Equity Method Investments

12 Months Ended

Dec. 31, 2018

Equity Method Investments and Joint Ventures [Abstract]

Note 6. Equity Method Investments

Our investments accounted for under the equity method of accounting totaled $7,123 million as of December 31, 2018 and $6,193 million as of December 31, 2017. 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:

On July 2, 2015, we completed transactions to combine our wholly owned coffee businesses with those of D.E Master Blenders 1753 B.V. (“DEMB”) to create a new company, JDE. Through March 7, 2016, we held a 43.5% interest in JDE. Following the March 7, 2016 exchange of a portion of our investment in JDE for an interest in Keurig, we held a 26.5% equity interest in JDE. (See Keurig below.) The remaining 73.5% equity interest in JDE was held by a subsidiary of Acorn Holdings B.V. (“AHBV,” owner of DEMB prior to July 2, 2015). As of December 31, 2018, 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 $230 million (which includes a deferred tax benefit from a Dutch tax rate reduction) in 2018, $129 million in 2017 and $100 million in 2016. We also recorded $73 million of cash dividends received in 2018 and $49 million of cash dividends received in 2017.

On June 30, 2016, we entered into agreements with AHBV and its affiliates to establish a new stock-based compensation arrangement tied to the issuance of JDE equity compensation awards to JDE employees. This arrangement replaced a temporary equity compensation program tied to the issuance of AHBV equity compensation to JDE employees. New Class C, D and E JDE shares were authorized and issued for investments made by, and vested stock-based compensation awards granted to, JDE employees. Under these arrangements, share ownership dilution from the JDE Class C, D and E shareholders was limited to 2%.

On July 5, 2016, we received an expected cash payment of $275 million from JDE to settle an outstanding receivable related to tax formation costs related to the formation of JDE.

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

Keurig:

On March 3, 2016, a subsidiary of AHBV completed a $13.9 billion acquisition of all of the outstanding common stock of Keurig through a merger transaction. On March 7, 2016, we exchanged with a subsidiary of AHBV a portion of our equity interest in JDE with a carrying value of €1.70 billion (approximately $2.0 billion as of March 7, 2016) for an interest in Keurig with a fair value of $2.0 billion based on the merger consideration per share for Keurig. We recorded the difference between the fair value of Keurig and our basis in JDE shares as a $43 million gain on the equity method investment exchange in March 2016. Immediately following the exchange, our ownership interest in JDE was 26.5% and our interest in Keurig was 24.2%.

Our initial $2.0 billion investment in Keurig included a $1.6 billion Keurig equity interest and a $0.4 billion shareholder loan receivable, which were reported on a combined basis within equity method investments prior to the Keurig Dr. Pepper transaction described below. The shareholder loan had a 5.5% interest rate and was payable at the end of a seven-year term on February 27, 2023.

Within equity method investment net earnings, we recorded shareholder loan interest income of $12 million in 2018, $24 million in 2017 and $20 million in 2016. We received shareholder loan interest payments of $12 million in 2018, $30 million in 2017 and $14 million in 2016 and dividends of $34 million in 2018, $14 million in 2017 and $4 million in 2016.

Keurig Dr Pepper:

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 the third quarter of 2018, we recorded a preliminary pre-tax gain of $757 million reported as a gain on equity method transaction and $184 million of deferred tax expense reported in the provision for income taxes (or $573 million after-tax gain) related to the change in our ownership interest while KDP finalized the valuation for the transaction. During our fourth quarter of 2018, KDP finalized its opening balance sheet and we increased our pre-tax gain by $21 million (or $13 million after-tax) to $778 million (or $586 million after-tax) while recording $8 million of deferred tax expense related to the increase for a total deferred tax expense of $192 million for 2018.

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. This change in accounting principle was applied retrospectively to all periods. While our operating income did not change, equity method investment net earnings, net earnings and earnings per share have been adjusted to reflect the lag across all reported periods.

The following tables show the primary line items on the consolidated statements of earnings and comprehensive earnings and the consolidated balance sheet that changed as a result of the lag. The consolidated statements of cash flow and equity were also updated to reflect these changes.



	For the Years Ended
	December 31, 2017						December 31, 2016
	As Reported			As Adjusted			As Reported			As Adjusted
	(in millions, except per share data)
Statements of Earnings
Provision for income taxes	$	(688	)	$	(666	)	$	(129	)	$	(114	)
Equity method investment net earnings	460			344			301			262
Net earnings	2,936			2,842			1,669			1,645
Net earnings attributable to Mondelēz International	2,922			2,828			1,659			1,635
Earnings per share attributable to Mondelēz International:
Basic EPS	$	1.93		$	1.87		$	1.07		$	1.05
Diluted EPS	$	1.91		$	1.85		$	1.05		$	1.04

Statements of Other Comprehensive Earnings
Currency translation adjustment	$	1,201		$	1,198		$	(925	)	$	(921	)
Total other comprehensive earnings/(losses)	1,152			1,149			(1,153		)	(1,149		)
Comprehensive earnings attributable to Mondelēz International	4,046			3,949			523			503



	As of December 31, 2017
	As Reported			As Adjusted
	(in millions)
Balance Sheet
Equity method investments	$	6,345		$	6,193
Deferred income taxes	3,376			3,341
Retained earnings	22,749			22,631
Accumulated other comprehensive losses	(9,998		)	(9,997		)
Total Mondelēz International shareholders' equity	26,111			25,994
Total equity	26,191			26,074

As of December 31, 2018, we held a 13.8% ownership interest in KDP. Our ownership interest in KDP may change over time due to stock-based compensation arrangements and other transactions by KDP. As of December 31, 2018, the fair value of our ownership interest in KDP was approximately $4.9 billion based on KDP's closing stock price.

Keurig and KDP equity earnings, as adjusted for the one-quarter lag basis, totaled $213 million in 2018 (which includes a deferred tax benefit Keurig recorded as a result of U.S. tax reform), $92 million in 2017 and $38 million in 2016.

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.

Summary Financial Information for Equity Method Investments:

Summarized financial information related to our equity method investments is reflected below. The tables below reflect the adjustments noted above for the Keurig and KDP one-quarter lag.



			As of December 31,
			2018		2017
			(in millions)
Current assets			$	5,695	$	5,033
Noncurrent assets			69,445		38,320
Total assets			$	75,140	$	43,353
Current liabilities			$	9,434	$	5,709
Noncurrent liabilities			29,296		16,510
Total liabilities			$	38,730	$	22,219
Equity attributable to shareowners of investees			$	36,365	$	21,064
Equity attributable to noncontrolling interests			46		71
Total net equity of investees			$	36,411	$	21,135
Mondelēz International ownership interests			13-50%		24-50%
Mondelēz International share of investee net equity ⁽¹⁾			$	7,123	$	5,753
Keurig shareholder loan			—		440
Equity method investments			$	7,123	$	6,193

	For the Years Ended December 31,
	2018		2017		2016
	(in millions)
Net revenues	$	14,185	$	12,824	$	9,709
Gross profit	6,076		4,913		3,748
Income from continuing operations	1,980		1,118		680
Net income	1,980		1,118		680
Net income attributable to investees	$	1,970	$	1,115	$	679
Mondelēz International ownership interests	13-50%		24-50%		24-50%
Mondelēz International share of investee net income	$	536	$	320	$	242
Keurig shareholder loan interest income	12		24		20
Equity method investment net earnings	$	548	$	344	$	262


(1)	Includes a basis difference of approximately $340 million as of December 31, 2018 and $360 million as of December 31, 2017 between the U.S. GAAP accounting basis for our equity method investments and the U.S. GAAP accounting basis of our investees’ equity.