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Basis of Presentation (Policies)
 3 Months Ended
Mar. 31, 2017
Basis of Presentation

Our interim condensed consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted. It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of our financial position and operating results. Net revenues and net earnings for any interim period are not necessarily indicative of future or annual results.

We derived the condensed consolidated balance sheet data as of December 31, 2016 from audited financial statements but do not include all disclosures required by U.S. GAAP. You should read these statements in conjunction with our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 2016.
Principles of Consolidation

Principles of Consolidation:

The condensed consolidated financial statements include Mondelēz International, Inc. as well as our wholly owned and majority owned subsidiaries, except our Venezuela subsidiaries. See Currency Translation and Highly Inflationary Accounting: Venezuela below for more information. During consolidation, intercompany transactions are eliminated. For any subsidiaries that we do not wholly own, we record a noncontrolling interest and the noncontrolling interest’s share in the results of the subsidiary that we control and, as such, consolidate.

We account for investments in which we exercise significant influence (20%-50% ownership interest) under the equity method of accounting. We use the cost method of accounting for investments in which we have an ownership interest of less than 20% and in which we do not exercise significant influence.
Segment Change

Segment Change:

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

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

  •   Latin America
  •   AMEA
  •   Europe
  •   North America

See Note 15, Segment Reporting, for additional information on our segments.
Currency Translation and Highly Inflationary Accounting

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. As of March 31, 2017, none of our consolidated subsidiaries were subject to highly inflationary accounting.

United Kingdom. On June 23, 2016, the United Kingdom (“U.K.”) voted by referendum to exit the European Union (the vote is commonly referred to as “Brexit”). On March 29, 2017, the U.K. invoked E.U. Article 50, which is the first step of the formal exit. This starts the two-year window in which the U.K. and the European Commission can negotiate future terms for imports, exports, taxes, employment, immigration and other areas, ending in the exit of the U.K. from the European Union.

 

Brexit has caused volatility in global stock markets and currency exchange rates, affecting the markets in which we operate. The implications of Brexit could adversely affect demand for our products, our financial results and operations, and our relationships with customers, suppliers and employees in the short or long-term. The value of the British pound sterling relative to the U.S. dollar fell by 9% on June 24, 2016 and declined an additional 11% in 2016. In the first quarter of 2017, the value of the British pound sterling relative to the U.S. dollar increased 2%. Further volatility in the exchange rate is expected over the transition period.

As the business operating environment remains uncertain, we continue to monitor our investments and currency exposures abroad. As the U.K. is not a highly-inflationary economy, we record currency translation adjustments within equity and realized exchange gains and losses on transactions in earnings. While we did not experience significant business disruptions in our U.K. businesses following the referendum, the devaluation of the British pound sterling in 2016 adversely affected our translated results reported in U.S. dollars. We have a natural hedge in the form of pound sterling-denominated debt that acts as a net investment hedge, moving counter to adverse pound sterling currency translation impacts. British pound sterling currency transaction risks are largely mitigated due to our global chocolate businesses buying cocoa in British pound sterling. Our U.K. operations contributed $536 million, or 8.4% of consolidated net revenues for the three months ended March 31, 2017.

Venezuela. As of the close of the 2015 fiscal year, we deconsolidated and changed to the cost method of accounting for our Venezuelan operations. Beginning in 2016, we no longer included net revenues, earnings or net assets of our Venezuelan subsidiaries within our condensed consolidated financial statements. Under the cost method of accounting, earnings are only recognized to the extent cash is received. Given the current and ongoing difficult economic, regulatory and business environment in Venezuela, there continues to be significant uncertainty related to our operations in Venezuela, and we expect these conditions will continue for the foreseeable future. We will monitor the extent of our ability to control our Venezuelan operations and the liquidity and availability of U.S. dollars at different rates, as our current situation in Venezuela may change over time and lead to consolidation at a future date.

Argentina. On December 16, 2015, the new Argentinean government fiscal authority announced the lifting of strict currency controls and reduced restrictions on exports and imports. The value of the Argentinean peso relative to the U.S. dollar fell by 36% the next day and declined an additional 23% in 2016. In the first quarter of 2017, the value of the peso relative to the U.S. dollar increased 3%. Further volatility in the exchange rate is expected. While the business operating environment remains challenging, we continue to monitor and actively manage our investment and exposures in Argentina. We have been executing our hedging programs and refining our product portfolio to improve our product offerings, mix and profitability. We also continue to implement additional cost reduction initiatives to optimize and streamline our manufacturing facilities and commercial operations to protect the business together with pricing strategy to offset inflationary pressures. While further currency declines could have an adverse impact on our ongoing results of operations, we believe the actions by the government to reduce economic controls and business restrictions will provide favorable opportunities for our Argentinean subsidiaries. Our Argentinean operations contributed $142 million, or 2.2% of consolidated net revenues for the three months ended March 31, 2017, and our Argentinian operations had a net monetary liability position as of March 31, 2017. The economy in Argentina has had significant inflation in recent years and has been close to becoming a highly-inflationary economy for accounting purposes. As of March 31, 2017, it was not and we continue to closely monitor the potential for applying highly-inflationary economy accounting. At this time, we continue to record currency translation adjustments within equity and realized exchange gains and losses on transactions in earnings.

Ukraine. In the first quarter of 2017, the National Bank of Ukraine published the three-year cumulative inflation rate for Ukraine, which was 101% at December 31, 2016. As the rate was over 100%, the Ukrainian economy met the criteria to be considered highly inflationary under U.S. GAAP for reporting periods beginning on or after January 1, 2017. Based on projected inflation data published by the National Bank of Ukraine and index data included in the International Monetary Fund’s October 2016 World Economic Outlook report, Ukraine’s cumulative inflation rate is projected to be below 100% later in 2017. Based on the materiality of our Ukraine operations and projected decrease in the three-year cumulative inflation rate below the 100% threshold later in 2017, we did not adopt highly inflationary accounting rules this quarter, which would entail recording Ukrainian hryvnia monetary transactions in U.S. dollars, and we continue to monitor the situation. Our Ukraine operations contributed 0.2% of consolidated net revenues for the three months ended March 31, 2017 and our Ukraine net monetary assets as of March 31, 2017 were not material.

 

Other Countries. Since we have operations in over 80 countries and sell in approximately 165 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. These include Brazil, China, Mexico, Russia, Turkey, Egypt, Nigeria and South Africa, most of which have had exchange rate volatility. We continue to monitor operations, currencies and net monetary exposures in these countries. At this time, we do not anticipate any risk to our operating results from changing to highly inflationary accounting in these countries.
Transfers of Financial Assets

Transfers of Financial Assets:

We account for transfers of financial assets, such as uncommitted revolving non-recourse accounts receivable factoring arrangements, when we have surrendered control over the related assets. Determining whether control has transferred requires an evaluation of relevant legal considerations, an assessment of the nature and extent of our continuing involvement with the assets transferred and any other relevant considerations. We use receivable factoring arrangements periodically when circumstances are favorable to manage liquidity. We have a factoring arrangement with a major global bank for a maximum combined capacity of $870 million. Under the program, we may sell eligible short-term trade receivables to the bank in exchange for cash. We then continue to collect the receivables sold, acting solely as a collecting agent on behalf of the bank. The outstanding principal amount of receivables under this arrangement amounted to $630 million as of March 31, 2017 and $644 million as of December 31, 2016. The incremental cost of factoring receivables under this arrangement was approximately $1 million in the first quarters of 2017 and 2016 and was recorded in net revenue. During our contract negotiations with customers, we also work with our customers to achieve earlier collection of receivables. The outstanding principal amount of receivables under these arrangements amounted to $81 million as of March 31, 2017 and $101 million as of December 31, 2016. The incremental cost of these arrangements was less than $1 million in the first quarters of 2017 and 2016 and was recorded in net revenue.
New Accounting Pronouncements

New Accounting Pronouncements:

In March 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to amend the amortization period for certain purchased callable debt securities held at a premium, shortening the period to the earliest call date instead of the maturity date. The standard does not impact securities held at a discount as the discount continues to be amortized to maturity. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted, and should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We are currently assessing the impact on our condensed consolidated financial statements.

In March 2017, the FASB issued an ASU to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The standard requires employers to disaggregate the service cost component from the other components of net benefit cost and disclose the amount and location where the net benefit cost is recorded in the income statement or capitalized in assets. The ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. The standard is to be applied on a retrospective basis for the change in presentation in the income statement and prospectively for the change in presentation on the balance sheet. We are currently assessing the impact on our condensed consolidated financial statements.

In January 2017, the FASB issued an ASU that simplifies the accounting for goodwill impairments by eliminating “Step 2” from the goodwill impairment testing. In Step 2, a goodwill impairment loss is measured by comparing the carrying amount of a reporting unit’s goodwill with the goodwill’s implied fair value. To compute the implied fair value of goodwill, it is necessary to assign the fair value of a reporting unit to all of its assets and liabilities as if the reporting unit had been acquired in a business combination. Under the new guidance, goodwill impairment losses are calculated based on the “Step 1” computation with the impairment loss being equal to the amount by which a reporting unit’s carrying amount exceeds its implied fair value, limited to the total amount of goodwill allocated to the reporting unit. The ASU is effective for fiscal years beginning after December 15, 2019 and is to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We elected to early adopt this standard on March 31, 2017 as it simplifies the goodwill testing model. There was no impact to our condensed consolidated financial statements from adopting the standard.

In January 2017, the FASB issued an ASU that clarifies the definition of a business with the objective of adding guidance to assist companies with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business may affect many areas of accounting including acquisitions, disposals, goodwill and consolidation. The ASU is applied on a prospective basis and is effective for fiscal years beginning after December 15, 2017 with early adoption permitted. We continue to assess the ASU based on any pending or new transactions that may arise prior to the January 1, 2018 adoption date. At this time, we do not anticipate early adopting nor a material impact on our condensed consolidated financial statements.

 

In November 2016, the FASB issued an ASU that requires the change in restricted cash or cash equivalents to be included with other changes in cash and cash equivalents in the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We anticipate adopting this standard at the same time as the cash flow statement classification changes described below go into effect on January 1, 2018. We continue to assess the impact on our condensed consolidated statement of cash flows.

In October 2016, the FASB issued an ASU that requires the recognition of tax consequences of intercompany asset transfers other than inventory when the transfer occurs and removes the exception to postpone recognition until the asset has been sold to an outside party. The ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We anticipate adopting on January 1, 2018 and do not expect the ASU to have a material impact on our condensed consolidated financial statements.

In August 2016, the FASB issued an ASU to provide guidance on eight specific cash flow classification issues and reduce diversity in practice in how some cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU is effective for fiscal years beginning after December 15, 2017, with early adoption permitted. We anticipate adopting this standard on January 1, 2018. We continue to assess the impact on our condensed consolidated statement of cash flows.

In March 2016, the FASB issued an ASU to simplify the accounting for stock-based compensation. The ASU addresses several areas of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and cash flow statement presentation. The ASU is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. We adopted the standard on January 1, 2017. Following adoption, during the first quarter of 2017, we recorded a $14 million stock-based compensation tax benefit in earnings (within the provision for income taxes) and we will continue to record the stock-based compensation tax impacts (related to stock awards vesting and stock option exercises) within earnings each quarter on a prospective basis. We have also elected to continue to estimate forfeitures and not record forfeitures as they occur. Under the former guidance and for periods prior to January 1, 2017, we recorded the tax impacts directly to equity (within additional paid-in capital). In addition, we no longer reflect the cash received from the excess tax benefit within cash flows from financing activities but instead now, and on a prospective basis, reflect this benefit within cash flows from operating activities in the condensed consolidated statements of cash flows. We anticipate greater volatility in our condensed consolidated statements of earnings as a result of adopting this new standard as tax impacts that formerly were recorded in equity will impact our ongoing earnings.

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

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

In May 2014, the FASB issued an ASU on revenue recognition from contracts with customers. The ASU outlines a new, single comprehensive model for companies to use in accounting for revenue. The core principle is that an entity should recognize revenue to depict the transfer of control over promised goods or services to a customer in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for the goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows from customer contracts, including significant judgments made in recognizing revenue. In 2016 and early 2017, the FASB issued several ASUs that clarified principal versus agent (gross versus net) revenue presentation considerations, confirmed the accounting for certain prepaid stored-value products and clarified the guidance for identifying performance obligations within a contract, the accounting for licenses and partial sales of nonfinancial assets. The FASB also issued two ASUs providing technical corrections, narrow scope exceptions and practical expedients to clarify and improve the implementation of the new revenue recognition guidance. The revenue guidance is effective for annual reporting periods beginning after December 15, 2017, with early adoption permitted as of the original effective date (annual reporting periods beginning after December 15, 2016). The ASU may be applied retrospectively to historical periods presented or as a cumulative-effect adjustment as of the date of adoption. We plan to adopt the new standard on January 1, 2018 on a full retrospective basis. We continue to make significant progress on quantifying the impact of the ASU on our condensed consolidated financial statements and planning the final process, policy and disclosure changes that will go into effect on January 1, 2018. At this time, we do not expect a material financial impact from adopting the new revenue standards.
Reclassifications

Reclassifications:

Certain amounts previously reported have been reclassified to conform to current-year presentation. In connection with the segment change that went into effect on October 1, 2016, as described above, see Notes 5, Goodwill and Intangible Assets; 6, 2014-2018 Restructuring Program; and 15, Segment Reporting for information on related changes made in prior-period segment goodwill and segment net revenues and earnings. We also reclassified certain amounts previously reported within our condensed consolidated statements of comprehensive earnings and Note 12, Reclassifications from Accumulated Other Comprehensive Income, to be consistent with the current-year presentation.