Item 8. Financial Statements and Supplementary Data.

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Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

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

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Mondelēz International, Inc. and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of earnings, comprehensive earnings, equity and cash flows for each of the three years in the period ended December 31, 2017, including the related notes and financial statement schedule listed in the index appearing under Item 15(a) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

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

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

/s/ PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois

February 9, 2018

PRICEWATERHOUSECOOPERS LLP has served as the Company’s auditor since 2001.

Mondelēz International, Inc. and Subsidiaries

Consolidated Statements of Earnings

For the Years Ended December 31

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


	2017			2016			2015

Net revenues	$	25,896		$	25,923		$	29,636
Cost of sales		15,831			15,795			18,124

Gross profit		10,065			10,128			11,512

Selling, general and administrative expenses		5,911			6,540			7,577
Asset impairment and exit costs		656			852			901
Net gain on divestitures		(186	)		(9	)		(6,822	)
Loss on deconsolidation of Venezuela		–			–			778
Amortization of intangibles		178			176			181

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

Provision for income taxes		(688	)		(129	)		(593	)
Gain on equity method investment transactions		40			43			–
Equity method investment net earnings		460			301			–

Net earnings		2,936			1,669			7,291

Noncontrolling interest earnings		(14	)		(10	)		(24	)

Net earnings attributable to Mondelēz International	$	2,922		$	1,659		$	7,267


Per share data:
Basic earnings per share attributable to Mondelēz International	$	1.93		$	1.07		$	4.49

Diluted earnings per share attributable to Mondelēz International	$	1.91		$	1.05		$	4.44

Dividends declared	$	0.82		$	0.72		$	0.64

See accompanying notes to the consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Earnings

For the Years Ended December 31

(in millions of U.S. dollars)


	2017			2016			2015

Net earnings	$	2,936		$	1,669		$	7,291
Other comprehensive earnings/(losses), net of tax:
Currency translation adjustment		1,201			(925	)		(2,990	)
Pension and other benefit plans		(57	)		(153	)		340
Derivative cash flow hedges		8			(75	)		(44	)

Total other comprehensive earnings/(losses)		1,152			(1,153	)		(2,694	)

Comprehensive earnings		4,088			516			4,597
less: Comprehensive earnings/(losses) attributable to noncontrolling interests		42			(7	)		(2	)

Comprehensive earnings attributable to Mondelēz International	$	4,046		$	523		$	4,599

See accompanying notes to the consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

Consolidated Balance Sheets, as of December 31

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


	2017			2016

ASSETS
Cash and cash equivalents	$	761		$	1,741
Trade receivables (net of allowances of $50 at December 31, 2017 and $58 at December 31, 2016)		2,691			2,611
Other receivables (net of allowances of $98 at December 31, 2017 and $93 at December 31, 2016)		835			859
Inventories, net		2,557			2,469
Other current assets		676			800

Total current assets		7,520			8,480

Property, plant and equipment, net		8,677			8,229
Goodwill		21,085			20,276
Intangible assets, net		18,639			18,101
Prepaid pension assets		158			159
Deferred income taxes		319			358
Equity method investments		6,345			5,585
Other assets		366			350

TOTAL ASSETS	$	63,109		$	61,538


LIABILITIES
Short-term borrowings	$	3,517		$	2,531
Current portion of long-term debt		1,163			1,451
Accounts payable		5,705			5,318
Accrued marketing		1,728			1,745
Accrued employment costs		721			736
Other current liabilities		2,959			2,636

Total current liabilities		15,793			14,417

Long-term debt		12,972			13,217
Deferred income taxes		3,376			4,721
Accrued pension costs		1,669			2,014
Accrued postretirement health care costs		419			382
Other liabilities		2,689			1,572

TOTAL LIABILITIES		36,918			36,323

Commitments and Contingencies (Note 12)

EQUITY
Common Stock, no par value (5,000,000,000 shares authorized and 1,996,537,778 shares issued at December 31, 2017 and December 31, 2016)		–			–
Additional paid-in capital		31,915			31,847
Retained earnings		22,749			21,149
Accumulated other comprehensive losses		(9,998	)		(11,122	)
Treasury stock, at cost (508,401,694 shares at December 31, 2017 and 468,172,237 shares at December 31, 2016)		(18,555	)		(16,713	)

Total Mondelēz International Shareholders’ Equity		26,111			25,161
Noncontrolling interest		80			54

TOTAL EQUITY		26,191			25,215


TOTAL LIABILITIES AND EQUITY	$	63,109		$	61,538

See accompanying notes to the consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

Consolidated Statements of Equity

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


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

Balances at January 1, 2015	$	–	$	31,651	$	14,529		$	(7,318	)	$	(11,112	)	$	103		$	27,853
Comprehensive earnings/(losses):
Net earnings		–		–		7,267			–			–			24			7,291
Other comprehensive earnings/(losses), net of income taxes		–		–		–			(2,668	)		–			(26	)		(2,694	)
Exercise of stock options and issuance of other stock awards		–		109		(70	)		–			272			–			311
Common Stock repurchased		–		–		–			–			(3,622	)		–			(3,622	)
Cash dividends declared ($0.64 per share)		–		–		(1,026	)		–			–			–			(1,026	)
Dividends paid on noncontrolling interest and other activities		–		–		–			–			–			(13	)		(13	)

Balances at December 31, 2015	$	–	$	31,760	$	20,700		$	(9,986	)	$	(14,462	)	$	88		$	28,100

Comprehensive earnings/(losses):
Net earnings		–		–		1,659			–			–			10			1,669
Other comprehensive earnings/(losses), net of income taxes		–		–		–			(1,136	)		–			(17	)		(1,153	)
Exercise of stock options and issuance of other stock awards		–		87		(94	)		–			350			–			343
Common Stock repurchased		–		–		–			–			(2,601	)		–			(2,601	)
Cash dividends declared ($0.72 per share)		–		–		(1,116	)		–			–			–			(1,116	)
Dividends paid on noncontrolling interest and other activities		–		–		–			–			–			(27	)		(27	)

Balances at December 31, 2016	$	–	$	31,847	$	21,149		$	(11,122	)	$	(16,713	)	$	54		$	25,215

Comprehensive earnings/(losses):
Net earnings		–		–		2,922			–			–			14			2,936
Other comprehensive earnings/(losses), net of income taxes		–		–		–			1,124			–			28			1,152
Exercise of stock options and issuance of other stock awards		–		68		(83	)		–			360			–			345
Common Stock repurchased		–		–		–			–			(2,202	)		–			(2,202	)
Cash dividends declared ($0.82 per share)		–		–		(1,239	)		–			–			–			(1,239	)
Dividends paid on noncontrolling interest and other activities		–		–		–			–			–			(16	)		(16	)

Balances at December 31, 2017	$	–	$	31,915	$	22,749		$	(9,998	)	$	(18,555	)	$	80		$	26,191

See accompanying notes to the consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended December 31

(in millions of U.S. dollars)


	2017			2016			2015

CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES
Net earnings	$	2,936		$	1,669		$	7,291
Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization		816			823			894
Stock-based compensation expense		137			140			136
U.S. tax reform transition tax		1,317			–			–
Deferred income tax benefit		(1,206	)		(141	)		(30	)
Asset impairments and accelerated depreciation		334			446			345
Loss on early extinguishment of debt		11			428			748
Loss on deconsolidation of Venezuela		–			–			778
Gains on divestitures and JDE coffee business transactions		(186	)		(9	)		(6,822	)
JDE coffee business transactions currency-related net gains		–			–			(436	)
Gain on equity method investment transactions		(40	)		(43	)		–
Equity method investment net earnings		(460	)		(301	)		(56	)
Distributions from equity method investments		152			75			58
Other non-cash items, net		(225	)		(43	)		199
Change in assets and liabilities, net of acquisitions and divestitures:
Receivables, net		(24	)		31			44
Inventories, net		(18	)		62			(49	)
Accounts payable		5			409			659
Other current assets		14			(176	)		28
Other current liabilities		(637	)		60			152
Change in pension and postretirement assets and liabilities, net		(333	)		(592	)		(211	)

Net cash provided by operating activities		2,593			2,838			3,728


CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES
Capital expenditures		(1,014	)		(1,224	)		(1,514	)
Proceeds from JDE coffee business transactions currency hedge settlements		–			–			1,050
Acquisitions, net of cash received		–			(246	)		(527	)
Proceeds from divestitures, net of disbursements		604			303			4,735
Reduction of cash due to Venezuela deconsolidation		–			–			(611	)
Capital contribution to JDE		–			–			(544	)
Proceeds from sale of property, plant and equipment and other assets		109			138			60

Net cash (used in)/provided by investing activities		(301	)		(1,029	)		2,649


CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES
Issuances of commercial paper, maturities greater than 90 days		1,808			1,540			613
Repayments of commercial paper, maturities greater than 90 days		(1,911	)		(1,031	)		(710	)
Net issuances/(repayments) of other short-term borrowings		1,027			1,741			(931	)
Long-term debt proceeds		350			5,640			4,624
Long-term debt repaid		(1,470	)		(6,186	)		(4,975	)
Repurchase of Common Stock		(2,174	)		(2,601	)		(3,622	)
Dividends paid		(1,198	)		(1,094	)		(1,008	)
Other		207			129			126

Net cash used in financing activities		(3,361	)		(1,862	)		(5,883	)


Effect of exchange rate changes on cash and cash equivalents		89			(76	)		(255	)


Cash and cash equivalents:
(Decrease)/increase		(980	)		(129	)		239
Balance at beginning of period		1,741			1,870			1,631

Balance at end of period	$	761		$	1,741		$	1,870


Cash paid:
Interest	$	398		$	630		$	747

Income taxes	$	848		$	527		$	745

See accompanying notes to the consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Summary of Significant Accounting Policies

Description of Business:

Mondelēz International, Inc. was incorporated in 2000 in the Commonwealth of Virginia. Mondelēz International, Inc., through its subsidiaries (collectively “Mondelēz International,” “we,” “us” and “our”), sells food and beverage products to consumers in approximately 160 countries.

Principles of Consolidation:

The consolidated financial statements include Mondelēz International, Inc. as well as our wholly owned and majority owned subsidiaries. All intercompany transactions are eliminated. The noncontrolling interest represents the noncontrolling investors’ interests in the results of subsidiaries that we control and consolidate. Through December 31, 2015, the operating results of our Venezuelan subsidiaries are included in our consolidated financial statements. As of the close of the fourth quarter of 2015, we deconsolidated our Venezuelan operations from our consolidated financial statements and recognized a loss on deconsolidation. See Currency Translation and Highly Inflationary Accounting: Venezuela below for more information.

We account for investments in which we exercise significant influence under the equity method of accounting. On July 2, 2015, we contributed our global coffee businesses to a new company, Jacobs Douwe Egberts (“JDE”), in which we now hold an equity interest (collectively, the “JDE coffee business transactions”). Historically, our coffee businesses and the income from equity method investments were recorded within our operating income as these businesses were part of our base business. While we retain an ongoing interest in coffee through equity method investments including JDE, Keurig Green Mountain Inc. (“Keurig”) and Dongsuh Foods Corporation (“DSF”), and we have significant influence with our equity method investments, we do not control these operations directly. As such, in the third quarter of 2015, we began to recognize equity method investment earnings, consisting primarily of investments in coffee businesses, outside of operating income and segment income. For periods prior to the third quarter of 2015, our historical coffee business and equity method investment earnings were included within our operating income and segment 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 and thus are not shown on our consolidated statement of earnings for this period.) Please see Note 2, Divestitures and Acquisitions – JDE Coffee Business Transactions, Keurig Transaction and Planned Keurig Dr Pepper Transaction, and Note 16, Segment Reporting, for more information on these transactions.

We use the cost method of accounting for investments in which we do not exercise significant influence or control. Under the cost method of accounting, earnings are recognized to the extent cash is received.

Use of Estimates:

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

Segment Change:

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

As of October 1, 2016, our operations and management structure were organized into four reportable operating segments:

	•		Latin America

	•		AMEA

	•		Europe

	•		North America

See Note 16, Segment Reporting, for additional information on our segments.

Currency Translation and Highly Inflationary Accounting:

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

Highly inflationary accounting is triggered when a country’s three-year cumulative inflation rate exceeds 100%. It requires the remeasurement of financial statements of subsidiaries in the country, from the functional currency of the subsidiary to our U.S. dollar reporting currency, with currency remeasurement gains or losses recorded in earnings. In 2017, none of our consolidated subsidiaries were accounted for as highly inflationary economies.

Argentina. We continue to closely monitor inflation and the potential for the economy to become highly inflationary for accounting purposes. As of December 31, 2017, the Argentinian economy was not designated as highly inflationary and we continued to record currency translation adjustments within equity and realized exchange gains and losses on transactions in earnings. Our Argentinian operations contributed $601 million, or 2.3% of consolidated net revenues in 2017. The net monetary liabilities of our Argentinian operations as of December 31, 2017 were not material.

Ukraine. Based on inflation data published by the National Bank of Ukraine, Ukraine’s three-year cumulative inflation rate dropped and remained below 100% by the end of 2017. As such, Ukraine is no longer highly inflationary and we continue to record currency translation adjustments within equity and realized exchange gains and losses on transactions in earnings. Our Ukrainian operations contributed $73 million, or 0.3%, of consolidated net revenues in 2017. The net monetary assets of our Ukrainian operations as of December 31, 2017 were not material.

Venezuela. From January 1, 2010 through December 31, 2015, we accounted for the results of our Venezuelan subsidiaries using the U.S. dollar as the functional currency as prescribed by U.S. GAAP for highly inflationary economies.

Effective as of the close of the 2015 fiscal year, we concluded that we no longer met the accounting criteria for consolidation of our Venezuelan subsidiaries due to a loss of control over our Venezuelan operations and an other-than-temporary lack of currency exchangeability. The economic and regulatory environment in Venezuela and the progressively limited access to dollars to import goods through the use of any of the available currency mechanisms impaired our ability to operate and control our Venezuelan businesses. As a result of these factors, we concluded that we no longer met the criteria for the consolidation of our Venezuelan subsidiaries.

As of the close of the 2015 fiscal year, we deconsolidated and changed to the cost method of accounting for our Venezuelan operations. We recorded a $778 million pre-tax loss on December 31, 2015 as we reduced the value of our cost method investment in Venezuela and all Venezuelan receivables held by our other subsidiaries to realizable fair value, resulting in full impairment. The recorded loss also included historical cumulative translation adjustments related to our Venezuelan operations that had previously been recorded in accumulated other comprehensive losses within equity. The fair value of our investments in our Venezuelan subsidiaries was estimated based on discounted cash flow projections of current and expected operating losses in the foreseeable future and our ability to operate the business on a sustainable basis. Our fair value estimate included U.S. dollar exchange and discount rate assumptions that reflected the inflation and economic uncertainty in Venezuela.

For 2015, the operating results of our Venezuela operations were included in our consolidated statements of earnings. During this time, we recognized a number of currency-related remeasurement losses resulting from devaluations of the Venezuela bolivar exchange rates we historically used to source U.S. dollars for purchases of imported raw materials, packaging and other goods and services. The following table sets forth the 2015 remeasurement losses, the deconsolidation loss and historical operating results and financial position of our Venezuelan subsidiaries for the period presented:


	For the Year Ended December 31, 2015
	(in millions)

Net revenues	$	1,217
Operating income (excluding remeasurement and deconsolidation loss)		266
Remeasurement loss in Q1 2015: 11.50 to 12.00 bolivars to the U.S. dollar		(11	)
Loss on deconsolidation		(778	)

	As of December 31, 2015 (1)
	(in millions)

Cash	$	611
Net monetary assets		405
Net assets		658

	(1)	Represents the financial position of our Venezuelan subsidiaries on December 31, 2015 prior to deconsolidation.

Beginning in 2016, we no longer included net revenues, earnings or net assets of our Venezuelan subsidiaries within our consolidated financial statements. Under the cost method of accounting, earnings are only recognized to the extent cash is received. Given the current and ongoing difficult economic, regulatory and business environment in Venezuela, there continues to be significant uncertainty related to our operations in Venezuela. In early 2018, the profitability and cash flows of our local operations significantly deteriorated following the issuance of new government price controls. We are engaging with authorities on the pricing restrictions, however, if the situation is not resolved, it could significantly impede our ability to continue to operate in Venezuela.

Other Countries. Since we sell our products in approximately 160 countries and have operations in over 80 countries, we monitor economic and currency-related risks and seek to take protective measures in response to these exposures. Some of the countries in which we do business have recently experienced periods of significant economic uncertainty and exchange rate volatility, including Brazil, China, Mexico, Russia, United Kingdom (Brexit), Turkey, Egypt, Nigeria and South Africa. We continue to monitor operations, currencies and net monetary exposures in these countries. At this time, we do not anticipate a risk to our operating results from changing to highly inflationary accounting in these countries.

Cash and Cash Equivalents:

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

Transfers of Financial Assets:

We account for transfers of financial assets, such as uncommitted revolving non-recourse accounts receivable factoring arrangements, when we have surrendered control over the related assets. Determining whether control has transferred requires an evaluation of relevant legal considerations, an assessment of the nature and extent of our continuing involvement with the assets transferred and any other relevant considerations. We use receivable factoring arrangements periodically when circumstances are favorable to manage liquidity. We have a factoring arrangement with a major global bank for a maximum combined capacity of $1.0 billion. Under the program, we may sell eligible short-term trade receivables to the bank in exchange for cash. We then continue to collect the receivables sold, acting solely as a collecting agent on behalf of the bank. The outstanding principal amount of receivables under this arrangement amounted to $804 million as of December 31, 2017, $644 million as of December 31, 2016 and $570 million as of December 31, 2015. The incremental cost of factoring receivables under this arrangement were no more than $6 million in each of the years presented. The proceeds from the sales of receivables are included in cash from operating activities in the consolidated statements of cash flows.

Accounting Calendar Change:

In connection with moving toward a common consolidation date across the Company, in the first quarter of 2015, we changed the consolidation date for our North America segment from the last Saturday of each period to the last calendar day of each period. The change had a favorable impact of $76 million on net revenues and $36 million on operating income in 2015. As a result of this change, each of our operating subsidiaries now reports results as of the last calendar day of the period.

Inventories:

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

Long-Lived Assets:

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

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

Software Costs:

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

Goodwill and Non-Amortizable Intangible Assets:

We have historically annually tested goodwill and non-amortizable intangible assets for impairment as of October 1. In 2017, 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 that 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, 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’s fair value.

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

Insurance and Self-Insurance:

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

Revenue Recognition:

We predominantly sell food and beverage products across several product categories and in all regions as disclosed in Note 16, Segment Reporting. We recognize revenue when control over the products transfers to our customers, which generally occurs upon delivery or shipment of the products. We account for product shipping, handling and insurance as fulfillment activities with revenues for these activities recorded within net revenue and costs recorded within cost of sales. Any taxes collected on behalf of government authorities are excluded from net revenues. A small percentage of our net revenues relates to the licensing of our intellectual property, predominantly brand and trade names, and we record these revenues over the license term.

Revenues are recorded net of trade and sales incentives and estimated product returns. Known or expected pricing or revenue adjustments, such as trade discounts, rebates or returns, are estimated at the time of sale. We base these estimates principally on historical utilization and redemption rates. Estimates that affect revenue, such as trade incentives and product returns, are monitored and adjusted each period until the incentives or product returns are realized.

Key sales terms, such as pricing and quantities ordered, are established on a very frequent basis such that most customer arrangements and related incentives have a one year or shorter duration. As such, we do not capitalize contract inception costs and we capitalize product fulfillment costs in accordance with U.S. GAAP and our inventory policies. We do not have any significant unbilled receivables at the end of any period. Deferred revenues are not material and primarily include customer advance payments typically collected a few days before product delivery, at which time, deferred revenues are reclassified and recorded as net revenues. We generally do not receive noncash consideration for the sale of goods nor do we grant payment financing terms greater than one year.

Marketing, Advertising and Research and Development:

We promote our products with marketing and advertising programs. These programs include, but are not limited to, cooperative advertising, in-store displays and consumer marketing promotions. 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. Advertising expense was $1,248 million in 2017, $1,396 million in 2016 and $1,542 million in 2015. We expense product research and development costs as incurred. Research and development expense was $366 million in 2017, $376 million in 2016 and $409 million in 2015. We record marketing and advertising as well as research and development expenses within selling, general and administrative expenses.

Stock-based Compensation:

Stock-based compensation awarded to employees and non-employee directors is valued at fair value on the grant date. We record stock-based compensation expense over the vesting period, generally three years. Forfeitures are estimated on the grant date for all of our stock-based compensation awards.

Employee Benefit Plans:

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

Financial Instruments:

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

We use a combination of primarily currency forward contracts, futures, options and swaps; commodity forward contracts, futures and options; and interest rate swaps to manage our exposure to cash flow variability, protect the value of our existing currency assets and liabilities and protect the value of our debt. See Note 8, Financial Instruments, for more information on the types of derivative instruments we use.

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

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

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

Commodity derivatives. We are exposed to price risk related to forecasted purchases of certain commodities that we primarily use as raw materials. We enter into commodity forward contracts primarily for wheat, sugar and other sweeteners, soybean and vegetable oils and cocoa. Commodity forward contracts generally are not subject to the accounting requirements for derivative instruments and hedging activities under the normal purchases exception. We also use commodity futures and options to hedge the price of certain input costs, including cocoa, energy costs, sugar and other sweeteners, wheat, packaging, dairy, corn, and soybean and vegetable oils. We also sell commodity futures to unprice future purchase commitments, and we occasionally use related futures to cross-hedge a commodity exposure. We are not a party to leveraged derivatives and, by policy, do not use financial instruments for speculative purposes. During the third quarter of 2016, we discontinued designating commodity derivatives for hedge accounting treatment. Any unrealized gains or losses (mark-to-market impacts) and realized gains or losses are recorded in earnings.

Currency exchange derivatives. We use various financial instruments to mitigate our exposure to changes in exchange rates from third-party and intercompany current and forecasted transactions. These instruments may include currency exchange forward contracts, futures, options and swaps. Based on the size and location of our businesses, we use these instruments to hedge our exposure to certain currencies, including the euro, pound sterling, Swiss franc, Canadian dollar and Mexican peso. During the third quarter of 2016, we discontinued designating currency exchange derivatives for hedge accounting treatment. Any unrealized gains or losses (mark-to-market impacts) and realized gains or losses are recorded in earnings (see Note 8, Financial Instruments, for additional information).

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

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

Income Taxes:

Our provision for income taxes includes amounts payable or refundable for the current year, the effects of deferred taxes and impacts from uncertain tax positions. We recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement and tax basis of our assets and liabilities, operating loss carryforwards and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those differences are expected to reverse.

The realization of certain deferred tax assets is dependent on generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carryforward periods. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. When assessing the need for a valuation allowance, we consider any carryback potential, future reversals of existing taxable temporary differences (including liabilities for unrecognized tax benefits), future taxable income and tax planning strategies.

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 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. Future changes related to the expected resolution of uncertain tax positions could affect tax expense in the period when the change occurs.

We monitor for changes in tax laws and reflect the impacts of tax law changes in the period of enactment. In response to the United States tax reform legislation enacted on December 22, 2017 (“U.S. tax reform”), the U.S. Securities and Exchange Commission (“SEC”) issued guidance that allows us to record provisional amounts for the impacts of U.S. tax reform if the full accounting cannot be completed before we file our 2017 financial statements. For provisions of the tax law where we are unable to make a reasonable estimate of the impact, the guidance allows us to continue to apply the historical tax provisions in computing our income tax liability and deferred tax assets and liabilities as of December 31, 2017. The guidance also allows us to finalize accounting for the U.S. tax reform changes within one year of the December 22, 2017 enactment date. See Note 14, Income Taxes, for additional information on how we recorded the impacts of the U.S. tax reform.

New Accounting Pronouncements:

In August 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to simplify the application of hedge accounting and increase the transparency of hedge results. The updated standard changes how companies can assess the effectiveness of their hedging relationships. For cash flow and net investment hedges as of the adoption date, the ASU requires a modified retrospective transition approach. Presentation and disclosure requirements related to this ASU are required prospectively. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We intend to early adopt this standard in the first quarter of 2018 and we do not expect it to have a significant impact on our consolidated financial statements, including the cumulative-effect adjustment required upon adoption.

In May 2017, the FASB issued an ASU to clarify when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The ASU is applied prospectively to awards that are modified on or after the adoption date. The ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We will adopt the standard on January 1, 2018 and we do not expect a material impact to our consolidated financial statements.

In March 2017, the FASB issued an ASU to amend the amortization period for certain purchased callable debt securities held at a premium, shortening the period to the earliest call date instead of the maturity date. The standard does not impact securities held at a discount as the discount continues to be amortized to maturity. The ASU is applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We will adopt the standard on January 1, 2019. We do not expect a material impact to our consolidated financial statements.

In March 2017, the FASB issued an ASU to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The standard requires employers to disaggregate the service cost component from the other components of net benefit cost and disclose the amount and location where the net benefit cost is recorded in the income statement or capitalized in assets. The standard is to be applied on a retrospective basis for the change in presentation in the income statement and prospectively for the change in presentation on the balance sheet. The ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We will adopt the standard on January 1, 2018. We will reclassify net benefit costs other than service costs below operating income, with no impact to our net earnings. For information on our service cost and other components of net periodic benefit cost for pension, postretirement benefit and postemployment plans, see Note 9, Benefit Plans.

In January 2017, the FASB issued an ASU that clarifies the definition of a business with the objective of adding guidance to assist companies with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business may affect many areas of accounting including acquisitions, disposals, goodwill and consolidation. The ASU is applied on a prospective basis and is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We will adopt this standard on January 1, 2018 and we do not expect a material impact to our consolidated financial statements.

In November 2016, the FASB issued an ASU that requires the change in restricted cash or cash equivalents to be included with other changes in cash and cash equivalents in the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We will adopt this standard on January 1, 2018 and we do not expect a material impact on our consolidated statements of cash flows.

In October 2016, the FASB issued an ASU that requires the recognition of tax consequences of intercompany asset transfers other than inventory when the transfer occurs and removes the exception to postpone recognition until the asset has been sold to an outside party. The standard is to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings. The ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We will adopt this standard on January 1, 2018 and we do not expect a material impact to our consolidated financial statements.

In August 2016, the FASB issued an ASU to provide guidance on eight specific cash flow classification issues and reduce diversity in practice in how some cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We will adopt this standard on January 1, 2018 and we do not expect a material impact to our consolidated financial statements.

In February 2016, the FASB issued an ASU on lease accounting. The ASU revises existing U.S. GAAP and outlines a new model for lessors and lessees to use in accounting for lease contracts. The guidance requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases, with the exception of short-term leases. In the statement of earnings, lessees will classify leases as either operating (resulting in straight-line expense) or financing (resulting in a front-loaded expense pattern). The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We anticipate adopting the new standard on January 1, 2019. We continue to make progress in our due diligence and assess the impact of the new standard across our operations and on our consolidated financial statements, which will consist primarily of recording lease assets and liabilities on our balance sheet for our operating leases.

In January 2016, the FASB issued an ASU that provides updated guidance for the recognition, measurement, presentation and disclosure of financial assets and liabilities. The standard requires that equity investments (other than those accounted for under equity method of accounting or those that result in consolidation of the investee) be measured at fair value, with changes in fair value recognized in net income. The standard also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. The ASU is effective for fiscal years beginning after December 15, 2017. We will adopt this standard on January 1, 2018 and we do not expect a material impact to our consolidated financial statements.

In May 2014, the FASB issued an ASU on revenue recognition from contracts with customers. The ASU outlines a new, single comprehensive model for companies to use in accounting for revenue. The core principle is that an entity should recognize revenue to depict the transfer of control over promised goods or services to a customer in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for the goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows from customer contracts, including significant judgments made in recognizing revenue. In 2016 and 2017, the FASB issued several ASUs that clarified principal versus agent (gross versus net) revenue presentation considerations, confirmed the accounting for certain prepaid stored-value products and clarified the guidance for identifying performance obligations within a contract, the accounting for licenses and partial sales of nonfinancial assets. The FASB also issued two ASUs providing technical corrections, narrow scope exceptions and practical expedients to clarify and improve the implementation of the new revenue recognition guidance. The revenue guidance is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted as of the original effective date (annual reporting periods beginning after December 15, 2016). The ASU may be applied retrospectively to historical periods presented or as a cumulative-effect adjustment as of the date of adoption. We adopted the new standard on January 1, 2018 on a full retrospective basis. There was no material financial impact from adopting the new revenue standards.

Note 2. Divestitures and Acquisitions

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. (“DEMB”) to create a new company, JDE. Through March 7, 2016, we held a 43.5% interest in JDE. Following the March 7, 2016 exchange of a portion of our investment in JDE for an interest in Keurig, we held a 26.5% equity interest in JDE. (See discussion under Keurig Transaction below.) The remaining 73.5% equity interest in JDE was held by a subsidiary of Acorn Holdings B.V. (“AHBV,” owner of DEMB prior to July 2, 2015). Following the transactions

discussed under JDE Stock-Based Compensation Arrangements below, 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.

The consideration we received in the JDE coffee business transactions completed on July 2, 2015 consisted of €3.8 billion of cash ($4.2 billion as of July 2, 2015), a 43.5% equity interest in JDE and $794 million in receivables (related to sales price adjustments and tax formation cost payments). During the third quarter of 2015, we also recorded $283 million of cash and receivables from JDE related to reimbursement of costs that we incurred in separating our coffee businesses. The cash and equity consideration we received at closing reflects our retaining our interest in our Korea-based joint venture, DSF. During the second quarter of 2015, we also completed the sale of our interest in a Japanese coffee joint venture, Ajinomoto General Foods, Inc. (“AGF”). In lieu of contributing our interest in the AGF joint venture to JDE, we contributed the net cash proceeds from this sale as part of the overall JDE coffee business transactions.

On July 5, 2016, we received an expected cash payment of $275 million from JDE to settle the receivable related to tax formation costs that were part of the initial sales price.

In connection with the contribution of our global coffee businesses to JDE on July 2, 2015, we recorded a final pre-tax gain of $6.8 billion (or $6.6 billion after-tax) in 2015 after final adjustments described below. As previously reported, we deconsolidated net assets totaling $2.9 billion and reduced accumulated other comprehensive losses for the transfer of coffee business-related pension obligations by $90 million. We also recorded approximately $1.0 billion of pre-tax net gains related to hedging the expected cash proceeds from the transactions as described further below. During the fourth quarter of 2015, we and JDE concluded negotiations of a sales price adjustment and completed the valuation of our investment in JDE. Primarily due to the negotiated resolution of the sales price adjustment in the fourth quarter of 2015, we recorded a $313 million reduction in the pre-tax gain on the coffee transaction, reducing the $7.1 billion estimated gain in the third quarter of 2015 to the $6.8 billion final gain for 2015. As part of our sales price negotiations, we retained the right to collect future cash payments if certain estimated pension liabilities are realized over an agreed amount in the future. As such, we may recognize additional income related to this negotiated term in the future.

The final value of our 43.5% investment in JDE on July 2, 2015 was €4.1 billion ($4.5 billion as of July 2, 2015). The fair value of the JDE investment was determined using both income-based and market-based valuation techniques. The discounted cash flow analysis reflected growth, discount and tax rates and other assumptions reflecting the underlying combined businesses and countries in which the combined coffee businesses operate. The fair value of the JDE investment also included the fair values of the Carte Noire and Merrild businesses, which JDE agreed to divest to comply with the conditioned approval by the European Commission related to the JDE coffee business transactions. As of the end of the first quarter of 2016, these businesses were sold by JDE. As the July 2, 2015 fair values for these businesses were recorded by JDE at their pending sales values, we did not record any gain or loss on the sales of these businesses in our share of JDE’s earnings.

In 2014 and 2015, in connection with the expected receipt of cash in euros at the time of closing, we entered into a number of consecutive currency exchange forward contracts to lock in an equivalent expected value in U.S. dollars as of the date the JDE coffee business transactions were first announced in May 2014. Cumulatively, we realized aggregate net gains and received cash of approximately $1.0 billion on these hedging contracts that increased the cash we received in connection with the JDE coffee business transactions from $4.2 billion in cash consideration received to $5.2 billion. In connection with these currency contracts and the transfer of the sale proceeds to our subsidiaries that deconsolidated net assets and shares, we recognized a net gain of $436 million in 2015 within interest and other expense, net.

We also incurred incremental expenses related to readying our global coffee businesses for the transactions that totaled $278 million for the year ended December 31, 2015. Of these total expenses, $123 million was recorded within asset impairment and exit costs in 2015 and the remainder was recorded within selling, general and administrative expenses of primarily our Europe segment, as well as within general corporate expenses.

JDE Capital Increase:

On December 18, 2015, AHBV and we agreed to provide JDE additional capital to pay down some of its debt with lenders. Our pro rata share of the capital increase was €499 million ($544 million as of December 18, 2015) and was made in return for a pro rata number of additional shares in JDE such that our ownership in JDE did not change following the capital increase. To fund our share of the capital increase, we contributed €460 million ($501 million) of JDE receivables and made a €39 million ($43 million) cash payment.

JDE Stock-Based Compensation Arrangements:

On June 30, 2016, we entered into agreements with AHBV and its affiliates to establish a new stock-based compensation arrangement tied to the issuance of JDE equity compensation awards to JDE employees. This arrangement replaced a temporary equity compensation program tied to the issuance of AHBV equity compensation to JDE employees. New Class C, D and E JDE shares were authorized and issued for investments made by, and vested stock-based compensation awards granted to, JDE employees. Under these arrangements, share ownership dilution from the JDE Class C, D and E shareholders is limited to 2%. We retained our 26.5% voting rights and have a slightly lower portion of JDE’s profits and dividends than our shareholder ownership interest as certain employee shareholders receive a slightly larger share. Upon execution of the agreements and the creation of the Class C, D and E JDE shares, as a percentage of the total JDE issued shares, our Class B shares decreased from 26.5% to 26.4% and AHBV’s Class A shares decreased from 73.5% to 73.22%, while the Class C, D and E shares, held by AHBV and its affiliates until the JDE employee awards vest, comprised 0.38% of JDE’s shares. Additional Class C shares are available to be issued when planned long-term incentive plan (“JDE LTIP”) awards vest, generally over the next five years. When the JDE Class C shares are issued in connection with the vested JDE LTIP awards, the Class A and B relative ownership interests will decrease. Based on estimated achievement and forfeiture assumptions, we do not expect our JDE ownership interest to decrease below 26.27%.

JDE Tax Matter Resolution:

On July 19, 2016, the Supreme Court of Spain reached a final resolution on a challenged JDE tax position held by a predecessor DEMB company that resulted in an unfavorable tax expense of €114 million. As a result, our share of JDE’s equity earnings during the third quarter of 2016 was negatively affected by €30 million ($34 million).

Keurig Transaction:

On March 3, 2016, a subsidiary of AHBV completed a $13.9 billion acquisition of all of the outstanding common stock of Keurig through a merger transaction. On March 7, 2016, we exchanged with a subsidiary of AHBV a portion of our equity interest in JDE with a carrying value of €1.7 billion (approximately $2.0 billion as of March 7, 2016) for an interest in Keurig with a fair value of $2.0 billion based on the merger consideration per share for Keurig. We recorded the difference between the fair value of Keurig and our basis in JDE shares as a $43 million gain on the equity method investment exchange in March 2016. Immediately following the exchange, our ownership interest in JDE was 26.5% and our interest in Keurig was 24.2%. Both AHBV and we hold our investments in Keurig through a combination of equity and interests in a shareholder loan, with pro-rata ownership of each. Our initial $2.0 billion investment in Keurig includes a $1.6 billion Keurig equity interest and a $0.4 billion shareholder loan receivable, which are reported on a combined basis within equity method investments on our consolidated balance sheet as of December 31, 2017. 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.

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.

Summary Financial Information for Equity Method Investments:

Summarized financial information for JDE, Keurig, DSF and our other equity method investments is reflected below.


			As of December 31,
			2017		2016
			(in millions)

Current assets			$	4,732	$	4,458
Noncurrent assets				38,282		35,089

Total assets			$	43,014	$	39,547

Current liabilities			$	5,822	$	4,148
Noncurrent liabilities				15,424		16,472

Total liabilities			$	21,246	$	20,620

Equity attributable to shareowners of investees			$	21,685	$	18,868
Equity attributable to noncontrolling interests				83		59


Total net equity of investees			$	21,768	$	18,927
Mondelēz International ownership interests				24-50%		24-50%

Mondelēz International share of investee net equity (1)			$	5,905	$	5,145
Keurig shareholder loan				440		440

Equity method investments			$	6,345	$	5,585


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

Net revenues	$	12,781	$	10,923	$	4,993
Gross profit		4,891		4,219		1,551
Income from continuing operations		1,604		839		96
Net income		1,604		839		97

Net income attributable to investees	$	1,594	$	838	$	97
Mondelēz International ownership interests		24%-50%		24%-50%		40%-50%

Mondelēz International share of investee net income	$	436	$	281	$	56
Keurig shareholder loan interest income		24		20		–

Equity method investment net earnings (2)	$	460	$	301	$	56

	(1)	Includes approximately $360 million of basis differences between the U.S. GAAP accounting basis for our equity method investments and the U.S. GAAP accounting basis of our investees’ equity.

	(2)	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. 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 recorded within segment operating income were $56 million for the six months ended July 2, 2015. See Note 1, Summary of Significant Accounting Policies – Principles of Consolidation, for additional information.

Other Divestitures and Acquisitions:

On December 28, 2017, we completed the sale of a confectionery business in Japan. We received cash proceeds of ¥2.8 billion Japanese Yen ($24 million as of December 28, 2017) and recorded an immaterial pre-tax loss on the divestiture within our AMEA segment.

On October 2, 2017, we completed the sale of one of our equity method investments and received cash proceeds of $65 million. We recorded a pre-tax gain of $40 million within the gain on equity method investment transactions and $15 million of tax expense.

In connection with the 2012 spin-off of Kraft Foods Group, Inc. (now a part of The Kraft Heinz Company (“KHC”)), Kraft Foods Group and we each granted the other various licenses to use certain trademarks in connection with particular product categories in specified jurisdictions. On August 17, 2017, we entered into two agreements with KHC to terminate the licenses of certain KHC-owned brands used in our grocery business within our Europe region and to transfer to KHC inventory and certain other assets. On August 17, 2017, the first transaction closed and we received cash proceeds of €9 million ($11 million as of August 17, 2017) and on October 23, 2017, the second transaction closed and we received cash proceeds of €2 million ($3 million as of October 23, 2017). The gain on both transactions combined was immaterial.

On July 4, 2017, we completed the sale of most of our grocery business in Australia and New Zealand to Bega Cheese Limited for $456 million Australian dollars ($347 million as of July 4, 2017). We divested $27 million of current assets, $135 million of non-current assets and $4 million of current liabilities based on the July 4, 2017 exchange rate. We recorded a pre-tax gain of $247 million Australian dollars ($187 million as of July 4, 2017) on the sale. We also recorded divestiture-related costs of $2 million and a foreign currency hedge loss of $3 million during 2017. In the fourth quarter of 2017, we recorded a $3 million inventory-related working capital adjustment, increasing the pre-tax gain to $190 million in 2017.

On April 28, 2017, we completed the sale of several manufacturing facilities in France and the sale or license of several local confectionery brands. We received cash of approximately €157 million ($169 million as of April 28, 2017), net of cash divested with the businesses. On April 28, 2017, we divested $44 million of current assets, $155 million of non-current assets, $8 million of current liabilities and $22 million of non-current liabilities based on the April 28, 2017 exchange rate. We recorded a $3 million loss on the sale and divestiture-related costs of $27 million in 2017 and $84 million in 2016. These divestiture-related costs were recorded within cost of sales and selling, general and administrative expenses primarily within our Europe segment. In prior periods, we recorded a $5 million impairment charge in May 2016 for a candy trademark to reduce the overall net assets to the estimated net sales proceeds after transaction costs. On March 31, 2016, we recorded a $14 million impairment charge for another gum & candy trademark as a portion of its carrying value would not be recoverable based on future cash flows expected under a planned license agreement with the buyer.

During the year ended December 31, 2016, we also completed the following sale transactions:

	•		On December 31, 2016, we completed the sale of a chocolate factory in Belgium. In connection with this transaction, we recorded a pre-tax loss of €65 million ($68 million as of December 31, 2016), within asset impairment and exit costs in our Europe segment. The loss includes a fixed asset impairment charge of €30 million ($31 million as of December 31, 2016), a loss on disposal of €22 million ($23 million as of December 31, 2016) and incremental expenses we incurred and accrued of €13 million ($14 million as of December 31, 2016) related to selling the factory.

	•		On December 1, 2016, we completed the sale of a confectionery business in Costa Rica represented by a local brand. The sales price was $28 million and we recorded a pre-tax gain of $9 million within gains on divestiture within our Latin America segment. We divested approximately $11 million of property, plant and equipment, $4 million of goodwill and $2 million of inventory. In connection with this transaction, we incurred $2 million of transaction costs and accrued expenses.

	•		On August 26, 2016, we recorded a $7 million gain for the sale of a U.S.-owned biscuit trademark. The gain was recorded within selling, general and administrative expenses in 2016.

	•		On May 2, 2016, we completed the sale of certain local biscuit brands in Finland as part of our strategic decisions to exit select small and local brands and shift investment towards our Power Brands. The sales price was €14 million ($16 million as of May 2, 2016) and we recorded a pre-tax gain of $6 million ($5 million after tax) within selling, general and administrative expenses of our Europe segment in the year ended December 31, 2016. We divested $8 million of indefinite-lived intangible assets and less than $1 million of other assets. We received cash proceeds of €12 million ($14 million as of May 2, 2016) upon closing and another €2 million ($2 million as of October 31, 2016) of consideration following the completion of post-closing requirements. The additional $2 million of consideration increased the pre-tax gain to $8 million ($6 million after tax) through December 31, 2016.

On November 2, 2016, we purchased from Burton’s Biscuit Company certain intangibles, which included the license to manufacture, market and sell Cadbury-branded biscuits in additional key markets around the world, including in the United Kingdom, France, Ireland, North America and Saudi Arabia. The transaction was accounted for as a business combination. Total cash paid for the acquired assets was £199 million ($245 million as of November 2, 2016). During the third quarter of 2017, we completed the valuation work and finalized the purchase price allocation of $66 million to definite-lived intangible assets, $173 million to goodwill, $2 million to property, plant and equipment and $4 million to inventory, reflecting a November 2, 2016 exchange rate. The acquisition added incremental net revenues of $59 million in 2017 and $16 million in 2016 and added incremental operating income of $8 million in 2017 and $1 million in 2016.

During the third quarter of 2016, we completed the acquisition of a Vietnamese biscuit operation within our AMEA segment. On July 15, 2015, we acquired an 80% interest in the biscuit operation and on August 22, 2016, we acquired the remaining 20% interest. Total cash paid for the biscuit operation, intellectual property, non-compete and consulting agreements less purchase price adjustments was 12,404 billion Vietnamese dong ($569 million using applicable exchange rates on July 15, 2015, November 27, 2015 and August 22, 2016). On August 22, 2016, in connection with acquiring the remaining 20% interest in the biscuit operation, escrowed funds of $70 million were released and we retained an agreed $20 million related to two outstanding acquisition-related matters. We subsequently released $5 million in 2016 and $9 million in 2017 to the sellers and expect to pay $4 million within five years as remaining indemnified obligations are resolved. On August 22, 2016, we also made a final payment of 759 billion Vietnamese dong ($35 million as of August 22, 2016) for the non-compete and consulting agreements. The non-compete and consulting agreements were recorded as prepaid contracts within other current and non-current assets and will be amortized into net earnings over the term of the agreements. During the third quarter of 2016, we also finalized the valuation and purchase price allocation of the acquired net assets of the business, which included $10 million of inventory, $49 million of property, plant and equipment, $86 million of intangible assets, $385 million of goodwill and $31 million of other net liabilities. In periods following the initial July 15, 2015 first closing date, the allocation of the net asset fair values had an immaterial impact on our operating results. The acquisition added incremental net revenues of $71 million in 2016 and $121 million in 2015 and added incremental operating income of $5 million in 2016 and $21 million in 2015. Within selling, general and administrative expenses, we recorded integration costs of $7 million in 2016 and $9 million in 2015 and acquisition costs of $7 million in 2015.

Sales of Property:

On November 9, 2016, we completed the sale of a manufacturing plant in Russia and recorded total expenses of $12 million, including a related fixed asset impairment charge of $4 million within asset impairments and exit costs. The sale of the land, buildings and equipment generated cash proceeds of $6 million.

In 2016, we also sold property within our North America segment and from our centrally held corporate assets. In the third quarter of 2016, we sold property in North America that generated cash proceeds of $10 million and a pre-tax gain of $6 million and we sold a corporate aircraft hangar that generated cash proceeds of $3 million and a pre-tax gain of $1 million. In the second quarter of 2016, we also sold property within our North America segment and from our centrally held corporate assets. The North America sale generated cash proceeds of $40 million and a pre-tax gain of $33 million. The corporate aircraft sale generated cash proceeds of $20 million and a pre-tax gain of $6 million. The gains were recorded within selling, general and administrative expenses and cash proceeds were recorded in cash flows from other investing activities in the year ended December 31, 2016.

Note 3. Inventories

Inventories consisted of the following:


	As of December 31,
	2017			2016
	(in millions)

Raw materials	$	711		$	722
Finished product		1,975			1,865

		2,686			2,587
Inventory reserves		(129	)		(118	)

Inventories, net	$	2,557		$	2,469

Note 4. Property, Plant and Equipment

Property, plant and equipment consisted of the following:


	As of December 31,
	2017			2016
	(in millions)

Land and land improvements	$	458		$	471
Buildings and building improvements		2,979			2,801
Machinery and equipment		11,195			10,302
Construction in progress		1,048			1,113

		15,680			14,687
Accumulated depreciation		(7,003	)		(6,458	)

Property, plant and equipment, net	$	8,677		$	8,229

Capital expenditures as presented on the statement of cash flow were $1.0 billion, $1.2 billion and $1.5 billion for the years ending December 31, 2017, 2016 and 2015 and excluded $357 million, $343 million and $322 million for accrued capital expenditures not yet paid.

In connection with our restructuring program, we recorded non-cash property, plant and equipment write-downs (including accelerated depreciation and asset impairments) of $206 million in 2017, $301 million in 2016 and $264 million in 2015 (see Note 6, 2014-2018 Restructuring Program). These charges related to property, plant and equipment were recorded in the consolidated statements of earnings within asset impairment and exit costs and in the segment results as follows:


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

Latin America	$	36	$	22	$	46
AMEA		81		44		88
Europe		58		122		65
North America		30		111		65
Corporate		1		2		–

Non-cash property, plant and equipment write-downs	$	206	$	301	$	264

Note 5. Goodwill and Intangible Assets

Goodwill by reportable operating segment was:


	As of December 31,
	2017		2016
	(in millions)

Latin America	$	901	$	897
AMEA		3,371		3,324
Europe		7,880		7,170
North America		8,933		8,885

Goodwill	$	21,085	$	20,276

Intangible assets consisted of the following:


	As of December 31,
	2017			2016
	(in millions)

Non-amortizable intangible assets	$	17,671		$	17,004
Amortizable intangible assets		2,386			2,315

		20,057			19,319
Accumulated amortization		(1,418	)		(1,218	)

Intangible assets, net	$	18,639		$	18,101

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

Amortization expense for intangible assets was $178 million in 2017, $176 million in 2016 and $181 million in 2015. For the next five years, we estimate annual amortization expense of approximately $175 million for the next three years and approximately $85 million in years four and five, reflecting December 31, 2017 exchange rates.

Changes in goodwill and intangible assets consisted of:


	2017						2016
	Goodwill			Intangible Assets, at cost			Goodwill			Intangible Assets, at cost
	(in millions)

Balance at January 1	$	20,276		$	19,319		$	20,664		$	19,847
Changes due to:
Currency		909			954			(464	)		(540	)
Divestitures		(114	)		(100	)		(4	)		(8	)
Acquisitions		15			(7	)		80			158
Asset impairments		–			(109	)		–			(137	)
Other		(1	)		–			–			(1	)

Balance at December 31	$	21,085		$	20,057		$	20,276		$	19,319

Changes to goodwill and intangibles were:

	•		Divestitures – During 2017, in connection with the divestiture of several manufacturing facilities, primarily in France, we divested $23 million of goodwill and $62 million of amortizable and non-amortizable intangible assets. In 2017, we also completed a sale of most of our grocery business in Australia and New Zealand and divested $86 million of related goodwill. Furthermore, we completed a sale of a confectionery business in Japan and divested $5 million of goodwill and $24 million of definite lived intangible assets. Finally, we divested $14 million of definite lived intangible asset as part of our sale of one of our equity method investments. During 2016, we divested $4 million of goodwill related to the sale of a confectionery business in Costa Rica and we sold $8 million of non-amortizable intangible assets in Finland. See Note 2, Divestitures and Acquisitions, for additional information.

	•		Acquisitions – During 2017, we recorded a $15 million adjustment to goodwill and a $7 million adjustment to indefinite lived assets in connection with finalizing the valuation and purchase price allocation for the Burton’s Biscuit Company purchase completed in the fourth quarter of 2016. In connection with the completion of the purchase of a Vietnam biscuit operation in 2016, we finalized the purchase price allocation of the consideration paid to the net assets acquired and recorded $25 million of amortizable intangible assets and $61 million of non-amortizable intangible assets related to acquired trademarks and customer-related intangible assets. A preliminary goodwill balance was recorded in 2015 and subsequently adjusted by $76 million to $385 million in 2016 to reflect finalized intangible asset and other asset fair valuations. See Note 2, Divestitures and Acquisitions, for additional information.

	•		Asset impairments – We recorded $109 million of intangible asset impairments in 2017, $137 million in 2016 and $83 million in 2015. Charges related to our annual testing of non-amortizable intangible assets were $70 million in 2017, $98 million in 2016 and $71 million in 2015. During 2017, we also recorded a $38 million intangible asset impairment charge resulting from a category decline and lower than expected product growth related to a gum trademark in our North America segment and a $1 million intangible asset impairment charge related to a transaction. In 2016, we also recorded $20 million of impairment charges within our Europe segment related to the planned sale of a confectionery business in France (see Note 2, Divestitures and Acquisitions – Other Divestitures and Acquisitions, for additional information) and we also recorded $19 million of charges in our Europe, North America and AMEA segments resulting from the discontinuation of four biscuit products and one candy product. In 2015, we recorded $12 million of impairment charges within the loss on deconsolidation of Venezuela related to a biscuit trademark.

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.

In 2017, 2016 and 2015, there were no goodwill impairments and each of our reporting units had sufficient fair value in excess of its carrying value. While all reporting units passed our annual impairment testing, if planned business performance expectations are not met or specific valuation factors outside of our control, such as discount rates, change significantly, then the estimated fair values of a reporting unit or reporting units might decline and lead to a goodwill impairment in the future.

During our 2017 annual testing of non-amortizable intangible assets, we recorded $70 million of impairment charges in the third quarter related to five trademarks. 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 the product line expectations are not met or specific valuation factors outside of our control, such as discount rates, change significantly, then a brand or brands could become impaired in the future.

Note 6. 2014-2018 Restructuring Program

On May 6, 2014, our Board of Directors approved a $3.5 billion restructuring program and up to $2.2 billion of capital expenditures. On August 31, 2016, our Board of Directors approved a $600 million reallocation between restructuring program cash costs and capital expenditures so that now the $5.7 billion program consists of approximately $4.1 billion of restructuring program costs ($3.1 billion cash costs and $1 billion non-cash costs) and up to $1.6 billion of capital expenditures. The primary objective of the 2014-2018 Restructuring Program is to reduce our operating cost structure in both our supply chain and overhead costs. The program is intended primarily to cover severance as well as asset disposals and other manufacturing-related one-time costs. Since inception, we have incurred total restructuring and related implementation charges of $3.3 billion related to the 2014-2018 Restructuring Program. We expect to incur the full $4.1 billion of program charges by year-end 2018.

Restructuring Costs:

We recorded restructuring charges of $535 million in 2017, $714 million in 2016 and $711 million in 2015 within asset impairment and exit costs. The 2014-2018 Restructuring Program liability activity for the years ended December 31, 2017 and 2016 was:


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

Liability balance, January 1, 2016	$	395		$	–		$	395
Charges		402			312			714
Cash spent		(315	)		–			(315	)
Non-cash settlements/adjustments		(9	)		(312	)		(321	)
Currency		(9	)		–			(9	)

Liability balance, December 31, 2016	$	464		$	–		$	464

Charges		323			212			535
Cash spent		(347	)		–			(347	)
Non-cash settlements/adjustments		(3	)		(212	)		(215	)
Currency		27			–			27

Liability balance, December 31, 2017	$	464		$	–		$	464

We spent $347 million in 2017 and $315 million in 2016 in cash severance and related costs. We also recognized non-cash pension settlement losses (See Note 9, Benefit Plans), non-cash asset write-downs (including accelerated depreciation and asset impairments) and other non-cash adjustments totaling $215 million in 2017 and $321 million in 2016. At December 31, 2017, $412 million of our net restructuring liability was recorded within other current liabilities and $52 million was recorded within other long-term liabilities.

Implementation Costs:

Implementation costs are directly attributable to restructuring activities; however, they do not qualify for special accounting treatment as exit or disposal activities. We believe the disclosure of implementation costs provides readers of our financial statements with more information on the total costs of our 2014-2018 Restructuring Program. Implementation costs primarily relate to reorganizing our operations and facilities in connection with our supply chain reinvention program and other identified productivity and cost saving initiatives. The costs include incremental expenses related to the closure of facilities, costs to terminate certain contracts and the simplification of our information systems. Within our continuing results of operations, we recorded implementation costs of $257 million in 2017, $372 million in 2016 and $291 million in 2015. We recorded these costs within cost of sales and general corporate expense within selling, general and administrative expenses.

Restructuring and Implementation Costs in Operating Income:

During 2017, 2016 and 2015, and since inception of the 2014-2018 Restructuring Program, we recorded restructuring and implementation costs within operating income by segment (as revised to reflect our current segment structure) as follows:


		Latin									North
	America			AMEA			Europe			America (1)			Corporate (2)			Total
		(in millions)

For the Year Ended December 31, 2017
Restructuring Costs		$	93		$	141		$	195		$	94		$	12		$	535
Implementation Costs			43			43			68			58			45			257

Total		$	136		$	184		$	263		$	152		$	57		$	792

For the Year Ended December 31, 2016
Restructuring Costs		$	111		$	96		$	310		$	183		$	14		$	714
Implementation Costs			54			48			88			121			61			372

Total		$	165		$	144		$	398		$	304		$	75		$	1,086

For the Year Ended December 31, 2015
Restructuring Costs		$	145		$	181		$	243		$	114		$	28		$	711
Implementation Costs			39			26			78			69			79			291

Total		$	184		$	207		$	321		$	183		$	107		$	1,002

Total Project 2014-2017 (3)
Restructuring Costs		$	430		$	448		$	844		$	448		$	64		$	2,234
Implementation Costs			152			129			272			253			221			1,027

Total		$	582		$	577		$	1,116		$	701		$	285		$	3,261

	(1)	During 2017 and 2016, our North America region implementation costs included incremental costs that we incurred related to renegotiating collective bargaining agreements that expired at the end of February 2016 for eight U.S. facilities and related to executing business continuity plans for the North America business.

	(2)	Includes adjustment for rounding.

	(3)	Includes all charges recorded since program inception on May 6, 2014 through December 31, 2017.

Note 7. Debt and Borrowing Arrangements

Short-Term Borrowings:

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


	As of December 31,
	2017					2016
	Amount		Weighted-			Amount		Weighted-
	Outstanding		Average Rate			Outstanding		Average Rate
	(in millions)					(in millions)

Commercial paper	$	3,410		1.7	%	$	2,371		1.0	%
Bank loans		107		11.5	%		160		10.6	%

Total short-term borrowings	$	3,517				$	2,531

As of December 31, 2017, commercial paper issued and outstanding had between 2 and 75 days remaining to maturity. Commercial paper borrowings increased since the 2016 year-end primarily as a result of issuances to finance the payment of long-term debt maturities, dividend payments and share repurchases during the year.

Bank loans include borrowings on primarily uncommitted credit lines maintained by some of our international subsidiaries to meet short-term working capital needs. Collectively, these credit lines amounted to $2.0 billion at December 31, 2017 and $1.8 billion at December 31, 2016. Borrowings on these lines were $107 million at December 31, 2017 and $160 million at December 31, 2016.

Borrowing Arrangements:

On March 1, 2017, to supplement our commercial paper program, we entered into a $1.5 billion revolving credit agreement for a 364-day senior unsecured credit facility that is scheduled to expire on February 28, 2018. The agreement includes the same terms and conditions as our existing $4.5 billion multi-year credit facility discussed below. As of December 31, 2017, no amounts were drawn on the facility.

We also maintain a $4.5 billion multi-year senior unsecured revolving credit facility for general corporate purposes, including working capital needs, and to support our commercial paper program. On October 14, 2016, the revolving credit agreement, which was scheduled to expire on October 11, 2018, was extended through October 11, 2021. The revolving credit agreement includes a covenant that we maintain a minimum shareholders’ equity of at least $24.6 billion, excluding accumulated other comprehensive earnings/(losses) and the cumulative effects of any changes in accounting principles. At December 31, 2017, we complied with this covenant as our shareholders’ equity, as defined by the covenant, was $36.1 billion. The revolving credit facility agreement also contains customary representations, covenants and events of default. There are no credit rating triggers, provisions or other financial covenants that could require us to post collateral as security. As of December 31, 2017, no amounts were drawn on the facility.

Long-Term Debt:

Our long-term debt consisted of (interest rates are as of December 31, 2017):


	As of December 31,
	2017			2016
	(in millions)

U.S. dollar notes, 1.385% to 7.000% (weighted-average effective rate 3.414%), due through 2040	$	8,327		$	8,812
Euro notes, 1.000% to 2.375% (weighted-average effective rate 1.930%), due through 2035		3,653			3,980
Pound sterling notes, 3.875% to 7.250% (weighted-average effective rate 4.441%), due through 2045		456			418
Swiss franc notes, 0.050% to 1.125% (weighted-average effective rate 0.627%), due through 2025		1,694			1,449
Capital leases and other obligations		5			9

Total		14,135			14,668
Less current portion of long-term debt		(1,163	)		(1,451	)

Long-term debt	$	12,972		$	13,217

Deferred debt issuance costs of $33 million as of December 31, 2017 and $40 million as of December 31, 2016 are netted against the related debt in the table above. Deferred financing costs related to our revolving credit facility are classified in long-term other assets and were immaterial for all periods presented.

As of December 31, 2017, aggregate maturities of our debt and capital leases based on stated contractual maturities, excluding unamortized non-cash bond premiums, discounts, bank fees and mark-to-market adjustments of $(64) million, were (in millions):


2018		2019		2020		2021		2022		Thereafter		Total
$1,163		$2,651		$896		$3,373		$754		$5,362		$14,199

On April 12, 2017, we discharged $488 million of our 6.500% U.S. dollar-denominated debt. We paid $504 million, representing principal as well as past and future interest accruals from February 2017 through the August 2017 maturity date. We recorded an $11 million loss on debt extinguishment within interest expense and a $5 million reduction in accrued interest.

On March 30, 2017, _fr._175 million (approximately $175 million) of our 0.000% Swiss franc-denominated notes matured. The notes and accrued interest to date were paid with net proceeds from the fr.350 million Swiss franc-denominated notes issued on March 13, 2017.

On March 13, 2017, we launched an offering of fr.350 million of Swiss franc-denominated notes, or $349 million in U.S. dollars as of March 31, 2017, consisting of:

	•		fr.225 million (or $224 million) of 0.050% fixed rate notes that mature on March 30, 2020

	•		fr.125 million (or $125 million) of 0.617% fixed rate notes that mature on September 30, 2024

On March 30, 2017, we received net proceeds of _fr._349 million (or $349 million) that were used for general corporate purposes.

On January 26, 2017, €750 million (approximately $801 million) of our 1.125% euro-denominated notes matured. The notes and accrued interest to date were paid with the issuance of commercial paper and cash on hand.

On December 16, 2016, we redeemed $850 million of 2.250% fixed rate notes, maturing on February 1, 2019, that were issued on January 16, 2014. The notes were redeemed at a redemption cost equal to $866 million, plus accrued and unpaid interest of $7 million. In connection with this redemption, during the three months ended December 31, 2016, we recorded a $19 million loss on debt extinguishment within interest and other expense, net.

On October 31, 2016, we completed a cash tender offer and retired $3.18 billion of U.S. dollar, euro and British pound sterling-denominated notes. We financed the repurchase of the notes, including the payment of accrued interest and other costs incurred, from net proceeds received on October 28, 2016 from the $3.75 billion note issuance and the term loans described below. In connection with retiring this debt, during the three months ended December 31, 2016, we recorded a $409 million loss on debt extinguishment within interest expense related to the amount we paid to retire the debt in excess of its carrying value and from recognizing unamortized premiums and deferred financing costs in earnings at the time of the debt extinguishment. Cash costs related to tendering the debt are included in long-term debt repayments in the consolidated statement of cash flows for the year ended December 31, 2016. We also recognized $1 million in interest income related to the partial settlement of fair value hedges due to the tender.

On October 19, 2016, Mondelez International Holdings Netherlands B.V. (“MIHN”), a wholly owned subsidiary of Mondelēz International, Inc., launched an offering of $3.75 billion of notes, guaranteed by Mondelēz International, Inc. The $1.75 billion of 1.625% notes and the $500 million of floating rate notes will mature on October 28, 2019 and the $1.5 billion of 2.0% notes will mature on October 28, 2021. On October 28, 2016, we received proceeds, net of discounts and associated financing costs, of $3.73 billion. Proceeds from the notes issuance were used for general corporate purposes, including to grant loans or make distributions to Mondelēz International, Inc. or its subsidiaries to fund the October 2016 cash tender offer and near-term debt maturities. We recorded approximately $20 million of deferred financing costs and discounts, which will be amortized into interest expense over the life of the notes. We entered into cross-currency swaps, serving as cash flow hedges, so that the U.S. dollar-denominated debt payments will effectively be paid in euros over the life of the debt.

On October 14, 2016, MIHN executed a $1.5 billion bank term loan facility. The loan facility consists of two $750 million loans, one with a three-year maturity and the other with a five-year maturity. The term loans can be drawn at any time for 60 days after signing. On October 25, 2016, we gave notice of our intent to fully draw on the loan with a five-year maturity, and funding occurred on October 28, 2016. Proceeds from the $750 million term loan may be used for general corporate purposes, including funding of the tender offer or other debt. On October 25, 2016, we also gave notice of our intent to terminate the $750 million loan with the three-year maturity.

On February 9, 2016, $1,750 million of our 4.125% U.S. dollar notes matured. The notes and accrued interest to date were paid with net proceeds from the fr.400 million Swiss franc-denominated notes issued on January 26, 2016 and the €700 million euro-denominated notes issued on January 21, 2016, as well as cash on hand and the issuance of commercial paper. As we refinanced $1,150 million of the matured notes with net proceeds from the long-term debt issued in January 2016, we reflected this amount within long-term debt as of December 31, 2015.

On January 26, 2016, we issued fr.400 million of Swiss franc-denominated notes, or $399 million in U.S. dollars locked in with a forward currency contract on January 12, 2016, consisting of:

	•		fr.250 million (or $249 million) of 0.080% fixed rate notes that mature on January 26, 2018

	•		fr.150 million (or $150 million) of 0.650% fixed rate notes that mature on July 26, 2022

We received proceeds, net of premiums and deferred financing costs, of $398 million that were used to partially fund the February 2016 note maturity and for other general corporate purposes. We recorded approximately $1 million of premiums and deferred financing costs, which will be amortized into interest expense over the life of the notes.

On January 21, 2016, we issued €700 million of euro-denominated 1.625% notes, or $760 million in U.S. dollars locked in with a forward currency contract on January 13, 2016. The euro-denominated notes will mature on January 20, 2023. We received proceeds, net of discounts and deferred financing costs, of $752 million that were used to partially fund the February 2016 note maturity and for other general corporate purposes. We recorded approximately $8 million of discounts and deferred financing costs, which will be amortized into interest expense over the life of the notes.

Our weighted-average interest rate on our total debt was 2.1% as of December 31, 2017, 2.2% as of December 31, 2016 and 3.7% as of December 31, 2015.

Fair Value of Our Debt:

The fair value of our short-term borrowings at December 31, 2017 and December 31, 2016 reflects current market interest rates and approximates the amounts we have recorded on our consolidated balance sheets. The fair value of our long-term debt was determined using quoted prices in active markets (Level 1 valuation data) for the publicly traded debt obligations. At December 31, 2017, the aggregate fair value of our total debt was $18,354 million and its carrying value was $17,652 million. At December 31, 2016, the aggregate fair value of our total debt was $17,882 million and its carrying value was $17,199 million.

Interest and Other Expense, net:

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


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

Interest expense, debt	$	396		$	515	$	609
Loss on debt extinguishment and related expenses		11			427		753
JDE coffee business transactions currency-related net gains		–			–		(436	)
Loss related to interest rate swaps		–			97		34
Other (income)/expense, net		(25	)		76		53

Interest and other expense, net	$	382		$	1,115	$	1,013

See Note 2, Divestitures and Acquisitions, and Note 8, Financial Instruments, for information on the currency exchange forward contracts associated with the JDE coffee business transactions. See Note 8, Financial Instruments, for information on the loss related to U.S. dollar interest rate swaps no longer designated as accounting cash flow hedges during 2016 and 2015. Also see Note 12, Commitments and Contingencies, for information on the $59 million of other income recorded in 2017 in connection with the resolution of a Brazilian indirect tax matter and the reversal of related accrued interest.

Note 8. Financial Instruments

Fair Value of Derivative Instruments:

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


	As of December 31,
	2017				2016
	Asset		Liability		Asset		Liability
	Derivatives		Derivatives		Derivatives		Derivatives
	(in millions)

Derivatives designated as accounting hedges:
Currency exchange contracts	$	–	$	–	$	19	$	8
Commodity contracts		–		–		17		22
Interest rate contracts		15		509		108		19

	$	15	$	509	$	144	$	49

Derivatives not designated as accounting hedges:
Currency exchange contracts	$	65	$	76	$	29	$	43
Commodity contracts		84		229		112		167
Interest rate contracts		15		11		27		19

	$	164	$	316	$	168	$	229

Total fair value	$	179	$	825	$	312	$	278

Derivatives designated as accounting hedges include cash flow and fair value hedges and derivatives not designated as accounting hedges include economic hedges. Non-U.S. dollar denominated debt, designated as a hedge of our net investments in non-U.S. operations, is not reflected in the table above, but is included in long-term debt summarized in Note 7, Debt and Borrowing Arrangements. We record derivative assets and liabilities on a gross basis on our consolidated balance sheets. The fair value of our asset derivatives is recorded within other current assets and the fair value of our liability derivatives is recorded within other current liabilities.

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


	As of December 31, 2017
				Quoted Prices in
				Active Markets			Significant			Significant
	Total			for Identical			Other Observable			Unobservable
	Fair Value of Net			Assets			Inputs			Inputs
	Asset/(Liability)			(Level 1)			(Level 2)			(Level 3)
	(in millions)

Currency exchange contracts	$	(11	)	$	–		$	(11	)	$	–
Commodity contracts		(145	)		(138	)		(7	)		–
Interest rate contracts		(490	)		–			(490	)		–

Total derivatives	$	(646	)	$	(138	)	$	(508	)	$	–


	As of December 31, 2016
				Quoted Prices in
				Active Markets			Significant			Significant
	Total			for Identical			Other Observable			Unobservable
	Fair Value of Net			Assets			Inputs			Inputs
	Asset/(Liability)			(Level 1)			(Level 2)			(Level 3)
	(in millions)

Currency exchange contracts	$	(3	)	$	–		$	(3	)	$	–
Commodity contracts		(60	)		(86	)		26			–
Interest rate contracts		97			–			97			–

Total derivatives	$	34		$	(86	)	$	120		$	–

Level 1 financial assets and liabilities consist of exchange-traded commodity futures and listed options. The fair value of these instruments is determined based on quoted market prices on commodity exchanges. Our exchange-traded derivatives are generally subject to master netting arrangements that permit net settlement of transactions with the same counterparty when certain criteria are met, such as in the event of default. We also are required to maintain cash margin accounts in connection with funding the settlement of our open positions, and the margin requirements generally fluctuate daily based on market conditions. We have recorded margin deposits related to our exchange-traded derivatives of $171 million as of December 31, 2017 and $133 million as of December 31, 2016 within other current assets. Based on our net asset or liability positions with individual counterparties, in the event of default and immediate net settlement of all of our open positions, for derivatives we have in a net asset position, our counterparties would owe us a total of $34 million as of December 31, 2017 and $48 million as of December 31, 2016. As of December 31, 2017, we have no Level 1 derivatives in a net liability position, and as of December 31, 2016 we would have owed $2 million for derivatives in a net liability position.

Level 2 financial assets and liabilities consist primarily of over-the-counter (“OTC”) currency exchange forwards, options and swaps; commodity forwards and options; and interest rate swaps. Our currency exchange contracts are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Commodity derivatives are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount or based on pricing models that rely on market observable inputs such as commodity prices. Our calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the observable market interest rate curve. Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including counterparty credit risk. Our OTC derivative transactions are governed by International Swap Dealers Association agreements and other standard industry contracts. Under these agreements, we do not post nor require collateral from our counterparties. The majority of our commodity and currency exchange OTC derivatives do not have a legal right of set-off. In connection with our OTC derivatives that could be net-settled in the event of default, assuming all parties were to fail to comply with the terms of the agreements, for Level 2 derivatives we have in a net liability position, we would owe $523 million as of December 31, 2017 and $40 million as of December 31, 2016, and for Level 2 derivatives we have in a net asset position, our counterparties would owe us a total of $26 million as of December 31, 2017 and $162 million as of December 31, 2016. We manage the credit risk in connection with these and all our derivatives by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure with each counterparty and monitoring the financial condition of our counterparties.

Derivative Volume:

The net notional values of our derivative instruments were:


	Notional Amount
	As of December 31,
	2017		2016
	(in millions)

Currency exchange contracts:
Intercompany loans and forecasted interest payments	$	7,089	$	3,343
Forecasted transactions		2,213		1,452
Commodity contracts		1,204		837
Interest rate contracts		6,532		6,365
Net investment hedge – euro notes		3,679		4,012
Net investment hedge – pound sterling notes		459		419
Net investment hedge – Swiss franc notes		1,694		1,447

Cash Flow Hedges:

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


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

Accumulated (loss)/gain at beginning of period	$	(121	)	$	(45	)	$	(2	)
Transfer of realized (gains)/losses in fair value to earnings		27			53			–
Unrealized gain/(loss) in fair value		(19	)		(129	)		(43	)

Accumulated (loss)/gain at end of period	$	(113	)	$	(121	)	$	(45	)

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


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

Currency exchange contracts – forecasted transactions	$	(3	)	$	(1	)	$	83
Commodity contracts		(24	)		(4	)		(52	)
Interest rate contracts		–			(48	)		(31	)

Total	$	(27	)	$	(53	)	$	–

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


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

Currency exchange contracts – forecasted transactions	$	(38	)	$	8		$	40
Commodity contracts		7			(34	)		(35	)
Interest rate contracts		12			(103	)		(48	)

Total	$	(19	)	$	(129	)	$	(43	)

Cash flow hedge ineffectiveness was not material for all periods presented.

Within interest and other expense, net, we recorded pre-tax losses of $97 million in the first quarter of 2016 and $34 million in the first quarter of 2015 related to amounts excluded from effectiveness testing. These amounts relate to interest rate swaps no longer designated as cash flow hedges due to changes in financing plans. Due to lower overall costs and our decision to hedge a greater portion of our net investments in operations that use currencies other than the U.S. dollar as their functional currencies, we changed our plans to issue U.S. dollar-denominated debt and instead issued euro and Swiss franc-denominated notes in 2016 and euro, British pound sterling and Swiss franc-denominated notes in 2015. Amounts excluded from effectiveness testing were not material for all other periods presented.

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

	•		cost of sales for commodity contracts;

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

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

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

Cash Flow Hedge Coverage:

As of December 31, 2017, our longest dated cash flow hedges are interest rate swaps that hedge forecasted interest rate payments over the next 5 years and 10 months.

Fair Value Hedges:

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


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

Derivatives	$	(4	)	$	(6	)	$	(1	)
Borrowings		4			6			1

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

Economic Hedges:

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


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

Currency exchange contracts:
Intercompany loans and forecasted interest payments	$	13		$	21		$	29			Interest and other expense, net
Forecasted transactions		(37	)		(76	)		29			Cost of sales
Forecasted transactions		(2	)		11			435			Interest and other expense, net
Forecasted transactions		3			7			(12	)		Selling, general and administrative expenses
Commodity contracts		(218	)		(101	)		(38	)		Cost of sales

Total	$	(241	)	$	(138	)	$	443

In connection with the coffee business transactions, we entered into a number of consecutive euro to U.S. dollar currency exchange forward contracts in 2015 to lock in an equivalent expected value in U.S. dollars. The mark-to-market gains and losses on the derivatives were recorded in earnings. We recorded net gains of $436 million for the year ended December 31, 2015 within interest and other expense, net in connection with the forward contracts and the transferring of proceeds to our subsidiaries where coffee net assets and shares were deconsolidated. The currency hedge and related gains and losses were recorded within interest and other expense, net. See Note 2, Divestitures and Acquisitions — JDE Coffee Business Transactions, for additional information.

Hedges of Net Investments in International Operations:

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


								Location of
	For the Years Ended December 31,							Gain/(Loss)
	2017			2016		2015		Recognized in AOCI
	(in millions)

Euro notes	$	(323	)	$	73	$	268	Currency
Pound sterling notes		(26	)		148		42	Translation
Swiss franc notes		(49	)		12		9	Adjustment

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.

Note 9. Benefit Plans

Pension Plans

Obligations and Funded Status:

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


	U.S. Plans						Non-U.S. Plans
	2017			2016			2017			2016
	(in millions)

Projected benefit obligation at January 1	$	1,614		$	1,566		$	9,814		$	9,547
Service cost		46			57			156			147
Interest cost		62			61			199			229
Benefits paid		(32	)		(32	)		(471	)		(425	)
Settlements paid		(111	)		(91	)		–			–
Actuarial losses		179			52			180			1,284
Divestiture		–			–			(14	)		(5	)
Currency		–			–			976			(979	)
Other		4			1			12			16

Projected benefit obligation at December 31		1,762			1,614			10,852			9,814


Fair value of plan assets at January 1		1,620			1,247			7,926			7,721
Actual return on plan assets		217			118			592			1,079
Contributions		23			378			482			419
Benefits paid		(32	)		(32	)		(471	)		(425	)
Settlements paid		(111	)		(91	)		–			–
Divestiture		–			–			–			(4	)
Currency		–			–			798			(863	)
Other		–			–			–			(1	)

Fair value of plan assets at December 31		1,717			1,620			9,327			7,926

Net pension (liabilities)/assets at December 31	$	(45	)	$	6		$	(1,525	)	$	(1,888	)

The accumulated benefit obligation, which represents benefits earned to the measurement date, was $1,715 million at December 31, 2017 and $1,540 million at December 31, 2016 for the U.S. pension plans. The accumulated benefit obligation for the non-U.S. pension plans was $10,610 million at December 31, 2017 and $9,531 million at December 31, 2016.

Salaried and non-union hourly employees hired after January 1, 2009 in the U.S. and after January 1, 2011 in Canada (or earlier for certain legacy Cadbury employees) are no longer eligible to participate in the defined benefit pension plans. These employees are given an enhanced Company contribution to our employee defined contribution plans. For those salaried and non-union hourly employees who are currently participating in the defined benefit pension plans in the U.S. and Canada, benefit accruals will cease December 31, 2019.

The combined U.S. and non-U.S. pension plans resulted in a net pension liability of $1,570 million at December 31, 2017 and $1,882 million at December 31, 2016. We recognized these amounts in our consolidated balance sheets as follows:


	As of December 31,
	2017			2016
	(in millions)

Prepaid pension assets	$	158		$	159
Other current liabilities		(59	)		(27	)
Accrued pension costs		(1,669	)		(2,014	)

	$	(1,570	)	$	(1,882	)

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


	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
	2017		2016		2017		2016
	(in millions)

Projected benefit obligation	$	94	$	96	$	9,345	$	8,386
Accumulated benefit obligation		90		88		9,138		8,168
Fair value of plan assets		2		2		7,709		6,451

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


	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
	2017		2016		2017		2016
	(in millions)

Discount rate		3.68%		4.19%		2.20%		2.31%
Expected rate of return on plan assets		5.50%		6.25%		4.90%		5.14%
Rate of compensation increase		4.00%		4.00%		3.31%		3.29%

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

At the end of 2015, we changed the approach used to measure service and interest costs for pension benefits. For 2015, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. For 2016, we measured service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. We believe the new approach provided a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve. The impact of this change was a decrease in net periodic pension cost of approximately $64 million for the year ended December 31, 2016. This change did not affect the measurement of our plan obligations. We accounted for this change as a change in accounting estimate and, accordingly, accounted for it on a prospective basis.

Components of Net Periodic Pension Cost:

Net periodic pension cost consisted of the following:


	U.S. Plans									Non-U.S. Plans
	For the Years Ended December 31,									For the Years Ended December 31,
	2017			2016			2015			2017			2016			2015
	(in millions)

Service cost	$	46		$	57		$	64		$	156		$	147		$	188
Interest cost		62			61			67			199			229			307
Expected return on plan assets		(101	)		(97	)		(93	)		(434	)		(418	)		(478	)
Amortization:
Net loss from experience differences		37			42			43			167			120			141
Prior service cost/(benefit) (1)		2			2			2			(3	)		(3	)		15
Settlement losses and other expenses (2)		35			30			19			6			6			2

Net periodic pension cost	$	81		$	95		$	102		$	91		$	81		$	175

	(1)	For the year ended December 31, 2015, amortization of prior service cost includes $17 million of pension curtailment losses related to employees who transitioned to JDE upon the contribution of our global coffee business. Refer to Note 2_, Divestitures and Acquisitions – JDE Coffee Business Transactions_, for more information.

	(2)	Settlement losses include $11 million for the year ended December 31, 2017, $15 million for the year ended December 31, 2016 and $9 million for the year ended December 31, 2015 of pension settlement losses for employees who elected lump-sum payments in connection with our 2014-2018 Restructuring Program. Retired employees who elected lump-sum payments resulted in net settlement losses of $21 million for our U.S. plans and $6 million for our non-U.S. plans in 2017, $15 million for our U.S. plans and $6 million for our non-U.S. plans in 2016 and $10 million for our U.S. plans and $2 million for our non-U.S. plans in 2015. See Note 6, 2014-2018 Restructuring Program, for more information.

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

As of December 31, 2017, for the combined U.S. and non-U.S. pension plans, we expected to amortize from accumulated other comprehensive earnings/(losses) into net periodic pension cost during 2018:

	•		an estimated $209 million of net loss from experience differences; and

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

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


	U.S. Plans						Non-U.S. Plans
	For the Years Ended December 31,						For the Years Ended December 31,
	2017		2016		2015		2017		2016		2015

Discount rate		4.19%		4.50%		4.20%		2.31%		3.11%		2.99%
Expected rate of return on plan assets		6.25%		6.75%		7.25%		5.14%		5.87%		5.96%
Rate of compensation increase		4.00%		4.00%		4.00%		3.29%		3.18%		3.26%

Plan Assets:

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


	As of December 31, 2017
			Quoted Prices		Significant
			in Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	Total Fair		Assets		Inputs		Inputs
Asset Category	Value		(Level 1)		(Level 2)		(Level 3)
	(in millions)

U.S. equity securities	$	2	$	2	$	–	$	–
Non-U.S. equity securities		5		5		–		–
Pooled funds - equity securities		2,340		848		1,492		–

Total equity securities		2,347		855		1,492		–

Government bonds		3,237		34		3,203		–
Pooled funds - fixed-income securities		602		449		153		–
Corporate bonds and other fixed-income securities		2,102		133		1,179		790

Total fixed-income securities		5,941		616		4,535		790

Real estate		156		120		13		23
Private equity		2		–		–		2
Cash		86		66		20		–
Other		2		1		–		1

Total assets in the fair value hierarchy	$	8,534	$	1,658	$	6,060	$	816

Investments measured at net asset value		2,439

Total investments at fair value	$	10,973


	As of December 31, 2016
			Quoted Prices		Significant
			in Active Markets		Other			Significant
			for Identical		Observable			Unobservable
	Total Fair		Assets		Inputs			Inputs
Asset Category	Value		(Level 1)		(Level 2)			(Level 3)
	(in millions)

U.S. equity securities	$	1	$	1	$	–		$	–
Non-U.S. equity securities		427		427		–			–
Pooled funds - equity securities		1,524		286		1,235			3

Total equity securities		1,952		714		1,235			3

Government bonds		3,009		37		2,972			–
Pooled funds - fixed-income securities		756		103		618			35
Corporate bonds and other fixed-income securities		852		357		(43	)		538

Total fixed-income securities		4,617		497		3,547			573

Real estate		170		98		50			22
Private equity		2		–		–			2
Cash		73		72		1			–
Other		3		1		–			2

Total assets in the fair value hierarchy	$	6,817	$	1,382	$	4,833		$	602

Investments measured at net asset value		2,667

Total investments at fair value	$	9,484

We excluded plan assets of $71 million at December 31, 2017 and $62 million at December 31, 2016 from the above tables related to certain insurance contracts as they are reported at contract value, in accordance with authoritative guidance.

Fair value measurements:

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

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

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

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

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

	•		Fair value estimates for private debt placements are calculated using standardized valuation methods, including but not limited to income-based techniques such as discounted cash flow projections or market-based techniques utilizing public and private transaction multiples as comparables.

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

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

	•		Net asset value – primarily includes equity funds, fixed income funds, real estate funds, hedge funds and private equity investments for which net asset values are normally used.

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


Asset Category	January 1, 2017 Balance		Net Realized and Unrealized Gains/ (Losses)		Net Purchases, Issuances and Settlements			Net Transfers Into/(Out of) Level 3			Currency Impact			December 31, 2017 Balance
	(in millions)
Non-U.S. equity	$	3	$	–	$	–		$	(3	)	$	–		$	–
Pooled funds- fixed-income securities		35		–		(16	)		(21	)		2			–
Corporate bond and other fixed-income securities		538		10		182			–			60			790
Real estate		22		1		–			–			–			23
Private equity and other		4		–		–			(1	)		–			3

Total Level 3 investments	$	602	$	11	$	166		$	(25	)	$	62		$	816


Asset Category	January 1, 2016 Balance		Net Realized and Unrealized Gains/ (Losses)		Net Purchases, Issuances and Settlements			Net Transfers Into/(Out of) Level 3			Currency Impact			December 31, 2016 Balance
	(in millions)
Non-U.S. equity	$	–	$	–	$	–		$	3		$	–		$	3
Pooled funds- fixed-income securities		26		6		15			(7	)		(5	)		35
Corporate bond and other fixed-income securities		665		21		(41	)		–			(107	)		538
Real estate		230		–		(184	)		(3	)		(21	)		22
Private equity and other		3		–		–			1			–			4

Total Level 3 investments	$	924	$	27	$	(210	)	$	(6	)	$	(133	)	$	602

The increases in Level 3 pension plan investments during 2017 were primarily due to net purchases in corporate bonds and other fixed income securities, which includes private debt placements, and the effects of currency. The decreases in Level 3 pension plan investments during 2016 were primarily due to net settlements in real estate funds and the effects of currency.

The percentage of fair value of pension plan assets was:


	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
Asset Category	2017		2016		2017		2016

Equity securities		15%		33%		28%		29%
Fixed-income securities		85%		63%		60%		57%
Real estate		–		4%		6%		5%
Hedge funds		–		–		4%		6%
Private equity		–		–		1%		2%
Cash		–		–		1%		1%

Total		100%		100%		100%		100%

For our U.S. plans, our investment strategy is to reduce the risk of underfunded plans in part through appropriate asset allocation within our plan assets. We attempt to maintain our target asset allocation by rebalancing between asset classes as we make contributions and monthly benefit payments. The strategy involves using indexed U.S. equity and international equity securities and actively managed U.S. investment grade fixed-income securities (which constitute 95% or more of fixed-income securities) with smaller allocations to high yield fixed-income securities.

For our non-U.S. plans, the investment strategy is subject to local regulations and the asset/liability profiles of the plans in each individual country. In aggregate, the asset allocation targets of our non-U.S. plans are broadly characterized as a mix of approximately 32% equity securities (including investments in real estate), approximately 66% fixed-income securities and approximately 2% for other types of securities. Our investment strategy for our largest non-U.S. plan, which comprises 63% of our non-U.S. pension assets, is designed to balance risk and return by diversifying across a wide range of return-seeking and liability matching assets, invested in a range of both active and passive mandates. We target an allocation of approximately 23% in equity securities, 20% credit, and 57% liability matching assets. The strategy uses indexed global developed equities, actively managed global investment grade and alternative credit, real estate and other liability matching assets including a buy-in annuity policy.

Employer Contributions:

In 2017, we contributed $23 million to our U.S. pension plans and $470 million to our non-U.S. pension plans. The non-U.S. amount included a non-recurring $250 million contribution made in connection with a new funding agreement for a Company plan in the United Kingdom. In addition, employees contributed $12 million to our non-U.S. plans. We make contributions to our pension plans in accordance with local funding arrangements and statutory minimum funding requirements. Discretionary contributions are made to the extent that they are tax deductible and do not generate an excise tax liability.

In 2018, we estimate that our pension contributions will be $39 million to our U.S. plans and $250 million to our non-U.S. plans based on current tax laws. Our actual contributions may be different due to many factors, including changes in tax and other benefit laws, significant differences between expected and actual pension asset performance or interest rates.

Future Benefit Payments:

The estimated future benefit payments from our pension plans at December 31, 2017 were (in millions):


	2018		2019		2020		2021		2022		2023-2027

U.S. Plans	$	120	$	83	$	89	$	93	$	93	$	498
Non-U.S. Plans		375		375		387		409		409		2,196

Multiemployer Pension Plans:

In accordance with obligations we have under collective bargaining agreements, we made contributions to multiemployer pension plans of $26 million in 2017, $25 million in 2016 and $31 million in 2015. There are risks of participating in multiemployer pension plans that are different from single employer plans. Contributions made by a participating employer are not segregated to be used to provide benefits for participants related to that participating employer. If a participating employer stops contributing to the plan, the unfunded vested obligations of the plan are borne by the remaining participating employers.

The only individually significant multiemployer plan we participate in as of December 31, 2017 is the Bakery and Confectionery Union and Industry International Pension Fund (the “Fund”). Our contributions to the Fund exceeded 5% of total contributions to the Fund for fiscal years 2017, 2016 and 2015. Our contributions to the Fund were $22 million in 2017, $21 million in 2016 and $27 million in 2015. Our contributions to other multiemployer pension plans that were not individually significant were $4 million in 2017, $4 million in 2016 and $4 million in 2015. Our contributions are based on our contribution rates under our collective bargaining agreements, the number of our eligible employees and Fund surcharges.


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

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

Effective January 1, 2012, the Fund’s zone status changed to “Red”. As a result of this certification, beginning in July 2012, we were charged a 10% surcharge on our contribution rates. The Fund subsequently adopted a rehabilitation plan on November 7, 2012 that required contribution increases and reductions to benefit provisions. As of August 28, 2016, the 10% surcharge was no longer applicable and we were required to pay higher contributions under the Fund’s rehabilitation plan. Although our collective bargaining agreements with the Fund expired during 2016 and while we continue to renegotiate the agreements, we continue to make contributions to the Fund.

Other Costs:

We sponsor and contribute to employee defined contribution plans. These plans cover eligible salaried, non-union and union employees. Our contributions and costs are determined by the matching of employee contributions, as defined by the plans. Amounts charged to expense in continuing operations for defined contribution plans totaled $43 million in 2017, $44 million in 2016 and $45 million in 2015.

Postretirement Benefit Plans

Obligations:

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


	As of December 31,
	2017			2016
	(in millions)

Accrued benefit obligation at January 1	$	394		$	511
Service cost		7			12
Interest cost		15			20
Benefits paid		(15	)		(14	)
Plan amendments (1)		–			(149	)
Currency		8			3
Assumption changes		30			34
Actuarial losses/(gains)		(4	)		(23	)

Accrued benefit obligation at December 31	$	435		$	394

	(1)	Plan amendments in 2016 included a change in eligibility requirements related to medical and life insurance benefits and a change in benefits for Medicare-eligible participants.

The current portion of our accrued postretirement benefit obligation of $16 million at December 31, 2017 and $12 million at December 31, 2016 was included in other current liabilities.

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


	U.S. Plans				Non-U.S. Plans
	As of December 31,				As of December 31,
	2017		2016		2017		2016

Discount rate		3.66%		4.14%		4.24%		4.55%
Health care cost trend rate assumed for next year		6.25%		6.50%		5.56%		5.50%
Ultimate trend rate		4.81%		5.00%		5.56%		5.68%
Year that the rate reaches the ultimate trend rate		2024		2020		2018		2018

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

At the end of 2015, we changed the approach used to measure service and interest costs for other postretirement benefits. For 2015, we measured service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the plan obligations. For 2016, we measured service and interest costs by applying the specific spot rates along that yield curve to the plans’ liability cash flows. We believe the new approach provided a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot

rates on the yield curve. The impact of this change was a decrease in net periodic postretirement cost of approximately $4 million for the year ended December 31, 2016. This change does not affect the measurement of our plan obligations. We accounted for this change as a change in accounting estimate and, accordingly, accounted for it on a prospective basis.

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


	As of December 31, 2017
	One-Percentage-Point
	Increase		Decrease
	(in millions)

Effect on postretirement benefit obligation	$	49	$	(40	)
Effect on annual service and interest cost		3		(2	)

Components of Net Periodic Postretirement Health Care Costs:

Net periodic postretirement health care costs consisted of the following:


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

Service cost	$	7		$	12		$	15
Interest cost		15			20			22
Amortization:
Net loss from experience differences		14			10			13
Prior service credit (1)		(40	)		(20	)		(7	)

Net periodic postretirement health care costs	$	(4	)	$	22		$	43

	(1)	In the fourth quarter of 2016, the prior service credit included a one-time $9 million curtailment gain related to a change in the eligibility requirement resulting in ongoing amortization of $10 million. In 2017, we continue to amortize prior service credit and recorded $40 million on a full year basis.

As of December 31, 2017, we expected to amortize from accumulated other comprehensive earnings/(losses) into pre-tax net periodic postretirement health care costs during 2018:

	•		an estimated $18 million of net loss from experience differences, and

	•		an estimated $39 million of prior service credit.

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


	U.S. Plans			Non-U.S. Plans
	For the Years Ended December 31,			For the Years Ended December 31,
	2017	2016	2015	2017	2016	2015

Discount rate	4.14%	4.60%	4.20%	4.55%	4.77%	4.52%
Health care cost trend rate	6.50%	6.50%	6.50%	5.50%	5.50%	5.18%

Future Benefit Payments:

Our estimated future benefit payments for our postretirement health care plans at December 31, 2017 were (in millions):


	2018		2019		2020		2021		2022		2023-2027

U.S. Plans	$	11	$	12	$	13	$	15	$	16	$	85
Non-U.S. Plans		5		5		6		6		6		55

Other Costs:

We made contributions to multiemployer medical plans totaling $18 million in 2017, $19 million in 2016 and $20 million in 2015. These plans provide medical benefits to active employees and retirees under certain collective bargaining agreements.

Postemployment Benefit Plans

Obligations:

Our postemployment plans are primarily not funded. The changes in and the amount of the accrued benefit obligation at December 31, 2017 and 2016 were:


	As of December 31,
	2017			2016
	(in millions)

Accrued benefit obligation at January 1	$	71		$	95
Service cost		5			7
Interest cost		4			6
Benefits paid		(6	)		(9	)
Assumption changes		–			(21	)
Actuarial losses/(gains)		2			(7	)

Accrued benefit obligation at December 31	$	76		$	71

The accrued benefit obligation was determined using a weighted-average discount rate of 6.5% in 2017 and 6.2% in 2016, an assumed weighted-average ultimate annual turnover rate of 0.3% in 2017 and 2016, assumed compensation cost increases of 4.0% in 2017 and 2016 and assumed benefits as defined in the respective plans.

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

Components of Net Periodic Postemployment Costs:

Net periodic postemployment costs consisted of the following:


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

Service cost	$	5		$	7		$	7
Interest cost		4			6			5
Amortization of net gains		(3	)		(1	)		–

Net periodic postemployment costs	$	6		$	12		$	12

As of December 31, 2017, the estimated net gain for the postemployment benefit plans that we expected to amortize from accumulated other comprehensive earnings/(losses) into net periodic postemployment costs during 2018 was approximately $3 million.

Note 10. Stock Plans

Under our Amended and Restated 2005 Performance Incentive Plan (the “Plan”), we are authorized through May 21, 2024 to issue a maximum of 243.7 million shares of our Common Stock to employees and non-employee directors. As of December 31, 2017, there were 67.2 million shares available to be granted under the Plan.

Stock Options:

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

We account for our employee stock options under the fair value method of accounting using a Black-Scholes methodology to measure stock option expense at the date of grant. The fair value of the stock options at the date of grant is amortized to expense over the vesting period. We recorded compensation expense related to stock options held by our employees of $50 million in 2017, $57 million in 2016 and $50 million in 2015 in our results from continuing operations. The deferred tax benefit recorded related to this compensation expense was $12 million in 2017, $15 million in 2016 and $13 million in 2015. The unamortized compensation expense related to our employee stock options was $44 million at December 31, 2017 and is expected to be recognized over a weighted-average period of 1.2 years.

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


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

2017		2.04	%		6 years		22.75	%		1.74	%	$	8.57
2016		1.40	%		6 years		23.11	%		1.61	%	$	7.86
2015		1.70	%		6 years		18.51	%		1.61	%	$	6.12

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

Stock option activity is reflected below:


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

Balance at January 1, 2015		56,431,551		$	24.19			$	685 million

Annual grant to eligible employees		8,899,530			36.94
Additional options issued		901,340			35.84

Total options granted		9,800,870			36.84
Options exercised (1)		(6,444,515	)		22.94			$	108 million
Options cancelled		(2,753,798	)		32.35

Balance at December 31, 2015		57,034,108			26.12			$	1,068 million

Annual grant to eligible employees		7,517,290			39.70
Additional options issued		115,800			42.26

Total options granted		7,633,090			39.74
Options exercised (1)		(8,883,101	)		24.09			$	174 million
Options cancelled		(2,182,485	)		35.23

Balance at December 31, 2016		53,601,612			28.02			$	874 million

Annual grant to eligible employees		6,012,140			43.20
Additional options issued		162,880			42.54

Total options granted		6,175,020			43.18
Options exercised (1)		(9,431,009	)		26.17			$	170 million
Options cancelled		(1,910,968	)		38.10

Balance at December 31, 2017		48,434,655			29.92		5 years	$	626 million

Exercisable at December 31, 2017		37,240,858			26.58		4 years	$	604 million

	(1)	Cash received from options exercised was $257 million in 2017, $221 million in 2016 and $148 million in 2015. The actual tax benefit realized for the tax deductions from the option exercises totaled $31 million in 2017, $31 million in 2016 and $58 million in 2015.

Deferred Stock Units, Performance Share Units and Restricted Stock:

Historically we have made grants of deferred stock units, performance share units and restricted stock. Beginning in 2016, we only grant deferred stock units and performance share units and no longer grant restricted stock. We may grant shares of deferred stock units to eligible employees, giving them, in most instances, all of the rights of shareholders, except that they may not sell, assign, pledge or otherwise encumber the shares and our deferred stock units do not have voting rights until vested. Shares of deferred stock units are subject to forfeiture if certain employment conditions are not met. Deferred stock units generally vest on the third anniversary of the grant date. Performance share units granted under our 2005 Plan vest based on varying performance, market and service conditions. The unvested performance share units have no voting rights and do not pay dividends. Dividend equivalents accumulated over the vesting period are paid only after the performance share units vest.

The fair value of the deferred stock units, performance share units and restricted stock at the date of grant is amortized to earnings over the vesting period. The fair value of our deferred stock units and restricted stock is measured at the market price of our Common Stock on the grant date. Performance share unit awards generally have targets tied to both performance and market-based conditions. For market condition components, market volatility and other factors are taken into consideration in determining the grant date fair value and the related compensation expense is recognized regardless of whether the market condition is satisfied, provided that the requisite service has been provided. For performance condition components, we estimate the probability that the performance conditions will be achieved each quarter and adjust compensation expenses accordingly. The grant date fair value of performance share units is determined based on the Monte Carlo simulation model for the market-based total shareholder return component and the market price of our Common Stock on the grant date for performance-based components. The number of performance share units that ultimately vest ranges from 0-200 percent of the number granted, based on the achievement of the performance and market-based components. We recorded compensation expense related to deferred stock units, performance share units and restricted stock of $87 million in 2017, $83 million in 2016 and $86 million in 2015 in our results from continuing operations. The deferred tax benefit recorded related to this compensation expense was $23 million in 2017, $22 million in 2016 and $24 million in 2015. The unamortized compensation expense related to our deferred stock units, performance share units and restricted stock was $138 million at December 31, 2017 and is expected to be recognized over a weighted-average period of 1.8 years.

Our performance share unit, deferred stock unit and restricted stock activity is reflected below:


						Weighted-Average		Weighted-Average
	Number					Fair Value		Aggregate
	of Shares			Grant Date		Per Share (4)		Fair Value (4)

Balance at January 1, 2015		10,582,640				$	28.86

Annual grant to eligible employees:					Feb. 18, 2015
Performance share units		1,598,290					38.81
Restricted stock		386,910					36.94
Deferred stock units		866,640					36.94
Additional shares granted (1)		1,087,322			Various		36.00

Total shares granted		3,939,162					37.44	$	147 million
Vested (2)		(3,905,745	)				24.66	$	96 million
Forfeited (2)		(1,197,841	)				32.63

Balance at December 31, 2015		9,418,216					33.71

Annual grant to eligible employees:					Feb. 22, 2016
Performance share units		1,406,500					34.35
Deferred stock units		1,040,790					39.70
Additional shares granted (3)		864,851			Various		32.90

Total shares granted		3,312,141					35.65	$	118 million
Vested (2)		(3,992,902	)				28.15	$	112 million
Forfeited (2)		(1,143,828	)				37.58

Balance at December 31, 2016		7,593,627					36.90

Annual grant to eligible employees:					Feb. 16, 2017
Performance share units		1,087,010					43.14
Deferred stock units		845,550					43.20
Additional shares granted (3)		1,537,763			Various		42.22

Total shares granted		3,470,323					42.75	$	148 million
Vested (2)		(2,622,807	)				35.78	$	94 million
Forfeited (2)		(771,438	)				38.69

Balance at December 31, 2017		7,669,705					39.74

	(1)	Includes performance share units, deferred stock units and restricted stock.

	(2)	Includes performance share units, deferred stock units and restricted stock. The actual tax benefit realized for the tax deductions from the shares vested totaled $7 million in 2017, $18 million in 2016 and $18 million in 2015.

	(3)	Includes performance share units and deferred stock units.

	(4)	Performance share units reflect grant date fair values. Prior-year weighted average fair value per share has been revised.

Note 11. Capital Stock

Our amended and restated articles of incorporation authorize 5.0 billion shares of Class A common stock (“Common Stock”) and 500 million shares of preferred stock. There were no preferred shares issued and outstanding at December 31, 2017, 2016 and 2015. Shares of Common Stock issued, in treasury and outstanding were:


							Shares
	Shares Issued		Treasury Shares			Outstanding

Balance at January 1, 2015		1,996,537,778		(332,896,779	)			1,663,640,999
Shares repurchased		–		(91,875,878	)			(91,875,878	)
Exercise of stock options and issuance of other stock awards		–		8,268,033				8,268,033

Balance at December 31, 2015		1,996,537,778		(416,504,624	)			1,580,033,154

Shares repurchased		–		(61,972,713	)			(61,972,713	)
Exercise of stock options and issuance of other stock awards		–		10,305,100				10,305,100

Balance at December 31, 2016		1,996,537,778		(468,172,237	)			1,528,365,541

Shares repurchased		–		(50,598,902	)			(50,598,902	)
Exercise of stock options and issuance of other stock awards		–		10,369,445				10,369,445

Balance at December 31, 2017		1,996,537,778		(508,401,694	)			1,488,136,084

Stock plan awards to employees and non-employee directors are issued from treasury shares. At December 31, 2017, 123 million shares of Common Stock held in treasury were reserved for stock options and other stock awards.

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. Repurchases under the program are determined by management and are wholly discretionary. Prior to January 1, 2017, we had repurchased approximately $10.8 billion of Common Stock pursuant to this authorization. During 2017, we repurchased approximately 50.6 million shares of Common Stock at an average cost of $43.51 per share, or an aggregate cost of approximately $2.2 billion, all of which was paid during the period except for approximately $28 million settled in January 2018. All share repurchases were funded through available cash and commercial paper issuances. As of December 31, 2017, we have approximately $0.6 billion in remaining share repurchase capacity. As of January 31, 2018, subsequent to approximately $0.1 billion of share repurchases in January, our remaining share repurchase capacity was $6.5 billion.

Note 12. Commitments and Contingencies

Legal Proceedings:

We are subject to legal proceedings, claims and governmental inspections or investigations incidental to our business, including those specified below.

In February 2013 and March 2014, Cadbury India Limited (now known as Mondelez India Foods Private Limited), a subsidiary of Mondelēz International, and other parties received show cause notices from the Indian Central Excise Authority (the “Excise Authority”) calling upon the parties to demonstrate why the Excise Authority should not collect a total of 3.7 billion Indian rupees ($59 million as of December 31, 2017) of unpaid excise tax and an equivalent amount of penalties, as well as interest, related to production at the same Indian facility. We contested these demands for unpaid excise taxes, penalties and interest. On March 27, 2015, after several hearings, the Commissioner of the Excise Authority issued an order denying the excise exemption that we claimed for the Indian facility and confirming the Excise Authority’s demands for total taxes and penalties in the amount of 5.8 billion Indian rupees ($91 million as of December 31, 2017). We have appealed this order. In addition, the Excise Authority issued additional show cause notices in February 2015, December 2015 and October 2017 on the same issue but covering the periods January to October 2014, November 2014 to September 2015 and October 2015 to June 2017, respectively. These notices added a total of 4.9 billion Indian rupees ($77 million as of December 31, 2017) of unpaid excise taxes as well as penalties to be determined up to an amount equivalent to that claimed by the Excise Authority plus interest. With the implementation of the new Goods and Services Tax in India in July 2017, we will not receive any further show cause notices for additional amounts on this issue. We believe that the decision to claim the excise tax benefit is valid and we are continuing to contest the show cause notices through the administrative and judicial process.

In April 2013, the staff of the U.S. Commodity Futures Trading Commission (“CFTC”) advised us and Kraft Foods Group that it was investigating activities related to the trading of December 2011 wheat futures contracts that occurred prior to the Spin-Off of Kraft Foods Group. We cooperated with the staff in its investigation. On April 1, 2015, the CFTC filed a complaint against Kraft Foods Group and Mondelēz Global LLC (“Mondelēz Global”) in the U.S. District Court for the Northern District of Illinois, Eastern Division (the “CFTC action”). The complaint alleges that Kraft Foods Group and Mondelēz Global (1) manipulated or attempted to manipulate the wheat markets during the fall of 2011; (2) violated position limit levels for wheat futures and (3) engaged in non-competitive trades by trading both sides of exchange-for-physical Chicago Board of Trade wheat contracts. The CFTC seeks civil monetary penalties of either triple the monetary gain for each violation of the Commodity Exchange Act (the “Act”) or $1 million for each violation of Section 6(c)(1), 6(c)(3) or 9(a)(2) of the Act and $140,000 for each additional violation of the Act, plus post-judgment interest; an order of permanent injunction prohibiting Kraft Foods Group and Mondelēz Global from violating specified provisions of the Act; disgorgement of profits; and costs and fees. In December 2015, the court denied Mondelēz Global and Kraft Foods Group’s motion to dismiss the CFTC’s claims of market manipulation and attempted manipulation, and the parties are now in discovery. Additionally, several class action complaints were filed against Kraft Foods Group and Mondelēz Global in the U.S. District Court for the Northern District of Illinois by investors in wheat futures and options on behalf of themselves and others similarly situated. The complaints make similar allegations as those made in the CFTC action and seek class action certification; an unspecified amount for damages, interest and unjust enrichment; costs and fees; and injunctive, declaratory and other unspecified relief. In June 2015, these suits were consolidated in the Northern District of Illinois. In June 2016, the court denied Mondelēz Global and Kraft Foods Group’s motion to dismiss, and the parties are now in discovery. It is not possible to predict the outcome of these matters; however, based on our Separation and Distribution Agreement with Kraft Foods Group dated as of September 27, 2012, we expect to bear any monetary penalties or other payments in connection with the CFTC action.

We are a party to various legal proceedings incidental to our business, including those noted above in this section. At present we believe that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, results of operations or cash flows. However, legal proceedings and government investigations are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Unfavorable resolutions could involve substantial monetary damages. In addition, in matters for which conduct remedies are sought, unfavorable resolutions could include an injunction or other order prohibiting us from selling one or more products at all or in particular ways, precluding particular business practices or requiring other remedies. An unfavorable outcome might result in a material adverse impact on our business, results of operations or financial position.

Third-Party Guarantees:

We enter into third-party guarantees primarily to cover 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.

Tax Matters:

As part of our 2010 Cadbury acquisition, we became the responsible party for tax matters under a February 2, 2006 dated Deed of Tax Covenant between the Cadbury Schweppes PLC and related entities (“Schweppes”) and Black Lion Beverages and related entities. The tax matters included an ongoing transfer pricing case with the Spanish tax authorities related to the Schweppes businesses Cadbury divested prior to our acquisition of Cadbury. During the first quarter of 2017, the Spanish Supreme Court decided the case in our favor. As a result of the final ruling, during the first quarter of 2017, we recorded a favorable earnings impact of $46 million in selling, general and administrative expenses and $12 million in interest and other expense, net, for a total pre-tax impact of $58 million due to the non-cash reversal of Cadbury-related accrued liabilities related to this matter. In 2017, we recorded additional income of $4 million related to bank guarantee releases within selling, general and administrative expenses and interest and other expense, net.

During the first quarter of 2017, the Brazilian Supreme Court (the “Court”) ruled against the Brazilian tax authorities in a leading case related to the computation of certain indirect taxes. The Court ruled that the indirect tax base should not include a value-added tax known as “ICMS”. By removing the ICMS from the tax base, the Court effectively eliminated a “tax on a tax.” Our Brazilian subsidiary had received an injunction against making payments for the “tax on a tax” in 2008 and since that time until December 2016, had accrued this portion of the tax each quarter in the event that the tax was reaffirmed by the Brazilian courts. On September 30, 2017, based on legal advice and the publication of the Court’s decision related to this case, we determined that the likelihood that the increased tax base would be reinstated and assessed against us was remote. Accordingly, we reversed our accrual of 667 million Brazilian reais, or $212 million as of September 30, 2017, of which, $153 million was recorded within selling, general and administrative expenses and $59 million was recorded within interest and other expense, net. The Brazilian tax authority is seeking potential clarification or adjustment of the terms of enforcement with the Court. We continue to monitor developments in this matter and currently do not expect a material future impact on our financial statements.

Leases:

Rental expenses recorded in continuing operations were $284 million in 2017, $317 million in 2016 and $331 million in 2015. As of December 31, 2017, minimum rental commitments under non-cancelable operating leases in effect at year-end were (in millions):


2018	2019		2020		2021		2022		Thereafter		Total

$ 245	$	202	$	150	$	102	$	67	$	154	$	920

Note 13. Reclassifications from Accumulated Other Comprehensive Income

The following table summarizes the changes in the accumulated balances of each component of accumulated other comprehensive earnings/(losses) attributable to Mondelēz International. Amounts reclassified from accumulated other comprehensive earnings/(losses) to net earnings (net of tax) were net losses of $174 million in 2017, $250 million in 2016 and $350 million in 2015.


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

Currency Translation Adjustments:
Balance at beginning of period	$	(8,914	)	$	(8,006	)	$	(5,042	)
Currency translation adjustments		987			(847	)		(2,905	)
Reclassification to earnings related to:
Venezuela deconsolidation		–			–			99
Equity method investment transactions		–			57			–
Tax (expense)/benefit		214			(135	)		(184	)

Other comprehensive earnings/(losses)		1,201			(925	)		(2,990	)
Less: (earnings)/loss attributable to noncontrolling interests		(28	)		17			26

Balance at end of period		(7,741	)		(8,914	)		(8,006	)

Pension and Other Benefit Plans:
Balance at beginning of period	$	(2,087	)	$	(1,934	)	$	(2,274	)
Net actuarial gain/(loss) arising during period		(71	)		(491	)		(60	)
Tax (expense)/benefit on net actuarial gain/(loss)		50			70			3
Losses/(gains) reclassified into net earnings:
Amortization of experience losses and prior service costs (1)		174			150			207
Settlement losses (1)		38			36			111
Venezuela deconsolidation		–			–			2
Tax (expense)/benefit on reclassifications (2)		(65	)		(46	)		(69	)
Currency impact		(183	)		128			146

Other comprehensive earnings/(losses)		(57	)		(153	)		340

Balance at end of period		(2,144	)		(2,087	)		(1,934	)

Derivative Cash Flow Hedges:
Balance at beginning of period	$	(121	)	$	(46	)	$	(2	)
Net derivative gains/(losses)		(17	)		(151	)		(75	)
Tax (expense)/benefit on net derivative gain/(loss)		9			20			30
Losses/(gains) reclassified into net earnings:
Currency exchange contracts - forecasted transactions (3)		4			3			(90	)
Commodity contracts (3)		29			9			64
Interest rate contracts (4)		–			83			47
Tax (expense)/benefit on reclassifications (2)		(6	)		(42	)		(21	)
Currency impact		(11	)		3			1

Other comprehensive earnings/(losses)		8			(75	)		(44	)

Balance at end of period		(113	)		(121	)		(46	)

Accumulated other comprehensive income attributable to Mondelēz International:
Balance at beginning of period	$	(11,122	)	$	(9,986	)	$	(7,318	)
Total other comprehensive earnings/(losses)		1,152			(1,153	)		(2,694	)
Less: (earnings)/loss attributable to noncontrolling interests		(28	)		17			26

Other comprehensive earnings/(losses) attributable to Mondelēz International		1,124			(1,136	)		(2,668	)

Balance at end of period	$	(9,998	)	$	(11,122	)	$	(9,986	)

	(1)	These reclassified losses are included in the components of net periodic benefit costs disclosed in Note 9, Benefit Plans. Settlement losses include the transfer of coffee business-related pension obligations in the amount of $90 million in 2015.

	(2)	Taxes reclassified to earnings are recorded within the provision for income taxes.

	(3)	These reclassified gains or losses are recorded within cost of sales.

	(4)	These reclassified losses are recorded within interest and other expense, net.

Note 14. Income Taxes

On December 22, 2017, new U.S. tax reform legislation was enacted that included a broad range of complex provisions impacting the taxation of businesses. Certain impacts of the new legislation would generally require accounting to be completed in the period of enactment, however in response to the complexities of this new legislation, the SEC issued guidance to provide companies with relief. Specifically, 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.

In general, the transition tax is as a result of the deemed repatriation imposed by the new legislation that results in the taxation of our accumulated foreign earnings and profits (“E&P”) at a 15.5% rate on liquid assets (i.e. cash and other specified assets) and 8% on the remaining unremitted foreign E&P, both net of foreign tax credits. At this time, we have not yet gathered, prepared and analyzed the necessary information in sufficient detail to complete the complex calculations necessary to finalize the amount of our transition tax. We believe that our provisional calculations result in a reasonable estimate of the transition tax and related foreign tax credit, and as such have included those amounts in our year-end income tax provision. We do not believe that it is more likely than not that we will realize the benefit of the estimated excess foreign tax credit carryforward created by the deemed repatriation and have thus recognized a full valuation allowance against this deferred tax asset. As we complete the analysis of accumulated foreign E&P and related foreign taxes paid on an entity by entity basis and finalize the amounts held in cash or other specified assets, we will update our provisional estimate of the transition tax and related foreign tax credit, including any excess credit carryforward and the corresponding valuation allowance.

Our estimate of the deferred tax benefit due to the revaluation of our net U.S. deferred tax liabilities is also a provisional amount under the SEC’s guidance. Due to the newly enacted U.S. tax rate change, timing differences that are estimated balances as of the date of enactment and year-end will result in changes to our estimate of the deferred rate change when those estimates are finalized with the filing of the 2017 income tax return. This is a result of the different federal income tax rates in effect for 2017 (35%) and 2018 (21%). Since many of the year-end deferred tax balances include estimates of events that have not yet occurred such as payments expected to be made during 2018 but which are deductible on the 2017 tax return, these amounts cannot yet be known to finalize the impact of the tax rate change.

As a result of U.S. tax reform, we have changed our indefinite reinvestment assertion for most companies owned directly by our U.S. subsidiaries, and as such, we may need to accrue deferred taxes. As of year end, we have calculated the impact to accrue the deferred tax assets related to two entities where the deferred tax benefits are now expected to be realized in the foreseeable future. However, we do not have the necessary information gathered, prepared and analyzed to make a reasonable estimate of the impact of any remaining outside basis differences inherent in the rest of our foreign subsidiaries. We will gather the information necessary and compute the outside basis differences for those subsidiaries where we are no longer indefinitely reinvested and record any new deferred taxes as reasonable estimates are available. We estimate that the unremitted earnings as of December 31, 2017 in those subsidiaries where we expect to continue to be indefinitely reinvested is approximately $2 billion. It is impracticable for us to determine the amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings. Future tax law changes or changes in the needs of our non-U.S. subsidiaries could require us to recognize deferred tax liabilities on a portion, or all, of our accumulated earnings that were previously expected to be indefinitely reinvested.

The legislation also establishes new provisions that will affect our 2018 results, including but not limited to, a reduction in the U.S. corporate tax rate on domestic operations; the creation of a new minimum tax called the base erosion anti-abuse tax (BEAT); a new provision that taxes U.S. allocated expenses (e.g. interest and general administrative expenses) as well as currently taxes certain income from foreign operations (Global Intangible Low-Tax Income, or “GILTI”); a general elimination of U.S. federal income taxes on dividends from foreign subsidiaries; a new limitation on deductible interest expense; the repeal of the domestic manufacturing deduction; and limitations on the deductibility of certain employee compensation.

While the new legislation generally eliminates U.S. federal income tax on dividends from foreign subsidiaries going forward, certain income earned by certain subsidiaries must be included currently in our U.S. taxable income under the new GILTI inclusion rules (as a result of U.S. expense allocation rules). Because of the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the legislation and the application of U.S. GAAP. Under U.S. GAAP, we are allowed to make an accounting policy election and either treat taxes due from GILTI as a current-period expense when they are incurred or factor such amounts into our measurement of deferred taxes. Our selection of an accounting policy with respect to the new GILTI rules will depend in part on analyzing our global income to determine whether we expect to have future U.S. inclusions in taxable income related to GILTI, and if so, what the impact is expected to be. We have not yet computed a reasonable estimate of the effect of this provision, and therefore, we have not made a policy decision regarding whether to record deferred taxes related to GILTI nor have we made any adjustments related to GILTI tax in our year-end financial statements.

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


	For the Years Ended December 31,
	2017			2016			2015
	(in millions)
Earnings/(losses) from continuing operations before income taxes:
United States	$	354		$	(364	)	$	43
Outside United States		2,770			1,818			7,841

Total	$	3,124		$	1,454		$	7,884


Provision for income taxes:
United States federal:
Current	$	1,322		$	(227	)	$	(90	)
Deferred		(1,256	)		141			136

		66			(86	)		46
State and local:
Current		33			7			6
Deferred		33			8			(3	)

		66			15			3

Total United States		132			(71	)		49

Outside United States:
Current		541			490			707
Deferred		15			(290	)		(163	)

Total outside United States		556			200			544

Total provision for income taxes	$	688		$	129		$	593

We recorded an out-of-period adjustment of $14 million net expense in 2015 that had an immaterial impact on the annual provision for income taxes.

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


	For the Years Ended December 31,
	2017		2016		2015

U.S. federal statutory rate		35.0%		35.0%		35.0%
Increase/(decrease) resulting from:
State and local income taxes, net of federal tax benefit excluding IRS audit impacts		0.8%		0.8%		(0.1)%
Foreign rate differences		(10.8)%		(18.6)%		(2.5)%
Changes in judgment on realizability of deferred tax assets		3.2%		–		–
Reversal of other tax accruals no longer required		(1.7)%		(7.7)%		(1.4)%
Tax accrual on investment in Keurig		2.7%		2.3%		–
Excess tax benefits from equity compensation		(1.2)%		–		–
Tax legislation (non-U.S. tax reform)		(2.7)%		(4.0)%		(0.5)%
U.S. tax reform - deferred benefit from tax rate change		(42.0)%		–		–
U.S. tax reform - transition tax		42.2%		–		–
U.S. tax reform - changes in indefinite reinvestment assertion		(2.0)%		–		–
Gains on coffee business transactions and divestitures		–		–		(26.9)%
Business sales		(0.9)%		–		–
Loss on deconsolidation of Venezuela		–		–		3.5%
Non-deductible expenses		0.4%		0.9%		0.3%
Other		(1.0)%		0.2%		0.1%

Effective tax rate		22.0%		8.9%		7.5%

Our 2017 effective tax rate of 22.0% was favorably impacted by the mix of pre-tax income in various non-U.S. tax jurisdictions and net tax benefits from $117 million of discrete one-time events, partially offset by an increase in domestic earnings as compared to the prior year. The discrete net tax benefits included the provisional net impact from U.S. tax reform discussed previously, favorable audit settlements and statutes of limitations in various jurisdictions, and the net reduction of our French and Belgian deferred tax liabilities resulting from tax legislation enacted during 2017 that reduced the corporate income tax rates in each country, partially offset by the addition of a valuation allowance in one of our Chinese entities.

Our 2016 effective tax rate of 8.9% was favorably impacted by the mix of pre-tax income in various non-U.S. tax jurisdictions and net tax benefits from $161 million of discrete one-time events. The discrete net tax benefits related to favorable audit settlements and statutes of limitations in various jurisdictions and the net reduction of our U.K. and French deferred tax liabilities resulting from tax legislation enacted during 2016 that reduced the corporate income tax rates in each country.

Our 2015 effective tax rate of 7.5% was favorably impacted by the one-time third quarter sale of our coffee business that resulted in a pre-tax gain of $6,809 million and $184 million of related tax expense, as well as $27 million of tax costs incurred to remit proceeds up from lower-tier foreign subsidiaries to allow cash to be redeployed within our retained foreign operations. The benefit of the third quarter transaction was partially offset by the tax costs associated with the sale of our interest in AGF in the first half of the year and the impact of deconsolidating our Venezuelan operations on December 31, 2015. Excluding the impacts of these transactions, our effective tax rate would have been 17.8%, reflecting favorable impacts from the mix of pre-tax income in various non-U.S. tax jurisdictions and net tax benefits from $119 million of discrete one-time events. The remaining discrete one-time events primarily related to favorable tax audit settlements and expirations of statutes of limitations in several jurisdictions and the net reduction of U.K. deferred tax liabilities resulting from tax legislation enacted during 2015 that reduced the U.K. corporate income tax rate.

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


	As of December 31,
	2017			2016
	(in millions)

Deferred income tax assets:
Accrued postretirement and postemployment benefits	$	191		$	214
Accrued pension costs		313			370
Other employee benefits		155			237
Accrued expenses		269			379
Loss carryforwards		773			619
Tax credit carryforwards		370			—
Other		342			331

Total deferred income tax assets		2,413			2,150

Valuation allowance		(853	)		(310	)

Net deferred income tax assets	$	1,560		$	1,840


Deferred income tax liabilities:
Intangible assets	$	(3,977	)	$	(5,174	)
Property, plant and equipment		(452	)		(557	)
Other		(188	)		(472	)

Total deferred income tax liabilities		(4,617	)		(6,203	)


Net deferred income tax liabilities	$	(3,057	)	$	(4,363	)

Our significant valuation allowances are in the U.S., Mexico, China and Ireland. The U.S. valuation allowance relates to excess foreign tax credits generated by the deemed repatriation under U.S. tax reform. The valuation allowance in China results from a change in judgment as to the realizability of one of our Chinese entity’s deferred tax assets. The Mexico and Ireland valuation allowances relate to loss carryforwards where we do not currently expect to generate gains of the proper character to utilize the carryforwards in the future.

At December 31, 2017, the Company has pre-tax loss carryforwards of $4,060 million, of which $1,105 million will expire at various dates between 2018 and 2037 and the remaining $2,955 million can be carried forward indefinitely.

The changes in our unrecognized tax benefits were:


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

January 1	$	610		$	756		$	852
Increases from positions taken during prior periods		33			18			34
Decreases from positions taken during prior periods		(93	)		(123	)		(74	)
Increases from positions taken during the current period		64			90			84
Decreases relating to settlements with taxing authorities		(54	)		(75	)		(13	)
Reductions resulting from the lapse of the applicable statute of limitations		(29	)		(43	)		(41	)
Currency/other		48			(13	)		(86	)

December 31	$	579		$	610		$	756

As of January 1, 2017, our unrecognized tax benefits were $610 million. If we had recognized all of these benefits, the net impact on our income tax provision would have been $549 million. Our unrecognized tax benefits were $579 million at December 31, 2017, and if we had recognized all of these benefits, the net impact on our income tax provision would have been $524 million. Within the next 12 months, our unrecognized tax benefits could increase by approximately $40 million due to unfavorable audit developments or decrease by approximately $150 million due to audit settlements and the expiration of statutes of limitations in various jurisdictions. We include accrued interest and penalties related to uncertain tax positions in our tax provision. We had accrued interest and penalties of $189 million as of January 1, 2017 and $212 million as of December 31, 2017. Our 2017 provision for income taxes included $26 million for interest and penalties.

Our income tax filings are regularly examined by federal, state and non-U.S. tax authorities. Our 2013-2015 U.S. federal income tax filings are currently under examination by the IRS. U.S. state and non-U.S. jurisdictions have statutes of limitations generally ranging from three to five years; however, these statutes are often extended by mutual agreement with the tax authorities. Years still open to examination by non-U.S. tax authorities in major jurisdictions include (earliest open tax year in parentheses): Brazil (2012), China (2007), France (2014), India (2005), Italy (2012) and the United Kingdom (2015).

Note 15. Earnings Per Share

Basic and diluted earnings per share (“EPS”) were calculated as follows:


	For the Years Ended December 31,
	2017			2016			2015
	(in millions, except per share data)

Net earnings	$	2,936		$	1,669		$	7,291
Noncontrolling interest (earnings)		(14	)		(10	)		(24	)

Net earnings attributable to Mondelēz International	$	2,922		$	1,659		$	7,267


Weighted-average shares for basic EPS		1,513			1,556			1,618
Plus incremental shares from assumed conversions of stock options and long-term incentive plan shares		18			17			19


Weighted-average shares for diluted EPS		1,531			1,573			1,637


Basic earnings per share attributable to Mondelēz International	$	1.93		$	1.07		$	4.49


Diluted earnings per share attributable to Mondelēz International	$	1.91		$	1.05		$	4.44

We exclude antidilutive Mondelēz International stock options from our calculation of weighted-average shares for diluted EPS. We excluded antidilutive stock options of 8.5 million for the year ended December 31, 2017, 7.8 million for the year ended December 31, 2016 and 5.1 million for the year ended December 31, 2015.

Note 16. Segment Reporting

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

Our operations and management structure are organized into 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 the AMEA operating segment. We have reflected the segment change as if it had occurred in all periods presented.

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

Historically, we have recorded income from equity method investments within our operating income as these investments were part of our base business. Beginning in the third quarter of 2015, to align with the accounting for our new coffee equity method investment in JDE, we began to record the earnings from our equity method investments in equity method investment earnings outside of segment operating income. 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. Segment operating income excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), general corporate expenses (which are a component of selling, general and administrative expenses), amortization of intangibles, gains and losses on divestitures, loss on deconsolidation of Venezuela and acquisition-related costs (which are a component of selling, general and administrative expenses) in all periods presented. We exclude these items from segment operating income in order to provide better transparency of our segment operating results. Furthermore, we centrally manage interest and other expense, net. Accordingly, we do not present these items by segment because they are excluded from the segment profitability measure that management reviews.

Our segment net revenues and earnings, 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

No single customer accounted for 10% or more of our net revenues from continuing operations in 2017. Our five largest customers accounted for 15.6% and our ten largest customers accounted for 21.4% of net revenues from continuing operations in 2017.

Items impacting our segment operating results are discussed in Note 1, Summary of Significant Accounting Policies, including the Venezuela deconsolidation and currency devaluation, Note 2, Divestitures and Acquisitions, Note 4, Property, Plant and Equipment, Note 5, Goodwill and Intangible Assets, Note 6, 2014-2018 Restructuring Program and Note 12, Commitments and Contingencies. Also see Note 7, Debt and Borrowing Arrangements, and Note 8, Financial Instruments, for more information on our interest and other expense, net for each period.

Total assets, depreciation expense and capital expenditures by segment, reflecting our current segment structure for all periods presented, were:


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

Total assets:
Latin America	$	4,948		$	5,156	$	4,673
AMEA		9,883			10,031		10,460
Europe		21,611			19,934		21,026
North America		20,709			20,694		21,175
Equity method investments		6,345			5,585		5,387
Unallocated assets and adjustments (1)		(387	)		138		122

Total assets	$	63,109		$	61,538	$	62,843

	(1)	Unallocated assets consist primarily of cash and cash equivalents, deferred income taxes, centrally held property, plant and equipment, prepaid pension assets and derivative financial instrument balances. Final adjustments for jurisdictional netting of deferred tax assets and liabilities is done at a consolidated level.


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

Depreciation expense:
Latin America	$	107	$	92	$	94
AMEA		157		161		155
Europe		239		253		299
North America		135		141		165

Total depreciation expense	$	638	$	647	$	713


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

Capital expenditures:
Latin America	$	226	$	321	$	354
AMEA		280		349		381
Europe		278		294		517
North America		230		260		262

Total capital expenditures	$	1,014	$	1,224	$	1,514

Geographic data for net revenues (recognized in the countries where products are sold) and long-lived assets, excluding deferred tax, goodwill, intangible assets and equity method investments, were:


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

Net revenues:
United States	$	6,275	$	6,329	$	6,302
Other		19,621		19,594		23,334

Total net revenues	$	25,896	$	25,923	$	29,636


	As of December 31,
	2017		2016		2015
	(in millions)

Long-lived assets:
United States	$	1,468	$	1,508	$	1,551
Other		7,733		7,229		7,238

Total long-lived assets	$	9,201	$	8,737	$	8,789

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

Net revenues by product category, reflecting our current segment structure for all periods presented, were:


	For the Year Ended December 31, 2017
	Latin America (1)		AMEA		Europe		North America		Total (1)
	(in millions)

Biscuits	$	779	$	1,634	$	2,880	$	5,479	$	10,772
Chocolate		862		2,011		4,933		293		8,099
Gum & Candy		919		919		775		1,025		3,638
Beverages		665		569		121		–		1,355
Cheese & Grocery		341		606		1,085		–		2,032

Total net revenues	$	3,566	$	5,739	$	9,794	$	6,797	$	25,896


	For the Year Ended December 31, 2016
	Latin America (1)		AMEA		Europe		North America		Total (1)
	(in millions)

Biscuits	$	734	$	1,588	$	2,703	$	5,565	$	10,590
Chocolate		743		1,901		4,840		255		7,739
Gum & Candy		938		953		916		1,140		3,947
Beverages		657		611		177		–		1,445
Cheese & Grocery		320		763		1,119		–		2,202

Total net revenues	$	3,392	$	5,816	$	9,755	$	6,960	$	25,923


	For the Year Ended December 31, 2015
	Latin America (1)		AMEA		Europe (3)		North America		Total (1)
	(in millions)

Biscuits	$	1,605	$	1,539	$	2,680	$	5,569	$	11,393
Chocolate		840		1,928		5,050		256		8,074
Gum & Candy		1,091		1,003		1,015		1,149		4,258
Beverages (2)		767		730		1,763		–		3,260
Cheese & Grocery		685		802		1,164		–		2,651

Total net revenues	$	4,988	$	6,002	$	11,672	$	6,974	$	29,636

	(1)	In 2015, our consolidated net revenues included Venezuela net revenues of $763 million in biscuits, $340 million in cheese & grocery, $66 million in gum & candy and $48 million in beverages. Following the deconsolidation of our Venezuela operations at the end of 2015, our 2016 and 2017 consolidated net revenues no longer include the net revenues of our Venezuelan subsidiaries. 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 segment beverage categories. 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.

	(3)	During 2016, we realigned some of our products across product categories primarily within our Europe segment and as such, we reclassified the product category net revenues on a basis consistent with the 2016 presentation.

Note 17. Quarterly Financial Data (Unaudited)

Our summarized operating results by quarter are detailed below.


	2017 Quarters
	First			Second			Third			Fourth
	(in millions, except per share data)

Net revenues	$	6,414		$	5,986		$	6,530		$	6,966
Gross profit		2,525			2,324			2,552			2,664
Provision for income taxes		(154	)		(84	)		(272	)		(178	)
Gain on equity method investment transactions		–			–			–			40
Equity method investment net earnings		66			67			103			224

Net earnings (1)	$	633		$	500		$	993		$	810
Noncontrolling interest		(3	)		(2	)		(1	)		(8	)

Net earnings attributable to Mondelēz International	$	630		$	498		$	992		$	802


Weighted-average shares for basic EPS		1,529			1,519			1,507			1,497
Plus incremental shares from assumed conversions of stock options and long-term incentive plan shares		21			20			17			16

Weighted-average shares for diluted EPS		1,550			1,539			1,524			1,513


Per share data:
Basic EPS attributable to Mondelēz International:	$	0.41		$	0.33		$	0.66		$	0.54

Diluted EPS attributable to Mondelēz International:	$	0.41		$	0.32		$	0.65		$	0.53


Dividends declared	$	0.19		$	0.19		$	0.22		$	0.22

Market price - high	$	45.48		$	47.23		$	44.48		$	43.98
- low	$	41.30		$	42.92		$	40.04		$	39.19


	2016 Quarters
	First			Second			Third			Fourth
	(in millions, except per share data)

Net revenues	$	6,455		$	6,302		$	6,396		$	6,770
Gross profit		2,535			2,516			2,488			2,589
Provision for income taxes		(49	)		(118	)		(40	)		78
Gain on equity method investment transactions		43			–			–			–
Equity method investment net earnings		85			102			31			83

Net earnings (1)	$	557		$	471		$	548		$	93
Noncontrolling interest		(3	)		(7	)		–			–

Net earnings attributable to Mondelēz International	$	554		$	464		$	548		$	93


Weighted-average shares for basic EPS		1,569			1,557			1,557			1,540
Plus incremental shares from assumed conversions of stock options and long-term incentive plan shares		18			19			19			19

Weighted-average shares for diluted EPS		1,587			1,576			1,576			1,559


Per share data:
Basic EPS attributable to Mondelēz International:	$	0.35		$	0.30		$	0.35		$	0.06

Diluted EPS attributable to Mondelēz International:	$	0.35		$	0.29		$	0.35		$	0.06


Dividends declared	$	0.17		$	0.17		$	0.19		$	0.19

Market price - high	$	44.45		$	45.75		$	46.36		$	46.40
- low	$	35.88		$	39.53		$	41.96		$	40.50

(1)	See the following table for significant items that affected the comparability of earnings each quarter.

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

During 2017 and 2016, we recorded the following pre-tax (charges)/gains in earnings from continuing operations:


	2017 Quarters
	First			Second			Third			Fourth
	(in millions)

Asset impairment and exit costs	$	(166	)	$	(187	)	$	(183	)	$	(120	)
Net gain on divestitures		–			(3	)		187			2
Divestiture-related costs		(19	)		(9	)		2			(8	)
Loss on early extinguishment of debt and related expenses		–			(11	)		–			–
Benefits from the resolution of tax matters		58			–			215			8

	$	(127	)	$	(210	)	$	221		$	(118	)


	2016 Quarters
	First			Second			Third			Fourth
	(in millions)

Asset impairment and exit costs	$	(154	)	$	(166	)	$	(190	)	$	(342	)
Divestiture-related costs		–			(84	)		–			(2	)
Loss related to interest rate swaps		(97	)		–			–			–
Loss on early extinguishment of debt and related expenses		–			–			–			(427	)

	$	(251	)	$	(250	)	$	(190	)	$	(771	)

Items impacting our operating results are discussed in Note 1, Summary of Significant Accounting Policies, including the Venezuela deconsolidation and currency devaluations, Note 2, Divestitures and Acquisitions, Note 5, Goodwill and Intangible Assets, Note 6, 2014-2018 Restructuring Program, and Note 7, Debt and Borrowing Arrangements.

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