Note 2. Divestitures and Acquisitions

Planned Coffee Business Transactions:

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

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

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

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

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

Spin-Off of Kraft Foods Group:

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

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

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


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

Net revenues	$	–	$	13,768

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

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

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

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


	Nine Months Ended
	October 1, 2012
	(in millions)

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

	$	278

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

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

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

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


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

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

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

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

Resolution of Starbucks Arbitration:

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

Acquisitions, Other Divestitures and Sales of Property:

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

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

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

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

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

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

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