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 over 150 countries.
Principles of Consolidation:
The consolidated financial statements include Mondelēz International, Inc. as well as our wholly owned and majority owned subsidiaries, except our Venezuelan subsidiaries which were deconsolidated in 2015. All intercompany transactions are eliminated. The noncontrolling interest represents the noncontrolling investors’ interests in the results of subsidiaries that we control and consolidate. We account for investments over which we exercise significant influence under the equity method of accounting. Investments over which we do not have significant influence or control are not material and are carried at cost as there is no readily determinable fair value for the equity interests. 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.
Our operations and management structure are organized into four operating segments:
See Note 18, 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. As discussed below, beginning on July 1, 2018, we began to apply highly inflationary accounting for our operations in Argentina.
Argentina. During the second quarter of 2018, primarily based on published estimates which indicated that Argentina's three-year cumulative inflation rate exceeded 100%, we concluded that Argentina became a highly inflationary economy for accounting purposes. As of July 1, 2018, we began to apply highly inflationary accounting for our Argentinean subsidiaries and changed their functional currency from the Argentinean peso to the U.S. dollar. On July 1, 2018, both monetary and non-monetary assets and liabilities denominated in Argentinean pesos were remeasured into U.S. dollars using the exchange rate as of the balance sheet date, with remeasurement and other transaction gains and losses recorded in net earnings. As of December 31, 2019, our Argentinean operations had less than $1 million of Argentinean peso denominated net monetary liabilities. Our Argentinean operations contributed $382 million, or 1.5% of consolidated net revenues in 2019. We recorded a remeasurement gain of
$4 million in 2019 and a remeasurement loss of $11 million in 2018 within selling, general and administrative expenses related to the revaluation of the Argentinean peso denominated net monetary position over these periods.
Brexit. In 2019, we generated 8.6% of our net revenues in the United Kingdom. On January 31, 2020, the United Kingdom began the withdrawal process from the European Union under the European and U.K. Parliament approved Withdrawal Agreement. During a transition period currently scheduled to end on December 31, 2020, the United Kingdom will effectively remain in the E.U.’s customs union and single market while a trade deal with the European Union is negotiated. The deadline for extending the transition period ends on June 30, 2020. If the transition period is not extended, on December 31, 2020, the United Kingdom will either exit the European Union without a trade deal or will begin a new trade relationship with the European Union. During the transition period, we continue to take protective measures in response to the potential impacts on our results of operations and financial condition. Following the Brexit vote in June 2016, there was significant volatility in the global stock markets and currency exchange rates. The value of the British pound sterling relative to the U.S. dollar declined significantly and negatively affected our translated results reported in U.S. dollars. If the ultimate terms of the United Kingdom’s separation from the European Union negatively impact the U.K. economy or result in disruptions to sales or our supply chain, the impact to our results of operations and financial condition could be material. We have taken measures to increase our resources in customer service & logistics together with increasing our inventory levels of imported raw materials, packaging and finished goods in the United Kingdom to help us manage through the Brexit transition and the inherent risks.
Other Countries. Since we sell our products in over 150 countries and have operations in approximately 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, Ukraine, Turkey, Egypt, Nigeria, South Africa and Pakistan. We continue to monitor operations, currencies and net monetary exposures in these countries. At this time, we do not anticipate that these countries are at risk of becoming highly inflationary economies.
Cash, Cash Equivalents and Restricted Cash:
Cash and cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less. As of December 31, 2019, we also had $37 million of restricted cash recorded within other current assets. Total cash, cash equivalents and restricted cash was $1,328 million as of December 31, 2019.
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 nonrecourse factoring arrangements in which we sell eligible trade receivables primarily to banks in exchange for cash. We may then continue to collect the receivables sold, acting solely as a collecting agent on behalf of the banks. The outstanding principal amount of receivables under these arrangements amounted to $760 million as of December 31, 2019, $819 million as of December 31, 2018 and $843 million as of December 31, 2017. The incremental costs of factoring receivables under this arrangement were approximately $10 million or less 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.
Inventories:
We record our inventory using the average cost method and record inventory allowances for overstock and obsolete inventory.
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.
Leases:
We determine whether a contract is or contains a lease at contract inception. On January 1, 2019, we began to record operating leases on our consolidated balance sheet. We elected not to recognize right-of-use ("ROU") assets and lease liabilities for short-term operating leases with terms of 12 months or less. Long-term operating lease ROU assets and long-term operating lease liabilities are presented separately and operating lease liabilities payable in the next twelve months are recorded in other current liabilities. Finance lease ROU assets continue to be presented in property, plant and equipment and the related finance lease liabilities continue to be presented in the current portion of long-term debt and long-term debt.
Lease ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets are recognized at commencement date at the value of the lease liability, adjusted for any prepayments, lease incentives received and initial direct costs incurred. Lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. The non-recurring fair value measurement is classified as Level 3 as no fair value inputs are observable. As the rate implicit in the lease is not readily determinable in most of our leases, we use our country-specific incremental borrowing rate based on the lease term using information available at commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Many of our leases contain non-lease components (e.g. product costs, common-area or other maintenance costs) that relate to the lease components of the agreement. Non-lease components and the lease components to which they relate are accounted for as a single lease component as we have elected to combine lease and non-lease components for all classes of underlying assets.
Amortization of ROU lease assets is calculated on a straight-line basis over the lease term with the expense recorded in cost of sales or selling, general and administrative expenses depending on the nature of the leased item. Interest expense is recorded over the lease term and is recorded in interest expense (based on a front-loaded interest expense pattern) for finance leases and is recorded in cost of sales or selling, general and administrative expenses (on a straight-line basis) for operating leases. All operating lease cash payments and interest on finance leases are recorded within cash flows from operating activities and all finance lease principal payments are recorded within cash flows from financing activities in the consolidated statements of cash flows.
Software Costs:
We capitalize certain computer software and software development costs incurred in connection with developing or obtaining computer software for internal use. Capitalized software costs are included in property, plant and equipment and amortized on a straight-line basis over the estimated useful lives of the software, which do not exceed seven years.
Goodwill and Non-Amortizable Intangible Assets:
We test goodwill and non-amortizable intangible assets for impairment on an annual basis on July 1. We assess goodwill impairment risk throughout the year by performing a qualitative review of entity-specific, industry, market and general economic factors affecting our goodwill reporting units. We review our operating segment and reporting unit structure for goodwill testing annually or as significant changes in the organization occur. Annually, we may perform qualitative testing, or depending on factors such as prior-year test results, current year developments, current risk evaluations and other practical considerations, we may elect to do quantitative testing instead. 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 5.9% 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 8.9%. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future
plans, industry and economic conditions, and our actual results and conditions may differ over time. If the carrying value of a reporting unit’s net assets exceeds its fair value, we 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 estimates of future sales, earnings growth rates, royalty rates and discount 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 18, Segment Reporting. We recognize revenue when control over the products transfers to our customers, which generally occurs upon delivery or shipment of the products. 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 when earned within the period of the license term. 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.
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 of expected amounts 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 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 generally do not have any unbilled receivables at the end of a 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, consumer promotion and marketing research 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 $1,208 million in 2019, $1,173 million in 2018 and $1,248 million in 2017. We expense product research and development costs as incurred. Research and development expense was $351 million in 2019, $362 million in 2018 and $366 million in 2017. 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 including pension benefits, defined contribution plan benefits, postretirement health care benefits and postemployment primarily severance-related benefits depending upon local statutory requirements, employee tenure and service requirements as well as other factors. 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 10, 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 related to the settlement of derivative instruments designated as net investment hedges of foreign operations are classified in the consolidated statements of cash flows within investing activities. All other cash flows related to derivative instruments that are designated, and those that are economic hedges, are classified in the same line item as the cash flows of the related hedged item, which is generally within operating activities. Cash flows related to the settlement of all other free-standing derivative instruments are classified within investing activities. 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. Currency movements related to our non-U.S. debt and our net investments in non-U.S. operations, as well as the related deferred taxes, are 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.
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. Any unrealized gains or losses (mark-to-market impacts) and realized gains or losses are recorded in earnings (see Note 10, 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, Swiss franc and Canadian dollar-denominated borrowings as a net investment hedge of a portion of our overall international operations. The gains and losses on our net investment in these designated international operations are economically offset by losses and gains on our euro, pound sterling, Swiss franc and Canadian dollar-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).
Additionally, beginning in the first quarter of 2018, we entered into cross-currency interest rate swaps and forwards to hedge certain investments in our non-U.S. operations against movements in exchange rates. The after-tax gain/(loss) on these net investment hedge contracts is recorded in the cumulative translation adjustment section of other comprehensive income and the pre-tax impacts of the cash flows from these contracts are reported as other investing activities in the consolidated statement of cash flows.
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. When there is refinement to tax law changes in subsequent periods, we account for the new guidance in the period when it becomes known.
New Accounting Pronouncements:
In December 2019, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update ("ASU") that removes certain exceptions in accounting for income taxes, improves consistency in application and clarifies existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. We do not expect this ASU to have a material impact on our consolidated financial statements.
In October 2018, the FASB issued an ASU that permits the use of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") Rate as a U.S. benchmark interest rate for hedge accounting purposes. We adopted the new standard on January 1, 2019 and there was no material impact to our consolidated financial statements upon adoption.
In August 2018, the FASB issued an ASU that aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs for internal-use software. This ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We will adopt this ASU as of January 1, 2020 and we do not expect this ASU to have a material impact on our consolidated financial statements.
In August 2018, the FASB issued an ASU that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for fiscal years ending after December 15, 2020, with early adoption permitted. We will adopt this ASU as of December 31, 2020. The new standard will impact our year-end disclosures only and is not expected to have an impact on our consolidated financial statements.
In August 2018, the FASB issued an ASU that modifies the disclosure requirements on fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We will adopt this ASU as of January 1, 2020. The new standard will impact our disclosures and is not expected to have an impact on our consolidated financial statements.
In June 2018, the FASB issued an ASU that requires entities to record share-based payment transactions for acquiring goods and services from non-employees at fair value as of adoption date. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We adopted the standard as of January 1, 2019 and there was no material impact to our consolidated financial statements upon adoption.
In February 2018, the FASB issued an ASU that permits entities to elect a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 enactment of U.S. tax reform legislation. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We did not elect to reclassify these stranded tax effects from U.S. tax reform when we adopted this ASU in the first quarter of 2019. As such, this ASU did not have a material impact on our consolidated financial statements. Our policy is to release stranded tax effects from accumulated other comprehensive income under the portfolio method rather than on an individual item by item basis.
In July 2017, the FASB issued an ASU on financial instruments that allows for the exclusion of a down round feature when evaluating whether or not the instrument or embedded feature requires derivative classification. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We adopted the standard as of January 1, 2019 and there was no material impact to our consolidated financial statements upon adoption.
In June 2016, the FASB issued an ASU on the measurement of credit losses on financial instruments. This ASU requires entities to measure the impairment of certain financial instruments, including trade receivables, based on
expected losses rather than incurred losses. This ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for financial statement periods beginning after December 15, 2018. We will adopt this ASU as of January 1, 2020 and we do not expect this ASU to have a material impact on our consolidated financial statements.
In February 2016, the FASB issued an ASU on lease accounting to increase transparency and comparability among organizations by requiring the recognition of Right of Use ("ROU") assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. 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 ROU 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 or financing. In July 2018, the FASB issued an ASU which allows for an alternative transition approach, which will not require adjustments to comparative prior-period amounts. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We adopted the new standard on January 1, 2019. We elected to apply the package of practical expedients that allowed us not to reassess the lease classification and initial direct costs for expired or existing leases or whether expired or existing contracts contain leases. We elected not to separate non-lease components from lease components and to account for both as a single lease component by class of the underlying asset. The impact of adopting the standard included the initial recognition as of January 1, 2019, of $710 million of lease related assets and $730 million of lease related liabilities on our consolidated balance sheet. The transition method we elected for adoption a cumulative effect adjustment to retained earnings as of January 1, 2019, which was not material.
Note 2. Divestitures and Acquisitions
On July 16, 2019, we acquired a majority interest in a U.S. refrigerated nutrition bar company, Perfect Snacks, within our North America segment for $284 million cash paid, net of cash received, and expanded our position in broader snacking. We are working to complete the valuation work and have recorded a preliminary purchase price allocation of $31 million to definite-lived intangible assets, $107 million to indefinite-lived intangible assets, $150 million to goodwill, $1 million to property, plant and equipment, $12 million to inventory, $8 million to accounts receivable, $13 million to current liabilities, $3 million to deferred tax liabilities and $9 million to other liabilities. The acquisition added incremental net revenues of $53 million and an immaterial amount of incremental operating income in 2019.
On May 28, 2019, we completed the sale of most of our cheese business in the Middle East and Africa to Arla Foods of Denmark. In 2019, we received cash proceeds of $161 million and divested $19 million of current assets and $96 million of non-current assets. We also paid $2 million of transaction costs and recorded a net pre-tax gain of $44 million on the sale.
On June 7, 2018, we acquired a U.S. premium biscuit company, Tate’s Bake Shop, within our North America segment and extended our premium biscuit offering. During the second quarter of 2018, we paid $528 million, net of cash received, and during the second quarter of 2019, we finalized the purchase price at $527 million. The purchase price allocation included $45 million to definite-lived intangible assets, $205 million to indefinite-lived intangible assets, $297 million to goodwill, $16 million to property, plant and equipment, $5 million to inventory, $9 million to accounts receivable, $7 million to current liabilities and $43 million to deferred tax liabilities. Through the one-year anniversary of the acquisition, Tate's added incremental net revenues of $35 million and an immaterial amount of incremental operating income.
On December 28, 2017, we completed the sale of a confectionery business in Japan. We received cash proceeds of ¥2.8 billion ($24 million as of December 28, 2017) and recorded an immaterial pre-tax loss on the divestiture within our AMEA segment.
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.
Note 3. Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Raw materials
|
$
|
707
|
|
|
$
|
726
|
|
|
Finished product
|
1,953
|
|
|
1,987
|
|
|
|
2,660
|
|
|
2,713
|
|
|
Inventory reserves
|
(114
|
)
|
|
(121
|
)
|
|
Inventories, net
|
$
|
2,546
|
|
|
$
|
2,592
|
|
Note 4. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Land and land improvements
|
$
|
422
|
|
|
$
|
424
|
|
|
Buildings and building improvements
|
3,140
|
|
|
2,984
|
|
|
Machinery and equipment
|
11,295
|
|
|
10,943
|
|
|
Construction in progress
|
680
|
|
|
894
|
|
|
|
15,537
|
|
|
15,245
|
|
|
Accumulated depreciation
|
(6,804
|
)
|
|
(6,763
|
)
|
|
Property, plant and equipment, net
|
$
|
8,733
|
|
|
$
|
8,482
|
|
Capital expenditures as presented on the statement of cash flow were $0.9 billion, $1.1 billion and $1.0 billion for the years ending December 31, 2019, 2018 and 2017 and excluded $334 million, $331 million and $357 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 $50 million in 2019, $59 million in 2018 and $206 million in 2017 (see Note 8, 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,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Latin America
|
$
|
—
|
|
|
$
|
25
|
|
|
$
|
36
|
|
|
AMEA
|
(2
|
)
|
|
5
|
|
|
81
|
|
|
Europe
|
46
|
|
|
15
|
|
|
58
|
|
|
North America
|
5
|
|
|
13
|
|
|
30
|
|
|
Corporate
|
1
|
|
|
1
|
|
|
1
|
|
|
Non-cash property, plant and equipment write-downs
|
$
|
50
|
|
|
$
|
59
|
|
|
$
|
206
|
|
Note 5. Leases
We have operating and finance leases for manufacturing and distribution facilities, vehicles, equipment and office space. Our leases have remaining lease terms of 1 to 10 years, some of which include options to extend the leases for up to 6 years. We assume the majority of our termination options will not be exercised when determining the lease term of our leases. We do not include significant restrictions or covenants in our lease agreements, and residual value guarantees are generally not included within our operating leases, with the exception of some fleet leases. Some of our leasing arrangements require variable payments that are dependent on usage or output or may vary for other reasons, such as product costs, insurance and tax payments. These variable payment leases are not included in our recorded lease assets and liabilities and are expensed as incurred. Certain leases are tied to a variable index or rate and are included in our lease assets and liabilities based on the indices or rates as of lease commencement.
The components of lease costs were as follows:
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2019
|
|
|
(in millions)
|
|
Operating lease cost
|
$
|
222
|
|
|
|
|
|
Finance lease cost:
|
|
|
Amortization of right-of-use assets
|
29
|
|
|
Interest on lease liabilities
|
4
|
|
|
|
|
|
Short-term lease cost
|
39
|
|
|
Variable lease cost
|
474
|
|
|
|
|
|
Sublease income
|
(6
|
)
|
|
|
|
|
Total lease cost
|
$
|
762
|
|
Rent expenses under prior lease accounting rules (ASC 840) recorded in continuing operations were $260 million in 2018 and $284 million in 2017.
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2019
|
|
|
(in millions)
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
Operating cash flows from operating leases
|
$
|
(234
|
)
|
|
Operating cash flows from finance leases
|
(4
|
)
|
|
Financing cash flows from finance leases
|
(27
|
)
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
Operating leases
|
$
|
95
|
|
|
Finance leases
|
99
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
(in millions)
|
|
Operating Leases:
|
|
|
Operating lease right-of-use assets, net of amortization
|
$
|
568
|
|
|
|
|
|
Other current liabilities
|
$
|
178
|
|
|
Long-term operating lease liabilities
|
403
|
|
|
Total operating lease liabilities
|
$
|
581
|
|
|
|
|
|
Finance Leases:
|
|
|
Finance leases, net of amortization (within property, plant & equipment)
|
$
|
122
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
32
|
|
|
Long-term debt
|
91
|
|
|
Total finance lease liabilities
|
$
|
123
|
|
|
|
|
|
Weighted Average Remaining Lease Term
|
|
|
Operating leases
|
5.2 years
|
|
|
Finance leases
|
4.6 years
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
Operating leases
|
3.5
|
%
|
|
Finance leases
|
3.7
|
%
|
In 2020, we expect to record a $45 million operating lease liability for a 15 year lease that has not yet commenced.
Future lease payments under non-cancelable leases under the new lease accounting rules (ASC 842) that went into effect on January 1, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
Operating Leases
|
|
Finance Leases
|
|
|
(in millions)
|
|
Year Ending December 31:
|
|
|
|
|
2020
|
$
|
197
|
|
|
$
|
38
|
|
|
2021
|
146
|
|
|
34
|
|
|
2022
|
102
|
|
|
23
|
|
|
2023
|
68
|
|
|
15
|
|
|
2024
|
42
|
|
|
9
|
|
|
Thereafter
|
97
|
|
|
15
|
|
|
Total future undiscounted lease payments
|
$
|
652
|
|
|
$
|
134
|
|
|
Less imputed interest
|
(71
|
)
|
|
(11
|
)
|
|
Total reported lease liability
|
$
|
581
|
|
|
$
|
123
|
|
As of December 31, 2018, minimum rental commitments under non-cancelable operating leases under prior lease accounting rules (ASC 840) were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
Total
|
|
$
|
208
|
|
|
$
|
165
|
|
|
$
|
114
|
|
|
$
|
79
|
|
|
$
|
57
|
|
|
$
|
157
|
|
|
$
|
780
|
|
Note 6. Goodwill and Intangible Assets
Goodwill by operating segment was:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Latin America
|
$
|
818
|
|
|
$
|
823
|
|
|
AMEA
|
3,151
|
|
|
3,210
|
|
|
Europe
|
7,523
|
|
|
7,519
|
|
|
North America
|
9,356
|
|
|
9,173
|
|
|
Goodwill
|
$
|
20,848
|
|
|
$
|
20,725
|
|
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Non-amortizable intangible assets
|
$
|
17,296
|
|
|
$
|
17,201
|
|
|
Amortizable intangible assets
|
2,374
|
|
|
2,328
|
|
|
|
19,670
|
|
|
19,529
|
|
|
Accumulated amortization
|
(1,713
|
)
|
|
(1,527
|
)
|
|
Intangible assets, net
|
$
|
17,957
|
|
|
$
|
18,002
|
|
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 $174 million in 2019, $176 million in 2018 and $178 million in 2017. For the next five years, we estimate annual amortization expense of approximately $175 million next year, approximately $90 million in year two and approximately $85 million in years three to five, reflecting December 31, 2019 exchange rates.
Changes in goodwill and intangible assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
Goodwill
|
|
Intangible
Assets, at cost
|
|
Goodwill
|
|
Intangible
Assets, at cost
|
|
|
(in millions)
|
|
Balance at January 1
|
$
|
20,725
|
|
|
$
|
19,529
|
|
|
$
|
21,085
|
|
|
$
|
20,057
|
|
|
Changes due to:
|
|
|
|
|
|
|
|
|
Currency
|
17
|
|
|
60
|
|
|
(658
|
)
|
|
(710
|
)
|
|
Divestitures
|
(43
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Acquisitions
|
149
|
|
|
138
|
|
|
298
|
|
|
250
|
|
|
Asset impairments
|
—
|
|
|
(57
|
)
|
|
—
|
|
|
(68
|
)
|
|
Balance at December 31
|
$
|
20,848
|
|
|
$
|
19,670
|
|
|
$
|
20,725
|
|
|
$
|
19,529
|
|
Changes to goodwill and intangibles were:
|
|
|
|
•
|
Divestitures – During the second quarter of 2019, we divested the net assets of most of our cheese business in the Middle East and Africa to Arla Foods of Denmark resulting in a goodwill decrease of $43 million. See Note 2, Divestitures and Acquisitions, for additional information.
|
|
|
|
|
•
|
Acquisitions – In connection with the acquisition of a majority interest in Perfect Snacks during the third quarter of 2019, we recorded a preliminary purchase price allocation of $150 million to goodwill and $138 million to intangible assets. In the second quarter of 2019, we also finalized the purchase price allocation for the 2018 acquisition of Tate's Bake Shop, resulting in a $1 million adjustment to goodwill. During 2018, we recorded a preliminary purchase price allocation of $298 million to goodwill and $250 million to intangible assets related to the acquisition of Tate's Bake Shop in the second quarter of 2018. See Note 2, Divestitures and Acquisitions, for additional information.
|
|
|
|
|
•
|
Asset impairments – As further discussed below, we recorded $57 million of intangible asset impairments in 2019 and $68 million in 2018.
|
In 2019, 2018 and 2017, 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 2019 annual testing of non-amortizable intangible assets, we recorded $57 million of impairment charges in the third quarter related to nine brands. We recorded charges related to gum, chocolate, biscuits and candy brands of $39 million in Europe, $15 million in AMEA and $3 million in Latin America. We also identified fourteen brands, including the nine impaired trademarks, with $635 million of aggregate book value as of December 31, 2019 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 not be impaired, but if the brand earnings expectations are not met or specific valuation factors outside of our control, such as discount rates, change significantly, then a brand or brands could become impaired in the future. In 2018, we recorded $68 million of impairment charges for gum, chocolate, biscuits and candy brands of $45 million in Europe, $14 million in North America and $9 million in AMEA. In 2017, we recorded $109 million of impairment charges, of which $70 million related to annual testing impairment charges for candy and gum brands of $52 million in AMEA, $11 million in Europe, $5 million in Latin America and $2 million in North America. 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 brand in our North America segment and a $1 million intangible asset impairment charge related to a transaction.
Note 7. Equity Method Investments
Our investments accounted for under the equity method of accounting totaled $7,212 million as of December 31, 2019 and $7,123 million as of December 31, 2018. In both years, our largest equity method investments were in Jacobs Douwe Egberts (“JDE”) and Keurig Green Mountain, Inc. ("Keurig") prior to July 9, 2018 and Keurig Dr Pepper Inc. (NYSE: "KDP”) subsequent to July 9, 2018.
JDE:
As of December 31, 2019, we held a 26.5% voting interest, a 26.4% ownership interest and a 26.3% profit and dividend sharing interest in JDE. We recorded JDE equity earnings of $195 million in 2019, $230 million in 2018 (which includes a deferred tax benefit from a Dutch tax rate reduction) and $129 million in 2017. We also recorded $73 million of cash dividends received in both 2019 and 2018 and $49 million of cash dividends received in 2017.
JDE / Keurig Exchange:
On March 7, 2016, we exchanged a portion of our JDE equity interest for a new equity interest in Keurig. As a result of the exchange, we recorded the difference between the $2.0 billion fair value of Keurig and our basis in the exchanged JDE shares as a gain of $43 million. In the second quarter of 2019, we determined an adjustment to accumulated other comprehensive losses related to our JDE investment was required, which reduced our previously reported gain by $29 million. We recorded the adjustment as a loss on equity method transactions.
Keurig Dr Pepper Transaction:
On July 9, 2018, Keurig closed on its definitive merger agreement with Dr Pepper Snapple Group, Inc., and formed KDP, a publicly traded company. Following the close of the transaction, our 24.2% investment in Keurig together with our shareholder loan receivable became a 13.8% investment in KDP. During 2018, we recorded a net pre-tax gain of $778 million (or $586 million after-tax).
We hold two director positions on the KDP board as well as additional governance rights. As we continue to have significant influence, we continue to account for our investment in KDP under the equity method, resulting in recognizing our share of their earnings within our earnings and our share of their dividends within our cash flows.
In connection with this transaction, we changed our accounting principle during the third quarter of 2018 to reflect our share of Keurig's historical and KDP's ongoing earnings on a one-quarter lag basis while we continue to record dividends when cash is received. We determined a lag was preferable as it enables us to continue to report our quarterly and annual results on a timely basis and to record our share of KDP’s ongoing results once KDP has publicly reported its results. The change was retrospectively applied to all prior periods presented.
As of December 31, 2019, we held a 13.6% ownership interest in KDP valued at approximately $5.5 billion (based on KDP's closing stock price), which exceeded the carrying value of our KDP investment. Our KDP ownership interest could change over time due to stock-based compensation arrangements or other KDP transactions. During the first quarter of 2019, due to the impact of a KDP acquisition that decreased our ownership interest from 13.8% to 13.6%, we recognized a $23 million pre-tax gain.
Keurig and KDP equity earnings, as adjusted for the one-quarter lag basis, totaled $160 million in 2019, $213 million in 2018 (includes a deferred tax benefit Keurig recorded as a result of U.S. tax reform) and $92 million in 2017. Within equity method investment net earnings, we also recorded shareholder loan interest income of $12 million in 2018 and $24 million in 2017. We received shareholder loan interest payments of $12 million in 2018 and $30 million in 2017 and dividends of $115 million in 2019, $34 million in 2018 and $14 million in 2017.
Other Equity Method Investment transactions:
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. During the second quarter of 2019, we recorded an additional pre-tax gain of $4 million related to the sale and release of indemnity-related funds previously held in escrow that were released.
Summary Financial Information for Equity Method Investments:
Summarized financial information related to our equity method investments is reflected below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
(in millions)
|
|
Current assets
|
|
|
$
|
5,650
|
|
|
$
|
5,695
|
|
|
Noncurrent assets
|
|
|
69,232
|
|
|
69,445
|
|
|
Total assets
|
|
|
$
|
74,882
|
|
|
$
|
75,140
|
|
|
Current liabilities
|
|
|
$
|
10,037
|
|
|
$
|
9,434
|
|
|
Noncurrent liabilities
|
|
|
27,642
|
|
|
29,296
|
|
|
Total liabilities
|
|
|
$
|
37,679
|
|
|
$
|
38,730
|
|
|
Equity attributable to shareowners of investees
|
|
|
$
|
37,170
|
|
|
$
|
36,365
|
|
|
Equity attributable to noncontrolling interests
|
|
|
33
|
|
|
46
|
|
|
Total net equity of investees
|
|
|
$
|
37,203
|
|
|
$
|
36,411
|
|
|
Mondelēz International ownership interests
|
|
|
13-50%
|
|
|
13-50%
|
|
|
Equity method investments (1)
|
|
|
$
|
7,212
|
|
|
$
|
7,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Net revenues
|
$
|
19,410
|
|
|
$
|
14,185
|
|
|
$
|
12,824
|
|
|
Gross profit
|
9,733
|
|
|
6,076
|
|
|
4,913
|
|
|
Income from continuing operations
|
1,991
|
|
|
1,980
|
|
|
1,118
|
|
|
Net income
|
1,991
|
|
|
1,980
|
|
|
1,118
|
|
|
Net income attributable to investees
|
$
|
1,981
|
|
|
$
|
1,970
|
|
|
$
|
1,115
|
|
|
Mondelēz International ownership interests
|
13-50%
|
|
|
13-50%
|
|
|
24-50%
|
|
|
Mondelēz International share of investee net income
|
$
|
442
|
|
|
$
|
536
|
|
|
$
|
320
|
|
|
Keurig shareholder loan interest income
|
—
|
|
|
12
|
|
|
24
|
|
|
Equity method investment net earnings
|
$
|
442
|
|
|
$
|
548
|
|
|
$
|
344
|
|
|
|
|
|
(1)
|
Includes a basis difference of approximately $330 million as of December 31, 2019 and $340 million as of December 31, 2018 between the U.S. GAAP accounting basis for our equity method investments and the U.S. GAAP accounting basis of our investees’ equity.
|
Note 8. Restructuring Program
On May 6, 2014, our Board of Directors approved a $3.5 billion 2014-2018 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 the $5.7 billion program consisted of approximately $4.1 billion of restructuring program costs ($3.1 billion cash costs and $1.0 billion non-cash costs) and up to $1.6 billion of capital expenditures. On September 6, 2018, our Board of Directors approved an extension of the restructuring program through 2022, an increase of $1.3 billion in the program charges and an increase of $700 million in capital expenditures. The total $7.7 billion program now consists of $5.4 billion of program charges ($4.1 billion of cash costs and $1.3 billion of non-cash costs) and total capital expenditures of $2.3 billion to be incurred over the life of the program. The current restructuring program, as increased and extended by these actions, is now called the Simplify to Grow Program.
The primary objective of the Simplify to Grow Program is to reduce our operating cost structure in both our supply chain and overhead costs. The program covers severance as well as asset disposals and other manufacturing and procurement-related one-time costs. Since inception, we have incurred total restructuring and related implementation charges of $4.3 billion related to the Simplify to Grow Program. We expect to incur the program charges by year-end 2022.
Restructuring Costs:
The Simplify to Grow Program liability activity for the years ended December 31, 2019 and 2018 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
and related
costs
|
|
Asset
Write-downs
|
|
Total
|
|
|
(in millions)
|
|
Liability Balance, January 1, 2018
|
$
|
464
|
|
|
$
|
—
|
|
|
$
|
464
|
|
|
Charges (1)
|
253
|
|
|
63
|
|
|
316
|
|
|
Cash spent
|
(310
|
)
|
|
—
|
|
|
(310
|
)
|
|
Non-cash settlements/adjustments
|
(4
|
)
|
|
(63
|
)
|
|
(67
|
)
|
|
Currency
|
(30
|
)
|
|
—
|
|
|
(30
|
)
|
|
Liability Balance, December 31, 2018
|
$
|
373
|
|
|
$
|
—
|
|
|
$
|
373
|
|
|
Charges (1)
|
125
|
|
|
51
|
|
|
176
|
|
|
Cash spent
|
(162
|
)
|
|
—
|
|
|
(162
|
)
|
|
Non-cash settlements/adjustments (2)
|
(31
|
)
|
|
(51
|
)
|
|
(82
|
)
|
|
Currency
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|
Liability Balance, December 31, 2019
|
$
|
301
|
|
|
$
|
—
|
|
|
$
|
301
|
|
|
|
|
|
(1)
|
Includes settlement losses of $5 million in 2019 and $5 million in 2018 recorded within benefit plan non-service income on our consolidated statements of earnings.
|
|
|
|
|
(2)
|
We adopted the new lease accounting ASU as of January 1, 2019. The ASU requires recording onerous lease liabilities netted with right of use assets. Therefore, during the first quarter of 2019, we reclassified onerous lease liabilities that totaled $23 million as of March 31, 2019, from accrued liabilities and other accrued liabilities to operating lease right of use assets.
|
We recorded restructuring charges of $176 million in 2019, $316 million in 2018 and $535 million in 2017 within asset impairment and exit costs and benefit plan non-service income. We spent $162 million in 2019 and $310 million in 2018 in cash severance and related costs. We also recognized non-cash pension settlement losses (See Note 11, Benefit Plans), non-cash asset write-downs (including accelerated depreciation and asset impairments) and other non-cash adjustments (including a transfer of onerous lease liabilities to operating lease ROU assets during the first quarter of 2019) totaling $82 million in 2019 and $67 million in 2018. At December 31, 2019, $275 million of our net restructuring liability was recorded within other current liabilities and $26 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 Simplify to Grow 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 $272 million in 2019, $315 million in 2018 and $257 million in 2017. 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 2019, 2018 and 2017, and since inception of the Simplify to Grow Program, we recorded the following restructuring and implementation costs within segment operating income and earnings before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin
America
|
|
AMEA
|
|
Europe
|
|
North
America (1)
|
|
Corporate (2)
|
|
Total
|
|
|
(in millions)
|
|
For the Year Ended
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Costs
|
$
|
24
|
|
|
$
|
18
|
|
|
$
|
105
|
|
|
$
|
16
|
|
|
$
|
13
|
|
|
$
|
176
|
|
|
Implementation Costs
|
50
|
|
|
38
|
|
|
103
|
|
|
52
|
|
|
29
|
|
|
272
|
|
|
Total
|
$
|
74
|
|
|
$
|
56
|
|
|
$
|
208
|
|
|
$
|
68
|
|
|
$
|
42
|
|
|
$
|
448
|
|
|
For the Year Ended
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Costs
|
$
|
63
|
|
|
$
|
69
|
|
|
$
|
132
|
|
|
$
|
32
|
|
|
$
|
20
|
|
|
$
|
316
|
|
|
Implementation Costs
|
67
|
|
|
39
|
|
|
73
|
|
|
79
|
|
|
57
|
|
|
315
|
|
|
Total
|
$
|
130
|
|
|
$
|
108
|
|
|
$
|
205
|
|
|
$
|
111
|
|
|
$
|
77
|
|
|
$
|
631
|
|
|
For the Year Ended
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Costs
|
$
|
93
|
|
|
$
|
140
|
|
|
$
|
195
|
|
|
$
|
84
|
|
|
$
|
23
|
|
|
$
|
535
|
|
|
Implementation Costs
|
43
|
|
|
43
|
|
|
68
|
|
|
58
|
|
|
45
|
|
|
257
|
|
|
Total
|
$
|
136
|
|
|
$
|
183
|
|
|
$
|
263
|
|
|
$
|
142
|
|
|
$
|
68
|
|
|
$
|
792
|
|
|
Total Project (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring Costs
|
$
|
517
|
|
|
$
|
535
|
|
|
$
|
1,076
|
|
|
$
|
469
|
|
|
$
|
129
|
|
|
$
|
2,726
|
|
|
Implementation Costs
|
269
|
|
|
206
|
|
|
448
|
|
|
384
|
|
|
307
|
|
|
1,614
|
|
|
Total
|
$
|
786
|
|
|
$
|
741
|
|
|
$
|
1,524
|
|
|
$
|
853
|
|
|
$
|
436
|
|
|
$
|
4,340
|
|
|
|
|
|
(1)
|
During 2017-2019, our North America region implementation costs included incremental costs that we incurred related to renegotiating collective bargaining agreements that expired in February 2016 for eight U.S. facilities and related to executing business continuity plans for the North America business.
|
|
|
|
|
(2)
|
Benefit plan non-service income amounts associated with restructuring program activities that are no longer recorded in segment operating income are included in the Corporate column in the table above for all periods presented. The Corporate column also includes minor adjustments for pension settlement losses and rounding.
|
|
|
|
|
(3)
|
Includes all charges recorded since program inception on May 6, 2014 through December 31, 2019.
|
Note 9. Debt and Borrowing Arrangements
Short-Term Borrowings:
Our short-term borrowings and related weighted-average interest rates consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2019
|
|
2018
|
|
|
Amount
Outstanding
|
|
Weighted-
Average Rate
|
|
Amount
Outstanding
|
|
Weighted-
Average Rate
|
|
|
(in millions)
|
|
|
|
(in millions)
|
|
|
|
Commercial paper
|
$
|
2,581
|
|
|
2.0
|
%
|
|
$
|
3,054
|
|
|
2.9
|
%
|
|
Bank loans
|
57
|
|
|
5.2
|
%
|
|
138
|
|
|
10.5
|
%
|
|
Total short-term borrowings
|
$
|
2,638
|
|
|
|
|
$
|
3,192
|
|
|
|
As of December 31, 2019, commercial paper issued and outstanding had between 2 and 52 days remaining to maturity. Commercial paper borrowings decreased since the 2018 year-end primarily as a result of repayments from operating cash flow and proceeds from long-term debt issuances net of repayments, partially offset by increased borrowings for shareholder dividends and share repurchases.
Some of our international subsidiaries maintain primarily uncommitted credit lines to meet short-term working capital needs. Collectively, these credit lines amounted to $1.7 billion at December 31, 2019 and at December 31, 2018. Borrowings on these lines were $57 million at December 31, 2019 and $138 million at December 31, 2018.
Borrowing Arrangements:
On September 13, 2019, Mondelez International Holdings Netherlands B.V. ("MIHN"), a wholly owned Dutch subsidiary of Mondelēz International, Inc., entered into a term loan agreement pursuant to which MIHN may incur up to $500 million of term loans with a three-year term and $500 million of term loans with a five-year term. Proceeds from the term loan may be used for general corporate purposes, including repayment of debt. On October 25, 2019, we fully drew on the term loans and received proceeds of $1.0 billion. We also 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 February 27, 2019, 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 26, 2020. The agreement replaces our previous credit agreement that matured on February 27, 2019 and includes the same terms and conditions as our existing $4.5 billion multi-year credit facility discussed below. As of December 31, 2019, no amounts were drawn on the facility.
On February 27, 2019, we entered into 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. This agreement replaced our $4.5 billion amended and restated five-year revolving credit agreement, dated as of October 14, 2016. The revolving credit agreement is scheduled to expire on February 27, 2024. 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), the cumulative effects of any changes in accounting principles and earnings/(losses) recognized in connection with the ongoing application of any mark-to-market accounting for pensions and other retirement plans. At December 31, 2019, we complied with this covenant as our shareholders' equity, as defined by the covenant, was $37.5 billion. The revolving credit facility 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, 2019, no amounts were drawn on the facility.
On April 2, 2018, in connection with the tender offer described below, we entered into a $2.0 billion revolving credit agreement for a 364-day senior unsecured credit facility that was due to expire on April 1, 2019. The agreement included the same terms and conditions as our existing $4.5 billion multi-year credit facility discussed above. On April 17, 2018, we borrowed $714 million on this facility to fund the debt tender described below and availability under the facility was reduced to match the borrowed amount. On May 7, 2018, we repaid the $714 million from the net proceeds received from the May 2018 $2.5 billion long-term debt issuance and terminated this credit facility.
Long-Term Debt:
Our long-term debt consisted of (interest rates are as of December 31, 2019):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
U.S. dollar notes, 0.163% to 7.000% (weighted-average effective rate 3.107%),
due through 2048
|
$
|
9,442
|
|
|
$
|
9,492
|
|
|
Euro notes, 0.875% to 2.375% (weighted-average effective rate 1.696%),
due through 2035
|
3,968
|
|
|
3,492
|
|
|
Pound sterling notes, 3.875% to 4.500% (weighted-average effective rate 4.151%),
due through 2045
|
346
|
|
|
333
|
|
|
Swiss franc notes, 0.050% to 1.125% (weighted-average effective rate 0.703%),
due through 2025
|
1,449
|
|
|
1,424
|
|
|
Canadian dollar notes, 3.250% (effective rate 3.320%),
due through 2025
|
460
|
|
|
437
|
|
|
Finance leases and other obligations
|
123
|
|
|
2
|
|
|
Total
|
15,788
|
|
|
15,180
|
|
|
Less current portion of long-term debt
|
(1,581
|
)
|
|
(2,648
|
)
|
|
Long-term debt
|
$
|
14,207
|
|
|
$
|
12,532
|
|
Deferred debt issuance costs of $33 million as of December 31, 2019 and $32 million as of December 31, 2018 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, 2019, aggregate maturities of our debt and finance leases based on stated contractual maturities, excluding unamortized non-cash bond premiums, discounts, bank fees and mark-to-market adjustments of $(76) million and imputed interest on finance leases of $(11) million, were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
Total
|
|
$1,587
|
|
$3,356
|
|
$1,739
|
|
$1,824
|
|
$1,834
|
|
$5,535
|
|
$15,875
|
On October 28, 2019, $1.75 billion of our 1.625% MIHN notes and $500 million of floating rate MIHN notes matured. The notes and accrued interest to date were paid with the term loans drawn on October 25, 2019 and U.S. dollar-denominated notes issued by MIHN on September 19, 2019.
On October 2, 2019, MIHN issued €500 million of 0.875% euro-denominated notes guaranteed by Mondelēz International, Inc. that mature on October 1, 2031. We received €491 million (or $538 million) of proceeds, net of discounts and associated financing costs of $11 million, which will be amortized into interest expense over the life of the loans. The proceeds were earmarked for general corporate purposes, including repayment of debt.
On September 19, 2019, MIHN issued $1.0 billion of U.S. dollar-denominated notes guaranteed by Mondelēz International, Inc. and consisting of $500 million 2.125% notes that mature on September 19, 2022 and $500 million 2.25% notes that mature on September 19, 2024. We received $997 million of proceeds, net of discounts and associated financing costs. The proceeds were earmarked for general corporate purposes, including repayment of debt. We recorded approximately $4 million of deferred financing costs and discounts, which will be amortized into interest expense over the life of the notes. In connection with this debt issuance, 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 February 13, 2019, we issued $600 million of 3.625% U.S. dollar-denominated notes that are scheduled to mature February 13, 2026. We received $595 million of net proceeds that were used to repay outstanding commercial paper borrowings and other debt. We recorded approximately $5 million of discounts and deferred financing costs, which will be amortized into interest expense over the life of the notes.
On February 1, 2019, $400 million of our U.S. dollar variable rate notes matured. The notes and accrued interest to date were paid with the issuance of commercial paper and cash on hand.
On August 23, 2018, $280 million of our 6.125% U.S. dollar notes matured. The notes and accrued interest to date were paid with the issuance of commercial paper and cash on hand.
On July 18, 2018, £76 million (or $99 million) of our 7.25% pound sterling notes matured. The notes and accrued interest to date were paid with the issuance of commercial paper and cash on hand.
On May 3, 2018, we issued $2.5 billion of U.S. dollar-denominated, fixed-rate notes consisting of:
|
|
|
|
•
|
$750 million of 3.000% notes that mature in May 2020
|
|
|
|
|
•
|
$750 million of 3.625% notes that mature in May 2023
|
|
|
|
|
•
|
$700 million of 4.125% notes that mature in May 2028
|
|
|
|
|
•
|
$300 million of 4.625% notes that mature in May 2048
|
On May 7, 2018, we received net proceeds of $2.48 billion that were used to repay amounts outstanding under our revolving credit agreement facility and for other general corporate purposes, including the repayment of outstanding commercial paper borrowings and other debt. We recorded approximately $22 million of discounts and deferred financing costs net of various fees associated for the bond transaction and underwriter fee reimbursement, which will be amortized into interest expense over the life of the notes.
On April 17, 2018, we completed a cash tender offer and retired $570 million of the long-term U.S. dollar debt consisting of:
|
|
|
|
•
|
$241 million of our 6.500% notes due in February 2040
|
|
|
|
|
•
|
$97.6 million of our 5.375% notes due in February 2020
|
|
|
|
|
•
|
$75.8 million of our 6.500% notes due in November 2031
|
|
|
|
|
•
|
$72.1 million of our 6.875% notes due in February 2038
|
|
|
|
|
•
|
$42.6 million of our 6.125% notes due in August 2018
|
|
|
|
|
•
|
$29.3 million of our 6.875% notes due in January 2039
|
|
|
|
|
•
|
$11.7 million of our 7.000% notes due in August 2037
|
We financed the repurchase of the notes, including the payment of accrued interest and other costs incurred, from the $2.0 billion revolving credit agreement entered into on April 2, 2018. We recorded a loss on debt extinguishment of $140 million within interest and other expense, net related to the amount we paid to retire the debt in excess of its carrying value and from recognizing unamortized discounts, deferred financing and other cash 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 2018.
On March 2, 2018, we launched an offering of C$600 million of 3.250% Canadian-dollar denominated notes that mature on March 7, 2025. On March 7, 2018, we received C$595 million (or $461 million) of proceeds, net of discounts and underwriting fees, to be used for general corporate purposes. We recorded approximately $4 million of discounts and deferred financing costs, which will be amortized into interest expense over the life of the notes.
On February 1, 2018, $478 million of our 6.125% U.S. dollar notes matured. The notes and accrued interest to date were paid with the issuance of commercial paper and cash on hand.
On January 26, 2018, fr.250 million (or $260 million) of our 0.080% Swiss franc notes matured. The notes and accrued interest to date were paid with the issuance of commercial paper and cash on hand.
Our weighted-average interest rate on our total debt was 2.2% as of December 31, 2019, 2.3% as of December 31, 2018 and 2.1% as of December 31, 2017.
Fair Value of Our Debt:
The fair value of our short-term borrowings at December 31, 2019 and December 31, 2018 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, 2019, the aggregate fair value of our total debt was $19,388 million and its carrying value was $18,426 million. At December 31, 2018, the aggregate fair value of our total debt was $18,650 million and its carrying value was $18,372 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,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Interest expense, debt
|
$
|
484
|
|
|
$
|
462
|
|
|
$
|
396
|
|
|
Loss on debt extinguishment and related expenses
|
—
|
|
|
140
|
|
|
11
|
|
|
Loss/(gain) related to interest rate swaps
|
111
|
|
|
(10
|
)
|
|
—
|
|
|
Other (income)/expense, net
|
(139
|
)
|
|
(72
|
)
|
|
(25
|
)
|
|
Interest and other expense, net
|
$
|
456
|
|
|
$
|
520
|
|
|
$
|
382
|
|
See Note 10, Financial Instruments, for information on the gain/loss related to U.S. dollar interest rate swaps no longer designated as accounting cash flow hedges during 2019 and 2018 and for information on amounts in other income related to our net investment hedge derivative contracts and the amounts excluded from hedge effectiveness of $133 million in 2019 and $120 million in 2018. See Note 14, 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 10. 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,
|
|
|
2019
|
|
2018
|
|
|
Asset
Derivatives
|
|
Liability
Derivatives
|
|
Asset
Derivatives
|
|
Liability
Derivatives
|
|
|
(in millions)
|
|
Derivatives designated as
accounting hedges:
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
19
|
|
|
$
|
190
|
|
|
$
|
17
|
|
|
$
|
355
|
|
|
Net investment hedge derivative contracts (1)
|
312
|
|
|
65
|
|
|
337
|
|
|
28
|
|
|
|
$
|
331
|
|
|
$
|
255
|
|
|
$
|
354
|
|
|
$
|
383
|
|
|
Derivatives not designated as
accounting hedges:
|
|
|
|
|
|
|
|
|
Currency exchange contracts
|
$
|
67
|
|
|
$
|
50
|
|
|
$
|
72
|
|
|
$
|
37
|
|
|
Commodity contracts
|
201
|
|
|
120
|
|
|
191
|
|
|
210
|
|
|
|
$
|
268
|
|
|
$
|
170
|
|
|
$
|
263
|
|
|
$
|
247
|
|
|
Total fair value
|
$
|
599
|
|
|
$
|
425
|
|
|
$
|
617
|
|
|
$
|
630
|
|
|
|
|
|
(1)
|
Net investment hedge contracts consist of cross-currency interest rate swaps and forward contracts. We also designate some of our non-U.S. dollar denominated debt to hedge a portion of our net investments in our non-U.S. operations. This debt is not reflected in the table above, but is included in long-term debt discussed in Note 9, Debt and Borrowing Arrangements. Both net investment hedge derivative contracts and non-U.S. dollar denominated debt acting as net investment hedges are also disclosed in the Derivative Volume table and the Hedges of Net Investments in International Operations section appearing later in this footnote.
|
Derivatives designated as accounting hedges above include cash flow and net investment hedge derivative contracts. Our currency exchange and commodity derivative contracts are economic hedges that are not designated as accounting hedges. 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, 2019
|
|
|
Total
Fair Value of Net
Asset/(Liability)
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
(in millions)
|
|
Currency exchange contracts
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
Commodity contracts
|
81
|
|
|
27
|
|
|
54
|
|
|
—
|
|
|
Interest rate contracts
|
(171
|
)
|
|
—
|
|
|
(171
|
)
|
|
—
|
|
|
Net investment hedge contracts
|
247
|
|
|
—
|
|
|
247
|
|
|
—
|
|
|
Total derivatives
|
$
|
174
|
|
|
$
|
27
|
|
|
$
|
147
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
Total
Fair Value of Net
Asset/(Liability)
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
(in millions)
|
|
Currency exchange contracts
|
$
|
35
|
|
|
$
|
—
|
|
|
$
|
35
|
|
|
$
|
—
|
|
|
Commodity contracts
|
(19
|
)
|
|
(1
|
)
|
|
(18
|
)
|
|
—
|
|
|
Interest rate contracts
|
(338
|
)
|
|
—
|
|
|
(338
|
)
|
|
—
|
|
|
Net investment hedge contracts
|
309
|
|
|
—
|
|
|
309
|
|
|
—
|
|
|
Total derivatives
|
$
|
(13
|
)
|
|
$
|
(1
|
)
|
|
$
|
(12
|
)
|
|
$
|
—
|
|
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.
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 derivative contracts do not have a legal right of set-off. 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 gross notional values of our derivative instruments were:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional Amount
|
|
|
As of December 31,
|
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Currency exchange contracts:
|
|
|
|
|
Intercompany loans and forecasted interest payments
|
$
|
2,474
|
|
|
$
|
3,239
|
|
|
Forecasted transactions
|
3,993
|
|
|
2,396
|
|
|
Commodity contracts(1)
|
7,238
|
|
|
6,706
|
|
|
Interest rate contracts
|
5,250
|
|
|
8,679
|
|
|
Net investment hedges:
|
|
|
|
|
Net investment hedge derivative contracts
|
6,864
|
|
|
6,678
|
|
|
Non-U.S. dollar debt designated as net investment hedges
|
|
|
|
|
Euro notes
|
3,436
|
|
|
3,514
|
|
|
British pound sterling notes
|
349
|
|
|
336
|
|
|
Swiss franc notes
|
1,448
|
|
|
1,424
|
|
|
Canadian dollar notes
|
462
|
|
|
440
|
|
|
|
|
|
(1)
|
During the fourth quarter of 2019, we changed how we report our commodity contract notional values from a net to a gross basis in line with how we report our other instruments. We have recast 2018 to be consistent with current year presentation.
|
Cash Flow Hedges:
Cash flow hedge activity, net of taxes, within accumulated other comprehensive earnings/(losses) included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Accumulated (loss)/gain at beginning of period
|
$
|
(167
|
)
|
|
$
|
(113
|
)
|
|
$
|
(121
|
)
|
|
Transfer of realized (gains)/losses in fair value to earnings
|
154
|
|
|
(9
|
)
|
|
27
|
|
|
Unrealized gain/(loss) in fair value
|
(199
|
)
|
|
(45
|
)
|
|
(19
|
)
|
|
Accumulated (loss)/gain at end of period
|
$
|
(212
|
)
|
|
$
|
(167
|
)
|
|
$
|
(113
|
)
|
After-tax gains/(losses) reclassified from accumulated other comprehensive earnings/(losses) into net earnings were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Currency exchange contracts – forecasted transactions
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
Commodity contracts
|
—
|
|
|
—
|
|
|
(24
|
)
|
|
Interest rate contracts
|
(154
|
)
|
|
9
|
|
|
—
|
|
|
Total
|
$
|
(154
|
)
|
|
$
|
9
|
|
|
$
|
(27
|
)
|
Within interest and other expense, net, we recognized a loss of $111 million in 2019 and a gain of $10 million in 2018 related to certain forward-starting interest rate swaps for which the planned timing and currency of the related forecasted debt was changed. During the second quarter of 2019, we also recognized a loss of $12 million related to the net loss on equity method investment transactions noted in Note 7, Equity Method Investments - JDE / Keurig Exchange.
After-tax gains/(losses) recognized in other comprehensive earnings/(losses) were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Currency exchange contracts – forecasted transactions
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
(38
|
)
|
|
Commodity contracts
|
—
|
|
|
—
|
|
|
7
|
|
|
Interest rate contracts
|
(202
|
)
|
|
(45
|
)
|
|
12
|
|
|
Total
|
$
|
(199
|
)
|
|
$
|
(45
|
)
|
|
$
|
(19
|
)
|
Cash flow hedge ineffectiveness was not material for all 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 currency exchange contracts related to forecasted transactions;
|
|
|
|
|
•
|
cost of sales for commodity contracts; 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 losses of $15 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, 2019, our longest dated cash flow hedges were interest rate swaps that hedge forecasted interest rate payments over the next 4 years and 9 months.
Hedges of Net Investments in International Operations:
Net investment hedge ("NIH") derivative contracts:
We enter into cross-currency interest rate swaps and forwards to hedge certain investments in our non-U.S. operations against movements in exchange rates. As of December 31, 2019, the aggregate notional value of these NIH derivative contracts was $6.9 billion and their impact on other comprehensive earnings and net earnings during the years presented below were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
After-tax gain/(loss) on NIH contracts(1)
|
$
|
(6
|
)
|
|
$
|
191
|
|
|
$
|
—
|
|
|
|
|
|
(1)
|
Amounts recorded for unsettled and settled NIH derivative contracts are recorded in the cumulative translation adjustment within other comprehensive earnings. The cash flows from the settled contracts are reported within other investing activities in the consolidated statement of cash flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Amounts excluded from the assessment of
hedge effectiveness(1)
|
$
|
133
|
|
|
$
|
120
|
|
|
$
|
—
|
|
|
|
|
|
(1)
|
We elected to record changes in the fair value of amounts excluded from the assessment of effectiveness in net earnings within interest and other expense, net.
|
Non-U.S. dollar debt designated as net investment hedges:
After-tax gains/(losses) related to hedges of net investments in international operations in the form of euro, British pound sterling, Swiss franc and Canadian dollar-denominated debt were recorded within the cumulative translation adjustment section of other comprehensive income and were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Euro notes
|
$
|
60
|
|
|
$
|
126
|
|
|
$
|
(323
|
)
|
|
British pound sterling notes
|
(10
|
)
|
|
19
|
|
|
(26
|
)
|
|
Swiss franc notes
|
(19
|
)
|
|
7
|
|
|
(49
|
)
|
|
Canadian notes
|
(17
|
)
|
|
17
|
|
|
—
|
|
Economic Hedges:
Pre-tax gains/(losses) recorded in net earnings for economic hedges were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
Recognized
in Earnings
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
(in millions)
|
|
|
|
Currency exchange contracts:
|
|
|
|
|
|
|
|
|
Intercompany loans and
forecasted interest payments
|
$
|
100
|
|
|
$
|
98
|
|
|
$
|
13
|
|
|
Interest and other
expense, net
|
|
Forecasted transactions
|
17
|
|
|
103
|
|
|
(37
|
)
|
|
Cost of sales
|
|
Forecasted transactions
|
(3
|
)
|
|
(4
|
)
|
|
(2
|
)
|
|
Interest and other
expense, net
|
|
Forecasted transactions
|
(8
|
)
|
|
(3
|
)
|
|
3
|
|
|
Selling, general
and administrative
expenses
|
|
Commodity contracts
|
67
|
|
|
40
|
|
|
(218
|
)
|
|
Cost of sales
|
|
Total
|
$
|
173
|
|
|
$
|
234
|
|
|
$
|
(241
|
)
|
|
|
Note 11. 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
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Projected benefit obligation at January 1
|
$
|
1,511
|
|
|
$
|
1,762
|
|
|
$
|
9,578
|
|
|
$
|
10,852
|
|
|
Service cost
|
38
|
|
|
43
|
|
|
122
|
|
|
146
|
|
|
Interest cost
|
60
|
|
|
61
|
|
|
202
|
|
|
199
|
|
|
Benefits paid
|
(40
|
)
|
|
(29
|
)
|
|
(424
|
)
|
|
(462
|
)
|
|
Settlements paid
|
(73
|
)
|
|
(118
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
Actuarial (gains)/losses
|
251
|
|
|
(208
|
)
|
|
761
|
|
|
(640
|
)
|
|
Currency
|
—
|
|
|
—
|
|
|
207
|
|
|
(528
|
)
|
|
Other
|
1
|
|
|
—
|
|
|
13
|
|
|
13
|
|
|
Projected benefit obligation at December 31
|
1,748
|
|
|
1,511
|
|
|
10,458
|
|
|
9,578
|
|
|
Fair value of plan assets at January 1
|
1,510
|
|
|
1,717
|
|
|
8,465
|
|
|
9,327
|
|
|
Actual return on plan assets
|
334
|
|
|
(99
|
)
|
|
1,211
|
|
|
(243
|
)
|
|
Contributions
|
8
|
|
|
39
|
|
|
261
|
|
|
323
|
|
|
Benefits paid
|
(40
|
)
|
|
(29
|
)
|
|
(424
|
)
|
|
(462
|
)
|
|
Settlements paid
|
(73
|
)
|
|
(118
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
Currency
|
—
|
|
|
—
|
|
|
246
|
|
|
(478
|
)
|
|
Fair value of plan assets at December 31
|
1,739
|
|
|
1,510
|
|
|
9,758
|
|
|
8,465
|
|
|
Net pension (liabilities)/assets at December 31
|
$
|
(9
|
)
|
|
$
|
(1
|
)
|
|
$
|
(700
|
)
|
|
$
|
(1,113
|
)
|
The accumulated benefit obligation, which represents benefits earned to the measurement date, for U.S. pension plans was $1,741 million at December 31, 2019 and $1,488 million at December 31, 2018. The accumulated benefit obligation for non-U.S. pension plans was $10,236 million at December 31, 2019 and $9,374 million at December 31, 2018.
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. Benefit accruals for salaried and non-union hourly employee participants in the U.S. and Canada defined benefit pension plans ceased on December 31, 2019. These employees instead receive Company contributions to the employee defined contribution plans.
The combined U.S. and non-U.S. pension plans resulted in a net pension liability of $709 million at December 31, 2019 and $1,114 million at December 31, 2018. We recognized these amounts in our consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Prepaid pension assets
|
$
|
516
|
|
|
$
|
132
|
|
|
Other current liabilities
|
(35
|
)
|
|
(25
|
)
|
|
Accrued pension costs
|
(1,190
|
)
|
|
(1,221
|
)
|
|
|
$
|
(709
|
)
|
|
$
|
(1,114
|
)
|
Certain of our U.S. and non-U.S. plans are underfunded with 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,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Projected benefit obligation
|
$
|
55
|
|
|
$
|
52
|
|
|
$
|
3,613
|
|
|
$
|
3,343
|
|
|
Accumulated benefit obligation
|
55
|
|
|
50
|
|
|
3,447
|
|
|
3,194
|
|
|
Fair value of plan assets
|
2
|
|
|
2
|
|
|
2,443
|
|
|
2,169
|
|
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,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Discount rate
|
3.44
|
%
|
|
4.40
|
%
|
|
1.74
|
%
|
|
2.45
|
%
|
|
Expected rate of return on plan assets
|
5.00
|
%
|
|
5.75
|
%
|
|
4.20
|
%
|
|
4.80
|
%
|
|
Rate of compensation increase
|
4.00
|
%
|
|
4.00
|
%
|
|
3.17
|
%
|
|
3.31
|
%
|
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.
For the periods presented, we measure service and interest costs by applying the specific spot rates along a yield curve used to measure plan obligations to the plans’ liability cash flows. We believe this approach provides a more precise measurement of service and interest costs by aligning the timing of the plans’ liability cash flows to the corresponding spot rates on the yield curve.
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,
|
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Service cost
|
$
|
38
|
|
|
$
|
43
|
|
|
$
|
46
|
|
|
$
|
122
|
|
|
$
|
146
|
|
|
$
|
156
|
|
|
Interest cost
|
60
|
|
|
61
|
|
|
62
|
|
|
202
|
|
|
199
|
|
|
199
|
|
|
Expected return on plan assets
|
(88
|
)
|
|
(88
|
)
|
|
(101
|
)
|
|
(404
|
)
|
|
(448
|
)
|
|
(434
|
)
|
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from experience differences
|
30
|
|
|
32
|
|
|
37
|
|
|
148
|
|
|
163
|
|
|
167
|
|
|
Prior service cost/(benefit)
|
1
|
|
|
2
|
|
|
2
|
|
|
(6
|
)
|
|
(2
|
)
|
|
(3
|
)
|
|
Settlement losses and other expenses (1)
|
16
|
|
|
35
|
|
|
35
|
|
|
(3
|
)
|
|
5
|
|
|
6
|
|
|
Net periodic pension cost
|
$
|
57
|
|
|
$
|
85
|
|
|
$
|
81
|
|
|
$
|
59
|
|
|
$
|
63
|
|
|
$
|
91
|
|
|
|
|
|
(1)
|
Settlement losses of $5 million in 2019, $5 million in 2018 and $11 million in 2017 were incurred in connection with our Simplify to Grow Program. See Note 8, Restructuring Program, for more information. Net settlement losses of $12 million for our U.S. plans and settlement gains of $4 million for our non-U.S. plans in 2019, and settlement losses of $31 million for our U.S. plans and $4 million for our non-U.S. plans in 2018 and $21 million for our U.S. plans and $6 million for our non-U.S. plans in 2017 related to lump-sum payment elections made by retired employees.
|
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, 2019, 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 2020:
|
|
|
|
•
|
an estimated $133 million of net loss from experience differences; and
|
|
|
|
|
•
|
an estimated $6 million of 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,
|
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
|
Discount rate
|
4.40
|
%
|
|
3.68
|
%
|
|
4.19
|
%
|
|
2.45
|
%
|
|
2.20
|
%
|
|
2.31
|
%
|
|
Expected rate of return
on plan assets
|
5.75
|
%
|
|
5.50
|
%
|
|
6.25
|
%
|
|
4.80
|
%
|
|
4.90
|
%
|
|
5.14
|
%
|
|
Rate of compensation increase
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
|
3.31
|
%
|
|
3.31
|
%
|
|
3.29
|
%
|
Plan Assets:
The fair value of pension plan assets was determined using the following fair value measurements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
Asset Category
|
|
Total Fair
Value
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
(in millions)
|
|
U.S. equity securities
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Non-U.S. equity securities
|
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
Pooled funds - equity securities
|
|
2,186
|
|
|
890
|
|
|
1,296
|
|
|
—
|
|
|
Total equity securities
|
|
2,190
|
|
|
894
|
|
|
1,296
|
|
|
—
|
|
|
Government bonds
|
|
3,328
|
|
|
53
|
|
|
3,275
|
|
|
—
|
|
|
Pooled funds - fixed-income securities
|
|
575
|
|
|
417
|
|
|
158
|
|
|
—
|
|
|
Corporate bonds and other
fixed-income securities
|
|
2,727
|
|
|
66
|
|
|
825
|
|
|
1,836
|
|
|
Total fixed-income securities
|
|
6,630
|
|
|
536
|
|
|
4,258
|
|
|
1,836
|
|
|
Real estate
|
|
186
|
|
|
124
|
|
|
—
|
|
|
62
|
|
|
Private equity
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
Cash
|
|
122
|
|
|
117
|
|
|
5
|
|
|
—
|
|
|
Other
|
|
2
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Total assets in the fair value hierarchy
|
|
$
|
9,133
|
|
|
$
|
1,672
|
|
|
$
|
5,559
|
|
|
$
|
1,902
|
|
|
Investments measured at net asset value
|
|
2,297
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
$
|
11,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
Asset Category
|
|
Total Fair
Value
|
|
Quoted Prices
in Active Markets
for Identical
Assets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
(in millions)
|
|
U.S. equity securities
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Non-U.S. equity securities
|
|
5
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
Pooled funds - equity securities
|
|
1,951
|
|
|
743
|
|
|
1,208
|
|
|
—
|
|
|
Total equity securities
|
|
1,958
|
|
|
750
|
|
|
1,208
|
|
|
—
|
|
|
Government bonds
|
|
3,156
|
|
|
62
|
|
|
3,094
|
|
|
—
|
|
|
Pooled funds - fixed-income securities
|
|
573
|
|
|
429
|
|
|
144
|
|
|
—
|
|
|
Corporate bonds and other
fixed-income securities
|
|
2,050
|
|
|
87
|
|
|
931
|
|
|
1,032
|
|
|
Total fixed-income securities
|
|
5,779
|
|
|
578
|
|
|
4,169
|
|
|
1,032
|
|
|
Real estate
|
|
130
|
|
|
108
|
|
|
—
|
|
|
22
|
|
|
Private equity
|
|
2
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
Cash
|
|
44
|
|
|
32
|
|
|
12
|
|
|
—
|
|
|
Other
|
|
2
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Total assets in the fair value hierarchy
|
|
$
|
7,915
|
|
|
$
|
1,469
|
|
|
$
|
5,389
|
|
|
$
|
1,057
|
|
|
Investments measured at net asset value
|
|
1,993
|
|
|
|
|
|
|
|
|
Total investments at fair value
|
|
$
|
9,908
|
|
|
|
|
|
|
|
We excluded plan assets of $67 million at December 31, 2019 and December 31, 2018 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 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 fixed-income securities that are buy-in annuity policies are calculated on a replacement policy value basis by discounting the projected cash flows of the plan members using a discount rate based on risk-free rates and adjustments for estimated levels of insurer pricing.
|
|
|
|
|
•
|
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,
2019
Balance
|
|
Net Realized
and Unrealized
Gains/
(Losses)
|
|
Net Purchases,
Issuances and
Settlements
|
|
Net Transfers
Into/(Out of)
Level 3
|
|
Currency
Impact
|
|
December 31,
2019
Balance
|
|
|
|
(in millions)
|
|
Corporate bond and other
fixed-income securities
|
|
$
|
1,032
|
|
|
$
|
8
|
|
|
$
|
727
|
|
|
$
|
—
|
|
|
$
|
69
|
|
|
$
|
1,836
|
|
|
Real estate
|
|
22
|
|
|
36
|
|
|
3
|
|
|
—
|
|
|
1
|
|
|
62
|
|
|
Private equity and other
|
|
3
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
Total Level 3 investments
|
|
$
|
1,057
|
|
|
$
|
45
|
|
|
$
|
730
|
|
|
$
|
—
|
|
|
$
|
70
|
|
|
$
|
1,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
|
January 1,
2018
Balance
|
|
Net Realized
and Unrealized
Gains/
(Losses)
|
|
Net Purchases,
Issuances and
Settlements
|
|
Net Transfers
Into/(Out of)
Level 3
|
|
Currency
Impact
|
|
December 31,
2018
Balance
|
|
|
|
(in millions)
|
|
Corporate bond and other
fixed-income securities
|
|
$
|
790
|
|
|
$
|
62
|
|
|
$
|
236
|
|
|
$
|
—
|
|
|
$
|
(56
|
)
|
|
$
|
1,032
|
|
|
Real estate
|
|
23
|
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
22
|
|
|
Private equity and other
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
Total Level 3 investments
|
|
$
|
816
|
|
|
$
|
63
|
|
|
$
|
235
|
|
|
$
|
—
|
|
|
$
|
(57
|
)
|
|
$
|
1,057
|
|
The increase in Level 3 pension plan investments during 2019 was primarily due to additional purchases of a buy-in annuity and other fixed income securities, and the increase in 2018 was primarily due to additional purchases of corporate bond and other fixed income securities, which includes private debt placements.
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
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Equity securities
|
|
15
|
%
|
|
15
|
%
|
|
26
|
%
|
|
26
|
%
|
|
Fixed-income securities
|
|
85
|
%
|
|
85
|
%
|
|
54
|
%
|
|
59
|
%
|
|
Real estate
|
|
—
|
|
|
—
|
|
|
6
|
%
|
|
6
|
%
|
|
Hedge funds
|
|
—
|
|
|
—
|
|
|
1
|
%
|
|
2
|
%
|
|
Buy-in annuity policies
|
|
—
|
|
|
—
|
|
|
12
|
%
|
|
6
|
%
|
|
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 25% equity securities, 57% fixed-income securities, 12% buy-in annuity policies and 6% real estate.
Employer Contributions:
In 2019, we contributed $8 million to our U.S. pension plans and $248 million to our non-U.S. pension plans. In addition, employees contributed $13 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 2020, we estimate that our pension contributions will be $16 million to our U.S. plans and $230 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, 2019 were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025-2029
|
|
U.S. Plans
|
$
|
167
|
|
|
$
|
102
|
|
|
$
|
105
|
|
|
$
|
105
|
|
|
$
|
108
|
|
|
$
|
513
|
|
|
Non-U.S. Plans
|
380
|
|
|
376
|
|
|
385
|
|
|
395
|
|
|
403
|
|
|
2,126
|
|
Multiemployer Pension Plans:
In accordance with obligations we have under collective bargaining agreements, we made contributions to multiemployer pension plans of $5 million in 2019, $17 million in 2018 and $26 million in 2017. In 2017, the only individually significant multiemployer plan we contributed to was the Bakery and Confectionery Union and Industry International Pension Fund (the “Fund;” Employer Identification Number 52-6118572). Our obligation to contribute to the Fund arose with respect to 8 collective bargaining agreements covering most of our employees represented by the Bakery, Confectionery, Tobacco and Grain Millers Union. All of those collective bargaining agreements expired in 2016 and we continued to contribute to the Fund through December 2018. Our contributions to the Fund were $12 million in 2018 and $22 million in 2017. Our contributions to other multiemployer pension plans that were not individually significant were $5 million in 2019, $5 million in 2018 and $4 million in 2017. Our contributions are based on our contribution rates under our collective bargaining agreements, the number of our eligible employees and Fund surcharges.
In 2018, we executed a complete withdrawal from the Fund and recorded a $429 million estimated withdrawal liability. On July 11, 2019, we received an undiscounted withdrawal liability assessment from the Fund totaling $526 million requiring pro-rata monthly payments over 20 years and we recorded a $35 million final adjustment to reduce our withdrawal liability as of June 30, 2019. We began making monthly payments during the third quarter of 2019. As of December 31, 2019, the remaining discounted withdrawal liability was $391 million, with $14 million recorded in other current liabilities and $377 million recorded in long-term other liabilities.
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 $72 million in 2019, $57 million in 2018 and $43 million in 2017.
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,
|
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Accrued benefit obligation at January 1
|
$
|
366
|
|
|
$
|
435
|
|
|
Service cost
|
5
|
|
|
6
|
|
|
Interest cost
|
15
|
|
|
15
|
|
|
Benefits paid
|
(16
|
)
|
|
(19
|
)
|
|
Currency
|
5
|
|
|
(11
|
)
|
|
Assumption changes
|
34
|
|
|
(39
|
)
|
|
Actuarial losses/(gains)
|
(6
|
)
|
|
(21
|
)
|
|
Accrued benefit obligation at December 31
|
$
|
403
|
|
|
$
|
366
|
|
The current portion of our accrued postretirement benefit obligation of $16 million at December 31, 2019 and $15 million at December 31, 2018 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,
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
Discount rate
|
3.41
|
%
|
|
4.37
|
%
|
|
3.86
|
%
|
|
4.40
|
%
|
|
Health care cost trend rate assumed for next year
|
6.00
|
%
|
|
6.25
|
%
|
|
5.42
|
%
|
|
5.44
|
%
|
|
Ultimate trend rate
|
5.00
|
%
|
|
5.00
|
%
|
|
5.42
|
%
|
|
5.44
|
%
|
|
Year that the rate reaches the ultimate trend rate
|
2024
|
|
|
2024
|
|
|
2019
|
|
|
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.
For the periods presented, we measure service and interest costs for other postretirement benefits by applying the specific spot rates along a yield curve used to measure plan obligations to the plans’ liability cash flows. We believe this approach provides a good 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.
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, 2019
|
|
|
One-Percentage-Point
|
|
|
Increase
|
|
Decrease
|
|
|
(in millions)
|
|
Effect on postretirement benefit obligation
|
$
|
39
|
|
|
$
|
(33
|
)
|
|
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,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Service cost
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
7
|
|
|
Interest cost
|
15
|
|
|
14
|
|
|
15
|
|
|
Amortization:
|
|
|
|
|
|
|
Net loss from experience differences
|
6
|
|
|
15
|
|
|
14
|
|
|
Prior service credit
|
(38
|
)
|
|
(39
|
)
|
|
(40
|
)
|
|
Net periodic postretirement health care costs/(benefit)
|
$
|
(12
|
)
|
|
$
|
(4
|
)
|
|
$
|
(4
|
)
|
As of December 31, 2019, we expected to amortize from accumulated other comprehensive earnings/(losses) into pre-tax net periodic postretirement health care costs during 2020:
|
|
|
|
•
|
an estimated $10 million of net loss from experience differences, and
|
|
|
|
|
•
|
an estimated $30 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,
|
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
|
Discount rate
|
4.37%
|
|
3.66%
|
|
4.14%
|
|
4.40%
|
|
4.24%
|
|
4.55%
|
|
Health care cost trend rate
|
6.25%
|
|
6.25%
|
|
6.50%
|
|
5.44%
|
|
5.56%
|
|
5.50%
|
Future Benefit Payments:
Our estimated future benefit payments for our postretirement health care plans at December 31, 2019 were (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025-2029
|
|
U.S. Plans
|
$
|
11
|
|
|
$
|
12
|
|
|
$
|
13
|
|
|
$
|
14
|
|
|
$
|
15
|
|
|
$
|
74
|
|
|
Non-U.S. Plans
|
5
|
|
|
5
|
|
|
5
|
|
|
6
|
|
|
6
|
|
|
32
|
|
Other Costs:
We made contributions to multiemployer medical plans totaling $20 million in 2019, $19 million in 2018 and $18 million in 2017. These plans provide medical benefits to active employees and retirees under certain collective bargaining agreements.
Postemployment Benefit Plans
Obligations:
Our postemployment plans are not funded. The changes in and the amount of the accrued benefit obligation at December 31, 2019 and 2018 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Accrued benefit obligation at January 1
|
$
|
74
|
|
|
$
|
76
|
|
|
Service cost
|
6
|
|
|
6
|
|
|
Interest cost
|
5
|
|
|
4
|
|
|
Benefits paid
|
(9
|
)
|
|
(7
|
)
|
|
Assumption changes
|
3
|
|
|
(1
|
)
|
|
Actuarial losses/(gains)
|
(13
|
)
|
|
(4
|
)
|
|
Accrued benefit obligation at December 31
|
$
|
66
|
|
|
$
|
74
|
|
The accrued benefit obligation was determined using a weighted-average discount rate of 5.3% in 2019 and 6.7% in 2018, an assumed weighted-average ultimate annual turnover rate of 0.3% in 2019 and 2018, assumed compensation cost increases of 4.0% in 2019 and 2018 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,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Service cost
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
5
|
|
|
Interest cost
|
5
|
|
|
4
|
|
|
4
|
|
|
Amortization of net gains
|
(4
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|
Net periodic postemployment costs
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
6
|
|
As of December 31, 2019, the estimated net gain for the postemployment benefit plans that we expect to amortize from accumulated other comprehensive earnings/(losses) into net periodic postemployment costs during 2020 is approximately $4 million.
Note 12. 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, 2019, there were 56.2 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 or a Lattice Model 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 $38 million in 2019, $43 million in 2018 and $50 million in 2017 in our results from continuing operations. The deferred tax benefit recorded related to this compensation expense was $8 million in 2019, $7 million in 2018 and $12 million in 2017. The unamortized compensation expense related to our employee stock options was $35 million at December 31, 2019 and is expected to be recognized over a weighted-average period of 1.2 years.
Our weighted-average Black-Scholes and Lattice Model fair value assumptions were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-Free
Interest Rate
|
|
Expected Life
|
|
Expected
Volatility
|
|
Expected
Dividend Yield
|
|
Fair Value
at Grant Date
|
|
2019
|
2.46
|
%
|
|
5 years
|
|
19.96
|
%
|
|
2.37
|
%
|
|
$
|
7.83
|
|
|
2018
|
2.68
|
%
|
|
5 years
|
|
20.96
|
%
|
|
2.02
|
%
|
|
$
|
8.30
|
|
|
2017
|
2.04
|
%
|
|
6 years
|
|
22.75
|
%
|
|
1.74
|
%
|
|
$
|
8.57
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Subject
to Option
|
|
Weighted-
Average
Exercise or
Grant Price
Per Share
|
|
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Balance at January 1, 2017
|
53,601,612
|
|
|
$
|
28.02
|
|
|
|
|
$
|
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
|
|
|
|
|
$
|
626
|
million
|
|
Annual grant to eligible employees
|
5,666,530
|
|
|
43.51
|
|
|
|
|
|
|
Additional options issued
|
168,306
|
|
|
31.40
|
|
|
|
|
|
|
Total options granted
|
5,834,836
|
|
|
43.16
|
|
|
|
|
|
|
Options exercised (1)
|
(9,333,271
|
)
|
|
25.16
|
|
|
|
|
$
|
170
|
million
|
|
Options cancelled
|
(1,117,390
|
)
|
|
42.93
|
|
|
|
|
|
|
Balance at December 31, 2018
|
43,818,830
|
|
|
32.36
|
|
|
|
|
$
|
371
|
million
|
|
Annual grant to eligible employees
|
4,793,570
|
|
|
47.72
|
|
|
|
|
|
|
Additional options issued
|
68,420
|
|
|
50.82
|
|
|
|
|
|
|
Total options granted
|
4,861,990
|
|
|
47.76
|
|
|
|
|
|
|
Options exercised (1)
|
(13,668,354
|
)
|
|
27.53
|
|
|
|
|
$
|
306
|
million
|
|
Options cancelled
|
(1,156,518
|
)
|
|
42.22
|
|
|
|
|
|
|
Balance at December 31, 2019
|
33,855,948
|
|
|
36.19
|
|
|
5 years
|
|
$
|
640
|
million
|
|
Exercisable at December 31, 2019
|
25,121,711
|
|
|
32.89
|
|
|
4 years
|
|
$
|
557
|
million
|
|
|
|
|
(1)
|
Cash received from options exercised was $369 million in 2019, $231 million in 2018 and $257 million in 2017. The actual tax benefit realized and recorded in the provision for income taxes for the tax deductions from the option exercises totaled $40 million in 2019, $21 million in 2018 and $31 million in 2017.
|
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. Deferred stock units granted to eligible employees have most shareholder rights, 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 $97 million in 2019, $85 million in 2018 and $87 million in 2017 in our results from continuing operations. The deferred tax benefit recorded related to this compensation expense was $16 million in 2019, $12 million in 2018 and $23 million in 2017. The unamortized compensation expense related to our deferred stock units, performance share units and restricted stock was $106 million at December 31, 2019 and is expected to be recognized over a weighted-average period of 1.5 years.
Our performance share unit, deferred stock unit and restricted stock activity is reflected below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
Grant Date
|
|
Weighted-Average
Fair Value
Per Share (4)
|
|
Weighted-Average
Aggregate
Fair Value (3)
|
|
Balance at January 1, 2017
|
7,593,627
|
|
|
|
|
$
|
36.90
|
|
|
|
|
Annual grant to eligible employees:
|
|
|
Feb. 16, 2017
|
|
|
|
|
|
Performance share units
|
1,087,010
|
|
|
|
|
43.14
|
|
|
|
|
Deferred stock units
|
845,550
|
|
|
|
|
43.20
|
|
|
|
|
Additional shares granted (1)
|
1,537,763
|
|
|
Various
|
|
42.22
|
|
|
|
|
Total shares granted
|
3,470,323
|
|
|
|
|
42.75
|
|
|
$
|
148
|
million
|
|
Vested (2) (3)
|
(2,622,807
|
)
|
|
|
|
35.78
|
|
|
$
|
94
|
million
|
|
Forfeited (2)
|
(771,438
|
)
|
|
|
|
38.69
|
|
|
|
|
Balance at December 31, 2017
|
7,669,705
|
|
|
|
|
39.74
|
|
|
|
|
Annual grant to eligible employees:
|
|
|
Feb. 22, 2018
|
|
|
|
|
|
Performance share units
|
1,048,770
|
|
|
|
|
51.23
|
|
|
|
|
Deferred stock units
|
788,310
|
|
|
|
|
43.51
|
|
|
|
|
Additional shares granted (1)
|
446,752
|
|
|
Various
|
|
41.78
|
|
|
|
|
Total shares granted
|
2,283,832
|
|
|
|
|
46.72
|
|
|
$
|
107
|
million
|
|
Vested (2) (3)
|
(2,511,992
|
)
|
|
|
|
38.91
|
|
|
$
|
98
|
million
|
|
Forfeited (2)
|
(882,535
|
)
|
|
|
|
42.00
|
|
|
|
|
Balance at December 31, 2018
|
6,559,010
|
|
|
|
|
42.19
|
|
|
|
|
Annual grant to eligible employees:
|
|
|
Feb. 22, 2019
|
|
|
|
|
|
Performance share units
|
891,210
|
|
|
|
|
57.91
|
|
|
|
|
Deferred stock units
|
666,880
|
|
|
|
|
47.72
|
|
|
|
|
Additional shares granted (1)
|
205,073
|
|
|
Various
|
|
54.81
|
|
|
|
|
Total shares granted
|
1,763,163
|
|
|
|
|
53.69
|
|
|
$
|
95
|
million
|
|
Vested (3)
|
(2,007,848
|
)
|
|
|
|
37.81
|
|
|
$
|
76
|
million
|
|
Forfeited
|
(652,380
|
)
|
|
|
|
45.88
|
|
|
|
|
Balance at December 31, 2019
|
5,661,945
|
|
|
|
|
46.90
|
|
|
|
|
|
|
|
(1)
|
Includes performance share units and deferred stock units.
|
|
|
|
|
(2)
|
Includes performance share units, deferred stock units and historically granted restricted stock.
|
|
|
|
|
(3)
|
The actual tax benefit/(expense) realized and recorded in the provision for income taxes for the tax deductions from the shares vested totaled $2 million in 2019, $3 million in 2018 and $7 million in 2017.
|
|
|
|
|
(4)
|
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 closing market price of the Company’s stock on the grant date for performance-based components. The Monte Carlo simulation model incorporates the probability of achieving the total shareholder return market condition. Compensation expense is recognized using the grant date fair values regardless of whether the market condition is achieved, so long as the requisite service has been provided.
|
Note 13. Capital Stock
Our amended and restated articles of incorporation authorize 5.0 billion shares of Class A common stock (“Common Stock”) and 500 million shares of preferred stock. There were no preferred shares issued and outstanding at December 31, 2019, 2018 and 2017. Shares of Common Stock issued, in treasury and outstanding were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued
|
|
Treasury Shares
|
|
Shares
Outstanding
|
|
Balance at January 1, 2017
|
|
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
|
|
|
Shares repurchased
|
|
—
|
|
|
(47,258,884
|
)
|
|
(47,258,884
|
)
|
|
Exercise of stock options and issuance of
other stock awards
|
|
—
|
|
|
10,122,655
|
|
|
10,122,655
|
|
|
Balance at December 31, 2018
|
|
1,996,537,778
|
|
|
(545,537,923
|
)
|
|
1,450,999,855
|
|
|
Shares repurchased
|
|
—
|
|
|
(30,902,465
|
)
|
|
(30,902,465
|
)
|
|
Exercise of stock options and issuance of
other stock awards
|
|
—
|
|
|
14,908,864
|
|
|
14,908,864
|
|
|
Balance at December 31, 2019
|
|
1,996,537,778
|
|
|
(561,531,524
|
)
|
|
1,435,006,254
|
|
Stock plan awards to employees and non-employee directors are issued from treasury shares. At December 31, 2019, 96 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, 2019, we had repurchased approximately $15.0 billion of Common Stock pursuant to this authorization. During 2019, we repurchased approximately 30.9 million shares of Common Stock at an average cost of $48.51 per share, or an aggregate cost of approximately $1.5 billion, all of which was paid during the period except for approximately $19 million settled in January 2020. All share repurchases were funded through available cash and commercial paper issuances. As of December 31, 2019, we have approximately $3.2 billion in remaining share repurchase capacity.
Note 14. Commitments and Contingencies
Legal Proceedings:
We routinely are involved in legal proceedings, claims and governmental inspections or investigations ("Legal Matters") arising in the ordinary course of our business.
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 ($52 million as of December 31, 2019) ("Period 1") 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 and on March 27, 2015, the Commissioner of the Excise Authority (the "Commissioner") issued an order denying the excise exemption that we claimed for Period 1. We appealed this order in June 2015. The Excise Authority issued additional show cause notices in February 2015, December 2015 and October 2017 on the same issue covering additional periods through June 2017 ("Period 2"). These three notices added a total of 4.9 billion Indian rupees ($68 million as of December 31, 2019) of allegedly unpaid excise taxes subject to penalties up to an equivalent amount plus accrued interest. We contested these demands, and on May 25, 2019, the Commissioner issued an order denying the excise exemption that we claimed for Period 2. We appealed this order in August 2019. With the implementation of the Goods and Services Tax ("GST") in India in July 2017, we stopped receiving show
cause notices for additional amounts on this issue. Beginning in the fall of 2019, the government of India made available an amnesty to resolve legacy tax issues following the GST implementation. Under the amnesty, upon payment of 50% of the principal demand for cases pending adjudication or appeal as of June 30, 2019 and 60% of the principal demand for cases where the appeal was filed after June 30, 2019, the government would waive the remainder of the principal demand as well as any penalties imposed and interest, and it would also grant immunity from prosecution. Although we continue to believe that our decision to claim the excise tax benefit was valid, in December 2019, we filed for the amnesty and accrued a total of 4.6 billion Indian rupees ($65 million as of December 31, 2019) in selling, general and administrative expenses for this matter. In January 2020, we made the related payments under the amnesty. This matter is now resolved, and the resolution was not material to our business or financial condition.
On April 1, 2015, the U.S. Commodity Futures Trading Commission ("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 (the "District Court"), Eastern Division (the “CFTC action”) following its investigation of activities related to the trading of December 2011 wheat futures contracts that occurred prior to the spin-off of Kraft Foods Group. 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. On August 15, 2019, the District Court approved a settlement agreement between the CFTC and Mondelēz Global. The terms of the settlement, which are available in the District Court’s docket, had an immaterial impact on our financial position, results of operations and cash flows. On October 23, 2019, following a ruling by the United States Court of Appeals for the Seventh Circuit (the "Seventh Circuit") regarding Mondelēz Global's allegations that the CFTC and its Commissioners violated certain terms of the settlement agreement and the CFTC's argument that the Commissioners were not bound by the terms of the settlement agreement, the District Court vacated the settlement agreement and reinstated all pending motions that the District Court had previously mooted as a result of the settlement. Additionally, several class action complaints were filed against Kraft Foods Group and Mondelēz Global in the District Court 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 the plaintiffs are seeking class action certification; monetary damages, interest and unjust enrichment; costs and fees; and injunctive, declaratory and other unspecified relief. In June 2015, these suits were consolidated in the District Court. On January 3, 2020, the District Court granted plaintiffs' request to certify a class. On January 17, 2020, we filed a petition for an interlocutory appeal of the District Court's class certification decision to the Seventh Circuit. 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. Although the CFTC action and the class action complaints involve the same alleged conduct, a resolution or decision with respect to one of the matters may not be dispositive as to the outcome of the other matter.
In November 2019, the European Commission informed us that it has initiated an investigation into our alleged infringement of European Union competition law through certain practices restricting cross-border trade within the European Economic Area. We are cooperating with the investigation. The fact that an investigation has been initiated does not mean that the European Commission has concluded that there is an infringement. It is not possible to predict how long the investigation will take or the ultimate outcome of this matter.
On August 21, 2018, the Virginia Department of Environmental Quality (“VDEQ”) issued a Notice of Violation (“NOV”) to Mondelēz Global. In the NOV, the VDEQ alleges that in our Richmond bakery, one operating line did not have the proper minimum temperature on its pollution control equipment and that the bakery failed to provide certain observation and training records. The VDEQ indicated that the alleged violations may lead to a fine and/or injunctive relief. We are working with the VDEQ to reach a resolution of this matter, and we do not expect this matter to have a material effect on our financial results.
We are a party to various legal proceedings, including disputes, litigation and regulatory matters, incidental to our business, including those noted above in this section. We record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. For matters that are reasonably possible to result in an unfavorable outcome,
management is unable to estimate the possible loss or range of loss or such amounts have been determined to be immaterial. 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, 2019, we had no material third-party guarantees recorded on our consolidated balance sheet.
Tax Matters:
We are a party to various tax matter proceedings incidental to our business. These proceedings are subject to inherent uncertainties, and unfavorable outcomes could subject us to additional tax liabilities and could materially adversely impact our business, results of operations or financial position.
During the fourth quarter of 2019, we resolved several indirect tax matters and recorded $85 million of net indirect tax expenses within selling, general and administrative expenses. These amounts primarily include the matter resolved under the tax amnesty described above under “Legal Proceedings.”
A tax indemnification matter related to our 2007 acquisition of the LU biscuit business was closed during the quarter ended June 30, 2018. The closure had no impact on net earnings, however, it did result in a $15 million tax benefit that was fully offset by an $11 million expense in selling, general and administrative expenses and a $4 million expense in 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.” In lower courts, our Brazilian subsidiaries filed lawsuits to recover amounts paid and to discontinue subsequent payments related to the “tax on a tax.” Our Brazilian subsidiaries received injunctions 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. In connection with the Court's 2017 decision, the Brazilian tax authority filed a motion seeking clarification and adjustment of the terms of enforcement and that motion is still to be decided. We continue to monitor developments in this matter and currently do not expect a material future impact on our financial statements. During the fourth quarter of 2018, in one of our lower court cases, the Brazilian Federal Court of Appeals ruled in our favor against the Brazilian tax authority, allowing one of our Brazil subsidiaries to recover amounts previously paid. As a result, we recorded a net benefit in selling, general and administrative expenses of $26 million.
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. We recorded a total of $4 million of income over the third and fourth quarters of 2017 in connection with the related bank guarantee releases.
Note 15. 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 $279 million in 2019, $169 million in 2018 and $174 million in 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Currency Translation Adjustments:
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(8,603
|
)
|
|
$
|
(7,740
|
)
|
|
$
|
(8,910
|
)
|
|
Currency translation adjustments
|
250
|
|
|
(698
|
)
|
|
984
|
|
|
Reclassification to earnings related to:
|
|
|
|
|
|
|
Equity method investment transactions
|
—
|
|
|
6
|
|
|
—
|
|
|
Tax (expense)/benefit
|
49
|
|
|
(173
|
)
|
|
214
|
|
|
Other comprehensive earnings/(losses)
|
299
|
|
|
(865
|
)
|
|
1,198
|
|
|
Less: other comprehensive (earnings)/loss attributable to noncontrolling interests
|
2
|
|
|
2
|
|
|
(28
|
)
|
|
Balance at end of period
|
(8,302
|
)
|
|
(8,603
|
)
|
|
(7,740
|
)
|
|
Pension and Other Benefit Plans:
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(1,860
|
)
|
|
$
|
(2,144
|
)
|
|
$
|
(2,087
|
)
|
|
Net actuarial gain/(loss) arising during period
|
(10
|
)
|
|
36
|
|
|
(71
|
)
|
|
Tax (expense)/benefit on net actuarial gain/(loss)
|
20
|
|
|
(16
|
)
|
|
50
|
|
|
Losses/(gains) reclassified into net earnings:
|
|
|
|
|
|
|
Amortization of experience losses and prior service costs (1)
|
137
|
|
|
168
|
|
|
174
|
|
|
Settlement losses and other expenses (1)
|
30
|
|
|
40
|
|
|
38
|
|
|
Tax expense/(benefit) on reclassifications (2)
|
(42
|
)
|
|
(36
|
)
|
|
(65
|
)
|
|
Currency impact
|
(19
|
)
|
|
92
|
|
|
(183
|
)
|
|
Other comprehensive earnings/(losses)
|
116
|
|
|
284
|
|
|
(57
|
)
|
|
Balance at end of period
|
(1,744
|
)
|
|
(1,860
|
)
|
|
(2,144
|
)
|
|
Derivative Cash Flow Hedges:
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(167
|
)
|
|
$
|
(113
|
)
|
|
$
|
(121
|
)
|
|
Net derivative gains/(losses)
|
(224
|
)
|
|
(58
|
)
|
|
(17
|
)
|
|
Tax (expense)/benefit on net derivative gain/(loss)
|
19
|
|
|
6
|
|
|
9
|
|
|
Losses/(gains) reclassified into net earnings:
|
|
|
|
|
|
|
Currency exchange contracts - forecasted transactions (3)
|
—
|
|
|
—
|
|
|
4
|
|
|
Commodity contracts (3)
|
—
|
|
|
—
|
|
|
29
|
|
|
Interest rate contracts (4)
|
155
|
|
|
(11
|
)
|
|
—
|
|
|
Tax expense/(benefit) on reclassifications (2)
|
(1
|
)
|
|
2
|
|
|
(6
|
)
|
|
Currency impact
|
6
|
|
|
7
|
|
|
(11
|
)
|
|
Other comprehensive earnings/(losses)
|
(45
|
)
|
|
(54
|
)
|
|
8
|
|
|
Balance at end of period
|
(212
|
)
|
|
(167
|
)
|
|
(113
|
)
|
|
Accumulated other comprehensive income attributable to
Mondelēz International:
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
(10,630
|
)
|
|
$
|
(9,997
|
)
|
|
$
|
(11,118
|
)
|
|
Total other comprehensive earnings/(losses)
|
370
|
|
|
(635
|
)
|
|
1,149
|
|
|
Less: other comprehensive (earnings)/loss attributable to noncontrolling interests
|
2
|
|
|
2
|
|
|
(28
|
)
|
|
Other comprehensive earnings/(losses)
attributable to Mondelēz International
|
372
|
|
|
(633
|
)
|
|
1,121
|
|
|
Balance at end of period
|
$
|
(10,258
|
)
|
|
$
|
(10,630
|
)
|
|
$
|
(9,997
|
)
|
|
|
|
|
(1)
|
These reclassified losses are included in net periodic benefit costs disclosed in Note 11, Benefit Plans, and net loss on equity method investment transactions.
|
|
|
|
|
(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 and net loss on equity method investment transactions.
|
Note 16. Income Taxes
On August 6, 2019, Switzerland published changes to its Federal tax law in the Official Federal Collection of Laws. On September 27, 2019, the Zurich Canton published their decision on the September 1, 2019 Zurich Canton public vote regarding the Cantonal changes associated with the Swiss Federal tax law change. The intent of these tax law changes was to replace certain preferential tax regimes with a new set of internationally accepted measures that are hereafter referred to as "Swiss tax reform". Based on these Federal/Cantonal events, our position is the enactment of Swiss tax reform for U.S. GAAP purposes was met as of September 30, 2019, and we recorded the impacts in the third quarter 2019. The net impact was a benefit of $767 million, which consisted of a $769 million reduction in deferred tax expense from an allowed step-up of intangible assets for tax purposes (recorded net of valuation allowance) and remeasurement of our deferred tax balances, partially offset by a $2 million indirect tax impact in selling, general and administrative expenses. The future rate impacts of these Swiss tax reform law changes are effective starting January 1, 2020. We will continue to monitor Swiss tax reform for any additional interpretative guidance that could result in changes to the amounts we have recorded.
On December 22, 2017, new U.S. tax reform legislation ("U.S. tax reform") was enacted that included a broad range of complex provisions impacting the taxation of businesses. Certain impacts of the new legislation would have generally required accounting to be completed and incorporated into our 2017 year-end financial statements, however in response to the complexities of this new legislation, the SEC issued guidance to provide companies with relief. The SEC provided up to a one-year window for companies to finalize the accounting for the impacts of this new legislation. We finalized our accounting for the new provisions during the fourth quarter of 2018. U.S. tax reform resulted in a total transition tax liability of $1,284 million ($1,279 million as of December 31, 2018 and $5 million of 2019 related updates) based on the deemed repatriation of our accumulated foreign earnings and profits, which will be paid in installments through 2026, and a related change in our indefinite reinvestment assertion for most companies owned directly by our U.S. subsidiaries. In addition, the legislation reduced the U.S. federal tax rate from 35% to 21% and established various new provisions, including 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”).
Earnings/(losses) from continuing operations before income taxes and the provision for income taxes consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Earnings/(losses) from continuing operations before income taxes:
|
|
|
|
|
|
|
United States
|
$
|
751
|
|
|
$
|
(170
|
)
|
|
$
|
354
|
|
|
Outside United States
|
2,696
|
|
|
3,012
|
|
|
2,770
|
|
|
|
$
|
3,447
|
|
|
$
|
2,842
|
|
|
$
|
3,124
|
|
|
Provision for income taxes:
|
|
|
|
|
|
|
United States federal:
|
|
|
|
|
|
|
Current
|
$
|
145
|
|
|
$
|
(34
|
)
|
|
$
|
1,322
|
|
|
Deferred
|
97
|
|
|
171
|
|
|
(1,274
|
)
|
|
|
242
|
|
|
137
|
|
|
48
|
|
|
State and local:
|
|
|
|
|
|
|
Current
|
29
|
|
|
23
|
|
|
32
|
|
|
Deferred
|
45
|
|
|
61
|
|
|
30
|
|
|
|
74
|
|
|
84
|
|
|
62
|
|
|
Total United States
|
316
|
|
|
221
|
|
|
110
|
|
|
|
|
|
|
|
|
|
Outside United States:
|
|
|
|
|
|
|
Current
|
459
|
|
|
552
|
|
|
541
|
|
|
Deferred
|
(773
|
)
|
|
—
|
|
|
15
|
|
|
Total outside United States
|
(314
|
)
|
|
552
|
|
|
556
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
$
|
2
|
|
|
$
|
773
|
|
|
$
|
666
|
|
The effective income tax rate on pre-tax earnings differed from the U.S. federal statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
U.S. federal statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
|
35.0
|
%
|
|
Increase/(decrease) resulting from:
|
|
|
|
|
|
|
State and local income taxes, net of federal tax benefit
|
1.3
|
%
|
|
0.4
|
%
|
|
0.8
|
%
|
|
Foreign rate differences
|
0.2
|
%
|
|
(1.9
|
)%
|
|
(10.8
|
)%
|
|
Changes in judgment on realizability of deferred tax assets
|
(0.3
|
)%
|
|
(0.4
|
)%
|
|
3.2
|
%
|
|
Reversal of other tax accruals no longer required
|
(3.0
|
)%
|
|
(1.8
|
)%
|
|
(1.7
|
)%
|
|
Tax accrual on investment in Keurig (including tax impact of the
gain from the KDP transaction)
|
0.8
|
%
|
|
8.4
|
%
|
|
1.2
|
%
|
|
Excess tax benefits from equity compensation
|
(1.2
|
)%
|
|
(0.8
|
)%
|
|
(1.2
|
)%
|
|
Tax legislation (non-U.S. and non-Swiss tax reform)
|
0.4
|
%
|
|
0.3
|
%
|
|
(2.6
|
)%
|
|
Swiss tax reform
|
(22.3
|
)%
|
|
—
|
|
|
—
|
%
|
|
U.S. tax reform - deferred benefit from tax rate change
|
—
|
|
|
—
|
|
|
(41.5
|
)%
|
|
U.S. tax reform - transition tax
|
0.1
|
%
|
|
(1.3
|
)%
|
|
42.2
|
%
|
|
U.S. tax reform - changes in indefinite reinvestment assertion
|
—
|
|
|
2.1
|
%
|
|
(2.0
|
)%
|
|
Foreign tax provisions under TCJA (GILTI, FDII and BEAT)(1)
|
2.5
|
%
|
|
1.1
|
%
|
|
—
|
|
|
Other
|
0.6
|
%
|
|
0.1
|
%
|
|
(1.3
|
)%
|
|
Effective tax rate
|
0.1
|
%
|
|
27.2
|
%
|
|
21.3
|
%
|
|
|
|
|
(1)
|
The Tax Cuts and Jobs Act of 2017 ("TCJA") established the Global Intangible Low-Tax Income ("GILTI") provision, which taxes U.S. allocated expenses and certain income from foreign operations; the Foreign-Derived Intangible Income ("FDII")
|
provision, which allows a deduction against certain types of US taxable income resulting in a lower effective US tax rate on such income; and the Base Erosion Anti-abuse Tax ("BEAT"), which is a new minimum tax based on cross-border service payments by U.S. entities.
Our 2019 effective tax rate of 0.1% was significantly impacted by the $769 million net deferred tax benefit related to Swiss tax reform in the third quarter of 2019. Excluding this impact, our 2019 effective tax rate was 22.4%, which reflects unfavorable provisions from U.S. tax reform and taxes on earnings from equity method investments (these earnings are reported separately on our consolidated statements of earnings and not within earnings before income taxes), largely offset by favorable impacts from the mix of pre-tax income in various non-U.S. jurisdictions and discrete net tax benefits of $176 million. The discrete net tax benefits were primarily driven by a $128 million net benefit from the release of liabilities for uncertain tax positions due to expirations of statutes of limitations and audit settlements in several jurisdictions.
Our 2018 effective tax rate of 27.2% was unfavorably impacted by net tax expenses from $128 million of discrete one-time events as well as unfavorable provisions within the new U.S. tax reform legislation and taxes on earnings from equity method investments (these earnings are reported separately on our consolidated statements of earnings and not within earnings before income taxes), partially offset by the favorable mix of pre-tax income in various non-U.S. tax jurisdictions as well as the reduction in the U.S. federal tax rate. The discrete net tax expenses included a $192 million deferred tax expense related to a $778 million gain on the KDP transaction reported as a gain on equity method investment as well as $19 million expense from the final updates to the provisional impacts from U.S. tax reform reported as of 2017 year-end, partially offset by an $81 million benefit from favorable audit settlements and statutes of limitations in various jurisdictions.
Our 2017 effective tax rate of 21.3% was favorably impacted by the mix of pre-tax income in various non-U.S. tax jurisdictions and net tax benefits from $97 million of discrete one-time events, partially offset by domestic earnings taxed at the higher pre-U.S. tax reform rate of 35% as well as taxes on earnings from equity method investments (these earnings are reported separately on our consolidated statements of earnings and not within earnings before income taxes). 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.
Tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
Deferred income tax assets:
|
|
|
|
|
Accrued postretirement and postemployment benefits
|
$
|
150
|
|
|
$
|
147
|
|
|
Accrued pension costs
|
272
|
|
|
349
|
|
|
Other employee benefits
|
160
|
|
|
147
|
|
|
Accrued expenses
|
287
|
|
|
283
|
|
|
Loss carryforwards
|
589
|
|
|
707
|
|
|
Tax credit carryforwards
|
729
|
|
|
747
|
|
|
Other
|
438
|
|
|
302
|
|
|
Total deferred income tax assets
|
2,625
|
|
|
2,682
|
|
|
Valuation allowance
|
(1,243
|
)
|
|
(1,153
|
)
|
|
Net deferred income tax assets
|
$
|
1,382
|
|
|
$
|
1,529
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
Intangible assets, including impact from Swiss tax reform
|
$
|
(2,772
|
)
|
|
$
|
(3,861
|
)
|
|
Property, plant and equipment
|
(663
|
)
|
|
(473
|
)
|
|
Other
|
(559
|
)
|
|
(492
|
)
|
|
Total deferred income tax liabilities
|
(3,994
|
)
|
|
(4,826
|
)
|
|
Net deferred income tax liabilities
|
$
|
(2,612
|
)
|
|
$
|
(3,297
|
)
|
Our significant valuation allowances are in the U.S., Switzerland and China. The U.S. valuation allowance relates to excess foreign tax credits generated by the deemed repatriation under U.S. tax reform while the Swiss valuation allowance brings the allowed step-up of intangible assets recorded under Swiss tax reform to the amount more likely than not to be realized. The valuation allowance in China relates to character-specific deferred tax assets of one of our Chinese entities.
At December 31, 2019, the Company has pre-tax loss carryforwards of $3,491 million, of which $691 million will expire at various dates between 2020 and 2039 and the remaining $2,800 million can be carried forward indefinitely.
The unremitted earnings as of December 31, 2019 in those subsidiaries where we continue to be indefinitely reinvested is approximately $1.6 billion. We currently have not recognized approximately $75 million of deferred tax liabilities related to those unremitted 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 are currently indefinitely reinvested.
The changes in our unrecognized tax benefits were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
January 1
|
$
|
516
|
|
|
$
|
579
|
|
|
$
|
610
|
|
|
Increases from positions taken during prior periods
|
27
|
|
|
36
|
|
|
33
|
|
|
Decreases from positions taken during prior periods
|
(35
|
)
|
|
(43
|
)
|
|
(93
|
)
|
|
Increases from positions taken during the current period
|
50
|
|
|
57
|
|
|
64
|
|
|
Decreases relating to settlements with taxing authorities
|
(64
|
)
|
|
(45
|
)
|
|
(54
|
)
|
|
Reductions resulting from the lapse of the applicable
statute of limitations
|
(64
|
)
|
|
(31
|
)
|
|
(29
|
)
|
|
Currency/other
|
(4
|
)
|
|
(37
|
)
|
|
48
|
|
|
December 31
|
$
|
426
|
|
|
$
|
516
|
|
|
$
|
579
|
|
As of January 1, 2019, our unrecognized tax benefits were $516 million. If we had recognized all of these benefits, the net impact on our income tax provision would have been $463 million. Our unrecognized tax benefits were $426 million at December 31, 2019, and if we had recognized all of these benefits, the net impact on our income tax provision would have been $364 million. Within the next 12 months, our unrecognized tax benefits could increase by approximately $30 million due to unfavorable audit developments or decrease by approximately $140 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 $180 million as of January 1, 2019 and $170 million as of December 31, 2019. Our 2019 provision for income taxes included $5 million benefit for interest and penalties.
Our income tax filings are regularly examined by federal, state and non-U.S. tax authorities. U.S. federal, 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. The earliest year still open to examination by U.S. federal and state tax authorities is 2016 and years still open to examination by non-U.S. tax authorities in major jurisdictions include (earliest open tax year in parentheses): Brazil (2014), China (2009), France (2015), India (2005), Russia (2013) and Switzerland (2014).
Note 17. Earnings per Share
Basic and diluted earnings per share (“EPS”) were calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions, except per share data)
|
|
Net earnings
|
$
|
3,885
|
|
|
$
|
3,395
|
|
|
$
|
2,842
|
|
|
Noncontrolling interest earnings
|
(15
|
)
|
|
(14
|
)
|
|
(14
|
)
|
|
Net earnings attributable to Mondelēz International
|
$
|
3,870
|
|
|
$
|
3,381
|
|
|
$
|
2,828
|
|
|
Weighted-average shares for basic EPS
|
1,445
|
|
|
1,472
|
|
|
1,513
|
|
|
Plus incremental shares from assumed conversions
of stock options and long-term incentive plan shares
|
13
|
|
|
14
|
|
|
18
|
|
|
Weighted-average shares for diluted EPS
|
1,458
|
|
|
1,486
|
|
|
1,531
|
|
|
Basic earnings per share attributable to
Mondelēz International
|
$
|
2.68
|
|
|
$
|
2.30
|
|
|
$
|
1.87
|
|
|
Diluted earnings per share attributable to
Mondelēz International
|
$
|
2.65
|
|
|
$
|
2.28
|
|
|
$
|
1.85
|
|
We exclude antidilutive Mondelēz International stock options from our calculation of weighted-average shares for diluted EPS. We excluded antidilutive stock options and long-term incentive plan shares of 5.2 million for the year ended December 31, 2019, 11.6 million for the year ended December 31, 2018 and 8.5 million for the year ended December 31, 2017.
Note 18. 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. 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 across our key markets. Our regional management teams have responsibility for the business, product categories and financial results in the regions.
Our operations and management structure are organized into four operating segments:
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 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 benefit plan non-service income and 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,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Net revenues:
|
|
|
|
|
|
|
Latin America
|
$
|
3,018
|
|
|
$
|
3,202
|
|
|
$
|
3,566
|
|
|
AMEA
|
5,770
|
|
|
5,729
|
|
|
5,739
|
|
|
Europe
|
9,972
|
|
|
10,122
|
|
|
9,794
|
|
|
North America
|
7,108
|
|
|
6,885
|
|
|
6,797
|
|
|
Net revenues
|
$
|
25,868
|
|
|
$
|
25,938
|
|
|
$
|
25,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes:
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
Latin America
|
$
|
341
|
|
|
$
|
410
|
|
|
$
|
564
|
|
|
AMEA
|
691
|
|
|
702
|
|
|
514
|
|
|
Europe
|
1,732
|
|
|
1,734
|
|
|
1,610
|
|
|
North America
|
1,451
|
|
|
849
|
|
|
1,144
|
|
|
Unrealized gains/(losses) on hedging activities
(mark-to-market impacts)
|
91
|
|
|
141
|
|
|
(96
|
)
|
|
General corporate expenses
|
(330
|
)
|
|
(335
|
)
|
|
(282
|
)
|
|
Amortization of intangibles
|
(174
|
)
|
|
(176
|
)
|
|
(178
|
)
|
|
Net gains on divestitures
|
44
|
|
|
—
|
|
|
186
|
|
|
Acquisition-related costs
|
(3
|
)
|
|
(13
|
)
|
|
—
|
|
|
Operating income
|
3,843
|
|
|
3,312
|
|
|
3,462
|
|
|
Benefit plan non-service income (1)
|
60
|
|
|
50
|
|
|
44
|
|
|
Interest and other expense, net
|
(456
|
)
|
|
(520
|
)
|
|
(382
|
)
|
|
Earnings before income taxes
|
$
|
3,447
|
|
|
$
|
2,842
|
|
|
$
|
3,124
|
|
|
|
|
|
(1)
|
During the first quarter of 2018, in connection with adopting a new pension cost classification accounting standard, we reclassified certain of our benefit plan component costs other than service costs out of operating income into a new line item, benefit plan non-service income, on our consolidated statements of earnings. As such, we have recast our historical operating income and segment operating income to reflect this reclassification, which had no impact to earnings before income taxes or net earnings.
|
No single customer accounted for 10% or more of our net revenues from continuing operations in 2019. Our five largest customers accounted for 17.0% and our ten largest customers accounted for 23.2% of net revenues from continuing operations in 2019.
Items impacting our segment operating results are discussed in Note 1, Summary of Significant Accounting Policies, Note 2, Divestitures and Acquisitions, Note 4, Property, Plant and Equipment, Note 6, Goodwill and Intangible Assets, Note 8, Restructuring Program, and Note 14, Commitments and Contingencies. Also see Note 9, Debt and Borrowing Arrangements, and Note 10, 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,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Total assets:
|
|
|
|
|
|
|
Latin America (1)
|
$
|
4,716
|
|
|
$
|
4,699
|
|
|
$
|
4,948
|
|
|
AMEA (1)
|
9,740
|
|
|
9,571
|
|
|
9,883
|
|
|
Europe (1)
|
20,354
|
|
|
19,426
|
|
|
21,611
|
|
|
North America (1)
|
21,637
|
|
|
21,015
|
|
|
20,709
|
|
|
Equity method investments
|
7,212
|
|
|
7,123
|
|
|
6,193
|
|
|
Unallocated assets and adjustments (2)
|
890
|
|
|
895
|
|
|
(387
|
)
|
|
Total assets
|
$
|
64,549
|
|
|
$
|
62,729
|
|
|
$
|
62,957
|
|
|
|
|
|
(1)
|
Segment assets do not reflect outstanding intercompany asset balances as intercompany accounts have been eliminated at a segment level.
|
|
|
|
|
(2)
|
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,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Depreciation expense (1):
|
|
|
|
|
|
|
Latin America
|
$
|
105
|
|
|
$
|
97
|
|
|
$
|
107
|
|
|
AMEA
|
164
|
|
|
159
|
|
|
157
|
|
|
Europe
|
238
|
|
|
248
|
|
|
239
|
|
|
North America
|
138
|
|
|
131
|
|
|
135
|
|
|
Total depreciation expense
|
$
|
645
|
|
|
$
|
635
|
|
|
$
|
638
|
|
|
|
|
|
(1)
|
Includes depreciation expense related to owned property, plant and equipment. Does not include amortization of intangible assets or leased assets. Refer to the consolidated statement of cash flows for 2019 for total depreciation and amortization expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Capital expenditures:
|
|
|
|
|
|
|
Latin America
|
$
|
197
|
|
|
$
|
261
|
|
|
$
|
226
|
|
|
AMEA
|
244
|
|
|
277
|
|
|
280
|
|
|
Europe
|
297
|
|
|
326
|
|
|
278
|
|
|
North America
|
187
|
|
|
231
|
|
|
230
|
|
|
Total capital expenditures
|
$
|
925
|
|
|
$
|
1,095
|
|
|
$
|
1,014
|
|
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,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Net revenues:
|
|
|
|
|
|
|
United States
|
$
|
6,625
|
|
|
$
|
6,401
|
|
|
$
|
6,275
|
|
|
Other
|
19,243
|
|
|
19,537
|
|
|
19,621
|
|
|
Total net revenues
|
$
|
25,868
|
|
|
$
|
25,938
|
|
|
$
|
25,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(in millions)
|
|
Long-lived assets:
|
|
|
|
|
|
|
United States
|
$
|
1,806
|
|
|
$
|
1,481
|
|
|
$
|
1,468
|
|
|
Other
|
8,370
|
|
|
7,539
|
|
|
7,733
|
|
|
Total long-lived assets
|
$
|
10,176
|
|
|
$
|
9,020
|
|
|
$
|
9,201
|
|
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, 2019
|
|
|
Latin
America
|
|
AMEA
|
|
Europe
|
|
North
America
|
|
Total
|
|
|
(in millions)
|
|
Biscuits
|
$
|
708
|
|
|
$
|
1,844
|
|
|
$
|
2,998
|
|
|
$
|
5,888
|
|
|
$
|
11,438
|
|
|
Chocolate
|
710
|
|
|
2,082
|
|
|
5,119
|
|
|
247
|
|
|
8,158
|
|
|
Gum & Candy
|
823
|
|
|
861
|
|
|
698
|
|
|
973
|
|
|
3,355
|
|
|
Beverages
|
452
|
|
|
546
|
|
|
97
|
|
|
—
|
|
|
1,095
|
|
|
Cheese & Grocery
|
325
|
|
|
437
|
|
|
1,060
|
|
|
—
|
|
|
1,822
|
|
|
Total net revenues
|
$
|
3,018
|
|
|
$
|
5,770
|
|
|
$
|
9,972
|
|
|
$
|
7,108
|
|
|
$
|
25,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2018
|
|
|
Latin
America
|
|
AMEA
|
|
Europe
|
|
North
America
|
|
Total
|
|
|
(in millions)
|
|
Biscuits
|
$
|
727
|
|
|
$
|
1,724
|
|
|
$
|
3,127
|
|
|
$
|
5,607
|
|
|
$
|
11,185
|
|
|
Chocolate
|
747
|
|
|
2,080
|
|
|
5,083
|
|
|
267
|
|
|
8,177
|
|
|
Gum & Candy
|
865
|
|
|
879
|
|
|
736
|
|
|
1,011
|
|
|
3,491
|
|
|
Beverages
|
533
|
|
|
553
|
|
|
98
|
|
|
—
|
|
|
1,184
|
|
|
Cheese & Grocery
|
330
|
|
|
493
|
|
|
1,078
|
|
|
—
|
|
|
1,901
|
|
|
Total net revenues
|
$
|
3,202
|
|
|
$
|
5,729
|
|
|
$
|
10,122
|
|
|
$
|
6,885
|
|
|
$
|
25,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2017
|
|
|
Latin
America
|
|
AMEA
|
|
Europe
|
|
North
America
|
|
Total
|
|
|
(in millions)
|
|
Biscuits
|
$
|
779
|
|
|
$
|
1,637
|
|
|
$
|
2,944
|
|
|
$
|
5,479
|
|
|
$
|
10,839
|
|
|
Chocolate
|
862
|
|
|
2,008
|
|
|
4,869
|
|
|
293
|
|
|
8,032
|
|
|
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
|
|
Note 19. Quarterly Financial Data (Unaudited)
Our summarized operating results by quarter are detailed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Quarters
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
(in millions, except per share data)
|
|
Net revenues
|
$
|
6,538
|
|
|
$
|
6,062
|
|
|
$
|
6,355
|
|
|
$
|
6,913
|
|
|
Gross profit
|
2,593
|
|
|
2,469
|
|
|
2,516
|
|
|
2,759
|
|
|
(Provision)/benefit for income taxes (1)
|
(189
|
)
|
|
(216
|
)
|
|
633
|
|
|
(230
|
)
|
|
Gain/(loss) on equity method investment transactions
|
23
|
|
|
(25
|
)
|
|
—
|
|
|
—
|
|
|
Equity method investment net earnings
|
113
|
|
|
113
|
|
|
111
|
|
|
105
|
|
|
Net earnings
|
920
|
|
|
808
|
|
|
1,428
|
|
|
729
|
|
|
Noncontrolling interest
|
(6
|
)
|
|
(1
|
)
|
|
(5
|
)
|
|
(3
|
)
|
|
Net earnings attributable to Mondelēz International
|
$
|
914
|
|
|
$
|
807
|
|
|
$
|
1,423
|
|
|
$
|
726
|
|
|
Weighted-average shares for basic EPS
|
1,449
|
|
|
1,445
|
|
|
1,445
|
|
|
1,441
|
|
|
Plus incremental shares from assumed conversions of
stock options and long-term incentive plan shares
|
12
|
|
|
13
|
|
|
13
|
|
|
12
|
|
|
Weighted-average shares for diluted EPS
|
1,461
|
|
|
1,458
|
|
|
1,458
|
|
|
1,453
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
Basic EPS attributable to Mondelēz International:
|
$
|
0.63
|
|
|
$
|
0.56
|
|
|
$
|
0.98
|
|
|
$
|
0.50
|
|
|
Diluted EPS attributable to Mondelēz International:
|
$
|
0.63
|
|
|
$
|
0.55
|
|
|
$
|
0.98
|
|
|
$
|
0.50
|
|
|
Dividends declared
|
$
|
0.26
|
|
|
$
|
0.26
|
|
|
$
|
0.285
|
|
|
$
|
0.285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Quarters
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
(in millions, except per share data)
|
|
Net revenues
|
$
|
6,765
|
|
|
$
|
6,112
|
|
|
$
|
6,288
|
|
|
$
|
6,773
|
|
|
Gross profit
|
2,849
|
|
|
2,540
|
|
|
2,414
|
|
|
2,549
|
|
|
Provision for income taxes
|
(337
|
)
|
|
(15
|
)
|
|
(310
|
)
|
|
(111
|
)
|
|
Gain on equity method investment transactions
|
—
|
|
|
—
|
|
|
757
|
|
|
21
|
|
|
Equity method investment net earnings
|
232
|
|
|
87
|
|
|
80
|
|
|
149
|
|
|
Net earnings
|
1,052
|
|
|
320
|
|
|
1,197
|
|
|
826
|
|
|
Noncontrolling interest
|
(6
|
)
|
|
(2
|
)
|
|
(3
|
)
|
|
(3
|
)
|
|
Net earnings attributable to Mondelēz International
|
$
|
1,046
|
|
|
$
|
318
|
|
|
$
|
1,194
|
|
|
$
|
823
|
|
|
Weighted-average shares for basic EPS
|
1,489
|
|
|
1,475
|
|
|
1,466
|
|
|
1,457
|
|
|
Plus incremental shares from assumed conversions of
stock options and long-term incentive plan shares
|
16
|
|
|
13
|
|
|
14
|
|
|
13
|
|
|
Weighted-average shares for diluted EPS
|
1,505
|
|
|
1,488
|
|
|
1,480
|
|
|
1,470
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
Basic EPS attributable to Mondelēz International:
|
$
|
0.70
|
|
|
$
|
0.22
|
|
|
$
|
0.81
|
|
|
$
|
0.56
|
|
|
Diluted EPS attributable to Mondelēz International:
|
$
|
0.70
|
|
|
$
|
0.21
|
|
|
$
|
0.81
|
|
|
$
|
0.56
|
|
|
Dividends declared
|
$
|
0.22
|
|
|
$
|
0.22
|
|
|
$
|
0.26
|
|
|
$
|
0.26
|
|
|
|
|
|
(1)
|
The third quarter of 2019 was significantly impacted by the $769 million net deferred tax benefit related to Swiss tax reform. Refer to Note 16, Income Taxes for more information.
|
Basic and diluted EPS are computed independently for each of the periods presented. Accordingly, the sum of the quarterly EPS amounts may not equal the total for the year.
During 2019 and 2018, we recorded the following pre-tax (charges)/benefits in earnings from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Quarters
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
(in millions)
|
|
Asset impairment and exit costs
|
$
|
(20
|
)
|
|
$
|
(15
|
)
|
|
$
|
(134
|
)
|
|
$
|
(59
|
)
|
|
Divestiture-related costs
|
1
|
|
|
(11
|
)
|
|
4
|
|
|
—
|
|
|
Net gain on divestiture
|
—
|
|
|
41
|
|
|
3
|
|
|
—
|
|
|
Impact from pension participation changes
|
—
|
|
|
35
|
|
|
(3
|
)
|
|
(3
|
)
|
|
Impact from the resolution of tax matters
|
—
|
|
|
—
|
|
|
—
|
|
|
(85
|
)
|
|
Loss related to interest rate swaps
|
—
|
|
|
—
|
|
|
(111
|
)
|
|
—
|
|
|
Net gain/(loss) on equity method investment
transactions
|
23
|
|
|
(25
|
)
|
|
—
|
|
|
—
|
|
|
|
$
|
4
|
|
|
$
|
25
|
|
|
$
|
(241
|
)
|
|
$
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018 Quarters
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
(in millions)
|
|
Asset impairment and exit costs
|
$
|
(54
|
)
|
|
$
|
(111
|
)
|
|
$
|
(125
|
)
|
|
$
|
(99
|
)
|
|
Divestiture-related costs
|
3
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
Impact from pension participation changes
|
—
|
|
|
(409
|
)
|
|
(3
|
)
|
|
(17
|
)
|
|
Impact from the resolution of tax matters
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
26
|
|
|
Gain/(loss) related to interest rate swaps
|
14
|
|
|
(5
|
)
|
|
1
|
|
|
—
|
|
|
Loss on early extinguishment of
debt and related expenses
|
—
|
|
|
(140
|
)
|
|
—
|
|
|
—
|
|
|
Gain on equity method investment transaction
|
—
|
|
|
—
|
|
|
757
|
|
|
21
|
|
|
|
$
|
(37
|
)
|
|
$
|
(680
|
)
|
|
$
|
630
|
|
|
$
|
(71
|
)
|
Items impacting our operating results are discussed in Note 1, Summary of Significant Accounting Policies, Note 2, Divestitures and Acquisitions, Note 6, Goodwill and Intangible Assets, Note 7, Equity Method Investments, Note 8, Restructuring Program, Note 9, Debt and Borrowing Arrangements, Note 10, Financial Instruments, Note 11, Benefit Plans and Note 14, Commitments and Contingencies – Tax Matters.