		–			(6,809	)		6,809
Reclassification of historical coffee business operating income (10)		–			(342	)		342
Reclassification of equity method investment earnings (11)		–			(51	)		51
Other/rounding		(1	)		–			(1	)

Adjusted Operating Income	$	3,802		$	3,316		$	486			14.7%
Impact of unfavorable currency		171			–			171

Adjusted Operating Income (constant currency)	$	3,973		$	3,316		$	657			19.8%

(1)	Refer to Note 6, 2014-2018 Restructuring Program, for more information. Refer to the Annual Report on Form 10-K for the year ended December 31, 2016 for additional information in Note 6, Restructuring Programs.

(2)	Refer to Note 2, Divestitures and Acquisitions, and Note 5, Goodwill and Intangible Assets, for more information on trademark impairments.

(3)	Refer to Note 8, Financial Instruments, Note 16, Segment Reporting, and Non-GAAP Financial Measures appearing earlier in this section for more information on these unrealized losses/gains on commodity and forecasted currency transaction derivatives.

(4)	Refer to Note 2, Divestitures and Acquisitions, for more information on the acquisition of a biscuit business in Vietnam.

(5)

Refer to Note 2, Divestitures and Acquisitions, for more information on the 2017 sales of a confectionery business in France, a grocery business in Australia and New Zealand, certain licenses of KHC-owned brands used in our grocery business within our Europe region, sale of one of our equity method investments and sale of a confectionary business in Japan. Additionally, the 2016 amount includes a sale of a confectionery business in Costa Rica.

(6)	Refer to Note 2, Divestitures and Acquisitions, for more information on the 2016 intangible asset sale in Finland.

(7)	Refer to Note 12, Commitments and Contingencies – Tax Matters, for more information. Primarily includes the reversal of tax liabilities in connection with the resolution of a Brazilian indirect tax matter and settlement of pre-acquisition Cadbury tax matters.

(8)	Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting: Venezuela, for more information on the deconsolidation and remeasurement loss in 2015.

(9)	Refer to Note 2, Divestitures and Acquisitions, for more information on the JDE coffee business transactions.

(10)

Includes our historical global coffee business prior to the July 2, 2015 deconsolidation. We reclassified the results of our historical coffee business from Adjusted Operating Income and included them with equity method investment earnings in Adjusted EPS to facilitate comparisons of past and future coffee operating results. Refer to Note 2, Divestitures and Acquisitions, and Non-GAAP Financial Measures appearing later in this section for more information.

(11)

Historically, we have recorded income from equity method investments within our operating income as these investments operated as extensions of our base business. Beginning in the third quarter of 2015, to align with the accounting for JDE earnings, we began to record the earnings from our equity method investments in equity method investment earnings outside of operating income. In periods prior to July 2, 2015, we have reclassified the equity method earnings from Adjusted Operating Income to evaluate our operating results on a consistent basis.

Adjusted EPS:

Applying the definition of “Adjusted EPS” (1), the adjustments made to “diluted EPS attributable to Mondelēz International” (the most comparable U.S. GAAP financial measure) were to exclude 2014-2018 Restructuring Program costs; impairment charges related to intangible assets; mark-to-market impacts from commodity and forecasted currency transaction derivative contracts; incremental expenses related to the malware incident; acquisition integration costs; divestiture-related costs; net earnings from divestitures; after-tax gains/losses on divestitures; gain on sale of intangible assets; benefits from the resolution of tax matters; CEO transition remuneration; losses on interest rate swaps no longer designated as accounting cash flow hedges due to changed financing and hedging plans; losses on debt extinguishment and related expenses; U.S. tax reform discrete net tax benefit; Venezuela historical operating results and remeasurement and deconsolidation losses; the JDE coffee business transactions gain, hedging gains and net incremental costs; operating income from our historical coffee business; equity method investment earnings reclassified to after-tax earnings in Q3 2015 in connection with the coffee business transactions; gain on equity method investment transactions; and our proportionate share of unusual or infrequent items recorded by our JDE and Keurig equity method investees. We also evaluate Adjusted EPS on a constant currency basis. We believe Adjusted EPS provides improved comparability of underlying operating results.


	For the Years Ended
	December 31,
	2017			2016			$ Change			% Change

Diluted EPS attributable to Mondelēz International	$	1.91		$	1.05		$	0.86			81.9%
2014-2018 Restructuring Program costs (2)		0.39			0.51			(0.12	)
Intangible asset impairment charges (2)		0.05			0.06			(0.01	)
Mark-to-market losses from derivatives (2)		0.06			0.05			0.01
Malware incident incremental expenses		0.04			–			0.04
Acquisition integration costs (2)		–			0.01			(0.01	)
Divestiture-related costs (2)		0.02			0.05			(0.03	)
Net earnings from divestitures (2)		(0.03	)		(0.08	)		0.05
Net gain on divestitures (2)		(0.11	)		–			(0.11	)
Gain on sale of intangible assets (2)		–			(0.01	)		0.01
Benefits from resolution of tax matters (2)		(0.13	)		–			(0.13	)
CEO transition remuneration		0.01			–			0.01
Loss related to interest rate swaps (3)		–			0.04			(0.04	)
Loss on debt extinguishment and related expenses (4)		–			0.17			(0.17	)
U.S. tax reform discrete net tax benefit (5)		(0.04	)		–			(0.04	)
Gain on equity method investment transactions (6)		(0.02	)		(0.03	)		0.01
Equity method investee acquisition-related and other adjustments (7)		(0.01	)		0.04			(0.05	)

Adjusted EPS	$	2.14		$	1.86		$	0.28			15.1%
Impact of favorable currency		(0.01	)		–			(0.01	)

Adjusted EPS (constant currency)	$	2.13		$	1.86		$	0.27			14.5%


	For the Years Ended
	December 31,
	2016			2015			$ Change			% Change

Diluted EPS attributable to Mondelēz International	$	1.05		$	4.44		$	(3.39	)		(76.4)%
2014-2018 Restructuring Program costs (2)		0.51			0.45			0.06
Intangible asset impairment charges (2)		0.06			0.03			0.03
Mark-to-market losses/(gains) from derivatives (2)		0.05			(0.03	)		0.08
Acquisition integration costs (2)		0.01			–			0.01
Net earnings from divestiture (2)		(0.08	)		(0.07	)		(0.01	)
Divestiture-related costs (2)		0.05			–			0.05
Net loss on divestiture (2)		–			0.01			(0.01	)
Gain on sale of intangible assets (2)		(0.01	)		–			(0.01	)
Net earnings from Venezuelan subsidiaries (8)		–			(0.10	)		0.10
Loss on deconsolidation of Venezuela (8)		–			0.48			(0.48	)
Remeasurement of net monetary assets in Venezuela (8)		–			0.01			(0.01	)
Gain on the JDE coffee business transactions (9)		–			(4.05	)		4.05
(Income)/costs associated with the JDE coffee business transactions (9)		–			(0.01	)		0.01
Loss related to interest rate swaps (3)		0.04			0.01			0.03
Loss on debt extinguishment and related expenses (4)		0.17			0.29			(0.12	)
Gain on equity method investment transactions (6)		(0.03	)		–			(0.03	)
Equity method investee acquisition-related and other adjustments (7)		0.04			0.07			(0.03	)

Adjusted EPS	$	1.86		$	1.53		$	0.33			21.6	%
Impact of unfavorable currency		0.06			–			0.06

Adjusted EPS (constant currency)	$	1.92		$	1.53		$	0.39			25.5	%

(1)	The tax expense/(benefit) of each of the pre-tax items excluded from our GAAP results was computed based on the facts and tax assumptions associated with each item, and such impacts have also been excluded from Adjusted EPS.

	•		For the year ended December 31, 2017, taxes for the: 2014-2018 Restructuring Program costs were $(190) million, intangible asset impairment charges were $(30) million, acquisition integration costs were zero, gain on equity method investment transactions were $15 million, net gain on divestitures were $7 million, net earnings on divestitures were $15 million, divestiture-related costs were $8 million, loss on debt extinguishment and related costs were $(4) million, malware incident incremental costs were $(27) million, benefits from resolution of tax matters were $75 million, equity method investee acquisition-related and other adjustments were $35 million, CEO transition remuneration were $(5) million, mark-to-market gains/(losses) from derivatives were $(6) million and U.S. tax reform were $(59) million.

	•		For the year ended December 31, 2016, taxes for the: 2014-2018 Restructuring Program costs were $(288) million, intangible asset impairment charges were $(37) million, gain on sale of intangible assets were $3 million, acquisition integration costs were zero, net earnings from divestitures were $40 million, divestiture-related costs were $(15) million, loss on debt extinguishment and related costs were $(163) million, loss related to interest rate swaps were $(36) million and mark-to-market gains/(losses) from derivatives were $(11) million.

	•		For the year ended December 31, 2015, taxes for the: 2014-2018 Restructuring Program costs were $(262) million, income/costs associated with the JDE coffee business transactions were $145 million, net earnings from Venezuelan subsidiaries were $107 million, gain on the JDE coffee business transactions were $183 million, intangible asset impairment charges were $(13) million, net earnings from divestitures were $80 million, loss on debt extinguishment and related costs were $(275) million, loss related to interest rate swaps were $(13) million and mark-to-market gains/(losses) from derivatives were $15 million.

(2)	See the Adjusted Operating Income table above and the related footnotes for more information.

(3)	Refer to Note 8, Financial Instruments, for more information on our interest rate swaps, which we no longer designate as cash flow hedges during the first quarter of 2016 due to changes in financing and hedging plans.

(4)	Refer to Note 7, Debt and Borrowing Arrangements, for more information on our loss on debt extinguishment and related expenses in connection with our debt discharge.

(5)	Refer to Note 14, Income Taxes, for more information on the impact of the U.S. tax reform.

(6)	Refer to Note 2, Divestitures and Acquisitions, for more information on the 2017 sale of one of our equity method investments and the 2016 acquisition of an interest in Keurig.

(7)	Includes our proportionate share of unusual or infrequent items, such as acquisition and divestiture-related costs, restructuring program costs and discrete U.S. tax reform impacts recorded by our JDE and Keurig equity method investees.

(8)	Includes the historical results of our Venezuelan subsidiaries prior to the December 31, 2015 deconsolidation. Refer to Note 1, Summary of Significant Accounting Policies – Currency Translation and Highly Inflationary Accounting: Venezuela, for more information on the deconsolidation and remeasurement loss in 2015.

(9)	Refer to Note 2, Divestitures and Acquisitions, for more information on the JDE coffee business transactions. Net gains of $436 million in 2015 on the currency hedges related to the JDE coffee business transactions were recorded in interest and other expense, net and are included in (income)/costs associated with the JDE coffee business transactions of $(0.01) in the table above.

Previous: Item 6. Selected Financial Data · Next: Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

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

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

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