Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Mondelēz International, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Mondelēz International, Inc. and its subsidiaries (the "Company") as of December 31, 2018 and 2017, and the related consolidated statements of earnings, comprehensive earnings, equity and cash flows for each of the three years in the period ended December 31, 2018, including the related notes and financial statement schedule listed in the index appearing under Item 15(a) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 6 to the consolidated financial statements, the Company changed the manner in which it accounts for a certain equity method investment in 2018.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the Report of Management on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PRICEWATERHOUSECOOPERS LLP

Chicago, Illinois

February 8, 2019

We have served as the Company’s auditor since 2001.

Mondelēz International, Inc. and Subsidiaries

Consolidated Statements of Earnings

For the Years Ended December 31

(in millions of U.S. dollars, except per share data)

	2018				2017				2016
Net revenues	$	25,938			$	25,896			$	25,923
Cost of sales	15,586				15,862				15,819
Gross profit	10,352				10,034				10,104
Selling, general and administrative expenses	6,475				5,938				6,546
Asset impairment and exit costs	389				642				837
Net gain on divestitures	—				(186		)		(9		)
Amortization of intangibles	176				178				176
Operating income	3,312				3,462				2,554
Benefit plan non-service income	(50		)		(44		)		(15		)
Interest and other expense, net	520				382				1,115
Earnings before income taxes	2,842				3,124				1,454
Provision for income taxes	(773		)		(666		)		(114		)
Gain on equity method investment transactions	778				40				43
Equity method investment net earnings	548				344				262
Net earnings	3,395				2,842				1,645
Noncontrolling interest earnings	(14		)		(14		)		(10		)
Net earnings attributable to Mondelēz International	$	3,381			$	2,828			$	1,635
Per share data:
Basic earnings per share attributable to Mondelēz International	$	2.30			$	1.87			$	1.05
Diluted earnings per share attributable to Mondelēz International	$	2.28			$	1.85			$	1.04

See accompanying notes to the consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Earnings

For the Years Ended December 31

(in millions of U.S. dollars)

	2018				2017				2016
Net earnings	$	3,395			$	2,842			$	1,645
Other comprehensive earnings/(losses), net of tax:
Currency translation adjustment	(865		)		1,198				(921		)
Pension and other benefit plans	284				(57		)		(153		)
Derivative cash flow hedges	(54		)		8				(75		)
Total other comprehensive earnings/(losses)	(635		)		1,149				(1,149		)
Comprehensive earnings	2,760				3,991				496
less: Comprehensive earnings/(losses) attributable to noncontrolling interests	12				42				(7		)
Comprehensive earnings attributable to Mondelēz International	$	2,748			$	3,949			$	503

See accompanying notes to the consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

Consolidated Balance Sheets, as of December 31

(in millions of U.S. dollars, except share data)

	2018				2017
ASSETS
Cash and cash equivalents	$	1,100			$	761
Trade receivables (net of allowances of $40 at December 31, 2018 and $50 at December 31, 2017)	2,262				2,691
Other receivables (net of allowances of $47 at December 31, 2018 and $98 at December 31, 2017)	744				835
Inventories, net	2,592				2,557
Other current assets	906				676
Total current assets	7,604				7,520
Property, plant and equipment, net	8,482				8,677
Goodwill	20,725				21,085
Intangible assets, net	18,002				18,639
Prepaid pension assets	132				158
Deferred income taxes	255				319
Equity method investments	7,123				6,193
Other assets	406				366
TOTAL ASSETS	$	62,729			$	62,957
LIABILITIES
Short-term borrowings	$	3,192			$	3,517
Current portion of long-term debt	2,648				1,163
Accounts payable	5,794				5,705
Accrued marketing	1,756				1,728
Accrued employment costs	701				721
Other current liabilities	2,646				2,959
Total current liabilities	16,737				15,793
Long-term debt	12,532				12,972
Deferred income taxes	3,552				3,341
Accrued pension costs	1,221				1,669
Accrued postretirement health care costs	351				419
Other liabilities	2,623				2,689
TOTAL LIABILITIES	37,016				36,883
Commitments and Contingencies (Note 13)
EQUITY
Common Stock, no par value (5,000,000,000 shares authorized and 1,996,537,778 shares issued at December 31, 2018 and December 31, 2017)	—				—
Additional paid-in capital	31,961				31,915
Retained earnings	24,491				22,631
Accumulated other comprehensive losses	(10,630		)		(9,997		)
Treasury stock, at cost (545,537,923 shares at December 31, 2018 and 508,401,694 shares at December 31, 2017)	(20,185		)		(18,555		)
Total Mondelēz International Shareholders’ Equity	25,637				25,994
Noncontrolling interest	76				80
TOTAL EQUITY	25,713				26,074
TOTAL LIABILITIES AND EQUITY	$	62,729			$	62,957

See accompanying notes to the consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

Consolidated Statements of Equity

(in millions of U.S. dollars, except per share data)

	Mondelēz International Shareholders’ Equity
	Common Stock				Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Earnings/ (Losses)				Treasury Stock				Non-controlling Interest				Total Equity
Balances at January 1, 2016	$	—			$	31,760			$	20,700			$	(9,986	)		$	(14,462	)		$	88			$	28,100
Comprehensive earnings/(losses):
Net earnings	—				—				1,635				—				—				10				1,645
Other comprehensive earnings/ (losses), net of income taxes	—				—				—				(1,132		)		—				(17		)		(1,149		)
Exercise of stock options and issuance of other stock awards	—				87				(94		)		—				350				—				343
Common Stock repurchased	—				—				—				—				(2,601		)		—				(2,601		)
Cash dividends declared ($0.72 per share)	—				—				(1,116		)		—				—				—				(1,116		)
Dividends paid on noncontrolling interest and other activities	—				—				—				—				—				(27		)		(27		)
Balances at December 31, 2016	$	—			$	31,847			$	21,125			$	(11,118	)		$	(16,713	)		$	54			$	25,195
Comprehensive earnings/(losses):
Net earnings	—				—				2,828				—				—				14				2,842
Other comprehensive earnings/ (losses), net of income taxes	—				—				—				1,121				—				28				1,149
Exercise of stock options and issuance of other stock awards	—				68				(83		)		—				360				—				345
Common Stock repurchased	—				—				—				—				(2,202		)		—				(2,202		)
Cash dividends declared ($0.82 per share)	—				—				(1,239		)		—				—				—				(1,239		)
Dividends paid on noncontrolling interest and other activities	—				—				—				—				—				(16		)		(16		)
Balances at December 31, 2017	$	—			$	31,915			$	22,631			$	(9,997	)		$	(18,555	)		$	80			$	26,074
Comprehensive earnings/(losses):
Net earnings	—				—				3,381				—				—				14				3,395
Other comprehensive earnings/ (losses), net of income taxes	—				—				—				(633		)		—				(2		)		(635		)
Exercise of stock options and issuance of other stock awards	—				46				(118		)		—				364				—				292
Common Stock repurchased	—				—				—				—				(1,994		)		—				(1,994		)
Cash dividends declared ($0.96 per share)	—				—				(1,409		)		—				—				—				(1,409		)
Dividends paid on noncontrolling interest and other activities	—				—				6				—				—				(16		)		(10		)
Balances at December 31, 2018	$	—			$	31,961			$	24,491			$	(10,630	)		$	(20,185	)		$	76			$	25,713

See accompanying notes to the consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Years Ended December 31

(in millions of U.S. dollars)

	2018				2017				2016
CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES
Net earnings	$	3,395			$	2,842			$	1,645
Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization	811				816				823
Stock-based compensation expense	128				137				140
U.S. tax reform transition tax (benefit)/tax	(38		)		1,317				—
Deferred income tax provision/(benefit)	233				(1,228		)		(156		)
Asset impairments and accelerated depreciation	141				334				446
Loss on early extinguishment of debt	140				11				428
Net gain on divestitures	—				(186		)		(9		)
Gain on equity method investment transactions	(778		)		(40		)		(43		)
Equity method investment net earnings	(548		)		(344		)		(262		)
Distributions from equity method investments	180				152				75
Other non-cash items, net	381				(225		)		(43		)
Change in assets and liabilities, net of acquisitions and divestitures:
Receivables, net	257				(24		)		31
Inventories, net	(204		)		(18		)		62
Accounts payable	236				5				409
Other current assets	(25		)		14				(176		)
Other current liabilities	(136		)		(637		)		60
Change in pension and postretirement assets and liabilities, net	(225		)		(333		)		(592		)
Net cash provided by operating activities	3,948				2,593				2,838
CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES
Capital expenditures	(1,095		)		(1,014		)		(1,224		)
Acquisitions, net of cash received	(528		)		—				(246		)
Proceeds from divestitures, net of disbursements	1				604				303
Proceeds from sale of property, plant and equipment and other assets	398				109				138
Net cash used in investing activities	(1,224		)		(301		)		(1,029		)
CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES
Issuances of commercial paper, maturities greater than 90 days	3,981				1,808				1,540
Repayments of commercial paper, maturities greater than 90 days	(2,856		)		(1,911		)		(1,031		)
Net issuances of other short-term borrowings	(1,413		)		1,027				1,741
Long-term debt proceeds	2,948				350				5,640
Long-term debt repaid	(1,821		)		(1,470		)		(6,186		)
Repurchase of Common Stock	(2,020		)		(2,174		)		(2,601		)
Dividends paid	(1,359		)		(1,198		)		(1,094		)
Other	211				207				129
Net cash used in financing activities	(2,329		)		(3,361		)		(1,862		)
Effect of exchange rate changes on cash and cash equivalents	(56		)		89				(76		)
Cash and cash equivalents:
Increase/(decrease)	339				(980		)		(129		)
Balance at beginning of period	761				1,741				1,870
Balance at end of period	$	1,100			$	761			$	1,741
Cash paid:
Interest	$	491			$	398			$	630
Income taxes	$	864			$	848			$	527

See accompanying notes to the consolidated financial statements.

Mondelēz International, Inc. and Subsidiaries

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.

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.

Our operations and management structure are organized into four operating segments:

•	Latin America

•	AMEA

•	Europe

•	North America

See Note 17, 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, 2018, our Argentinean operations had less than $1 million of Argentinean peso denominated net monetary liabilities. Our Argentinean operations contributed $469 million, or 1.8% of consolidated net revenues in 2018. During 2018 we recorded an $11 million remeasurement loss within selling, general and administrative expenses related to the devaluation of the Argentinean peso denominated net monetary assets from July 1, 2018 through December 31, 2018.

Brexit. In 2018, we generated 8.6% of our net revenues in the United Kingdom. We continue to monitor the U.K. planned exit from the European Union ("Brexit") and 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 are taking 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 over 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 and Cash Equivalents:

Cash and cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less.

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 $819 million as of December 31, 2018, $843 million as of December 31, 2017 and $677 million as of December 31, 2016. The incremental costs of factoring receivables under this arrangement were $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 value our inventory using the average cost method. We also record inventory allowances for overstock and obsolete inventories due to ingredient and packaging changes.

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.

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 7.3% 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 10.3%. 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 planned growth rates, market-based discount rates and estimates of royalty 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 17, 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 and consumer promotion 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 $1,173 million in 2018, $1,248 million in 2017 and $1,396 million in 2016. We expense product research and development costs as incurred. Research and development expense was $362 million in 2018, $366 million in 2017 and $376 million in 2016. 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. These include pension benefits, postretirement health care benefits and postemployment benefits depending upon jurisdiction, tenure, job level and other factors. Local statutory requirements govern many of the benefit plans we provide around the world. Local government plans generally cover health care benefits for retirees outside the United States, Canada and United Kingdom. As such, our U.S., Canadian and U.K. subsidiaries provide health care and other benefits to most retired employees. Our postemployment benefit plans provide primarily severance benefits for eligible salaried and certain hourly employees. 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 9, 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 from derivative instruments are classified in the consolidated statements of cash flows based on the nature of the derivative instrument. 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. During the third quarter of 2016, we discontinued designating commodity derivatives for hedge accounting treatment. Any unrealized gains or losses (mark-to-market impacts) and realized gains or losses are recorded in earnings.

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. During the third quarter of 2016, we discontinued designating currency exchange derivatives for hedge accounting treatment. Any unrealized gains or losses (mark-to-market impacts) and realized gains or losses are recorded in earnings (see Note 9, 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. In response to the United States tax reform legislation enacted on December 22, 2017 (“U.S. tax reform”), the U.S. Securities and Exchange Commission (“SEC”) issued guidance that allowed us to record provisional amounts for the impacts of U.S. tax reform if the full accounting could not be completed before we filed our 2017 financial statements. For provisions of the tax law where we were unable to make a reasonable estimate of the impact, the guidance allowed us to continue to apply the historical tax provisions in computing our income tax liability and deferred tax assets and liabilities as of December 31, 2017. The guidance allowed us to finalize accounting for the U.S. tax reform changes within one year of the December 22, 2017 enactment date. We have finalized our

accounting for the new provisions based on the guidance that has been issued and included the impacts in our 2018 consolidated financial statements. See Note 15, Income Taxes, for additional information on the impacts of U.S. tax reform.

New Accounting Pronouncements:

In August 2018, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update ("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 are currently assessing the 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 beginning after December 15, 2019, with early adoption permitted. The new standard may impact our disclosures 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. The new standard may 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. This ASU is not expected to have a material impact on our consolidated financial statements.

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 do not expect to elect to reclassify these stranded tax effects from U.S. tax reform when we adopt this ASU in the first quarter of 2019. As such, this ASU is not expected to have a material impact on our consolidated financial statements.

In August 2017, the FASB issued an ASU to better align hedge accounting with an entity's risk management activities and improve disclosures surrounding hedging. For cash flow and net investment hedges as of the adoption date, the ASU requires a modified retrospective transition approach. Presentation and disclosure requirements related to this ASU are required prospectively. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We early adopted this standard as of January 1, 2018 and there was no material impact to our consolidated financial statements upon adoption. Refer to Note 9, Financial Instruments, for additional information.

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 are currently assessing the guidance. This ASU is not expected 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 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). 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, including not reassessing whether expired or existing contracts contained leases, the classification of those leases

and not reassessing initial direct costs for any existing 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 most significant impact from adopting the standard is the initial recognition of operating lease ROU assets and lease liabilities on our balance sheet, while our accounting for finance leases (i.e. capital leases) remains substantially unchanged. We continue to finalize our implementation efforts and currently estimate recording during the first quarter of 2019 an amount between approximately $650 to $800 million for long-term operating lease ROU assets and from approximately $650 to $800 million for operating lease liabilities, of which approximately $240 to $290 million will be recorded in other current liabilities and $410 to $510 million will be recorded in long-term operating lease liabilities. The transition method we elected for adoption of the standard requires us to make a cumulative effect adjustment as of January 1, 2019 and we do not believe that this amount will be material.

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 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. We adopted the new standard on January 1, 2018 on a full retrospective basis. There was no material financial impact from adopting the new revenue standards in any of the historical periods presented. Also refer to the Revenue Recognition section above and Note 17, Segment Reporting, for disaggregated revenue information.

Reclassifications:

Certain amounts previously reported have been reclassified to conform to current-year presentation. During the third quarter of 2018, in connection with the Keurig Dr Pepper Inc. transaction, we changed our accounting principle to reflect our share of Keurig Green Mountain Inc.’s historical results and Keurig Dr Pepper Inc.'s ongoing results on a one-quarter lag basis while we continue to record cash receipts, such as dividends, when cash was received. This change was applied retrospectively to all periods presented. Refer to Note 6, Equity Method Investments, for more information. Additionally, on January 1, 2018, we adopted an ASU that changed the presentation of net periodic pension and postretirement costs on the consolidated statements of earnings. As a result of this adoption, we disaggregated the components of our net periodic pension and postretirement benefit costs and moved components other than service costs to a new line item, benefit plan non-service income, located below operating income. Prior-period cost of sales, selling, general and administrative expenses and asset impairment and exit costs as well as segment operating income results were updated to reflect the reclassification. All components of net periodic pension and postretirement benefit costs are summarized in Note 10, Benefit Plans.

Note 2. Divestitures and Acquisitions

On June 7, 2018, we acquired a U.S. premium biscuit company, Tate’s Bake Shop, within our North America segment for $528 million cash paid, net of cash received, and extended our premium biscuit offerings. We expect to finalize the purchase price paid and related purchase price allocation once working capital and other adjustments are finalized. We accounted for the transaction as a business combination. As of December 31, 2018, we recorded a preliminary purchase price allocation of $45 million to definite-lived intangible assets, $205 million to indefinite-lived intangible assets, $298 million to goodwill, $16 million to property, plant and equipment, $5 million to inventory, $9 million to accounts receivable, $6 million to current liabilities and $44 million to deferred tax liabilities. The acquisition added incremental net revenues of $52 million and incremental operating income of $7 million in 2018. We also recorded $13 million of acquisition-related costs in 2018.

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.

During the year ended December 31, 2016, we also completed the following sale transactions:

•

On December 31, 2016, we completed the sale of a chocolate factory in Belgium. In connection with this transaction, we recorded a pre-tax loss of €65 million ($68 million as of December 31, 2016), within asset impairment and exit costs in our Europe segment. The loss includes a fixed asset impairment charge of €30 million ($31 million as of December 31, 2016), a loss on disposal of €22 million (23 million as of December 31, 2016) and incremental expenses we incurred and accrued of €13 million ($14 million as of December 31, 2016) related to selling the factory.

•

On December 1, 2016, we completed the sale of a confectionery business in Costa Rica represented by a local brand. The sales price was $28 million and we recorded a pre-tax gain of $9 million within gains on divestiture within our Latin America segment. We divested approximately $11 million of property, plant and equipment, $4 million of goodwill and $2 million of inventory. In connection with this transaction, we incurred $2 million of transaction costs and accrued expenses.

•	On August 26, 2016, we recorded a $7 million gain for the sale of a U.S.-owned biscuit trademark. The gain was recorded within selling, general and administrative expenses in 2016.

•

On May 2, 2016, we completed the sale of certain local biscuit brands in Finland. The sales price was €14 million ($16 million as of May 2, 2016) and we recorded a pre-tax gain of $6 million ($5 million after tax) within selling, general and administrative expenses of our Europe segment in the year ended December 31, 2016. We divested $8 million of indefinite-lived intangible assets and less than $1 million of other assets. We received cash proceeds of €12 million ($14 million as of May 2, 2016) upon closing and another €2 million ($2 million as of October 31, 2016) of consideration following the completion of post-closing requirements. The additional $2 million of consideration increased the pre-tax gain to $8 million ($6 million after tax) through December 31, 2016.

On November 2, 2016, we purchased from Burton’s Biscuit Company certain intangibles, which included the license to manufacture, market and sell Cadbury-branded biscuits in additional key markets around the world, including in the United Kingdom, France, Ireland, North America and Saudi Arabia. The transaction was accounted for as a business combination. Total cash paid for the acquired assets was €199 million ($245 million as of November 2, 2016). During the third quarter of 2017, we completed the valuation work and finalized the purchase price allocation of $66 million to definite-lived intangible assets, $173 million to goodwill, $2 million to property, plant and equipment and $4 million to inventory, reflecting a November 2, 2016 exchange rate. The acquisition added incremental net revenues of $59 million in 2017 and $16 million in 2016 and added incremental operating income of $8 million in 2017 and $1 million in 2016.

During the third quarter of 2016, we completed the acquisition of a Vietnamese biscuit operation within our AMEA segment. On July 15, 2015, we acquired an 80% interest in the biscuit operation and on August 22, 2016, we acquired the remaining 20% interest. Total cash paid for the biscuit operation, intellectual property, non-compete and consulting agreements less purchase price adjustments was 12,404 billion Vietnamese dong ($569 million using applicable exchange rates on July 15, 2015, November 27, 2015 and August 22, 2016). On August 22, 2016, in connection with acquiring the remaining 20% interest in the biscuit operation, escrowed funds of $70 million were released and we retained an agreed $20 million related to two outstanding acquisition-related matters. We subsequently released $5 million in 2016 and $9 million in 2017 to the sellers and expect to pay $4 million within five years as remaining indemnified obligations are resolved. On August 22, 2016, we also made a final payment of 759 billion Vietnamese dong ($35 million as of August 22, 2016) for the non-compete and consulting agreements. The non-compete and consulting agreements were recorded as prepaid contracts within other current and non-current assets and will be amortized into net earnings over the term of the agreements. During the third quarter of 2016, we also finalized the valuation and purchase price allocation of the acquired net assets of the business, which included $10 million of inventory, $49 million of property, plant and equipment, $86 million of intangible assets, $385 million of goodwill and $31 million of other net liabilities. In periods following the initial July 15, 2015 first closing date, the allocation of the net asset fair values had an immaterial impact on our operating results. The acquisition added incremental net revenues of $71 million in 2016 and added incremental operating income of $5 million in 2016. Within selling, general and administrative expenses, we recorded integration costs of $7 million in 2016. We also recorded acquisition integration costs of $4 million in 2018 and $3 million in 2017.

Sales of Property:

On November 9, 2016, we completed the sale of a manufacturing plant in Russia and recorded total expenses of $12 million, including a related fixed asset impairment charge of $4 million within asset impairments and exit costs. The sale of the land, buildings and equipment generated cash proceeds of $6 million.

In 2016, we also sold property within our North America segment and from our centrally held corporate assets. In the third quarter of 2016, we sold property in North America that generated cash proceeds of $10 million and a pre-tax gain of $6 million and we sold a corporate aircraft hangar that generated cash proceeds of $3 million and a pre-tax gain of $1 million. In the second quarter of 2016, we also sold property within our North America segment and from our centrally held corporate assets. The North America sale generated cash proceeds of $40 million and a pre-tax gain of $33 million. The corporate aircraft sale generated cash proceeds of $20 million and a pre-tax gain of $6 million. 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, 2016.

Note 3. Inventories

Inventories consisted of the following:

	As of December 31,
	2018				2017
	(in millions)
Raw materials	$	726			$	711
Finished product	1,987				1,975
	2,713				2,686
Inventory reserves	(121		)		(129		)
Inventories, net	$	2,592			$	2,557

Note 4. Property, Plant and Equipment

Property, plant and equipment consisted of the following:

	As of December 31,
	2018				2017
	(in millions)
Land and land improvements	$	424			$	458
Buildings and building improvements	2,984				2,979
Machinery and equipment	10,943				11,195
Construction in progress	894				1,048
	15,245				15,680
Accumulated depreciation	(6,763		)		(7,003		)
Property, plant and equipment, net	$	8,482			$	8,677

Capital expenditures as presented on the statement of cash flow were $1.1 billion, $1.0 billion and $1.2 billion for the years ending December 31, 2018, 2017 and 2016 and excluded $331 million, $357 million and $343 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 $59 million in 2018, $206 million in 2017 and $301 million in 2016 (see Note 7, 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,
	2018				2017				2016
	(in millions)
Latin America	$	25			$	36			$	22
AMEA	5				81				44
Europe	15				58				122
North America	13				30				111
Corporate	1				1				2
Non-cash property, plant and equipment write-downs	$	59			$	206			$	301

Note 5. Goodwill and Intangible Assets

Goodwill by operating segment was:

	As of December 31,
	2018				2017
	(in millions)
Latin America	$	823			$	901
AMEA	3,210				3,371
Europe	7,519				7,880
North America	9,173				8,933
Goodwill	$	20,725			$	21,085

Intangible assets consisted of the following:

	As of December 31,
	2018				2017
	(in millions)
Non-amortizable intangible assets	$	17,201			$	17,671
Amortizable intangible assets	2,328				2,386
	19,529				20,057
Accumulated amortization	(1,527		)		(1,418		)
Intangible assets, net	$	18,002			$	18,639

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 $176 million in 2018, $178 million in 2017 and $176 million in 2016. For the next five years, we estimate annual amortization expense of approximately $170 million for the next two years and approximately $85 million in years three to five, reflecting December 31, 2018 exchange rates.

Changes in goodwill and intangible assets consisted of:

	2018								2017
	Goodwill				Intangible Assets, at cost				Goodwill				Intangible Assets, at cost
	(in millions)
Balance at January 1	$	21,085			$	20,057			$	20,276			$	19,319
Changes due to:
Currency	(658		)		(710		)		909				954
Divestitures	—				—				(114		)		(100		)
Acquisitions	298				250				15				(7		)
Asset impairments	—				(68		)		—				(109		)
Other	—				—				(1		)		—
Balance at December 31	$	20,725			$	19,529			$	21,085			$	20,057

Changes to goodwill and intangibles were:

•

Divestitures – During 2017, in connection with the divestiture of several manufacturing facilities, primarily in France, we divested $23 million of goodwill and $62 million of amortizable and non-amortizable intangible assets. In 2017, we also completed a sale of most of our grocery business in Australia and New Zealand and divested $86 million of related goodwill. Furthermore, we completed a sale of a confectionery business in Japan and divested $5 million of goodwill and $24 million of definite lived intangible assets. Finally, we divested $14 million of definite lived intangible asset as part of our sale of one of our equity method investments. See Note 2, Divestitures and Acquisitions, for additional information.

•

Acquisitions – In connection with the acquisition of Tate's Bake Shop in the second quarter of 2018, we recorded a preliminary purchase price allocation of $298 million to goodwill and $250 million to intangible assets. During 2017, we recorded a $15 million adjustment to goodwill and a $7 million adjustment to indefinite lived assets in connection with finalizing the valuation and purchase price allocation for the Burton’s Biscuit Company purchase completed in the fourth quarter of 2016. See Note 2, Divestitures and Acquisitions, for additional information.

•	Asset impairments – As further discussed below, we recorded $68 million of intangible asset impairments in 2018 and $109 million in 2017.

In 2018, 2017 and 2016, 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 2018 annual testing of non-amortizable intangible assets, we recorded $68 million of impairment charges in the third quarter related to five trademarks. We recorded charges related to gum, chocolate, biscuits and candy trademarks of $45 million in Europe, $14 million in North America and $9 million in AMEA. We also identified seven brands, including the five impaired trademarks, with $538 million of aggregate book value as of December 31, 2018 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 continue to not be impaired, but if the product line 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 2017, we recorded $109 million of impairment charges, of which $70 million related to annual testing impairment charges for candy and gum trademarks 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 trademark in our North America segment and a $1 million intangible asset impairment charge related to a transaction. In 2016, we recorded $137 million of impairment charges, of which $98 million related to annual testing impairment charges related to biscuits, candy and gum trademarks of $41 million in AMEA, $32 million in North America, $22 million in Europe, and $3 million in Latin America. During 2016, we also recorded $20 million of impairments related to the planned sale of a confectionery business in France and we also recorded $19 million of charges in our Europe, North America and AMEA segments resulting from the discontinuation of four biscuit products and one candy product.

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.

Note 7. 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 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 $3.9 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, 2018 and 2017 was:

	Severance and related costs				Asset Write-downs				Total
	(in millions)
Liability Balance, January 1, 2017	$	464			$	—			$	464
Charges	323				212				535
Cash spent	(347		)		—				(347		)
Non-cash settlements/adjustments	(3		)		(212		)		(215		)
Currency	27				—				27
Liability Balance, December 31, 2017	$	464			$	—			$	464
Charges	253				63				316
Cash spent	(310		)		—				(310		)
Non-cash settlements/adjustments	(4		)		(63		)		(67		)
Currency	(30		)		—				(30		)
Liability Balance, December 31, 2018	$	373			$	—			$	373

We recorded restructuring charges of $316 million in 2018, $535 million in 2017 and $714 million in 2016 within asset impairment and exit costs. We spent $310 million in 2018 and $347 million in 2017 in cash severance and related costs. We also recognized non-cash pension settlement losses (See Note 10, Benefit Plans*)*, non-cash asset write-downs (including accelerated depreciation and asset impairments) and other non-cash adjustments totaling $67 million in 2018 and $215 million in 2017. At December 31, 2018, $307 million of our net restructuring liability was recorded within other current liabilities and $66 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 $315 million in 2018, $257 million in 2017 and $372 million in 2016. 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 2018, 2017 and 2016, 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, 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
For the Year Ended December 31, 2016
Restructuring Costs	$	111			$	96			$	310			$	173			$	24			$	714
Implementation Costs	54				48				88				121				61				372
Total	$	165			$	144			$	398			$	294			$	85			$	1,086
Total Project (3)
Restructuring Costs	$	493			$	517			$	971			$	453			$	116			$	2,550
Implementation Costs	219				168				345				332				278				1,342
Total	$	712			$	685			$	1,316			$	785			$	394			$	3,892

(1)	During 2016-2018, 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)

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, benefit plan non-service income, on our consolidated statements of earnings. As such, we have recast our historical operating income, segment operating income and restructuring and implementation costs by segment to reflect this reclassification, which had no impact to earnings before income taxes or net earnings. The benefit plan non-service income amounts no longer recorded in segment operating income are included within the Corporate column in the table above. The Corporate column also includes minor adjustments for rounding.

(3)	Includes all charges recorded since program inception on May 6, 2014 through December 31, 2018.

Note 8. Debt and Borrowing Arrangements

Short-Term Borrowings:

Our short-term borrowings and related weighted-average interest rates consisted of:

	As of December 31,
	2018							2017
	Amount Outstanding				Weighted- Average Rate			Amount Outstanding				Weighted- Average Rate
	(in millions)							(in millions)
Commercial paper	$	3,054			2.9	%		$	3,410			1.7	%
Bank loans	138				10.5	%		107				11.5	%
Total short-term borrowings	$	3,192						$	3,517

As of December 31, 2018, commercial paper issued and outstanding had between 2 and 109 days remaining to maturity. Commercial paper borrowings decreased since the 2017 year-end primarily as a result of higher operating cash flows and long-term debt issuances net of repayments, partially offset by increased commercial paper borrowings for share repurchases and shareholder dividends.

Bank loans include borrowings on primarily uncommitted credit lines maintained by some of our international subsidiaries to meet short-term working capital needs. Collectively, these credit lines amounted to $1.7 billion at December 31, 2018 and $2.0 billion at December 31, 2017. Borrowings on these lines were $138 million at December 31, 2018 and $107 million at December 31, 2017.

Borrowing Arrangements:

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 is scheduled to expire on April 1, 2019. The agreement includes the same terms and conditions as our existing $4.5 billion multi-year credit facility discussed below. 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.

On February 28, 2018, 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 27, 2019. The agreement replaces our previous credit agreement that matured on February 28, 2018 and includes the same terms and conditions as our existing $4.5 billion multi-year credit facility discussed below. As of December 31, 2018, no amounts were drawn on the facility.

We also maintain 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. On October 14, 2016, the revolving credit agreement, which was scheduled to expire on October 11, 2018, was extended through October 11, 2021. 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) and the cumulative effects of any changes in accounting principles. At December 31, 2018, we complied with this covenant as our shareholders’ equity, as defined by the covenant, was $36.3 billion. The revolving credit facility agreement 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, 2018, no amounts were drawn on the facility.

Long-Term Debt:

Our long-term debt consisted of (interest rates are as of December 31, 2018):

	As of December 31,
	2018				2017
	(in millions)
U.S. dollar notes, 1.625% to 7.000% (weighted-average effective rate 3.412%), due through 2040	$	9,492			$	8,327
Euro notes, 1.000% to 2.375% (weighted-average effective rate 1.934%), due through 2035	3,492				3,653
Pound sterling notes, 3.875% to 4.500% (weighted-average effective rate 4.151%), due through 2045	333				456
Swiss franc notes, 0.050% to 1.125% (weighted-average effective rate 0.703%), due through 2025	1,424				1,694
Canadian dollar notes, 3.250% (effective rate 3.320%), due through 2025	437				—
Capital leases and other obligations	2				5
Total	15,180				14,135
Less current portion of long-term debt	(2,648		)		(1,163		)
Long-term debt	$	12,532			$	12,972

Deferred debt issuance costs of $32 million as of December 31, 2018 and $33 million as of December 31, 2017 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, 2018, aggregate maturities of our debt and capital leases based on stated contractual maturities, excluding unamortized non-cash bond premiums, discounts, bank fees and mark-to-market adjustments of $(70) million, were (in millions):

2019		2020		2021		2022		2023		Thereafter		Total
$2,648		$1,544		$3,334		$726		$1,822		$5,176		$15,250

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 the twelve months ended December 31, 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.

On April 12, 2017, we discharged $488 million of our 6.500% U.S. dollar-denominated debt. We paid $504 million, representing principal as well as past and future interest accruals from February 2017 through the August 2017

maturity date. We recorded an $11 million loss on debt extinguishment within interest expense and a $5 million reduction in accrued interest.

On March 30, 2017, *fr.*175 million (approximately $175 million) of our 0.000% Swiss franc-denominated notes matured. The notes and accrued interest to date were paid with net proceeds from the fr.350 million Swiss franc-denominated notes issued on March 13, 2017.

On March 13, 2017, we launched an offering of fr.349 million of Swiss franc-denominated notes, or $349 million in U.S. dollars as of March 31, 2017, consisting of:

•	fr.225 million (or $224 million) of 0.050% fixed rate notes that mature on March 30, 2020

•	fr.125 million (or $125 million) of 0.617% fixed rate notes that mature on September 30, 2024

On March 30, 2017, we received net proceeds of *fr.*349 million (or $349 million) that were used for general corporate purposes.

On January 26, 2017, €750 million (approximately $801 million) of our 1.125% euro-denominated 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 2.3% as of December 31, 2018, 2.1% as of December 31, 2017 and 2.2% as of December 31, 2016.

Fair Value of Our Debt:

The fair value of our short-term borrowings at December 31, 2018 and December 31, 2017 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, 2018, the aggregate fair value of our total debt was $18,650 million and its carrying value was $18,372 million. At December 31, 2017, the aggregate fair value of our total debt was $18,354 million and its carrying value was $17,652 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,
	2018				2017				2016
	(in millions)
Interest expense, debt	$	462			$	396			$	515
Loss on debt extinguishment and related expenses	140				11				427
(Gain)/loss related to interest rate swaps	(10		)		—				97
Other (income)/expense, net	(72		)		(25		)		76
Interest and other expense, net	$	520			$	382			$	1,115

See Note 9, 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 2018 and 2016 and for information on the $120 million of other income recorded in 2018 relating to our new net investment hedges and amounts excluded from hedge effectiveness. See Note 13, 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 9. 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,
	2018								2017
	Asset Derivatives				Liability Derivatives				Asset Derivatives				Liability Derivatives
	(in millions)
Derivatives designated as accounting hedges:
Interest rate contracts	$	17			$	355			$	15			$	509
Net investment hedge derivative contracts (1)	337				28				—				—
	$	354			$	383			$	15			$	509
Derivatives not designated as accounting hedges:
Currency exchange contracts	$	72			$	37			$	65			$	76
Commodity contracts	191				210				84				229
Interest rate contracts	—				—				15				11
	$	263			$	247			$	164			$	316
Total fair value	$	617			$	630			$	179			$	825

(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 8, 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 have included cash flow, fair value and net investment hedge derivative contracts. Our economic hedges are derivatives 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, 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	)		$	—

	As of December 31, 2017
	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	$	(11	)		$	—			$	(11	)		$	—
Commodity contracts	(145		)		(138		)		(7		)		—
Interest rate contracts	(490		)		—				(490		)		—
Total derivatives	$	(646	)		$	(138	)		$	(508	)		$	—

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 net notional values of our derivative instruments were:

	Notional Amount
	As of December 31,
	2018				2017
	(in millions)
Currency exchange contracts:
Intercompany loans and forecasted interest payments	$	3,239			$	7,089
Forecasted transactions	2,396				2,213
Commodity contracts	393				1,204
Interest rate contracts	8,679				6,532
Net investment hedges:
Net investment hedge derivative contracts	6,678				—
Non-U.S. dollar debt designated as net investment hedges
Euro notes	3,514				3,679
British pound sterling notes	336				459
Swiss franc notes	1,424				1,694
Canadian dollar notes	440				—

Cash Flow Hedges:

Cash flow hedge activity, net of taxes, within accumulated other comprehensive earnings/(losses) included:

	For the Years Ended December 31,
	2018				2017				2016
	(in millions)
Accumulated (loss)/gain at beginning of period	$	(113	)		$	(121	)		$	(45	)
Transfer of realized (gains)/losses in fair value to earnings	(9		)		27				53
Unrealized gain/(loss) in fair value	(45		)		(19		)		(129		)
Accumulated (loss)/gain at end of period	$	(167	)		$	(113	)		$	(121	)

After-tax gains/(losses) reclassified from accumulated other comprehensive earnings/(losses) into net earnings were:

	For the Years Ended December 31,
	2018				2017				2016
	(in millions)
Currency exchange contracts – forecasted transactions	$	—			$	(3	)		$	(1	)
Commodity contracts	—				(24		)		(4		)
Interest rate contracts	9				—				(48		)
Total	$	9			$	(27	)		$	(53	)

After-tax gains/(losses) recognized in other comprehensive earnings/(losses) were:

	For the Years Ended December 31,
	2018				2017				2016
	(in millions)
Currency exchange contracts – forecasted transactions	$	—			$	(38	)		$	8
Commodity contracts	—				7				(34		)
Interest rate contracts	(45		)		12				(103		)
Total	$	(45	)		$	(19	)		$	(129	)

Cash flow hedge ineffectiveness was not material for all periods presented.

We recognized a gain of $10 million in 2018 in interest and other expense, net related to certain forward-starting interest rate swaps for which the planned timing of the related forecasted debt was changed. We also recorded pre-tax losses of $97 million within interest and other expense, net in the first quarter of 2016 related to amounts excluded from effectiveness testing. These amounts relate to interest rate swaps no longer designated as cash flow hedges due to changes in financing plans. Due to lower overall costs and our decision to hedge a greater portion of our net investments in operations that use currencies other than the U.S. dollar as their functional currencies, we changed our plans to issue U.S. dollar-denominated debt and instead issued euro and Swiss franc-denominated notes in 2016. Amounts excluded from effectiveness testing were not material for all other 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 unrealized losses of $106 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, 2018, our longest dated cash flow hedges are interest rate swaps that hedge forecasted interest rate payments over the next 4 years and 10 months.

Fair Value Hedges:

Pre-tax gains/(losses) due to changes in fair value of our interest rate swaps and related hedged long-term debt were recorded in interest and other expense, net:

	For the Years Ended December 31,
	2018				2017				2016
	(in millions)
Borrowings	$	1			$	4			$	6
Derivatives	(1		)		(4		)		(6		)
Total	$	—			$	—			$	—

The carrying amount of our hedged fixed interest rate debt at December 31, 2017 was $801 million and was recorded in the current portion of long-term debt until this debt matured during the third quarter of 2018.

	As of December 31,
	2018				2017
	(in millions)
Notional value of borrowings (and related derivatives)	$	—			$	(801	)
Cumulative fair value hedging adjustments	—				—
Carrying amount of borrowings	$	—			$	(801	)

Fair value hedge ineffectiveness and amounts excluded from effectiveness testing were not material for all periods presented.

Hedges of Net Investments in International Operations:

Net investment hedge derivative contracts:

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 aggregate notional value as of December 31, 2018 was $6.7 billion. The after-tax unrealized gain/(loss) on these net investment hedge contracts was recorded in the cumulative translation adjustment section of other comprehensive income and was $207 million in 2018. In addition, the after-tax realized gain on net investment hedge contracts settled in 2018 was recorded in the cumulative translation adjustment section of other comprehensive income and was $191 million. There were no after-tax gains/(losses) reclassified from accumulated other comprehensive earnings/(losses) into net earnings in 2018. During the fourth quarter of 2018, we replaced six cross-currency swaps with new derivative contracts and received $127 million in cash. Also, during 2018, eight currency forward contracts matured and we received $152 million in cash upon the settlement. The cash received was recorded within other investing activities on the consolidated statement of cash flows. We elected to record changes in the fair value of amounts excluded from the assessment of effectiveness in net earnings. Amounts excluded from the assessment of hedge effectiveness were $120 million in 2018 and were recorded as income in interest and other expense, net. The cash flows from these contracts are reported as other investing activities in the consolidated statement of cash flows.

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,
	2018				2017				2016
	(in millions)
Euro notes	$	126			$	(323	)		$	73
British pound sterling notes	19				(26		)		148
Swiss franc notes	7				(49		)		12
Canadian notes	17				—				—

Economic Hedges:

Pre-tax gains/(losses) recorded in net earnings for economic hedges were:

	For the Years Ended December 31,												Recognized in Earnings
	2018				2017				2016
	(in millions)
Currency exchange contracts:
Intercompany loans and forecasted interest payments	$	98			$	13			$	21			Interest and other expense, net
Forecasted transactions	103				(37		)		(76		)		Cost of sales
Forecasted transactions	(4		)		(2		)		11				Interest and other expense, net
Forecasted transactions	(3		)		3				7				Selling, general and administrative expenses
Commodity contracts	40				(218		)		(101		)		Cost of sales
Total	$	234			$	(241	)		$	(138	)

Note 10. 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
	2018				2017				2018				2017
	(in millions)
Projected benefit obligation at January 1	$	1,762			$	1,614			$	10,852			$	9,814
Service cost	43				46				146				156
Interest cost	61				62				199				199
Benefits paid	(29		)		(32		)		(462		)		(471		)
Settlements paid	(118		)		(111		)		(2		)		—
Actuarial (gains)/losses	(208		)		179				(640		)		180
Divestiture	—				—				—				(14		)
Currency	—				—				(528		)		976
Other	—				4				13				12
Projected benefit obligation at December 31	1,511				1,762				9,578				10,852
Fair value of plan assets at January 1	1,717				1,620				9,327				7,926
Actual return on plan assets	(99		)		217				(243		)		592
Contributions	39				23				323				482
Benefits paid	(29		)		(32		)		(462		)		(471		)
Settlements paid	(118		)		(111		)		(2		)		—
Divestiture	—				—				—				—
Currency	—				—				(478		)		798
Fair value of plan assets at December 31	1,510				1,717				8,465				9,327
Net pension (liabilities)/assets at December 31	$	(1	)		$	(45	)		$	(1,113	)		$	(1,525	)

The accumulated benefit obligation, which represents benefits earned to the measurement date, was $1,488 million at December 31, 2018 and $1,715 million at December 31, 2017 for the U.S. pension plans. The accumulated benefit obligation for the non-U.S. pension plans was $9,374 million at December 31, 2018 and $10,610 million at December 31, 2017.

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. These employees are given an enhanced Company contribution to our employee defined contribution plans. For those salaried and non-union hourly employees who are currently participating in the defined benefit pension plans in the U.S. and Canada, benefit accruals will cease December 31, 2019.

The combined U.S. and non-U.S. pension plans resulted in a net pension liability of $1,114 million at December 31, 2018 and $1,570 million at December 31, 2017. We recognized these amounts in our consolidated balance sheets as follows:

	As of December 31,
	2018				2017
	(in millions)
Prepaid pension assets	$	132			$	158
Other current liabilities	(25		)		(59		)
Accrued pension costs	(1,221		)		(1,669		)
	$	(1,114	)		$	(1,570	)

Certain of our U.S. and non-U.S. plans are underfunded with an 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,
	2018				2017				2018				2017
	(in millions)
Projected benefit obligation	$	52			$	94			$	3,343			$	9,345
Accumulated benefit obligation	50				90				3,194				9,138
Fair value of plan assets	2				2				2,169				7,709

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,
	2018			2017			2018			2017
	(in millions)
Discount rate	4.40	%		3.68	%		2.45	%		2.20	%
Expected rate of return on plan assets	5.75	%		5.50	%		4.80	%		4.90	%
Rate of compensation increase	4.00	%		4.00	%		3.31	%		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,
	2018				2017				2016				2018				2017				2016
	(in millions)
Service cost	$	43			$	46			$	57			$	146			$	156			$	147
Interest cost	61				62				61				199				199				229
Expected return on plan assets	(88		)		(101		)		(97		)		(448		)		(434		)		(418		)
Amortization:
Net loss from experience differences	32				37				42				163				167				120
Prior service cost/(benefit)	2				2				2				(2		)		(3		)		(3		)
Settlement losses and other expenses (1)	35				35				30				5				6				6
Net periodic pension cost	$	85			$	81			$	95			$	63			$	91			$	81

(1)	Settlement losses include $5 million for the year ended December 31, 2018, $11 million for the year ended December 31, 2017 and $15 million for the year ended December 31, 2016 of pension settlement losses for employees who elected lump-

sum payments in connection with our Simplify to Grow Program. Retired employees who elected lump-sum payments resulted in net settlement losses of $31 million for our U.S. plans and $4 million for our non-U.S. plans in 2018, $21 million for our U.S. plans and $6 million for our non-U.S. plans in 2017 and $15 million for our U.S. plans and $6 million for our non-U.S. plans in 2016. See Note 7, Restructuring Program, for more information.

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, 2018, 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 2019:

•	an estimated $168 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,
	2018			2017			2016			2018			2017			2016
Discount rate	3.68	%		4.19	%		4.50	%		2.20	%		2.31	%		3.11	%
Expected rate of return on plan assets	5.50	%		6.25	%		6.75	%		4.90	%		5.14	%		5.87	%
Rate of compensation increase	4.00	%		4.00	%		4.00	%		3.31	%		3.29	%		3.18	%

Plan Assets:

The fair value of pension plan assets was determined using the following fair value measurements:

		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

		As of December 31, 2017
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		2,340				848				1,492				—
Total equity securities		2,347				855				1,492				—
Government bonds		3,237				34				3,203				—
Pooled funds - fixed-income securities		602				449				153				—
Corporate bonds and other fixed-income securities		2,102				133				1,179				790
Total fixed-income securities		5,941				616				4,535				790
Real estate		156				120				13				23
Private equity		2				—				—				2
Cash		86				66				20				—
Other		2				1				—				1
Total assets in the fair value hierarchy		$	8,534			$	1,658			$	6,060			$	816
Investments measured at net asset value		2,439
Total investments at fair value		$	10,973

We excluded plan assets of $67 million at December 31, 2018 and $71 million at December 31, 2017 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 certain fixed-income securities such as insurance contracts are calculated based on the future stream of benefit payments discounted using prevailing interest rates based on the valuation date.

•	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, 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)
Non-U.S. equity		$	—			$	—			$	—			$	—			$	—			$	—
Pooled funds- fixed-income securities		—				—				—				—				—				—
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
Asset Category		January 1, 2017 Balance				Net Realized and Unrealized Gains/ (Losses)				Net Purchases, Issuances and Settlements				Net Transfers Into/(Out of) Level 3				Currency Impact				December 31, 2017 Balance
		(in millions)
Non-U.S. equity		$	3			$	—			$	—			$	(3	)		$	—			$	—
Pooled funds- fixed-income securities		35				—				(16		)		(21		)		2				—
Corporate bond and other fixed-income securities		538				10				182				—				60				790
Real estate		22				1				—				—				—				23
Private equity and other		4				—				—				(1		)		—				3
Total Level 3 investments		$	602			$	11			$	166			$	(25	)		$	62			$	816

The increase in Level 3 pension plan investments during 2018 and 2017 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		2018			2017			2018			2017
Equity securities		15	%		15	%		26	%		28	%
Fixed-income securities		85	%		85	%		65	%		60	%
Real estate		—			—			6	%		6	%
Hedge funds		—			—			2	%		4	%
Private equity		—			—			—	%		1	%
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 31% equity securities (including investments in real estate), approximately 67% fixed-income securities and approximately 2% for other types of securities. Our investment strategy for our largest non-U.S. plan, which comprises 63% of our non-U.S. pension assets, is designed to balance risk and return by diversifying across a wide range of return-seeking and liability matching assets, invested in a range of both active and passive mandates. We target an allocation of approximately 23% in equity securities, 20% credit, and 57% liability matching assets. The strategy uses indexed global developed equities, actively managed global investment grade and alternative credit, real estate and other liability matching assets including a buy-in annuity policy.

Employer Contributions:

In 2018, we contributed $39 million to our U.S. pension plans and $310 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 2019, we estimate that our pension contributions will be $5 million to our U.S. plans and $232 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, 2018 were (in millions):

	2019				2020				2021				2022				2023				2024-2028
U.S. Plans	$	107			$	91			$	91			$	93			$	92			$	483
Non-U.S. Plans	357				362				378				382				395				2,098

Multiemployer Pension Plans:

In accordance with obligations we have under collective bargaining agreements, we made contributions to multiemployer pension plans of $17 million in 2018, $26 million in 2017 and $25 million in 2016. In 2017 and 2016, the only individually significant multiemployer plan we contributed to was the Bakery and Confectionery Union and Industry International Pension Fund (the “Fund”). 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 2018. Our contributions to the Fund were $12 million in 2018, $22 million in 2017 and $21 million in 2016, while our contributions to other multiemployer pension plans that were not individually significant were $5 million in 2018, $4 million in 2017 and $4 million in 2016. Our contributions are based on our contribution rates under our collective bargaining agreements, the number of our eligible employees and Fund surcharges.

Pension Fund	EIN / Pension Plan Number		Pension Protection Act Zone Status		FIP / RP Status Pending / Implemented		Surcharge Imposed		Expiration Date of Collective-Bargaining Agreements
Bakery and Confectionery Union and Industry International Pension Fund	526118572		Red		Implemented		Yes		2/29/2016

Effective January 1, 2012, the Fund’s zone status changed to “Red”. As a result of this certification, beginning in July 2012, we were charged a 5% surcharge on our contribution rates. This surcharge increased to 10% for contributions paid from February 2013 forward. As of August 28, 2016, the 10% surcharge was no longer applicable and we were required to pay higher contributions under the Fund’s rehabilitation plan Default schedule. We continued to contribute to the Fund until December 2018.

In the fourth quarter of 2018, we executed a complete withdrawal from the Fund. We estimated a withdrawal liability of $573 million, which represents our best estimate of the withdrawal liability absent an assessment from the Fund. We anticipate receiving an assessment in 2019, and the ultimate withdrawal liability may change from the currently estimated amount. We will record any future adjustments in the period during which the liability is confirmed or as new information becomes available. We expect to pay the liability over a period of 20 years from the date of the assessment. During 2018, within our North America segment, we recorded a discounted liability and related charge

of $423 million or $316 million net of tax. We determined the net present value of the liability using a risk-free interest rate. We recorded the pre-tax non-cash charges in selling, general and administrative expense (and in other non-cash items, net in the consolidated statement of cash flows) and the liability in long-term other liabilities. During 2018, we also recorded $6 million of accreted interest related to the long-term liability within interest and other expense, net.

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 $57 million in 2018, $43 million in 2017 and $44 million in 2016.

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,
	2018				2017
	(in millions)
Accrued benefit obligation at January 1	$	435			$	394
Service cost	6				7
Interest cost	15				15
Benefits paid	(19		)		(15		)
Currency	(11		)		8
Assumption changes	(39		)		30
Actuarial losses/(gains)	(21		)		(4		)
Accrued benefit obligation at December 31	$	366			$	435

The current portion of our accrued postretirement benefit obligation of $15 million at December 31, 2018 and $16 million at December 31, 2017 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,
	2018			2017			2018			2017
Discount rate	4.37	%		3.66	%		4.40	%		4.24	%
Health care cost trend rate assumed for next year	6.25	%		6.25	%		5.44	%		5.56	%
Ultimate trend rate	5.00	%		4.81	%		5.44	%		5.56	%
Year that the rate reaches the ultimate trend rate	2024			2024			2018			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, 2018
	One-Percentage-Point
	Increase				Decrease
	(in millions)
Effect on postretirement benefit obligation	$	37			$	(30	)
Effect on annual service and interest cost	2				(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,
	2018				2017				2016
	(in millions)
Service cost	$	6			$	7			$	12
Interest cost	14				15				20
Amortization:
Net loss from experience differences	15				14				10
Prior service credit (1)	(39		)		(40		)		(20		)
Net periodic postretirement health care costs	$	(4	)		$	(4	)		$	22

(1)	In the fourth quarter of 2016, the prior service credit included a one-time $9 million curtailment gain related to a change in the eligibility requirement resulting in ongoing amortization of $10 million. We continued to amortize the prior service credit and recorded $39 million in 2018 and $40 million in 2017.

As of December 31, 2018, we expected to amortize from accumulated other comprehensive earnings/(losses) into pre-tax net periodic postretirement health care costs during 2019:

•	an estimated $7 million of net loss from experience differences, and

•	an estimated $39 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,
	2018		2017		2016		2018		2017		2016
Discount rate	3.66%		4.14%		4.60%		4.24%		4.55%		4.77%
Health care cost trend rate	6.25%		6.50%		6.50%		5.56%		5.50%		5.50%

Future Benefit Payments:

Our estimated future benefit payments for our postretirement health care plans at December 31, 2018 were (in millions):

	2019				2020				2021				2022				2023				2024-2028
U.S. Plans	$	11			$	12			$	13			$	14			$	15			$	78
Non-U.S. Plans	5				5				5				5				5				30

Other Costs:

We made contributions to multiemployer medical plans totaling $19 million in 2018, $18 million in 2017 and $19 million in 2016. These plans provide medical benefits to active employees and retirees under certain collective bargaining agreements.

Postemployment Benefit Plans

Obligations:

Our postemployment plans are primarily not funded. The changes in and the amount of the accrued benefit obligation at December 31, 2018 and 2017 were:

	As of December 31,
	2018				2017
	(in millions)
Accrued benefit obligation at January 1	$	76			$	71
Service cost	6				5
Interest cost	4				4
Benefits paid	(7		)		(6		)
Assumption changes	(1		)		—
Actuarial losses/(gains)	(4		)		2
Accrued benefit obligation at December 31	$	74			$	76

The accrued benefit obligation was determined using a weighted-average discount rate of 6.7% in 2018 and 6.5% in 2017, an assumed weighted-average ultimate annual turnover rate of 0.3% in 2018 and 2017, assumed compensation cost increases of 4.0% in 2018 and 2017 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,
	2018				2017				2016
	(in millions)
Service cost	$	6			$	5			$	7
Interest cost	4				4				6
Amortization of net gains	(3		)		(3		)		(1		)
Net periodic postemployment costs	$	7			$	6			$	12

As of December 31, 2018, 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 2019 is approximately $3 million.

Note 11. 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, 2018, there were 61.1 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 $43 million in 2018, $50 million in 2017 and $57 million in 2016 in our results from continuing operations. The deferred tax benefit recorded related to this compensation expense was

$7 million in 2018, $12 million in 2017 and $15 million in 2016. The unamortized compensation expense related to our employee stock options was $42 million at December 31, 2018 and is expected to be recognized over a weighted-average period of 1.3 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
2018	2.68	%		5 years		20.96	%		2.02	%		$	8.30
2017	2.04	%		6 years		22.75	%		1.74	%		$	8.57
2016	1.40	%		6 years		23.11	%		1.61	%		$	7.86

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, 2016	57,034,108			$	26.12					$	1,068	million
Annual grant to eligible employees	7,517,290			39.70
Additional options issued	115,800			42.26
Total options granted	7,633,090			39.74
Options exercised (1)	(8,883,101	)		24.09						$	174	million
Options cancelled	(2,182,485	)		35.23
Balance at December 31, 2016	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				5 years		$	371	million
Exercisable at December 31, 2018	33,902,437			29.35				4 years		$	369	million

(1)	Cash received from options exercised was $231 million in 2018, $257 million in 2017 and $221 million in 2016. The actual tax benefit realized for the tax deductions from the option exercises totaled $21 million in 2018, $31 million in 2017 and $31 million in 2016.

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. We may grant shares of deferred stock units to eligible employees, giving them, in most instances, all of the rights of shareholders, 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 $85 million in 2018, $87 million in 2017 and $83 million in 2016 in our results from continuing operations. The deferred tax benefit recorded related to this compensation expense was $12 million in 2018, $23 million in 2017 and $22 million in 2016. The unamortized compensation expense related to our deferred stock units, performance share units and restricted stock was $113 million at December 31, 2018 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 (3)				Weighted-Average Aggregate Fair Value (3)
Balance at January 1, 2016	9,418,216					$	33.71
Annual grant to eligible employees:				Feb. 22, 2016
Performance share units	1,406,500					34.35
Deferred stock units	1,040,790					39.70
Additional shares granted (1)	864,851			Various		32.90
Total shares granted	3,312,141					35.65				$	118	million
Vested (2)	(3,992,902	)				28.15				$	112	million
Forfeited (2)	(1,143,828	)				37.58
Balance at December 31, 2016	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)	(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)	(2,511,992	)				38.91				$	98	million
Forfeited (2)	(882,535	)				42.00
Balance at December 31, 2018	6,559,010					42.19

(1)	Includes performance share units and deferred stock units.

(2)	Includes performance share units, deferred stock units and restricted stock. The actual tax benefit realized for the tax deductions from the shares vested totaled $3 million in 2018, $7 million in 2017 and $18 million in 2016.

(3)

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 12. 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, 2018, 2017 and 2016. Shares of Common Stock issued, in treasury and outstanding were:

		Shares Issued			Treasury Shares			Shares Outstanding
Balance at January 1, 2016		1,996,537,778			(416,504,624	)		1,580,033,154
Shares repurchased		—			(61,972,713	)		(61,972,713	)
Exercise of stock options and issuance of other stock awards		—			10,305,100			10,305,100
Balance at December 31, 2016		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

Stock plan awards to employees and non-employee directors are issued from treasury shares. At December 31, 2018, 111 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, 2018, we had repurchased approximately $13.0 billion of Common Stock pursuant to this authorization. During 2018, we repurchased approximately 47.3 million shares of Common Stock at an average cost of $42.18 per share, or an aggregate cost of approximately $2.0 billion, all of which was paid during the period. All share repurchases were funded through available cash and commercial paper issuances. As of December 31, 2018, we have approximately $4.7 billion in remaining share repurchase capacity.

Note 13. 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 ($54 million as of December 31, 2018) 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 for unpaid excise taxes, penalties and interest. On March 27, 2015, after several hearings, the Commissioner of the Excise Authority issued an order denying the excise exemption that we claimed for the Indian facility and confirming the Excise Authority’s demands for total taxes and penalties in the amount of 5.8 billion Indian rupees ($84 million as of December 31, 2018) plus accrued interest. We have appealed this order. In addition, the Excise Authority issued additional show cause notices in February 2015, December 2015 and October 2017 on the same issue but covering the periods January to October 2014, November 2014 to September 2015 and October 2015 to June 2017, respectively. These notices added a total of 4.9 billion Indian rupees ($70 million as of December 31, 2018) of allegedly unpaid excise taxes subject to penalties up to an equivalent amount plus accrued interest. Interest will continue to accrue until the matters are resolved. With the implementation of the new

Goods and Services Tax in India in July 2017, we will not receive any further show cause notices for additional amounts on this issue. We believe that the decision to claim the excise tax benefit is valid and we are continuing to contest the show cause notices through the administrative and judicial process. As part of a continuing appeals process, we may be required to deposit an amount up to the equivalent of the total demand for unpaid excise taxes under the five show cause notices, which will be repaid if the proceedings conclude in our favor. We do not expect to be required to make any such deposit before 2020.

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, 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. We are awaiting the outcome of our motion for summary judgment. If our motion is denied, the case could proceed to trial in 2019. Additionally, several class action complaints were filed against Kraft Foods Group and Mondelēz Global in the U.S. District Court for the Northern District of Illinois 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 seek class action certification; an unspecified amount for damages, interest and unjust enrichment; costs and fees; and injunctive, declaratory and other unspecified relief. In June 2015, these suits were consolidated in the Northern District of Illinois. We are contesting the plaintiffs’ request for class certification. 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.

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 incidental to our business, including those noted above in this section. 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, 2018, 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.

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.

Leases:

Rental expenses recorded in continuing operations were $260 million in 2018, $284 million in 2017 and $317 million in 2016. As of December 31, 2018, minimum rental commitments under non-cancelable operating leases in effect at year-end were (in millions):

2019				2020				2021				2022				2023				Thereafter				Total
$	208			$	165			$	114			$	79			$	57			$	157			$	780

Note 14. 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 $169 million in 2018, $174 million in 2017 and $250 million in 2016.

	For the Years Ended December 31,
	2018				2017				2016
	(in millions)
Currency Translation Adjustments:
Balance at beginning of period	$	(7,740	)		$	(8,910	)		$	(8,006	)
Currency translation adjustments	(698		)		984				(843		)
Reclassification to net earnings related to:
Equity method investment transactions	6				—				57
Tax (expense)/benefit	(173		)		214				(135		)
Other comprehensive earnings/(losses)	(865		)		1,198				(921		)
Less: (earnings)/loss attributable to noncontrolling interests	2				(28		)		17
Balance at end of period	(8,603		)		(7,740		)		(8,910		)
Pension and Other Benefit Plans:
Balance at beginning of period	$	(2,144	)		$	(2,087	)		$	(1,934	)
Net actuarial gain/(loss) arising during period	36				(71		)		(491		)
Tax (expense)/benefit on net actuarial gain/(loss)	(16		)		50				70
Losses/(gains) reclassified into net earnings:
Amortization of experience losses and prior service costs	168				174				150
Settlement losses	40				38				36
Tax (expense)/benefit on reclassifications (1)	(36		)		(65		)		(46		)
Currency impact	92				(183		)		128
Other comprehensive earnings/(losses)	284				(57		)		(153		)
Balance at end of period	(1,860		)		(2,144		)		(2,087		)
Derivative Cash Flow Hedges:
Balance at beginning of period	$	(113	)		$	(121	)		$	(46	)
Net derivative gains/(losses)	(58		)		(17		)		(151		)
Tax (expense)/benefit on net derivative gain/(loss)	6				9				20
Losses/(gains) reclassified into net earnings:
Currency exchange contracts - forecasted transactions (2)	—				4				3
Commodity contracts (2)	—				29				9
Interest rate contracts (3)	(11		)		—				83
Tax (expense)/benefit on reclassifications (1)	2				(6		)		(42		)
Currency impact	7				(11		)		3
Other comprehensive earnings/(losses)	(54		)		8				(75		)
Balance at end of period	(167		)		(113		)		(121		)
Accumulated other comprehensive income attributable to Mondelēz International:
Balance at beginning of period	$	(9,997	)		$	(11,118	)		$	(9,986	)
Total other comprehensive earnings/(losses)	(635		)		1,149				(1,149		)
Less: (earnings)/loss attributable to noncontrolling interests	2				(28		)		17
Other comprehensive earnings/(losses) attributable to Mondelēz International	(633		)		1,121				(1,132		)
Balance at end of period	$	(10,630	)		$	(9,997	)		$	(11,118	)

(1)	Taxes reclassified to earnings are recorded within the provision for income taxes.

(2)	These reclassified gains or losses are recorded within cost of sales.

(3)	These reclassified losses are recorded within interest and other expense, net.

Note 15. Income Taxes

On December 22, 2017, new U.S. tax reform legislation 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.

The impact on our 2018 results from finalizing the accounting for the new provisions was a discrete net tax expense of $19 million. The $19 million expense in 2018 is primarily comprised of a $60 million expense related to finalizing the changes in our indefinite reinvestment assertion, partially offset by a $38 million decrease to the provisional transition tax recorded as of December 31, 2017.

In general, the transition tax is a result of the deemed repatriation imposed by the new legislation that results in the taxation of our accumulated foreign earnings and profits (“E&P”) at a 15.5% rate on liquid assets (i.e. cash and other specified assets) and 8% on the remaining unremitted foreign E&P, both net of foreign tax credits. We finalized the accounting for this provision during the fourth quarter of 2018. During 2018 we recognized a $38 million decrease to the $1,317 million provisional transition tax recorded as December 31, 2017 for a total transition net tax expense and gross U.S. tax reform transition tax liability (before payments) of $1,279 million which will be paid in installments through 2026.

During the fourth quarter of 2018, we also finalized our accounting for the deferred tax benefit resulting from the revaluation of our net U.S. deferred tax liabilities. The $1,311 million deferred tax benefit recorded as of 2017 year-end was reduced to $1,295 million as a result of the change to lag accounting for Keurig.

As a result of U.S. tax reform, we changed our indefinite reinvestment assertion for most companies owned directly by our U.S. subsidiaries. As of 2017 year end, we accrued deferred tax assets related to two entities where the deferred tax benefits were expected to be realized. As of 2018 year end, we finalized our analysis related to the change in our indefinite reinvestment assertion and recognized $60 million in deferred tax expense to capture the foreign and state tax impacts of the US GAAP over tax basis difference in those subsidiaries where we are no longer indefinitely reinvested.

The legislation 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”). As of December 31, 2018, we have made a policy decision and elected to treat taxes due from GILTI as a current period expense.

Earnings/(losses) from continuing operations before income taxes and the provision for income taxes consisted of:

	For the Years Ended December 31,
	2018				2017				2016
	(in millions)
Earnings/(losses) from continuing operations before income taxes:
United States	$	(170	)		$	354			$	(364	)
Outside United States	3,012				2,770				1,818
	$	2,842			$	3,124			$	1,454
Provision for income taxes:
United States federal:
Current	$	(34	)		$	1,322			$	(227	)
Deferred	171				(1,274		)		127
	137				48				(100		)
State and local:
Current	23				32				7
Deferred	61				30				7
	84				62				14
Total United States	221				110				(86		)
Outside United States:
Current	552				541				490
Deferred	—				15				(290		)
Total outside United States	552				556				200
Total provision for income taxes	$	773			$	666			$	114

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,
	2018			2017			2016
U.S. federal statutory rate	21.0	%		35.0	%		35.0	%
Increase/(decrease) resulting from:
State and local income taxes, net of federal tax benefit	0.4	%		0.8	%		0.8	%
Foreign rate differences	(1.9	)%		(10.8	)%		(18.6	)%
Changes in judgment on realizability of deferred tax assets	(0.4	)%		3.2	%		—
Reversal of other tax accruals no longer required	(1.8	)%		(1.7	)%		(7.6	)%
Tax accrual on investment in Keurig (including tax impact of the gain from the KDP transaction)	8.4	%		1.2	%		1.2	%
Excess tax benefits from equity compensation	(0.8	)%		(1.2	)%		—
Tax legislation (non-U.S. tax reform)	0.3	%		(2.6	)%		(4	)%
U.S. tax reform - deferred benefit from tax rate change	—			(41.5	)%		—
U.S. tax reform - transition tax	(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)	1.1	%		—			—
Other	0.1	%		(1.3	)%		1.0	%
Effective tax rate	27.2	%		21.3	%		7.8	%

(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 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, 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 an increase in domestic earnings as compared to the prior year. 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.

Our 2016 effective tax rate of 7.8% was favorably impacted by the mix of pre-tax income in various non-U.S. tax jurisdictions and net tax benefits from $161 million of discrete one-time events. The discrete net tax benefits related to favorable audit settlements and statutes of limitations in various jurisdictions and the net reduction of our U.K. and French deferred tax liabilities resulting from tax legislation enacted during 2016 that reduced the corporate income tax rates in each country.

Tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of:

	As of December 31,
	2018				2017
	(in millions)
Deferred income tax assets:
Accrued postretirement and postemployment benefits	$	147			$	191
Accrued pension costs	349				313
Other employee benefits	147				155
Accrued expenses	283				269
Loss carryforwards	707				773
Tax credit carryforwards	747				370
Other	302				342
Total deferred income tax assets	2,682				2,413
Valuation allowance	(1,153		)		(853		)
Net deferred income tax assets	$	1,529			$	1,560
Deferred income tax liabilities:
Intangible assets	$	(3,861	)		$	(3,977	)
Property, plant and equipment	(473		)		(452		)
Other	(492		)		(153		)
Total deferred income tax liabilities	(4,826		)		(4,582		)
Net deferred income tax liabilities	$	(3,297	)		$	(3,022	)

Our significant valuation allowances are in the U.S., China and Mexico. The U.S. valuation allowance relates to excess foreign tax credits generated by the deemed repatriation under U.S. tax reform. The valuation allowance in China results from a change in judgment in 2017 as to the realizability of one of our Chinese entity’s deferred tax

assets. The Mexico valuation allowance relates to loss carryforwards where we do not currently expect to generate gains of the proper character to utilize the carryforwards in the future.

At December 31, 2018, the Company has pre-tax loss carryforwards of $3,744 million, of which $1,114 million will expire at various dates between 2019 and 2038 and the remaining $2,630 million can be carried forward indefinitely.

The unremitted earnings as of December 31, 2018 in those subsidiaries where we continue to be indefinitely reinvested is approximately $1.7 billion. We currently have not recognized approximately $115 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,
	2018				2017				2016
	(in millions)
January 1	$	579			$	610			$	756
Increases from positions taken during prior periods	36				33				18
Decreases from positions taken during prior periods	(43		)		(93		)		(123		)
Increases from positions taken during the current period	57				64				90
Decreases relating to settlements with taxing authorities	(45		)		(54		)		(75		)
Reductions resulting from the lapse of the applicable statute of limitations	(31		)		(29		)		(43		)
Currency/other	(37		)		48				(13		)
December 31	$	516			$	579			$	610

As of January 1, 2018, our unrecognized tax benefits were $579 million. If we had recognized all of these benefits, the net impact on our income tax provision would have been $524 million. Our unrecognized tax benefits were $516 million at December 31, 2018, and if we had recognized all of these benefits, the net impact on our income tax provision would have been $463 million. Within the next 12 months, our unrecognized tax benefits could increase by approximately $40 million due to unfavorable audit developments or decrease by approximately $151 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 $212 million as of January 1, 2018 and $180 million as of December 31, 2018. Our 2018 provision for income taxes included $9 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 2013 and years still open to examination by non-U.S. tax authorities in major jurisdictions include (earliest open tax year in parentheses): Brazil (2013), China (2008), France (2014), India (2005), Switzerland (2014) and the United Kingdom (2015).

Note 16. Earnings per Share

Basic and diluted earnings per share (“EPS”) were calculated as follows:

	For the Years Ended December 31,
	2018				2017				2016
	(in millions, except per share data)
Net earnings	$	3,395			$	2,842			$	1,645
Noncontrolling interest (earnings)	(14		)		(14		)		(10		)
Net earnings attributable to Mondelēz International	$	3,381			$	2,828			$	1,635
Weighted-average shares for basic EPS	1,472				1,513				1,556
Plus incremental shares from assumed conversions of stock options and long-term incentive plan shares	14				18				17
Weighted-average shares for diluted EPS	1,486				1,531				1,573
Basic earnings per share attributable to Mondelēz International	$	2.30			$	1.87			$	1.05
Diluted earnings per share attributable to Mondelēz International	$	2.28			$	1.85			$	1.04

We exclude antidilutive Mondelēz International stock options from our calculation of weighted-average shares for diluted EPS. We excluded antidilutive stock options of 11.6 million for the year ended December 31, 2018, 8.5 million for the year ended December 31, 2017 and 7.8 million for the year ended December 31, 2016.

Note 17. 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 in 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:

•	Latin America

•	AMEA

•	Europe

•	North America

On October 1, 2016, we integrated our 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 operating segment, while the remaining Middle East and African countries were combined within our Asia Pacific region to form the AMEA operating segment. We have reflected the segment change as if it had occurred in all periods presented.

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, net gain 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,
	2018				2017				2016
	(in millions)
Net revenues:
Latin America	$	3,202			$	3,566			$	3,392
AMEA	5,729				5,739				5,816
Europe	10,122				9,794				9,755
North America	6,885				6,797				6,960
Net revenues	$	25,938			$	25,896			$	25,923

	For the Years Ended December 31,
	2018				2017				2016
	(in millions)
Earnings before income taxes:
Operating income:
Latin America	$	410			$	564			$	272
AMEA	702				514				505
Europe	1,734				1,610				1,198
North America	849				1,144				1,128
Unrealized gains/(losses) on hedging activities (mark-to-market impacts)	141				(96		)		(94		)
General corporate expenses	(335		)		(282		)		(287		)
Amortization of intangibles	(176		)		(178		)		(176		)
Net gain on divestitures	—				186				9
Acquisition-related costs	(13		)		—				(1		)
Operating income	3,312				3,462				2,554
Benefit plan non-service income (1)	50				44				15
Interest and other expense, net	(520		)		(382		)		(1,115		)
Earnings before income taxes	$	2,842			$	3,124			$	1,454

(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 2018. Our five largest customers accounted for 16.8% and our ten largest customers accounted for 23.0% of net revenues from continuing operations in 2018.

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 5, Goodwill and Intangible Assets*,* Note 7, Restructuring Program, and Note 13, Commitments and Contingencies. Also see Note 8, Debt and Borrowing Arrangements, and Note 9, 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,
	2018				2017				2016
	(in millions)
Total assets:
Latin America (1)	$	4,699			$	4,948			$	5,156
AMEA (1)	9,571				9,883				10,031
Europe (1)	19,426				21,611				19,934
North America (1)	21,015				20,709				20,694
Equity method investments	7,123				6,193				5,553
Unallocated assets and adjustments (2)	895				(387		)		138
Total assets	$	62,729			$	62,957			$	61,506

(1)	Segment assets do not reflect outstanding intercompany asset balances as intercompany accounts are 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,
	2018				2017				2016
	(in millions)
Depreciation expense:
Latin America	$	97			$	107			$	92
AMEA	159				157				161
Europe	248				239				253
North America	131				135				141
Total depreciation expense	$	635			$	638			$	647

	For the Years Ended December 31,
	2018				2017				2016
	(in millions)
Capital expenditures:
Latin America	$	261			$	226			$	321
AMEA	277				280				349
Europe	326				278				294
North America	231				230				260
Total capital expenditures	$	1,095			$	1,014			$	1,224

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,
	2018				2017				2016
	(in millions)
Net revenues:
United States	$	6,401			$	6,275			$	6,329
Other	19,537				19,621				19,594
Total net revenues	$	25,938			$	25,896			$	25,923

	As of December 31,
	2018				2017				2016
	(in millions)
Long-lived assets:
United States	$	1,481			$	1,468			$	1,508
Other	7,539				7,733				7,229
Total long-lived assets	$	9,020			$	9,201			$	8,737

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, 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 (1)
	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

	For the Year Ended December 31, 2016 (1)
	Latin America				AMEA				Europe				North America				Total
	(in millions)
Biscuits	$	734			$	1,592			$	2,765			$	5,565			$	10,656
Chocolate	743				1,897				4,778				255				7,673
Gum & Candy	938				953				916				1,140				3,947
Beverages	657				611				177				—				1,445
Cheese & Grocery	320				763				1,119				—				2,202
Total net revenues	$	3,392			$	5,816			$	9,755			$	6,960			$	25,923

(1)	During the first quarter of 2018, we realigned some of our products across product categories and as such, we reclassified the product category net revenues on a basis consistent with the 2018 presentation.

Note 18. Quarterly Financial Data (Unaudited)

Our summarized operating results by quarter are detailed below.

	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)	$	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

	2017 Quarters
	First				Second				Third				Fourth
	(in millions, except per share data)
Net revenues	$	6,414			$	5,986			$	6,530			$	6,966
Gross profit	2,518				2,314				2,549				2,653
Provision for income taxes	(154		)		(84		)		(272		)		(156		)
Gain on equity method investment transactions	—				—				—				40
Equity method investment net earnings	90				67				92				95
Net earnings (1)	$	657			$	500			$	982			$	703
Noncontrolling interest	(3		)		(2		)		(1		)		(8		)
Net earnings attributable to Mondelēz International	$	654			$	498			$	981			$	695
Weighted-average shares for basic EPS	1,529				1,519				1,507				1,497
Plus incremental shares from assumed conversions of stock options and long-term incentive plan shares	21				20				17				16
Weighted-average shares for diluted EPS	1,550				1,539				1,524				1,513
Per share data:
Basic EPS attributable to Mondelēz International:	$	0.43			$	0.33			$	0.65			$	0.46
Diluted EPS attributable to Mondelēz International:	$	0.42			$	0.32			$	0.64			$	0.46
Dividends declared	$	0.19			$	0.19			$	0.22			$	0.22

(1)	See the following table for significant items that affected the comparability of earnings each quarter.

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 2018 and 2017, we recorded the following pre-tax (charges)/benefits in earnings from continuing operations:

	2018 Quarters
	First				Second				Third				Fourth
	(in millions)
Asset impairment and exit costs	$	(54	)		$	(111	)		$	(125	)		$	(99	)
Divestiture-related costs	3				—				—				(2		)
Gain on equity method investment transaction	—				—				757				21
Gain/(loss) related to interest rate swaps	14				(5		)		1				—
Loss on early extinguishment of debt and related expenses	—				(140		)		—				—
Impact from the resolution of tax matters	—				(15		)		—				26
Impact from pension participation changes	—				(409		)		(3		)		(17		)
	$	(37	)		$	(680	)		$	630			$	(71	)

	2017 Quarters
	First				Second				Third				Fourth
	(in millions)
Asset impairment and exit costs	$	(166	)		$	(176	)		$	(182	)		$	(118	)
Net gain on divestitures	—				(3		)		187				2
Divestiture-related costs	(19		)		(9		)		2				(8		)
Loss on early extinguishment of debt and related expenses	—				(11		)		—				—
Impact from the resolution of tax matters	58				—				215				8
	$	(127	)		$	(199	)		$	222			$	(116	)

Items impacting our operating results are discussed in Note 1, Summary of Significant Accounting Policies*,* Note 2, Divestitures and Acquisitions, Note 5, Goodwill and Intangible Assets, Note 6, Equity Method Investments, Note 7, Restructuring Program*,* Note 8, Debt and Borrowing Arrangements, Note 10, Benefit Plans, and Note 13, Commitments and Contingencies – Tax Matters.