Note 2. Divestitures and Acquisitions

Coffee Business Transactions:

On July 2, 2015, we completed transactions to combine our wholly owned coffee businesses (including our coffee portfolio in France) with those of D.E Master Blenders 1753 B.V. (“DEMB”) to create a new company, Jacobs Douwe Egberts or JDE. We currently hold a 43.5% equity interest in JDE and Acorn Holdings B.V. (“AHBV”), owner of DEMB, holds the remaining 56.5% equity interest.

In connection with the contribution of our global coffee businesses to JDE, we recorded a pre-tax gain of $6.8 billion (or $6.6 billion after taxes) in 2015. We also recorded approximately $1.0 billion of pre-tax net gains related to hedging the expected cash proceeds from the transactions as described further below.

The consideration we have received to date consists of €3.8 billion of cash ($4.2 billion U.S. dollars as of July 2, 2015), a 43.5% equity interest in JDE and $794 million in receivables (related to sales price adjustments and tax formation cost payments). During the third quarter of 2015, we also recorded $283 million of cash and receivables from JDE related to reimbursement of costs that we incurred in separating our coffee businesses. The cash and equity consideration we received at closing reflects that we retained our interest in a Korea-based joint venture, Dongsuh Foods Corporation. During the second quarter of 2015, we also completed the sale of our interest in a Japanese coffee joint venture, Ajinomoto General Foods, Inc. (“AGF”). In lieu of contributing our interest in the AGF joint venture to JDE, we contributed the net cash proceeds from the sale, and the transaction did not change the consideration received for our global coffee businesses. Please see discussion of the divestiture of AGF below under Other Divestitures, Acquisitions and Sales of Property.

During the fourth quarter, we and JDE concluded negotiations of a sales price adjustment and completed the valuation of our investment in JDE. Primarily related to the negotiated resolution of the sales price adjustment in the fourth quarter, we recorded a $313 million reduction in the pre-tax gain on the coffee transaction, reducing the $7.1 billion estimated gain in the third quarter to the $6.8 billion final gain for 2015. As part of our sales price negotiations, we retained the right to collect future cash payments if certain estimated pension liabilities come in over an agreed amount in the future. As such, we may recognize additional income related to this negotiated term in the future.

The final value of our investment in JDE on July 2, 2015 was €4.1 billion, or $4.5 billion. The fair value of the JDE investment was determined using both income-based and market-based valuation techniques. The discounted cash flow analysis reflected growth, discount and tax rates and other assumptions reflecting the underlying combined businesses and countries in which the combined coffee businesses operate.

In connection with the expected receipt of cash in euros at the time of closing, we entered into a number of consecutive currency exchange forward contracts in 2014 and 2015 to lock in an equivalent expected value in U.S. dollars as of the date the coffee business transactions were first announced in May 2014. Cumulatively, we realized aggregate net gains and received cash of approximately $1.0 billion on these hedging contracts that increased the cash we received in connection with the coffee business transactions from $4.2 billion in cash consideration received to $5.2 billion. In connection with these currency contracts and the transfer of the sale proceeds to our subsidiaries that deconsolidated net assets and shares, we recognized a net gain of $628 million in 2014 and a net gain of $436 million in 2015 within interest and other expense, net.

Prior to the July 2, 2015 closing, we received conditional approval for the coffee business combination from the European Commission following their antitrust evaluation. The European Commission’s ruling was conditioned upon JDE’s divestiture of the majority of the EU-based Carte Noire business and DEMB’sMerrild business, primarily in France and Denmark. Those businesses have been transferred to JDE. JDE is completing the sales of these businesses in line with the European Commission agreements. As these businesses were recorded at their fair value as of July 2, 2015, reflecting the then pending sale values, we did not and will not record any gain or loss on the sale of these businesses in our share of JDE’s earnings.

In our historical consolidated results, the pre-tax earnings of the coffee businesses we contributed to JDE were included in periods prior to the July 2, 2015 closing date and as reflected below for the periods presented:


	For the Six Months Ended July 2,		For the Years Ended December 31,
	2015		2014		2013
	(in millions)		(in millions)

Earnings before income taxes	$	342	$	646	$	700

We also incurred incremental expenses related to readying our global coffee businesses for the transactions that totaled $278 million for the year ended December 31, 2015 and $77 million for the year ended December 31, 2014. Of these total expenses, $123 million was recorded within asset impairment and exit costs in 2015 and the remainder was recorded within selling, general and administrative expenses of primarily our Europe segment, as well as within our Eastern Europe, Middle East and Africa (“EEMEA”) segment and general corporate expenses.

On July 2, 2015, we deconsolidated the following assets and liabilities in connection with the deconsolidation of our global coffee businesses (in millions). The amounts below also include the fourth quarter final settlement of coffee business-related pension obligations as further described below.


Assets
Cash and cash equivalents	$	488
Trade receivables		468
Other receivables		24
Inventories, net		469
Deferred income taxes		6
Other current assets		44

Current assets		1,499
Property, plant and equipment, net		751
Goodwill		1,664
Intangible assets, net		–
Other assets		35

Noncurrent assets		2,450

Total assets	$	3,949

Liabilities
Accounts payable	$	438
Accrued marketing		290
Accrued employment costs		29
Other current liabilities		63

Current liabilities		820
Deferred income taxes		63
Accrued pension costs		131
Other liabilities		4

Noncurrent liabilities		198

Total liabilities	$	1,018

Net assets deconsolidated	$	2,931

In addition to the net assets we deconsolidated, we also reduced accumulated other comprehensive losses for the transfer of coffee business-related pension obligations in the amount of $90 million in 2015. The timing of these reductions during the third and fourth quarters of 2015 corresponded to when the Company was discharged from the obligations under the plans.

As a result of the transaction, our snacks product categories, consisting of biscuits, chocolate, gum and candy, make up the majority of our business portfolio, contributing approximately 85% of our 2015 and 2014 net revenues after excluding coffee net revenues. By retaining a significant stake in JDE, the coffee category will continue to be significant to our results. As such, we have reflected our historical coffee results and equity earnings from JDE in results from continuing operations reflecting the fact that results from the coffee category continue to be a significant part of our net earnings and business strategy going forward.

Summary Financial Information for Equity Method Investments:

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


			As of December 31,
			2015		2014
			(in millions)

Current assets			$	3,943	$	1,120
Noncurrent assets				20,936		835

Total assets			$	24,879	$	1,955


Current liabilities			$	2,779	$	564
Noncurrent liabilities				9,880		62

Total liabilities			$	12,659	$	626


	For the Years Ended December 31,
	2015		2014		2013
	(in millions)

Net revenues	$	4,993	$	2,721	$	2,749
Gross profit		1,551		921		952
Income from continuing operations		96		226		214
Net income		97		226		214

Net income attributable to investees ⁽¹⁾	$	97	$	226	$	214
Mondelēz International ownership interests		40%-50%		40%-50%		40%-50%

Mondelēz International share of investee net income⁽²⁾	$	56	$	113	$	107

(1)

Includes $33 million of amortization expense related to a basis difference between the U.S. GAAP accounting basis for our equity method investments and the U.S. GAAP accounting basis of their equity.

(2)

Historically, we have recorded income from equity method investments within our operating income as these investments operated as extensions of our base business. Beginning in the third quarter of 2015, to align with the accounting for JDE earnings, we began to record the earnings from our equity method investments in after-tax equity method investment earnings outside of operating income. For the six months ended December 31, 2015, after-tax equity method investment net earnings were less than $1 million on a combined basis. Earnings from equity method investments recorded within segment operating income were $56 million for the six months ended July 2, 2015, $113 million for the year ended December 31, 2014 and $107 million for the year ended December 31, 2013. See Note 1, Summary of Significant Accounting Policies – Principles of Consolidation, for additional information.

Additionally, our proportionate share of JDE’s and our other equity method investments’ other comprehensive losses was $137 million in 2015, $28 million in 2014 and $1 million in 2013 which were recorded within our consolidated statement of other comprehensive earnings.

JDE Capital Increase:

On December 18, 2015, AHBV and we agreed to provide JDE additional capital to pay down some of its debt with lenders. Our pro rata share of the capital increase was €499 million ($544 million U.S. dollars as of December 18, 2015) and was made in return for additional shares in JDE such that we retained our 43.5% interest in JDE following the capital increase. To fund our share of the capital increase, we contributed €460 million ($501 million) of JDE receivables and made a €39 million ($43 million) cash payment.

Planned Keurig Transaction:

On December 6, 2015, we agreed to make an investment in Keurig Green Mountain Inc. (“Keurig”), which is contingent upon the successful completion of a planned acquisition of Keurig by JAB Holding Co. (“JAB” and parent company of AHBV). Following the close of JAB’s planned acquisition of Keurig in early 2016, we intend to exchange a portion of our equity interest in JDE for an equity interest in Keurig. Following the exchange of shares, we expect our ownership in JDE to decrease to approximately 26.5% and our interest in Keurig to be somewhat lower. We expect to account for both investments under the equity method, resulting in our recognizing our share of their earnings within our earnings and our share of their dividends within our cash flows. Our governance rights in JDE will not change significantly and we will have similar governance rights in Keurig following the transaction. Our investment in Keurig will follow the acquisition of Keurig by JAB, which is expected to be completed by the end of the first quarter of 2016 or early in the second quarter. As our exchange of shares in JDE for the investment in Keurig is conditioned upon the actions of JAB and Keurig’s existing shareholders and is subject to further regulatory antitrust reviews, we have not reflected the portion of our investment in JDE that would be exchanged for the Keurig investment as assets held for sale as of December 31, 2015.

Spin-Off of Kraft Foods Group:

We divested the Kraft Foods Group grocery business in a spin-off completed on October 1, 2012. In 2013, in connection with the Kraft Foods Group business, we received cash and recorded income from the resolution of the legal matter described below and we received cash and retired a receivable related to a Spin-Off stock award cash settlement with Kraft Foods Group. We also incurred Spin-Off transaction, transition and financing and related costs (“Spin-Off Costs”) through the end of 2014 as noted below.

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. (which became Kraft Foods Group in the Spin-Off), 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 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.

In March 2013, we also 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 11, Stock Plans.

In 2014, we concluded our Spin-Off transition plans. We recorded Spin-Off Costs of $35 million in 2014 and $62 million in 2013 in pre-tax earnings within selling, general and administrative expenses. Through the end of 2014, we incurred total Spin-Off Costs of approximately $1.2 billion.

Other Divestitures, Acquisitions and Sales of Property:

On July 15, 2015, we acquired an 80% interest in a biscuit operation in Vietnam, which is now a subsidiary within our Asia Pacific segment. Total cash paid to date for the biscuit operation, intellectual property, non-compete and consulting agreements less purchase price adjustments received was 11,645 billion Vietnamese dong ($534 million U.S. dollars using applicable exchange rates on July 15 and November 27). We have made, received and expect to make the following cash payments in connection with the acquisition:

•

On November 10, 2014, we deposited $46 million in escrow upon signing the purchase agreement.

•

On July 15, 2015, we made a 9,122 billion Vietnamese dong ($418 million U.S. dollars as of July 15, 2015) payment for the biscuit operation, a $44 million additional escrow deposit and a 759 billion Vietnamese dong ($35 million U.S. dollars as of July 15, 2015) partial payment for the non-compete and continued consulting agreements.

•

On November 27, 2015, we received 197 billion Vietnamese dong ($9 million U.S. dollars as of November 27, 2015) as a purchase price adjustment related to working capital adjustments at closing.

•

Subject to the satisfaction of final conditions, including the resolution of warranty, other claims and further purchase price adjustments, we expect to release previously escrowed funds of $90 million for the remaining 20% interest in the biscuit operation and to make a final payment of 759 billion Vietnamese dong ($34 million U.S. dollars using a December 31, 2015 exchange rate) for the non-compete and consulting agreements. We anticipate resolution of these conditions by the end of the third quarter of 2016.

We are in the process of completing the valuation work for the acquired net assets. We have recorded a preliminary allocation of the consideration paid including $10 million to inventory, $47 million to property, plant and equipment, $19 million to other net liabilities and $461 million of estimated goodwill. We recorded the non-compete and consulting agreements as prepaid contracts within other current and non-current assets and they will be amortized into net earnings over the remaining contract terms. The acquisition added $121 million in incremental net revenues and $21 million in incremental operating income in 2015. Additionally, we recorded acquisition costs of $7 million in 2015 and $2 million in 2014 and integration costs of $9 million for the year ended December 31, 2015 within selling, general and administrative expenses.

On April 23, 2015, we completed the divestiture of our 50% equity interest in AGF, our Japanese coffee joint venture, to our joint venture partner, which generated cash proceeds of 27 billion Japanese yen ($225 million U.S. dollars as of April 23, 2015) and a pre-tax gain of $13 million (after-tax loss of $9 million). Upon closing, we divested our $99 million investment in the joint venture, $65 million of goodwill and $41 million of accumulated other comprehensive losses. We also incurred approximately $7 million of transaction costs.

On February 16, 2015, we acquired a U.S. snack food company, Enjoy Life Foods, within our North America segment. We paid cash and settled debt totaling $81 million in connection with the acquisition. Upon finalizing the valuation of the acquired net assets during the second quarter, we recorded an $81 million purchase price allocation of $58 million in identifiable intangible assets, $20 million of goodwill and $3 million of other net assets. The acquisition-related costs and operating results of the acquisition were not material to our consolidated financial statements for the year ended December 31, 2015.

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 in the fourth quarter of 2013, we recorded the fair value of acquired assets (including identifiable intangible assets of $48 million), the liabilities assumed and goodwill of $209 million. During the quarter 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. The aggregate operating results of the 2013 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 $27 million receivable as of December 31, 2015 related to the United Kingdom property sale in 2013, of which $25 million was received in January 2016, with approximately $2 million to be received within a year. 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.