item 14 controls procedures part iv item 15item 14 principal accounting fees services see item 11 part iv item 15item 14 principal accounting fees services see item 11 part iv item 15item 14 principal accounting fees services see item 11 part iv item 15item 14 principal accounting fees services see item 11 part iv item 15item 14 principal accountant fees services information principal accountant fees 2007 proxy statement heading “audit committee matters independent auditor fees” information audit committee’s preapproval policies procedures 2007 proxy statement heading “audit committee matters preapproval policies” information incorporated reference annual report part iv item 15item 14 principal accountant fees services information principal accountant fees 2009 proxy statement heading “audit committee matters independent auditors’ fees” information audit committee’s preapproval policies procedures 2009 proxy statement heading “audit committee matters preapproval policies” information incorporated reference annual report part iv item 15item 14 principal accountant fees services information principal accountant fees 2010 proxy statement heading “audit committee matters independent auditors’ fees” information audit committee’s preapproval policies procedures 2010 proxy statement heading “audit committee matters preapproval policies” information incorporated reference annual report part iv item 15item 14 principal accountant fees services information required item 14 included heading “audit committee matters” 2011 proxy statement information incorporated reference annual report part iv item 15item 14 principal accountant fees services information required item 14 included heading “board committees membership audit committee” 2012 proxy statement information incorporated reference annual report part iv item 15item 14 principal accountant fees services information required item 14 included heading “board committees membership audit committee” 2013 proxy statement information incorporated reference annual report part iv item 15item 14 principal accountant fees services information required item 14 included heading “board committees membership audit committee” 2014 proxy statement information incorporated reference annual report part iv item 15item 14 principal accountant fees services information required item 14 included heading “board committees membership audit committee” 2015 proxy statement information incorporated reference annual report part iv item 15item 14 principal accountant fees services information required item 14 included heading “board committees membership audit committee” 2017 proxy statement information incorporated reference annual report part iv item 15item 14 principal accountant fees services information required item 14 included heading “board committees membership audit committee” 2018 proxy statement information incorporated reference annual report part iv item 15item 14 principal accountant fees services information required item 14 included heading “board committees membership audit committee” 2019 proxy statement information incorporated reference annual report part iv item 15item 14 principal accountant fees services information required item 14 included heading “board committees membership audit committee” 2020 proxy statement information incorporated reference annual report part iv item 15item 14 principal accountant fees services information required item 14 included heading “board committees membership audit committee” 2016 proxy statement information incorporated reference annual report part iv item 15item 14 principal accountant fees services information required item 14 included heading “board committees membership audit committee” 2021 proxy statement information incorporated reference annual report part iv item 15item 14 exhibits financial statement schedules reports form 8k index consolidated financial statements schedules listed omitted either schedules required applicable b reports form 8k last quarter 2001 company filed current reports form 8k october 18 2001 covering item 5 events item 7 financial statements pro forma financial information exhibits contained press release announcing companys financial results quarter ended september 30 2001 november 2 2001 covering item 5 events item 7 financial statements pro forma financial information exhibits contained terms agreement certain documents related companys public offering debt subsequent december 31 2001 company filed current report form 8k january 30 2002 covering item 5 events item 7 financial statements pro forma financial information exhibits contained companys consolidated financial statements year ended december 31 2001 c following exhibits filed part report exhibit nos 1041015 management contracts compensatory plans arrangements 1 incorporated reference registrants form s1 filed securities exchange commission march 16 2001 33357162 2 incorporated reference registrants amendment 1 form s1 filed securities exchange commission may 2 2001 33357162 3 incorporated reference registrants amendment 2 form s1 filed securities exchange commission may 11 2001 33357162 4 incorporated reference registrants amendment 5 form s1 filed securities exchange commission june 8 2001 33357162 5 incorporated reference registrants form s3 filed securities exchange commission august 16 2001 33367770 6 incorporated reference annual report form 10k philip morris companies inc philip morris year ended december 31 1995 sec file 18940 7 incorporated reference annual report form 10k philip morris year ended december 31 1997 sec file 18940 8 incorporated reference proxy statement philip morris dated march 10 1997 sec file 18940 9 incorporated reference proxy statement philip morris dated march 10 2000 sec file 18940 10 compensation plans maintained philip morris subsidiaries officers registrant historically participated 11 incorporated reference registrants report form 8k filed securities exchange commission january 30 2002 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized kraft foods inc james p dollive james p dollive senior vice president chief financial officer date march 14 2002 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated report independent accountants board directors kraft foods inc audits consolidated financial statements referred report dated january 28 2002 appearing 2001 annual report shareholders kraft foods inc report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 14a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois january 28 2002 s1 kraft foods inc subsidiaries valuation qualifying accounts years ended december 31 2001 2000 1999 millions notes primarily related divestitures acquisitions currency translation b represents charges allowances created s2 item 7 managements discussion analysis financial condition results operations item 7aitem 7 managements discussion analysis financial condition results operations information called item hereby incorporated reference paragraphs captioned managements discussion analysis financial condition results operations mda pages 23 38 2003 annual report made part hereof item 7aitem 7 managements discussion analysis financial condition results operation managements discussion analysis financial condition results operations description company manufactures markets packaged food products consisting principally beverages cheese snacks convenient meals various packaged grocery products kraft manages reports operating results two units kraft north america commercial kraft international commercial reportable segments kraft north america commercial organized managed principally product category kraft international commercials operations organized managed geographic location december 31 2004 altria group inc held 980 combined voting power krafts outstanding capital stock owned 854 outstanding shares krafts capital stock november 15 2004 company announced sale substantially sugar confectionery business approximately 15 billion transaction subject regulatory approval expected completed second quarter 2005 company reflected results sugar confectionery business discontinued operations consolidated statements earnings years presented accordingly historical statements earnings amounts included managements discussion analysis financial condition results operations restated reflect discontinued operation assets related sugar confectionery business reflected assets discontinued operations held sale consolidated balance sheet december 31 2004 january 2004 company announced new global organization structure resulted new segments fourth quarter 2004 following sale sugar confectionery business company realigned north american segments kraft north america commercials new segments reflected managements discussion analysis us beverages us cheese canada north america foodservice us convenient meals us grocery us snacks cereals kraft international commercials segments europe middle east africa latin america asia pacific new segment structure north america reflects shift certain divisions brands segments closely align businesses consumer sectors provide focus separate beverage grocery businesses benefit synergies grain based products historical data restated reflect new segment structure executive summary following executive summary intended provide significant highlights discussion analysis follows consolidated operating resultsthe changes companys earnings continuing operations diluted earnings per share eps continuing operations year ended december 31 2004 year ended december 31 2003 due primarily following millions except per share data see discussion events affecting comparability statement earnings amounts consolidated operating results section following discussion analysis unfavorable impact asset impairment exit implementation costs net earnings diluted eps due primarily following restructuring programin january 2004 company announced threeyear restructuring program part program company anticipates closing sale twenty plants elimination approximately six thousand positions 2004 2006 company expects incur 12 billion pretax charges reflecting asset disposals severance implementation costs including pretax charges 641 million incurred 2004 included 641 million asset impairment exit costs 583 million restructuring program 58 million implementation costs associated restructuring program 8 million included loss discontinued operations consolidated statement earnings november 2004 company completed valuation equity investment joint venture turkey following determination nontemporary decline value occurred valuation resulted 47 million noncash pretax charge details see note 3 consolidated financial statements business environment section following discussion analysis lower effective income tax ratethe companys reported effective income tax rate decreased 26 percentage points 323 resulting 81 million favorable resolution outstanding tax item majority occurred third quarter 2004 reversal 35 million tax accruals longer required due tax events occurred first quarter 2004 currencythe favorable currency impact net earnings diluted eps due primarily weakness us dollar versus euro canadian dollar continuing operationsthe decrease results continuing operations due primarily following •lower income kraft north america commercial reflecting higher commodity costs increased promotional programs higher benefit costs partially offset higher pricing favorable volumemix •lower income kraft international commercial reflecting higher costs including benefits promotional programs commodity costs details see consolidated operating results operating results business segment sections following discussion analysis 2005 forecasted resultsin january 2005 company announced expects 2005 fullyear diluted eps net earnings range 160 165 forecast includes anticipated charges 018 costs related restructuring program 012 onetime impacts upon completion divestitures reflects approximately 004 ongoing dilution divestitures company also announced expects 2005 fullyear diluted eps continuing operations basis range 175 180 factors described section entitled forwardlooking cautionary statements part item 1 annual report form 10k represent continuing risks forecasts discussion analysis critical accounting policies estimates note 2 consolidated financial statements includes summary significant accounting policies methods used preparation companys consolidated financial statements instances company must use accounting policy method policy method permitted accounting principles generally accepted united states america us gaap preparation financial statements includes use estimates assumptions affect number amounts included companys financial statements including among things employee benefit costs income taxes company bases estimates historical experience assumptions believes reasonable actual amounts ultimately different previous estimates revisions included companys consolidated results operations period actual amounts become known historically aggregate differences companys estimates actual amounts year significant impact companys consolidated financial statements selection disclosure companys critical accounting policies estimates discussed companys audit committee following review significant assumptions estimates well accounting policies methods used preparation companys consolidated financial statements employee benefit plans discussed note 15 consolidated financial statements company provides range benefits employees retired employees including pensions postretirement health care benefits postemployment benefits primarily severance company records amounts relating plans based calculations specified us gaap include various actuarial assumptions discount rates assumed rates return plan assets compensation increases turnover rates health care cost trend rates company reviews actuarial assumptions annual basis makes modifications assumptions based current rates trends deemed appropriate permitted us gaap effect modifications generally amortized future periods company believes assumptions utilized recording obligations plans presented note 15 consolidated financial statements reasonable based experience advice actuaries years ended december 31 2004 2003 2002 company recorded following amounts consolidated statements earnings employee benefit plans 2004 net expense employee benefit plans 635 million increased 288 million 2003 amount cost increase primarily relates increased postemployment benefit costs resulting several workforce reduction programs 2004 part overall restructuring program 167 million lowering companys discount rate assumption pension postretirement benefit plans partially offset impact medicare prescription drug improvement modernization act 2003 discussed 2003 net expense employee benefit plans 347 million increased 17 million 2002 amount cost increase primarily relates higher settlement losses us pension plan lowering companys discount rate assumption pension postretirement benefit plans increased amortization deferred losses well higher matching employee contributions savings plan partially offset 148 million costs 2002 associated voluntary early retirement integration programs december 2003 united states enacted law medicare prescription drug improvement modernization act 2003 act establishes prescription drug benefit medicare known medicare part federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare part may 2004 financial accounting standards board fasb issued fasb staff position 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 fsp 1062 fsp 1062 requires companies account effect subsidy benefits attributable past service actuarial experience gain reduction service cost component net postretirement health care costs amounts attributable current service benefit provided least actuarially equivalent medicare part company adopted fsp 1062 third quarter 2004 impact adoption 2004 reduction pretax net postretirement health care costs increase net earnings 24 million addition july 1 2004 company reduced accumulated postretirement benefit obligation subsidy related benefits attributed past service 315 million decreased unrecognized actuarial losses amount december 31 2004 us pension postretirement plans company reduced discount rate assumption 625 575 modified health care cost trend rate assumption december 31 2004 company reduced longterm rate return assumption 90 80 based investment return pension assets primarily us equity securities company presently anticipates assumption changes coupled amortization lower returns pension fund assets prior years partially offset full year effect adopting medicare part result increase 2005 pretax benefit expense approximately 200 million approximately 008 per share expected increase benefit expense prior consideration impact threeyear restructuring program announced january 2004 company presently anticipate change 2005 assumptions fiftybasis point decline increase companys discount rate would increase decrease companys pension postretirement expense approximately 65 million similarly fiftybasis point decrease increase expected return plan assets would increase decrease companys pension expense us pension plans approximately 31 million see note 15 consolidated financial statements sensitivity discussion assumed health care cost trend rates revenue recognition required us gaap company recognizes revenues net sales incentives including shipping handling charges billed customers upon shipment goods title risk loss pass customers shipping handling costs classified part cost sales provisions allowances estimated sales returns bad debts also recorded companys consolidated financial statements amounts recorded provisions related allowances significant companys consolidated financial position results operations depreciation amortization goodwill valuation company depreciates property plant equipment amortizes definite life intangibles using straightline methods estimated useful lives assets company required conduct annual review goodwill intangible assets potential impairment goodwill impairment testing requires comparison carrying value fair value reporting unit carrying value exceeds fair value goodwill considered impaired amount impairment loss measured difference carrying value implied fair value goodwill determined using discounted cash flows impairment testing nonamortizable intangible assets requires comparison fair value carrying value intangible asset carrying value exceeds fair value intangible asset considered impaired reduced fair value calculations may affected market conditions noted business environment section well interest rates general economic conditions 2004 company completed annual review goodwill intangible assets review resulted 29 million noncash pretax charge related intangible asset impairments small confectionery business united states certain brands mexico portion charge 12 million recorded asset impairment exit costs consolidated statement earnings remainder charge 17 million included discontinued operations impairment longlived assets company reviews longlived assets including amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable company performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use company groups assets liabilities lowest level cash flows separately identifiable impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal marketing advertising costs required us gaap company records marketing costs expense year costs relate company defer amounts yearend consolidated balance sheet respect marketing costs company expenses advertising costs incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period based principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year related party transactions discussed note 4 consolidated financial statements altria group incs subsidiary altria corporate services inc provides company various services including planning legal treasury accounting auditing insurance human resources office secretary corporate affairs information technology aviation tax services billings services based cost altria corporate services inc provide services management fee 310 million 318 million 327 million years ended december 31 2004 2003 2002 respectively costs paid altria corporate services inc monthly although cost services cannot quantified standalone basis management assessed billings reasonable based level support provided altria corporate services inc reflect services provided cost nature services reviewed annually companys audit committee comprised independent directors effects transactions included operating cash flows companys consolidated statements cash flows december 2004 company purchased two corporate aircraft altria corporate services inc aggregate purchase price approximately 47 million company also entered aircraft management agreement altria corporate services inc december 2004 pursuant altria corporate services inc agreed perform aircraft management pilot services maintenance aviation services company 2004 altria corporate services inc provided company certain financial services including payroll accounts payable processing cost approximately 25 million included 310 million charge shown beginning 2005 company perform functions similar cost december 31 2004 2003 company shortterm amounts payable altria group inc 227 million 543 million respectively interest borrowings based applicable london interbank offered rate income taxes company accounts income taxes accordance statement financial accounting standards sfas 109 accounting income taxes accounts company included consolidated federal income tax return altria group inc income taxes generally computed separate company basis extent foreign tax credits capital losses credits generated company cannot currently utilized separate company basis utilized altria group incs consolidated federal income tax return benefit recognized calculation companys provision income taxes based companys current estimate benefit calculated approximately 70 million 100 million 240 million years ended december 31 2004 2003 2002 respectively benefit dependent variety tax attributes tendency vary year company makes payments reimbursed altria group inc tax effects resulting inclusion altria group incs consolidated federal income tax return provision income taxes based domestic international statutory income tax rates tax planning opportunities available company jurisdictions operates significant judgment required determining income tax provisions evaluating tax positions company establishes additional provisions income taxes despite belief existing tax positions fully supportable remain certain positions likely challenged may sustained review tax authorities company adjusts additional accruals light changing facts circumstances consolidated tax provision includes impact changes accruals considered appropriate well related net interest companys filing positions ultimately upheld audits respective taxing authorities possible provision income taxes future years may reflect favorable adjustments october 22 2004 american jobs creation act jobs act signed law jobs act provides deduction 85 certain foreign earnings repatriated company may elect apply provision qualifying earnings repatriations 2005 conducting analyses effects us treasury department recently provided additional clarifying language key elements provision consideration part companys evaluation company expects complete evaluation effects repatriation provision within reasonable period time company expect repatriation provisions jobs act significant impact consolidated results operations consolidated cash flows jobs act also provides tax relief us domestic manufacturers providing tax deduction 9 lesser qualified production activities income taxable income december 2004 fasb issued fasb staff position 1091 application fasb statement 109 accounting income taxes tax deduction qualified production activities provided american jobs creation act 2004 fsp 1091 fsp 1091 requires companies account deduction special deduction rather rate reduction accordance sfas 109 therefore company recognize benefits expected significant year earned consolidation consolidated financial statements include kraft foods inc well whollyowned majorityowned subsidiaries investments kraft foods inc exercises significant influence 2050 ownership interest accounted equity method accounting investments kraft foods inc ownership interest less 20 exercise significant influence accounted cost method accounting intercompany transactions balances eliminated business environment company subject number challenges may adversely affect businesses challenges discussed forwardlooking cautionary statements section part item 1 annual report form 10k include •fluctuations commodity prices •movements foreign currencies •competitive challenges various products markets including price gaps competitor products increasing priceconsciousness consumers •a rising cost environment •a trend toward increasing consolidation retail trade consequent pricing pressure inventory reductions •a growing presence hard discount retailers primarily europe emphasis ownlabel products •changing consumer preferences including diet trends •competitors different profit objectives less susceptibility currency exchange rates •concerns andor regulations regarding food safety quality health including genetically modified organisms transfatty acids obesity increased government regulation food industry could result increased costs company fluctuations commodity prices lead retail price volatility intense price competition influence consumer trade buying patterns 2004 companys commodity costs average higher incurred 2003 notably dairy coffee meat nuts energy packaging adversely affected earnings dairy costs rose historical highs first half 2004 moderated second half 2004 company negative pretax impact commodities approximately 930 million compared 2003 ordinary course business company subject many influences impact timing sales customers including timing holidays annual special events seasonality certain products significant weather conditions timing company customer incentive programs customer inventory programs company initiatives improve supply chain efficiency including efforts align product shipments closely consumption shifting customer marketing programs consumption based approach financial situations customers general economic conditions build business confronting challenges company operates seven business strategies 1 build superior consumer brand value 2 build shopper demand superior customer collaboration 3 transform portfolio 4 expand global scale 5 drive costs assets 6 strengthen employee organizational excellence 7 act responsibly first strategyto build superior consumer brand valueinvolves improving companys products using valueadded packaging developing innovative new products managing price gaps effectively 2004 company increased marketing spending approximately 460 million versus 2003 manage price gaps increase media presence drive growth enhance brand equity support new products second strategyto build shopper demand superior customer collaborationrecognizes importance companys retail partners fulfilling vision company works together customers better understand consumer behavior stores develop instore programs increase shopper demand reduce costs efficient store delivery systems third strategy transform portfolio innovation investment acquisition divestiture company accelerating shift portfolio toward businesseswhether global regional localthat offer company sustainable competitive advantage better enable management focus opportunities meet consumer needs create longterm value company particular company responding growing consumer demand products meet health wellness convenience needs company enhancing nutrition profile portfolio creating new products reformulating existing products including reducing eliminating transfat wherever possible company addressing convenience needs offering convenient packaging singleserve resealable packaging products requiring reduced preparation fourth strategyto expand companys global scalefocuses improving growth prospects key developing markets offer greatest growth potential particular company expanding marketing infrastructure investments large growing markets china brazil mexico russia fifth strategyto drive costs assetsincludes companys announced threeyear restructuring program objectives realigning lowering cost structure optimizing capacity utilization part program discussed note 3 consolidated financial statements company anticipates closing sale twenty plants elimination approximately six thousand positions 2004 2006 company expects incur 12 billion pretax charges reflecting asset disposals severance implementation costs including 641 million incurred 2004 approximately onehalf pretax charges expected require cash payments addition company expects incur approximately 140 million capital expenditures 2004 2006 implement restructuring program including 46 million spent 2004 cost savings result restructuring program approximately 127 million 2004 expected increase incremental amount 120 million 140 million 2005 anticipated reach annualized cost savings approximately 400 million 2006 expected used supporting brandbuilding initiatives sixth strategyto strengthen employee organizational excellencereflects need develop organizational capabilities support employees meeting companys business challenges wherever work regard 2004 company completed reorganization resource alignment new global structure addition new vision organizationto help people around world eat live betterwas introduced human resource policies processes practices harmonized across company final strategy act responsibly company strives sustainable growth seeks business success ways honor ethical legal standards respect people communities natural environment strategy includes commitment strong compliance integrity programs sound corporate governance well number health wellness initiatives enhanced nutrition labeling development funding communitybased programs voluntary limitations advertising younger children also includes taking steps contribute sustainability companys agricultural supply base several programs respected international local partners company outlines commitment corporate responsibility kraft code conduct employees wwwkraftcomresponsibilityhomeaspx acquisitions dispositions one element third strategy strengthen companys brand portfolios disciplined programs selective acquisitions divestitures company constantly reviewing potential acquisition candidates time sells businesses accelerate shift portfolio toward businesseswhether global regional localthat offer company sustainable competitive advantage impact future acquisition divestiture could material impact companys consolidated financial position results operations cash flows november 15 2004 company announced sale substantially sugar confectionery business approximately 15 billion proposed sale includes life savers creme savers altoids trolli sugus brands transaction subject regulatory approval expected completed second quarter 2005 company reflected results sugar confectionery business discontinued operations consolidated statements earnings years presented assets related sugar confectionery business reflected assets discontinued operations held sale consolidated balance sheet december 31 2004 addition company anticipates additional tax expense approximately 270 million recorded loss sale discontinued operations 2005 accordance provisions sfas 109 tax expense recorded transaction consummated 2004 company acquired usbased beverage business total cost 137 million 2003 company acquired biscuits business egypt trademarks associated small usbased natural foods business total cost smaller acquisitions 98 million 2002 company acquired snacks business turkey biscuits business australia total cost smaller acquisitions 122 million 2004 company sold brazilian snack nuts business trademarks associated candy business norway aggregate proceeds received sale businesses 18 million pretax losses 3 million recorded december 2004 company announced sale uk desserts business approximately 135 million expected result estimated gain 004 per share transaction closed first quarter 2005 company also announced december 2004 sale yogurt business approximately 59 million expected result aftertax loss approximately 12 million 5 million 2004 remainder closing transaction also subject regulatory approval expected completed first quarter 2005 2003 company sold european rice business branded fresh cheese business italy aggregate proceeds received sales businesses 96 million company recorded pretax gains 31 million 2002 company sold several small north american food businesses previously classified businesses held sale arising acquisition nabisco addition company sold latin american yeast industrial bakery ingredients business approximately 110 million recorded pretax gain 69 million aggregate proceeds received sales businesses 219 million company recorded pretax gains 80 million operating results businesses acquired sold excluding sugar confectionery business material companys consolidated financial position results operations cash flows periods presented consolidated operating results operating income affected following items 2004 2003 2002 •asset impairment exit implementation costsas discussed note 3 consolidated financial statements 2004 company recorded 603 million asset impairment exit costs consolidated statement earnings company also recorded 50 million pretax implementation costs 47 million pretax impairment charges relating equity investment joint venture turkey pretax asset impairment exit implementation costs year ended december 31 2004 included operating companies income following segments 2003 company recorded pretax charge 6 million asset impairment exit costs related closure nordic snacks plant 2002 company recorded pretax charge 142 million related employee acceptances voluntary retirement program approximately 700 employees elected retire terminate employment program charges included operating companies income following segments •losses gains sales businessesduring 2004 company sold brazilian snack nuts business trademarks associated candy business norway aggregate pretax losses 3 million 2003 company sold european rice business branded fresh cheese business italy aggregate pretax gains 31 million 2002 company sold latin american yeast industrial bakery ingredients business resulting pretax gain 69 million several small food businesses resulting pretax gains 11 million pretax losses gains included operating companies income following segments •integration costs loss sale food factoryduring 2003 company reversed 13 million related integration charges recorded 2002 2001 2002 company recorded pretax integrationrelated charges 115 million consolidate production lines north america close kraft facility consolidation programs addition 2002 company reversed 4 million related loss sale food factory items included operating companies income following segments discussed note 14 consolidated financial statements companys management uses operating companies income defined operating income general corporate expenses amortization intangibles evaluate segment performance allocate resources management believes appropriate disclose measure help investors analyze business performance trends various business segments 2004 compared 2003 following discussion compares consolidated operating results 2004 2003 volume increased 509 million pounds 28 due primarily acquisitions increased shipments us cheese canada north america foodservice segment partially offset impact divested businesses net revenues increased 1670 million 55 due primarily favorable currency 838 million higher volumemix 560 million higher net pricing 265 million reflecting commoditydriven pricing partially offset increased promotional spending impact acquisitions 140 million partially offset impact divested businesses 126 million operating income decreased 1248 million 213 due primarily pretax charges asset impairment exit costs 597 million unfavorable costs net higher pricing 442 million due primarily higher commodity costs increased promotional spending higher marketing administration research costs 306 million 2004 implementation costs associated restructuring program 50 million 2004 equity investment impairment charge relating joint venture turkey 47 million unfavorable net impact related gains losses sales businesses 34 million higher fixed manufacturing costs 23 million including higher benefit costs impact divestitures 18 million partially offset higher volumemix 187 million favorable currency 98 million currency movements increased net revenues 838 million operating income 98 million increases due primarily weakness us dollar euro canadian dollar companys reported effective income tax rate decreased 26 percentage points 323 resulting 81 million favorable resolution outstanding tax item majority occurred third quarter 2004 reversal 35 million tax accruals longer required due tax events occurred first quarter 2004 earnings continuing operations 2669 million decreased 710 million 210 due primarily lower operating income partially offset lower effective income tax rate diluted eps continuing operations 155 decreased 205 earnings discontinued operations net income tax decreased 101 million resulting net loss 4 million 2004 decrease due primarily pretax noncash asset impairment charges 2004 107 million 69 million aftertax intangible pretax asset impairment charge 17 million 11 million aftertax net earnings 2665 million decreased 811 million 233 diluted eps net earnings 155 decreased 229 2003 compared 2002 following discussion compares consolidated operating results 2003 2002 volume increased 139 million pounds 08 due primarily increased shipments us beverages segment us cheese canada north america foodservice segment growth developing markets impact acquisitions partially offset impact divested businesses lower consumption certain categories particularly us cookies trade inventory reductions price competition impact weaker global economy net revenues increased 1250 million 43 due favorable currency 726 million higher pricing 477 million reflecting higher commodity currency devaluationdriven cost increases partially offset higher promotional spending higher volumemix 75 million impact acquisitions 59 million partially offset impact divested businesses 87 million operating income decreased 101 million 17 due primarily higher fixed manufacturing costs 113 million including higher benefit costs higher marketing administration research costs 106 million unfavorable costs net higher pricing 77 million due primarily higher commodity costs increased promotional spending unfavorable volumemix 74 million impact gains sales businesses 49 million impact divestitures 18 million partially offset impact lower pretax charges asset impairment exit costs 136 million impact integration costs loss sale food factory 124 million favorable currency 93 million higher benefit costs primarily related pension stock compensation costs currency movements increased net revenues 726 million operating income 93 million increases due primarily weakening us dollar euro canadian dollar currencies partially offset strength us dollar certain latin american currencies interest debt expense net decreased 182 million decrease due companys refinancing notes payable altria group inc use free cash flow pay debt companys reported effective income tax rate decreased 06 percentage points 349 due primarily rate differences foreign operations earnings continuing operations 3379 million increased 82 million 25 due primarily lower interest expense lower effective income tax rate partially offset lower operating income diluted eps continuing operations 195 increased 26 net earnings 3476 million increased 82 million 24 diluted eps net earnings 201 increased 26 operating results reportable segment kraft north america commercial 2004 compared 2003 following discussion compares kraft north america commercials operating results 2004 2003 volume increased 43 due primarily acquisition us beverages segment increased shipments us cheese canada north america foodservice segment net revenues increased 1123 million 54 due primarily higher volumemix 537 million higher net pricing 312 million reflecting commoditydriven price increases partially offset increased promotional spending favorable currency 164 million impact acquisitions 117 million operating companies income decreased 788 million 169 due primarily 2004 pretax charges asset impairment exit costs 391 million unfavorable costs net higher pricing 356 million including higher commodity costs increased promotional spending higher marketing administration research costs 214 million including higher benefit costs 2004 implementation costs associated restructuring program 40 million partially offset higher volumemix 197 million favorable currency 29 million following discusses operating results within kraft north america commercials reportable segments us beverages volume increased 127 due primarily 2004 acquisition beverage business new product introductions refreshment beverages coffee volume also increased due product quality improvements impact expanded distribution arrangement net revenues increased 122 million 50 due primarily impact acquisitions 94 million higher volumemix 85 million partially offset increased promotional spending 56 million operating companies income decreased 151 million 240 due primarily higher marketing administration research costs 98 million unfavorable costs higher promotional spending 85 million including higher commodity costs 2004 pretax charges asset impairment exit costs 9 million 2004 implementation costs associated restructuring program 4 million partially offset higher volumemix 49 million us cheese canada north america foodservice volume increased 35 due primarily higher volume foodservice cheese volume foodservice business increased due primarily acquisition beverage business 2004 higher shipments national accounts cheese volume also increased benefiting increased promotional spending net revenues increased 704 million 105 due primarily higher volumemix 272 million higher pricing net higher promotional reinvestment spending cheese 248 million reflecting commoditydriven pricing favorable currency 164 million impact acquisitions operating companies income decreased 282 million 222 due primarily unfavorable costs net higher pricing 214 million including higher commodity costs increased promotional spending 2004 pretax charges asset impairment exit costs 111 million higher fixed manufacturing costs 50 million including higher benefit costs higher marketing administration research costs 26 million 2004 implementation costs associated restructuring program 8 million partially offset higher volumemix 99 million favorable currency 29 million us convenient meals volume increased 16 due primarily gains meats pizza partially offset lower shipments meals meats volume increased driven higher consumption cold cuts supported higher investment spending pizza volume also increased aided new product introductions meals volume declined due discontinuation certain product lines second half 2003 net revenues increased 192 million 47 due primarily higher volumemix 114 million higher pricing 75 million reflecting commoditydriven pricing meats pizza impact acquisitions operating companies income decreased 46 million 56 due primarily 2004 pretax charges asset impairment exit costs 41 million higher marketing administration research costs 38 million including higher benefit costs impact acquisitions 5 million 2004 implementation costs associated restructuring program 4 million partially offset higher volumemix 40 million higher pricing net unfavorable costs 7 million including higher commodity costs us grocery volume increased 07 due primarily gains enhancers partially offset decline desserts volume increased enhancers due primarily mayonnaise salad dressings desserts volume declined due primarily lower shipments fruit snacks partially offset higher shipments frozen toppings net revenues increased 37 million 15 due primarily higher pricing lower promotional spending 34 million higher volumemix operating companies income equal prior year lower fixed manufacturing costs 17 million higher volumemix 10 million offset 2004 pretax charges asset impairment exit costs 8 million 2004 implementation costs associated restructuring program 6 million higher marketing administration research costs 5 million unfavorable costs net higher pricing us snacks cereals volume increased 15 higher salted snacks biscuits volume partially offset decline cereals salted snacks volume increased due consumer nutrition trends marketing programs nuts biscuits volume increased driven new product introductions cereals volume declined due low carbohydrate diet trends impacted category increased competitive activity net revenues increased 68 million 13 due primarily higher volumemix 62 million higher pricing 11 million including absence high product returns associated new products incurred prior year partially offset increased promotional spending operating companies income decreased 309 million 295 due primarily 2004 pretax charges asset impairment exit costs 222 million unfavorable costs net higher pricing 62 million due higher commodity costs increased promotional spending higher marketing administration research costs 47 million 2004 implementation costs associated restructuring program 18 million partially offset lower fixed manufacturing costs 40 million 2003 compared 2002 following discussion compares kraft north america commercials operating results 2003 2002 volume increased 15 due primarily contributions new products increased shipments us beverages segment us cheese canada north america foodservice segment partially offset divestiture small confectionery business 2002 consumption weakness certain categories primarily cookies trade inventory reductions net revenues increased 448 million 22 due primarily favorable currency 162 million higher pricing net increased promotional spending 157 million higher volumemix 148 million partially offset divestiture small confectionery business 2002 21 million operating companies income decreased 6 million 01 due primarily unfavorable costs net higher pricing 132 million including higher commodity costs increased promotional spending higher fixed manufacturing costs 82 million including higher benefit costs unfavorable volumemix 35 million partially offset 2002 pretax charges asset impairment exit costs 135 million impact lower integration costs loss sale food factory 107 million following discusses operating results within kraft north america commercials reportable segments us beverages volume increased 78 due primarily higher shipments readytodrink beverages aided new product introductions coffee volume declined impacted competitive activity category decline due higher prices net revenues increased 95 million 41 due higher volumemix 82 million lower promotional spending net lower pricing 13 million operating companies income increased 54 million 94 due primarily impact lower integration costs 58 million higher volumemix 33 million 2002 pretax charges asset impairment exit costs 27 million partially offset unfavorable costs net lower promotional spending 32 million including higher commodity costs higher marketing administration research costs 27 million higher benefit costs us cheese canada north america foodservice volume increased 23 due primarily higher shipments cheese foodservice canada cheese volume increased due primarily improved consumption share trends resulting investment program began third quarter 2003 volume foodservice business united states also increased due higher shipments national accounts volume canada increased driven new beverage product introductions net revenues increased 317 million 50 due favorable currency 162 million higher volumemix 119 million higher pricing 36 million including impact increased promotional spending operating companies income increased 16 million 13 due primarily 2002 pretax charges asset impairment exit costs 43 million favorable currency 32 million higher volumemix 21 million lower integration costs 8 million partially offset unfavorable costs net higher pricing 49 million including higher commodity costs increased promotional spending higher marketing administration research costs 20 million higher fixed manufacturing costs 18 million including higher benefit costs us convenient meals volume increased 03 due primarily gains cold cuts hot dogs bacon soybased meat alternatives frozen pizza partially offset decline meals due primarily discontinuance certain product lines net revenues increased 84 million 21 due primarily higher pricing 59 million higher volumemix 23 million operating companies income increased 34 million 43 due primarily impact 2002 pretax charges asset impairment exit costs 36 million integration costs 29 million lower fixed manufacturing costs 18 million higher pricing net unfavorable costs 7 million including higher commodity costs partially offset higher marketing administration research costs 53 million higher benefit costs us grocery volume decreased 06 due primarily divestiture small confectionery business 2002 decline enhancers partially offset higher shipments desserts enhancers volume declined due primarily lower shipments spoonable dressings partially offset gains pourable dressings barbeque sauce steak sauce desserts volume increased due primarily higher shipments sugarfree items increased merchandising programs net revenues increased 32 million 14 due primarily favorable volumemix 29 million higher pricing 24 million including impact increased promotional spending partially offset divestiture small confectionery business 2002 21 million operating companies income increased 13 million 15 due primarily 2002 asset impairment exit costs 20 million favorable volumemix 17 million impact lower integration costs 10 million partially offset unfavorable costs net higher pricing 20 million including higher commodity costs gain sale small confectionery business 2002 8 million higher benefit costs us snacks cereals volume decreased 35 due primarily lower shipments biscuits volume declined due primarily reduced consumption cookies reflecting higher pricing lower impact new products consumer health wellness concerns snacks volume increased benefiting category consumption gains snack nuts net revenues decreased 80 million 15 due lower volumemix 105 million partially offset higher pricing 25 million including impact increased promotional spending operating companies income decreased 123 million 105 due primarily lower volumemix 102 million higher fixed manufacturing costs 70 million unfavorable costs net higher pricing 38 million including higher commodity costs increased promotional spending partially offset lower marketing administration research costs 78 million impact 2002 pretax charges asset impairment exit costs 9 million kraft international commercial 2004 compared 2003 following discussion compares kraft international commercials operating results 2004 2003 volume decreased 11 due primarily impact divestiture rice business branded fresh cheese business europe 2003 well price competition trade inventory reductions several markets partially offset impact acquisitions net revenues increased 547 million 57 due primarily favorable currency 674 million impact acquisitions 23 million favorable volumemix 23 million partially offset impact divestitures 126 million increased promotional spending net higher pricing 47 million operating companies income decreased 460 million 330 due primarily pretax charges asset impairment exit costs 206 million unfavorable costs increased promotional spending net higher pricing 113 million higher marketing administration research costs 92 million including higher benefit costs infrastructure investment developing markets 2004 equity investment impairment charge relating joint venture turkey 47 million unfavorable net impact related gains losses sales businesses 34 million impact divestitures 18 million 2004 implementation costs associated restructuring program 10 million partially offset favorable currency 69 million following discusses operating results within kraft international commercials reportable segments europe middle east africa volume decreased 13 due primarily divestiture rice business branded fresh cheese business europe 2003 price competition france trade inventory reductions russia partially offset impact acquisitions volume growth germany austria italy romania cheese volume declined impacted divestiture branded fresh cheese business europe 2003 partially offset increased cream cheese shipments germany italy united kingdom higher process cheese shipments united kingdom beverages volume also declined driven price competition coffee france lower shipments refreshment beverages middle east convenient meals volume declined impacted divestiture rice business europe 2003 grocery volume declined across several markets including germany italy partially offset increased volume egypt due acquisition snacks volume increased gains biscuits benefiting acquisitions new confectionery product introductions across segment partially offset trade inventory reductions russia net revenues increased 508 million 72 due primarily favorable currency 649 million favorable volumemix 48 million impact acquisitions 21 million partially offset impact divestitures 115 million lower pricing increased promotional spending 95 million operating companies income decreased 319 million 318 due primarily pretax charges asset impairment exit costs 174 million lower pricing increased promotional spending 92 million higher marketing administration research costs 49 million including higher benefit costs well infrastructure investment developing markets equity investment impairment charge relating joint venture turkey 47 million lower gains sales businesses 26 million impact divestitures 17 million 2004 implementation costs associated restructuring program 9 million partially offset favorable currency 78 million favorable volumemix 15 million latin america asia pacific volume decreased 10 due primarily lower shipments mexico peru venezuela partially offset growth brazil china snacks volume declined impacted price competition trade inventory reductions venezuela peru grocery volume declined across several markets including peru australia philippines cheese volume increased due primarily gains across several markets including japan australia philippines beverages volume also increased due primarily gains brazil china partially offset increased competitive activity mexico net revenues increased 39 million 15 due primarily higher pricing 48 million reflecting devaluationdriven cost increases net increased promotional spending favorable currency 25 million partially offset lower volumemix 25 million impact divestitures 11 million operating companies income decreased 141 million 361 due primarily higher marketing administration research costs 43 million 2004 pretax charges asset impairment exit costs 32 million lower volumemix 25 million unfavorable costs net higher pricing 21 million including increased promotional spending unfavorable currency 9 million 2004 pretax loss sale snack nuts business brazil 8 million 2003 compared 2002 following discussion compares kraft international commercials operating results 2003 2002 volume decreased 11 due divestiture latin american bakery ingredients business 2002 rice business branded fresh cheese business europe 2003 impact price competition particularly germany france adverse impact summer heat wave across europe chocolate coffee businesses declines partially offset growth developing markets including russia brazil mexico china acquisitions snacks business turkey biscuits business egypt net revenues increased 802 million 92 due primarily favorable currency 564 million higher pricing 320 million reflecting higher commodity currency devaluationdriven cost increases latin america impact acquisitions 57 million partially offset lower volumemix 73 million impact divestitures 66 million operating companies income decreased 73 million 50 due primarily higher marketing administration research costs 90 million including higher benefit costs infrastructure investment developing markets net impact lower gains sales businesses 41 million lower volumemix 39 million impact divestitures 13 million partially offset favorable currency 61 million higher pricing net cost increases 24 million including fixed manufacturing costs 2002 pretax charges integration costs 17 million impact acquisitions 7 million following discusses operating results within kraft international commercials reportable segments europe middle east africa volume increased 03 due growth central eastern europe middle east africa region benefited acquisition biscuits business egypt 2003 well snacks business acquisition turkey third quarter 2002 new product introductions gains partially offset impact summer heat wave across europe chocolate coffee businesses price competition germany france divestiture rice business branded fresh cheese business europe 2003 snacks volume increased biscuits salted snacks benefiting acquisitions partially offset lower confectionery volume due summer heat wave across europe price competition beverages volume declined due primarily summer heat wave across europe adverse impact coffee shipments price competition declines partially offset increased coffee shipments russia benefiting expanded distribution poland aided new product introductions convenient meals volume also declined due divestiture rice business europe partially offset higher shipments canned meats italy cheese volume declined due primarily impact price competition germany spain partially offset gains cream cheese italy net revenues increased 840 million 136 due primarily favorable currency 804 million impact acquisitions 57 million higher pricing 18 million partially offset unfavorable volumemix 41 million operating companies income increased 49 million 51 due primarily favorable currency 100 million gain sale rice business branded fresh cheese business europe 31 million partially offset unfavorable costs net higher pricing 40 million including higher commodity costs increased promotional spending unfavorable volumemix 26 million higher marketing administration research costs 19 million including higher benefit costs infrastructure investment eastern europe latin america asia pacific volume decreased 30 due divestiture latin american bakery ingredients business 2002 partially offset growth brazil mexico argentina australia china grocery volume declined latin america due primarily sale bakery ingredients business fourth quarter 2002 beverages volume increased due primarily growth brazil mexico venezuela china aided new product introductions snacks volume also increased biscuits volume growth brazil argentina china australia aided new product introductions partially offset decline confectionery impacted economic weakness trade inventory reductions price competition brazil cheese volume increased due higher shipments asia pacific benefiting new products australia promotional programs philippines partially offset declines latin america convenient meals volume grew benefiting gains argentina net revenues decreased 38 million 15 due primarily unfavorable currency 240 million divestiture latin american bakery ingredients business 2002 68 million lower volumemix 32 million partially offset higher pricing 302 million reflecting higher commodity currency devaluationdriven costs operating companies income decreased 122 million 238 due primarily gains sales businesses 2002 72 million higher marketing administration research costs 71 million unfavorable currency 39 million lower volumemix 13 million divestiture latin american bakery ingredients business 2002 10 million partially offset higher pricing net cost increases 64 million 2002 pretax charges integration costs 17 million financial review net cash provided operating activities net cash provided operating activities 40 billion 2004 41 billion 2003 37 billion 2002 decrease 2004 operating cash flows 2003 due primarily lower net earnings cash payments associated restructuring program higher pension contributions partially offset lower use cash fund working capital increase 2003 operating cash flows 2002 due primarily lower use cash fund working capital partially offset increased pension contributions net cash used investing activities one element growth strategy company strengthen brand portfolios disciplined programs selective acquisitions divestitures company constantly reviewing potential acquisition candidates time sells businesses accelerate shift portfolio toward businesseswhether global regional localthat offer company sustainable competitive advantage impact future acquisition divestiture could material impact companys cash flows 2004 2003 2002 net cash used investing activities 11 billion 10 billion 11 billion respectively increase 2004 primarily reflected higher uses cash purchase businesses reduction cash received sales businesses partially offset lower capital expenditures decrease 2003 primarily reflected lower capital expenditures lower purchases businesses partially offset reduction cash received sales businesses capital expenditures funded operating activities 10 billion 11 billion 12 billion 2004 2003 2002 respectively 2004 capital expenditures primarily modernize manufacturing facilities implement restructuring program expand production capacity growing product lines 2005 capital expenditures currently expected slightly 2004 expenditures including capital expenditures required restructuring program expenditures expected funded operations previously discussed fourth quarter 2004 company announced sale sugar confectionery uk desserts yogurt businesses approximately 15 billion 135 million 59 million respectively transactions subject regulatory approval expected completed first half 2005 net cash used financing activities 2004 net cash 32 billion used financing activities compared 28 billion 2003 increase cash used 2004 due primarily increase companys class share repurchases dividend payments november 2004 company issued 750 million thirdparty longterm debt net proceeds used refinance maturing debt 2003 net cash 28 billion used financing activities compared 26 billion 2002 increase cash used 2003 due primarily increase companys class share repurchases increase dividend payments partially offset decrease net debt repayments 2003 including amounts due altria group inc affiliates 2003 company issued 15 billion thirdparty longterm debt net proceeds used repay outstanding related party indebtedness financing activities included net debt repayments approximately 14 billion 2003 debt liquidity debt companys total debt including amounts due altria group inc affiliates 125 billion december 31 2004 135 billion december 31 2003 companys debttoequity ratio 042 december 31 2004 047 december 31 2003 companys debttocapitalization ratio 030 december 31 2004 032 december 31 2003 november 2004 company issued 750 million 5year notes bearing interest 4125 net proceeds offering used refinance maturing debt company form s3 shelf registration statement file securities exchange commission sec company may sell debt securities andor warrants purchase debt securities one offerings total amount 40 billion december 31 2004 company 35 billion capacity remaining shelf registration december 31 2004 2003 company shortterm amounts payable altria group inc 227 million 543 million respectively interest borrowings based applicable london interbank offered rate credit ratings following 101 billion judgment march 21 2003 altria group incs domestic tobacco subsidiary philip morris usa inc three major credit rating agencies took series ratings actions resulting lowering companys shortterm longterm debt ratings despite fact company neither party exposure litigation companys credit ratings moodys december 31 2004 p2 shortterm debt a3 longterm debt stable outlook companys credit ratings standard poors december 31 2004 a2 shortterm debt bbb longterm debt stable outlook companys credit ratings fitch rating services december 31 2004 f2 shortterm debt bbb longterm debt stable outlook result rating agencies actions borrowing costs increased none companys debt agreements requires accelerated repayment event decrease credit ratings credit rating downgrades moodys standard poors fitch rating services impact companys existing thirdparty contracts credit lines company maintains revolving credit facilities historically used support issuance commercial paper 364day revolving credit facility expires july 2005 although contains provision allowing company extend maturity outstanding borrowings one additional year december 31 2004 credit lines company related activity follows billions dollars companys revolving credit facilities sole use require maintenance minimum net worth 182 billion december 31 2004 companys net worth 299 billion company expects continue meet covenant foregoing revolving credit facilities include financial tests credit rating triggers provisions could require posting collateral multiyear revolving credit facility enables company reclassify shortterm debt longterm basis december 31 2004 anticipation proceeds sale sugar confectionery business company reclassify shortterm debt longterm debt company expects refinance longterm shortterm debt time nature amount companys longterm shortterm debt proportionate amount expected vary result future business requirements market conditions factors addition certain international subsidiaries kraft maintain uncommitted credit lines meet shortterm working capital needs international businesses credit lines amounted approximately 600 million december 31 2004 sole use companys international businesses borrowings lines amounted approximately 150 million 220 million december 31 2004 2003 respectively offbalance sheet arrangements aggregate contractual obligations company offbalance sheet arrangements guarantees contractual obligations discussed guarantees discussed note 18 consolidated financial statements company thirdparty guarantees primarily derived acquisition divestiture activities approximately 25 million december 31 2004 substantially guarantees expire 2013 1 million expiring 2005 company required perform guarantees event third party fails make contractual payments achieve performance measures company liability 20 million consolidated balance sheet december 31 2004 relating guarantees addition december 31 2004 company contingently liable 142 million guarantees related performance include surety bonds related dairy commodity purchases guarantees related payment customs duties taxes letters credit guarantees expected significant impact companys liquidity aggregate contractual obligations following table summarizes companys contractual obligations december 31 2004 1amounts represent expected cash payments companys longterm debt include bond premiums discounts interest 2operating leases represent minimum rental commitments noncancelable operating leases company significant capital lease obligations 3purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 4other longterm liabilities primarily consist certain specific severance incentive compensation arrangements following longterm liabilities included consolidated balance sheet excluded table accrued pension postretirement health care postemployment costs income taxes minority interest insurance accruals company unable estimate timing payments items currently company anticipates making us pension contributions approximately 250 million 2005 nonus pension contributions approximately 90 million 2005 based current tax law discussed note 15 consolidated financial statements company believes cash operations existing credit facilities provide sufficient liquidity meet working capital needs planned capital expenditures future contractual obligations payment anticipated quarterly dividends equity dividends december 2003 krafts board directors approved repurchase time 700 million krafts class common stock december 14 2004 kraft completed program acquiring 21718847 class shares average price 3223 per share december 14 2004 kraft commenced repurchasing shares new twoyear 15 billion class common stock repurchase program authorized board directors december 2004 december 31 2004 repurchases 15 billion program 1408413 shares cost 50 million 3549 per share 2004 kraft repurchased 215 million shares cost 700 million 2003 kraft repurchased 125 million shares cost 380 million discussed note 11 consolidated financial statements 2004 2003 company granted 41 million 37 million restricted class shares respectively eligible usbased employees 2004 2003 also issued eligible nonus employees rights receive 19 million 16 million class equivalent shares respectively market value per restricted share right 3223 3656 dates 2004 2003 grants respectively restrictions stock rights granted 2004 lapse first quarter 2007 restrictions grants 2003 lapse first quarter 2006 dividends paid 2004 2003 1280 million 1089 million respectively increase 175 reflecting higher dividend rate 2004 partially offset lower number shares outstanding result class share repurchases third quarter 2004 krafts board directors approved 139 increase current quarterly dividend rate 0205 per share class b common stock result present annualized dividend rate 082 per common share declaration dividends subject discretion krafts board directors depend various factors including companys net earnings financial condition cash requirements future prospects factors deemed relevant krafts board directors market risk company operates globally manufacturing sales facilities various locations around world utilizes certain financial instruments manage foreign currency commodity exposures derivative financial instruments used company principally reduce exposure market risks resulting fluctuations foreign exchange rates commodity prices creating offsetting exposures company party leveraged derivatives policy use financial instruments speculative purposes years ended december 31 2004 2003 2002 ineffectiveness related cash flow hedges material december 31 2004 company hedging forecasted transactions periods exceeding fifteen months expects substantially amounts reported accumulated comprehensive earnings losses reclassified consolidated statement earnings within next twelve months foreign exchange rates company uses forward foreign exchange contracts foreign currency options mitigate exposure changes exchange rates thirdparty intercompany actual forecasted transactions substantially companys derivative financial instruments effective hedges primary currencies company exposed based size location businesses include euro swiss franc british pound canadian dollar december 31 2004 2003 company foreign exchange option forward contracts aggregate notional amounts 29 billion 25 billion respectively effective portion unrealized gains losses associated forward option contracts deferred component accumulated comprehensive earnings losses underlying hedged transactions reported companys consolidated statement earnings commodities company exposed price risk related forecasted purchases certain commodities used raw materials businesses accordingly company uses commodity forward contracts cash flow hedges primarily coffee cocoa milk cheese commodity futures options also used hedge price certain commodities including milk coffee cocoa wheat corn sugar soybean oil general commodity forward contracts qualify normal purchase exception sfas 133 therefore subject provisions sfas 133 december 31 2004 2003 company net long commodity positions 443 million 255 million respectively unrealized gains losses net commodity positions immaterial december 31 2004 2003 effective portion unrealized gains losses commodity futures option contracts deferred component accumulated comprehensive earnings losses recognized component cost sales companys consolidated statement earnings related inventory sold value risk company uses value risk var computation estimate potential oneday loss fair value interest ratesensitive financial instruments estimate potential oneday loss pretax earnings foreign currency commodity pricesensitive derivative financial instruments var computation includes companys debt shortterm investments foreign currency forwards swaps options commodity futures forwards options anticipated transactions foreign currency trade payables receivables net investments foreign subsidiaries foregoing instruments intended hedge excluded computation var estimates made assuming normal market conditions using 95 confidence interval company used variancecovariance model determine observed interrelationships movements interest rates various currencies interrelationships determined observing interest rate forward currency rate movements preceding quarter calculation var amounts december 31 2004 2003 four preceding quarters calculation average var amounts year values foreign currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation estimated potential oneday loss fair value companys interest ratesensitive instruments primarily debt normal market conditions estimated potential oneday loss pretax earnings foreign currency commodity instruments normal market conditions calculated var model follows millions var computation risk analysis tool designed statistically estimate maximum probable daily loss adverse movements interest rates foreign currency rates commodity prices normal market conditions computation purport represent actual losses fair value earnings incurred company consider effect favorable changes market rates company cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future results operations financial position new accounting standards see note 2 consolidated financial statements discussion new accounting standards contingencies see note 18 consolidated financial statements discussion contingencies item 7aitem 7 managements discussion analysis financial condition results operation description company kraft foods inc kraft together subsidiaries collectively referred company manufactures markets packaged food products consisting principally beverages cheese snacks convenient meals various packaged grocery products kraft manages reports operating results two units kraft north america commercial kraft international commercial reportable segments kraft north america commercial organized managed principally product category kraft international commercials operations organized managed geographic location december 31 2005 altria group inc held 983 combined voting power krafts outstanding capital stock owned 872 outstanding shares krafts capital stock kraft north america commercials segments us beverages us cheese canada north america foodservice us convenient meals us grocery us snacks cereals kraft international commercials segments europe middle east africa latin america asia pacific october 2005 company announced effective january 1 2006 canadian business realigned better integrate companys north american business product category beginning first quarter 2006 operating results canadian business reported throughout north american food segments addition first quarter 2006 companys international businesses realigned reflect reorganization announced within europe november 2005 beginning first quarter 2006 operating results companys international businesses reported two revised segmentseuropean union developing markets oceania north asia latter reflect companys increased management focus developing markets accordingly prior period segment results restated june 2005 company sold substantially sugar confectionery business pretax proceeds approximately 14 billion company reflected results sugar confectionery business prior closing date discontinued operations consolidated statements earnings years presented assets related sugar confectionery business reflected assets discontinued operations held sale consolidated balance sheet december 31 2004 company recorded loss sale discontinued operations 297 million second quarter 2005 related largely taxes transaction companys operating subsidiaries generally report yearend results saturday closest end year resulted fiftythree weeks operating results companys consolidated statement earnings year ended december 31 2005 versus fiftytwo weeks years ended december 31 2004 2003 previously communicated significant business reasons altria group inc board directors looking number restructuring alternatives including possibility separating kraft balance altria group inc altria group inc indicated continuing improvements litigation environment prerequisite action board directors timing chronology events uncertain executive summary following executive summary intended provide significant highlights discussion analysis follows consolidated operating resultsthe changes companys earnings diluted earnings per share eps continuing operations year ended december 31 2005 year ended december 31 2004 due primarily following millions except per share data see discussion events affecting comparability statement earnings amounts consolidated operating results section following discussion analysis favorable net impact lower asset impairment exit implementation costs earnings diluted eps continuing operations due primarily following restructuring programthe company announced threeyear restructuring program january 2004 years ended december 31 2005 2004 company recorded pretax charges 297 million 199 million aftertax 633 million 410 million aftertax respectively restructuring plan including pretax implementation costs 87 million 50 million respectively asset impairment chargesduring 2005 company sold fruit snacks assets approximately 30 million incurred pretax asset impairment charge 93 million 60 million aftertax recognition sale december 2005 company reached agreements sell certain assets canada small biscuit brand us transactions closed first quarter 2006 company incurred 2005 pretax asset impairment charges 176 million 80 million aftertax recognition pending sales charges include writeoff associated intangible assets recorded asset impairment exit costs consolidated statement earnings investment impairmentin november 2004 following discussions companys joint venture partner turkey independent valuation equity investment determined permanent decline value occurred valuation resulted 47 million noncash pretax charge 31 million aftertax charge recorded marketing administration research costs consolidated statement earnings 2005 companys interest joint venture sold details restructuring program asset impairment implementation costs see note 3 consolidated financial statements business environment section following discussion analysis gains sales businessesthe favorable impact earnings diluted eps continuing operations due primarily gain sale uk desserts assets 2005 lower effective income tax ratethe companys reported effective income tax rate decreased 29 percentage points 294 2005 effective tax rate reflects several benefits including settlement outstanding us tax claim 24 million 82 million resolution outstanding items companys international operations 33 million tax impacts associated sale us biscuit brand 2005 rate also includes 53 million aggregate benefit domestic manufacturers deduction provision dividend repatriation provision american jobs creation act tax provision 2004 includes 81 million favorable resolution outstanding tax item reversal 35 million tax accruals longer required due tax events occurred 2004 currencythe favorable currency impact earnings diluted eps continuing operations due primarily weakness us dollar versus euro canadian dollar brazilian real certain currencies operationsthe decrease results operations due primarily following •lower income kraft north america commercial reflecting higher commodity benefit costs increased marketing spending partially offset higher pricing favorable volumemix including benefit 53rd week •lower income kraft international commercial reflecting higher commodity developing market infrastructure costs partially offset higher pricing favorable volumemix including benefit 53rd week details see consolidated operating results operating results business segment sections following discussion analysis 2006 forecasted resultsin january 2006 company announced expects 2006 fullyear diluted eps range 138 143 forecast includes anticipated charges approximately 050 costs related restructuring program effective income tax rate approximately 33 reflect potential impacts resolution outstanding tax audits factors described section entitled risk factors part 1 item 1a annual report form 10k represent continuing risks forecasts discussion analysis critical accounting policies estimates note 2 consolidated financial statements includes summary significant accounting policies methods used preparation companys consolidated financial statements instances company must use accounting policy method policy method permitted accounting principles generally accepted united states america us gaap preparation financial statements includes use estimates assumptions affect number amounts included companys financial statements including among things employee benefit costs income taxes company bases estimates historical experience assumptions believes reasonable actual amounts ultimately different previous estimates revisions included companys consolidated results operations period actual amounts become known historically aggregate differences companys estimates actual amounts year significant impact companys consolidated financial statements selection disclosure companys critical accounting policies estimates discussed companys audit committee following review significant assumptions estimates well accounting policies methods used preparation companys consolidated financial statements employee benefit plans discussed note 15 consolidated financial statements company provides range benefits employees retired employees including pensions postretirement health care benefits postemployment benefits primarily severance company records amounts relating plans based calculations specified us gaap include various actuarial assumptions discount rates assumed rates return plan assets compensation increases turnover rates health care cost trend rates company reviews actuarial assumptions annual basis makes modifications assumptions based current rates trends deemed appropriate permitted us gaap effect modifications generally amortized future periods company believes assumptions utilized recording obligations plans presented note 15 consolidated financial statements reasonable based experience advice actuaries years ended december 31 2005 2004 2003 company recorded following amounts consolidated statements earnings employee benefit plans 2005 net expense employee benefit plans 882 million increased 247 million 2004 amount cost increase primarily relates higher us pension plan costs including higher amortization unrecognized net loss experience differences lower expected return plan assets lower discount rate assumption higher settlement losses employees retired left 2005 2004 net expense employee benefit plans 635 million increased 288 million 2003 amount cost increase primarily relates increased postemployment benefit costs resulting several workforce reduction programs 2004 part overall restructuring program 167 million lowering companys discount rate assumption pension postretirement benefit plans partially offset impact medicare prescription drug improvement modernization act 2003 discussed december 2003 united states enacted law medicare prescription drug improvement modernization act 2003 act establishes prescription drug benefit medicare known medicare part federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare part may 2004 financial accounting standards board fasb issued fasb staff position 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 fsp 1062 fsp 1062 requires companies account effect subsidy benefits attributable past service actuarial experience gain reduction service cost component net postretirement health care costs amounts attributable current service benefit provided least actuarially equivalent medicare part company adopted fsp 1062 third quarter 2004 impact 2005 2004 reduction pretax net postretirement health care costs increase net earnings 55 million 24 million respectively addition july 1 2004 company reduced accumulated postretirement benefit obligation subsidy related benefits attributed past service 315 million decreased unrecognized actuarial losses amount december 31 2005 us pension postretirement plans company reduced discount rate assumption 575 560 company presently anticipates assumption changes coupled amortization deferred gains losses result increase 2006 pretax benefit expense approximately 80 million approximately 003 per share expected increase benefit expense prior consideration impact expanded restructuring program company presently anticipate change 2006 assumptions sensitivity measure fiftybasis point decline increase companys discount rate would increase decrease companys us pension postretirement expense approximately 72 million similarly fiftybasis point decrease increase expected return plan assets would increase decrease companys pension expense us pension plans approximately 31 million see note 15 consolidated financial statements sensitivity discussion assumed health care cost trend rates revenue recognition required us gaap company recognizes revenues net sales incentives including shipping handling charges billed customers upon shipment delivery goods title risk loss pass customers shipping handling costs classified part cost sales provisions allowances estimated sales returns bad debts also recorded companys consolidated financial statements amounts recorded provisions related allowances significant companys consolidated financial position results operations depreciation amortization goodwill valuation company depreciates property plant equipment amortizes definite life intangibles using straightline method estimated useful lives assets company required conduct annual review goodwill intangible assets potential impairment goodwill impairment testing requires comparison carrying value fair value reporting unit carrying value exceeds fair value goodwill considered impaired amount impairment loss measured difference carrying value implied fair value goodwill determined using discounted cash flows impairment testing nonamortizable intangible assets requires comparison fair value carrying value intangible asset carrying value exceeds fair value intangible asset considered impaired reduced fair value calculations may affected market conditions noted business environment section well interest rates general economic conditions projected growth rates first quarter 2005 company completed annual review goodwill intangible assets impairment charges resulted review however part sale pending sale certain canadian assets two brands company recorded noncash pretax asset impairment charges 269 million 2005 included impairment goodwill intangible assets 13 million 118 million respectively well 138 million asset writedowns 2004 companys annual review goodwill intangible assets resulted 29 million noncash pretax charge related intangible asset impairment small confectionery business united states certain brands mexico portion charge 17 million reclassified earnings discontinued operations consolidated statement earnings fourth quarter 2004 remaining charge recorded asset impairment exit costs 2004 consolidated statement earnings impairment longlived assets company reviews longlived assets including amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable company performs undiscounted operating cash flow analyses determine impairment exists analyses affected interest rates general economic conditions projected growth rates purposes recognition measurement impairment assets held use company groups assets liabilities lowest level cash flows separately identifiable impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal marketing advertising costs required us gaap company records marketing costs expense year costs relate company defer amounts yearend consolidated balance sheet respect marketing costs company expenses advertising costs incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period based principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year related party transactions discussed note 4 consolidated financial statements altria group incs subsidiary altria corporate services inc provides company various services including planning legal treasury auditing insurance human resources office secretary corporate affairs information technology aviation tax services billings services based cost altria corporate services inc provide services management fee 237 million 310 million 318 million years ended december 31 2005 2004 2003 respectively company performed similar cost various functions 2005 previously provided altria corporate services inc resulting lower service charge 2005 costs paid altria corporate services inc monthly although cost services cannot quantified standalone basis management assessed billings reasonable based level support provided altria corporate services inc reflect services provided cost nature services reviewed annually companys audit committee comprised independent directors effects transactions included operating cash flows companys consolidated statements cash flows 2005 company repatriated certain foreign earnings part altria group incs dividend repatriation plan provisions american jobs creation act increased taxes repatriation 21 million reimbursed altria group inc reimbursement reported companys financial statements increase additional paidin capital december 2005 company purchased airport hangar certain personal property located hangar milwaukee wisconsin altria corporate services inc aggregate purchase price approximately 33 million december 2004 company purchased two corporate aircraft altria corporate services inc aggregate purchase price approximately 47 million company also entered aircraft management agreement altria corporate services inc december 2004 pursuant altria corporate services inc agreed perform aircraft management pilot services maintenance aviation services company december 31 2005 2004 company shortterm amounts payable altria group inc 652 million 227 million respectively amounts payable altria group inc generally include accrued dividends taxes service fees increase 2004 primarily reflects timing payments interest intercompany borrowings based applicable london interbank offered rate income taxes company accounts income taxes accordance statement financial accounting standards sfas 109 accounting income taxes us accounts company included consolidated federal income tax return altria group inc income taxes generally computed separate company basis extent foreign tax credits capital losses credits generated company cannot currently utilized separate company basis utilized altria group incs consolidated federal income tax return benefit recognized calculation companys provision income taxes based companys current estimate benefit calculated approximately 225 million 70 million 100 million years ended december 31 2005 2004 2003 respectively increase 2005 driven primarily dividend repatriations certain legal entity reorganizations benefit dependent variety tax attributes tendency vary year company makes payments reimbursed altria group inc tax effects resulting inclusion altria group incs consolidated federal income tax return including current taxes payable net changes tax provisions provision income taxes based domestic international statutory income tax rates tax planning opportunities available company jurisdictions operates significant judgment required determining income tax provisions evaluating tax positions company establishes additional provisions income taxes despite belief existing tax positions fully supportable remain certain positions likely challenged may sustained review tax authorities company evaluates potentially adjusts provisions light changing facts circumstances consolidated tax provision includes impact changes accruals considered appropriate upon closure current future tax audits various jurisdictions significant income tax accrual reversals could continue occur could trigger cash reimbursements altria group inc october 2004 american jobs creation act jobs act signed law jobs act includes deduction 85 certain foreign earnings repatriated 2005 company repatriated approximately 500 million earnings provisions jobs act deferred taxes previously provided portion dividends remitted reversal deferred taxes offset tax costs repatriate earnings resulted net tax reduction 28 million consolidated income tax provision 2005 majority recorded second quarter jobs act also provides tax relief us domestic manufacturers providing tax deduction related percentage lesser qualified production activities income taxable income deduction 3 2005 increases 9 2010 accordance sfas 109 company recognize benefits year earned tax benefit 2005 approximately 25 million company regularly audited federal state foreign tax authorities audits various stages given time company anticipates several domestic foreign audits close 2006 expected favorable settlements tax contingency reserves excess additional assessed liabilities reversed time audits close consolidation consolidated financial statements include kraft foods inc well whollyowned majorityowned subsidiaries investments kraft foods inc exercises significant influence 2050 ownership interest accounted equity method accounting investments kraft foods inc ownership interest less 20 exercise significant influence accounted cost method accounting intercompany transactions balances among krafts subsidiaries eliminated transactions companys businesses altria group inc affiliates included consolidated financial statements business environment company subject number challenges may adversely affect businesses challenges discussed risk factors section part 1 item 1a annual report form 10k include •fluctuations commodity prices •movements foreign currencies •competitive challenges various products markets including price gaps competitor products increasing priceconsciousness consumers •a rising cost environment limited ability increase prices •a trend toward increasing consolidation retail trade consequent pricing pressure inventory reductions •a growing presence discount retailers primarily europe emphasis ownlabel products •changing consumer preferences including diet trends •competitors different profit objectives less susceptibility currency exchange rates •concerns andor regulations regarding food safety quality health including genetically modified organisms transfatty acids obesity increased government regulation food industry could result increased costs company ordinary course business company subject many influences impact timing sales customers including timing holidays annual special events seasonality certain products significant weather conditions timing company customer incentive programs pricing actions customer inventory programs company initiatives improve supply chain efficiency including efforts align product shipments closely consumption shifting customer marketing programs consumption based approach financial condition customers general economic conditions fluctuations commodity prices lead retail price volatility intense price competition influence consumer trade buying patterns 2005 companys commodity costs average higher incurred 2004 notably coffee nuts energy packaging adversely affected earnings 2005 company negative pretax impact commodities approximately 800 million compared 2004 following increase approximately 900 million 2004 compared 2003 restructuring january 2004 company announced threeyear restructuring program objectives leveraging companys global scale realigning lowering cost structure optimizing capacity utilization part program discussed note 3 consolidated financial statements company anticipated closure sale 20 plants elimination approximately 6000 positions 2004 2006 company expects incur approximately 12 billion pretax charges reflecting asset disposals severance implementation costs including 297 million 641 million incurred 2005 2004 respectively total pretax charges program incurred december 31 2005 938 million specific programs announced result elimination approximately 5500 positions approximately 60 pretax charges expected require cash payments addition company expects incur approximately 170 million capital expenditures 2004 2006 implement restructuring program january 2004 december 31 2005 company spent 144 million including 98 million spent 2005 capital implement restructuring program cost savings result restructuring program approximately 131 million 2005 127 million 2004 anticipated reach cumulative annualized cost savings approximately 450 million 2006 expected used support brandbuilding initiatives january 2006 company announced plans expand restructuring efforts beyond originally contemplated additional pretax charges anticipated 25 billion 2006 2009 approximately 16 billion expected require cash payments charges result anticipated closure 20 additional facilities elimination approximately 8000 additional positions initiatives expanded program include additional organizational streamlining facility closures expanded initiatives expected add approximately 700 million annualized cost savings 2009 capital expenditures required expanded restructuring program included within companys overall capital spending budget expected remain flat 2006 versus 2005 12 billion entire restructuring program expected ultimately result 37 billion pretax charges closure 40 facilities elimination approximately 14000 positions cumulative annualized cost savings completion program approximately 115 billion approximately 23 billion 37 billion pretax charges expected require cash payments acquisitions dispositions one element companys growth strategy strengthen brand portfolios disciplined program selective acquisitions divestitures company constantly reviewing potential acquisition candidates time sells businesses accelerate shift portfolio toward businesseswhether global regional localthat offer company sustainable competitive advantage impact future acquisition divestiture could material impact companys consolidated financial position results operations cash flows future sales businesses could cases result losses sale previously discussed company sold substantially sugar confectionery business june 2005 pretax proceeds approximately 14 billion sale included life savers creme savers altoids trolli sugus brands company reflected results sugar confectionery business prior closing date discontinued operations consolidated statements earnings years presented assets related sugar confectionery business reflected assets discontinued operations held sale consolidated balance sheet december 31 2004 company recorded loss sale discontinued operations 297 million second quarter 2005 related largely taxes transaction 2004 company acquired usbased beverage business total cost 137 million 2003 company acquired biscuits business egypt trademarks associated small usbased natural foods business total cost smaller acquisitions 98 million 2005 company sold fruit snacks assets incurred pretax asset impairment charge 93 million recognition sale additionally 2005 company sold uk desserts assets us yogurt assets small business colombia minor trademark mexico small equity investment turkey aggregate proceeds received sales 238 million company recorded pretax gains 108 million december 2005 company announced sales certain canadian assets small us biscuit brand incurred pretax asset impairment charges 176 million recognition sales transactions closed first quarter 2006 2004 company sold brazilian snack nuts business trademarks associated candy business norway aggregate proceeds received sales businesses 18 million pretax losses 3 million recorded 2003 company sold european rice business branded fresh cheese business italy aggregate proceeds received sales businesses 96 million company recorded pretax gains 31 million operating results businesses acquired sold excluding sugar confectionery business aggregate material companys consolidated financial position results operations cash flows periods presented consolidated operating results operating income affected following items 2005 2004 2003 •asset impairment exit implementation costsas discussed note 3 consolidated financial statements 2005 2004 company recorded 479 million 603 million respectively asset impairment exit costs consolidated statement earnings additionally 2005 2004 company recorded pretax implementation costs 87 million 50 million respectively 2004 company also recorded 47 million pretax impairment charges related equity investment joint venture turkey pretax asset impairment exit implementation costs years ended december 31 2005 2004 included operating companies income following segments 2003 company recorded pretax charge 6 million asset impairment exit costs related closure nordic snacks plant charge included operating companies income europe middle east africa segment •gains losses sales businessesduring 2005 company sold fruit snacks assets uk desserts assets us yogurt assets small business colombia minor trademark mexico small equity investment turkey aggregate pretax gains 108 million 2004 company sold brazilian snack nuts business trademarks associated candy business norway aggregate pretax losses 3 million 2003 company sold european rice business branded fresh cheese business italy aggregate pretax gains 31 million pretax gains losses included operating companies income following segments discussed note 14 consolidated financial statements companys management uses operating companies income defined operating income general corporate expenses amortization intangibles evaluate segment performance allocate resources management believes appropriate disclose measure help investors analyze business performance trends various business segments 2005 compared 2004 following discussion compares consolidated operating results 2005 2004 companys 2005 results included 53 weeks operating results compared 52 weeks 2004 company estimates extra week positively impacted net revenues operating income approximately 2 2005 approximately 625 million 100 million respectively volume increased 210 million pounds 11 including benefit 53 weeks 2005 results excluding acquisitions divestitures 53rd week shipments volume decreased approximately 1 due primarily focus mix improvement sku reduction program impact higher retail prices category growth trends united states declines certain international countries notably germany partially offset new product introductions growth developing markets net revenues increased 1945 million 60 due primarily favorable volumemix 1086 million including benefit 53rd week favorable currency 533 million higher net pricing 453 million reflecting commoditydriven pricing partially offset increased promotional spending impact acquisitions 42 million partially offset impact divested businesses 174 million operating income increased 140 million 30 due primarily favorable volumemix 479 million including benefit 53rd week lower asset impairment exit costs 124 million net gains sales businesses 111 million favorable currency 90 million 2004 equity investment impairment charge related joint venture turkey 47 million partially offset higher marketing administration research costs 420 million including higher benefit marketing costs well costs associated 53rd week higher fixed manufacturing costs 110 million unfavorable costs net higher pricing 102 million due primarily higher commodity costs increased promotional spending net impact higher implementation costs associated restructuring program 37 million impact divestitures 33 million currency movements increased net revenues 533 million operating income 90 million increases due primarily weakness us dollar euro canadian dollar brazilian real certain currencies companys reported effective income tax rate decreased 29 percentage points 294 due primarily settlement outstanding us tax claim 24 million 82 million resolution outstanding items companys international operations 33 million tax impacts associated sale us biscuit brand 2005 rate also includes 53 million aggregate benefit domestic manufacturers deduction provision dividend repatriation provision american jobs creation act tax provision 2004 included 81 million favorable resolution outstanding tax item reversal 35 million tax accruals longer required due tax events occurred 2004 earnings continuing operations 2904 million increased 235 million 88 due primarily higher operating income lower income tax rate diluted eps continuing operations 172 increased 110 loss discontinued operations net income tax increased 268 million due primarily loss sale 297 million 2005 loss discontinued operations due primarily recording additional tax expense arose sale sugar confectionery business second quarter 2005 net earnings 2632 million decreased 33 million 12 diluted eps net earnings 155 equal 2004 compared 2003 following discussion compares consolidated operating results 2004 2003 volume increased 509 million pounds 28 due primarily acquisitions increased shipments us cheese canada north america foodservice segment partially offset impact divested businesses net revenues increased 1670 million 55 due primarily favorable currency 838 million higher volumemix 560 million higher net pricing 265 million reflecting commoditydriven pricing partially offset increased promotional spending impact acquisitions 140 million partially offset impact divested businesses 126 million operating income decreased 1248 million 213 due primarily pretax charges asset impairment exit costs 597 million unfavorable costs net higher pricing 442 million due primarily higher commodity costs increased promotional spending higher marketing administration research costs 306 million 2004 implementation costs associated restructuring program 50 million 2004 equity investment impairment charge relating joint venture turkey 47 million unfavorable net impact related gains losses sales businesses 34 million higher fixed manufacturing costs 23 million including higher benefit costs impact divestitures 18 million partially offset higher volumemix 187 million favorable currency 98 million currency movements increased net revenues 838 million operating income 98 million increases due primarily weakness us dollar euro canadian dollar companys reported effective income tax rate decreased 26 percentage points 323 resulting 81 million favorable resolution outstanding tax item reversal 35 million tax accruals longer required due tax events occurred 2004 earnings continuing operations 2669 million decreased 710 million 210 due primarily lower operating income partially offset lower effective income tax rate diluted eps continuing operations 155 decreased 205 earnings discontinued operations net income tax decreased 101 million resulting net loss 4 million 2004 decrease due primarily pretax noncash asset impairment charges 2004 107 million 69 million aftertax intangible pretax asset impairment charge 17 million 11 million aftertax net earnings 2665 million decreased 811 million 233 diluted eps net earnings 155 decreased 229 operating results reportable segment kraft north america commercial 2005 compared 2004 following discussion compares kraft north america commercials operating results 2005 2004 volume increased 20 including benefit 53 weeks 2005 results excluding acquisitions divestitures 53rd week shipments volume essentially flat net revenues increased 1233 million 56 due primarily higher volumemix 873 million including benefit 53rd week higher net pricing 239 million reflecting commoditydriven price increases primarily coffee cheese nuts meats partially offset increased promotional spending favorable currency 172 million impact acquisitions 41 million partially offset impact divestitures 97 million operating companies income decreased 39 million 10 due primarily higher marketing administration research costs 367 million including higher benefit marketing costs well costs associated 53rd week higher fixed manufacturing costs 94 million net impact higher implementation costs associated restructuring program 15 million impact divestitures 9 million unfavorable costs net higher pricing 3 million including higher commodity costs increased promotional spending partially offset favorable volumemix 364 million including benefit 53rd week lower pretax charges asset impairment exit costs 56 million favorable currency 31 million following discusses operating results within kraft north america commercials reportable segments us beverages volume increased 48 including 53rd week shipments approximately 2 percentage points growth due primarily refreshment beverages partially offset decline coffee refreshment beverages volume increased due primarily 2004 acquisition veryfine partially offset shift lower weight sugarfree powdered beverages coffee volume declined due impact commoditydriven price increases category consumption although volume grew premium brand coffee net revenues increased 297 million 116 due primarily higher pricing lower promotional spending 150 million reflecting commoditydriven pricing coffee higher volumemix 111 million including benefit 53rd week impact 2004 veryfine acquisition 34 million refreshment beverages net revenues increased due primarily expanded distribution veryfine new product introductions sugarfree powdered beverages coffee net revenues increased due primarily increased prices positive mix driven volume growth premium brands operating companies income decreased 21 million 44 due primarily higher marketing administration research costs 101 million including higher marketing benefit costs well costs associated 53rd week higher fixed manufacturing costs 12 million partially offset favorable volumemix 76 million including benefit 53rdweek higher pricing 14 million including higher commodity costs us cheese canada north america foodservice volume decreased 08 including 53rd week shipments approximately 2 percentage points growth due primarily impact divestiture us yogurt assets lower shipments canada partially offset gains foodservice cheese volume declined due primarily impact yogurt divestiture partially offset gains natural cheese cream cheese process loaves cottage cheese volume declined canada due primarily lower shipments grocery products readytodrink beverages coffee desserts volume foodservice business increased due primarily 2004 acquisition veryfine beverage business net revenues increased 354 million 48 due primarily favorable volumemix 219 million including benefit 53rd week favorable currency 172 million higher pricing net higher promotional spending 25 million reflecting commoditydriven pricing late 2004 impact acquisitions 7 million partially offset impact divestitures 67 million canada net revenues increased due primarily favorable currency impact cheese coffee pricing partially offset increased promotional spending lower volume cheese net revenues also increased reflecting commoditydriven pricing 2004 partially offset increased promotional spending divestiture yogurt assets foodservice net revenues increased due primarily favorable currency impact 2004 veryfine acquisition operating companies income increased 29 million 29 due primarily higher pricing favorable costs 78 million net higher promotional spending favorable volumemix 68 million including benefit 53rd week favorable currency 31 million partially offset higher marketing administration research costs 72 million including higher benefit costs well costs associated 53rd week impact higher asset impairment exit costs 35 million higher fixed manufacturing costs 28 million higher implementation costs associated restructuring program 12 million us convenient meals volume increased 28 including 53rd week shipments approximately 2 percentage points growth due primarily higher shipments meats pizza meals meats volume increased aided higher shipments cold cuts new product introductions meals volume increased due primarily impact 53rd week partially offset discontinuation product line pizza volume also increased due primarily 53rd week new product introductions partially offset competitive activity net revenues increased 247 million 58 due higher volumemix 227 million including benefit 53rdweek higher pricing net increased promotional spending 20 million reflecting commoditydriven pricing meats pizza meats net revenues increased due primarily higher volume commoditydriven price increases partially offset higher promotional spending pizza net revenues increased driven positive mix new products impact commoditydriven price increases meals net revenues increased due primarily improved mix new products partially offset discontinuation product line increased promotional spending operating companies income decreased 30 million 39 due primarily higher marketing administration research costs 77 million including higher marketing benefit costs well costs associated 53rd week higher fixed manufacturing expenses 30 million partially offset favorable volumemix 45 million including benefit 53rd week lower pretax charges asset impairment exit costs 29 million higher pricing net higher costs 8 million due primarily higher commodity driven pricing us grocery volume increased 11 due 53rd week shipments approximately 2 percentage points growth enhancers volume increased slightly due primarily higher shipments spoonable dressings partially offset lower volume pourable dressings barbecue sauce due increased competitive activity desserts volume increased aided new product introductions refrigerated readytoeat desserts partially offset declines dry packaged desserts impact fruit snacks divestiture net revenues decreased 4 million 02 due primarily impact divestitures 30 million partially offset higher volumemix 20 million including benefit 53rd week higher pricing net increased promotional spending 5 million desserts net revenues decreased due primarily impact fruit snacks divestiture declines dry packaged desserts partially offset new product introductions refrigerated readytoeat desserts gains marshmallows operating companies income decreased 151 million 169 due primarily higher pretax charges asset impairment exit costs 91 million unfavorable costs net higher pricing 31 million due primarily higher commodity costs increased promotional spending higher marketing administration research costs 21 million including higher benefit costs well costs associated 53rd week higher fixed manufacturing costs 10 million us snacks cereals volume increased 35 including 53rd week shipments approximately 2 percentage points growth gains biscuits cereals partially offset decline salted snacks biscuits volume increased due primarily new product introductions cookies cereals volume increased due primarily new product introductions expanded distribution readytoeat cereals salted snacks volume declined due higher commoditydriven pricing snack nuts increased competitive activity net revenues increased 339 million 63 due primarily higher volumemix 296 million including benefit 53rd week higher pricing net increased promotional spending 39 million reflecting commoditydriven pricing snack nuts cereals biscuits net revenues increased driven new product introductions improved mix cereals net revenues also increased due primarily new product introductions higher shipments pricing readytoeat cereals salted snacks net revenues increased lower volume offset higher prices operating companies income increased 134 million 182 due primarily higher volumemix 171 million including benefit 53rd week lower pretax charges asset impairment exit costs 153 million partially offset higher marketing administration research costs 96 million including higher marketing benefit costs well costs associated 53rd week unfavorable costs net higher pricing 72 million due primarily higher commodity costs increased promotional spending higher fixed manufacturing costs 15 million net impact higher implementation costs associated restructuring program 6 million 2004 compared 2003 following discussion compares kraft north america commercials operating results 2004 2003 volume increased 43 due primarily acquisition us beverages segment increased shipments us cheese canada north america foodservice segment net revenues increased 1123 million 54 due primarily higher volumemix 537 million higher net pricing 312 million reflecting commoditydriven price increases partially offset increased promotional spending favorable currency 164 million impact acquisitions 117 million higher net revenues driven cheese meats nuts due higher volume response consumer nutrition trends higher commoditydriven pricing net increased promotional spending operating companies income decreased 788 million 169 due primarily 2004 pretax charges asset impairment exit costs 391 million unfavorable costs net higher pricing 356 million including higher commodity costs increased promotional spending higher marketing administration research costs 214 million including higher benefit costs 2004 implementation costs associated restructuring program 40 million partially offset higher volumemix 197 million favorable currency 29 million following discusses operating results within kraft north america commercials reportable segments us beverages volume increased 127 due primarily 2004 acquisition beverage business new product introductions refreshment beverages coffee volume also increased due product quality improvements impact expanded distribution arrangement net revenues increased 122 million 50 due primarily impact acquisitions 94 million higher volumemix 85 million partially offset increased promotional spending 56 million net revenues increased refreshment beverages due primarily acquisition veryfine increased shipments sugarfree powdered beverages coffee increased net revenues due primarily favorable mix higher shipments premium coffee partially offset increased promotional spending base coffee response competitive activity operating companies income decreased 151 million 240 due primarily higher marketing administration research costs 98 million unfavorable costs higher promotional spending 85 million including higher commodity costs 2004 pretax charges asset impairment exit costs 9 million 2004 implementation costs associated restructuring program 4 million partially offset higher volumemix 49 million us cheese canada north america foodservice volume increased 35 due primarily higher volume foodservice cheese volume foodservice business increased due primarily acquisition beverage business 2004 higher shipments national accounts cheese volume also increased benefiting increased promotional spending net revenues increased 704 million 105 due primarily higher volumemix 272 million higher pricing net higher promotional reinvestment spending cheese 248 million reflecting commoditydriven pricing favorable currency 164 million impact acquisitions cheese revenues increased due primarily increased shipments commoditydriven pricing partially offset increased promotional spending canada net revenues also increased due cheese pricing foodservice net revenues increased due primarily commoditydriven net pricing cheese meat higher shipments operating companies income decreased 282 million 222 due primarily unfavorable costs net higher pricing 214 million including higher commodity costs increased promotional spending 2004 pretax charges asset impairment exit costs 111 million higher fixed manufacturing costs 50 million including higher benefit costs higher marketing administration research costs 26 million 2004 implementation costs associated restructuring program 8 million partially offset higher volumemix 99 million favorable currency 29 million us convenient meals volume increased 16 due primarily gains meats pizza partially offset lower shipments meals meats volume increased driven higher consumption cold cuts supported higher investment spending pizza volume also increased aided new product introductions meals volume declined due discontinuation certain product lines second half 2003 net revenues increased 192 million 47 due primarily higher volumemix 114 million higher pricing 75 million reflecting commoditydriven pricing meats pizza impact acquisitions meats net revenues increased due primarily higher shipments cold cuts bacon hot dogs commoditydriven pricing pizza net revenues higher due new product introductions commoditydriven pricing actions meals net revenues increased slightly impact higher shipments dinners partially offset discontinuation product line operating companies income decreased 46 million 56 due primarily 2004 pretax charges asset impairment exit costs 41 million higher marketing administration research costs 38 million including higher benefit costs impact acquisitions 5 million 2004 implementation costs associated restructuring program 4 million partially offset higher volumemix 40 million higher pricing net unfavorable costs 7 million including higher commodity costs us grocery volume increased 07 due primarily gains enhancers partially offset decline desserts volume increased enhancers due primarily mayonnaise salad dressings desserts volume declined due primarily lower shipments fruit snacks partially offset higher shipments frozen toppings net revenues increased 37 million 15 due primarily higher pricing lower promotional spending 34 million higher volumemix enhancers net revenues increased due primarily higher shipments pourable spoonable salad dressings desserts net revenues increased due primarily lower promotional spending new product introductions favorable mix sugarfree desserts operating companies income equal prior year lower fixed manufacturing costs 17 million higher volumemix 10 million offset 2004 pretax charges asset impairment exit costs 8 million 2004 implementation costs associated restructuring program 6 million higher marketing administration research costs 5 million unfavorable costs net higher pricing us snacks cereals volume increased 15 higher salted snacks biscuits volume partially offset decline cereals salted snacks volume increased due consumer nutrition trends marketing programs nuts biscuits volume increased driven new product introductions cereals volume declined due low carbohydrate diet trends impacted category increased competitive activity net revenues increased 68 million 13 due primarily higher volumemix 62 million higher pricing 11 million including absence high product returns associated new products incurred 2003 partially offset increased promotional spending snacks higher net revenues due primarily increased shipments snack nuts due consumer nutrition trends biscuit net revenues higher due impact lower product returns partially offset higher promotional spending cereals net revenues decreased due lower shipments caused consumer nutrition trends increased competitive activity operating companies income decreased 309 million 295 due primarily 2004 pretax charges asset impairment exit costs 222 million unfavorable costs net higher pricing 62 million due higher commodity costs increased promotional spending higher marketing administration research costs 47 million 2004 implementation costs associated restructuring program 18 million partially offset lower fixed manufacturing costs 40 million kraft international commercial 2005 compared 2004 following discussion compares kraft international commercials operating results 2005 2004 volume decreased 12 including benefit 53 weeks 2005 results excluding 53rd week shipments 2005 impact divestitures volume decreased approximately 2 due primarily effect commoditydriven pricing net revenues increased 712 million 70 due primarily favorable currency 361 million higher pricing net increased promotional spending 214 million including commoditydriven pricing favorable volumemix 213 million including benefit 53rd week partially offset impact divestitures 77 million net revenues 14 developing markets driven significant growth russia ukraine middle east addition net revenues increased several western european markets partially offset decline volume particularly germany operating companies income increased 189 million 203 due primarily favorable volumemix 115 million including benefit 53rd week net gains sale businesses 112 million lower pretax charges asset impairment exit costs 68 million favorable currency 59 million 2004 equity investment impairment charge related joint venture turkey 47 million partially offset unfavorable costs increased promotional spending net higher pricing 99 million including higher commodity costs higher marketing administration research costs 53 million including higher marketing benefit costs associated 53rd week partially offset 16 million recovery receivables previously written impact divestitures 24 million net impact higher implementation costs associated restructuring program 22 million higher fixed manufacturing costs 16 million following discusses operating results within kraft international commercials reportable segments europe middle east africa volume decreased 18 including 53rd week shipments approximately 2 percentage points growth due primarily lower volume germany divestiture uk desserts assets first quarter 2005 partially offset growth developing markets including russia ukraine middle east grocery volume declined due divestiture uk desserts assets first quarter 2005 lower results egypt germany beverages volume declined driven lower coffee shipments germany due commoditydriven price increases partially offset higher refreshment beverage shipments middle east higher coffee shipments russia ukraine convenient meals volume declined due primarily lower category performance uk lower promotions germany cheese volume increased due higher shipments uk italy middle east snacks volume increased gains confectionery benefiting growth russia ukraine partially offset lower biscuits volume egypt net revenues increased 477 million 63 due primarily favorable currency 235 million favorable volumemix 171 million including benefit 53rd week higher pricing net increased promotional spending 131 million reflecting commoditydriven pricing coffee partially offset impact divestitures 60 million significant growth russia ukraine partially offset decline germany operating companies income increased 115 million 168 due primarily net gains sale businesses 108 million favorable volumemix 87 million including benefit 53rd week lower pretax charges asset impairment exit costs 53 million 2004 equity investment impairment charge related joint venture turkey 47 million favorable currency 32 million partially offset unfavorable costs net higher pricing 144 million due primarily higher commodity costs increased promotional spending higher marketing administration research costs 30 million including costs associated 53rd week impact divestitures 25 million net impact higher implementation costs associated restructuring program 17 million latin america asia pacific volume decreased 04 including 53rd week shipments approximately 2 percentage points growth due primarily lower shipments china partially offset growth southeast asia grocery volume declined due primarily lower shipments brazil central america snacks volume also declined impacted increased biscuit competition china resizing biscuit products latin america partially offset higher shipments venezuela beverages volume increased due primarily refreshment beverage gains philippines argentina puerto rico net revenues increased 235 million 91 due primarily favorable currency 126 million higher pricing net increased promotional spending 83 million favorable volumemix 42 million including benefit 53rdweek partially offset impact divestitures 17 million net revenues increased several geographies including volume pricing gains venezuela increased refreshment beverage cheese shipments philippines net revenues declined china company faced increased competitive activity biscuits operating companies income increased 74 million 296 due primarily higher pricing net unfavorable costs 45 million including increased promotional spending favorable volumemix 28 million including benefit 53rd week favorable currency 27 million lower pretax charges asset impairment exit costs 15 million partially offset higher marketing administration research costs 23 million including costs associated 53rd week partially offset 16 million recovery receivables previously written higher fixed manufacturing costs 18 million 2004 compared 2003 following discussion compares kraft international commercials operating results 2004 2003 volume decreased 11 due primarily impact divestiture rice business branded fresh cheese business europe 2003 well price competition trade inventory reductions several markets partially offset impact acquisitions net revenues increased 547 million 57 due primarily favorable currency 674 million impact acquisitions 23 million favorable volumemix 23 million partially offset impact divestitures 126 million increased promotional spending net higher pricing 47 million lower pricing higher promotional spending coffee europe lower shipments refreshment beverages mexico negatively impacted net revenues operating companies income decreased 460 million 330 due primarily pretax charges asset impairment exit costs 206 million unfavorable costs increased promotional spending net higher pricing 113 million higher marketing administration research costs 92 million including higher benefit costs infrastructure investment developing markets 2004 equity investment impairment charge related joint venture turkey 47 million unfavorable net impact related gains losses sales businesses 34 million impact divestitures 18 million 2004 implementation costs associated restructuring program 10 million partially offset favorable currency 69 million following discusses operating results within kraft international commercials reportable segments europe middle east africa volume decreased 13 due primarily divestiture rice business branded fresh cheese business europe 2003 price competition france trade inventory reductions russia partially offset impact acquisitions volume growth germany austria italy romania cheese volume declined impacted divestiture branded fresh cheese business europe 2003 partially offset increased cream cheese shipments germany italy united kingdom higher process cheese shipments united kingdom beverages volume also declined driven price competition coffee france lower shipments refreshment beverages middle east convenient meals volume declined impacted divestiture rice business europe 2003 grocery volume declined across several markets including germany italy partially offset increased volume egypt due acquisition snacks volume increased gains biscuits benefiting acquisitions new confectionery product introductions across segment partially offset trade inventory reductions russia net revenues increased 508 million 72 due primarily favorable currency 649 million favorable volumemix 48 million impact acquisitions 21 million partially offset impact divestitures 115 million lower pricing increased promotional spending 95 million cheese net revenues decreased primarily due divestiture certain fresh cheese brands italy partially offset increased shipments cream cheese process cheese europe snacks net revenues increased due salted snacks acquisition turkey biscuits acquisition egypt higher confectionery shipments germany beverages net revenues declined due coffee price reductions france higher promotional spending united kingdom france germany partially offset higher shipments ukraine romania convenient meals net revenues declined due lower shipments western europe operating companies income decreased 319 million 318 due primarily pretax charges asset impairment exit costs 174 million lower pricing increased promotional spending 92 million higher marketing administration research costs 49 million including higher benefit costs well infrastructure investment developing markets equity investment impairment charge related joint venture turkey 47 million lower gains sales businesses 26 million impact divestitures 17 million 2004 implementation costs associated restructuring program 9 million partially offset favorable currency 78 million favorable volumemix 15 million latin america asia pacific volume decreased 10 due primarily lower shipments mexico peru venezuela partially offset growth brazil china snacks volume declined impacted price competition trade inventory reductions venezuela peru grocery volume declined across several markets including peru australia philippines cheese volume increased due primarily gains across several markets including japan australia philippines beverages volume also increased due primarily gains brazil china partially offset increased competitive activity mexico net revenues increased 39 million 15 due primarily higher pricing 48 million reflecting devaluationdriven cost increases net increased promotional spending favorable currency 25 million partially offset lower volumemix 25 million impact divestitures 11 million cheese net revenues increased due higher shipments price increases across latin america southeast asia australia snacks net revenues decreased due divestiture snack nuts business brazil beverage net revenues declined due primarily lower shipments mexico result increased price competition carbonated beverages grocery net revenues increased due primarily higher shipments venezuela convenient meals net revenues increased due higher shipments puerto rico operating companies income decreased 141 million 361 due primarily higher marketing administration research costs 43 million 2004 pretax charges asset impairment exit costs 32 million lower volumemix 25 million unfavorable costs net higher pricing 21 million including increased promotional spending unfavorable currency 9 million 2004 pretax loss sale snack nuts business brazil 8 million financial review net cash provided operating activities net cash provided operating activities 35 billion 2005 40 billion 2004 41 billion 2003 decrease 2005 operating cash flows 2004 due primarily increase income tax payments primarily related sale sugar confectionery business increase use cash fund working capital due primarily increase cash payments associated restructuring plan lower earnings partially offset lower pension plan contributions decrease 2004 operating cash flows 2003 due primarily lower net earnings cash payments associated restructuring program higher pension contributions partially offset lower use cash fund working capital net cash provided used investing activities one element growth strategy company strengthen brand portfolios disciplined programs selective acquisitions divestitures company constantly reviewing potential acquisition candidates time sells businesses accelerate shift portfolio toward businesseswhether global regional localthat offer company sustainable competitive advantage impact future acquisitions divestitures could material impact companys cash flows 2005 net cash provided investing activities 525 million compared net cash used investing activities 11 billion 10 billion 2004 2003 respectively cash provided investing activities 2005 includes proceeds sales businesses including sugar confectionery business fruit snacks assets uk desserts assets us yogurt assets small business colombia small equity investment turkey minor trademark mexico increase 2004 primarily reflected higher uses cash purchase businesses reduction cash received sales businesses partially offset lower capital expenditures capital expenditures funded operating activities 12 billion 10 billion 11 billion 2005 2004 2003 respectively 2005 capital expenditures primarily modernize manufacturing facilities implement restructuring program support new product productivity initiatives 2006 capital expenditures currently expected flat 2005 expenditures including capital expenditures required restructuring program expenditures expected funded operations net cash used financing activities 2005 net cash 40 billion used financing activities compared 32 billion 2004 increase cash used 2005 due primarily increase companys class share repurchases repayment debt partially offset increase amounts due altria group inc affiliates 2004 net cash 32 billion used financing activities compared 28 billion 2003 increase cash used 2004 due primarily increase companys class share repurchases dividend payments november 2004 company issued 750 million thirdparty longterm debt net proceeds used refinance maturing debt liquidity debt companys total debt including amounts due altria group inc affiliates 112 billion december 31 2005 125 billion december 31 2004 companys debttoequity ratio 038 december 31 2005 042 december 31 2004 companys debttocapitalization ratio 027 december 31 2005 030 december 31 2004 november 2004 company issued 750 million 5year notes bearing interest 4125 net proceeds offering used refinance maturing debt company form s3 shelf registration statement file securities exchange commission sec company may sell debt securities andor warrants purchase debt securities one offerings total amount 40 billion december 31 2005 company 35 billion capacity remaining shelf registration december 31 2005 2004 company shortterm amounts payable altria group inc affiliates 652 million 227 million respectively amounts payable altria group inc generally include accrued dividends taxes service fees interest intercompany borrowings based applicable london interbank offered rate company longterm amounts payable altria group inc affiliates credit ratings following 101 billion judgment march 21 2003 altria group incs domestic tobacco subsidiary philip morris usa inc three major credit rating agencies took series ratings actions resulting lowering companys shortterm longterm debt ratings despite fact company neither party exposure litigation companys credit ratings moodys december 31 2005 p2 shortterm debt a3 longterm debt stable outlook companys credit ratings standard poors december 31 2005 a2 shortterm debt bbb longterm debt stable outlook companys credit ratings fitch rating services december 31 2005 f2 shortterm debt bbb longterm debt stable outlook result rating agencies actions borrowing costs increased none companys debt agreements requires accelerated repayment event decrease credit ratings credit rating downgrades moodys standard poors fitch rating services impact companys existing thirdparty contracts credit lines company maintains revolving credit facilities historically used support issuance commercial paper april 2005 company terminated 20 billion multiyear revolving credit facility expiring july 2006 25 billion 364day revolving credit facility expiring july 2005 replaced new 45 billion multiyear revolving credit facility expires april 2010 december 31 2005 credit line company related activity follows billions dollars companys revolving credit facility sole use requires maintenance minimum net worth 200 billion december 31 2005 companys net worth 296 billion company expects continue meet covenant revolving credit facility include financial tests credit rating triggers provisions could require posting collateral company expects refinance longterm shortterm debt time nature amount companys longterm shortterm debt proportionate amount expected vary result future business requirements market conditions factors addition certain international subsidiaries kraft maintain uncommitted credit lines meet shortterm working capital needs international businesses credit lines amounted approximately 13 billion december 31 2005 sole use companys international businesses borrowings lines amounted approximately 400 million 150 million december 31 2005 2004 respectively offbalance sheet arrangements aggregate contractual obligations company offbalance sheet arrangements guarantees contractual obligations discussed guarantees discussed note 18 consolidated financial statements company thirdparty guarantees primarily derived acquisition divestiture activities approximately 27 million december 31 2005 substantially guarantees expire 2013 14 million expiring 2006 company required perform guarantees event third party fails make contractual payments achieve performance measures company liability 17 million consolidated balance sheet december 31 2005 relating guarantees addition december 31 2005 company contingently liable 127 million guarantees related performance include surety bonds related dairy commodity purchases guarantees related payment customs duties taxes letters credit guarantees expected significant impact companys liquidity aggregate contractual obligations following table summarizes companys contractual obligations december 31 2005 1amounts represent expected cash payments companys longterm debt include bond premiums discounts interest 2operating leases represent minimum rental commitments noncancelable operating leases company significant capital lease obligations 3purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 4other longterm liabilities primarily consist certain specific severance incentive compensation arrangements following longterm liabilities included consolidated balance sheet excluded table accrued pension postretirement health care postemployment costs income taxes minority interest insurance accruals company unable estimate timing payments items currently company anticipates making us pension contributions approximately 140 million 2006 nonus pension contributions approximately 106 million 2006 based current tax law discussed note 15 consolidated financial statements company believes cash operations existing credit facility provide sufficient liquidity meet working capital needs including cash requirements restructuring program planned capital expenditures future contractual obligations payment anticipated quarterly dividends equity dividends december 2003 companys board directors approved repurchase time 700 million companys class common stock december 2004 company completed program acquiring 217 million class shares average price 3223 per share december 2004 company commenced repurchasing shares twoyear 15 billion class common stock repurchase program authorized board directors december 31 2005 repurchases 15 billion program 406 million shares cost 125 billion 3081 per share 2005 company repurchased 392 million shares cost 12 billion 2004 company repurchased 215 million shares cost 700 million march 2006 companys board directors authorized new share repurchase program repurchase time 20 billion companys class common stock new program expected run 2008 commence upon completion existing twoyear 15 billion program expected completed first quarter 2006 discussed note 11 consolidated financial statements 2005 2004 company granted approximately 42 million 41 million restricted class shares respectively eligible usbased employees 2005 2004 also issued eligible nonus employees rights receive approximately 18 million 19 million class equivalent shares respectively market value per restricted share right 3332 3223 dates 2005 2004 grants respectively restrictions stock rights granted 2005 lapse first quarter 2008 restrictions grants 2004 lapse first quarter 2007 2004 fasb issued sfas 123 revised 2004 sharebased payment sfas 123r sfas 123r requires companies measure compensation cost sharebased payments fair value company adopt new standard prospectively january 1 2006 adoption sfas 123r material impact consolidated financial position results operations cash flows december 31 2005 number shares issued upon exercise outstanding stock options vesting nonus rights receive equivalent shares 199 million 12 total class b shares outstanding dividends paid 2005 2004 1437 million 1280 million respectively increase 123 reflecting higher dividend rate 2005 partially offset lower number shares outstanding result class share repurchases third quarter 2005 companys board directors approved 122 increase current quarterly dividend rate 023 per share class b common stock result present annualized dividend rate 092 per common share declaration dividends subject discretion companys board directors depend various factors including companys net earnings financial condition cash requirements future prospects factors deemed relevant companys board directors market risk company operates globally manufacturing sales facilities various locations around world utilizes certain financial instruments manage foreign currency commodity exposures derivative financial instruments used company principally reduce exposures market risks resulting fluctuations foreign exchange rates commodity prices creating offsetting exposures company party leveraged derivatives policy use financial instruments speculative purposes years ended december 31 2005 2004 2003 ineffectiveness related cash flow hedges material december 31 2005 company hedging forecasted transactions periods exceeding next fifteen months company estimates derivative losses approximately 2 million net income taxes reported accumulated comprehensive earnings losses december 31 2005 reclassified consolidated statement earnings within next twelve months foreign exchange rates company uses forward foreign exchange contracts foreign currency options mitigate exposure changes exchange rates thirdparty intercompany actual forecasted transactions substantially companys derivative financial instruments effective hedges primary currencies company exposed based size location businesses include euro swiss franc british pound canadian dollar december 31 2005 2004 company foreign exchange option forward contracts aggregate notional amounts 22 billion 29 billion respectively effective portion unrealized gains losses associated forward option contracts deferred component accumulated comprehensive earnings losses underlying hedged transactions reported companys consolidated statement earnings commodities company exposed price risk related forecasted purchases certain commodities used raw materials businesses accordingly company uses commodity forward contracts cash flow hedges primarily coffee cocoa commodity futures options also used hedge price certain commodities including milk coffee cocoa wheat corn sugar soybean oil general commodity forward contracts qualify normal purchase exception sfas 133 therefore subject provisions sfas 133 december 31 2005 2004 company net long commodity positions 521 million 443 million respectively unrealized gains losses net commodity positions immaterial december 31 2005 2004 effective portion unrealized gains losses commodity futures option contracts deferred component accumulated comprehensive earnings losses recognized component cost sales companys consolidated statement earnings related inventory sold value risk company uses value risk var computation estimate potential oneday loss fair value interest ratesensitive financial instruments estimate potential oneday loss pretax earnings foreign currency commodity pricesensitive derivative financial instruments var computation includes companys debt shortterm investments foreign currency forwards swaps options commodity futures forwards options anticipated transactions foreign currency trade payables receivables net investments foreign subsidiaries foregoing instruments intended hedge excluded computation var estimates made assuming normal market conditions using 95 confidence interval company used variancecovariance model determine observed interrelationships movements interest rates various currencies interrelationships determined observing interest rate forward currency rate movements preceding quarter calculation var amounts december 31 2005 2004 four preceding quarters calculation average var amounts year values foreign currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation estimated potential oneday loss fair value companys interest ratesensitive instruments primarily debt normal market conditions estimated potential oneday loss pretax earnings foreign currency commodity instruments normal market conditions calculated var model follows millions var computation risk analysis tool designed statistically estimate maximum probable daily loss adverse movements interest rates foreign currency rates commodity prices normal market conditions computation purport represent actual losses fair value earnings incurred company consider effect favorable changes market rates company cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future results operations financial position new accounting standards see note 2 consolidated financial statements discussion new accounting standards contingencies see note 18 consolidated financial statements discussion contingencies item 7aitem 7 managements discussion analysis financial condition results operation description company kraft foods inc kraft together subsidiaries collectively referred company manufactures markets packaged food products consisting principally beverages cheese snacks convenient meals various packaged grocery products kraft manages reports operating results two units kraft north america commercial kraft international commercial reportable segments kraft north america commercial organized managed principally product category kraft international commercials operations organized managed geographic location december 31 2006 altria group inc held 985 combined voting power krafts outstanding capital stock owned 890 outstanding shares krafts capital stock kraft spinoff altria group inc january 31 2007 altria group inc board directors announced altria group inc plans spin remaining interest 890 company pro rata basis altria group inc stockholders taxfree transaction distribution kraft shares owned altria group inc made march 30 2007 distribution date altria group inc stockholders record close business march 16 2007 record date exact distribution ratio calculated dividing number class common shares kraft held altria group inc number altria group inc shares outstanding record date based number shares altria group inc outstanding december 31 2006 distribution ratio would approximately 07 shares kraft class common stock every share altria group inc common stock outstanding prior distribution altria group inc convert class b shares kraft common stock carry ten votes per share class shares kraft carry one vote per share following distribution class common shares kraft outstanding altria group inc shares kraft holders altria group inc stock options treated public stockholders accordingly stock awards split two instruments holders altria group inc stock options receive following stock options immediately spinoff aggregate intrinsic value equal intrinsic value prespin altria group inc options •a new kraft option acquire number shares kraft class common stock equal product number altria group inc options held person distribution date b approximate distribution ratio 07 mentioned •an adjusted altria group inc option number shares altria group inc common stock reduced exercise price holders altria group inc restricted stock rights awarded prior january 31 2007 retain existing award receive restricted stock rights kraft class common stock amount kraft restricted stock rights awarded holders calculated using formula set forth respect new kraft options restricted stock rights vest completion original restriction period typically three years date original grant recipients altria group inc stock rights awarded january 31 2007 receive restricted stock rights kraft rather receive additional stock rights altria group inc preserve intrinsic value original award extent employees remaining altria group inc receive kraft stock options altria group inc reimburse company cash blackscholes fair value stock options received extent kraft employees hold altria group inc stock options company reimburse altria group inc cash blackscholes fair value stock options extent holders altria group inc stock rights receive kraft stock rights altria group inc pay company fair value kraft stock rights less value projected forfeitures based upon number altria group inc stock awards outstanding december 31 2006 net amount reimbursements would payment approximately 133 million company altria group inc based upon number altria group inc stock awards outstanding december 31 2006 company would issue 28 million stock options 3 million shares restricted stock rights company estimates issuance awards would result approximate 002 decrease diluted earnings per share however estimates subject change stock awards vest case restricted stock exercised case stock options prior record date distribution discussed note 2 summary significant accounting policies company currently included altria group inc consolidated federal income tax return federal income tax contingencies recorded liabilities balance sheet altria group inc prior distribution kraft shares altria group inc reimburse company cash liabilities approximately 300 million plus interest discussed note 4 related party transactions subsidiary altria group inc currently provides company certain services cost plus 5 management fee distribution date company undertake activities remaining limited services provided subsidiary altria group inc cease 2007 intercompany accounts settled cash within 30 days distribution date october 2005 company announced effective january 1 2006 canadian business would realigned better integrate companys north american business product category beginning first quarter 2006 operating results canadian business reported throughout north american food segments kraft north america commercials segments north america beverages north america cheese foodservice north america convenient meals north america grocery north america snacks cereals addition first quarter 2006 companys international businesses realigned reflect reorganization announced within europe november 2005 two revised international segments european union developing markets oceania north asia latter reflect companys increased management focus developing markets accordingly prior period segment results restated june 2005 company sold substantially sugar confectionery business pretax proceeds approximately 14 billion company reflected results sugar confectionery business prior closing date discontinued operations consolidated statements earnings company recorded loss sale discontinued operations 297 million second quarter 2005 related largely taxes transaction companys operating subsidiaries generally report yearend results saturday closest end year resulted fiftythree weeks operating results companys consolidated statement earnings year ended december 31 2005 versus fiftytwo weeks years ended december 31 2006 2004 executive summary following executive summary intended provide significant highlights discussion analysis follows consolidated operating resultsthe changes companys earnings diluted earnings per share eps continuing operations year ended december 31 2006 year ended december 31 2005 due primarily following millions except per share data see discussion events affecting comparability statement earnings amounts consolidated operating results section following discussion analysis unfavorable net impact asset impairment exit implementation costs earnings diluted eps continuing operations due primarily following restructuring programthe company announced threeyear restructuring program january 2004 january 2006 company announced plans expand restructuring efforts 2008 years ended december 31 2006 2005 company recorded pretax charges 673 million 444 million aftertax 297 million 199 million aftertax respectively restructuring plan including pretax implementation costs 95 million 87 million respectively asset impairment chargesduring 2006 company incurred pretax asset impairment charge 86 million 63 million aftertax recognition sale pet snacks brand assets january 2007 company announced sale hot cereal assets trademarks recognition anticipated sale company recorded pretax asset impairment charge 69 million 49 million aftertax 2006 assets charges included writeoff portion associated goodwill intangible fixed assets recorded asset impairment exit costs consolidated statement earnings addition first quarter 2006 company completed annual review goodwill intangible assets recorded noncash pretax charges 24 million 15 million aftertax related intangible asset impairment biscuits assets egypt hot cereal assets united states also 2006 company reevaluated business model tassimo hot beverage system revenues lagged companys projections evaluation resulted 245 million 157 million aftertax noncash asset impairment charge related lower utilization existing manufacturing capacity charges recorded asset impairment exit costs consolidated statement earnings addition company anticipates impairment result related cash expenditures approximately 3 million primarily related decommissioning idle production lines company also anticipates charges 2007 related negotiations product suppliers 2005 company sold fruit snacks assets incurred pretax asset impairment charge 93 million 60 million aftertax recognition sale december 2005 company reached agreements sell certain assets canada small biscuit brand united states incurred pretax asset impairment charges 176 million 80 million aftertax recognition sales transactions closed first quarter 2006 charges included writeoff associated intangible assets recorded asset impairment exit costs consolidated statement earnings details restructuring program asset impairment implementation costs see note 3 consolidated financial statements business environment section following discussion analysis gain redemption united biscuits investmentin 2006 company realized pretax gain 251 million 148 million aftertax redemption outstanding investment united biscuits details see note 6 consolidated financial statements gains sales businessesthe 2006 gains sales businesses due primarily sale companys rice brand assets partially offset loss sale us coffee plant tax expense 57 million related sale companys pet snacks brand assets 2005 gains sales businesses due primarily gain sale companys uk desserts assets income tax benefitthe 2006 tax benefit reflects reimbursement altria group inc cash unrequired federal tax reserves 337 million pretax interest 46 million 29 million aftertax well net state tax reversals 39 million due conclusion audit altria group incs consolidated federal income tax returns years 1996 1999 included within change tax rate among things benefit 52 million 2006 82 million 2005 resolution outstanding items companys international operations addition 2005 income taxes include 24 million settlement outstanding us tax claim 33 million tax impacts associated sale us biscuit brand 53 million aggregate benefit domestic manufacturers deduction provision dividend repatriation provision american jobs creation act operationsthe 73 million increase results operations includes 53rd week 2005 due primarily following •higher income north america snacks cereals reflecting higher pricing lower marketing costs partially offset higher commodity costs increased promotional spending •higher income developing markets oceania north asia reflecting higher pricing favorable volumemix partially offset increased marketing costs higher product costs 2005 recovery previously writtenoff account receivable •higher income north america cheese foodservice reflecting lower commodity costs partially offset lower net pricing lower volumemix •lower interest debt expense net reflecting lower debt levels redemption higher coupon nabisco bonds interest income federal tax reimbursement altria group inc partially offset higher shortterm interest rates partially offset •lower income north america beverages reflecting higher commodity costs partially offset higher pricing •lower income european union reflecting increased promotional spending higher product marketing costs partially offset higher pricing details see consolidated operating results operating results business segment sections following discussion analysis discussion analysis critical accounting policies estimates note 2 consolidated financial statements includes summary significant accounting policies methods used preparation companys consolidated financial statements instances company must use accounting policy method policy method permitted accounting principles generally accepted united states america us gaap preparation financial statements includes use estimates assumptions affect number amounts included companys financial statements including among things employee benefit costs income taxes company bases estimates historical experience assumptions believes reasonable actual amounts ultimately different previous estimates revisions included companys consolidated results operations period actual amounts become known historically aggregate differences companys estimates actual amounts year significant impact companys consolidated financial statements selection disclosure companys critical accounting policies estimates discussed companys audit committee following review significant assumptions estimates well accounting policies methods used preparation companys consolidated financial statements employee benefit plans discussed note 15 consolidated financial statements company provides range benefits employees retired employees including pensions postretirement health care benefits postemployment benefits primarily severance company records amounts relating plans based calculations specified us gaap include various actuarial assumptions discount rates assumed rates return plan assets compensation increases turnover rates health care cost trend rates company reviews actuarial assumptions annual basis makes modifications assumptions based current rates trends deemed appropriate permitted us gaap effect modifications generally amortized future periods company believes assumptions utilized recording obligations plans presented note 15 consolidated financial statements reasonable based experience advice actuaries september 2006 financial accounting standards board fasb issued statement financial accounting standards sfas 158 employers accounting defined benefit pension postretirement plans sfas 158 sfas 158 requires employers recognize funded status defined benefit pension postretirement plans consolidated balance sheet record component comprehensive income net tax gains losses prior service costs credits recognized components net periodic benefit cost company adopted recognition related disclosure provisions sfas 158 prospectively december 31 2006 adoption resulted decrease total assets 2286 million decrease total liabilities 235 million decrease shareholders equity 2051 million sfas 158 also requires entity measure plan assets benefit obligations date fiscal yearend statement financial position fiscal years ending december 15 2008 companys nonus pension plans canadian pension plans measured september 30 year company expects adopt measurement date provision sfas 158 measure plans december 31 year beginning december 31 2008 company presently evaluating impact measurement date change expected significant years ended december 31 2006 2005 2004 company recorded following amounts consolidated statements earnings employee benefit plans 2006 net expense employee benefit plans 1036 million increased 154 million 2005 amount cost increase primarily relates higher postemployment benefit plan costs related restructuring program well higher amortization unrecognized net loss experience differences us nonus pension plan costs postretirement health care costs 2005 net expense employee benefit plans 882 million increased 247 million 2004 amount cost increase primarily related higher us pension plan costs including higher amortization unrecognized net loss experience differences lower expected return plan assets lower discount rate assumption higher settlement losses employees retired left 2005 december 31 2006 companys discount rate assumption increased 560 590 us pension postretirement plans company presently anticipates assumption changes coupled amortization deferred gains losses result decrease 2007 pretax us nonus pension postretirement expense company presently anticipate change 2007 assumptions sensitivity measure fiftybasis point decline increase companys discount rate would increase decrease companys us pension postretirement expense approximately 85 million similarly fiftybasis point decrease increase expected return plan assets would increase decrease companys pension expense us pension plans approximately 32 million see note 15 consolidated financial statements sensitivity discussion assumed health care cost trend rates revenue recognition required us gaap company recognizes revenues net sales incentives including shipping handling charges billed customers upon shipment delivery goods title risk loss pass customers shipping handling costs classified part cost sales provisions allowances estimated sales returns bad debts also recorded companys consolidated financial statements amounts recorded provisions related allowances significant companys consolidated financial position results operations depreciation amortization goodwill valuation company depreciates property plant equipment amortizes definite life intangibles using straightline method estimated useful lives assets company required conduct annual review goodwill intangible assets potential impairment goodwill impairment testing requires comparison carrying value fair value reporting unit carrying value exceeds fair value goodwill considered impaired amount impairment loss measured difference carrying value implied fair value goodwill determined using discounted cash flows impairment testing nonamortizable intangible assets requires comparison fair value carrying value intangible asset carrying value exceeds fair value intangible asset considered impaired reduced fair value calculations may affected market conditions noted business environment section risk factors section part 1 item 1a annual report form 10k well interest rates general economic conditions projected growth rates first quarter 2006 company completed annual review goodwill intangible assets recorded noncash pretax charges 24 million related intangible asset impairment biscuits assets egypt hot cereal assets united states additionally 2006 part sale pet snacks brand assets company recorded noncash pretax asset impairment charges 86 million included writeoff portion associated goodwill intangible assets 25 million 55 million respectively well 6 million asset writedowns january 2007 company announced sale hot cereal assets trademarks anticipation sale company recorded pretax asset impairment charge 69 million 2006 assets included writeoff portion associated goodwill intangible assets 15 million 52 million respectively well 2 million asset writedowns first quarter 2005 company completed annual review goodwill intangible assets impairment charges resulted review however part sale certain canadian assets two brands company recorded noncash pretax asset impairment charges 269 million 2005 included impairment goodwill intangible assets 13 million 118 million respectively well 138 million asset writedowns impairment longlived assets company reviews longlived assets including amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable company performs undiscounted operating cash flow analyses determine impairment exists analyses affected interest rates general economic conditions projected growth rates purposes recognition measurement impairment assets held use company groups assets liabilities lowest level cash flows separately identifiable impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal previously discussed company recorded noncash pretax asset impairment charges 245 million related tassimo hot beverage business 2006 charges included asset impairment exit costs consolidated statement earnings marketing advertising costs required us gaap company records marketing costs expense year costs relate company defer amounts yearend consolidated balance sheet respect marketing costs company expenses advertising costs incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period based principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year related party transactions discussed note 4 consolidated financial statements altria group incs subsidiary altria corporate services inc provides company various services including planning legal treasury auditing insurance human resources office secretary corporate affairs information technology aviation tax services billings services based cost altria corporate services inc provide services 5 management fee based wages benefits 178 million 237 million 310 million years ended december 31 2006 2005 2004 respectively costs paid altria corporate services inc monthly company performed similar cost various functions 2006 2005 previously provided altria corporate services inc resulting lower service charges 2006 2005 company plans undertake remaining services currently provided altria corporate services inc similar cost 2007 although cost services cannot quantified standalone basis management assessed billings reasonable based level support provided altria corporate services inc reflect services provided cost nature services reviewed annually companys audit committee comprised independent directors effects transactions included operating cash flows companys consolidated statements cash flows 2006 company purchased certain real estate personal property located wilkes barre pennsylvania altria corporate services inc aggregate purchase price 93 million addition company assumed altria corporate services incs rights lease certain real property located san antonio texas company also purchased certain personal property located san antonio texas altria corporate services inc aggregate purchase price 60 million also see note 13 income taxes regarding impact company closure internal revenue service review altria group incs consolidated federal income tax return recorded 2006 2005 company repatriated certain foreign earnings part altria group incs dividend repatriation plan provisions american jobs creation act increased taxes repatriation 21 million reimbursed altria group inc reimbursement reported companys financial statements increase additional paidin capital december 2005 company purchased airport hangar certain personal property located hangar milwaukee wisconsin altria corporate services inc aggregate purchase price approximately 33 million december 2004 company purchased two corporate aircraft altria corporate services inc aggregate purchase price approximately 47 million company also entered aircraft management agreement altria corporate services inc december 2004 pursuant altria corporate services inc agreed perform aircraft management pilot services maintenance aviation services company december 31 2006 2005 company shortterm amounts payable altria group inc 607 million 652 million respectively amounts payable altria group inc generally include accrued dividends taxes service fees interest intercompany borrowings based applicable london interbank offered rate income taxes company accounts income taxes accordance sfas 109 accounting income taxes us accounts company included consolidated federal income tax return altria group inc income taxes generally computed separate company basis extent foreign tax credits capital losses credits generated company cannot currently utilized separate company basis utilized altria group incs consolidated federal income tax return benefit recognized calculation companys provision income taxes based companys current estimate benefit calculated approximately 195 million 225 million 70 million years ended december 31 2006 2005 2004 respectively amounts 2005 2006 include dividend repatriations impact certain legal entity reorganizations benefit dependent variety tax attributes tendency vary year company makes payments reimbursed altria group inc tax effects resulting inclusion altria group incs consolidated federal income tax return including current taxes payable net changes tax provisions company assessing opportunities mitigate loss tax benefits upon altria group incs distribution kraft shares currently estimates annual amount lost tax benefits range 50 million 75 million significant judgment required determining income tax provisions evaluating tax positions company establishes additional provisions income taxes despite belief existing tax positions fully supportable remain certain positions likely challenged may sustained review tax authorities company evaluates potentially adjusts provisions light changing facts circumstances consolidated tax provision includes impact changes accruals deemed necessary company expects effective tax rate average 355 2007 317 2006 excluding impact changes asset impairment exit implementation costs onetime gains losses related acquisitions divestitures 2006 united states internal revenue service concluded examination altria group incs consolidated tax returns years 1996 1999 issued final revenue agents report march 15 2006 consequently altria group inc reimbursed company cash unrequired federal tax reserves 337 million pretax interest 46 million 29 million aftertax company also recognized net state tax reversals 39 million resulting total net earnings benefit 405 million 024 per diluted share 2006 october 2004 american jobs creation act jobs act signed law jobs act includes deduction 85 certain foreign earnings repatriated 2005 company repatriated approximately 500 million earnings provisions jobs act deferred taxes previously provided portion dividends remitted reversal deferred taxes offset tax costs repatriate earnings resulted net tax reduction 28 million consolidated income tax provision 2005 july 2006 fasb issued fasb interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 fin 48 become effective company january 1 2007 interpretation prescribes recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater 50 percent likely realized upon ultimate settlement adoption fin 48 result increase shareholders equity january 1 2007 approximately 200 million 225 million consolidation consolidated financial statements include kraft foods inc well whollyowned majorityowned subsidiaries investments kraft foods inc exercises significant influence 20 50 ownership interest accounted equity method accounting investments company ownership interest less 20 exercise significant influence accounted cost method accounting intercompany transactions balances among krafts subsidiaries eliminated transactions companys businesses altria group inc affiliates included consolidated financial statements business environment company subject number challenges may adversely affect businesses challenges discussed risk factors section part 1 item 1a annual report form 10k include •fluctuations commodity prices •movements foreign currencies •competitive challenges various products markets including price gaps competitor products increasing priceconsciousness consumers •a rising cost environment limited ability increase prices •a trend toward increasing consolidation retail trade consequent pricing pressure inventory reductions •a growing presence discount retailers primarily europe emphasis ownlabel products •changing consumer preferences including diet healthwellness trends •competitors different profit objectives less susceptibility currency exchange rates •increasing scrutiny product labeling marketing practices well concerns andor regulations regarding food safety quality health including genetically modified organisms transfatty acids obesity increased government regulation food industry could result increased costs company ordinary course business company subject many influences impact timing sales customers including timing holidays annual special events seasonality certain products significant weather conditions timing company customer incentive programs pricing actions customer inventory programs company initiatives improve supply chain efficiency financial condition customers general economic conditions fluctuations commodity costs lead retail price volatility intense price competition influence consumer trade buying patterns 2006 companys commodity costs average higher incurred 2005 notably higher coffee energy packaging costs partially offset lower cheese meat costs adversely affected earnings 2006 companys commodity costs approximately 275 million higher 2005 following increase approximately 800 million 2005 compared 2004 restructuring january 2004 company announced threeyear restructuring program discussed note 3 asset impairment exit implementation costs objectives leveraging companys global scale realigning lowering cost structure optimizing capacity utilization january 2006 company announced plans expand restructuring efforts 2008 entire restructuring program expected result 30 billion pretax charges closure 40 facilities elimination approximately 14000 positions annualized cost savings completion program approximately 10 billion decline 700 million 37 billion pretax charges previously announced due primarily lower projected severance costs cancellation initiative intended generate sales efficiencies sale one plant originally planned closed approximately 19 billion 30 billion pretax charges expected require cash payments total pretax restructuring program charges incurred including implementation costs 673 million 297 million 641 million 2006 2005 2004 respectively total pretax restructuring charges program incurred january 2004 december 31 2006 16 billion specific programs announced result elimination approximately 9800 positions approximately 60 pretax charges date expected require cash payments addition company expects incur approximately 550 million capital expenditures implement restructuring program january 2004 december 31 2006 company spent 245 million capital including 101 million spent 2006 implement restructuring program cumulative annualized cost savings result restructuring program approximately 540 million 260 million december 31 2006 2005 respectively anticipated reach approximately 700 million end 2007 expected used support brandbuilding initiatives asset impairment charges discussed note 3 asset impairment exit implementation costs company incurred pretax asset impairment charges 424 million 269 million 20 million years ended december 31 2006 2005 2004 respectively charges recorded asset impairment exit costs consolidated statements earnings asset impairment charges primarily related various sales companys brands assets well 2006 reevaluation business model companys tassimo hot beverage system revenues lagged companys projections evaluation resulted 245 million noncash pretax asset impairment charge related lower utilization existing manufacturing capacity addition company anticipates impairment result related cash expenditures approximately 3 million primarily related decommissioning idle production lines company also anticipates charges 2007 related negotiations product suppliers acquisitions dispositions one element companys growth strategy strengthen brand portfolios andor expand geographic reach disciplined program selective acquisitions divestitures company constantly reviewing potential acquisition candidates time sells businesses accelerate shift portfolio toward businesseswhether global regional localthat offer company sustainable competitive advantage impact future acquisition divestiture could material impact companys consolidated financial position results operations cash flows future sales businesses could cases result losses sale 2006 company acquired spanish portuguese operations united biscuits ub rights nabisco trademarks european union eastern europe middle east africa ub held since 2000 total cost approximately 11 billion spanish portuguese operations ub include biscuits dry desserts canned meats tomato fruit juice businesses well seven manufacturing facilities 1300 employees september 2006 december 31 2006 businesses contributed net revenues 111 million noncash acquisition financed companys assumption 541 million debt issued acquired business immediately prior acquisition well 530 million value redemption companys outstanding investment ub primarily deepdiscount securities redemption companys investment ub resulted pretax gain closing 251 million 148 million aftertax 009 per diluted share aside debt assumed part acquisition price company acquired assets consisting primarily goodwill 734 million intangible assets 217 million property plant equipment 161 million receivables 101 million inventories 34 million amounts represent preliminary allocation purchase price subject revision appraisals finalized expected occur first half 2007 2006 company sold rice brand assets industrial coconut assets company also sold pet snacks brand assets 2006 recorded tax expense 57 million related sale addition company incurred pretax asset impairment charge 86 million 2006 recognition sale additionally 2006 company sold certain canadian assets small us biscuit brand incurred pretax asset impairment charges 176 million 2005 recognition sales also 2006 company sold us coffee plant aggregate proceeds received sales 946 million company recorded pretax gains 117 million january 2007 company announced sale hot cereal assets trademarks recognition anticipated sale company recorded pretax asset impairment charge 69 million 2006 assets previously discussed company sold substantially sugar confectionery business june 2005 pretax proceeds approximately 14 billion sale included life savers creme savers altoids trolli sugus brands company reflected results sugar confectionery business prior closing date discontinued operations consolidated statements earnings company recorded loss sale discontinued operations 297 million second quarter 2005 related largely taxes transaction 2005 company sold fruit snacks assets incurred pretax asset impairment charge 93 million recognition sale additionally 2005 company sold uk desserts assets us yogurt assets small business colombia minor trademark mexico small equity investment turkey aggregate proceeds received sales 238 million company recorded pretax gains 108 million 2004 company sold brazilian snack nuts business trademarks associated candy business norway aggregate proceeds received sales businesses 18 million pretax losses 3 million recorded 2004 company acquired usbased beverage business total cost 137 million operating results businesses acquired sold ub acquisition divestiture sugar confectionery business aggregate material companys consolidated financial position results operations cash flows periods presented consolidated operating results operating income affected following items 2006 2005 2004 •asset impairment exit implementation costsas discussed note 3 consolidated financial statements 2006 2005 2004 company recorded 1002 million 479 million 603 million respectively asset impairment exit costs consolidated statement earnings additionally 2006 2005 2004 company recorded pretax implementation costs 95 million 87 million 50 million respectively 2004 company also recorded 47 million pretax impairment charges related equity investment joint venture turkey pretax asset impairment exit implementation costs years ended december 31 2006 2005 2004 included operating companies income following segments •gain redemption united biscuits investmentas fully discussed note 6 acquisitions third quarter 2006 company acquired spanish portuguese operations united biscuits ub rights nabisco trademarks european union eastern europe middle east africa redemption companys outstanding investment ub resulted pretax gain closing 251 million gain included operating companies income european union segment •gainslosses sales businessesduring 2006 company sold rice brand assets pet snacks brand assets industrial coconut assets certain canadian assets small us biscuit brand us coffee plant aggregate pretax gains 117 million 2005 company sold fruit snacks assets uk desserts assets us yogurt assets small business colombia minor trademark mexico small equity investment turkey aggregate pretax gains 108 million 2004 company sold brazilian snack nuts business trademarks associated candy business norway aggregate pretax losses 3 million pretax gains losses included operating companies income following segments discussed note 14 consolidated financial statements companys management uses operating companies income defined operating income general corporate expenses amortization intangibles evaluate segment performance allocate resources management believes appropriate disclose measure help investors analyze business performance trends various business segments 2006 compared 2005 following discussion compares consolidated operating results 2006 2005 companys 2005 results included 53 weeks operating results compared 52 weeks 2006 company estimates extra week positively impacted net revenues operating income approximately 2 2005 approximately 625 million 100 million respectively causing negative comparison 2006 volume decreased 961 million pounds 50 including 53rd week 2005 results excluding impact divestitures acquisition ub 53rd week shipments 2005 volume decreased 04 due primarily discontinuation certain readytodrink foodservice product lines lower grocery shipments north america partially offset higher shipments meat biscuits cheese north america higher shipments developing markets oceania north asia net revenues increased 243 million 07 due primarily favorable volumemix 244 million including 53rd week 2005 higher net pricing 229 million reflecting commoditydriven pricing partially offset increased promotional spending favorable currency 145 million acquisition ub 111 million partially offset impact divested businesses 488 million operating income decreased 226 million 48 due primarily higher pretax asset impairment exit costs 523 million 2005 net gains sales businesses 108 million higher marketing costs 85 million impact divestitures 71 million partially offset 2006 gain redemption companys ub investment 251 million 2006 net gains sales businesses 117 million higher net pricing 72 million reflecting commoditydriven pricing partially offset increased promotional spending higher costs lower fixed manufacturing costs 40 million favorable volumemix 32 million including 53rd week 2005 favorable currency 29 million acquisition ub 18 million currency movements increased net revenues 145 million operating income 29 million increases due primarily weakness us dollar canadian dollar brazilian real partially offset strength us dollar euro interest debt expense net decreased 126 million 198 due primarily 46 million pretax interest income associated conclusion tax audit altria group inc lower debt levels redemption higher coupon nabisco bonds partially offset higher shortterm interest rates companys income tax rate decreased 57 percentage points 237 2006 tax rate includes reimbursement altria group inc cash unrequired federal tax reserves 337 million net state tax reversals 39 million due conclusion audit altria group incs consolidated federal income tax returns years 1996 1999 included within change tax rates among things benefit 52 million 2006 82 million 2005 resolution outstanding items companys international operations addition 2005 income taxes include 24 million settlement outstanding us tax claim 33 million tax impacts associated sale us biscuit brand 53 million aggregate benefit domestic manufacturers deduction provision dividend repatriation provision jobs act earnings continuing operations 3060 million increased 156 million 54 due primarily tax benefit discussed lower interest expense partially offset lower operating income reflecting higher asset impairment exit costs 2006 diluted eps continuing operations 185 increased 76 loss discontinued operations net income taxes 2005 due primarily recording additional tax expense 297 million arose sale sugar confectionery business second quarter 2005 net earnings 3060 million increased 428 million 163 diluted eps net earnings 185 increased 194 2005 compared 2004 following discussion compares consolidated operating results 2005 2004 companys 2005 results included 53 weeks operating results compared 52 weeks 2004 company estimates extra week positively impacted net revenues operating income approximately 2 2005 approximately 625 million 100 million respectively volume increased 210 million pounds 11 including benefit 53 weeks 2005 results excluding acquisitions divestitures 53rd week shipments volume decreased approximately 1 due primarily focus mix improvement sku reduction program impact higher retail prices category growth trends united states declines certain international countries notably germany partially offset new product introductions growth developing markets net revenues increased 1945 million 60 due primarily favorable volumemix 1086 million including benefit 53rd week favorable currency 533 million higher net pricing 453 million reflecting commoditydriven pricing partially offset increased promotional spending impact acquisitions 42 million partially offset impact divested businesses 174 million operating income increased 140 million 30 due primarily favorable volumemix 479 million including benefit 53rd week lower asset impairment exit costs 124 million net gains sales businesses 111 million favorable currency 90 million 2004 equity investment impairment charge related joint venture turkey 47 million partially offset higher marketing administration research costs 420 million including higher benefit marketing costs well costs associated 53rd week higher fixed manufacturing costs 110 million unfavorable costs net higher pricing 102 million due primarily higher commodity costs increased promotional spending net impact higher implementation costs associated restructuring program 37 million impact divestitures 33 million currency movements increased net revenues 533 million operating income 90 million increases due primarily weakness us dollar euro canadian dollar brazilian real certain currencies companys reported effective income tax rate decreased 29 percentage points 294 due primarily settlement outstanding us tax claim 24 million 82 million resolution outstanding items companys international operations 33 million tax impacts associated sale us biscuit brand 2005 rate also includes 53 million aggregate benefit domestic manufacturers deduction provision dividend repatriation provision american jobs creation act tax provision 2004 included 81 million favorable resolution outstanding tax item reversal 35 million tax accruals longer required due tax events occurred 2004 earnings continuing operations 2904 million increased 235 million 88 due primarily higher operating income lower income tax rate diluted eps continuing operations 172 increased 110 loss discontinued operations net income tax increased 268 million due primarily loss sale 297 million 2005 loss discontinued operations due primarily recording additional tax expense arose sale sugar confectionery business second quarter 2005 net earnings 2632 million decreased 33 million 12 diluted eps net earnings 155 equal 2004 operating results reportable segment 2006 compared 2005 following discussion compares operating results within krafts reportable segments 2006 2005 north america beverages volume decreased 68 including 53rd week shipments 2005 representing approximately 2 percentage points decline due primarily decline refreshment beverages volume resulting discontinuation certain readytodrink product lines lower shipments coffee net revenues increased 32 million 10 due primarily higher pricing net increased promotional spending 36 million favorable currency 14 million partially offset lower volumemix 17 million including 53rd week 2005 coffee net revenues increased due higher commoditybased pricing partially offset lower shipments powdered beverages favorable mix new products also drove higher net revenues readytodrink net revenues declined due lower shipments discontinuation certain products operating companies income decreased 258 million 557 due primarily loss sale us coffee plant 95 million higher pretax charges asset impairment exit costs 85 million including 75 million part tassimo asset impairment unfavorable costs net higher pricing 69 million including higher commodity costs north america cheese foodservice volume decreased 48 including 53rd week shipments 2005 representing approximately 2 percentage points decline due primarily divestitures canadian grocery assets us yogurt assets industrial coconut assets lower volume foodservice volume declined due discontinuation lower margin product lines cheese volume flat higher shipments natural cream cheese offset impact divestitures 53rd week shipments 2005 net revenues decreased 166 million 27 due primarily lower net pricing 114 million representing increased promotional spending net higher pricing lower volumemix 60 million including 53rd week 2005 impact divestitures 53 million partially offset favorable currency 61 million foodservice net revenues decreased due primarily lower volume impact divestitures lower cheese pricing partially offset favorable currency cheese net revenues decreased due primarily lower net pricing response declining cheese costs impact divestitures partially offset favorable currency operating companies income decreased 35 million 38 due primarily higher pretax charges asset impairment exit costs 72 million lower volumemix 22 million including 53rd week 2005 higher marketing spending 20 million higher implementation costs 11 million 2006 loss sale industrial coconut assets 8 million partially offset favorable costs primarily cheese commodity costs net lower net pricing 79 million lower fixed manufacturing costs 11 million favorable currency 9 million north america convenient meals volume increased 05 despite 53rd week shipments 2005 representing approximately 2 percentage points decline driven higher meat shipments cold cuts hot dogs bacon higher shipments pizza partially offset lower shipments dinners due competition macaroni cheese dinners divestiture rice brand assets net revenues increased 144 million 31 due primarily higher volumemix 138 million including 53rd week 2005 favorable currency 14 million higher pricing net increased promotional spending 7 million partially offset impact divestitures 15 million meats higher net revenues driven continued strong results new products higher net pricing pizza net revenues increased due higher shipments favorable mix new products partially offset higher promotional spending dinners net revenues decreased due impact lower volume operating companies income increased 121 million 153 due primarily 2006 gain sale rice brand assets 226 million lower fixed manufacturing costs 24 million favorable currency 4 million partially offset higher pretax charges asset impairment exit costs 93 million higher product costs promotional spending net higher pricing 24 million impact divestitures 9 million higher implementation costs 5 million north america grocery volume decreased 216 including 53rd week shipments 2005 representing approximately 2 percentage points decline due primarily divestitures fruit snacks canadian grocery assets discontinuation certain canadian condiment product lines lower shipments readytoeat dry packaged desserts spoonable salad dressings net revenues decreased 293 million 97 due primarily impact divestitures 266 million lower volumemix 85 million including 53rd week 2005 partially offset higher pricing 30 million impact favorable currency 26 million readytoeat dry packaged desserts net revenues declined due lower shipment volume spoonable salad dressing net revenues decreased due lower shipments partially offset lower promotional spending pourable salad dressing net revenues declined due higher promotional spending operating companies income increased 195 million 269 due primarily lower pretax charges asset impairment exit costs 206 million including 113 million asset impairment charge 2005 related sale canadian grocery assets 93 million asset impairment charge related 2005 sale fruit snacks assets lower marketing administration research costs 30 million including costs associated 53rd week 2005 favorable currency 8 million higher pricing net unfavorable costs 7 million partially offset lower volumemix 50 million including 53rd week 2005 impact divestitures 9 million north america snacks cereals volume decreased 34 including 53rd week shipments 2005 representing approximately 2 percentage points decline due primarily divestitures pet snacks brand assets small biscuit brand lower shipments snack nuts partially offset higher shipments biscuits snack bars net revenues increased 108 million 17 due primarily favorable volumemix 106 million including 53rd week 2005 higher pricing net increased promotional spending 86 million reflecting commoditydriven pricing biscuits readytoeat cereals favorable currency 38 million partially offset impact divestitures 123 million biscuit net revenues increased due higher pricing offset impact commodity cost increases energy packaging higher shipment volume favorable mix snack bars net revenue increases driven new product introductions canadian snack net revenues also increased due sales comanufactured products related 2005 divested confectionery business snack nuts net revenues decreased due lower shipments operating companies income decreased 101 million 109 due primarily higher pretax charges asset impairment exit costs 138 million including 86 million asset impairment charge 2006 related sale pet snacks brand assets 69 million impairment charge 2006 related sale hot cereal assets trademarks 13 million hot cereal intangible asset impairment 2006 63 million asset impairment charge 2005 related sale small biscuit brand impact divestitures 47 million 2006 losses sales businesses 5 million partially offset lower marketing spending 48 million lower fixed manufacturing costs 10 million lower implementation costs 10 million higher pricing net increased promotional spending unfavorable product costs 8 million favorable volumemix 7 million including 53rd week 2005 favorable currency 6 million european union volume increased 20 despite 53rd week shipments 2005 representing approximately 2 percentage points decline due primarily acquisition ub partially offset lower shipments across several sectors divestiture uk desserts assets first quarter 2005 snacks volume increased due primarily acquisition ub higher confectionery shipments particularly poland convenient meals volume due primarily acquisition ub partially offset lower shipments germany nordic area grocery volume declined due primarily divestiture uk desserts assets lower shipments germany partially offset acquisition ub beverages coffee volume declined across countries except germany refreshment beverages shipments lower cheese dairy volume decreased due lower shipments germany italy net revenues decreased 42 million 06 due primarily unfavorable currency 93 million unfavorable volumemix 53 million including 53rd week 2005 impact divestitures 12 million partially offset acquisition ub 110 million higher pricing net increased promotional spending 6 million cheese dairy net revenues decreased due lower shipments unfavorable currency lower net pricing grocery net revenues declined due unfavorable currency impact divestiture uk desserts business partially offset acquisition ub beverages net revenues declined due unfavorable currency lower coffee refreshment beverage shipments partially offset commodityrelated pricing favorable mix coffee convenient meals net revenues also decreased due unfavorable currency lower shipments partially offset impact acquisition ub snacks net revenues increased due primarily acquisition ub biscuits higher shipments pricing confectionery partially offset unfavorable currency operating companies income decreased 174 million 241 due primarily higher pretax charges asset impairment exit costs 273 million including 170 million asset impairment charges related tassimo gain sale uk desserts assets 2005 115 million unfavorable costs increased promotional spending net higher pricing 31 million higher marketing administration research costs 17 million including costs associated 53rd week 2005 unfavorable currency 14 million partially offset 2006 gain redemption companys outstanding investment ub 251 million impact acquisition ub 18 million lower fixed manufacturing costs 14 million developing markets oceania north asia volume decreased 09 including 53rd week shipments 2005 representing approximately 2 percentage points decline lower volume asia pacific partially offset growth eastern europe latin america cheese dairy volume declined asia pacific partially offset higher shipments middle east grocery volume declined due lower shipments brazil mexico venezuela middle east beverages volume declined due discontinuation product line mexico lower shipments southeast asia middle east partially offset higher coffee volume russia ukraine romania higher refreshment beverage volume china snacks volume increased driven higher shipments brazil reflecting confectionery growth gains biscuits growth venezuela russia southeast asia romania ukraine convenient meals volume decreased slightly net revenues increased 460 million 112 due primarily favorable volumemix 215 million including 53rd week 2005 higher pricing 178 million favorable currency 85 million partially offset impact divestitures 19 million snacks net revenues grew due higher volume well favorable pricing latin america favorable currency brazil confectionery net revenues also increased due growth russia ukraine coffee net revenues increased due commoditybased pricing favorable mix higher shipments russia ukraine romania refreshment beverages higher shipments brazil favorable pricing mexico drove higher net revenues cheese dairy net revenue increases driven higher shipments middle east convenient meals net revenues slightly grocery net revenues declined due impact divestiture colombia operating companies income increased 16 million 40 due primarily higher pricing net unfavorable costs 102 million favorable volumemix 93 million including 53rd week 2005 favorable currency 16 million losses sales businesses 2005 5 million lower implementation costs 4 million partially offset higher marketing administration research costs 117 million including costs associated 53rd week 2005 higher marketing spending 2006 2005 recovery previously writtenoff account receivable 16 million higher pretax asset impairment exit costs 68 million including 11 million intangible asset impairment charge biscuits assets egypt higher fixed manufacturing costs 18 million 2005 compared 2004 following discussion compares operating results within krafts reportable segments 2005 2004 north america beverages volume increased 43 including 53rd week shipments representing approximately 2 percentage points growth due primarily refreshment beverages partially offset decline coffee refreshment beverages volume increased due primarily 2004 acquisition veryfine partially offset shift lower weight sugarfree powdered beverages coffee volume declined due impact commoditydriven price increases category consumption although volume grew premium brand coffee net revenues increased 314 million 115 due primarily higher pricing lower promotional spending 158 million reflecting commoditydriven pricing coffee higher volumemix 106 million including benefit 53rd week impact 2004 veryfine acquisition 34 million favorable currency 14 million refreshment beverages net revenues increased due primarily expanded distribution veryfine new product introductions sugarfree powdered beverages coffee net revenues increased due primarily increased prices positive mix driven volume growth premium brands operating companies income decreased 6 million 13 due primarily higher marketing administration research costs 101 million including higher marketing benefit costs well costs associated 53rd week higher fixed manufacturing costs 14 million partially offset favorable volumemix 73 million including benefit 53rd week lower pretax charges asset impairment exit costs 25 million higher pricing 14 million including higher commodity costs north america cheese foodservice volume decreased 01 despite 53rd week shipments representing approximately 2 percentage points growth due primarily impact divestiture us yogurt assets partially offset gains foodservice cheese volume declined due primarily impact yogurt divestiture partially offset gains natural cheese cream cheese process loaves cottage cheese volume foodservice business increased due primarily 2004 acquisition veryfine beverage business net revenues increased 223 million 37 due primarily favorable volumemix 203 million including benefit 53rd week favorable currency 58 million higher pricing net higher promotional spending 21 million reflecting commoditydriven pricing late 2004 impact acquisitions 7 million partially offset impact divestitures 66 million cheese net revenues increased reflecting commoditydriven pricing 2004 favorable currency partially offset increased promotional spending divestiture yogurt assets foodservice net revenues increased due primarily favorable currency impact 2004 veryfine acquisition operating companies income increased 128 million 161 due primarily higher pricing favorable costs 77 million net higher promotional spending favorable volumemix 62 million including benefit 53rd week lower pretax charges asset impairment exit costs 61 million favorable currency 8 million partially offset higher marketing administration research costs 57 million including higher benefit costs well costs associated 53rd week higher fixed manufacturing costs 22 million north america convenient meals volume increased 29 including 53rd week shipments representing approximately 2 percentage points growth due primarily higher shipments meats pizza meals meats volume increased aided higher shipments cold cuts new product introductions meals volume increased due primarily impact 53rd week partially offset discontinuation product line pizza volume also increased due primarily 53rd week new product introductions partially offset competitive activity net revenues increased 274 million 62 due higher volumemix 238 million including benefit 53rd week higher pricing net increased promotional spending 20 million reflecting commoditydriven pricing meats pizza favorable currency 16 million meats net revenues increased due primarily higher volume commoditydriven price increases partially offset higher promotional spending pizza net revenues increased driven positive mix new products impact commoditydriven price increases meals net revenues increased due primarily improved mix new products partially offset discontinuation product line increased promotional spending operating companies income decreased 7 million 09 due primarily higher marketing administration research costs 73 million including higher marketing benefit costs well costs associated 53rd week higher fixed manufacturing costs 31 million partially offset higher volumemix 51 million including benefit 53rd week lower pretax charges asset impairment exit costs 28 million higher pricing net higher costs 17 million due primarily higher commodity driven pricing favorable currency 4 million north america grocery volume decreased 06 due primarily decline canadian grocery shipments despite 53rd week shipments representing approximately 2 percentage points growth higher enhancers desserts volume canadian grocery volume declined due primarily lower vegetable shipments enhancers volume increased slightly due primarily higher shipments spoonable dressings partially offset lower volume pourable dressings barbecue sauce due increased competitive activity desserts volume increased aided new product introductions refrigerated readytoeat desserts partially offset declines dry packaged desserts impact fruit snacks divestiture net revenues increased 15 million 05 due primarily favorable currency 48 million partially offset impact divestitures 31 million operating companies income decreased 299 million 292 due primarily higher pretax charges asset impairment exit costs 211 million unfavorable costs 37 million due primarily higher commodity costs higher marketing administration research costs 43 million including higher benefit costs well costs associated 53rd week lower volumemix 8 million impact divestitures 4 million higher fixed manufacturing costs 4 million partially offset favorable currency 11 million north america snacks cereals volume increased 33 including 53rd week shipments representing approximately 2 percentage points growth gains biscuits cereals partially offset decline salted snacks biscuits volume increased due primarily new product introductions cookies cereals volume increased due primarily new product introductions expanded distribution readytoeat cereals salted snacks volume declined due higher commoditydriven pricing snack nuts increased competitive activity net revenues increased 407 million 70 due primarily higher volumemix 325 million including benefit 53rd week higher pricing net increased promotional spending 42 million reflecting commoditydriven pricing snack nuts cereals favorable currency 36 million biscuits net revenues increased driven new product introductions improved mix cereals net revenues also increased due primarily new product introductions higher shipments pricing readytoeat cereals salted snacks net revenues increased lower volume offset higher prices operating companies income increased 145 million 185 due primarily higher volumemix 186 million including benefit 53rd week lower pretax charges asset impairment exit costs 153 million favorable currency 6 million partially offset higher marketing administration research costs 93 million including higher marketing benefit costs well costs associated 53rd week unfavorable costs net higher pricing 74 million due primarily higher commodity costs increased promotional spending higher fixed manufacturing costs 23 million net impact higher implementation costs associated restructuring program 8 million european union volume decreased 37 despite 53rd week shipments representing approximately 2 percentage points growth due primarily lower volume germany divestiture uk desserts assets first quarter 2005 beverages volume declined driven lower coffee shipments germany due commoditydriven price increases grocery volume declined due divestiture uk desserts assets first quarter 2005 lower results germany snacks volume declined due primarily lower shipments confectionery products germany uk convenient meals volume declined due primarily lower category performance uk lower promotions germany cheese volume increased due higher shipments uk italy net revenues increased 210 million 32 due primarily favorable currency 198 million higher pricing net increased promotional spending 90 million reflecting commoditydriven pricing coffee partially offset impact divestitures 60 million lower volumemix 18 million including benefit 53rd week operating companies income increased 32 million 46 due primarily net gains sale businesses 109 million lower pretax charges asset impairment exit costs 53 million favorable currency 27 million favorable volumemix 10 million including benefit 53rd week lower fixed manufacturing costs 8 million lower marketing administration research costs 7 million including costs associated 53rd week partially offset unfavorable costs net higher pricing 145 million due primarily higher commodity costs increased promotional spending impact divestitures 25 million net impact higher implementation costs associated restructuring program 12 million developing markets oceania north asia volume increased 08 including 53rd week shipments representing approximately 2 percentage points growth due primarily growth developing markets including russia ukraine southeast asia partially offset lower shipments egypt china beverages volume increased due primarily refreshment beverage gains middle east southeast asia argentina puerto rico higher coffee shipments russia ukraine cheese volume increased due higher shipments southeast asia middle east snacks volume increased gains confectionery benefiting growth russia ukraine partially offset lower biscuit shipments due increased competition china resizing biscuit products egypt latin america grocery volume declined due primarily lower shipments egypt brazil central america convenient meals volume declined due primarily lower shipments argentina net revenues increased 502 million 139 due primarily favorable volumemix 231 million including benefit 53rd week favorable currency 163 million higher pricing net increased promotional spending 124 million partially offset impact divestitures 17 million net revenues increased several geographies due growth russia ukraine middle east increased refreshment beverage cheese shipments southeast asia net revenues declined china company faced increased competitive activity biscuits operating companies income increased 157 million 646 due primarily favorable volumemix 105 million including benefit 53rd week 2004 equity investment impairment charge related joint venture turkey 47 million higher pricing net unfavorable costs 46 million including increased promotional spending favorable currency 32 million lower pretax charges asset impairment exit costs 15 million partially offset higher marketing administration research costs 60 million including costs associated 53rd week partially offset 16 million recovery receivables previously written higher fixed manufacturing costs 24 million financial review net cash provided operating activities net cash provided operating activities 37 billion 2006 35 billion 2005 40 billion 2004 increase 2006 operating cash flows 2005 due primarily previously discussed tax reimbursement altria group inc higher earnings partially offset decrease amounts due altria group inc higher pension contributions decrease 2005 operating cash flows 2004 due primarily increase income tax payments primarily related sale sugar confectionery business increase use cash fund working capital due primarily increase cash payments associated restructuring plan lower earnings partially offset lower pension plan contributions net cash provided used investing activities one element growth strategy company strengthen brand portfolios andor expand geographic reach disciplined programs selective acquisitions divestitures company constantly reviewing potential acquisition candidates time sells businesses accelerate shift portfolio toward businesseswhether global regional localthat offer company sustainable competitive advantage impact future acquisitions divestitures could material impact companys cash flows 2006 2004 net cash used investing activities 116 million 11 billion respectively compared net cash provided investing activities 525 million 2005 2006 company used cash investing activities proceeds received sales businesses declined approximately 720 million 2005 level 2006 company sold rice brand assets pet snacks brand assets industrial coconut assets certain canadian assets small us biscuit brand us coffee plant 2005 company sold sugar confectionery business fruit snacks assets uk desserts assets us yogurt assets small business colombia small equity investment turkey minor trademark mexico capital expenditures funded operating activities 12 billion 12 billion 10 billion 2006 2005 2004 respectively 2006 capital expenditures primarily modernize manufacturing facilities implement restructuring program support new product productivity initiatives 2007 capital expenditures currently expected flat 2006 expenditures including capital expenditures required restructuring program expenditures expected funded operations net cash used financing activities 2006 net cash 37 billion used financing activities compared 40 billion 2005 decrease net cash used 2006 due primarily decrease net debt repayments partially offset increase companys class share repurchases dividend payments 2005 net cash 40 billion used financing activities compared 32 billion 2004 increase cash used 2005 due primarily increase companys class share repurchases repayment debt partially offset increase amounts due altria group inc affiliates debt liquidity debt companys total debt including amounts due altria group inc affiliates 108 billion december 31 2006 112 billion december 31 2005 companys debttoequity ratio 038 december 31 2006 2005 companys debttocapitalization ratio 027 december 31 2006 2005 company form s3 shelf registration statement file securities exchange commission sec company may sell debt securities andor warrants purchase debt securities one offerings total amount 40 billion december 31 2006 company 35 billion capacity remaining shelf registration december 31 2006 2005 company shortterm amounts payable altria group inc affiliates 607 million 652 million respectively amounts payable altria group inc generally include accrued dividends taxes service fees interest intercompany borrowings based applicable london interbank offered rate company longterm amounts payable altria group inc affiliates discussed kraft spinoff altria group inc within description company section intercompany accounts settled cash however items arising normal course business dividends tax deposits accounted net settlement arising spinoff insignificant company currently included altria group inc consolidated federal income tax return federal income tax contingencies recorded liabilities balance sheet altria group inc prior distribution kraft shares altria group inc reimburse company cash liabilities approximately 300 million plus interest credit ratings december 31 2006 companys debt ratings major credit rating agencies follows january 31 2007 standard poors placed companys longterm shortterm credit ratings creditwatch positive implications february 20 2007 following announcement 5 billion two year share repurchase program standard poors maintained creditwatch positive implications moodys placed krafts longterm credit ratings review possible downgrade credit lines company maintains revolving credit facilities historically used support issuance commercial paper december 31 2006 company 45 billion multiyear revolving credit facility expires april 2010 amounts drawn companys revolving credit facility sole use requires maintenance minimum net worth 200 billion december 31 2006 companys net worth 286 billion company expects continue meet covenant revolving credit facility include financial tests credit rating triggers provisions could require posting collateral company expects refinance longterm shortterm debt time approximately 14 billion companys longterm debt matures next twelve months company evaluate whether refinance amounts nature amount companys longterm shortterm debt proportionate amount expected vary result future business requirements market conditions factors addition certain international subsidiaries kraft maintain credit lines meet shortterm working capital needs international businesses credit lines amounted approximately 11 billion december 31 2006 sole use companys international businesses borrowings lines amounted approximately 200 million 400 million december 31 2006 2005 respectively december 31 2006 company also approximately 03 billion outstanding shortterm debt related united biscuits acquisition discussed note 6 acquisitions offbalance sheet arrangements aggregate contractual obligations company offbalance sheet arrangements guarantees contractual obligations discussed guarantees discussed note 18 consolidated financial statements companys thirdparty guarantees primarily derived acquisition divestiture activities approximated 21 million 8 million specified expiration dates substantially remainder expire 2016 guarantees expiring 2007 company required perform guarantees event third party fails make contractual payments achieve performance measures company liability 16 million consolidated balance sheet december 31 2006 relating guarantees addition december 31 2006 company contingently liable 189 million guarantees related performance include surety bonds related dairy commodity purchases guarantees related payment customs duties taxes letters credit guarantees expected significant impact companys liquidity aggregate contractual obligations following table summarizes companys contractual obligations december 31 2006 1amounts represent expected cash payments companys longterm debt include unamortized bond premiums discounts 2amounts represent expected cash payments companys interest expense longterm debt due complex nature forecasting expected variable rate interest payments companys insignificant balance variable rate longterm debt amounts included table 3operating leases represent minimum rental commitments noncancelable operating leases company significant capital lease obligations 4purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 5other longterm liabilities primarily consist postretirement health care costs following longterm liabilities included consolidated balance sheet excluded table accrued pension costs income taxes minority interest insurance accruals company unable estimate timing payments contributions case accrued pension costs items currently company anticipates making us pension contributions approximately 16 million 2007 nonus pension contributions approximately 157 million 2007 based current tax law discussed note 15 consolidated financial statements company believes cash operations existing credit facility provide sufficient liquidity meet working capital needs including cash requirements restructuring program planned capital expenditures future contractual obligations payment anticipated quarterly dividends equity dividends december 2004 company commenced repurchasing shares twoyear 15 billion class common stock repurchase program authorized board directors march 2006 company completed program acquiring 491 million class shares average price 3057 per share march 2006 companys board directors authorized new share repurchase program repurchase 20 billion companys class common stock new program expected run 2008 2006 2005 company repurchased 85 million 392 million shares respectively class common stock 15 billion repurchase program cost 250 million 12 billion respectively addition december 31 2006 company repurchased 302 million shares class common stock new 20 billion authority aggregate cost 10 billion bringing total repurchases 2006 387 million shares 12 billion february 2007 company announced board directors authorized stock repurchase plan pursuant company may repurchase shares companys class common stock aggregate value 5 billion march 2009 repurchase program become effective immediately following distribution approximately 89 companys outstanding shares owned altria group inc program obligate company acquire particular amount class common stock replaces existing share repurchase program may suspended time companys discretion discussed note 11 consolidated financial statements 2006 2005 company granted approximately 48 million 42 million restricted class shares respectively eligible usbased employees 2006 2005 also issued eligible nonus employees rights receive approximately 20 million 18 million class equivalent shares respectively market value per restricted share right 2916 3326 dates 2006 2005 grants respectively restrictions stock rights granted 2006 lapse first quarter 2009 restrictions grants 2005 lapse first quarter 2008 effective january 1 2006 company adopted provisions sfas 123 revised 2004 sharebased payment sfas 123r using modified prospective method requires measurement compensation cost stockbased awards fair value date grant recognition compensation service periods awards expected vest fair value restricted stock rights receive shares stock determined based number shares granted market value date grant fair value stock options determined using modified blackscholes methodology impact adoption material december 31 2006 number shares issued upon exercise outstanding stock options vesting nonus rights receive equivalent shares excluding options rights issued part companys spinoff altria group inc 178 million 11 total class b shares outstanding dividends paid 2006 2005 1562 million 1437 million respectively increase 87 reflecting higher dividend rate 2006 partially offset lower number shares outstanding result class share repurchases third quarter 2006 companys board directors approved 87 increase current quarterly dividend rate 025 per share class b common stock result present annualized dividend rate 100 per common share declaration dividends subject discretion companys board directors depend various factors including companys net earnings financial condition cash requirements future prospects factors deemed relevant companys board directors january 31 2007 altria group inc board directors announced altria group inc plans spin remaining interest 890 company pro rata basis altria group inc stockholders taxfree transaction see kraft spinoff altria group inc within description company section details market risk company operates globally manufacturing sales facilities various locations around world utilizes certain financial instruments manage foreign currency commodity exposures derivative financial instruments used company principally reduce exposures market risks resulting fluctuations foreign exchange rates commodity prices creating offsetting exposures company party leveraged derivatives policy use financial instruments speculative purposes years ended december 31 2006 2005 2004 ineffectiveness related cash flow hedges material december 31 2006 company hedging forecasted transactions periods exceeding next fifteen months expects substantially amounts reported accumulated comprehensive earnings losses december 31 2006 reclassified consolidated statement earnings within next twelve months foreign exchange rates company uses forward foreign exchange contracts foreign currency options mitigate exposure changes exchange rates thirdparty intercompany actual forecasted transactions substantially companys derivative financial instruments effective hedges primary currencies company exposed based size location businesses include euro swiss franc british pound canadian dollar december 31 2006 2005 company foreign exchange option forward contracts aggregate notional amounts 26 billion 22 billion respectively effective portion unrealized gains losses associated forward option contracts deferred component accumulated comprehensive earnings losses underlying hedged transactions reported companys consolidated statement earnings 2007 company also anticipates entering additional hedging instruments mitigate exposure changes exchange rates relating distributions contemplated advance kraft spinoff altria group inc referred within description company section commodities company exposed price risk related forecasted purchases certain commodities used raw materials businesses accordingly company uses commodity forward contracts cash flow hedges primarily coffee milk sugar cocoa general commodity forward contracts qualify normal purchase exception sfas 133 therefore subject provisions sfas 133 addition commodity futures options also used hedge price certain commodities including milk coffee cocoa wheat corn sugar soybean oil natural gas heating oil qualifying contracts effective portion unrealized gains losses commodity futures option contracts deferred component accumulated comprehensive earnings losses recognized component cost sales companys consolidated statement earnings related inventory sold unrealized gains losses net commodity positions immaterial december 31 2006 2005 december 31 2006 2005 company net long commodity positions 533 million 521 million respectively value risk company uses value risk var computation estimate potential oneday loss fair value interest ratesensitive financial instruments estimate potential oneday loss pretax earnings foreign currency commodity pricesensitive derivative financial instruments var computation includes companys debt shortterm investments foreign currency forwards swaps options commodity futures forwards options anticipated transactions foreign currency trade payables receivables net investments foreign subsidiaries foregoing instruments intended hedge excluded computation var estimates made assuming normal market conditions using 95 confidence interval company used variancecovariance model determine observed interrelationships movements interest rates various currencies interrelationships determined observing interest rate forward currency rate movements preceding quarter calculation var amounts december 31 2006 2005 four preceding quarters calculation average var amounts year values foreign currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation estimated potential oneday loss fair value companys interest ratesensitive instruments primarily debt normal market conditions estimated potential oneday loss pretax earnings foreign currency commodity instruments normal market conditions calculated var model follows millions var computation risk analysis tool designed statistically estimate maximum probable daily loss adverse movements interest rates foreign currency rates commodity prices normal market conditions computation purport represent actual losses fair value earnings incurred company consider effect favorable changes market rates company cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future results operations financial position new accounting standards see notes 2 15 17 consolidated financial statements discussion new accounting standards contingencies see note 18 consolidated financial statements discussion contingencies item 7aitem 7 management’s discussion analysis financial condition results operation following discussions read conjunction sections report including consolidated financial statements related notes contained item 8 form 10k description company manufacture market packaged food products including snacks beverages cheese convenient meals various packaged grocery products worldwide 150 countries kraft spinoff altria first quarter 2007 altria group inc “altria” spun remaining interest 890 kraft pro rata basis altria stockholders taxfree transaction effective close business march 30 2007 kraft shares owned altria distributed altria’s stockholders separation altria completed “distribution” distribution altria converted class b shares kraft common stock class shares kraft common stock distribution ratio calculated dividing number shares kraft common stock held altria number altria shares outstanding record date march 16 2007 distribution ratio 0692024 shares kraft common stock every share altria common stock outstanding following distribution class common stock outstanding executive summary following executive summary intended provide significant highlights discussion analysis follows • net revenues 2007 increased 84 372 billion net revenues 2006 increased 07 344 billion • diluted eps 2007 decreased 124 162 diluted eps 2006 increased 194 185 • recorded restructuring program charges 459 million 2007 673 million 2006 297 million 2005 • made solid progress executing longterm growth strategy focuses rewiring organization growth reframing categories exploiting sales capabilities driving costs without compromising quality • november 30 2007 acquired global biscuit business groupe danone sa approximately 51 billion approximately 76 billion cash subject purchase price adjustments report results operations one month lag impact operating results 2007 • november 15 2007 announced definitive agreement merge post cereals business ralcorp holdings inc transaction subject customary closing conditions including antitrust approval irs taxfree ruling ralcorp holdings inc shareholder approvals date antitrust approval obtained expect transaction completed mid2008 • immediately following distribution announced new 50 billion twoyear share repurchase program replaced previous 20 billion share repurchase program 2007 repurchased 1101 million shares common stock approximately 36 billion share repurchase programs • august 2007 issued 35 billion senior unsecured notes december 2007 issued additional 30 billion senior unsecured notes used net proceeds approximately 3462 million august 2966 million december general corporate purposes including repayment outstanding commercial paper portion bridge facility used fund danone biscuit acquisition • third quarter 2007 board directors approved 80 increase current quarterly dividend rate 027 per share common stock result current annualized dividend rate 108 per share common stock discussion analysis growth strategy consumer analyst group new york “cagny” conference february 2008 presented progress made 2007 longterm growth strategy plans second year threeyear plan return kraft reliable growth four growth strategies 2007 developments summarized rewire organization growth made significant changes incentive systems senior management team organizational structure annual bonuses longterm incentive plans tied measures people control increase shareholder value operating income growth also complemented veteran kraft management team adding new talent february 2008 announced implementation new operating structure built three core elements business units full pl accountability staffed accordingly shared services leverage scale global portfolio streamlined corporate staff reframe categories utilizing concept “growth diamond” focus four key consumer trends driving category growth snacking quick meals health wellness premium also reframed portfolio acquisitions divestitures 2007 divested flavored water juice brand assets related trademarks including veryfine fruit2o acquired danone biscuit business changes result increased revenues derived kraft international also announced planned merger post business ralcorp anticipate completed mid2008 exploit sales capabilities using large scale competitive advantage better leverage portfolio “walltowall” initiative kraft north america combined executional benefits direct store delivery used biscuit business unit economics warehouse delivery drive faster growth walltowall increase frequency retail visits build stronger ongoing relationships store management allowing us reduce outofstocks get new items shelves quickly increase number quality displays plan complete full rollout north america mid2008 plan build profitable scale expanding distribution reach countries rapidly growing demand acquisition danone biscuit part efforts expand reach developing markets drive costs without compromising quality plan contain administrative overhead costs investing quality rd marketing sales capabilities support growth incrementally investing 100 million quality upgrades 2008 additionally anticipate completing restructuring program 2008 total annualized savings reaching 12 billion end 2009 summary financial results following tables show significant changes net earnings diluted eps 2007 2006 2005 millions except per share data see discussion events affecting comparability discussion operating results acquisitions divestitures danone biscuit november 30 2007 acquired global biscuit business groupe danone sa “danone biscuit” 51 billion approximately 76 billion cash subject purchase price adjustments october 12 2007 entered 364day bridge facility agreement closing borrowed 51 billion facility order finance acquisition included 32 manufacturing facilities approximately 14000 employees danone biscuit generated global revenues approximately 28 billion 2007 danone biscuit report results operations one month lag impact operating results 2007 proforma basis danone biscuit’s net earnings year ended december 31 2007 would insignificant kraft acquired assets consisting primarily goodwill 5239 million deductible statutory tax purposes intangible assets 2196 million substantially expected indefinite lived property plant equipment 561 million receivables 759 million inventories 198 million amounts represent preliminary allocation purchase price subject revision appraisals finalized occur 2008 united biscuits 2006 acquired spanish portuguese operations united biscuits “ub” approximately 11 billion noncash acquisition financed assumption 541 million debt issued acquired business immediately prior acquisition well 530 million value redemption outstanding investment ub primarily deepdiscount securities redemption outstanding investment resulted gain closing approximately 251 million 009 per diluted share third quarter 2006 part transaction also recovered rights nabisco trademarks european union eastern europe middle east africa ub held since 2000 spanish portuguese operations ub include biscuits dry desserts canned meats tomato fruit juice businesses operations also include seven manufacturing facilities 1300 employees businesses contributed net revenues approximately 466 million year ended december 31 2007 approximately 111 million period september 2006 december 31 2006 acquired assets consisting primarily goodwill 730 million intangible assets 217 million property plant equipment 149 million receivables 101 million inventories 34 million post distribution november 15 2007 announced definitive agreement merge post cereals business “post business” ralcorp holdings inc “ralcorp” taxfree distribution shareholders “post distribution” signed agreement ralcorp execute post distribution means “reversemorris trust” transaction subject customary closing conditions including antitrust approval irs taxfree ruling ralcorp shareholder approvals date antitrust approval obtained anticipate transaction completed mid2008 post business net revenues approximately 11 billion 2007 includes cereals honey bunches oats pebbles shredded wheat selects grape nuts honeycomb brands transaction distributed primarily north america addition post brands transaction includes four manufacturing facilities certain manufacturing equipment anticipate approximately 1250 employees join ralcorp following consummation transaction shareholders receive least 303 million shares ralcorp stock post distribution subsequent merger post business ralcorp based market conditions prior closing determine whether shares distributed spinoff splitoff transaction either type transaction expected taxfree us shareholders spinoff transaction shareholders would receive pro rata number ralcorp shares splitoff transaction shareholders would option exchange kraft shares receive ralcorp shares closing resulting reduction number shares common stock outstanding addition kraft receive approximately 960 million cashequivalent value used repay debt 2007 received 216 million proceeds recorded pretax gains 15 million divestitures hot cereal assets trademarks sugar confectionery assets romania related trademarks flavored water juice brand assets related trademarks including veryfine fruit2o recorded aftertax loss 3 million divestitures reflects differing book tax bases hot cereal assets trademarks divestiture 2006 received 946 million proceeds recorded pretax gains 117 million divestitures pet snacks brand assets rice brand assets certain canadian assets industrial coconut assets small us biscuit brand us coffee plant recorded aftertax gains 31 million 002 per diluted share divestitures reflects tax expense 57 million related differing book tax bases pet snacks brand assets divestiture 2005 received 238 million proceeds recorded pretax gains 108 million 004 per diluted share divestitures fruit snacks assets uk desserts assets us yogurt assets small operation colombia minor trademark mexico small equity investment turkey also sold substantially sugar confectionery business june 2005 pretax proceeds approximately 14 billion sale included life savers creme savers altoids trolli sugus brands reflected results sugar confectionery business prior closing date discontinued operations consolidated statements earnings recorded loss sale discontinued operations 272 million 2005 related largely taxes transaction gains losses divestitures included segment operating income follows gains losses divestitures reflect related asset impairment charges discussed aggregate operating results acquisitions divestitures discussed ub acquisition divestiture sugar confectionery business material financial statements periods presented restructuring program january 2004 announced threeyear restructuring program “restructuring program” january 2006 extended 2008 objectives program leverage global scale realign lower cost structure optimize capacity part restructuring program anticipate • incurring approximately 28 billion pretax charges reflecting asset disposals severance implementation costs • closing least 35 facilities eliminating approximately 13500 positions • using cash pay approximately 17 billion 28 billion charges • cumulative annualized savings reaching 12 billion end 2009 february 2008 announced implementation new operating structure built three core elements accountable business units shared services leverage scale global portfolio streamlined corporate staff within new structure business units full pl accountability staffed accordingly also ensures putting resources closer decisions made affect consumers corporate shared service functions streamlining organizations focusing core activities efficiently support goals business units intent simplify streamline increase accountability ultimate goal generating reliable growth kraft result eliminated approximately 700 positions streamline headquarters functions incurred charges restructuring program 459 million 2007 019 per diluted share 673 million 2006 027 per diluted share 297 million 2005 012 per diluted share since inception restructuring program incurred 21 billion charges paid cash 11 billion announced closure three plants 2007 announced closure 30 facilities since program began 2004 connection severance initiatives eliminated approximately 11000 positions december 31 2007 time announced elimination additional 400 positions restructuring program recorded asset impairment exit costs 332 million 2007 578 million 2006 210 million 2005 recorded implementation costs 127 million 2007 95 million 2006 87 million 2005 implementation costs directly attributable exit costs however qualify treatment statement financial accounting standards “sfas” 146 accounting costs associated exit disposal activities costs primarily include discontinuance certain product lines incremental expenses related closure facilities electronic data systems “eds” transition discussed note 2 consolidated financial statements management believes disclosure implementation charges provides readers financial statements greater transparency total costs restructuring program addition expect spend approximately 550 million capital implement restructuring program spent 387 million capital since inception restructuring program including 142 million spent 2007 cumulative annualized cost savings resulting restructuring program approximately 540 million 2006 incremental cost savings totaled approximately 243 million 2007 resulting cumulative annualized savings restructuring program approximately 783 million date refer note 2 asset impairment exit implementation costs details restructuring program european union segment reorganization also process reorganizing european union segment function paneuropean centralized category management value chain model reorganization complete european principal company “epc” manage european union segment categories centrally make decisions aspects value chain except sales distribution european subsidiaries execute sales distribution locally local production companies act toll manufacturers behalf epc legal entity already incorporated kraft foods europe gmbh zurich switzerland part reorganization incurred 21 million restructuring costs 24 million implementation costs 10 million nonrecurring costs 2007 incurred 7 million restructuring costs 2006 restructuring implementation costs recorded part overall restructuring program costs relating european union segment reorganization recorded marketing administration research costs management believes disclosure implementation nonrecurring charges provides readers financial statements greater transparency total costs european union segment reorganization asset impairment charges first fourth quarters 2007 completed annual review goodwill intangible assets impairments resulted reviews additionally 2007 sold flavored water juice brand assets related trademarks incurred asset impairment charge 120 million 003 per diluted share recognition sale charge included writeoff associated goodwill 3 million intangible assets 70 million property plant equipment 47 million recorded asset impairment exit costs consolidated statement earnings recorded aggregate asset impairment charges 2006 amounting 424 million 017 per diluted share 2006 annual review goodwill intangible assets recorded 24 million noncash charge impairment biscuits assets egypt hot cereal assets us addition incurred asset impairment charge 69 million 2006 anticipation 2007 sale hot cereal assets trademarks charge included writeoff portion associated goodwill 15 million intangible assets 52 million property plant equipment 2 million charges incurred 2007 related sale additionally 2006 incurred asset impairment charge 86 million recognition pet snacks brand assets sale charge included writeoff portion associated goodwill 25 million intangible assets 55 million property plant equipment 6 million also 2006 reevaluated business model tassimo hot beverage system due lagging revenues evaluation resulted 245 million noncash asset impairment charge lower utilization existing manufacturing capacity recorded charges asset impairment exit costs consolidated statement earnings recorded aggregate asset impairment charges 2005 amounting 269 million 008 per diluted share first quarter 2005 completed annual review goodwill intangible assets impairments resulted review addition sold fruit snacks assets 2005 incurred asset impairment charge 93 million recognition sale also incurred asset impairment charges 176 million 2005 anticipation 2006 sales certain assets canada small biscuit brand us aggregate charges included writeoff associated goodwill 13 million intangible assets 118 million asset writedowns 138 million recorded asset impairment exit costs consolidated statement earnings refer note 2 asset impairment exit implementation costs asset impairment details provision income taxes tax rate 305 2007 237 2006 294 2005 2007 effective tax rate includes 184 million favorable tax rate items primarily including effects dividend repatriation benefits foreign earnings taxed us federal statutory tax rate foreign joint venture earnings effect foreign deferred taxes lower foreign tax rates enacted 2007 partially offset foreign tax expense items 2007 tax rate also benefited increased domestic manufacturing deduction divestiture flavored water juice brand assets related trademarks benefits partially offset state tax expense 2006 irs concluded examination altria’s consolidated tax returns years 1996 1999 irs issued final revenue agents report march 15 2006 consequently altria reimbursed us 337 million federal tax reserves longer necessary 46 million interest 29 million net tax also recognized net state tax reversals 39 million total tax provision benefit 376 million 337 million federal plus 39 million state total benefit net earnings recognized 2006 due irs settlement 405 million 024 per diluted share 2006 tax rate also benefited resolution various tax items foreign operations dividend repatriation benefits joint venture earnings lower foreign tax rates enacted 2006 primarily canada benefits partially offset state tax expense tax costs associated 2006 divestitures 2005 effective tax rate includes tax benefits 117 million dividend repatriation including impact american jobs creation act 2004 resolution outstanding items international operations settlement outstanding us tax claim 2005 tax rate also benefited 2005 divestitures partially offset state tax expense discussed note 1 summary significant accounting policies altria transferred federal tax contingencies 375 million balance sheet related interest income 77 million 003 per diluted share result distribution following distribution longer member altria consolidated tax return group file federal consolidated income tax return continue assess opportunities mitigate loss tax benefits result filing separately currently estimate annual amount lost tax benefits range 50 million 75 million compared 2007 consolidated results operations following discussion compares consolidated operating results 2007 2006 2005 many factors impact timing sales customers factors include among others timing holidays annual special events seasonality significant weather conditions timing customer incentive programs pricing actions customer inventory programs general economic conditions domestic operating subsidiaries report yearend results saturday closest end year international operating subsidiaries generally report yearend results two weeks prior saturday closest end year resulted 53 weeks operating results consolidated statement earnings year ended december 31 2005 versus 52 weeks years ended december 31 2007 2006 2007 compared 2006 net revenues net revenues increased 2885 million 84 due primarily favorable currency 32 pp favorable mix 18 pp higher volume 17 pp higher net pricing 16 pp impact acquisitions 10 pp partially offset impact divestitures 09 pp currency fluctuations increased net revenues 1070 million due primarily continuing weakness us dollar euro canadian dollar total volume increased 13 net 04 pp due divestitures offset acquisitions driven higher shipments european union due ub acquisition developing markets partially offset lower volume north american segments due primarily impact divestitures declines certain grocery products discontinuation select lower margin foodservice products operating income operating income declined 190 million 42 due primarily higher total manufacturing costs including higher commodity costs net impact higher pricing 533 million higher marketing administration research costs 338 million including higher marketing support asset impairment charge related flavored water juice brand assets related trademarks 120 million impact divestitures 105 million prior year 251 million gain redemption ub investment prior year 226 million gain divested rice assets trademarks items partially offset favorable volumemix 475 million 2006 asset impairment charges related divested pet snacks hot cereal assets trademarks tassimo hot beverage system biscuits assets egypt totaling 424 million lower restructuring program charges 214 million 2006 loss sale us coffee plant 95 million currency fluctuations increased operating income 125 million due primarily continuing weakness us dollar euro canadian dollar net earnings net earnings 2590 million decreased 470 million 154 due primarily operating income declines favorable tax rate 2006 significant tax resolution higher interest expense earnings per share diluted earnings per share 162 124 185 2006 2007 incurred 019 per diluted share 459 million taxes restructuring program costs compared 027 per diluted share 673 million taxes 2006 additionally 2007 incurred 003 per diluted share 120 million taxes asset impairment charges compared 017 per diluted share 424 million taxes 2006 due distribution recognized interest income 003 per diluted share 77 million taxes tax reserve transfers altria 2006 benefited favorable federal state tax resolutions amounting 405 million 024 per diluted share additionally 2006 benefited 009 per diluted share gain redemption ub investment 002 per diluted share net gain divestitures lastly benefited 07 per diluted share due 2007 share repurchase activity 2006 compared 2005 results included 53 weeks operating results compared 52 weeks 2006 estimate extra week positively impacted net revenues operating income approximately 2 2005 approximately 625 million 100 million respectively net revenues net revenues increased 243 million 07 due primarily favorable volumemix 07pp including 53rd week 2005 higher net pricing 07pp favorable currency 05 pp impact acquisitions 03pp partially offset impact divestitures 15pp currency fluctuations increased net revenues 145 million due primarily weakness us dollar canadian dollar brazilian real partially offset strength us dollar euro volume decreased 961 million pounds 50 including 53rd week 2005 results excluding impact divestitures acquisition ub 53rd week shipments 2005 volume decreased 04 due primarily discontinuation certain readytodrink foodservice product lines lower grocery shipments north america partially offset higher shipments meat biscuits cheese north america higher shipments developing markets operating income operating income declined 228 million 48 due primarily higher restructuring program costs 376 million higher asset impairment charges 155 million 2005 net gains divestitures 108 million higher marketing administrative research costs 78 million impact divestitures 71 million impacts partially offset 2006 gain redemption ub investment 251 million 2006 net gains divestitures 117 million higher pricing net increased promotional spending higher input costs 72 million lower fixed manufacturing costs 40 million favorable volumemix 32 million including 53rd week 2005 acquisition ub 18 million currency fluctuations increased operating income 29 million due primarily weakness us dollar canadian dollar brazilian real partially offset strength us dollar euro earnings continuing operations earnings continuing operations 3060 million increased 156 million 54 due primarily favorable tax rate resulting significant tax resolution 2006 lower interest expense partially offset lower operating income loss discontinued operations june 2005 sold substantially sugar confectionery business proceeds approximately 14 billion reflected results sugar confectionery business prior closing date discontinued operations consolidated statements earnings recorded loss sale discontinued operations 272 million 2005 related largely taxes transaction net earnings net earnings 3060 million increased 428 million 163 due increased earnings continuing operations 2005 loss discontinued operations earnings per share diluted earnings per share 185 194 155 2005 2006 incurred 027 per diluted share 673 million taxes restructuring program costs compared 012 per diluted share 297 million taxes 2005 additionally 2006 incurred 017 per diluted share 424 million taxes asset impairment charges compared 008 per diluted share 269 million taxes 2005 2006 also benefited favorable federal state tax resolutions amounting 405 million 024 per diluted share additionally 2006 benefited 009 per diluted share gain redemption ub investment 002 per diluted share net gain divestitures compared 004 per diluted share net gain divestitures 2005 lastly benefited 04 per diluted share due 2006 share repurchase activity results operations business segment manage report operating results two commercial units kraft north america kraft international manage kraft north america’s operations product category kraft international’s operations geographic location kraft north america’s segments north america beverages north america cheese foodservice north america convenient meals north america grocery north america snacks cereals two international segments european union developing markets formerly known developing markets oceania north asia latter reflect increased management focus developing markets following discussion compares operating results reportable segments 2007 2006 2005 discussed note 16 consolidated financial statements segment reporting management uses segment operating income evaluate segment performance allocate resources segment operating income excludes unallocated general corporate expenses amortization intangibles management believes appropriate disclose measure help investors analyze segment performance trends incurred asset impairment exit implementation costs 579 million 2007 1097 million 2006 566 million 2005 refer note 2 asset impairment exit implementation costs breakout charges segment north america beverages 2007 compared 2006 net revenues increased 147 million 48 due primarily favorable mix 29 pp higher volume 21 pp higher net pricing 09 pp partially offset impact divestitures 15 pp favorable mix crystal light go sticks premium coffee partially drove higher net revenues higher volume driven readytodrink beverages primarily capri sun partially offset lower shipments powdered beverages maxwell house coffee higher commoditybased pricing coffee partially offset increased promotional spending readytodrink beverages powdered beverages segment operating income increased 132 million 644 due primarily 2006 loss sale us coffee plant 2006 asset impairment charge related tassimo hot beverage system favorable volumemix lower marketing expense favorabilities partially offset asset impairment charge related flavored water juice brand assets related trademarks higher total manufacturing costs including higher commodity costs primarily related coffee packaging net higher pricing 2006 compared 2005 net revenues increased 32 million 10 due primarily favorable mix 62 pp higher net pricing 12 pp favorable currency 05 pp partially offset lower volume 68 pp including 53rd week 2005 coffee net revenues increased due higher commoditybased pricing partially offset lower shipments powdered beverages favorable mix new products also drove higher net revenues readytodrink net revenues declined due lower shipments discontinuation certain products segment operating income decreased 258 million 557 due primarily loss sale us coffee plant asset impairment charge related tassimo hot beverage system higher commodity costs higher restructuring program costs partially offset higher pricing north america cheese foodservice 2007 compared 2006 net revenues increased 304 million 50 due primarily higher commoditybased net pricing 52 pp favorable currency 08 pp partially offset lower volume 08 pp cheese net revenues increased driven higher commoditybased pricing favorable volumemix primarily new product introductions foodservice net revenues growth higher commoditybased net pricing partially offset lower volume due discontinuation lower margin product lines unfavorable mix segment operating income decreased 265 million 299 due primarily higher commodity costs higher marketing administration research costs including higher marketing support unfavorable variances partially offset higher pricing lower restructuring program charges favorable currency 2006 loss sale industrial coconut assets 2006 compared 2005 net revenues decreased 166 million 27 due lower volume 22 pp including 53rd week 2005 lower net pricing 18 pp impact divestitures 09 pp partially offset favorable mix 12 pp favorable currency 10 pp foodservice net revenues decreased due primarily lower volume impact divestitures lower cheese pricing partially offset favorable currency cheese net revenues decreased due primarily lower net pricing response declining cheese costs impact divestitures partially offset favorable currency segment operating income decreased 35 million 38 due primarily higher restructuring program charges lower volumemix including 53rd week 2005 higher marketing spending 2006 loss sale industrial coconut assets partially offset favorable costs primarily cheese commodity costs net lower net pricing lower fixed manufacturing costs favorable currency north america convenient meals 2007 compared 2006 net revenues increased 234 million 48 due primarily favorable mix 27 pp higher volume 25 pp higher net pricing 10 pp partially offset impact divestitures 17 pp net revenues increased meat due higher shipments sandwich meat new product introductions higher commoditybased net pricing partially offset lower shipments chicken strips due first quarter recall pizza net revenues increased due introduction digiorno ultimate higher shipments california pizza kitchen products macaroni cheese net revenues increased due higher net pricing higher volume due base growth favorable mix reflecting continued success kraft easymac cups segment operating income decreased 219 million 240 due primarily 2006 gain divested rice assets trademarks higher commodity costs impact divestitures higher marketing administration research costs including higher marketing support partially offset lower restructuring program charges favorable volumemix higher pricing 2006 compared 2005 net revenues increased 144 million 31 due favorable mix 18 pp higher volume 11 pp including 53rd week 2005 favorable currency 03 pp higher net pricing 02 pp partially offset impact divestitures 03 pp meats higher net revenues driven continued strong results new products higher net pricing pizza net revenues increased due higher shipments favorable mix new products partially offset higher promotional spending dinners net revenues decreased due impact lower volume segment operating income increased 121 million 153 due primarily gain sale rice brand assets lower fixed manufacturing costs favorable currency higher net pricing partially offset higher restructuring program charges higher product costs impact divestitures north america grocery 2007 compared 2006 net revenues decreased 32 million 12 due primarily lower volume 18 pp unfavorable mix 08 pp partially offset higher net pricing 11 pp favorable currency 06 pp impact lower shipments spoonable pourable salad dressings barbeque sauce dry packaged desserts partially offset higher net pricing spoonable salad dressings dry packaged desserts segment operating income decreased 102 million 111 due primarily higher commodity costs higher restructuring program costs unfavorable volumemix partially offset higher pricing 2006 compared 2005 net revenues decreased 293 million 97 due impact divestitures 86 pp lower volume 36 pp including 53rd week 2005 partially offset higher pricing 11 pp favorable currency 09 favorable mix 05 pp readytoeat dry packaged desserts net revenues declined due lower shipment volume spoonable salad dressing net revenues decreased due lower shipments partially offset lower promotional spending pourable salad dressing net revenues declined due higher promotional spending segment operating income increased 195 million 269 due primarily 2005 asset impairment charges related divested canadian grocery assets fruit snacks assets lower marketing administration research costs favorable currency higher pricing net unfavorable costs favorabilities partially offset unfavorable volumemix impact divestitures north america snacks cereals 2007 compared 2006 net revenues increased 168 million 26 due primarily higher volume 23 pp favorable mix 20 pp partially offset impact divestitures 22 pp favorable mix higher shipments cookies crackers due new product introductions including oreo cakesters drove higher net revenues snack bars net revenues increased due new product introductions continued success south beach living bars snack nuts net revenues increased due favorable mix new product introductions segment operating income increased 189 million 228 due primarily 2006 asset impairment charges related divested pet snacks hot cereal assets trademarks favorable volumemix lower restructuring program charges favorable variances partially offset higher marketing administration research costs including higher marketing support impact divestitures 2006 compared 2005 net revenues increased 108 million 17 due favorable volumemix 18 pp including 53rd week 2005 higher net pricing 14 pp favorable currency 06 pp partially offset impact divestitures 21 pp biscuit net revenues increased due higher pricing offset impact commodity cost increases energy packaging higher shipment volume favorable mix snack bars net revenue increases driven new product introductions canadian snack net revenues also increased due sales comanufactured products related 2005 divested confectionery business snack nuts net revenues decreased due lower shipments segment operating income decreased 101 million 109 due primarily asset impairment charges related divested pet snacks hot cereal assets trademarks higher product costs impact divestitures higher restructuring program costs unfavorable items partially offset higher net pricing 2005 asset impairment charge anticipation 2006 sale small us biscuit brand lower marketing spending lower fixed manufacturing costs european union 2007 compared 2006 net revenues increased 1282 million 192 due favorable currency 105 pp impact ub acquisition 51 pp higher volume 34 pp favorable mix 19 pp partially offset lower net pricing 17 pp volume related growth favorable mix driven premium chocolate due new product introductions promotional activities higher shipments mainstream coffee cheese lower net pricing reflects higher promotional spending chocolate cheese coffee primarily germany segment operating income increased 23 million 42 due primarily 2006 asset impairment charge related tassimo hot beverage system favorable volumemix lower restructuring program charges favorable currency lower fixed manufacturing costs impact ub acquisition partially offsetting favorable variances prior year gain redemption ub investment higher commodity costs lower net pricing higher marketing expense 2006 compared 2005 net revenues decreased 42 million 06 due lower volume 17 pp including 53rd week 2005 unfavorable currency 13 pp impact divestitures 02 pp partially offset acquisition ub 16 pp favorable mix 09 pp higher net pricing 01 pp volume related declines net favorable mix driven lower shipments cheese coffee refreshment beverages net pricing essentially flat increased pricing coffee chocolate offset higher promotional spending across categories segment operating income decreased 174 million 241 due primarily asset impairment charge related tassimo hot beverage system 2005 gain divested uk desserts assets higher restructuring program costs unfavorable costs increased promotional spending net higher pricing higher marketing administration research costs unfavorable currency unfavorabilities partially offset gain redemption ub investment impact ub acquisition lower fixed manufacturing costs developing markets 2007 compared 2006 net revenues increased 782 million 171 due primarily favorable currency 54 pp higher net pricing 51 pp higher volume 40 pp favorable mix 24 pp eastern europe middle east africa net revenues increased due higher pricing growth coffee chocolate russia romania ukraine refreshment beverages snacks middle east africa latin america net revenues increased due higher pricing favorable volumemix particularly brazil venezuela argentina asia pacific net revenues increased due volume growth china southeast asia segment operating income increased 75 million 180 due primarily higher pricing favorable volumemix lower restructuring program costs favorable currency 2006 asset impairment charge related biscuits assets egypt favorable variances partially offset higher marketing administration research costs including higher marketing support costs higher commodity costs 2006 compared 2005 net revenues increased 460 million 112 due favorable volumemix 52 pp including 53rd week 2005 higher pricing 44 pp favorable currency 21 pp partially offset impact divestitures 05 pp eastern europe middle east africa net revenues increased due volume growth higher pricing coffee chocolate russia romania ukraine bulgaria latin america net revenues increased due higher pricing favorable volumemix particularly brazil venezuela argentina asia pacific net revenues increased due volume growth higher pricing china southeast asia partially offset volume declines australia new zealand segment operating income increased 16 million 40 due primarily higher pricing net unfavorable costs favorable volumemix including 53rd week 2005 favorable currency partially offset higher marketing administration research costs higher restructuring program costs higher fixed manufacturing costs asset impairment charge related biscuits assets egypt critical accounting policies note 1 summary significant accounting policies consolidated financial statements includes summary significant accounting policies used prepare consolidated financial statements prepare financial statements conformity accounting principles generally accepted united states america “us gaap” require us make certain elections accounting policy estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities dates financial statements reported amounts net revenues expenses reporting periods significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions lives valuation assumptions goodwill intangible assets marketing programs income taxes actual results could differ estimates discussed selection disclosure critical accounting policies estimates audit committee following review significant assumptions estimates well accounting policies used prepare consolidated financial statements principles consolidation consolidated financial statements include kraft well whollyowned majorityowned subsidiaries domestic operating subsidiaries report yearend results saturday closest end year international operating subsidiaries generally report yearend results two weeks prior saturday closest end year resulted 53 weeks operating results consolidated statement earnings year ended december 31 2005 versus 52 weeks years ended december 31 2007 2006 results operations newly acquired global biscuit business groupe danone sa reported one month lag account investments exercise significant influence 20 50 ownership interest equity method accounting account investments ownership interest less 20 exercise significant influence cost method accounting intercompany transactions eliminated transactions kraft altria included consolidated financial statements use estimates prepare financial statements accordance us gaap requires us make estimates assumptions affect number amounts financial statements amounts include among others employee benefit costs income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year significant impact consolidated financial statements inventories stated lower cost market lastin firstout “lifo” method used cost majority domestic inventories cost inventories principally determined average cost method used lifo method determine cost 37 inventories december 31 2007 41 inventories december 31 2006 stated lifo amounts inventories 142 million lower december 31 2007 70 million higher december 31 2006 current cost inventories also record inventory allowances overstocked obsolete inventories due ingredient packaging changes longlived assets review longlived assets including amortizable intangible assets impairment conditions exist indicate carrying amount assets may fully recoverable perform undiscounted operating cash flow analyses determine impairment exists testing assets held use impairment group assets liabilities lowest level cash flows separately identifiable impairment determined exist loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal 2006 recorded noncash asset impairment charges 245 million related tassimo hot beverage system longlived assets charges included asset impairment exit costs consolidated statement earnings goodwill intangible assets sfas 142 goodwill intangible assets “sfas 142” requires us test goodwill nonamortizable intangible assets least annually impairment test goodwill compare fair value reporting unit carrying value reporting unit carrying value exceeds fair value goodwill considered impaired impairment loss measured difference carrying value implied fair value goodwill determined using discounted cash flows test nonamortizable intangible assets impairment compare fair value intangible asset carrying value carrying value exceeds fair value intangible asset considered impaired reduced fair value definite lived intangible assets amortized estimated useful lives since adoption sfas 142 completed annual impairment review goodwill nonamortizable intangible assets january 1 first quarter 2007 completed annual review goodwill nonamortizable intangible assets found impairments effective october 1 2007 adopted new accounting policy perform annual impairment review goodwill nonamortizable intangible assets october 1 instead january 1 year change testing date made align revised timing annual strategic planning process implemented 2007 result performed annual impairment tests october 1 2007 found impairments first quarter 2006 completed annual review goodwill intangible assets recorded 24 million noncash charge impairment biscuits assets egypt hot cereal assets us charge included asset impairment exit costs consolidated statement earnings first quarter 2005 completed annual review goodwill intangible assets impairments resulted review forth quarter 2007 acquired goodwill 5239 million intangible assets 2196 million part danone biscuit acquisition amounts represent preliminary allocation purchase price subject revision appraisals finalized occur 2008 application fas 141 business combinations requires number significant judgments including valuation cost acquisition assignment costs based estimated fair values asses acquired liabilities assumed insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits liabilities associated risks estimated considering historical claims experience actuarial assumptions revenue recognition recognize revenues title risk loss pass customers occurs upon shipment delivery goods revenues recorded net consumer incentives trade promotions include shipping handling charges billed customers kraft’s shipping handling costs classified part cost sales also record provisions allowances estimated sales returns bad debts consolidated financial statements amounts recorded provisions related allowances significant financial statements marketing costs promote products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives expense advertising costs either period advertising first takes place incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred environmental costs subject laws regulations relating protection environment accrue environmental remediation obligations undiscounted basis amounts probable reasonably estimated accruals adjusted new information develops circumstances change recoveries environmental remediation costs third parties recorded assets receipt deemed probable december 31 2007 subsidiaries involved 70 active superfund similar actions us related current operations certain former divested operations retain liability based information currently available believe ultimate resolution existing environmental remediation actions compliance general environmental laws regulations material effect financial results however cannot quantify certainty potential impact future compliance efforts environmental remediation actions income taxes account income taxes accordance sfas 109 accounting income taxes prior distribution included altria’s consolidated federal income tax return generally computed income taxes separate company basis however foreign tax credits capital losses credits could used separate company basis extent altria used foreign tax credits tax benefits consolidated federal income tax return recognized benefit calculation provision income taxes benefit approximately 270 million 2007 date distribution well postdistribution carryback claims predistribution periods 195 million 2006 225 2005 made payments reimbursed altria tax effects resulting included altria’s tax return march 31 2007 longer member altria consolidated tax return group file federal consolidated income tax return july 2006 financial accounting standards board “fasb” issued fasb interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” adopted provisions fin 48 effective january 1 2007 fin 48 clarifies tax benefits recorded financial statements provides measurement criteria valuing benefits order us recognize benefits tax position must likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement implementation fin 48 established additional provisions certain positions likely challenged even though believe existing tax positions fully supportable adoption fin 48 resulted increase shareholders’ equity january 1 2007 213 million recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized employee benefit plans discussed note 9 benefit plans consolidated financial statements provide range benefits employees retired employees include pension plans postretirement health care benefits postemployment benefits consisting primarily severance record amounts relating plans based calculations specified us gaap calculations require use various actuarial assumptions discount rates assumed rates return plan assets compensation increases turnover rates health care cost trend rates review actuarial assumptions annual basis make modifications assumptions based current rates trends appropriate permitted us gaap generally amortize effect modifications future periods believe assumptions used recording plan obligations reasonable based experience advice actuaries refer note 9 consolidated financial statements discussion assumptions used september 2006 fasb issued sfas 158 employers’ accounting defined benefit pension postretirement plans “sfas 158” sfas 158 requires us recognize funded status defined benefit pension postretirement plans consolidated balance sheet subsequent changes funded status recognized component net periodic benefit cost recognized component comprehensive income prospectively adopted recognition related disclosure provisions sfas 158 december 31 2006 adoption resulted decrease total assets 2286 million decrease total liabilities 235 million decrease shareholders’ equity 2051 million sfas 158 also requires us measure plan assets benefit obligations balance sheet date beginning 2008 currently measure nonus pension plans canadian pension plans september 30 year expect adopt measurement date provision sfas 158 measure plans operating subsidiaries’ yearend close date beginning 2008 presently evaluating impact measurement date change expected significant years ended december 31 2007 2006 2005 recorded following amounts consolidated statements earnings employee benefit plans 2007 net expense employee benefit plans 818 million decreased 218 million 2006 amount cost decrease primarily relates lower us pension plan costs including lower amortization net loss experience differences lower postemployment benefit plan costs related restructuring program 2006 net expense employee benefit plans 1036 million increased 154 million 2005 amount cost increase primarily related higher postemployment benefit plan costs related restructuring program well higher amortization net loss experience differences us nonus pension plan costs postretirement health care costs december 31 2007 health care cost trend rate assumption decreased 800 750 us postretirement plans increased 850 900 canadian postretirement plans updated rates based upon expectation health care trend rates going forward anticipate health care cost trend rate assumption 500 us plans 600 canadian plans 2013 assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects december 31 2007 december 31 2007 discount rate assumption increased 590 610 us postretirement plans increased 590 630 us pension plans model discount rates using portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations changes discount rates primarily result changes bond yields yearoveryear expected rate return plan assets remained unchanged 80 presently anticipate assumption changes coupled amortization deferred gains losses result decrease 2008 pretax us nonus pension postretirement expense presently anticipate changes 2008 assumptions sensitivity measure fiftybasis point decline discount rate would increase us pension postretirement expense approximately 80 million fiftybasis point increase discount rate would decrease us pension postretirement expense approximately 75 million similarly fiftybasis point decrease increase expected rate return plan assets would increase decrease us pension expense approximately 33 million transactions altria group inc march 30 2007 entered postspin transition services agreement altria’s subsidiary altria corporate services inc “alcs” agreement alcs providing information technology services kraft eds transition billings postspin services 10 million april 2007 december 31 2007 distribution alcs provided prespin administrative services us separate corporate services agreement expired march 30 2007 services included planning legal treasury auditing insurance human resources office secretary corporate affairs information technology aviation tax services billings prespin services based cost alcs provide services 5 management fee based wages benefits 19 million quarter ended march 31 2007 178 million year ended december 31 2006 237 million year ended december 31 2005 performed similar cost various functions 2007 2006 previously provided alcs resulting lower expense 2007 2006 january 1 2008 alcs longer provides services kraft march 30 2007 also entered employee matters tax sharing agreements altria employee matters agreement sets company’s obligations employee transfers equity compensation employee benefits matters individuals moving previously moved companies tax sharing agreement identifies altria’s kraft’s rights responsibilities obligations respect income taxes following distribution also places certain restrictions us including 2year limit share repurchases 20 common stock outstanding time distribution shortterm amounts payable altria affiliates 449 million included 364 million accrued dividends paid amounts april 2007 december 31 2007 shortterm amounts payable altria affiliates transition services december 31 2006 shortterm amounts payable altria affiliates 607 million fair values shortterm amounts due altria affiliates approximated carrying amounts first quarter 2007 repurchased 14 million shares common stock altria cost 465 million paid 32085 per share average high low price kraft common stock reported nyse march 1 2007 repurchase accordance distribution agreement also see note 5 income taxes information closure irs review altria’s consolidated federal income tax return 2006 impacted us financial instruments kraft operates globally use certain financial instruments manage foreign currency exchange rate commodity price risks monitor manage exposures part overall riskmanagement program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price risk management strategies seek reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices principally use derivative instruments financial instruments qualifying hedge accounting must maintain specified level effectiveness hedging instrument item hedged inception throughout hedged period formally document nature relationships hedging instruments hedged items well riskmanagement objectives strategies undertaking various hedge transactions method assessing hedge effectiveness additionally hedges forecasted transactions significant characteristics expected terms forecasted transaction must specifically identified must probable forecasted transaction occur deem probable forecasted transaction occur recognize gain loss earnings currently using derivatives hedge exposures changes exchange rates commodity prices kraft exposure derivatives credit market risk exposed credit risk counterparty might fail fulfill performance obligations terms derivative contract minimize credit risk entering transactions highquality counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts governed international swaps derivatives association master agreement market risk value financial instrument might adversely affected change foreign currency exchange rates commodity prices interest rates manage market risk incorporating monitoring parameters within risk management strategy limit types derivative instruments derivative strategies degree market risk may undertaken use derivative instruments record derivative financial instruments fair value consolidated balance sheets either current assets current liabilities changes fair value derivatives recorded period either accumulated comprehensive earnings losses earnings depending whether derivative designated effective part hedge transaction type hedge transaction gains losses derivative instruments reported accumulated comprehensive earnings losses reclassified consolidated statement earnings periods operating results affected hedged item cash flows hedging instruments classified manner affected hedged item consolidated statements cash flows commodity trends major purchasers dairy coffee cocoa wheat corn products soybean vegetable oils nuts meat products sugar sweeteners also use significant quantities glass plastic cardboard package products natural gas factories warehouses continuously monitor worldwide supply cost trends commodities act quickly obtain ingredients packaging needed production purchase substantial portion dairy raw material requirements including milk cheese independent third parties agricultural cooperatives independent processors prices milk dairy product purchases substantially influenced market supply demand well government programs dairy commodity costs average 750 million higher 2007 2006 significant cost item coffee products green coffee beans purchased world markets green coffee bean prices affected quality availability supply trade agreements among producing consuming nations unilateral policies producing nations changes value us dollar relation certain currencies consumer demand coffee products 2007 coffee bean costs average higher 2006 significant cost item chocolate confectionery products cocoa purchased world markets price affected quality availability supply changes value british pound sterling us dollar relative certain currencies 2007 cocoa bean cocoa butter costs average higher 2006 significant cost items biscuit cereal grocery products grains wheat corn soybean oil grain costs experienced significant cost increases result burgeoning global demand food livestock feed biofuels ethanol biodiesel 2007 grain costs average higher 2006 2007 aggregate commodity costs rose significantly result higher dairy coffee cocoa wheat meat products soybean oil packaging costs partially offset lower nut costs 2007 commodity costs approximately 1250 million higher 2006 following increase approximately 275 million 2006 compared 2005 expect higher cost environment continue particularly dairy grains energy packaging liquidity believe cash operations existing 45 billion credit facility authorized longterm financing provide sufficient liquidity meet working capital needs including cash requirements restructuring program planned capital expenditures future contractual obligations authorized share repurchases payment anticipated quarterly dividends net cash provided operating activities operating activities provided net cash 36 billion 2007 37 billion 2006 35 billion 2005 operating cash flows decreased 2007 2006 primarily due 405 million tax reimbursement altria 2006 related closure tax audit increased marketing administration research costs decrease operating cash flows partially offset lower working capital costs 225 million primarily due lower income tax payments 305 million tax transfer altria federal tax contingencies held less impact federal reserves reversed due adoption fin 48 transfer altria reflected within consolidated statements cash flows increase 2006 operating cash flows 2005 due primarily previously discussed tax reimbursement altria 2006 related closure tax audit higher earnings partially offset decrease amounts due altria higher pension contributions net cash provided used investing activities one element growth strategy strengthen brand portfolios andor expand geographic reach disciplined programs selective acquisitions divestitures constantly reviewing potential acquisition candidates time sell businesses accelerate shift portfolio toward businesses whether global regional local offer us sustainable competitive advantage impact future acquisitions divestitures could material impact cash flows net cash used investing activities 84 billion 2007 116 million 2006 compared net cash provided investing activities 525 million 2005 increase cash used investing activities 2007 primarily related danone biscuit acquisition lower proceeds divestitures november 30 2007 acquired global biscuit business groupe danone sa approximately 51 billion approximately 76 billion cash subject purchase price adjustments 2007 received proceeds 216 million sales flavored water juice brand assets related trademarks sugar confectionery assets romania related trademarks hot cereal assets trademarks 2006 received proceeds 946 million sales rice brand assets pet snacks brand assets industrial coconut assets certain canadian assets small us biscuit brand us coffee plant 2005 received proceeds 1668 million sales sugar confectionery business fruit snacks assets uk desserts assets us yogurt assets small operation colombia small equity investment turkey minor trademark mexico capital expenditures funded operating activities 12 billion last three years 2007 capital expenditures primarily modernize manufacturing facilities implement restructuring program support new product productivity initiatives expect 2008 capital expenditures line 2007 expenditures including capital expenditures required restructuring program systems investments expect fund expenditures operations net cash used financing activities 2007 received 51 billion net cash financing activities compared 37 billion used 2006 increase net cash provided financing activities due primarily 35 billion 30 billion longterm debt offerings net outstanding borrowings 55 billion bridge facility used fund danone biscuit acquisition partially offset 37 billion common stock share repurchases 15 billion repayment longterm debt matured 2007 2006 used 37 billion net cash financing activities compared 40 billion used 2005 decrease net cash used 2006 due primarily decrease net debt repayments partially offset increase common stock share repurchases dividend payments borrowing arrangements october 12 2007 entered 364day bridge facility agreement 53 billion pending acquisition danone biscuit “danone biscuit bridge facility” upon closing transaction borrowed 51 billion approximately 75 billion facility finance acquisition intend repay outstanding borrowings facility proceeds issuance investment grade bonds securities according credit agreement aggregate net cash proceeds excess 10 billion debt offerings maturity greater one year required repaid approximately 13 billion 20 billion bridge facility proceeds december 2007 debt issuance additionally proceeds equity offerings required repaid facility drawings facility may reduced aggregate proceeds excess 10 billion certain divestitures assets facility replaced commitment letter entered upon announcement danone biscuit acquisition may 24 2007 entered 15 billion 364day revolving credit agreement accordance terms agreement terminated upon issuance 35 billion senior unsecured notes august 2007 maintain revolving credit facility historically used general corporate purposes support commercial paper issuances 45 billion multiyear revolving credit facility expires april 2010 amounts drawn facility december 31 2007 must maintain net worth least 200 billion terms revolving credit facility december 31 2007 net worth 273 billion expect continue meet covenant revolving credit facility financial covenants credit rating triggers provisions could require us post collateral security addition international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 15 billion december 31 2007 borrowings lines amounted 250 million december 31 2007 465 million december 31 2006 included 282 million outstanding shortterm debt related united biscuits acquisition discussed note 11 acquisitions debt total debt 210 billion december 31 2007 108 billion december 31 2006 total debt balance december 31 2006 included amounts due altria affiliates debttocapitalization ratio 043 december 31 2007 027 december 31 2006 august 2007 issued 35 billion senior unsecured notes remainder capacity existing form s3 shelf registration statement file sec used net proceeds offering approximately 3462 million general corporate purposes including repayment outstanding commercial paper december 2007 filed automatic shelf registration form s3 sec wellknown seasoned issuer able register new debt securities amounts authorized board directors december 2010 board directors authorized 50 billion longterm financing addition 53 billion authorized danone biscuit acquisition december 2007 issued 30 billion senior unsecured notes shelf registration used net proceeds offering approximately 2966 million general corporate purposes including repayment outstanding commercial paper portion danone biscuit bridge facility refer note 4 debt borrowing arrangements details debt offerings refinance longterm shortterm debt time nature amount longterm shortterm debt proportionate amount varies result future business requirements market conditions factors december 31 2007 approximately 95 billion remaining longterm financing authority board directors approximately 55 billion approximately 38 billion earmarked refinancing danone biscuit bridge facility december 31 2007 shortterm amounts payable altria affiliates transition services december 31 2006 shortterm amounts payable altria affiliates 607 million included 364 million accrued dividends prior distribution amounts payable altria generally included accrued dividends taxes service fees credit ratings december 31 2007 debt ratings major credit rating agencies offbalance sheet arrangements aggregate contractual obligations offbalance sheet arrangements guarantees contractual obligations discussed guarantees discussed note 15 commitments contingencies thirdparty guarantees acquisition divestiture construction activities part transactions guarantee third parties make contractual payments achieve performance measures december 31 2007 maximum potential payments thirdparty guarantees 32 million 8 million specified expiration dates substantially remainder expire various times 2016 carrying amounts guarantees 25 million consolidated balance sheet december 31 2007 addition december 31 2007 contingently liable 180 million guarantees related performance include surety bonds related dairy commodity purchases guarantees related payment custom duties taxes letters credit guarantees expect significant impact liquidity aggregate contractual obligations following table summarizes contractual obligations december 31 2007 1 amounts represent expected cash payments longterm debt include unamortized bond premiums discounts 2 amounts represent expected cash payments interest expense longterm debt interest calculated variable rate debt forecasted using libor rate forward curve analysis december 31 2007 insignificant amount interest expense excluded table portion foreign debt due complexities involved forecasting expected interest payments 3 operating leases represent minimum rental commitments noncancelable operating leases significant capital lease obligations 4 purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 5 longterm liabilities primarily consist postretirement health care costs 2280 following longterm liabilities included consolidated balance sheet excluded table accrued pension costs income taxes minority interest insurance accruals unable estimate timing payments contributions case accrued pension costs items currently anticipate making us pension contributions approximately 15 million 2008 nonus pension contributions approximately 160 million 2008 based current tax law december 31 2007 total liability income taxes including uncertain tax positions associated accrued interest penalties 1121 million expect pay approximately 100 million next twelve months years 2000 2003 currently examination irs able reasonably estimate timing future cash flows beyond 12 months due uncertainties timing tax audit outcomes equity dividends stock repurchases board directors authorized following common stock repurchase programs obligated repurchase common stock may suspend program discretion total repurchases programs 1101 million shares 3640 million 2007 387 million shares 1250 million 2006 392 million shares 1200 million 2005 made repurchases common stock open market transactions additionally march 2007 repurchased 14 million shares common stock altria cost 465 million paid 32085 per share average high low price kraft common stock reported nyse march 1 2007 repurchase accordance distribution agreement december 31 2007 15 billion left 50 billion share repurchase program expect complete program authorization expires march 2009 stock based compensation distribution altria stock awards modified issuance kraft stock awards accordingly altria stock awards split two instruments holders altria stock options received 1 new kraft option acquire shares kraft common stock 2 adjusted altria stock option number shares altria common stock previously held proportionally reduced exercise price employee stock option outstanding aggregate intrinsic value immediately distribution greater aggregate intrinsic value immediately prior distribution holders altria restricted stock rights awarded january 31 2007 retained existing awards received restricted stock rights kraft common stock recipients altria restricted stock rights awarded january 31 2007 receive kraft restricted stock rights altria announced distribution time reimbursed altria 179 million net settlement employee stock awards detailed determined fair value stock options using blackscholes option valuation model adjusted fair value restricted stock rights value projected forfeitures april 2007 paid following altria millions based upon number altria stock awards outstanding distribution granted stock options 242 million shares common stock weightedaverage price 1575 options expire 2007 2012 addition issued 30 million shares restricted stock rights market value per restricted share right 3166 date grant restrictions majority restricted stock rights lapse either first quarter 2008 2009 board directors approved stock option grant chief executive officer may 3 2007 recognize election chairman received 300000 stock options 2005 performance incentive plan vest varying market service conditions expire ten years grant date january 2007 issued 52 million shares restricted stock rights eligible us nonus employees part annual incentive program restrictions shares rights lapse first quarter 2010 market value per restricted share right 34655 date grant additionally issued 10 million offcycle shares restricted stock rights 2007 weightedaverage market value per restricted share right 34085 date grant total number restricted shares rights issued 2007 92 million including issued result distribution 2006 issued approximately 69 million shares restricted stock rights eligible us nonus employees restrictions shares rights lapse first quarter 2009 market value per restricted share right 2916 date grant effective january 1 2006 adopted provisions sfas 123 revised 2004 sharebased payment using modified prospective method requires measurement compensation cost stockbased awards fair value date grant recognition compensation service periods awards expected vest fair value restricted stock rights receive shares stock determined based number shares granted market value date grant fair value stock options determined using modified blackscholes methodology impact adoption material december 31 2007 number shares issued upon exercise outstanding stock options vesting nonus rights receive equivalent shares 375 million 24 total shares outstanding dividends paid dividends 1638 million 2007 1562 million 2006 49 increase reflects higher dividend rate 2007 partially offset lower number shares outstanding share repurchases third quarter 2007 board directors approved 80 increase current quarterly dividend rate 027 per share common stock result present annualized dividend rate 108 per common share declaration dividends subject discretion board directors depends various factors including net earnings financial condition cash requirements future prospects factors board directors deems relevant analysis decisionmaking 2008 outlook expect diluted eps least 156 2008 guidance reflects 034 per diluted share costs related restructuring program 019 2007 also reflected guidance expect effective tax rate 340 2008 guidance reflects expectation greater savings restructuring program total costs expected 28 billion previous expectation 30 billion also expect cumulative annualized savings reach 12 billion end 2009 guidance reflects inclusion danone biscuit business 2008 include impact agreement merge post business ralcorp holdings inc factors described item 1a risk factors represent continuing risks forecasts new accounting standards see notes 1 9 consolidated financial statements discussion new accounting standards contingencies see note 15 consolidated financial statements part item 3 legal proceedings discussion contingencies item 7aitem 7 management’s discussion analysis financial condition results operation following discussions read conjunction sections report including consolidated financial statements related notes contained item 8 form 10k description company manufacture market packaged food products including snacks beverages cheese convenient meals various packaged grocery products approximately 150 countries executive summary following executive summary intended provide significant highlights discussion analysis follows • net revenues 2008 increased 168 422 billion net revenues 2007 increased 87 361 billion • diluted eps increased 185 192 2008 decreased 124 162 2007 diluted eps continuing operations decreased 176 122 2008 decreased 135 148 2007 • made solid progress executing longterm growth strategy focuses building high performing organization reframing categories exploiting sales capabilities driving costs without compromising quality • november 30 2007 acquired global lu biscuit business groupe danone sa 51 billion approximately 76 billion cash lu biscuit contributed net revenues 32 billion 2008 28 billion proforma basis 2007 • august 4 2008 completed splitoff post cereals business result splitoff recorded gain discontinued operations 937 million 062 per diluted share 2008 results post cereals business reflected discontinued operations consolidated statement earnings prior period results restated consistent manner • 2008 completed 31 billion fiveyear restructuring program recorded charges 989 million 2008 459 million 2007 673 million 2006 part overall restructuring program • 2008 issued approximately 70 billion senior unsecured notes used net proceeds issuances general corporate purposes including repayment borrowings bridge facility used fund lu biscuit acquisition shortterm borrowings • 2008 repurchased 253 million shares common stock 777 million 50 billion share repurchase program • third quarter 2008 board directors approved 74 increase current quarterly dividend rate 029 per share common stock result current annualized dividend rate 116 per share common stock • first quarter 2007 altria group inc “altria” spun remaining interest 890 kraft pro rata basis altria stockholders taxfree transaction effective close business march 30 2007 kraft shares owned altria distributed altria’s stockholders separation altria completed discussion analysis growth strategy consumer analyst group new york “cagny” conference february 2009 presented progress made 2008 longterm growth strategy plans year three plan return kraft reliable growth four growth strategies 2008 developments summarized build high performing organization done lot past two years rewire kraft create high performance culture strengthened senior leadership team leveraged business unit structure continue raise bar talent internal development external hiring goal organizational diversity levels effective january 2009 reorganizing kraft europe better maximize potential already integrated legacy kraft lu biscuit operations within key markets developing markets segment building scale developing markets using business models relevant individual geographies countries reframe categories continue reframe categories order make relevant contemporary consumers utilizing “growth diamond” contemporize base business specifically identify health wellness trajectorychanging ideas skew resources toward categories countries brands highest potential return furthermore strengthened category mix various acquisitions divestitures product pruning last years exploit sales capabilities continue use large scale competitive advantage better leverage portfolio superior execution “walltowall” initiative kraft north america combined executional benefits directstoredelivery used biscuit business unit economics warehouse delivery drive faster growth expanding upon idea “high visibility walltowall” large high turnover stores geographies drive costs without compromising quality found new ways drive sustainable cost savings continuing invest quality core brands despite significant increases product costs continue leverage quality growth driver increasing percentage products rated superior preferred plan improve gross margins new operating structure europe implementation sap core system north america europe items affecting comparability financial results acquisitions divestitures lu biscuit acquisition november 30 2007 acquired global lu biscuit business groupe danone sa “lu biscuit” 51 billion approximately 76 billion cash acquisition included 32 manufacturing facilities approximately 14000 employees acquired net assets consisting primarily goodwill 4052 million deductible statutory tax purposes intangible assets 3546 million substantially indefinitelived receivables 757 million property plant equipment 1054 million inventories 204 million assumed liabilities 1063 million consisting primarily accounts payable accruals purchase price allocations based upon appraisals finalized third quarter 2008 used borrowings 51 billion finance acquisition interest incurred borrowings primary driver 533 million increase interest expense 2008 lu biscuit contributed net revenues 32 billion 2008 28 billion proforma basis 2007 lu biscuit reported results operations one month lag 2007 impact operating results proforma basis lu biscuit’s net earnings year ended december 31 2007 would insignificant kraft united biscuits acquisition 2006 acquired spanish portuguese operations united biscuits “ub” approximately 11 billion noncash acquisition financed assumption 541 million debt issued acquired business immediately prior acquisition well 530 million value redemption outstanding investment ub primarily deepdiscount securities redemption outstanding investment resulted gain closing 251 million 009 per diluted share third quarter 2006 post cereals splitoff august 4 2008 completed splitoff post cereals business ralcorp holdings inc “ralcorp” exchange shareholders exchange expected taxfree participating shareholders us federal income tax purposes splitoff transaction approximately 461 million shares kraft common stock tendered 1644 million shareholders option exchange shares kraft common stock receive shares common stock cable holdco inc “cable holdco” cable holdco wholly owned subsidiary owned certain assets liabilities post cereals business exchange contribution post cereals business cable holdco issued approximately 665 million debt securities issued shares common stock assumed 300 million credit facility upon closing used cash equivalent net proceeds approximately 960 million repay debt result splitoff recorded gain discontinued operations 937 million 062 per diluted share 2008 june 25 2008 cable holdco filed registration statement form s1s4a sec announced start exchange offer approximately 305 million shares cable holdco offered exchange kraft common stock exchange ratio 06606 exchange ratio calculated using daily volumeweighted average prices kraft common stock ralcorp common stock nyse last three trading days offer expired august 4 2008 exchange offer oversubscribed result number shares kraft common stock accepted exchange offer prorated following merger cable holdco ralcorp subsidiary cable holdco common stock exchanged shares ralcorp common stock oneforone basis post cereals business included cereals honey bunches oats pebbles shredded wheat selects grapenuts honeycomb kraft brands transaction distributed primarily north america addition post brands transaction included four manufacturing facilities certain manufacturing equipment approximately 1230 employees joined ralcorp part transaction results post cereals business reflected discontinued operations consolidated statement earnings prior period results restated consistent manner pursuant post cereals business transition services agreement agreed provide certain sales comanufacturing distribution information technology accounting finance services ralcorp 12 months ralcorp’s option extend additional 6 months fourth quarter 2008 increased gain discontinued operations 77 million correct deferred tax liability writtenoff upon splitoff post cereals business gain splitoff post cereals business 937 million summary results operations post cereals business august 4 2008 follows divestitures february 2009 reached agreement divest juice operation brazil transaction subject customary closing conditions including regulatory approvals expect close mid2009 2008 received 153 million net proceeds recorded pretax losses 92 million divestitures primarily related nordic baltic snacks operation four operations spain recorded aftertax losses 64 million 004 per diluted share divestitures included divestitures following condition eu commission’s approval lu biscuit acquisition • divested operation spain divestiture received 86 million proceeds recorded pretax losses 74 million • divested biscuit operation spain trademark hungary previously acquired part lu biscuit acquisition impacts divestitures reflected adjustments purchase price allocations 2007 received 216 million proceeds recorded pretax gains 15 million divestitures hot cereal assets trademarks sugar confectionery assets romania related trademarks flavored water juice brand assets related trademarks including veryfine fruit2o recorded aftertax loss 3 million divestitures reflect differing book tax bases hot cereal assets trademarks divestiture 2006 received 946 million proceeds recorded pretax gains 117 million divestitures pet snacks brand assets rice brand assets certain canadian assets industrial coconut assets us biscuit brand us coffee plant recorded aftertax gains 31 million 002 per diluted share divestitures reflects tax expense 57 million related differing book tax bases pet snacks brand assets divestiture aggregate operating results divestitures discussed divestiture post cereals business material financial statements periods presented refer note 17 segment reporting details losses gains divestitures segment net impacts segment operating income losses gains divestitures along resulting asset impairment charges summarized table asset impairment charges 2008 recorded aggregate asset impairment charges 140 million 007 per diluted share 2008 review goodwill nonamortizable intangible assets recorded 44 million charge impairment intangible assets netherlands france puerto rico addition december 2008 reached preliminary agreement divest juice operation brazil reached agreement sell cheese plant australia anticipation divesting juice operation brazil recorded asset impairment charge 13 million fourth quarter 2008 charge primarily included writeoff associated intangible assets 8 million property plant equipment 4 million anticipation selling cheese plant australia recorded asset impairment charge 28 million property plant equipment fourth quarter 2008 additionally 2008 divested nordic baltic snacks operation incurred asset impairment charge 55 million connection divestiture charge primarily included writeoff associated goodwill 34 million property plant equipment 16 million recorded aggregate asset impairment charges within asset impairment exit costs impairments resulted 2007 annual review goodwill nonamortizable intangible assets additionally 2007 divested flavored water juice brand assets related trademarks incurred asset impairment charge 120 million 003 per diluted share recognition divestiture charge primarily included writeoff associated intangible assets 70 million property plant equipment 47 million recorded within asset impairment exit costs recorded aggregate asset impairment charges 2006 amounting 424 million 017 per diluted share 2006 annual review goodwill nonamortizable intangible assets recorded 24 million charge impairment intangible assets egypt hot cereal intangible assets us addition incurred asset impairment charge 69 million 2006 anticipation 2007 divestiture hot cereal assets trademarks charge primarily included writeoff portion associated goodwill 15 million intangible assets 52 million additionally 2006 incurred asset impairment charge 86 million recognition pet snacks brand assets divestiture charge primarily included writeoff portion associated goodwill 25 million intangible assets 55 million also 2006 reevaluated business model tassimo hot beverage system due lagging revenues evaluation resulted 245 million asset impairment charge lower utilization existing manufacturing capacity recorded aggregate asset impairment charges within asset impairment exit costs refer note 6 asset impairment exit implementation costs details asset impairment charges segment net impacts segment operating income losses gains divestitures corresponding asset impairment charges summarized table restructuring program 2008 completed fiveyear restructuring program “restructuring program” objectives program leverage global scale realign lower cost structure optimize capacity part restructuring program • incurred 31 billion pretax charges reflecting asset disposals severance implementation costs • announced closure 36 facilities announced elimination approximately 19000 positions • use cash pay 20 billion 31 billion charges • anticipate reaching cumulative annualized savings 14 billion total program 2008 implemented new operating structure built three core elements business units shared services leverage scale global portfolio streamlined corporate staff within new structure business units full pl accountability staffed accordingly also ensures putting resources closer make decisions affect consumers customers corporate shared service functions continue streamline organizations focus core activities efficiently support goals business units intent simplify streamline increase accountability ultimate goal generating reliable growth kraft total eliminate approximately 1500 positions streamline headquarter functions incurred charges restructuring program continuing operations 989 million 2008 045 per diluted share 447 million 2007 019 per diluted share 670 million 2006 027 per diluted share since inception restructuring program paid cash 15 billion 31 billion charges december 31 2008 489 million accrued restructuring program costs part restructuring program announced closure six plants 2008 connection severance initiatives december 31 2008 eliminated approximately 15200 positions announced intent eliminate additional 3800 positions restructuring program recorded asset impairment exit costs continuing operations 884 million 2008 320 million 2007 575 million 2006 recorded implementation costs continuing operations 105 million 2008 127 million 2007 95 million 2006 implementation costs directly attributable exit costs however qualify treatment statement financial accounting standards “sfas” 146 accounting costs associated exit disposal activities costs primarily include discontinuance certain product lines incremental expenses related closure facilities electronic data systems “eds” transition reorganization european operations discussed management believes disclosure implementation charges provides readers financial statements greater transparency total costs restructuring program addition made 498 million capital expenditures implement restructuring program including 111 million spent 2008 incremental cost savings totaled approximately 283 million 2008 resulting cumulative annualized savings restructuring program approximately 1066 million end 2008 cumulative annualized cost savings resulting restructuring program approximately 783 million end 2007 refer note 6 asset impairment exit implementation costs details restructuring program segment kraft europe reorganization also process reorganizing european operations function paneuropean centralized category management value chain model reorganization complete european principal company “epc” manage european categories centrally make decisions aspects value chain except sales distribution european subsidiaries execute sales distribution locally local production companies act toll manufacturers behalf epc legal entity incorporated kraft foods europe gmbh zurich switzerland part reorganization incurred 16 million restructuring costs 39 million implementation costs 11 million nonrecurring costs 2008 21 million restructuring costs 24 million implementation costs 10 million nonrecurring costs 2007 7 million restructuring costs 2006 restructuring implementation costs recorded part overall restructuring program costs relating kraft europe reorganization recorded marketing administration research costs management believes disclosure implementation nonrecurring charges provides readers financial statements greater transparency total costs kraft europe reorganization provision income taxes effective tax rate 282 2008 298 2007 224 2006 effective tax rate included net tax benefits 242 million discrete tax events 2008 total net tax benefits 29 million related reconciliation inventory deferred tax items resulted writedown net deferred tax liabilities third quarter 42 million related fourth quarter corrections state federal foreign tax liabilities remaining net tax benefits primarily related resolution various tax audits expiration statutes limitations various jurisdictions discrete tax benefits included impact divestitures nordic baltic snacks operation several operations spain tax benefit impairment charges taken 2008 addition 2008 tax rate benefited foreign earnings taxed us federal statutory tax rate expected tax benefit 2008 restructuring expenses benefits partially offset state tax expense certain foreign tax costs 2007 effective tax rate included net tax benefits 184 million primarily including effects dividend repatriation benefits foreign joint venture earnings effect foreign deferred taxes lower foreign tax rates enacted 2007 tax rate also benefited foreign earnings taxed us federal statutory tax rate increased domestic manufacturing deduction divestiture flavored water juice brand assets related trademarks benefits partially offset state tax expense tax costs associated divestiture hot cereal assets trademarks interest income altria related transfer federal tax contingencies 2006 irs concluded examination altria’s consolidated tax returns years 1996 1999 irs issued final revenue agents report march 15 2006 consequently altria reimbursed us 337 million federal tax reserves longer necessary 46 million interest 29 million net tax also recognized net state tax reversals 39 million total tax provision benefit 376 million 337 million federal plus 39 million state total benefit net earnings recognized 2006 due irs settlement 405 million 024 per diluted share 2006 tax rate also benefited resolution various tax items foreign operations dividend repatriation benefits joint venture earnings lower foreign tax rates enacted 2006 primarily canada benefits partially offset state tax expense tax costs associated 2006 divestitures result spinoff altria transferred federal tax contingencies 375 million balance sheet related interest income 77 million 003 per diluted share first quarter 2007 following spinoff altria longer member altria consolidated tax return group file federal consolidated income tax returns although taken steps mitigate loss tax benefits result filing separately currently estimate annual amount lost tax benefits range 50 million 75 million consolidated results operations following discussion compares consolidated results operations 2008 2007 2006 many factors impact timing sales customers factors include among others timing holidays annual special events seasonality significant weather conditions timing customer incentive programs pricing actions customer inventory programs general economic conditions domestic operating subsidiaries report yearend results saturday closest end year international operating subsidiaries generally report yearend results two weeks prior saturday closest end year 2008 compared 2007 net revenues net revenues increased 6067 million 168 42201 million 2008 due following lu biscuit acquisition largest increase net revenues recorded prior year furthermore net revenues increased pricing offset higher input costs investments brands foreign currency increased net revenues 725 million due primarily strength euro brazilian real polish zloty canadian dollar us dollar higher base business shipments canada na foodservice developing markets us convenient meals segments offset declines remaining business segments total volume increased 39 57 pp due lu biscuit acquisition net divestitures operating income operating income declined 149 million 38 3817 million 2008 due following millions higher pricing outpaced input cost increases year recovered cumulative cost increases prior years increase input costs primarily related higher raw material costs increase unrealized losses hedging activities primarily related energy derivatives including heating oil used primarily hedge transportation costs natural gas contracts lu biscuit acquisition net integration costs increased operating income 360 million total marketing administration research costs recorded consolidated statement earnings increased 1386 million prior year excluding impacts acquisitions divestitures foreign currency charges legal matters increased 266 million prior year net impact losses divestitures asset impairments unfavorable impact 127 million operating income versus prior year charges legal matters related certain us european operations including us coffee operations charges legal matters recorded within marketing administration research costs addition foreign currency increased operating income 60 million due primarily strength brazilian real euro polish zloty canadian dollar us dollar result changes operating margin also decreased 110 2007 90 2008 earnings per share net earnings 2901 million increased 311 million 120 2008 diluted earnings per share 192 185 162 2007 due following net revenues net revenues increased 2878 million 87 36134 million 2007 due following input cost increases outpaced higher pricing increase input costs primarily related higher raw material costs net 16 million unrealized gains hedging activities total marketing administration research costs recorded consolidated statement earnings increased 553 million prior year excluding impacts acquisitions divestitures foreign currency increased 333 million prior year net impact gains divestitures asset impairments favorable impact 202 million operating income versus prior year absence prior year divestitures decreased operating income 101 million addition foreign currency increased operating income 121 million due primarily strength euro canadian dollar us dollar result changes operating margin also decreased 125 2006 110 2007 earnings per share net earnings 2590 million decreased 470 million 154 2007 diluted earnings per share 162 124 185 2006 due following decrease operations includes benefit 005 per diluted share foreign currency movements results operations business segment manage report operating results two commercial units kraft north america kraft international manage kraft north america’s operations product category kraft international’s operations geographic location kraft north america’s segments us beverages us cheese us convenient meals us grocery us snacks formerly known us snacks cereals canada north america foodservice two international segments european union developing markets effective august 4 2008 completed splitoff post cereals business results post cereals business reflected discontinued operations consolidated statement earnings prior period results restated consistent manner 2008 implemented new operating structure result began reporting results operations new structure first quarter 2008 restated results prior periods consistent manner changes • us cheese organized standalone operating segment order create selfcontained integrated business unit support faster growth • macaroni cheese category well dinner products moved us convenient meals segment us grocery segment take advantage operating synergies • canada north america foodservice structured standalone reportable segment change allows us deliver unique requirements canadian consumer customer maintaining strong north american linkages innovation new product development new capabilities drive business furthermore allows us manage strategic customer decisions continue capture crossborder sales marketing synergies within foodservice operations following discussion compares results operations reportable segments 2008 2007 2006 discussed note 17 segment reporting management uses segment operating income evaluate segment performance allocate resources management believes appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales general corporate expenses amortization intangibles periods presented second quarter 2008 began excluding unrealized gains losses hedging activities segment operating income order provide better transparency segment operating results realized gains losses hedging activities recorded within segment operating results 2008 unrealized losses hedging activities increased 221 million due primarily energy derivatives including heating oil used primarily hedge transportation costs natural gas contracts addition general corporate expenses component marketing administration research costs increased 107 million 2008 primarily due charges legal matters related certain us european operations including us coffee operations incurred asset impairment exit implementation costs 1129 million 2008 579 million 2007 1097 million 2006 refer note 6 asset impairment exit implementation costs breakout charges segment us beverages 2008 compared 2007 net revenues increased 11 million 04 due higher net pricing 49 pp favorable mix 17 pp partially offset lower volume 38 pp impact divestitures 24 pp higher net pricing reflected input costdriven pricing coffee lower promotional spending readytodrink beverages favorable mix reflected growth tassimo lower volume driven declines readytodrink beverages primarily capri sun partially offset gains powdered beverages primarily country time koolaid maxwell house mainstream coffee segment operating income increased 54 million 171 due primarily higher net pricing 2007 asset impairment charge related flavored water juice brand assets related trademarks favorable mix impact divestitures partially offset higher raw material costs lower volume higher restructuring program costs higher marketing administration research costs 2007 compared 2006 net revenues increased 104 million 36 due favorable mix 25 pp higher volume 18 pp higher net pricing 09 pp partially offset impact divestitures 16 pp favorable mix crystal light go sticks premium coffee contributed higher net revenues higher volume driven readytodrink beverages primarily capri sun partially offset lower shipments powdered beverages maxwell house mainstream coffee higher input costdriven pricing coffee partially offset increased promotional spending readytodrink powdered beverages segment operating income increased 112 million 549 due primarily 2006 loss divestiture us coffee plant 2006 asset impairment charge related tassimo hot beverage system favorable mix lower marketing support costs higher net pricing higher volume lower manufacturing costs lower restructuring program costs favorable factors partially offset asset impairment charge related flavored water juice brand assets related trademarks higher raw material costs primarily related coffee packaging us cheese 2008 compared 2007 net revenues increased 262 million 70 due higher net pricing 141 pp partially offset lower volume 67 pp unfavorable mix 04 pp higher net pricing reflected input costdriven pricing partially offset increased promotional spending natural cheese category lower volume driven declines major cheese categories partially offset new product innovations primarily kraft bagelfuls segment operating income increased 222 million 555 due primarily higher net pricing lower restructuring program costs partially offset higher raw material costs lower volume unfavorable mix higher fixed manufacturing costs higher marketing administration research costs 2007 compared 2006 net revenues increased 201 million 57 due higher net pricing 47 pp favorable mix 08 higher volume 02 pp higher net pricing reflected input costdriven pricing partially offset increased promotional spending primarily cultured snacking cheese cream cheese categories favorable volumemix driven primarily new product introductions singles select cheese slices liveactive natural cottage cheese segment operating income decreased 260 million 394 due primarily higher raw material costs higher marketing support costs higher marketing administration research costs unfavorable variances partially offset higher net pricing lower manufacturing costs lower restructuring program costs us convenient meals 2008 compared 2007 net revenues increased 335 million 86 due higher net pricing 56 pp favorable mix 22 pp higher volume 08 pp net revenues increased meats due higher net pricing driven input costdriven pricing sandwich meats lunchables hot dogs also contributing meats net revenue growth higher shipments bacon well new product introductions including oscar mayer deli creations sandwiches flatbreads oscar mayer deli fresh meats shaved singles carved pizza net revenues increased due higher input costdriven pricing net increased promotional spending volume growth digiorno california pizza kitchen premium brands launch one product line individual size pizzas segment operating income increased 12 million 31 due primarily higher net pricing favorable mix higher volume lower marketing support costs partially offset higher input costs primarily higher raw material costs higher marketing administration research costs 2007 compared 2006 net revenues increased 208 million 56 due higher volume 34 pp favorable mix 16 pp higher net pricing 06 pp net revenues increased meat due higher shipments sandwich meat new product introductions higher input costdriven pricing partially offset lower shipments chicken strips due first quarter recall pizza net revenues increased due introduction digiorno ultimate higher shipments california pizza kitchen products segment operating income decreased 25 million 61 due primarily higher raw material costs higher fixed manufacturing costs higher marketing support costs higher marketing administration research costs partially offset lower restructuring program charges higher volume higher net pricing us grocery 2008 compared 2007 net revenues increased 112 million 34 due higher net pricing 62 pp favorable mix 07 pp partially offset lower volume 35 pp net revenues increased due higher input costdriven pricing across key categories primarily spoonable pourable salad dressings kraft macaroni cheese dinners addition net revenues growth impacted lower shipments spoonable pourable salad dressings readytoeat desserts barbecue sauce partially offset volume gains kraft macaroni cheese dinners segment operating income decreased 10 million 10 due higher input costs primarily higher raw material costs lower volume higher restructuring program costs partially offset higher net pricing favorable mix lower fixed manufacturing costs lower marketing support costs 2007 compared 2006 net revenues increased 52 million 16 due favorable mix 21 pp higher net pricing 20 pp partially offset impact divestitures 19 pp lower volume 06 pp favorable mix reflected higher kraft macaroni cheese dinners base volume growth continued success kraft easymac cups higher net pricing driven input costdriven pricing partially offset increased promotional spending primarily spoonable salad dressings kraft macaroni cheese dinners dry packaged desserts addition net revenues growth impacted lower shipments spoonable pourable salad dressings dry packaged desserts barbecue sauce partially offset volume gains kraft macaroni cheese dinners segment operating income decreased 242 million 193 due primarily 2006 gain divested rice brand assets higher raw material costs impact divestitures lower volume higher marketing support costs unfavorable variances partially offset higher pricing lower manufacturing costs lower restructuring program costs favorable mix us snacks 2008 compared 2007 net revenues increased 146 million 30 due higher net pricing 84 pp impact lu biscuit acquisition 04 pp partially offset lower volume 31 pp unfavorable mix 25 pp impact divestitures 02 pp biscuits net revenues increased driven higher input costdriven pricing lower promotional spending partially offset unfavorable mix lower volume biscuits unfavorable volumemix driven base business volume declines wheat thins cheese nips chips ahoy partially offset gains oreo cookies well new product introductions including kraft macaroni cheese crackers nilla cakesters snack bars net revenues decreased driven volume declines breakfast bars primarily due product pruning snack nuts net revenues decreased driven lower volume partially offset higher net pricing segment operating income decreased 77 million 127 due higher input costs including higher raw material costs unfavorable mix lower volume higher restructuring program costs higher marketing administration research costs 2007 gain divestiture hot cereal assets trademarks impact divestitures unfavorable variances partially offset higher net pricing lower fixed manufacturing costs lower marketing support costs 2007 compared 2006 net revenues increased 45 million 09 due primarily favorable mix 20 pp higher volume 16 pp partially offset impact divestitures 26 pp biscuits net revenues increased due favorable mix higher shipments cookies primarily chips ahoy introduction oreo cakesters crackers primarily triscuits ritz wheat thins snack bars net revenues increased due new product introductions continued success south beach living bars snack nuts net revenues increased due favorable mix new product introductions segment operating income increased 163 million 367 due primarily 2006 asset impairment charges related divested pet snacks hot cereal assets trademarks favorable mix higher volume lower input costs net higher raw material costs lower restructuring program costs favorable variances partially offset impact divestitures higher marketing administration research costs higher marketing support costs higher fixed manufacturing costs canada na foodservice 2008 compared 2007 net revenues increased 214 million 52 due primarily higher net pricing 39 pp favorable foreign currency 13 pp higher volume 12 pp partially offset unfavorable mix 09 pp impact divestitures 04 pp canada net revenues growth primarily driven volume gains across retail businesses favorable foreign currency higher net pricing na foodservice net revenues increased primarily driven higher input costdriven pricing partially offset unfavorable volumemix segment operating income increased 34 million 84 due primarily higher net pricing lower manufacturing costs lower marketing administration research costs higher volume favorable foreign currency favorable variances partially offset higher raw material costs higher restructuring program costs higher marketing support costs 2007 compared 2006 net revenues increased 206 million 53 due higher net pricing 39 pp favorable currency 30 pp favorable mix 03 pp partially offset impact divestitures 16 pp lower volume 03 pp canada net revenues growth primarily driven volume gains across retail business except convenient meals higher net pricing favorable foreign currency na foodservice net revenues increased primarily driven higher input costdriven pricing favorable foreign currency partially offset lower volume due discontinuation lower margin product lines unfavorable mix segment operating income decreased 22 million 52 due primarily higher raw material costs higher marketing administration research costs higher restructuring program costs impact divestitures unfavorable variances partially offset higher net pricing lower manufacturing costs favorable foreign currency favorable mix 2006 loss divestiture industrial coconut assets european union 2008 compared 2007 net revenues increased 3308 million 416 due impact lu biscuit acquisition 345 pp favorable foreign currency 64 pp higher net pricing 45 pp favorable mix 06 pp partially offset impact divestitures 33 pp lower volume 11 pp higher input costdriven pricing partially offset higher promotional spending lower volume driven declines coffee cheese partially offset gains chocolate segment operating income decreased 157 million 276 due primarily higher input costs primarily higher raw material costs higher restructuring program costs net loss divestitures several operations spain asset impairment charges related certain international intangible assets divestiture nordic baltic snacks operation higher marketing administration research costs lower volume higher fixed manufacturing costs impact divestitures unfavorable variances partially offset higher net pricing impact lu biscuit acquisition net associated integration costs favorable mix lower marketing support costs favorable foreign currency 2007 compared 2006 net revenues increased 1282 million 192 due favorable currency 105 pp impact ub acquisition 35 pp higher volume 35 pp favorable mix 19 pp impact divestitures 14 pp partially offset lower net pricing 16 pp volume related growth favorable mix driven premium chocolate due new product introductions promotional activities higher shipments mainstream coffee cheese lower net pricing reflects higher promotional spending chocolate cheese coffee primarily germany segment operating income increased 22 million 40 due primarily higher volume 2006 asset impairment charge related tassimo hot beverage system lower manufacturing costs lower restructuring program costs favorable currency impact ub acquisition favorable variances partially offset 2006 gain redemption ub investment higher raw material costs lower net pricing higher marketing administration research costs higher marketing support costs developing markets 2008 compared 2007 net revenues increased 1679 million 316 due higher net pricing 118 pp impact lu biscuit acquisition 101 pp favorable mix 45 pp favorable foreign currency 34 pp favorable resolution brazilian value added tax claim 13 pp higher volume 05 pp eastern europe middle east africa net revenues increased driven higher net pricing across region volume growth chocolate biscuits coffee categories lu biscuit acquisition favorable foreign currency latin america net revenues increased driven favorable foreign currency higher net pricing favorable resolution value added tax claim favorable volumemix brazil higher net pricing favorable mix argentina higher net pricing favorable mix venezuela asia pacific net revenues increased due primarily lu biscuit acquisition higher net pricing across region favorable foreign currency segment operating income increased 111 million 234 due higher net pricing favorable mix favorable resolution brazilian value added tax claim favorable foreign currency impact lu biscuit acquisition net associated integrations costs favorable volume favorable variances partially offset higher input costs including higher raw material costs higher marketing administration research costs higher restructuring program costs higher marketing support costs 2008 asset impairment charges related certain international intangible assets juice operation brazil cheese plant australia higher fixed manufacturing costs 2007 gain divestiture sugar confectionery assets romania related trademarks 2007 compared 2006 net revenues increased 780 million 172 due primarily favorable currency 55 pp higher net pricing 51 pp higher volume 40 pp favorable mix 25 pp eastern europe middle east africa net revenues increased due higher pricing growth coffee chocolate russia romania ukraine refreshment beverages snacks middle east africa region latin america net revenues increased due higher pricing favorable volumemix particularly brazil venezuela argentina asia pacific net revenues increased due volume growth china southeast asia segment operating income increased 71 million 176 due primarily higher pricing higher volume lower restructuring program costs favorable mix favorable currency 2006 asset impairment charge related intangible assets egypt 2007 gain divestiture sugar confectionery assets romania related trademarks favorable variances partially offset higher input costs including higher raw material costs higher marketing administration research costs higher marketing support costs higher fixed manufacturing costs critical accounting policies note 1 summary significant accounting policies consolidated financial statements includes summary significant accounting policies used prepare consolidated financial statements discussed selection disclosure critical accounting policies estimates audit committee following review significant assumptions estimates well accounting policies used prepare consolidated financial statements principles consolidation consolidated financial statements include kraft well wholly owned majority owned subsidiaries domestic operating subsidiaries report yearend results saturday closest end year international operating subsidiaries generally report yearend results two weeks prior saturday closest end year account investments exercise significant influence 20 50 ownership interest equity method accounting account investments ownership interest less 20 exercise significant influence cost method accounting intercompany transactions eliminated use estimates prepare financial statements accordance accounting principles generally accepted united states america “us gaap” require us make estimates assumptions affect number amounts financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions lives valuation assumptions goodwill intangible assets marketing programs income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year significant impact consolidated financial statements inventories stated lower cost market lastin firstout “lifo” method used cost majority domestic inventories cost inventories principally determined average cost method used lifo method determine cost 35 inventories december 31 2008 37 inventories december 31 2007 stated lifo amounts inventories 152 million lower december 31 2008 142 million lower december 31 2007 current cost inventories also record inventory allowances overstocked obsolete inventories due ingredient packaging changes longlived assets review longlived assets including amortizable intangible assets impairment conditions exist indicate carrying amount assets may fully recoverable perform undiscounted operating cash flow analyses determine impairment exists testing assets held use impairment group assets liabilities lowest level cash flows separately identifiable impairment determined exist loss calculated based estimated fair value impairment losses assets disposed based estimated proceeds received less costs disposal goodwill intangible assets sfas 142 goodwill intangible assets requires us test goodwill nonamortizable intangible assets least annually impairment recognized goodwill reporting units generally one level operating segments use two step process test goodwill reporting unit level first step involves comparison estimated fair value reporting unit carrying value fair value estimated using discounted cash flows reporting unit based planned growth rates estimates discount rates residual values carrying value exceeds fair value second step process necessary second step measures difference carrying value implied fair value goodwill test nonamortizable intangible assets impairment compare fair value intangible asset carrying value fair value nonamortizable intangible assets determined using planned revenue growth rates estimates discount rates royalty rates carrying value exceeds fair value intangible asset considered impaired reduced fair value definite lived intangible assets amortized estimated useful lives effective october 1 2007 adopted new accounting policy perform annual impairment review goodwill nonamortizable intangible assets october 1 year change testing date made align revised timing annual strategic planning process implemented 2007 prior change performed annual impairment reviews january 1 year fourth quarter 2008 completed annual review goodwill nonamortizable intangible assets recorded 44 million charge impairment intangible assets netherlands france puerto rico estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions 2008 impairment review determined kraft biscuit europe reporting unit sensitive nearterm changes discounted cash flow assumptions contains significant portion goodwill recorded upon 2007 acquisition lu biscuit 2007 due change testing date completed two reviews goodwill nonamortizable intangible assets first quarter january 1 fourth quarter october 1 found impairments reviews goodwill nonamortizable intangible assets first quarter 2006 completed annual review goodwill nonamortizable intangible assets recorded 24 million charge impairment intangible assets egypt hot cereal intangible assets us charges included within asset impairment exit costs insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee health care benefits liabilities associated risks estimated considering historical claims experience actuarial assumptions revenue recognition recognize revenues title risk loss pass customers generally occurs upon shipment delivery goods revenues recorded net consumer incentives trade promotions include shipping handling charges billed customers kraft’s shipping handling costs classified part cost sales provision product returns allowances bad debts also recorded reduction revenues within period revenue recognized marketing costs promote products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives expense advertising costs either period advertising first takes place incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred environmental costs subject laws regulations relating protection environment accrue environmental remediation obligations undiscounted basis amounts probable reasonably estimated accruals adjusted new information develops circumstances change recoveries environmental remediation costs third parties recorded assets receipt deemed probable december 31 2008 subsidiaries involved 67 active superfund similar actions us related current operations certain former divested operations retain liability based information currently available believe ultimate resolution existing environmental remediation actions compliance general environmental laws regulations material effect financial results however cannot quantify certainty potential impact future compliance efforts environmental remediation actions employee benefit plans september 2006 financial accounting standards board “fasb” issued sfas 158 employers’ accounting defined benefit pension postretirement plans “sfas 158” sfas 158 required us measure plan assets benefit obligations balance sheet date beginning 2008 previously measured nonus pension plans certain canadian french pension plans september 30 year december 31 2008 recorded aftertax decrease 8 million retained earnings using 15month approach proportionally allocate transition adjustment required upon adoption measurement provision sfas 158 plan assets benefit obligations pension plans benefit obligations postretirement plans measured yearend provide range benefits employees retired employees include pension plans postretirement health care benefits postemployment benefits consisting primarily severance record amounts relating plans based calculations specified us gaap calculations require use various actuarial assumptions discount rates assumed rates return plan assets compensation increases turnover rates health care cost trend rates review actuarial assumptions annual basis make modifications assumptions based current rates trends appropriate permitted us gaap generally amortize effect modifications future periods believe assumptions used recording plan obligations reasonable based experience advice actuaries refer note 11 benefit plans consolidated financial statements discussion assumptions used recorded following amounts earnings employee benefit plans years ended december 31 2008 2007 2006 2009 discount rate assumption remained unchanged 610 us postretirement plans increased 760 580 canadian plans 2009 discount rate decreased 610 630 us pension plans model discount rates using portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations 2009 discount rate assumption nonus pension plans increased 641 544 developed discount rates nonus plans local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear 2009 expected rate return plan assets remained unchanged 800 us pension plans determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class attempt maintain target asset allocation rebalancing equity debt asset classes make contributions monthly benefit payments intend rebalance plan portfolios mid2009 making contributions monthly benefit payments anticipate changes 2009 assumptions us pension postretirement health care plans sensitivity measure fiftybasis point change discount rate fiftybasis point change expected rate return plan assets would following effects reduction increase cost december 31 2008 financial instruments kraft operates globally use certain financial instruments manage foreign currency exchange rate commodity price risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price risk management strategies seek reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices principally use derivative instruments financial instruments qualifying hedge accounting must maintain specified level effectiveness hedging instrument item hedged inception throughout hedged period formally document nature relationships hedging instruments hedged items well risk management objectives strategies undertaking various hedge transactions method assessing hedge effectiveness additionally hedges forecasted transactions significant characteristics expected terms forecasted transaction must specifically identified must probable forecasted transaction occur deem probable forecasted transaction occur recognize gain loss earnings currently using derivatives hedge exposures changes exchange rates commodity prices kraft exposure derivatives credit market risk exposed credit risk counterparty might fail fulfill performance obligations terms derivative contract minimize credit risk entering transactions high quality counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties october 2008 one counterparties lehman brothers commercial corporation filed bankruptcy consequently wrote insignificant asset related derivatives held significant impact foreign currency risk management program also maintain policy requiring significant nonexchange traded derivative contracts duration greater one year governed international swaps derivatives association master agreement market risk value financial instrument might adversely affected change foreign currency exchange rates commodity prices interest rates manage market risk incorporating monitoring parameters within risk management strategy limit types derivative instruments derivative strategies use degree market risk may undertaken use derivative instruments record derivative financial instruments fair value consolidated balance sheets either current assets current liabilities changes fair value derivatives recorded period either accumulated comprehensive earnings losses earnings depending whether derivative designated effective part hedge transaction type hedge transaction gains losses derivative instruments reported accumulated comprehensive earnings losses reclassified consolidated statement earnings periods operating results affected hedged item cash flows hedging instruments classified manner affected hedged item consolidated statements cash flows income taxes account income taxes accordance sfas 109 accounting income taxes prior spinoff altria included altria’s consolidated federal income tax return generally computed income taxes separate company basis however foreign tax credits capital losses credits could used separate company basis extent altria used foreign tax credits tax benefits consolidated federal income tax return recognized benefit calculation provision income taxes benefit approximately 270 million 2007 date spinoff well postspin carryback claims prespin periods 195 million 2006 made payments reimbursed altria tax effects resulting included altria’s tax return march 31 2007 longer member altria consolidated tax return group file federal consolidated income tax returns july 2006 fasb issued interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” adopted provisions fin 48 effective january 1 2007 fin 48 clarifies tax benefits recorded financial statements provides measurement criteria valuing benefits order us recognize benefits tax position must likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement implementation fin 48 established additional provisions certain positions likely challenged even though believe existing tax positions fully supportable adoption fin 48 resulted increase shareholders’ equity january 1 2007 213 million recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized commodity trends major purchaser dairy coffee cocoa wheat corn products soybean vegetable oils nuts meat products sugar sweeteners also use significant quantities plastic glass cardboard package products natural gas factories warehouses continuously monitor worldwide supply cost trends commodities act quickly obtain ingredients packaging needed production purchase dairy raw material requirements including milk cheese independent third parties agricultural cooperatives independent processors prices milk dairy product purchases substantially influenced market supply demand well government programs dairy commodity costs average higher 2008 2007 significant cost items biscuit grocery products grains wheat corn soybean oil grain costs experienced significant increases result burgeoning global demand food livestock feed biofuels ethanol biodiesel grain costs average higher 2008 2007 significant cost item coffee products green coffee beans purchased world markets green coffee bean prices affected quality availability supply changes value us dollar relation certain currencies consumer demand coffee products green coffee bean costs average higher 2008 2007 significant cost item chocolate confectionery products cocoa purchased world markets price affected quality availability supply changes value british pound us dollar relative certain currencies cocoa bean cocoa butter costs average higher 2008 2007 2008 aggregate commodity costs rose significantly result higher dairy coffee cocoa wheat nuts meat products soybean oil packaging costs 2008 commodity costs approximately 18 billion higher 2007 following increase approximately 13 billion 2007 compared 2006 overall expect commodity costs moderately increase 2009 liquidity believe cash operations existing 45 billion revolving credit facility supports commercial paper program authorized longterm financing provide sufficient liquidity meet working capital needs including remaining cash requirements restructuring program planned capital expenditures future contractual obligations authorized share repurchases payment anticipated quarterly dividends despite recent market conditions continue utilize commercial paper program international credit lines daily funding requirements also use shortterm intercompany loans foreign subsidiaries improve financial flexibility made feasible recent temporary us tax law changes overall foresee impact funding sources would material effect liquidity net cash provided operating activities operating activities provided net cash 41 billion 2008 36 billion 2007 37 billion 2006 operating cash flows increased 2008 2007 primarily due increased earnings working capital improvements mainly lower income tax payments lower inventory levels partially offset increased interest paid increase operating cash flows partially offset 305 million tax transfer altria 2007 federal tax contingencies held less impact federal reserves reversed due adoption fin 48 transfer altria reflected within consolidated statement cash flows decrease 2007 operating cash flows 2006 due primarily 405 million tax reimbursement altria 2006 related closure tax audit increased marketing administration research costs decrease operating cash flows partially offset 305 million tax transfer altria discussed lower working capital 225 million primarily due lower income tax payments anticipate making us pension contributions approximately 220 million 2009 nonus pension contributions approximately 170 million 2009 expect fund contributions operations net cash used investing activities one element growth strategy strengthen brand portfolios expand geographic reach disciplined programs selective acquisitions divestitures regularly reviewing potential acquisition candidates time sell businesses accelerate shift portfolio toward businesses whether global regional local offer us sustainable competitive advantage impact future acquisitions divestitures could material impact cash flows net cash used investing activities 13 billion 2008 84 billion 2007 116 million 2006 decrease cash used investing activities 2008 primarily related lower payments acquisitions partially offset lower proceeds divestitures higher capital expenditures 2008 paid groupe danone sa 99 million refund excess cash received acquisition lu biscuit additionally received 153 million net proceeds divestitures primarily related nordic baltic snacks operation four operations spain disbursed 56 million transaction fees related splitoff post cereals business november 30 2007 acquired lu biscuit 51 billion approximately 76 billion cash additionally 2007 received proceeds 216 million divestitures flavored water juice brand assets related trademarks sugar confectionery assets romania related trademarks hot cereal assets trademarks 2006 received proceeds 946 million divestitures rice brand assets pet snacks brand assets industrial coconut assets certain canadian assets us biscuit brand us coffee plant capital expenditures funded operating activities 14 billion 2008 12 billion 2007 2006 2008 capital expenditures primarily used modernize manufacturing facilities implement restructuring program support new product productivity initiatives expect 2009 capital expenditures line 2008 expenditures including capital expenditures required systems investments expect fund expenditures operations net cash used provided financing activities net cash used financing activities 21 billion 2008 37 billion 2006 compared 51 billion provided 2007 net cash used financing activities 2008 primarily related 59 billion payments made bridge facility used fund lu biscuit acquisition 17 billion dividends paid 777 million common stock share repurchases 795 million longterm debt repayments primarily related debt matured october 1 2008 partially offset 69 billion proceeds longterm debt offerings net cash provided financing activities 2007 primarily due 64 billion proceeds longterm debt offerings net outstanding borrowings 55 billion bridge facility used fund lu biscuit acquisition partially offset 37 billion common stock share repurchases 16 billion dividends paid 15 billion repayment longterm debt matured net cash used financing activities 2006 primarily related 16 billion dividends paid 13 billion longterm debt repaid 13 billion common stock share repurchases november 2009 750 million longterm debt matures expect fund repayment issuance commercial paper longterm debt borrowing arrangements maintain revolving credit facility historically used general corporate purposes support commercial paper issuances 45 billion multiyear revolving credit facility expires april 2010 amounts drawn facility october 2008 one syndicate banks credit facility lehman commercial paper inc filed bankruptcy protection lehman’s commitment credit facility approximately 136 million expect replace capacity credit facility accordingly reduced approximately 44 billion expect current future effect liquidity must maintain net worth least 200 billion terms revolving credit facility december 31 2008 net worth 222 billion expect continue meet covenant revolving credit facility financial covenants credit rating triggers provisions could require us post collateral security addition international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 17 billion december 31 2008 borrowings lines amounted 291 million december 31 2008 250 million december 31 2007 december 31 2007 borrowed 38 billion approximately 55 billion 364day bridge facility agreement used acquire lu biscuit “lu biscuit bridge facility” terms credit agreement required repay borrowings net cash proceeds debt offerings maturity greater one year repaid 38 billion approximately 59 billion time repayments proceeds march 20 2008 may 22 2008 debt issuances discussed upon repayment facility terminated debt total debt 203 billion december 31 2008 210 billion december 31 2007 debttocapitalization ratio 048 december 31 2008 043 december 31 2007 december 19 2008 issued 500 million senior unsecured notes may 22 2008 issued 20 billion senior unsecured notes march 20 2008 issued 285 billion approximately 45 billion senior unsecured notes used net proceeds issuances 498 million december 1967 million may approximately 4470 million march general corporate purposes including repayment borrowings lu biscuit bridge facility shortterm borrowings october 1 2008 repaid 700 million notes repayment primarily financed commercial paper issuances december 2007 filed automatic shelf registration form s3 sec wellknown seasoned issuer able register new debt securities amounts authorized board directors december 2010 board directors authorized 50 billion longterm financing addition 53 billion authorized lu biscuit acquisition december 2007 issued 30 billion senior unsecured notes shelf registration used net proceeds offering 2966 million general corporate purposes including repayment outstanding commercial paper portion lu biscuit bridge facility august 2007 issued 35 billion senior unsecured notes remainder capacity former form s3 shelf registration statement file sec used net proceeds offering 3462 million general corporate purposes including repayment outstanding commercial paper notes issuances discussed include covenants restrict ability incur debt secured liens certain threshold also required offer purchase notes price equal 101 aggregate principal amount plus accrued unpaid interest date repurchase experience following “change control” triggering event ii downgrade notes investment grade rating moody’s investors service inc standard poor’s ratings services fitch inc within specified period expect continue comply longterm debt covenants refer note 7 debt borrowing arrangements details debt offerings refinance longterm shortterm debt time nature amount longterm shortterm debt proportionate amount varies result future business requirements market conditions factors december 31 2008 approximately 30 billion remaining longterm financing authority board directors credit ratings december 31 2008 debt ratings major credit rating agencies offbalance sheet arrangements aggregate contractual obligations offbalance sheet arrangements guarantees contractual obligations discussed guarantees discussed note 13 commitments contingencies thirdparty guarantees acquisition divestiture construction activities part transactions guarantee third parties make contractual payments achieve performance measures december 31 2008 maximum potential payments thirdparty guarantees 43 million 8 million specified expiration dates substantially remainder expire various times 2018 carrying amounts guarantees 38 million consolidated balance sheet december 31 2008 addition december 31 2008 contingently liable 186 million guarantees related performance include letters credit related dairy commodity purchases guarantees related payment custom duties taxes letters credit guarantees expect material effect liquidity aggregate contractual obligations following table summarizes contractual obligations december 31 2008 1 amounts represent expected cash payments longterm debt include unamortized bond premiums discounts 2 amounts represent expected cash payments interest expense longterm debt interest calculated variable rate debt forecasted using libor rate forward curve analysis december 31 2008 interest calculated euro notes forecasted using euro us dollar exchange rate december 31 2008 insignificant amount interest expense excluded table portion foreign debt due complexities involved forecasting expected interest payments 3 amounts represent expected cash payments capital leases including expected cash payments interest expense approximately 22 million capital leases 4 operating leases represent minimum rental commitments noncancelable operating leases 5 purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 6 longterm liabilities primarily consist estimated future benefit payments postretirement health care plans december 31 2018 2290 million unable reliably estimate timing payments beyond 2018 excluded table addition following longterm liabilities included consolidated balance sheet excluded table accrued pension costs income taxes minority interest insurance accruals unable reliably estimate timing payments contributions beyond 2009 case accrued pension costs items currently expect make approximately 390 million contributions pension plans 2009 also expect net pension cost increase approximately 200 million approximately 440 million 2009 december 31 2008 total liability income taxes including uncertain tax positions associated accrued interest penalties 1075 million expect pay approximately 104 million next 12 months years 2000 2003 currently examination irs able reasonably estimate timing future cash flows beyond 12 months due uncertainties timing tax audit outcomes equity dividends stock repurchases board directors authorized following common stock repurchase programs obligated repurchase common stock may suspend current program discretion total repurchases programs 253 million shares 777 million 2008 1101 million shares 3640 million 2007 387 million shares 1250 million 2006 made repurchases common stock open market transactions december 31 2008 723 million remaining 50 billion share repurchase authority given present environment expect make share repurchases current program authority expires march 30 2009 march 2007 repurchased 14 million additional shares common stock altria cost 465 million paid 32085 per share average high low price kraft common stock reported nyse march 1 2007 repurchase accordance altria spinoff agreement stock plans beginning 2008 changed annual longterm incentive compensation programs align shareholder returns annual incentive program grant equity form restricted deferred stock options restricted deferred stock continue vest 100 three years stock options vest onethird year beginning first anniversary grant date additionally changed longterm incentive plan cashbased program sharebased program shares vest based varying performance market service conditions january 2008 granted 14 million shares stock connection longterm incentive plan market value per share 3226 date grant unvested shares voting rights pay dividends february 2008 part annual incentive program issued 34 million shares restricted deferred stock eligible us nonus employees market value per restricted deferred share 2949 date grant also part annual incentive program granted 135 million stock options eligible us nonus employees exercise price 2949 addition also issued 02 million offcycle shares restricted deferred stock 2008 weightedaverage market value per restricted deferred share 3038 date grant aggregate issued 50 million restricted deferred shares 2008 including issued part longterm incentive plan also granted 01 million offcycle stock options 2008 exercise price 3078 aggregate granted 136 million stock options 2008 december 31 2008 number shares issued upon exercise outstanding stock options vesting nonus deferred shares vesting longterm incentive plan shares 445 million 30 total shares outstanding board directors approved stock option grant chief executive officer may 3 2007 recognize election chairman received 300000 stock options 2005 performance incentive plan vest varying market service conditions expire ten years grant date january 2007 issued 52 million shares restricted deferred stock eligible us nonus employees part annual incentive program market value per restricted deferred share 34655 date grant additionally issued 10 million offcycle shares restricted deferred stock 2007 weightedaverage market value per restricted deferred share 34085 date grant total number restricted deferred shares issued 2007 92 million including issued result spinoff altria discussed upon spinoff altria stock awards modified issuance kraft stock awards accordingly altria stock awards split two instruments holders altria stock options received 1 new kraft option acquire shares kraft common stock 2 adjusted altria stock option number shares altria common stock previously held proportionally reduced exercise price employee stock option outstanding aggregate intrinsic value immediately spinoff altria greater aggregate intrinsic value immediately prior holders altria restricted stock rights awarded january 31 2007 retained existing awards received restricted stock rights kraft common stock recipients altria restricted stock rights awarded january 31 2007 receive kraft restricted stock rights altria announced spinoff time reimbursed altria 179 million net settlement employee stock awards determined fair value stock options using blackscholes option valuation model adjusted fair value restricted stock rights value projected forfeitures based upon number altria stock awards outstanding upon spinoff granted stock options 242 million shares common stock weightedaverage price 1575 options expire 2007 2012 addition issued 30 million shares restricted stock rights market value per restricted share right 3166 date grant restrictions majority restricted stock rights lapse either first quarter 2008 2009 dividends paid dividends 1663 million 2008 1638 million 2007 15 increase reflects higher dividend rate 2008 partially offset lower number shares outstanding share repurchases splitoff post cereals business third quarter 2008 board directors approved 74 increase current quarterly dividend rate 029 per share common stock result present annualized dividend rate 116 per common share declaration dividends subject discretion board directors depends various factors including net earnings financial condition cash requirements future prospects factors board directors deems relevant analysis decision making 2009 outlook expect 2009 diluted eps 188 versus previous expectation least 200 change reflects greaterthananticipated negative impact currency pension costs significantly offset improved business performance 2009 guidance reflects expectations approximately 016 negative impact currency versus prior year 008 higher pension costs 003 yearoveryear dilution exit post cereals business addition expect 009 impact spending cost savings initiatives 2009 tax rate approximately 315 percent 2008 benefited several discrete items factors described item 1a risk factors represent continuing risks forecasts new accounting standards see note 1 summary significant accounting policies note 10 stock plans consolidated financial statements discussion new accounting standards contingencies see note 13 commitments contingencies consolidated financial statements part item 3 legal proceedings discussion contingencies item 7aitem 7 management’s discussion analysis financial condition results operations following discussions read conjunction sections report including consolidated financial statements related notes contained item 8 annual report form 10k description company manufacture market packaged food products including snacks beverages cheese convenient meals various packaged grocery products approximately 160 countries executive summary following executive summary intended provide significant highlights discussion analysis follows • net revenues 2009 decreased 37 404 billion net revenues 2008 increased 169 419 billion • diluted eps attributable kraft foods increased 68 203 2009 increased 118 190 2008 diluted eps attributable kraft foods continuing operations increased 678 203 2009 decreased 224 121 2008 • four priorities shape longterm strategy focusing growth categories expanding footprint developing markets expanding presence instant consumption channels enhancing margins • february 2 2010 received acceptances offer 7173 outstanding ordinary shares cadbury plc combination kraft foods cadbury create global powerhouse snacks confectionery quick meals rich portfolio iconic brands february 15 2010 received acceptances 1262356520 shares representing 9102 outstanding cadbury ordinary shares • february 8 2010 issued 95 billion senior unsecured notes weightedaverage effective rate 5364 primarily using net proceeds 9379 million finance cadbury acquisition • january 4 2010 entered agreement sell assets north american frozen pizza business nestlé usa inc total consideration 37 billion sale subject customary conditions including regulatory clearances expected close first quarter 2010 • november 30 2009 entered revolving credit agreement 45 billion threeyear senior unsecured revolving credit facility agreement replaced former revolving credit agreement terminated upon signing new agreement • 50 billion share repurchase authority expired march 30 2009 prior expiration repurchased 1309 million shares 43 billion program repurchase shares 2009 • 2008 completed 30 billion fiveyear restructuring program reversed 85 million restructuring program charges 2009 recorded charges 989 million 2008 459 million 2007 • august 4 2008 completed splitoff post cereals business accordingly post cereals business prior period results reflected discontinued operations consolidated statement earnings • november 30 2007 acquired groupe danone sa global lu biscuit business  51 billion approximately 76 billion cash discussion analysis strategy centered marketing developing leading consumer brands pursuing growth opportunities consistent consumer trends order deliver shareholder value increasing investment snacks quick meals portfolio iconic brands aligns growing consumer interest convenience products premium brands focus snacks confectionery products fits well within strategy growth instant consumption channels four priorities shape longterm strategy • focusing growth categories transform leading snack confectionery quick meals company achieved exiting lower growth lower margin businesses reinvigorating high cash flow businesses fund growth • expanding footprint developing markets benefit population growth trends trading consumers achieving scale establish costefficient infrastructure key geographies • expanding presence instant consumption channels order gain share versus grocery channels us european union • enhancing margins improving portfolio mix reducing costs investing quality items affecting comparability financial results acquisitions divestitures cadbury acquisition january 19 2010 announced terms final offer outstanding ordinary share cadbury plc “cadbury” including ordinary share represented american depositary share “cadbury ads” cadbury board directors recommended cadbury shareholders accept terms final offer terms offer agreed pay cadbury shareholders 500 pence cash 01874 shares kraft foods common stock per cadbury ordinary share validly tendered 2000 pence cash 07496 shares kraft foods common stock per cadbury ads validly tendered valued cadbury ordinary share 840 pence cadbury ads £3360 based closing price 2958 share kraft foods common stock january 15 2010 exchange rate 163 per £100 valued entire issued share capital cadbury £119 billion approximately 194 billion january 15 2010 last trading day publication final offer combination kraft foods cadbury create global powerhouse snacks confectionery quick meals rich portfolio iconic brands february 2 2010 conditions offer satisfied validly waived initial offer period expired subsequent offer period immediately began point received acceptances 7173 outstanding cadbury ordinary shares including represented cadbury adss subsequent offer period remains open notice least 14 days notice given kraft foods decides close offer february 15 2010 received acceptances 1262356520 shares representing 9102 outstanding cadbury ordinary shares including represented cadbury adss received acceptances 90 cadbury shares process acquiring remaining cadbury ordinary shares tendered offer including represented cadbury adss compulsory acquisition procedure united kingdom companies act 2006 amended additionally condition eu commission’s approval cadbury acquisition required divest confectionary operations poland romania part acquisition cadbury expensed approximately 40 million transaction related fees 2009 incurred also incurred 40 million financing fees 2009 related acquisition pizza divestiture january 4 2010 entered agreement sell assets north american frozen pizza business “frozen pizza” nestlé usa inc “nestlé” total consideration 37 billion frozen pizza business component us convenient meals canada north america foodservice segments sale subject customary conditions including regulatory clearances includes digiorno tombstone jack’s brands us delissio brand canada california pizza kitchen trademark license also includes two wisconsin manufacturing facilities medford little chute leases pizza depots delivery trucks estimated approximately 3400 employees transfer business nestlé anticipate transaction close first quarter 2010 december 31 2009 frozen pizza business meet criteria considered heldforsale beginning first quarter 2010 results frozen pizza business presented discontinued operation consolidated financial statements prior periods restated consistent manner following reflects summary results frozen pizza business treated discontinued operation going forward following assets post cereals business included splitoff millions lu biscuit acquisition november 30 2007 acquired groupe danone sa global lu biscuit business “lu biscuit”  51 billion approximately 76 billion cash acquisition included 32 manufacturing facilities approximately 14000 employees used borrowings 51 billion finance acquisition interest incurred borrowings primary driver 533 million increase interest expense 2007 2008 lu biscuit reports results operations one month lag accordingly effect 2007 operating results proforma basis lu biscuit would contributed net revenues 28 billion 2007 lu biscuit’s contribution net earnings would insignificant kraft foods divestitures 2009 received 41 million net proceeds recorded pretax losses 6 million divestitures balance bar operations us juice operation brazil plant spain recorded aftertax gains 58 million 004 per diluted share divestitures primarily due differing book tax bases balance bar operations 2008 received 153 million net proceeds recorded pretax losses 92 million divestitures primarily related nordic baltic snacks operation four operations spain recorded aftertax losses 64 million 004 per diluted share divestitures included 2008 divestitures following condition eu commission’s approval lu biscuit acquisition • divested biscuit operation spain divestiture received 86 million net proceeds recorded pretax losses 74 million • divested another biscuit operation spain trademark hungary previously acquired part lu biscuit acquisition impacts divestitures reflected adjustments purchase price allocations 2007 received 216 million net proceeds recorded pretax gains 14 million divestitures hot cereal assets trademarks sugar confectionery assets romania related trademarks flavored water juice brand assets related trademarks including veryfine fruit2o recorded aftertax loss 5 million divestitures reflect differing book tax bases hot cereal assets trademarks divestiture aggregate operating results divestitures discussed divestiture post cereals business material financial statements periods presented refer note 16 segment reporting details gains losses divestitures segment net impacts segment operating income gains losses divestitures along resulting asset impairment charges summarized table asset impairment charges section asset impairment charges 2009 recorded aggregate asset impairment charges 21 million 001 per diluted share 2009 review goodwill nonamortizable intangible assets recorded 12 million charge impairment intangible assets netherlands addition 2009 recorded 9 million asset impairment charge write investment norway recorded aggregate asset impairment charges within asset impairment exit costs 2008 recorded aggregate asset impairment charges 140 million 007 per diluted share 2008 review goodwill nonamortizable intangible assets recorded 44 million charge impairment intangible assets netherlands france puerto rico addition december 2008 reached preliminary agreement divest juice operation brazil reached agreement sell cheese plant australia anticipation divesting juice operation brazil recorded asset impairment charge 13 million fourth quarter 2008 charge primarily included writeoff associated intangible assets 8 million property plant equipment 4 million anticipation selling cheese plant australia recorded asset impairment charge 28 million property plant equipment fourth quarter 2008 additionally 2008 divested nordic baltic snacks operation incurred asset impairment charge 55 million connection divestiture charge primarily included writeoff associated goodwill 34 million property plant equipment 16 million recorded aggregate asset impairment charges within asset impairment exit costs impairments resulted 2007 annual review goodwill nonamortizable intangible assets additionally 2007 divested flavored water juice brand assets related trademarks incurred asset impairment charge 120 million 003 per diluted share recognition divestiture charge primarily included writeoff associated intangible assets 70 million property plant equipment 47 million recorded within asset impairment exit costs net impacts segment operating income gains losses divestitures related asset impairment charges recorded divestitures considered heldforsale summarized table cost savings initiatives incurred costs associated cost savings initiatives 318 million 2009 charges recorded operations primarily within segment operating income kraft foods europe remainder spread across segments kraft foods europe charges largely result reorganization european operations cost savings initiatives include exit disposal implementation costs even though implementation costs directly attributable exit disposal costs qualify special accounting treatment exit disposal activities 2009 cost savings initiatives primarily included severance charges benefits received terminated employees associated benefit plan costs related activities 20042008 restructuring program 2008 completed fiveyear restructuring program “restructuring program” objectives program leverage global scale realign lower cost structure optimize capacity part restructuring program • incurred 30 billion pretax charges reflecting asset disposals severance implementation costs • announced closure 35 facilities announced elimination approximately 18600 positions • use cash pay 20 billion 30 billion charges • anticipate reaching cumulative annualized savings 14 billion total program 2009 reversed 85 million previously accrued restructuring program charges resulting favorable impact diluted eps 004 reversals related following • sold plant spain previously announced would close restructuring program accordingly reversed 35 million restructuring program charges primarily related severance recorded 17 million loss divestiture plant 2009 reversal occurred kraft foods europe segment • also reversed 50 million restructuring program charges primarily due planned position eliminations occur primarily result redeployment natural attrition majority reversals occurred kraft foods europe segment remainder spread across segments incurred charges continuing operations restructuring program 989 million 2008 045 per diluted share 447 million 2007 019 per diluted share since inception restructuring program paid cash 17 billion 20 billion expected cash payments including 176 million paid 2009 december 31 2009 accrual 270 million eliminated approximately 17300 positions restructuring program 2008 implemented new operating structure built three core elements business units shared services leverage scale global portfolio streamlined corporate staff within new structure business units full pl accountability staffed accordingly also ensures putting resources closer make decisions affect consumers customers corporate shared service functions streamlined organizations focus core activities efficiently support goals business units intent simplify streamline increase accountability ultimate goal generating reliable growth kraft foods total eliminated approximately 1400 positions streamlined headquarter functions restructuring program recorded asset impairment exit costs continuing operations 884 million 2008 320 million 2007 recorded implementation costs continuing operations 105 million 2008 127 million 2007 implementation costs directly attributable exit disposal costs however qualify treatment exit disposal costs guidance related accounting costs associated exit disposal activities costs primarily include discontinuance certain product lines incremental expenses related closure facilities reorganization european operations discussed management believes disclosure implementation charges provides readers financial statements greater transparency total costs restructuring program refer note 6 restructuring costs details restructuring program segment provision income taxes effective tax rate 294 2009 290 2008 302 2007 2009 effective tax included net tax benefits 225 million primarily due agreement reached irs specific matters related years 2000 2003 settlements various foreign state tax authorities expiration statutes limitations various jurisdictions divestiture balance bar operations us 2008 effective tax rate included net tax benefits 222 million discrete tax events total net tax benefits approximately 50 million related fourth quarter corrections state federal foreign tax liabilities third quarter reconciliation inventory deferred tax items resulted writedown net deferred tax liabilities remaining net tax benefits primarily related resolution various tax audits expiration statutes limitations various jurisdictions discrete tax benefits included impact divestitures nordic baltic snacks operation several operations spain tax benefit impairment charges taken 2008 addition 2008 tax rate benefited foreign earnings taxed us federal statutory tax rate expected tax benefit 2008 restructuring expenses benefits partially offset state tax expense certain foreign tax costs 2007 effective tax rate included net tax benefits 184 million primarily including effects dividend repatriation benefits foreign joint venture earnings effect foreign deferred taxes lower foreign tax rates enacted 2007 tax rate also benefited foreign earnings taxed us federal statutory tax rate increased domestic manufacturing deduction divestiture flavored water juice brand assets related trademarks benefits partially offset state tax expense tax costs associated divestiture hot cereal assets trademarks interest income altria related transfer federal tax contingencies result spinoff altria group inc “altria” altria transferred federal tax contingencies balance sheet related interest income 77 million 003 per diluted share 2007 following spinoff altria longer member altria consolidated tax return group file federal consolidated income tax returns consolidated results operations following discussion compares consolidated results operations 2009 2008 2007 many factors impact timing sales customers factors include among others timing holidays annual special events seasonality significant weather conditions timing customer incentive programs pricing actions customer inventory programs general economic conditions domestic operating subsidiaries report yearend results last saturday year international operating subsidiaries generally report yearend results two weeks prior last saturday year 2009 compared 2008 decrease net revenues partially offset higher input costdriven pricing unfavorable volumemix impact net revenues driven volume declines across reportable segments except us beverages us convenient meals part due discontinuation less profitable product lines unfavorable foreign currency decreased net revenues 1897 million due primarily strength us dollar euro russian ruble canadian dollar ukrainian hryvnia british pound brazilian real polish zloty absence 2008 favorable resolution brazilian value added tax claim impact divestitures also unfavorable impact net revenues operating income operating income increased 1681 million 437 5524 million 2009 due following millions higher pricing reflected carryover impact 2008 pricing actions recovered cumulative cost increases prior years favorable volumemix driven strong contributions kraft foods developing markets us convenient meals decrease input costs driven lower raw material costs partially offset higher manufacturing costs 2009 reversed 85 million restructuring program charges recorded prior year versus 989 million restructuring program charges recognized 2008 recognized gains 203 million change unrealized hedging positions 2009 versus losses 205 million 2008 recorded 6 million net losses divestitures 2009 versus 92 million net losses divestitures 2008 recorded asset impairment charges 21 million related intangible assets netherlands write investment norway 2009 versus asset impairment charges 140 million related certain international intangible assets divestiture nordic baltic snacks operation juice operation brazil cheese plant australia recorded 2008 22 million lower charges certain legal matters 2009 recorded additional 50 million charges legal matters related certain european operations see part item 3 legal proceedings description matters 2008 recorded 72 million charges legal matters related certain us european operations including us coffee operations total marketing administration research costs recorded consolidated statement earnings increased 246 million 2008 excluding impacts divestitures foreign currency charges certain legal matters prior year restructuring program costs increased 694 million 2008 primarily due investments brands including spending cost savings initiatives higher marketing support costs addition unfavorable foreign currency decreased operating income 322 million due primarily strength us dollar british pound euro canadian dollar russian ruble ukrainian hryvnia korean brazilian real polish zloty result changes operating margin also increased 92 2008 137 2009 net earnings per share attributable kraft foods net earnings attributable kraft foods 3021 million increased 137 million 48 2009 diluted eps continuing operations attributable kraft foods 203 2009 678 121 2008 diluted eps attributable kraft foods 203 2009 68 190 2008 due following net revenues net revenues increased 6074 million 169 41932 million 2008 organic net revenues increased 2394 million 68 37818 million follows please see nongaap financial measures section end item higher pricing outpaced input cost increases year recovered cumulative cost increases prior years increase input costs primarily related higher raw material costs unfavorable volumemix driven declines across segments within kraft foods north america partially offset volumemix gains kraft foods developing markets kraft foods europe increase unrealized losses hedging activities primarily related energy derivatives including heating oil used primarily hedge transportation costs natural gas contracts lu biscuit acquisition net integration costs increased operating income 360 million total marketing administration research costs recorded consolidated statement earnings increased 1275 million prior year excluding impacts acquisitions divestitures foreign currency charges legal matters increased 280 million prior year net impact losses divestitures asset impairments unfavorable impact 126 million operating income versus prior year charges legal matters related certain us european operations including us coffee operations charges legal matters recorded within marketing administration research costs addition foreign currency increased operating income 61 million due primarily strength brazilian real euro polish zloty canadian dollar us dollar result changes operating margin also decreased 116 2007 92 2008 net earnings per share attributable kraft foods net earnings attributable kraft foods 2884 million increased 163 million 60 2008 diluted eps continuing operations attributable kraft foods 121 2008 224 156 2007 diluted eps attributable kraft foods 190 118 170 2007 due following results operations business segment manage report operating results three geographic units kraft foods north america kraft foods europe kraft foods developing markets manage operations kraft foods north america kraft foods europe product category manage operations kraft foods developing markets location reportable segments us beverages us cheese us convenient meals us grocery us snacks canada na foodservice kraft foods europe formerly known european union kraft foods developing markets effective january 2009 began implementing changes operating structure based organizing growth initiative kraft foods europe reorganization line strategies reorganizing european operations function paneuropean centralized category management value chain model changed work europe two key ways • transitioned european biscuit chocolate coffee cheese categories fully integrated business units strengthening focus core categories ensure decisions made faster closer customers consumers category fully accountable financial results including marketing manufacturing rd category leadership based zurich switzerland reports kraft foods europe president business units comprise kraft foods europe segment • aligned reporting central europe operations kraft foods developing markets segment help build critical scale countries operate countryled model markets following discussion compares results operations reportable segments 2009 2008 2007 discussed note 16 segment reporting management uses segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales certain components us pension plan cost component cost sales marketing administration research costs general corporate expenses component marketing administration research costs amortization intangibles periods presented 2009 began excluding certain components us pension plan cost segment operating income centrally manage pension plan funding decisions determination discount rate expected rate return plan assets actuarial assumptions therefore allocate service cost component us pension plan expense segment operating income exclude unrealized gains losses hedging activities segment operating income order provide better transparency segment operating results realized gains losses hedging activities recorded within segment operating results 2009 unrealized gains hedging activities 203 million primarily resulted 2008 unrealized losses energy derivatives becoming realized 2009 2008 unrealized losses hedging activities 205 million primarily related energy derivatives including heating oil used primarily hedge transportation costs natural gas contracts 2009 general corporate expenses included 50 million charges legal matters related certain european operations see part item 3 legal proceedings description matters 2008 recorded 72 million charges legal matters related certain us european operations including us coffee operations represented primary reason general corporate expenses increased 101 million 2008 incurred costs associated cost savings initiatives 318 million 2009 charges recorded operations primarily within segment operating income kraft foods europe remainder spread across segments 2009 also reversed 85 million restructuring program costs majority relating kraft foods europe segment remainder spread across segments incurred restructuring program costs 989 million 2008 459 million 2007 refer note 6 restructuring costs breakout 2008 2007 charges segment also incurred asset impairment charges 21 million 2009 related kraft foods europe segment 140 million 2008 related kraft foods europe kraft foods developing markets segments 120 million 2007 related us beverages segment refer note 5 goodwill intangible assets details charges us beverages 2009 compared 2008 net revenues increased 56 million 19 due favorable volumemix 13 pp higher net pricing 06 pp favorable volumemix driven higher shipments readytodrink powdered beverages readytodrink beverages grew successful quality marketing investments capri sun partially offset discontinuation less profitable readytodrink product lines powdered beverages volume increased primarily due strong gains koolaid tang coffee volume declined gains maxwell house starbucks tassimo offset declines gevalia favorable factors partially offset unfavorable mix driven higher readytodrink volume higher net pricing primarily related readytodrink beverages partially offset lower input costdriven pricing coffee segment operating income increased 130 million 341 due primarily lower costs due completion restructuring program lower raw material costs higher net pricing favorable volumemix higher shipments net unfavorable product mix lower manufacturing costs lower marketing administration research costs partially offset higher marketing support costs 2008 compared 2007 net revenues increased 11 million 04 due higher net pricing 49 pp partially offset impact divestitures 24 pp unfavorable volumemix 21 pp higher net pricing reflected input costdriven pricing coffee lower promotional spending readytodrink beverages unfavorable volumemix driven lower shipments partially offset improved product mix due growth tassimo lower shipments driven declines readytodrink beverages primarily capri sun partially offset gains powdered beverages primarily country time koolaid maxwell house mainstream coffee segment operating income increased 35 million 101 due primarily higher net pricing 2007 asset impairment charge related flavored water juice brand assets related trademarks impact divestitures lower manufacturing costs favorable factors partially offset higher raw material costs higher restructuring program costs unfavorable volumemix higher marketing administration research costs us cheese 2009 compared 2008 net revenues increased 256 million 60 due favorable volumemix 46 pp higher net pricing 14 pp net revenues increased meats primarily due higher net pricing increased input costdriven pricing net increased promotional spending also volume increased due higher shipments bacon cold cuts hot dogs partially offset discontinuation less profitable product lines pizza net revenues increased due volume growth digiorno california pizza kitchen premium brands well growth jack’s tombstone pizza brands partially offset unfavorable impact discontinuation less profitable product lines partially offset lower net pricing driven increased promotional spending segment operating income increased 171 million 504 due primarily favorable volumemix higher shipments improved product mix higher net pricing lower raw material costs lower costs due completion restructuring program lower manufacturing costs favorable factors partially offset higher marketing support costs higher marketing administration research costs frozen pizza divestiture january 4 2010 entered agreement sell assets frozen pizza business nestlé total consideration 37 billion sale subject customary conditions including regulatory clearances includes digiorno tombstone jack’s brands us delissio brand canada california pizza kitchen trademark license us pizza net revenues increased 174 million 135 1467 million 2009 due favorable volumemix 154 pp partially offset lower net pricing 19 pp favorable volumemix driven volume gains digiorno california pizza kitchen premium brands well growth jack’s tombstone pizza brands partially offset lower net pricing driven increased promotional spending canada pizza net revenues 165 million 2009 us pizza segment operating income increased 62 million 290 276 million 2009 due primarily favorable volumemix higher shipments improved product mix lower raw material costs lower manufacturing costs favorable factors partially offset higher marketing support costs higher marketing administration research costs lower net pricing canada pizza segment operating income 65 million 2009 combined segment operating income frozen pizza presented excludes stranded overheads 108 2008 compared 2007 net revenues increased 335 million 86 due higher net pricing 56 pp favorable volumemix 30 pp net revenues increased meats due higher net pricing driven input costdriven pricing sandwich meats lunchables hot dogs also contributing meats net revenue growth higher shipments bacon well new product introductions including oscar mayer deli creations sandwiches flatbreads oscar mayer deli fresh meats shaved singles carved pizza net revenues increased due higher input costdriven pricing net increased promotional spending volume growth digiorno california pizza kitchen premium brands launch one product line individual size pizzas segment operating income increased 20 million 63 due primarily higher net pricing favorable volumemix lower marketing support costs partially offset higher raw material costs higher marketing administration research costs higher manufacturing costs higher restructuring program costs us grocery 2009 compared 2008 net revenues decreased 61 million 12 due unfavorable volumemix 17 pp impact divestitures 02 pp partially offset higher net pricing 07 pp biscuits net revenues increased driven higher input costdriven pricing partially offset unfavorable volumemix unfavorable product mix net higher shipments biscuits volume gain due higher shipments primarily ritz crackers oreo cookies triscuit crackers chips ahoy cookies snack bars net revenues decreased primarily due volume declines breakfast bars snack nuts net revenues decreased primarily driven lower net pricing due higher promotional spending unfavorable volumemix reflecting lower volume due primarily recall certain products containing pistachios march 2009 segment operating income increased 85 million 133 due primarily lower costs due completion restructuring program lower marketing support costs lower manufacturing costs higher net pricing gain divestiture balance bar operations us lower marketing administration research costs favorable factors partially offset higher raw material costs unfavorable volumemix unfavorable product mix lower shipments including recall certain products containing pistachios 2008 compared 2007 net revenues increased 146 million 30 due higher net pricing 84 pp impact lu biscuit acquisition 04 pp partially offset unfavorable volumemix 56 pp impact divestitures 02 pp biscuits net revenues increased driven higher input costdriven pricing lower promotional spending partially offset unfavorable volumemix biscuits unfavorable volumemix driven base business volume declines wheat thins crackers cheese nips crackers chips ahoy cookies partially offset gains oreo cookies well new product introductions including kraft macaroni cheese crackers nilla cakesters snack cakes snack bars net revenues decreased driven volume declines breakfast bars primarily due product pruning snack nuts net revenues decreased driven lower volume partially offset higher net pricing segment operating income decreased 78 million 109 due unfavorable volumemix lower shipments unfavorable mix higher raw material costs higher manufacturing costs higher restructuring program costs higher marketing administration research costs 2007 gain divestiture hot cereal assets trademarks impact divestitures unfavorable variances partially offset higher net pricing lower marketing support costs canada na foodservice 2009 compared 2008 net revenues decreased 207 million 48 due significant impact unfavorable foreign currency 46 pp unfavorable volumemix 02 pp canada net revenues increased driven volume gains across retail businesses higher net pricing partially offset unfavorable foreign currency na foodservice net revenues decreased driven lower volume due industrywide declines restaurant traffic discontinuation less profitable product lines lower input costdriven pricing unfavorable foreign currency segment operating income increased 79 million 176 due primarily lower costs due completion restructuring program lower raw material costs partially offset unfavorable foreign currency higher manufacturing costs higher marketing support costs 2008 compared 2007 net revenues increased 214 million 52 due primarily higher net pricing 39 pp favorable foreign currency 13 pp favorable volumemix 03 pp partially offset impact divestitures 04 pp canada net revenues growth primarily driven volume gains across retail businesses favorable foreign currency higher net pricing na foodservice net revenues increased primarily driven higher input costdriven pricing partially offset unfavorable volumemix segment operating income increased 5 million 11 due primarily higher net pricing lower manufacturing costs lower marketing administration research costs favorable volumemix higher shipments net unfavorable mix favorable foreign currency favorable variances partially offset higher raw material costs higher restructuring program costs higher marketing support costs kraft foods europe 2009 compared 2008 net revenues decreased 960 million 99 due significant impact unfavorable foreign currency 67 pp unfavorable volumemix 28 pp impact divestitures 22 pp partially offset higher net pricing 18 pp unfavorable foreign currency primarily reflected strength us dollar versus euro british pound addition volume declines coffee biscuits chocolate cheese discontinuation less profitable product lines drove net revenues lower unfavorable revenue drivers partially offset higher net pricing primarily chocolate coffee biscuits segment operating income increased 603 million 100 due lower costs due completion restructuring program including reversal prior year costs higher net pricing 2008 net loss divestitures several operations spain 2008 asset impairment charges related certain international intangible assets divestiture nordic baltic snacks operation lower manufacturing costs lower raw material costs favorable variances partially offset unfavorable foreign currency higher marketing support costs higher nonrecurring costs associated kraft foods europe reorganization higher marketing administration research costs primarily spending cost savings initiatives asset impairment charges related certain intangible assets netherlands write investment norway net loss divestiture plant spain unfavorable volumemix lower shipments net improved product mix impact divestitures 2008 compared 2007 net revenues increased 2721 million 388 due impact lu biscuit acquisition 331 pp favorable foreign currency 55 pp higher net pricing 47 pp partially offset impact divestitures 35 pp unfavorable volumemix 10 pp higher input costdriven pricing partially offset higher promotional spending unfavorable volumemix driven declines coffee cheese shipments partially offset gains chocolate segment operating income decreased 273 million 600 due primarily higher raw material costs higher restructuring program costs net loss divestitures several operations spain asset impairment charges related certain international intangible assets divestiture nordic baltic snacks operation higher marketing administration research costs impact divestitures unfavorable variances partially offset higher net pricing impact lu biscuit acquisition net associated integration costs lower manufacturing costs lower marketing support costs favorable volumemix improved mix net lower shipments kraft foods europe reorganization european operations function paneuropean centralized category management value chain model completed 2009 chocolate coffee cheese categories significant progress made 2009 related integration europe biscuits business expect integration completed mid2010 european principal company “epc” manage european categories centrally make decisions aspects value chain except sales distribution european subsidiaries execute sales distribution locally local production companies act toll manufacturers behalf epc legal entity incorporated kraft foods europe gmbh zurich switzerland part reorganization incurred 32 million severance costs 25 million implementation costs 56 million nonrecurring costs 2009 incurred 16 million restructuring costs 39 million implementation costs 11 million nonrecurring costs 2008 incurred 21 million restructuring costs 24 million implementation costs 10 million nonrecurring costs 2007 2009 incurred charges 241 million related kraft foods europe reorganization including mentioned costs expect incur approximately 40 million additional charges 2010 complete integration europe biscuits business 2009 charges recorded within cost sales marketing administration research costs 2008 2007 restructuring implementation costs recorded part overall restructuring program nonrecurring costs relating kraft foods europe reorganization recorded marketing administration research costs management believes disclosure implementation nonrecurring charges provides readers financial statements greater transparency total costs kraft foods europe reorganization kraft foods developing markets 2009 compared 2008 net revenues decreased 292 million 35 due significant impact unfavorable foreign currency 129 pp absence 2008 favorable resolution brazilian value added tax claim 08 pp impact divestitures 05 pp partially offset higher net pricing 89 pp favorable volumemix 18 pp central eastern europe middle east africa net revenues decreased driven primarily unfavorable foreign currency partially offset higher net pricing across region favorable volumemix improved product mix net lower shipments latin america net revenues increased primarily driven higher net pricing across region favorable volumemix lower shipments net improved product mix partially offset unfavorable foreign currency absence 2008 favorable resolution brazilian value added tax claim asia pacific net revenues increased due higher net pricing across region favorable volumemix improved product mix net lower shipments primarily china partially offset unfavorable foreign currency segment operating income increased 121 million 148 due primarily higher net pricing favorable volumemix improved product mix net lower shipments lower costs due completion restructuring program including reversal prior year costs 2008 asset impairment charges related certain international intangible assets juice operation brazil cheese plant australia favorable variances partially offset higher raw material costs higher manufacturing costs unfavorable foreign currency higher marketing administration research costs higher marketing support costs absence 2008 favorable resolution brazilian value added tax claim venezuela fourth quarter 2009 venezuelan economy classified highly inflationary accounting principles generally accepted united states america “us gaap” effective january 1 2010 venezuelan subsidiary accounted highly inflationary accounting rules principally means transactions recorded us dollars venezuela three exchange rates official rate consumer staples rate secondary parallel rate historically used continue use official rate translate venezuelan operations however prior change accounting cash exchanged us dollars using secondary market carried rate upon change highly inflationary accounting required translate us dollars hand using official rate additionally january 8 2010 venezuelan government devalued currency accordingly required revalue net assets venezuela recorded insignificant loss reflected first quarter 2010 results expect 2010 operating results negatively impacted 75 million 100 million result aforementioned devaluation disclosure reflect impacts recent acquisition activity 2008 compared 2007 net revenues increased 2273 million 380 due primarily impact lu biscuit acquisition 159 pp higher net pricing 110 pp favorable volumemix 54 pp favorable foreign currency 47 pp favorable resolution brazilian value added tax claim 11 pp central eastern europe middle east africa net revenues increased driven higher net pricing across region volume growth chocolate biscuits coffee categories lu biscuit acquisition favorable foreign currency latin america net revenues increased driven favorable foreign currency higher net pricing favorable resolution value added tax claim favorable volumemix brazil higher net pricing improved product mix argentina higher net pricing favorable volumemix venezuela asia pacific net revenues increased due primarily lu biscuit acquisition higher net pricing across region favorable foreign currency segment operating income increased 227 million 386 due higher net pricing favorable volumemix impact lu biscuit acquisition net associated integration costs favorable resolution brazilian value added tax claim favorable foreign currency favorable variances partially offset higher raw material costs higher manufacturing costs higher marketing administration research costs higher restructuring program costs higher marketing support costs 2008 asset impairment charges related certain international intangible assets juice operation brazil cheese plant australia 2007 gain divestiture sugar confectionery assets romania related trademarks critical accounting policies note 1 summary significant accounting policies consolidated financial statements includes summary significant accounting policies used prepare consolidated financial statements discussed selection disclosure critical accounting policies estimates audit committee following review significant assumptions estimates well accounting policies used prepare consolidated financial statements principles consolidation consolidated financial statements include kraft foods well wholly owned majority owned subsidiaries domestic operating subsidiaries report yearend results last saturday year international operating subsidiaries generally report yearend results two weeks prior last saturday year account investments exercise significant influence 20 50 ownership interest equity method accounting use cost method accounting investments ownership interest less 20 exercise significant influence noncontrolling interest subsidiaries consists equity interest noncontrolling investors consolidated subsidiaries kraft foods intercompany transactions eliminated use estimates prepare financial statements accordance us gaap requires us make estimates assumptions affect number amounts financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions lives valuation assumptions goodwill intangible assets marketing programs income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period know actual amounts historically aggregate differences estimates actual amounts year significant impact consolidated financial statements inventories stated lower cost market record inventory allowances overstocked obsolete inventories due ingredient packaging changes effective january 1 2009 changed method valuing us inventories average cost method prior years principally us inventories valued using lastin firstout “lifo” method believe average cost method accounting us inventories preferable improve financial reporting better matching revenues expenses current costs better aligning external reporting competitors aligning external reporting tax basis accounting financial statements periods presented conformed change accounting policy change value inventories using average cost method refer note 1 summary significant accounting policies consolidated financial statements details change accounting policy longlived assets review longlived assets including amortizable intangible assets impairment conditions exist indicate carrying amount assets may fully recoverable perform undiscounted operating cash flow analyses determine impairment exists testing assets held use impairment group assets liabilities lowest level cash flows separately identifiable impairment determined exist loss calculated based estimated fair value impairment losses assets disposed based estimated proceeds received less costs disposal goodwill intangible assets test goodwill nonamortizable intangible assets least annually impairment recognized goodwill reporting units generally one level operating segments use two step process test goodwill reporting unit level first step involves comparison estimated fair value reporting unit carrying value fair value estimated using discounted cash flows reporting unit based planned growth rates estimates discount rates residual values carrying value exceeds fair value second step process necessary second step measures difference carrying value implied fair value goodwill test nonamortizable intangible assets impairment compare fair value intangible asset carrying value fair value nonamortizable intangible assets determined using planned growth rates estimates discount rates royalty rates carrying value exceeds fair value intangible asset considered impaired reduced fair value definitelived intangible assets amortized estimated useful lives perform annual impairment review goodwill nonamortizable intangible assets october 1 year basis valuation methodology estimating fair value 20 reporting units 20year projection discounted cash flows based annual strategic planning process estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions reporting units within kraft foods north america kraft foods europe geographic units used marketparticipant weightedaverage cost capital 75 discount projected cash flows operations reporting units within kraft foods developing markets geographic unit used riskrated discount rate 105 result 2009 annual review goodwill nonamortizable intangible assets recorded 12 million charge impairment intangible assets netherlands 2009 impairment review also noted following three reporting units sensitive nearterm changes discounted cash flow assumptions reporting units passed first step 2009 annual impairment review estimated fair value greater 110 carrying value looking past 2009 uncertainties within three identified reporting units could potentially require analysis future order us determine goodwill impairment exists within individual reporting units significant uncertainties • continued economic uncertainty may lead customers purchase retailer brands economy brands could reduce sales volumes products shift product mix lower margin offerings able maintain improve brand image value proposition could material effect market share profitability primarily use forecasted discounted cash flow model based segment operating income material decrease profitability would adversely affect estimated fair value reporting units • us salty snacks business experienced volume declines past year trend continue worsen would adversely affect estimated fair value us salty snacks reporting unit • na foodservice business heavily dependent restaurant industry negatively impacted recent recession continued industrywide declines restaurant traffic would adversely affect estimated fair value na foodservice reporting unit • europe biscuits business primarily made western european part 2007 lu biscuit acquisition shortly acquisition economic environment europe deteriorated ultimately lead recessionary period general economic conditions continue worsen would adversely affect estimated fair value europe biscuits reporting unit fourth quarter 2008 completed annual review goodwill nonamortizable intangible assets recorded 44 million charge impairment intangible assets netherlands france puerto rico 2008 impairment review determined europe biscuits reporting unit sensitive nearterm changes discounted cash flow assumptions contains significant portion goodwill recorded upon 2007 acquisition lu biscuit insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee health care benefits liabilities associated risks estimated considering historical claims experience actuarial assumptions revenue recognition recognize revenues title risk loss pass customers generally occurs upon shipment delivery goods revenues recorded net consumer incentives trade promotions include shipping handling charges billed customers kraft foods’ shipping handling costs classified part cost sales provision product returns allowances bad debts also recorded reductions revenues within period revenue recognized marketing costs promote products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives expense advertising costs either period advertising first takes place incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred environmental costs subject laws regulations relating protection environment accrue environmental remediation obligations undiscounted basis amounts probable reasonably estimated accruals adjusted new information develops circumstances change recoveries environmental remediation costs third parties recorded assets recovery costs deemed probable december 31 2009 subsidiaries involved 71 active actions us superfund legislation similar actions related current operations certain former divested operations retain liability based information currently available believe ultimate resolution existing environmental remediation actions compliance general environmental laws regulations material effect financial results however cannot quantify certainty potential impact future compliance efforts environmental remediation actions employee benefit plans september 2006 new guidance issued surrounding employers’ accounting defined benefit pension postretirement plans new guidance required us measure plan assets benefit obligations balance sheet date beginning 2008 previously measured nonus pension plans certain canadian french pension plans september 30 year december 31 2008 recorded aftertax decrease 8 million retained earnings using 15month approach proportionally allocate transition adjustment required upon adoption measurement provision new guidance plan assets benefit obligations pension plans benefit obligations postretirement plans measured yearend provide range benefits employees retired employees include pension benefits postretirement health care benefits postemployment benefits consisting primarily severance record amounts relating plans based calculations specified us gaap calculations require use various actuarial assumptions discount rates assumed rates return plan assets compensation increases turnover rates health care cost trend rates review actuarial assumptions annual basis make modifications assumptions based current rates trends appropriate permitted us gaap generally amortize effect modifications future periods believe assumptions used recording plan obligations reasonable based experience advice actuaries refer note 11 benefit plans consolidated financial statements discussion assumptions used recorded following amounts earnings employee benefit plans years ended december 31 2009 2008 2007 2009 net expense employee benefit plans 912 million decreased 308 million 2008 amount cost decrease primarily related lower postemployment benefit plan costs completed fiveyear restructuring program 2008 partially offset higher pension plan costs including lower expected return plan assets higher amortization net loss experience differences 2008 net expense employee benefit plans 1220 million increased 343 million 2007 amount cost increase primarily related higher postemployment benefit plan costs related restructuring program partially offset lower pension plan costs including lower amortization net loss experience differences plan make contributions approximately 40 million us pension plans approximately 200 million nonus pension plans 2010 estimated pension contributions include anticipated contributions newly acquired cadbury business update figure future filings reflect anticipated contributions actual contributions may differ planned contributions due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates us qualified pension plans currently required make us pension plan contributions pension protection act 2006 2010 expect 2010 net expense employee benefit plans increase approximately 40 million increase primarily due higher forecasted nonus pension plan costs due plan assumption changes partially offset lower forecasted postemployment benefit plan costs nonus pension plan costs higher primarily due weightedaverage decrease 120 basis points discount rate assumption disclosure made december 31 2009 reflect impacts recent acquisition divestiture activity freezing us pension plans current salaried nonunion hourly employees effective december 31 2019 pension accruals salaried nonunion employees currently earning pension benefits end december 31 2019 continuing pay service used calculate pension benefits december 31 2019 projected benefit obligation decreased 168 million 2009 incurred 5 million curtailment charge 2009 related freeze expect freeze lower annual us pension plan costs approximately 40 million beginning 2010 additionally salaried nonunion hourly employees hired us january 1 2009 discontinued benefits us pension plans replaced enhanced company contribution employee savings plan expect significant impact 2010 pension plan cost 2010 health care cost trend rate assumption remained unchanged 700 us postretirement plans remained unchanged 900 canadian postretirement plans established rates based upon recent experience well expectation health care trend rates going forward anticipate health care cost trend rate assumption 500 us plans 2014 600 canadian plans 2016 assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects december 31 2009 2010 discount rate assumption decreased 570 610 us postretirement plans decreased 525 760 canadian postretirement plans 2010 discount rate decreased 593 610 us pension plans model discount rates using portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations 2010 discount rate assumption nonus pension plans decreased 521 641 developed discount rates nonus plans local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear 2010 expected rate return plan assets remained unchanged 800 us pension plans determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class attempt maintain target asset allocation rebalancing equity debt asset classes make contributions monthly benefit payments intend rebalance plan portfolios mid2010 making contributions monthly benefit payments anticipate changes 2010 assumptions us nonus pension postretirement health care plans sensitivity measure fiftybasis point change discount rate fiftybasis point change expected rate return plan assets would following effects increase decrease cost december 31 2009 financial instruments operate globally use certain financial instruments manage foreign currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price interest rate risk management strategies seek reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices interest rates principally use derivative instruments financial instruments qualifying hedge accounting must maintain specified level effectiveness hedging instrument item hedged inception throughout hedged period formally document nature relationships hedging instruments hedged items well risk management objectives strategies undertaking various hedge transactions method assessing hedge effectiveness additionally hedges forecasted transactions significant characteristics expected terms forecasted transaction must specifically identified must probable forecasted transaction occur deem probable forecasted transaction occur recognize gain loss earnings currently using derivatives hedge exposures changes exchange rates commodity prices exposure derivatives credit market risk exposed credit risk counterparty might fail fulfill performance obligations terms derivative contract minimize credit risk entering transactions high quality counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties october 2008 one counterparties lehman brothers commercial corporation filed bankruptcy consequently wrote insignificant asset related derivatives held significant impact foreign currency risk management program also maintain policy requiring significant nonexchange traded derivative contracts duration greater one year governed international swaps derivatives association master agreement market risk value financial instrument might adversely affected change foreign currency exchange rates commodity prices interest rates manage market risk incorporating monitoring parameters within risk management strategy limit types derivative instruments derivative strategies use degree market risk may undertaken use derivative instruments record derivative financial instruments fair value consolidated balance sheets either current assets current liabilities changes fair value derivative highly effective designated cash flow hedge extent hedge effective recorded period either accumulated comprehensive earnings losses earnings gains losses derivative instruments reported accumulated comprehensive earnings losses reclassified consolidated statement earnings periods operating results affected hedged item changes fair value derivative highly effective designated fair value hedge along changes fair value hedged asset liability attributable hedged risk recorded current period earnings cash flows hedging instruments classified manner affected hedged item consolidated statements cash flows income taxes prior spinoff altria included altria’s consolidated federal income tax return generally computed income taxes separate company basis however foreign tax credits capital losses credits could used separate company basis extent altria used foreign tax credits tax benefits consolidated federal income tax return recognized benefit calculation provision income taxes benefit approximately 270 million 2007 made payments reimbursed altria tax effects resulting included altria’s tax return march 31 2007 longer member altria consolidated tax return group file federal consolidated income tax returns july 2006 new guidance issued addressed accounting uncertainty income taxes adopted guidance effective january 1 2007 guidance clarified tax benefits recorded financial statements provided measurement criteria valuing benefits order us recognize benefits tax position must likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement implementation guidance established additional provisions certain positions likely challenged even though believe existing tax positions fully supportable adoption guidance resulted increase equity january 1 2007 213 million recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized commodity trends major purchaser dairy coffee cocoa wheat corn products soybean vegetable oils nuts meat products sugar sweeteners also use significant quantities plastic glass cardboard package products natural gas factories warehouses continuously monitor worldwide supply cost trends commodities act quickly obtain ingredients packaging needed production purchase dairy raw material requirements including milk cheese independent third parties agricultural cooperatives independent processors prices milk dairy product purchases substantially influenced market supply demand well government programs dairy commodity costs average lower 2009 2008 significant cost items biscuit grocery products grains wheat corn soybean oil grain costs experienced significant volatility result burgeoning global demand food livestock feed biofuels ethanol biodiesel grain costs average relatively flat 2008 2009 significant cost item coffee products green coffee beans purchased world markets green coffee bean prices affected quality availability supply changes value us dollar relation certain currencies consumer demand coffee products green coffee bean costs average lower 2009 2008 significant cost item chocolate confectionery products cocoa purchased world markets price affected quality availability supply changes value british pound us dollar relative certain currencies cocoa bean cocoa butter costs average higher 2009 2008 2009 aggregate commodity costs decreased primarily result lower dairy costs 2009 commodity costs approximately 150 million lower 2008 following increase approximately 20 billion 2008 compared 2007 overall expect commodity costs continue volatile 2010 liquidity believe cash operations existing 45 billion revolving credit facility supports commercial paper program authorized longterm financing provide sufficient liquidity meet working capital needs planned capital expenditures future contractual obligations payment anticipated quarterly dividends continue utilize commercial paper program primarily uncommitted international credit lines daily funding requirements also use shortterm intercompany loans foreign subsidiaries improve financial flexibility overall expect negative effects funding sources would material effect liquidity net cash provided operating activities operating activities provided net cash 51 billion 2009 41 billion 2008 36 billion 2007 increase operating cash flows 2009 primarily related working capital improvements prior year primarily due improved inventory positions partially offset higher interest payments principally due first annual payment euro notes higher earnings increase operating cash flows partially offset higher pension contributions driven total voluntary contributions 400 million made us pension plans may december 2009 operating cash flows increased 2008 2007 primarily due increased earnings working capital improvements mainly lower income tax payments lower inventory levels partially offset increased interest paid increase operating cash flows partially offset 305 million tax transfer altria 2007 federal tax contingencies held less impact federal reserves reversed due adoption new guidance addressed accounting uncertainty income taxes transfer altria reflected component change current assets within net cash provided operating activities section consolidated statement cash flows anticipate making us pension contributions approximately 40 million 2010 nonus pension contributions approximately 200 million 2010 expect fund contributions operations estimated pension contributions include anticipated contributions newly acquired cadbury business update figure future filings reflect anticipated contributions net cash used investing activities one element growth strategy strengthen brand portfolios expand geographic reach disciplined programs selective acquisitions divestitures regularly reviewing potential acquisition candidates time sell businesses accelerate shift portfolio toward businesseswhether global regional local offer us sustainable competitive advantage impact future acquisitions divestitures could material impact cash flows net cash used investing activities 12 billion 2009 13 billion 2008 84 billion 2007 decrease cash used investing activities 2009 primarily related 99 million payment made groupe danone sa 2008 refund excess cash received acquisition lu biscuit lower capital expenditures partially offset lower proceeds divestitures decrease cash used investing activities 2008 primarily related lower payments acquisitions partially offset lower proceeds divestitures higher capital expenditures 2009 divested balance bar operations us juice operation brazil plant spain received 41 million net proceeds 2008 received 153 million net proceeds divestitures primarily related nordic baltic snacks operation four operations spain disbursed 56 million transaction fees related splitoff post cereals business additionally paid groupe danone sa aforementioned refund 2008 2007 received net proceeds 216 million divestitures flavored water juice brand assets related trademarks sugar confectionery assets romania related trademarks hot cereal assets trademarks additionally acquired lu biscuit 51 billion approximately 76 billion cash 2007 capital expenditures funded operating activities 13 billion 2009 14 billion 2008 12 billion 2007 2009 capital expenditures primarily used modernize manufacturing facilities support new product productivity initiatives expect 2010 capital expenditures line 2009 expenditures including capital expenditures required systems’ investments expect fund expenditures operations disclosure made december 31 2009 reflect impacts recent acquisition divestiture activity net cash used provided financing activities net cash used financing activities 31 billion 2009 21 billion 2008 compared 51 billion provided 2007 net cash used financing activities 2009 primarily related 17 billion dividend payments 950 million repayments longterm debt securities 344 million net commercial paper repayments additionally cash used financing activities 2009 included 69 million costs related bridge facility agreement dated november 9 2009 “cadbury bridge facility” net cash used financing activities 2008 primarily related 59 billion payments made bridge facility used fund lu biscuit acquisition 17 billion dividend payments 777 million common stock share repurchases 795 million repayments longterm debt securities primarily related debt matured october 1 2008 partially offset 69 billion proceeds longterm debt offerings net cash provided financing activities 2007 primarily due 64 billion proceeds longterm debt offerings net outstanding borrowings 55 billion bridge facility used fund lu biscuit acquisition partially offset 37 billion common stock share repurchases 16 billion dividend payments 14 billion repayments longterm debt securities matured august 2010 500 million longterm debt matures expect fund repayment cash operations shortterm borrowings disclosure made december 31 2009 reflect impacts recent acquisition divestiture activity borrowing arrangements november 30 2009 entered revolving credit agreement 45 billion threeyear senior unsecured revolving credit facility agreement replaced former revolving credit agreement terminated upon signing new agreement intend use revolving credit facility general corporate purposes including working capital purposes support commercial paper issuances amounts drawn facility revolving credit agreement requires us maintain minimum total shareholders’ equity excluding accumulated comprehensive earnings losses least 230 billion upon completion cadbury acquisition covenant increase 75 increase total shareholders’ equity direct result issuance certain types equity securities finance acquisition b refinancing certain indebtedness december 31 2009 total shareholders’ equity excluding accumulated comprehensive earnings losses 298 billion expect continue meet covenant revolving credit agreement also contains customary representations covenants events default however revolving credit facility financial covenants credit rating triggers provisions could require us post collateral security addition international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 15 billion december 31 2009 borrowings lines amounted 191 million december 31 2009 291 million december 31 2008 cadbury bridge facility £55 billion approximately 89 billion 364day senior unsecured facility january 18 2010 amended agreement increase cadbury bridge facility aggregate £71 billion february 11 2010 issuance 95 billion senior unsecured notes amended agreement decrease cadbury bridge facility aggregate £13 billion expect use borrowings cadbury bridge facility proceeds financing sources finance cadbury acquisition refinance certain indebtedness cadbury subsidiaries certain restrictions borrowings cadbury bridge facility also available general corporate purposes cadbury bridge facility agreement includes minimum shareholders’ equity requirement 45 billion revolving credit agreement addition event longterm senior unsecured indebtedness rated investment grade either moody’s standard poor’s cadbury bridge facility agreement requires us maintain net debt adjusted ebitda ratio 425 100 december 31 2009 continued maintain investment grade debt rating net debt adjusted ebitda ratio 264 cadbury bridge facility agreement also contains customary representations covenants events default requires prepayment advances permanent reduction commitments facility net cash proceeds received certain disposals debt issuances equity capital markets transactions amounts drawn facility december 31 2009 subject market conditions expect refinance reduce advances cadbury bridge facility proceeds alternative financing sources debt total debt 190 billion december 31 2009 203 billion december 31 2008 debttocapitalization ratio 042 december 31 2009 048 december 31 2008 december 31 2009 weightedaverage term outstanding longterm debt 84 years february 8 2010 issued 95 billion senior unsecured notes weightedaverage effective rate 5364 using net proceeds 9379 million finance cadbury acquisition general corporate purposes issuance 95 billion senior unsecured notes weightedaverage term outstanding longterm debt 105 years september 3 2009 redeemed november 2011 7 200 million debenture par value upon redemption recorded loss 14 million within interest expense net represented writeoff remaining discount november 12 2009 repaid 750 million notes october 1 2008 repaid 700 million notes repayments primarily financed commercial paper issuances december 19 2008 issued 500 million senior unsecured notes may 22 2008 issued 20 billion senior unsecured notes march 20 2008 issued 285 billion approximately 45 billion senior unsecured notes used net proceeds issuances 498 million december 1967 million may approximately 4470 million march general corporate purposes including repayment borrowings bridge facility used fund lu biscuit acquisition shortterm borrowings notes issuances include covenants restrict ability incur debt secured liens certain threshold also required offer purchase notes price equal 101 aggregate principal amount plus accrued unpaid interest date repurchase experience following “change control” triggering event ii downgrade notes investment grade rating moody’s standard poor’s fitch within specified period expect continue comply longterm debt covenants refer note 7 debt borrowing arrangements details debt offerings time refinance longterm shortterm debt nature amount longterm shortterm debt proportionate amount varies result future business requirements market conditions factors automatic shelf registration form s3 file sec wellknown seasoned issuer able register new debt securities amounts authorized board directors december 2010 october 4 2007 board directors authorized 50 billion general longterm financing addition 53 billion authorized lu biscuit acquisition £71 billion authorized cadbury acquisition december 31 2009 approximately 30 billion remaining general longterm financing authority £71 billion approximately 115 billion remaining cadbury financing authority board directors debt ratings february 16 2010 debt ratings major credit rating agencies 3 amounts represent expected cash payments capital leases including expected cash payments interest expense approximately 18 million capital leases 4 operating leases represent minimum rental commitments noncancelable operating leases 5 purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 6 longterm liabilities primarily consist estimated future benefit payments postretirement health care plans december 31 2019 approximately 2180 million unable reliably estimate timing payments beyond 2019 excluded table addition following longterm liabilities included consolidated balance sheet excluded table accrued pension costs income taxes insurance accruals unable reliably estimate timing payments contributions beyond 2010 case accrued pension costs items currently expect make approximately 240 million contributions pension plans 2010 also expect net pension cost increase approximately 50 million approximately 440 million 2010 december 31 2009 total liability income taxes including uncertain tax positions associated accrued interest penalties 12 billion expect pay approximately 239 million next 12 months 2009 reached agreement irs specific matters related years 2000 2003 returns years still examination irs recently began examination years 2004 2006 able reasonably estimate timing future cash flows beyond 12 months due uncertainties timing tax audit outcomes equity dividends stock repurchases board directors authorized following common stock repurchase programs 50 billion share repurchase authority expired march 30 2009 repurchase shares 2009 total repurchased 253 million shares 777 million 2008 1101 million shares 3640 million 2007 programs made repurchases common stock open market transactions march 2007 repurchased 14 million additional shares common stock altria cost 465 million paid 32085 per share average high low price kraft foods common stock reported nyse march 1 2007 repurchase accordance spinoff agreement altria stock plans 2009 annual meeting shareholders approved kraft foods inc amended restated 2005 performance incentive plan “2005 plan” 2005 plan includes among provisions limit number shares may granted vesting restrictions prohibition stock option repricing amended plan authorized issue maximum 1680 million shares common stock effective date amendment 921 million shares available granted 2005 plan 275 million shares may awarded restricted deferred stock 2008 changed annual longterm incentive compensation programs align shareholder returns annual equity program grant equity form restricted deferred stock options restricted deferred stock continues vest 100 three years stock options vest three annual installments beginning first anniversary grant date additionally changed longterm incentive plan cashbased program sharebased program shares vest based varying performance market service conditions unvested longterm incentive plan shares voting rights pay dividends january 2009 granted 15 million shares stock connection longterm incentive plan market value per share 2700 date grant february 2009 part annual equity program issued 41 million shares restricted deferred stock eligible employees market value per restricted deferred share 2364 date grant also part annual equity program granted 163 million stock options eligible employees exercise price 2364 also issued 02 million offcycle shares restricted deferred stock 2009 weightedaverage market value per restricted deferred share 2555 date grant aggregate issued 58 million restricted deferred shares 2009 december 31 2009 number shares issued upon exercise outstanding stock options vesting nonus deferred shares vesting longterm incentive plan shares 528 million 36 total shares outstanding january 2008 granted 14 million shares stock connection longterm incentive plan market value per share 3226 date grant february 2008 part annual equity program issued 34 million shares restricted deferred stock eligible employees market value per restricted deferred share 2949 date grant also part annual equity program granted 135 million stock options eligible employees exercise price 2949 addition issued 02 million offcycle shares restricted deferred stock 2008 weightedaverage market value per restricted deferred share 3038 date grant aggregate issued 50 million restricted deferred shares 2008 also granted 01 million offcycle stock options 2008 exercise price 3078 aggregate granted 136 million stock options 2008 board directors approved stock option grant chief executive officer may 3 2007 recognize election chairman received 300000 stock options vest varying market service conditions expire ten years grant date january 2007 issued 52 million shares restricted deferred stock eligible employees part annual equity program market value per restricted deferred share 34655 date grant additionally issued 10 million offcycle shares restricted deferred stock 2007 weightedaverage market value per restricted deferred share 34085 date grant total number restricted deferred shares issued 2007 92 million including issued result spinoff altria discussed upon spinoff altria stock awards modified issuance kraft foods stock awards accordingly altria stock awards split two instruments holders altria stock options received 1 new kraft foods option acquire shares kraft foods common stock 2 adjusted altria stock option number shares altria common stock previously held proportionally reduced exercise price employee stock option outstanding aggregate intrinsic value immediately spinoff altria greater aggregate intrinsic value immediately prior holders altria restricted stock rights awarded january 31 2007 retained existing awards received restricted stock rights kraft foods common stock recipients altria restricted stock rights awarded january 31 2007 receive kraft foods restricted stock rights altria announced spinoff time reimbursed altria 179 million net settlement employee stock awards determined fair value stock options using blackscholes option valuation model adjusted fair value restricted stock rights value projected forfeitures based upon number altria stock awards outstanding time spinoff granted stock options 242 million shares common stock weightedaverage price 1575 options expire 2007 2012 addition issued 30 million shares restricted stock rights market value per restricted share right 3166 date grant restrictions majority restricted shares stock rights lapsed either first quarter 2008 2009 dividends paid dividends 1712 million 2009 1663 million 2008 1638 million 2007 increases 29 2009 15 2008 reflect higher dividend rates partially offset fewer shares outstanding resulting splitoff post cereals business share repurchases present annualized dividend rate 116 per common share declaration dividends subject discretion board directors depends various factors including net earnings financial condition cash requirements future prospects factors board directors deems relevant analysis decision making 2010 outlook expect strong operating financial momentum base business carry forward coming years near term continue target organic net revenue growth 4 percent high end 7 9 percent longterm eps growth objective base business expect deliver performance • investing incrementally product quality marketing innovation • raising productivity percentage cost goods sold greater 4 percent 2011 • leveraging overhead costs reducing overhead percentage net revenue approximately 125 percent 2011 • restoring operating income margins industry benchmarks midteens 2011 addition consolidated results include cadbury february 2 2010 onwards combination kraft foods cadbury expected provide potential meaningful revenue synergies time investments distribution marketing product development result combined company targeting longterm organic net revenue growth 5 percent opportunities significant synergies combination also identified combined basis continue expect pretax cost savings least 675 million annually realized end 2012 total onetime implementation cash costs approximately 13 billion expected incurred end 2012 combined basis targeting accretion earnings per share 2011 approximately 005 cash basis excludes onetime expenses achieve cost savings expenses related transaction impact incremental noncash items amortization intangibles related acquisition longterm combined company targeting eps growth 9 11 percent results also affected sale assets frozen pizza business expected close first quarter 2010 also expect earnings reduced approximately 005 per diluted share annual basis result frozen pizza business transaction assumes proceeds used combination debt reduction share repurchases new accounting standards see note 1 summary significant accounting policies consolidated financial statements discussion new accounting standards contingencies see note 13 commitments contingencies consolidated financial statements part item 3 legal proceedings discussion contingencies nongaap financial measures use nonus gaap financial measure “organic net revenues” corresponding growth ratios difference “organic net revenues” “net revenues” comparable us gaap financial measure organic net revenues excludes impact acquisitions divestitures currency organic net revenues used management budget make operating strategic decisions evaluate performance disclosed measure financial data management uses intention assisting making comparisons historical operating results analyzing underlying performance management believes organic net revenues better reflect underlying growth ongoing activities business provide improved comparability results exclude impact fluctuations foreign currency exchange rates control also exclude onetime impacts acquisitions divestitures net revenues limitation measure excludes items impact net revenues best way limitation addressed using organic net revenues combination us gaap reported net revenues management believes presentation nonus gaap financial measure considered together us gaap financial measures reconciliations corresponding us gaap financial measures provides complete understanding factors trends affecting kraft foods could obtained absent disclosures organic net revenues calculations may vary among companies organic net revenues figures presented consolidated results operations section may comparable similarly titled measures companies organic net revenues meant considered isolation substitute us gaap financial measures carefully evaluate following table reconciling us gaap reported net revenues organic net revenues addition use nonus gaap financial measure “free cash flow” difference “free cash flow” “net cash provided operating activities” comparable us gaap financial measure free cash flow reflects impact capital expenditures limitation measure includes items impact cash flow provided operating activities best way limitation addressed using free cash flow combination us gaap reported net cash provided operating activities free cash flow internal supplemental measure performance management uses free cash flow primary cash flow metric budgeting forecasting processes represents controllable cash flows operations believe free cash flow shows financial health efficiently running company believe nonus gaap measure provides information useful management investors gaining overall understanding current financial performance provides investors financial information closely aligns internal measurement processes nonus gaap measure considered isolation alternative cash flows generated operating investing financing activities measure liquidity free cash flow measurement determined accordance us gaap thus susceptible varying calculations free cash flow may comparable similarly titled measures companies table reconciles reported net cash provided operating activities free cash flow periods stated forwardlooking statements report contains forwardlooking statements including four priorities shape future planned sale frozen pizza business including regulatory clearances number employees transfer expected close strategy centered investments align growing consumer interest convenience products premium brands focus snacks confectionary products fits well within strategy growth instant consumption channels longterm strategy intent acquire remaining cadbury ordinary shares accounting sale frozen pizza business discontinued operation first quarter 2010 continuing expectation exchange shareholders related splitoff post cereals business taxfree expectations lu biscuits regard restructuring program use cash pay charges cumulative annualized savings connection new operating structure putting resources closer make decisions affect consumers customers intent simplify streamline increase accountability ultimate goal generating reliable growth kraft foods disclose implementation charges reorganization european operations changed way work include segment operating income expectation regarding completion reorganization kraft foods europe expected additional charges complete integration europe biscuits business disclose implementation nonrecurring charges expectations regarding venezuelan devaluation affect 2010 operating results belief average cost method accounting preferable improve financial reporting uncertainty three reporting units could potentially require analysis future determine goodwill impairment exists significant certainties including continued economic uncertainty volume declines negative effect recession restaurant industry deteriorating economic environment europe ultimately lead recessionary period belief ultimate resolution existing environmental remediation actions compliance environmental laws regulations material effect financial results uncertainty related potential impact future compliance efforts environmental remediation efforts belief regarding assumptions used recording plan obligations regard pension plans amount expect make contributions 2010 amount expect net pension cost increase expectation regarding amount pension freeze lower annual us pension plan costs expectation enhanced company contribution employee savings plan significant impact 2010 pension plan cost expectation health care trend rates anticipated health care cost trend rate assumption discount rate model expected future cash flows benefit obligations final outcome legal proceedings materially affect financial results 2010 expected rate return plan assets intent rebalance plan portfolios mid2010 anticipate changes 2010 assumptions pension postretirement health care plans risk management program effects exposure relating derivatives credit market risk expectation 2010 commodity costs volatile belief regarding liquidity expect negative effects funding sources would material effect liquidity expectation fund pension contributions operations element growth strategy strengthen brand portfolios expand geographic reach disciplined programs selective acquisitions divestitures impact future acquisitions divestitures could material impact cash flows expectations regarding 2010 capital expenditures expectation fund repayment longterm debt cash operations shortterm borrowings intended use revolving credit agreement expect continue meet shareholders’ equity covenant expectation continue comply longterm debt covenants expect use borrowings cadbury bridge facility proceeds financing sources finance cadbury acquisition refinance cadbury debt expect refinance reduce advances cadbury bridge facility proceeds alternative financing sources guarantees expect material effect liquidity expectations regarding aggregate contractual obligations 2010 outlook forwardlooking statements involve risks uncertainties cautionary statements contained “risk factors” found annual report form 10k identify important factors could cause actual results differ materially predicted forwardlooking statements factors include limited continued volatility commodity costs pricing actions increased competition ability differentiate products private label products increased costs sales indebtedness ability pay indebtedness unexpected safety manufacturing issues food drug administration regulatory actions delays unanticipated expenses litigation legal settlement expenses shift product mix lower margin offerings risks operating globally failure successfully integrate cadbury business tax law changes disclaim undertake obligation update revise forwardlooking statement form 10k item 7aitem 7 management’s discussion analysis financial condition results operations following discussions read conjunction sections annual report form 10k including consolidated financial statements related notes contained item 8 description company market biscuits confectionery beverages cheese grocery products convenient meals approximately 170 countries executive summary following executive summary intended provide significant highlights discussion analysis follows • net revenues 2010 increased 270 492 billion net revenues 2009 decreased 43 388 billion • diluted eps attributable kraft foods increased 177 239 2010 increased 68 203 2009 diluted eps attributable kraft foods continuing operations decreased 238 144 2010 increased 718 189 2009 • february 2 2010 received acceptances offer 7173 outstanding ordinary shares cadbury february 2 2010 june 1 2010 acquired remaining 2827 cadbury shares acquiring cadbury issued 262 million shares common stock paid 109 billion cash • february 8 2010 issued 95 billion senior unsecured notes weightedaverage effective rate 5364 primarily used net proceeds 9379 million finance cadbury acquisition • march 1 2010 completed sale assets north american frozen pizza business nestlé usa inc 37 billion accordingly results frozen pizza business reflected discontinued operations consolidated statement earnings prior period results revised consistent manner • december 29 2010 repurchased 15 billion notes due 2011 2012 paid 1596 million aggregate consideration including accrued unpaid interest accepted notes • november 30 2009 entered revolving credit agreement 45 billion threeyear senior unsecured revolving credit facility agreement replaced former revolving credit agreement terminated upon signing new agreement • 50 billion share repurchase authority expired march 30 2009 prior expiration repurchased 1309 million shares 43 billion program repurchase shares 2010 2009 • 2008 completed 29 billion fiveyear restructuring program reversed previously accrued restructuring program charges 37 million 2010 85 million 2009 recorded charges 989 million 2008 • august 4 2008 completed splitoff post cereals business accordingly post cereals business prior period results reflected discontinued operations consolidated statement earnings discussion analysis strategy seeking build global snacks powerhouse unrivaled portfolio brands people love future growth centered three strategies delight global snacks consumers unleash power iconic heritage brands create performancedriven valuesled organization believe allow us deliver toptier shareholder returns plan drive sustained profitable growth put us among top performers industry strategic focus global snacks iconic heritage brands culture intended deliver robust topline growth ongoing overhead cost saving efforts fueling significant additional investments marketing innovation believe savings investments along emphasis importance superior execution generate sustained growth believe wellpositioned deliver consistent financial results toptier peer group items affecting comparability financial results acquisitions divestitures cadbury acquisition january 19 2010 announced terms final offer outstanding ordinary share cadbury limited formerly cadbury plc “cadbury” including ordinary share represented american depositary share “cadbury ads” cadbury board directors recommended cadbury shareholders accept terms final offer february 2 2010 conditions offer satisfied validly waived initial offer period expired subsequent offer period immediately began point received acceptances 7173 outstanding cadbury ordinary shares including represented cadbury adss “cadbury shares” june 1 2010 owned 100 outstanding cadbury shares believe combination kraft foods cadbury create global snacks powerhouse unrivaled portfolio brands people love terms final offer subsequent offer agreed pay cadbury shareholders 500 pence cash 01874 shares kraft foods common stock per cadbury ordinary share validly tendered 2000 pence cash 07496 shares kraft foods common stock per cadbury ads validly tendered valued cadbury 185 billion approximately £116 billion based average price 2836 share kraft foods common stock february 2 2010 exchange rate 1595 per £100 february 2 2010 acquired 7173 cadbury shares 131 billion value attributed noncontrolling interests 54 billion february 2 2010 june 1 2010 acquired remaining 2827 cadbury shares 54 billion 38 million gain noncontrolling interest acquired recorded within additional paid capital part cadbury acquisition incurred expensed transaction related fees 218 million 2010 40 million 2009 recorded expenses within selling general administrative expenses also incurred acquisition financing fees 96 million 2010 recorded expenses within interest expense net cadbury contributed net revenues 9143 million net earnings 530 million february 2 2010 december 31 2010 following unaudited pro forma summary presents kraft foods’ consolidated information cadbury acquired january 1 2009 amounts calculated conversion us gaap applying accounting policies adjusting cadbury’s results reflect additional depreciation amortization would charged assuming fair value adjustments property plant equipment intangible assets applied january 1 2009 together consequential tax effects adjustments also reflect additional interest expense incurred debt finance purchase divestitures certain cadbury confectionery operations poland romania required eu commission condition cadbury acquisition february 2 2010 cadbury acquisition valued 18547 million 17503 million net cash equivalents part acquisition acquired following assets assumed following liabilities millions 1 gross amount due receivables acquired 1474 million 141 million expected uncollectable 2 goodwill deductible statutory tax purposes attributable cadbury’s workforce significant synergies expect acquisition 3 acquired 103 billion indefinitely lived intangible assets primarily trademarks 26 billion amortizable intangible assets primarily customer relationships technology customer relationships amortized approximately 13 years technology amortized approximately 12 years 4 within current liabilities reserve exposures related taxes approximately 70 million established within developing markets segment cumulative exposure approximately 150 million december 31 2010 amounts represent allocation purchase price completed fourth quarter 2010 pizza divestiture march 1 2010 completed sale assets north american frozen pizza business “frozen pizza” nestlé usa inc “nestlé” 37 billion frozen pizza business component us convenient meals canada north america foodservice segments sale included digiorno tombstone jack’s brands us delissio brand canada california pizza kitchen trademark license also included two wisconsin manufacturing facilities medford little chute leases pizza depots delivery trucks approximately 3600 employees transferred business nestlé accordingly results frozen pizza business reflected discontinued operations consolidated statement earnings prior period results revised consistent manner result divestiture recorded gain discontinued operations 1596 million 092 per diluted share 2010 pursuant frozen pizza business transition services agreement agreed provide certain sales comanufacturing distribution information technology accounting finance services nestlé two years summary results operations frozen pizza business march 1 2010 follows earnings income taxes presented exclude associated allocated overheads 25 million 2010 108 million 2009 112 million 2008 2010 gain discontinued operations sale frozen pizza business included tax expense 12 billion following assets frozen pizza business included frozen pizza divestiture millions post cereals splitoff august 4 2008 completed splitoff post cereals business ralcorp holdings inc “ralcorp” exchange shareholders accordingly post cereals business prior period results reflected discontinued operations consolidated statement earnings exchange expected taxfree participating shareholders us federal income tax purposes splitoff transaction approximately 46 million shares kraft foods common stock tendered 1644 million shareholders option exchange shares kraft foods common stock receive shares common stock cable holdco inc “cable holdco” cable holdco wholly owned subsidiary owned certain assets liabilities post cereals business exchange contribution post cereals business cable holdco issued approximately 665 million debt securities issued shares common stock assumed 300 million credit facility upon closing used cash equivalent net proceeds approximately 960 million repay debt result splitoff recorded gain discontinued operations 926 million 061 per diluted share 2008 post cereals business included brands honey bunches oats pebbles shredded wheat selects grapenuts honeycomb kraft foods brands transaction distributed primarily north america addition post brands transaction included four manufacturing facilities certain manufacturing equipment approximately 1230 employees joined ralcorp part transaction pursuant post cereals business transition services agreement provided certain sales comanufacturing distribution information technology accounting finance services ralcorp 2009 summary results operations post cereals business august 4 2008 follows divestitures eu commission required condition cadbury acquisition divest certain cadbury confectionery operations poland romania 2010 completed sale assets confectionery operations poland romania total proceeds divestitures 342 million impacts divestitures primarily reflected adjustments purchase price allocations 2009 received 41 million net proceeds recorded pretax losses 6 million divestitures balance bar operations us juice operation brazil plant spain recorded aftertax gains 58 million 004 per diluted share divestitures primarily due differing book tax bases balance bar operations 2008 received 153 million net proceeds recorded pretax losses 92 million divestitures primarily related nordic baltic snacks operation four operations spain recorded aftertax losses 64 million 004 per diluted share divestitures included 2008 divestitures following condition eu commission’s approval groupe danone sa global lu biscuit business “lu biscuit” acquisition • divested biscuit operation spain divestiture received 86 million net proceeds recorded pretax losses 74 million • divested another biscuit operation spain trademark hungary previously acquired part lu biscuit acquisition impacts divestitures reflected adjustments purchase price allocations aggregate operating results divestitures discussed divestiture frozen pizza post cereals businesses material financial statements periods presented refer note 16 segment reporting details gains losses divestitures segment net impacts segment operating income gains losses divestitures along resulting asset impairment charges summarized table asset impairment charges section asset impairment charges 2010 recorded aggregate asset impairment charges 55 million 002 per diluted share 2010 review goodwill nonamortizable intangible assets recorded 13 million charge impairment intangible assets netherlands 30 million charge impairment intangible assets china fourth quarter 2010 also recorded asset impairment 12 million biscuit plant related property plant equipment france recorded aggregate asset impairment charges within asset impairment exit costs 2009 recorded aggregate asset impairment charges 21 million 001 per diluted share 2009 review goodwill nonamortizable intangible assets recorded 12 million charge impairment intangible assets netherlands addition 2009 recorded 9 million asset impairment charge write investment norway recorded aggregate asset impairment charges within asset impairment exit costs 2008 recorded aggregate asset impairment charges 140 million 007 per diluted share 2008 review goodwill nonamortizable intangible assets recorded 44 million charge impairment intangible assets netherlands france puerto rico addition december 2008 reached preliminary agreement divest juice operation brazil reached agreement sell cheese plant australia anticipation divesting juice operation brazil recorded asset impairment charge 13 million fourth quarter 2008 charge primarily included writeoff associated intangible assets 8 million property plant equipment 4 million anticipation selling cheese plant australia recorded asset impairment charge 28 million property plant equipment fourth quarter 2008 additionally 2008 divested nordic baltic snacks operation incurred asset impairment charge 55 million connection divestiture charge primarily included writeoff associated goodwill 34 million property plant equipment 16 million recorded aggregate asset impairment charges within asset impairment exit costs net impacts segment operating income gains losses divestitures related asset impairment charges recorded divestitures considered heldforsale summarized table restructuring costs within restructuring programs initiatives include certain costs along exit disposal costs directly attributable activities yet qualify treatment exit disposal costs us gaap costs commonly refer project costs implementation costs generally include integration reorganization operations facilities discontinuance certain product lines incremental expenses related closure facilities management believes disclosure inclusion charges provides readers financial statements greater transparency total costs programs initiatives integration program combination cadbury potential meaningful synergies costs savings expect recognize least 750 million cost savings end third year following completion acquisition additionally expect create revenue synergies investments distribution marketing product development order achieve cost savings synergies expect incur total integration charges approximately 15 billion first three years following acquisition combine integrate two businesses “integration program” integration program costs include costs associated combining operations cadbury’s separate costs related acquisition incurred charges integration program 657 million 2010 recorded charges primarily operations part selling general administrative expenses within kraft foods europe kraft foods developing markets segments well general corporate expenses december 31 2010 accrual 406 million related integration program second quarter 2010 evaluated cadbury’s vision action “via” restructuring program began managing within overall integration program cadbury initiated via restructuring program 2007 planned run 2011 accordingly acquired accrual 228 million relating charges taken previous periods evaluating program part corporate strategies integration plans included remaining charges within overall integration program move forward combined company basis intend manage programs separately cost savings initiatives cost savings initiatives generally include exit disposal project costs incurred costs associated cost savings initiatives 170 million 2010 318 million 2009 none 2008 • 2010 primarily recorded changes within segment operating income kraft foods europe canada na foodservice majority charges incurred project costs associated kraft foods europe reorganization • 2009 charges primarily included severance charges benefits received terminated employees associated benefit plan costs related activities recorded operations primarily within segment operating income kraft foods europe remainder spread across segments 20042008 restructuring program 2008 completed fiveyear restructuring program “restructuring program” objectives program leverage global scale realign lower cost structure optimize capacity part restructuring program • incurred 29 billion pretax charges reflecting asset disposals severance implementation costs • announced closure 35 facilities announced elimination approximately 18200 positions • use cash pay 19 billion 29 billion charges • anticipate reaching cumulative annualized savings 14 billion total program 2010 reversed 37 million previously accrued restructuring program charges primarily related severance resulting favorable impact diluted eps 001 2009 reversed 85 million previously accrued restructuring program charges resulting favorable impact diluted eps 004 reversals 2009 related following • sold plant spain previously announced would close restructuring program accordingly reversed 35 million restructuring program charges primarily related severance recorded 17 million loss divestiture plant 2009 reversal occurred kraft foods europe segment • also reversed 50 million previously accrued restructuring program charges 2009 primarily due planned position eliminations occur primarily result redeployment natural attrition majority reversals occurred kraft foods europe segment remainder spread across segments incurred charges restructuring program 989 million 2008 045 per diluted share since inception restructuring program paid cash 18 billion 19 billion expected cash payments including 94 million paid 2010 december 31 2010 accrual 125 million related restructuring program anticipate utilizing majority 2011 restructuring program recorded asset impairment exit costs 884 million 2008 recorded implementation costs 105 million 2008 provision income taxes effective tax rate 315 2010 288 2009 282 2008 2010 effective tax rate included net tax benefits 123 million primarily due favorable resolution federal tax audit resolution several items international operations partially offset 137 million writeoff deferred tax assets result us health care legislation enacted march 2010 2009 effective tax rate included net tax benefits 225 million primarily due agreement reached irs specific matters related years 2000 2003 settlements various foreign state tax authorities expiration statutes limitations various jurisdictions divestiture balance bar operations us 2008 effective tax rate included net tax benefits 222 million discrete tax events total net tax benefits approximately 50 million related fourth quarter corrections state federal foreign tax liabilities third quarter reconciliation inventory deferred tax items resulted writedown net deferred tax liabilities remaining net tax benefits primarily related resolution various tax audits expiration statutes limitations various jurisdictions discrete tax benefits included impact divestitures nordic baltic snacks operation several operations spain tax benefit impairment charges taken 2008 addition 2008 tax rate benefited foreign earnings taxed us federal statutory tax rate expected tax benefit 2008 restructuring expenses benefits partially offset state tax expense certain foreign tax costs consolidated results operations following discussion compares consolidated results operations 2010 2009 2008 many factors impact sales customers including among others timing holidays annual special events significant weather conditions timing customer incentive programs pricing actions customer inventory programs general economic conditions domestic operating subsidiaries report results last saturday year international operating subsidiaries generally report results two weeks prior last saturday year results operations newly acquired cadbury limited formerly cadbury plc “cadbury” reported last day calendar month 2010 changed consolidation date certain european biscuits operations included within kraft foods europe segment certain operations asia pacific latin america included within kraft foods developing markets segment previously operations primarily reported periodend results one month two weeks prior end period kraft foods europe segment primarily reports periodend results two weeks prior last saturday period certain operations asia pacific latin america report results last day period 2010 compared 2009 net revenues net revenues increased 10453 million 270 49207 million 2010 organic net revenues 1 increased 1430 million 37 40075 million follows increase net revenues primarily driven cadbury acquisition added 9143 million net revenues year increase partially offset impact divestitures unfavorable foreign currency due primarily impacts highly inflationary venezuelan economy strength us dollar euro partially offset strength canadian dollar brazilian real australian dollar russian ruble us dollar additionally increased organic net revenues driven favorable volumemix higher net pricing favorable volumemix driven higher base business shipments across reportable business segments except us cheese us grocery higher net pricing reflected across reportable business segments except kraft foods europe us snacks increased pricing offset higher input costs operating income operating income increased 483 million 93 5666 million 2010 due following input cost increases outpaced pricing year higher raw material costs offset lower manufacturing costs higher pricing driven increased input costs experienced year favorable volumemix driven primarily strong contributions kraft foods developing markets kraft foods europe us beverages us convenient meals partially offset declines us grocery us cheese us snacks cadbury acquisition net integration program higher acquisitionrelated costs increased operating income 260 million total selling general administrative expenses recorded condensed consolidated statement earnings increased 3217 million 2009 excluding impacts divestitures foreign currency cadbury acquisition including integration program acquisitionrelated costs decreased 25 million versus prior year recognized gains 67 million unrealized hedging positions 2010 versus gains 203 million 2009 2010 reversed 37 million restructuring program charges recorded prior years versus reversal 85 million restructuring program charges recorded prior years 2009 recorded asset impairment charges 55 million 2010 related intangible assets china netherlands biscuit plant related property plant equipment france versus asset impairment charges 21 million related intangible assets netherlands write investment norway recorded 2009 addition unfavorable foreign currency decreased operating income 8 million due primarily impacts highly inflationary venezuelan economy strength us dollar euro partially offset strength canadian dollar brazilian real korean australian dollar us dollar result changes operating income margin decreased 134 2009 115 2010 net earnings per share attributable kraft foods net earnings attributable kraft foods 4114 million increased 1093 million 362 2010 diluted eps continuing operations attributable kraft foods 144 2010 238 189 2009 diluted eps attributable kraft foods 239 2010 177 203 2009 due following 1 please see nongaap financial measures section end item 2 excludes impacts acquisitionrelated interest expense net 3 excludes impacts 2010 us health care legislation deferred taxes includes impacts us federal tax audit agreements 2010 2009 compared 2008 net revenues net revenues decreased 1738 million 43 38754 million 2009 organic net revenues 1 increased 428 million 11 40565 million follows decrease net revenues primarily driven unfavorable foreign currency 1884 million due primarily strength us dollar euro russian ruble ukrainian hryvnia canadian dollar pound sterling brazilian real polish zloty impact divestitures also unfavorable impact net revenues decrease net revenues partially offset higher organic net revenues increase organic net revenues primarily driven higher net pricing partially offset decrease volumemix absence 2008 favorable resolution brazilian value added tax claim operating income operating income increased 1607 million 449 5183 million 2009 due following higher pricing reflected carryover impact 2008 pricing actions recovered cumulative cost increases prior years favorable volumemix driven strong contributions kraft foods developing markets us beverages decrease input costs driven lower raw material costs partially offset higher manufacturing costs 2009 reversed 85 million restructuring program charges recorded prior year versus 989 million restructuring program charges recognized 2008 recognized gains 203 million change unrealized hedging positions 2009 versus losses 205 million 2008 recorded 6 million net losses divestitures 2009 versus 92 million net losses divestitures 2008 recorded asset impairment charges 21 million related intangible assets netherlands write investment norway 2009 versus asset impairment charges 140 million related certain international intangible assets divestiture nordic baltic snacks operation juice operation brazil cheese plant australia recorded 2008 22 million lower charges certain legal matters 2009 recorded additional 50 million charges legal matters related certain european operations 2008 recorded 72 million charges legal matters related certain us european operations including us coffee operations total selling general administrative expenses recorded consolidated statement earnings increased 171 million 2008 excluding impacts divestitures foreign currency charges certain legal matters acquisitionrelated costs associated cadbury prior year restructuring program costs increased 569 million 2008 primarily due investments brands including spending cost savings initiatives higher marketing support costs addition unfavorable foreign currency decreased operating income 325 million due primarily strength us dollar pound sterling euro canadian dollar russian ruble ukrainian hryvnia korean brazilian real polish zloty result changes operating income margin also increased 88 2008 134 2009 net earnings per share attributable kraft foods net earnings attributable kraft foods 3021 million increased 137 million 48 2009 diluted eps continuing operations attributable kraft foods 189 2009 718 110 2008 diluted eps attributable kraft foods 203 2009 68 190 2008 due following results operations business segment manage report operating results three geographic units kraft foods north america kraft foods europe kraft foods developing markets manage operations kraft foods north america kraft foods europe product category manage operations kraft foods developing markets location reportable segments us beverages us cheese us convenient meals us grocery us snacks canada na foodservice kraft foods europe kraft foods developing markets results operations cadbury acquisition including integration program acquisitionrelated costs reflected within us snacks canada na foodservice kraft foods europe kraft foods developing markets segments following discussion compares results operations reportable segments 2010 2009 2008 discussed note 16 segment reporting management uses segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales certain components us pension plan cost component cost sales selling general administrative expenses general corporate expenses component selling general administrative expenses amortization intangibles periods presented exclude unrealized gains losses hedging activities segment operating income order provide better transparency segment operating results realized gains losses hedging activities recorded within segment operating results exclude certain components us pension plan cost segment operating income centrally manage pension plan funding decisions determination discount rate expected rate return plan assets actuarial assumptions therefore allocate service cost component us pension plan expense segment operating income 2010 change unrealized gains hedging activities 67 million primarily resulted gains associated commodity hedging activities 2009 change unrealized gains hedging activities 203 million primarily resulted 2008 unrealized losses energy derivatives becoming realized 2009 therefore included segment operating income 2008 change unrealized losses hedging activities 205 million primarily related energy derivatives including heating oil used primarily hedge transportation costs natural gas contracts 2010 increase general corporate expenses primarily due acquisitionrelated transaction fees integration program costs impact cadbury’s corporate charges incurred acquisitionrelated transaction fees 218 million 2010 40 million 2009 recorded charges operations part general corporate expenses 2009 general corporate expenses included 50 million charges legal matters related certain european operations 2008 recorded 72 million charges legal matters related certain us european operations including us coffee operations represented primary reason general corporate expenses increased 101 million 2008 us beverages 2010 compared 2009 net revenues increased 155 million 51 due favorable volumemix 45 pp higher net pricing 06 pp favorable volumemix impact net revenue primarily driven higher shipments readytodrink beverages reflecting volume gains koolaid capri sun coffee reflecting volume gains maxwell house starbucks tassimo powdered beverages reflecting volume gains tang segment operating income increased 53 million 104 due favorable volumemix lower manufacturing costs higher net pricing lower selling general administrative expenses partially offset higher raw material costs higher marketing support costs 2009 compared 2008 net revenues increased 56 million 19 due favorable volumemix 13 pp higher net pricing 06 pp favorable volumemix driven higher shipments readytodrink powdered beverages readytodrink beverages grew successful quality marketing investments capri sun partially offset discontinuation less profitable readytodrink product lines powdered beverages volume increased primarily due strong gains koolaid tang favorable factors partially offset unfavorable mix driven higher readytodrink volume addition coffee volume declined primarily driven lower shipments gevalia partially offset higher shipments maxwell house starbucks tassimo higher net pricing primarily related readytodrink beverages partially offset lower input costdriven pricing coffee segment operating income increased 130 million 341 due primarily lower costs due completion restructuring program lower raw material costs higher net pricing favorable volumemix higher shipments net unfavorable product mix lower manufacturing costs lower selling general administrative expenses partially offset higher marketing support costs us cheese 2010 compared 2009 net revenues decreased 77 million 21 due unfavorable volumemix 47 pp impact divestitures 04 pp partially offset higher net pricing 30 pp unfavorable volumemix driven lower shipments across cheese categories higher net pricing across cheese categories due input costdriven pricing partially offset increased promotional spending segment operating income decreased 69 million 103 due higher raw material costs primarily higher dairy costs unfavorable volumemix higher marketing support costs loss divestiture bagelfuls operations partially offset higher net pricing lower manufacturing costs lower selling general administrative expenses impact divestitures 2009 compared 2008 net revenues decreased 402 million 100 due lower net pricing 88 pp unfavorable volumemix 12 pp lower net pricing due lower input costdriven pricing combined increases promotional spending net revenues also declined due lower shipments primarily cultured natural cheese products segment operating income increased 104 million 185 due primarily lower raw material costs primarily lower dairy costs lower manufacturing costs lower costs due completion restructuring program lower selling general administrative expenses partially offset lower net pricing higher marketing support costs us convenient meals 2010 compared 2009 net revenues increased 102 million 34 due favorable volumemix 31 pp higher net pricing 03 pp favorable volumemix driven higher shipments hot dogs lunchables combination meals cold cuts higher net pricing driven inputcost driven pricing mostly offset increased promotional spending segment operating income increased 34 million 145 due lower selling general administrative expenses lower manufacturing costs favorable volumemix higher net pricing partially offset higher raw material costs higher marketing support costs 2009 compared 2008 net revenues increased 82 million 28 due higher net pricing 28 pp higher net pricing driven input costdriven pricing net increased promotional spending volumemix flat higher shipments bacon cold cuts hot dogs offset discontinuation less profitable product lines segment operating income increased 109 million 872 due primarily higher net pricing lower costs due completion restructuring program favorable volumemix partially offset higher selling general administrative expenses higher marketing support costs us grocery 2010 compared 2009 net revenues decreased 55 million 16 due unfavorable volumemix 33 pp partially offset higher net pricing 17 pp unfavorable volumemix due primarily lower shipments across key categories including pourable dressings readytoeat desserts spoonable dressings dry packaged desserts higher net pricing across key categories primarily related kraft macaroni cheese dinners pourable dressings readytoeat desserts dry packaged desserts segment operating income increased 18 million 16 due primarily higher net pricing lower manufacturing costs lower selling general administrative expenses partially offset unfavorable volumemix higher marketing support costs 2009 compared 2008 net revenues increased 64 million 19 due higher net pricing 35 pp partially offset unfavorable volumemix 16 pp net revenues increased due higher input costdriven pricing across several key categories primarily spoonable salad dressings dry packaged desserts readytoeat desserts net revenues growth partially offset lower volume net favorable product mix reflected 2008 exit handisnacks readytoeat desserts well lower shipments pourable spoonable salad dressings jello readytoeatdesserts barbecue sauce cool whip whipped topping partially offset growth kraft macaroni cheese dinners segment operating income increased 137 million 136 due primarily higher net pricing lower costs due completion restructuring program lower manufacturing costs partially offset higher marketing support costs unfavorable volumemix lower shipments net improved product mix higher selling general administrative expenses us snacks 2010 compared 2009 net revenues increased 1037 million 209 due cadbury acquisition 217 pp favorable volumemix 05 pp partially offset impact divestitures 11 pp lower net pricing 02 pp biscuits net revenues decreased driven unfavorable volumemix partially offset higher net pricing biscuits unfavorable volumemix due primarily lower shipments crackers primarily wheat thins cheese nips premium honey maid cookies primarily newtons nutter butter snack nuts net revenues increased due favorable volumemix driven higher shipments segment operating income increased 122 million 169 due primarily cadbury acquisition including integration program acquisitionrelated costs favorable resolution settlement relating 2009 pistachio product recall lower manufacturing costs lower selling general administrative expenses favorable variances partially offset higher raw material costs higher marketing support costs unfavorable volumemix 2009 gain divestiture balance bar operations us impact divestitures lower net pricing 2009 compared 2008 net revenues decreased 61 million 12 due unfavorable volumemix 17 pp impact divestitures 02 pp partially offset higher net pricing 07 pp biscuits net revenues increased driven higher input costdriven pricing partially offset unfavorable volumemix unfavorable product mix net higher shipments biscuits volume gain due higher shipments primarily ritz crackers oreo cookies triscuit crackers chips ahoy cookies snack bars net revenues decreased primarily due volume declines breakfast bars snack nuts net revenues decreased primarily driven lower net pricing due higher promotional spending unfavorable volumemix reflecting lower volume due primarily recall certain products containing pistachios march 2009 segment operating income increased 85 million 133 due primarily lower costs due completion restructuring program lower marketing support costs lower manufacturing costs higher net pricing gain divestiture balance bar operations us lower selling general administrative expenses favorable factors partially offset higher raw material costs unfavorable volumemix unfavorable product mix lower shipments including recall certain products containing pistachios canada na foodservice 2010 compared 2009 net revenues increased 774 million 197 due cadbury acquisition 111 pp significant impact favorable foreign currency 64 pp higher net pricing 15 pp favorable volumemix 08 pp canada net revenues increased driven cadbury acquisition favorable foreign currency higher net pricing favorable volumemix driven higher shipments grocery cheese convenient meals retail businesses na foodservice net revenues increased driven higher net pricing favorable foreign currency partially offset unfavorable volumemix unfavorable product mix net higher shipments segment operating income increased 120 million 260 due primarily cadbury acquisitionincluding integration program acquisitionrelated costs higher net pricing favorable foreign currency lower manufacturing costs favorable volumemix lower marketing support costs partially offset higher raw material costs higher selling general administrative expenses 2009 compared 2008 net revenues decreased 225 million 54 due significant impact unfavorable foreign currency 45 pp unfavorable volumemix 10 pp partially offset higher net pricing 01 pp canada net revenues increased driven volume gains across retail businesses higher net pricing partially offset unfavorable foreign currency na foodservice net revenues decreased driven lower volume due industrywide declines restaurant traffic discontinuation less profitable product lines lower input costdriven pricing unfavorable foreign currency segment operating income increased 67 million 170 due primarily lower costs due completion restructuring program lower raw material costs higher net pricing partially offset unfavorable foreign currency higher manufacturing costs unfavorable volumemix higher marketing support costs kraft foods europe 2010 compared 2009 net revenues increased 2860 million 326 due cadbury acquisition 330 pp favorable volumemix 39 pp including approximately 06 pp favorable impact accounting calendar change certain european biscuits operations partially offset impact unfavorable foreign currency 31 pp lower net pricing 10 pp impact divestitures 02 pp volumemix gains biscuits chocolate cheese coffee due primarily higher shipments drove net revenues higher lower net pricing reflected across categories except coffee unfavorable foreign currency primarily reflected strength us dollar euro partially offset strength swedish krona swiss franc norwegian krone versus us dollar segment operating income increased 330 million 420 due primarily favorable volumemix lower manufacturing costs lower selling general administrative expenses cadbury acquisition including integration program acquisitionrelated costs 2009 asset impairment charges related certain intangible assets netherlands writeoff investment norway 2009 loss divestiture plant spain lower marketing support costs favorable variances partially offset higher raw material costs lower net pricing lower reversal prior years’ restructuring program costs asset impairment charges related intangible assets netherlands biscuit plant related property plant equipment france unfavorable foreign currency accounting calendar change certain european biscuits operations insignificant impact operating income 2009 compared 2008 net revenues decreased 960 million 99 due significant impact unfavorable foreign currency 67 pp unfavorable volumemix 28 pp impact divestitures 22 pp partially offset higher net pricing 18 pp unfavorable foreign currency primarily reflected strength us dollar versus euro pound sterling addition volume declines coffee biscuits chocolate cheese discontinuation less profitable product lines drove net revenues lower unfavorable revenue drivers partially offset higher net pricing primarily chocolate coffee biscuits segment operating income increased 603 million 100 due primarily lower costs due completion restructuring program including reversal prior year costs higher net pricing 2008 net loss divestitures several operations spain 2008 asset impairment charges related certain international intangible assets divestiture nordic baltic snacks operation lower manufacturing costs lower raw material costs favorable variances partially offset unfavorable foreign currency higher marketing support costs higher nonrecurring costs associated kraft foods europe reorganization higher selling general administrative expenses primarily spending cost savings initiatives asset impairment charges related certain intangible assets netherlands write investment norway net loss divestiture plant spain unfavorable volumemix lower shipments net improved product mix impact divestitures kraft foods europe reorganization european operations function paneuropean centralized category management value chain model completed 2009 chocolate coffee cheese categories integration european biscuits business principally completed second quarter 2010 subsidiary kraft foods europe gmbh acts european principal company “epc” epc manages european categories centrally makes decisions aspects value chain except sales distribution european subsidiaries execute sales distribution locally local production companies act toll manufacturers behalf epc part reorganization incurred 21 million severance costs 69 million project costs 2010 32 million severance costs 81 million project costs 2009 incurred 16 million restructuring costs 39 million implementation costs 11 million nonrecurring costs 2008 2010 2009 charges recorded within cost sales selling general administrative expenses 2008 restructuring implementation costs included total restructuring program charges nonrecurring costs recorded selling general administrative expenses management believes disclosure project costs nonrecurring costs provides readers financial statements greater transparency total costs kraft foods europe reorganization kraft foods developing markets 2010 compared 2009 net revenues increased 5657 million 711 due cadbury acquisition 598 pp favorable volumemix 85 pp including approximately 19 pp favorable impact accounting calendar change asia pacific certain operations latin america higher net pricing 33 pp partially offset impact divestitures 03 pp impact unfavorable foreign currency 02 pp central eastern europe middle east africa net revenues increased driven cadbury acquisition favorable volumemix across region favorable foreign currency latin america net revenues increased driven cadbury acquisition higher net pricing across region favorable volumemix primarily brazil argentina central america mexico partially offset unfavorable foreign currency impact divestitures asia pacific net revenues increased due primarily cadbury acquisition favorable volumemix driven higher shipments across region primarily china indonesia australianew zealand favorable foreign currency segment operating income increased 641 million 685 due cadbury acquisition including integration program acquisitionrelated costs favorable volumemix higher net pricing lower selling general administrative expenses favorable variances partially offset higher marketing support costs higher manufacturing costs higher raw material costs asset impairment charges related intangible assets china unfavorable foreign currency accounting calendar change asia pacific certain operations latin america insignificant impact operating income 2009 compared 2008 net revenues decreased 292 million 35 due significant impact unfavorable foreign currency 129 pp absence 2008 favorable resolution brazilian value added tax claim 08 pp impact divestitures 05 pp partially offset higher net pricing 89 pp favorable volumemix 18 pp central eastern europe middle east africa net revenues decreased driven primarily unfavorable foreign currency partially offset higher net pricing across region favorable volumemix improved product mix net lower shipments latin america net revenues increased primarily driven higher net pricing across region favorable volumemix improved product mix net lower shipments partially offset unfavorable foreign currency absence 2008 favorable resolution brazilian value added tax claim asia pacific net revenues increased due higher net pricing across region favorable volumemix improved product mix net lower shipments primarily china partially offset unfavorable foreign currency segment operating income increased 121 million 148 due primarily higher net pricing favorable volumemix improved product mix net lower shipments lower costs due completion restructuring program including reversal prior year costs 2008 asset impairment charges related certain international intangible assets juice operation brazil cheese plant australia favorable variances partially offset higher raw material costs higher manufacturing costs unfavorable foreign currency higher selling general administrative expenses higher marketing support costs absence 2008 favorable resolution brazilian value added tax claim venezuela fourth quarter 2009 venezuelan economy classified highly inflationary accounting principles generally accepted united states america “us gaap” effective january 1 2010 began accounting venezuelan subsidiaries highly inflationary accounting rules principally means transactions recorded us dollars january 8 2010 venezuelan government devalued currency established preferential exchange rate imports food medicine essential items accordingly required revalue net assets venezuela july 2010 venezuelan government eliminated secondary parallel market exchange rate replaced governmentregulated transaction system foreign currency denominate securities “sitme” rate accordingly required revalue net assets venezuela maintained parallel rate december 30 2010 venezuelan government eliminated preferential exchange rate although elimination preferential exchange rate immediately cause us revalue net assets venezuela impacts operating results future periods venezuela two exchange rates official rate sitme rate used official rate sitme rate translate venezuelan operations us dollars based nature operations individual subsidiary 2010 recorded approximately 115 million unfavorable foreign currency impacts relating highly inflationary accounting venezuela included onetime impact translate cash 34 million previously carried secondary rate upon change highly inflationary accounting january 2010 required translate us dollars hand using official rate based current economic structure venezuela expect 2011 operating results negatively impacted approximately another 25 50 million result change highly inflationary accounting devaluation venezuelan bolivar critical accounting policies note 1 summary significant accounting policies consolidated financial statements includes summary significant accounting policies used prepare consolidated financial statements discussed selection disclosure critical accounting policies estimates audit committee following review significant assumptions estimates well accounting policies used prepare consolidated financial statements principles consolidation consolidated financial statements include kraft foods well wholly owned majority owned subsidiaries domestic operating subsidiaries report results last saturday year international operating subsidiaries generally report results two weeks prior last saturday year results operations newly acquired cadbury reported last day calendar month 2010 changed consolidation date certain european biscuits operations included within kraft foods europe segment certain operations asia pacific latin america included within kraft foods developing markets segment previously operations primarily reported periodend results one month two weeks prior end period kraft foods europe segment primarily reports periodend results two weeks prior last saturday period certain operations asia pacific latin america report results last day period believe change preferable improve financial reporting better matching close dates operating subsidiaries within kraft foods europe segment operations asia pacific latin america consolidated reporting change resulted favorable impact net revenues approximately 200 million insignificant impact operating income net income 2010 impacts prior period results material financial results revised prior period results change domestic operating subsidiaries continue report periodend results saturday closest end period international operating subsidiaries continue report periodend results two weeks prior saturday closest end period account investments exercise significant influence 20 50 ownership interest equity method accounting use cost method accounting investments ownership interest less 20 exercise significant influence noncontrolling interest subsidiaries consists equity interest noncontrolling investors consolidated subsidiaries kraft foods intercompany transactions eliminated use estimates prepare financial statements accordance us gaap requires us make estimates assumptions affect number amounts financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions lives valuation assumptions goodwill intangible assets marketing programs income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period know actual amounts historically aggregate differences estimates actual amounts year significant impact consolidated financial statements inventories stated lower cost market value inventories using average cost method also record inventory allowances overstocked obsolete inventories due ingredient packaging changes longlived assets review longlived assets including amortizable intangible assets impairment conditions exist indicate carrying amount assets may fully recoverable perform undiscounted operating cash flow analyses determine impairment exists testing impairment assets held use group assets liabilities lowest level cash flows separately identifiable impairment determined exist loss calculated based estimated fair value impairment losses assets disposed based estimated proceeds received less costs disposal goodwill intangible assets test goodwill nonamortizable intangible assets least annually impairment recognized goodwill reporting units generally one level operating segments use two step process test goodwill reporting unit level first step involves comparison estimated fair value reporting unit carrying value fair value estimated using discounted cash flows reporting unit based planned growth rates estimates discount rates residual values carrying value exceeds fair value must proceed second step process second step measures difference carrying value implied fair value goodwill test nonamortizable intangible assets impairment compare fair value intangible asset carrying value fair value nonamortizable intangible assets determined using planned growth rates estimates discount rates royalty rates carrying value exceeds fair value intangible asset considered impaired reduced fair value definitelived intangible assets amortized estimated useful lives perform annual impairment review goodwill nonamortizable intangible assets october 1 year basis valuation methodology estimating fair value 21 reporting units 20year projection discounted cash flows based annual strategic planning process estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions reporting units within kraft foods north america kraft foods europe geographic units used marketparticipant weightedaverage cost capital 75 discount projected cash flows operations reporting units within kraft foods developing markets geographic unit used riskrated discount rate 105 2010 recorded aggregate asset impairment charges 55 million 002 per diluted share 2010 review goodwill nonamortizable intangible assets recorded 13 million charge impairment intangible assets netherlands 30 million charge impairment intangible assets china fourth quarter 2010 also recorded asset impairment 12 million biscuit plant related property plant equipment france recorded aggregate asset impairment charges within asset impairment exit costs 2010 impairment review also noted following five reporting units sensitive nearterm changes discounted cash flow assumptions reporting units passed first step 2010 annual impairment review estimated fair value greater 105 carrying value looking past 2010 uncertainties within five identified reporting units could potentially require analysis future order us determine goodwill impairment exists within individual reporting units significant uncertainties • across kraft foods north america specifically within us grain snacks reporting unit experienced significant input cost inflation past year 2010 contribution pricing trailed input cost inflation consequently 2011 announced price increases selective portions portfolio also implementing sizing changes portions portfolio input costs continue rise expect additional price increases required expect take needed pricing actions midst persistent consumer weakness however unable would decrease profitability adversely affect estimated fair value us grain snacks reporting unit • us salty snacks business grew 2010 experiencing two years volume declines revenues operating income grew substantially increased pricing implemented cost saving measures volume revenue operating income declines would adversely affect estimated fair value us salty snacks reporting unit however noted also experienced significant input cost inflation past year within us salty snacks business input costs continue rise expect additional price increases required expect take needed pricing actions midst persistent consumer weakness however unable would decrease profitability adversely affect estimated fair value us salty snacks reporting unit • us confections asia pacific central eastern europe middle east africa businesses compose significant portion 2010 cadbury acquisition cadbury acquisition eight months prior annual review goodwill october 1 2010 expect significant amount excess estimated fair value book value realized short period expect integrate combined businesses reporting units next two years however unable would adversely affect estimated fair values reporting units part 2009 annual review goodwill nonamortizable intangible assets recorded 12 million charge impairment intangible assets netherlands addition 2009 recorded 9 million asset impairment charge write investment norway recorded aggregate charges within asset impairment exit costs fourth quarter 2008 completed annual review goodwill nonamortizable intangible assets recorded 44 million charge impairment intangible assets netherlands france puerto rico addition december 2008 reached preliminary agreement divest juice operation brazil reached agreement sell cheese plant australia anticipation divesting juice operation brazil recorded asset impairment charge 13 million fourth quarter 2008 charge primarily included writeoff associated intangible assets 8 million property plant equipment 4 million anticipation selling cheese plant australia recorded asset impairment charge 28 million property plant equipment fourth quarter 2008 additionally 2008 divested nordic baltic snacks operation incurred asset impairment charge 55 million connection divestiture charge primarily included writeoff associated goodwill 34 million property plant equipment 16 million recorded aggregate charges within asset impairment exit costs insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee health care benefits liabilities associated risks estimated considering historical claims experience actuarial assumptions revenue recognition recognize revenues title risk loss pass customers generally occurs upon shipment delivery goods revenues recorded net consumer incentives trade promotions include shipping handling charges billed customers kraft foods’ shipping handling costs classified part cost sales provision product returns allowances bad debts also recorded reductions revenues within period revenue recognized selling general administrative expenses marketing costs promote products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives expense advertising costs either period advertising first takes place incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred environmental costs subject laws regulations relating protection environment accrue environmental remediation obligations undiscounted basis amounts probable reasonably estimated accruals adjusted new information develops circumstances change recoveries environmental remediation costs third parties recorded assets recovery costs deemed probable december 31 2010 subsidiaries involved 74 active actions us superfund legislation similar actions legislation related current operations certain former divested operations retain liability outside us subject applicable multinational national local environmental laws regulations countries business outside us specific programs across business units designed meet applicable environmental compliance requirements december 31 2010 accrued insignificant amount environmental remediation based information currently available believe ultimate resolution existing environmental remediation actions compliance general environmental laws regulations material effect financial results however cannot quantify certainty potential impact future compliance efforts environmental remediation actions employee benefit plans provide range benefits employees retired employees include pension benefits postretirement health care benefits postemployment benefits consisting primarily severance record amounts relating plans based calculations specified us gaap calculations require use various actuarial assumptions discount rates assumed rates return plan assets compensation increases turnover rates health care cost trend rates review actuarial assumptions annual basis make modifications assumptions based current rates trends appropriate permitted us gaap generally amortize effect modifications future periods believe assumptions used recording plan obligations reasonable based experience advice actuaries refer note 11 benefit plans consolidated financial statements discussion assumptions used recorded following amounts earnings employee benefit plans years ended december 31 2010 2009 2008 2010 net expense employee benefit plans 951 million increased 164 million 2009 amount cost increase primarily related higher pension plan costs including costs associated cadbury acquisition higher amortization net loss experience differences 2009 net expense employee benefit plans 787 million increased 127 million 2008 amount cost increase primarily related higher pension plan costs including higher amortization net loss experience differences settlement losses us pension plans 2010 contributed 85 million us pension plans 303 million nonus pension plans addition employees contributed 23 million nonus plans based current tax law plan make contributions approximately 540 million us plans approximately 400 million nonus plans 2011 total 2011 pension contributions approximately 510 million voluntary actual contributions may differ planned contributions due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates us qualified pension plans currently required make nominal cash contribution us pension plans pension protection act 2006 2011 expect 2011 net expense employee benefit plans remain flat primarily due weightedaverage decrease 40 basis points us discount rate assumption partially offset lower forecasted nonus pension plan costs due plan assumption changes freezing us pension plans current salaried nonunion hourly employees effective december 31 2019 pension accruals salaried nonunion employees currently earning pension benefits end december 31 2019 continuing pay service used calculate pension benefits december 31 2019 projected benefit obligation decreased 168 million 2009 incurred 5 million curtailment charge 2009 related freeze beginning 2010 annual us pension plan costs decreased approximately 40 million result change additionally salaried nonunion hourly employees hired us january 1 2009 discontinued benefits us pension plans replaced enhanced company contribution employee savings plan significant impact 2010 2009 pension plan cost 2011 health care cost trend rate assumption increased 750 700 us postretirement plans decreased 883 900 nonus postretirement plans established rates based upon recent experience well expectation health care trend rates going forward anticipate health care cost trend rate assumption 500 us plans 2016 600 nonus plans 2017 assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects december 31 2010 2011 discount rate assumption decreased 530 570 us postretirement plans decreased 502 525 nonus postretirement plans 2011 discount rate decreased 553 593 us pension plans model discount rates using portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations 2011 discount rate assumption nonus pension plans decreased 511 521 developed discount rates nonus plans local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear 2011 expected rate return plan assets decreased 795 800 us pension plans determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class attempt maintain target asset allocation rebalancing asset classes make contributions monthly benefit payments anticipate changes 2011 assumptions us nonus pension postretirement health care plans sensitivity measure fiftybasis point change discount rate fiftybasis point change expected rate return plan assets would following effects increase decrease cost december 31 2010 financial instruments operate globally use certain financial instruments manage foreign currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price interest rate risk management strategies seek reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices interest rates principally use derivative instruments financial instruments qualifying hedge accounting must maintain specified level effectiveness hedging instrument item hedged inception throughout hedged period formally document nature relationships hedging instruments hedged items well risk management objectives strategies undertaking various hedge transactions method assessing hedge effectiveness additionally hedges forecasted transactions significant characteristics expected terms forecasted transaction must specifically identified must probable forecasted transaction occur deem probable forecasted transaction occur recognize gain loss earnings currently using derivatives hedge exposures changes exchange rates commodity prices interest rates exposure derivatives credit market risk exposed credit risk counterparty might fail fulfill performance obligations terms derivative contract minimize credit risk entering transactions high quality counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration greater one year governed international swaps derivatives association master agreement market risk value financial instrument might adversely affected change foreign currency exchange rates commodity prices interest rates manage market risk incorporating monitoring parameters within risk management strategy limit types derivative instruments derivative strategies use degree market risk may undertaken use derivative instruments record derivative financial instruments fair value consolidated balance sheets either current assets current liabilities changes fair value derivative highly effective designated cash flow hedge extent hedge effective recorded period accumulated comprehensive earnings losses gains losses derivative instruments reported accumulated comprehensive earnings losses reclassified consolidated statement earnings periods operating results affected hedged item changes fair value derivative highly effective designated fair value hedge along changes fair value hedged asset liability attributable hedged risk recorded current period earnings cash flows hedging instruments classified manner affected hedged item consolidated statements cash flows also numerous investments foreign subsidiaries net assets subsidiaries exposed volatility foreign currency exchange rates use foreigncurrencydenominated debt hedge portion net investment foreign operations adverse movements exchange rates designated euro pound sterling denominated borrowings net investment hedge portion overall european operations gains losses net investment designated european operations economically offset losses gains euro pound sterling denominated borrowings change debt’s fair value recorded currency translation adjustment component accumulated comprehensive earnings losses income taxes recognize tax benefits financial statements uncertain tax positions likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized commodity trends purchase large quantities commodities including dairy coffee cocoa wheat corn products soybean vegetable oils nuts meat products sugar sweeteners addition use significant quantities plastic glass cardboard package products natural gas factories warehouses continuously monitor worldwide supply cost trends commodities act quickly obtain ingredients packaging needed production significant cost items chocolate confectionery products cocoa sugar purchase cocoa sugar world markets prices affected quality availability supply changes value pound sterling us dollar relative certain currencies cocoa bean cocoa butter sugar costs average higher 2010 2009 purchase dairy raw material requirements including milk cheese independent third parties agricultural cooperatives independent processors prices milk dairy products substantially influenced market supply demand well government programs dairy commodity costs average higher 2010 2009 significant cost item coffee products green coffee beans purchased world markets green coffee bean prices affected quality availability supply changes value us dollar relation certain currencies consumer demand coffee products green coffee bean costs average higher 2010 2009 significant cost items biscuit grocery products grains wheat corn soybean oil grain costs experienced significant volatility result burgeoning global demand food livestock feed biofuels ethanol biodiesel grain costs average decreased 2009 2010 aggregate commodity costs increased primarily result higher cocoa sugar dairy coffee meat costs partially offset lower grain costs 2010 commodity costs approximately 10 billion higher 2009 following decrease approximately 150 million 2009 compared 2008 overall expect commodity costs continue volatile increase 2011 liquidity believe cash operations existing 45 billion revolving credit facility supports commercial paper program authorized longterm financing provide sufficient liquidity meet working capital needs planned capital expenditures future contractual obligations payment anticipated quarterly dividends continue utilize commercial paper program primarily uncommitted international credit lines regular funding requirements also use shortterm intercompany loans foreign subsidiaries improve financial flexibility overall expect negative effects funding sources would material effect liquidity net cash provided operating activities operating activities provided net cash 37 billion 2010 51 billion 2009 41 billion 2008 decrease operating cash flows 2010 primarily related estimated tax payments frozen pizza divestiture increased inventory levels unfavorable impact acquisitionrelated financing fees partially offset increased earnings increase operating cash flows 2009 primarily related working capital improvements prior year capital improvements primarily due improved inventory positions partially offset higher interest payments principally due first annual payment euro notes additionally higher earnings also attributed increase operating cash flows increase operating cash flows partially offset higher pension contributions driven total voluntary contributions 400 million made us pension plans may december 2009 anticipate making us pension contributions approximately 540 million 2011 nonus pension contributions approximately 400 million 2011 expect fund contributions operations net cash used investing activities net cash used investing activities 75 billion 2010 12 billion 2009 13 billion 2008 increase cash used investing activities 2010 primarily related cadbury acquisition partially offset higher proceeds divestitures decrease cash used investing activities 2009 primarily related 99 million payment made groupe danone sa 2008 refund excess cash received acquisition lu biscuit lower capital expenditures partially offset lower proceeds divestitures 2010 paid 98 billion net cash cadbury acquisition received 37 billion proceeds sale frozen pizza business 03 billion proceeds divestitures poland romania 2009 divested balance bar operations us juice operation brazil plant spain received 41 million net proceeds 2008 received 153 million net proceeds divestitures primarily related nordic baltic snacks operation four operations spain disbursed 56 million transaction fees related splitoff post cereals business additionally paid groupe danone sa aforementioned refund 2008 capital expenditures funded operating activities 17 billion 2010 13 billion 2009 14 billion 2008 cadbury accounted approximately 440 million capital expenditures 2010 capital expenditures primarily used modernize manufacturing facilities support new product productivity initiatives expect 2011 capital expenditures approximately 18 billion including capital expenditures required systems investments integration program expect fund expenditures operations net cash provided used financing activities net cash provided financing activities 42 billion 2010 31 billion used 2009 21 billion used 2008 net cash provided financing activities 2010 primarily related proceeds longterm debt issuance 94 billion partially offset 22 billion dividends paid 21 billion longterm debt repayments primarily related repurchase 15 billion notes tender offer 864 million net repayments shortterm borrowings net cash used financing activities 2009 primarily related 17 billion dividend payments 950 million repayments longterm debt 344 million net commercial paper repayments additionally cash used financing activities 2009 included 69 million costs related bridge facility agreement dated november 9 2009 “cadbury bridge facility” net cash used financing activities 2008 primarily related 59 billion payments made bridge facility used fund lu biscuit acquisition 17 billion dividend payments 777 million common stock share repurchases 795 million repayments longterm debt securities primarily related debt matured october 1 2008 partially offset 69 billion proceeds longterm debt offerings november 2011 11 billion longterm debt matures expect fund repayment refinancing portion longterm debt shortterm borrowings remaining amounts funded cash operations borrowing arrangements maintain revolving credit facility historically used general corporate purposes including working capital purposes support commercial paper issuances 45 billion threeyear senior unsecured revolving credit facility expires november 2012 amounts drawn facility revolving credit facility agreement includes covenant maintain minimum total shareholders’ equity excluding accumulated comprehensive earnings losses least 286 billion threshold increased 56 billion 286 billion due equity issued part cadbury acquisition december 31 2010 total shareholders’ equity excluding accumulated comprehensive earnings losses 397 billion expect continue meet covenant revolving credit agreement also contains customary representations covenants events default however revolving credit facility financial covenants credit rating triggers provisions could require us post collateral security addition international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 24 billion december 31 2010 borrowings lines amounted 267 million december 31 2010 191 million december 31 2009 cadbury maintained threeyear £450 million senior unsecured revolving credit facility terminated 2010 part cadbury acquisition november 9 2009 entered cadbury bridge facility first quarter 2010 borrowed £807 million cadbury bridge facility later repaid 1205 million time repayment proceeds divestiture frozen pizza business upon repayment cadbury bridge facility terminated longterm debt total debt 287 billion december 31 2010 190 billion december 31 2009 debttocapitalization ratio 044 december 31 2010 042 december 31 2009 december 31 2010 weightedaverage term outstanding longterm debt 99 years december 29 2010 repurchased 900 million principal amount 5625 notes due 2011 600 million principal amount 625 notes due 2012 validly tendered pursuant cash tender offers initiated november 2010 paid 1596 million aggregate consideration including accrued unpaid interest accepted notes december 2010 december 20 2010 repaid £77 million approximately 119 million longterm debt august 11 2010 repaid 500 million longterm debt funded repayments cash operations shortterm borrowings february 8 2010 issued 95 billion senior unsecured notes weightedaverage effective rate 5364 used net proceeds 9379 million finance cadbury acquisition general corporate purposes general terms 95 billion notes • 375 billion total principal notes due february 10 2020 fixed annual interest rate 5375 interest payable semiannually beginning august 10 2010 • 300 billion total principal notes due february 9 2040 fixed annual interest rate 6500 interest payable semiannually beginning august 9 2010 • 175 billion total principal notes due february 9 2016 fixed annual interest rate 4125 interest payable semiannually beginning august 9 2010 • 100 billion total principal notes due may 8 2013 fixed annual interest rate 2625 interest payable semiannually beginning november 8 2010 addition notes include covenants restrict ability incur debt secured liens certain threshold also must offer purchase notes price equal 101 aggregate principal amount plus accrued unpaid interest date repurchase following occur “change control” triggering event ii downgrade notes investment grade rating moody’s investor service inc standard poor’s ratings services fitch inc within specified period expect continue comply longterm debt covenants refer note 7 debt borrowing arrangements details debt offerings september 3 2009 redeemed november 2011 7 200 million debenture par value upon redemption recorded loss 14 million within interest expense net represented writeoff remaining discount november 12 2009 repaid 750 million notes repayments primarily financed commercial paper issuances fair value longterm debt acquired part cadbury acquisition 2437 million february 2 2010 acquired debt following terms including us dollar par amounts • £77 million approximately 123 million total principal notes due december 20 2010 fixed annual interest rate 4875 • c150 million approximately 140 million canadian bank loan agreement expiring august 30 2012 variable interest rate interest rate december 31 2010 1573 • 100 billion total principal notes due october 1 2013 fixed annual interest rate 5125 • £300 million approximately 478 million total principal notes due december 11 2014 fixed annual interest rate 5375 • £350 million approximately 558 million total principal notes due july 18 2018 fixed annual interest rate 7250 time refinance longterm shortterm debt nature amount longterm shortterm debt proportionate amount varies result future business requirements market conditions factors board directors authorized 120 billion general longterm financing authority wellknown seasoned issuer plan file automatic shelf registration statement form s3 sec shortly annual report form 10k filed sec offbalance sheet arrangements aggregate contractual obligations offbalance sheet arrangements guarantees contractual obligations discussed guarantees discussed note 13 commitments contingencies thirdparty guarantees primarily covering longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2010 carrying amount thirdparty guarantees consolidated balance sheet maximum potential payments guarantees 26 million substantially guarantees expire various times 2018 addition december 31 2010 contingently liable 445 million guarantees related performance include letters credit related dairy commodity purchases guarantees related payment custom duties taxes letters credit guarantees expect material effect liquidity aggregate contractual obligations following table summarizes contractual obligations december 31 2010 1 amounts represent expected cash payments longterm debt include unamortized bond premiums discounts 2 amounts represent expected cash payments interest expense longterm debt interest calculated euro notes forecasted using euro us dollar exchange rate december 31 2010 interest pound sterling notes forecasted using pound sterling us dollar exchange rate december 31 2010 insignificant amount interest expense excluded table portion foreign currency obligations due complexities involved forecasting expected interest payments 3 amounts represent expected cash payments capital leases including expected cash payments interest expense approximately 12 million capital leases 4 operating leases represent minimum rental commitments noncancelable operating leases 5 purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 6 longterm liabilities primarily consist estimated future benefit payments postretirement health care plans december 31 2020 approximately 2220 million unable reliably estimate timing payments beyond 2020 excluded table also another 31 million various longterm liabilities expected paid next 5 years addition following longterm liabilities included consolidated balance sheet excluded table accrued pension costs income taxes insurance accruals unable reliably estimate timing payments contributions beyond 2011 case accrued pension costs items currently expect make approximately 940 million contributions pension plans 2011 also expect net pension cost remain unchanged approximately 530 million 2011 december 31 2010 total liability income taxes including uncertain tax positions associated accrued interest penalties 13 billion expect pay approximately 180 million next 12 months years 20042006 currently examination irs able reasonably estimate timing future cash flows beyond 12 months due uncertainties timing tax audit outcomes equity dividends stock repurchases board directors authorized 50 billion share repurchase program expired march 30 2009 repurchase shares 2010 2009 total repurchased 253 million shares 777 million 2008 programs made repurchases common stock open market transactions stock plans january 2010 granted 17 million shares stock connection longterm incentive plan market value per share 2733 date grant february 2010 part annual equity program issued 25 million shares restricted deferred stock eligible employees market value per restricted deferred share 2915 date grant also part annual equity program granted 150 million stock options eligible employees exercise price 2915 2010 granted additional 06 million shares stock connection longterm incentive plan market value per share 2915 date grant also issued 10 million offcycle shares restricted deferred stock weightedaverage market value per restricted deferred share 2957 date grant including shares issued cadbury employees annual equity program additionally issued 31 million offcycle shares stock options weightedaverage exercise price 2973 date grant including options issued cadbury employees annual equity program december 31 2010 number shares issued upon exercise outstanding stock options vesting nonus deferred shares vesting longterm incentive plan shares 622 million 36 total shares outstanding january 2009 granted 15 million shares stock connection longterm incentive plan market value per share 2700 date grant february 2009 part annual equity program issued 41 million shares restricted deferred stock eligible employees market value per restricted deferred share 2364 date grant also part annual equity program granted 163 million stock options eligible employees exercise price 2364 also issued 02 million offcycle shares restricted deferred stock 2009 weightedaverage market value per restricted deferred share 2555 date grant aggregate issued 58 million restricted deferred shares 2009 january 2008 granted 14 million shares stock connection longterm incentive plan market value per share 3226 date grant february 2008 part annual equity program issued 34 million shares restricted deferred stock eligible employees market value per restricted deferred share 2949 date grant also part annual equity program granted 135 million stock options eligible employees exercise price 2949 addition issued 02 million offcycle shares restricted deferred stock 2008 weightedaverage market value per restricted deferred share 3038 date grant aggregate issued 50 million restricted deferred shares 2008 also granted 01 million offcycle stock options 2008 exercise price 3078 aggregate granted 136 million stock options 2008 dividends paid dividends 2175 million 2010 1712 million 2009 1663 million 2008 increase 270 2010 reflects increase shares outstanding due cadbury acquisition 224 million payment ten pence per share dividend cadbury declared accrued cadbury shares outstanding time acquisition 29 increase 2009 reflects higher dividend rate partially offset fewer shares outstanding resulting splitoff post cereals business share repurchases present annualized dividend rate 116 per common share declaration dividends subject discretion board directors depends various factors including net earnings financial condition cash requirements future prospects factors board directors deems relevant analysis decision making 2011 outlook 2011 reflects confidence continuing strong business momentum challenging environment weak consumer category growth well significant input cost inflation company expects deliver organic net revenue growth least 5 percent approximately 4 percent excluding impact accounting calendar changes operating eps growth 11 13 percent new accounting guidance see note 1 summary significant accounting policies consolidated financial statements discussion new accounting standards contingencies see note 13 commitments contingencies consolidated financial statements nongaap financial measures use nonus gaap financial measure “organic net revenues” corresponding growth ratios difference “organic net revenues” “net revenues” comparable us gaap financial measure organic net revenues excludes impact acquisitions divestitures currency management uses organic net revenues budget make operating strategic decisions evaluate performance disclosed measure financial data management uses intention assisting making comparisons historical operating results analyzing underlying performance management believes organic net revenues better reflect underlying growth ongoing activities business provide improved comparability results exclude impact fluctuations foreign currency exchange rates control also exclude onetime impacts acquisitions divestitures net revenues limitation measure excludes items impact net revenues best way limitation addressed using organic net revenues combination us gaap reported net revenues management believes presentation nonus gaap financial measure considered together us gaap financial measures reconciliations corresponding us gaap financial measures provides complete understanding factors trends affecting kraft foods could obtained absent disclosures organic net revenues calculations may vary among companies organic net revenues figures presented consolidated results operations section may comparable similarly titled measures used companies use organic net revenues meant considered isolation substitute us gaap financial measure carefully evaluate following tables reconciling us gaap reported net revenues organic net revenues use nonus gaap financial measure “operating eps” corresponding growth ratios difference “operating eps” “diluted eps attributable kraft foods continuing operations” comparable us gaap financial measure operating eps excludes costs related integration program acquisitionrelated costs including transaction advisory fees uk stamp taxes impact cadbury inventory revaluation acquisitionrelated financing fees including hedging foreign currency impacts associated cadbury acquisition fees associated cadbury bridge facility impact deferred tax charge resulting recently enacted us health care legislation management uses operating eps budget make operating strategic decisions evaluate performance goforward basis management believes provides improved comparability results excludes certain impacts related cadbury acquisition onetime impacts earnings per share limitation measure excludes items impact diluted eps attributable kraft foods continuing operations best way limitation addressed using operating eps combination us gaap reported diluted eps attributable kraft foods continuing operations management believes presentation nonus gaap financial measure considered together us gaap financial measures reconciliations corresponding us gaap financial measures provides complete understanding factors trends affecting kraft foods could obtained absent disclosures operating eps calculations may vary among companies operating eps figures presented consolidated results operations section may comparable similarly titled measures used companies use operating eps meant considered isolation substitute us gaap financial measure carefully evaluate following tables reconciling us gaap reported diluted eps attributable kraft foods continuing operations operating eps 1 integration program costs defined costs associated combining kraft foods cadbury businesses separate costs associated acquisition 2 acquisitionrelated costs include transaction advisory fees uk stamp taxes impact cadbury inventory revaluation 3 acquisitionrelated financing fees include hedging foreign currency impacts associated cadbury acquisition fees associated cadbury bridge facility 4 revised reflect frozen pizza discontinued operation addition use nonus gaap financial measure “free cash flow” difference “free cash flow” “net cash provided operating activities” comparable us gaap financial measure free cash flow reflects impact capital expenditures limitation measure includes items impact cash flow provided operating activities best way limitation addressed using free cash flow combination us gaap reported net cash provided operating activities free cash flow internal supplemental measure performance management uses free cash flow primary cash flow metric budgeting forecasting processes represents controllable cash flows operations believe free cash flow shows financial health efficiently running company believe nonus gaap measure provides information useful management investors gaining overall understanding current financial performance provides investors financial information closely aligns internal measurement processes nonus gaap measure considered isolation alternative cash flows generated operating investing financing activities measure liquidity free cash flow measurement determined accordance us gaap thus susceptible varying calculations free cash flow may comparable similarly titled measures companies table reconciles reported net cash provided operating activities free cash flow periods stated item 7aitem 7 management’s discussion analysis financial condition results operations following discussions read conjunction sections annual report form 10k including consolidated financial statements related notes contained item 8 description company manufacture market packaged food products including snacks beverages cheese convenient meals various packaged grocery products operations 80 countries sell products approximately 170 countries proposed spinoff transaction august 4 2011 announced board directors intends create two independent public companies global snacks business “global snacks business” ii north american grocery business “north american grocery business” global snacks business consist current kraft foods europe developing markets segments well north american snack confectionery businesses north american grocery business primarily consist current us beverages us cheese us convenient meals us grocery segments grocery related categories canada na foodservice segment well planters corn nuts brands businesses expect create companies us taxfree spinoff north american grocery business shareholders transaction subject number conditions including receipt regulatory approvals favorable ruling internal revenue service ensure us taxfree status spinoff execution intercompany agreements diligence appropriate final approval board directors current target complete spinoff yearend 2012 cannot assure spinoff completed anticipated timeline terms spinoff change see “part ii item 1a risk factors” certain risk factors relating proposed spinoff transaction disclosures within management’s discussion analysis financial condition results operations consolidated kraft foods inc basis take account proposed spinoff north american grocery business summary results significant highlights • net revenues increased 105 544 billion 2011 increased 270 492 billion 2010 • organic net revenues nongaap financial measure use evaluate underlying results see reconciliation net revenues discussion nongaap financial measures later section increased 66 515 billion 2011 increased 32 399 billion 2010 • diluted eps attributable kraft foods decreased 167 199 2011 increased 177 239 2010 095 related discontinued operations divestiture north american frozen pizza business diluted eps attributable kraft foods continuing operations increased 382 199 2011 decreased 238 144 2010 increase 2011 attributable number factors discuss section including 004 related accounting calendar changes inclusion 53rd week shipments • operating eps nongaap financial measure use evaluate underlying results see reconciliation diluted eps discussion nongaap financial measures later section increased 134 229 2011 increased 47 202 2010 increase 2011 attributable number factors discuss section including 004 related accounting calendar changes inclusion 53rd week shipments • february 2 2010 acquired 7173 outstanding ordinary shares cadbury limited “cadbury” june 1 2010 owned 100 outstanding cadbury shares cadbury acquisition valued 18547 million 17503 million net cash equivalents issued 262 million shares class common stock “common stock” paid 109 billion cash february 8 2010 issued 95 billion senior unsecured notes primarily used 9379 million net proceeds finance cadbury acquisition see note 3 acquisitions divestitures note 8 debt borrowing arrangements consolidated financial statements additional details • december 29 2010 repurchased 15 billion notes due 2011 2012 paid 1596 million aggregate consideration including accrued unpaid interest accepted notes • march 1 2010 completed sale assets north american frozen pizza business nestlé usa inc 37 billion accordingly results frozen pizza business reflected discontinued operations consolidated statement earnings periods presented discussion analysis strategy last several years transformed portfolio expanding geographically building presence fastgrowing snacking category time continued invest product quality marketing innovation behind iconic north american brands implementing series cost saving initiatives global snacks business north american grocery business different future strategic priorities growth profiles operational focus expect proposed spinoff provide businesses opportunity pursue different strategies achieve distinct operational focus return investment global snacks business build upon strong presence across numerous fastgrowing markets categories channels including highmargin instant consumption channel business target industryleading revenue growth leverage cost structure volume growth improved product mix drive margin gains grow earnings per share toptier peer group north american grocery business build leading market positions targeting moderate revenue growth maintaining sharp focus cost structure superior execution business target revenue growth line categories strong margins free cash flow expects highly competitive dividend payout items affecting comparability financial results acquisitions divestitures cadbury acquisition february 2 2010 acquired 7173 cadbury limited “cadbury” june 1 2010 owned 100 outstanding cadbury shares see note 3 acquisitions divestitures consolidated financial statements additional information part cadbury acquisition incurred expensed transaction related fees 218 million 2010 40 million 2009 recorded expenses within selling general administrative expenses also incurred acquisition financing fees 96 million 2010 recorded expenses within interest expense net secure eu regulatory approval acquisition required divest certain cadbury confectionery operations poland romania 2010 completed sale assets businesses generated 342 million sale proceeds impacts divestitures primarily reflected adjustments cadbury purchase price allocations cadbury contributed net revenues 9143 million net earnings 530 million february 2 2010 december 31 2010 following unaudited pro forma summary presents kraft foods’ consolidated information cadbury acquired january 1 2009 amounts calculated conversion us gaap applying accounting policies adjusting cadbury’s results reflect additional depreciation amortization would charged assuming fair value adjustments property plant equipment intangible assets applied january 1 2009 together consequential tax effects adjustments also reflect additional interest expense incurred debt finance purchase divestitures certain cadbury confectionery operations poland romania february 2 2010 cadbury acquisition valued 18547 million 17503 million net cash equivalents part acquisition acquired following assets assumed following liabilities millions 1 gross amount acquired receivables 1474 million 141 million reserved uncollectable 2 goodwill deductible statutory tax purposes attributable cadbury’s workforce significant synergies expect acquisition 3 acquired 103 billion indefinitely lived intangible assets primarily trademarks 26 billion amortizable intangible assets primarily customer relationships technology customer relationships amortized approximately 13 years technology amortized approximately 12 years 4 within current liabilities reserve exposures related taxes approximately 70 million established within developing markets segment cumulative exposure approximately 150 million december 31 2010 pizza divestiture march 1 2010 completed sale assets north american frozen pizza business “frozen pizza” nestlé usa inc “nestlé” 37 billion frozen pizza business component us convenient meals canada north america foodservice segments sale included digiorno tombstone jack’s brands us delissio brand canada california pizza kitchen trademark license also included two wisconsin manufacturing facilities medford little chute leases pizza depots delivery trucks approximately 3600 employees transferred business nestlé accordingly results frozen pizza business reflected discontinued operations consolidated statement earnings periods presented result divestiture recorded gain discontinued operations 1596 million 092 per diluted share 2010 pursuant frozen pizza business transition services agreement agreed provide certain sales comanufacturing distribution information technology accounting finance services nestlé two years december 31 2011 service agreements substantially complete summary results operations frozen pizza business march 1 2010 follows earnings income taxes presented exclude associated allocated overheads 25 million 2010 108 million 2009 2010 gain discontinued operations sale frozen pizza business included tax expense 12 billion following assets frozen pizza business included frozen pizza divestiture millions divestitures 2009 received 41 million net proceeds recorded pretax losses 6 million divestitures balance bar operations us juice operation brazil plant spain recorded aftertax gains 58 million 004 per diluted share divestitures primarily due differing book tax bases balance bar operations aggregate operating results divestitures discussed divestiture frozen pizza business material financial statements periods presented refer note 16 segment reporting details gains losses divestitures segment integration program cost savings initiatives integration program combination cadbury continues potential meaningful synergies costs savings expect recognize approximately 800 million cost savings end third year following completion acquisition original estimate 750 million additionally expect create revenue synergies investments distribution marketing product development order achieve cost savings synergies expect incur total integration charges approximately 15 billion first three years following acquisition combine integrate two businesses “integration program” integration program costs include costs associated combining operations cadbury’s separate costs related acquisition incurred charges integration program 521 million 2011 657 million 2010 recorded charges primarily operations part selling general administrative expenses within kraft foods europe kraft foods developing markets segments well general corporate expenses since inception integration program incurred approximately 12 billion 15 billion expected charges december 31 2011 accrual 346 million related integration program see note 7 integration program cost savings initiatives consolidated financial statements additional information cost savings initiatives cost savings initiatives generally include exit disposal project costs consisted following specific initiatives • 2011 recorded 64 million charge primarily within segment operating income kraft foods europe related severance benefits provided terminated employees charges connection kraft foods europe reorganization also reversed 37 million cost savings initiative program costs across segments except kraft foods europe • 2010 recorded 170 million primarily within segment operating income kraft foods europe canada na foodservice connection kraft foods europe reorganization • 2009 recorded 318 million primarily severance benefits provided terminated employees associated benefit plan costs related activities recorded operations primarily within segment operating income kraft foods europe remainder spread across segments within integration program cost savings initiatives include certain costs along exit disposal costs directly attributable activities qualify treatment exit disposal costs us gaap costs commonly refer project costs implementation costs generally include integration reorganization operations facilities discontinuance certain product lines incremental expenses related closure facilities believe disclosure charges within operating income provides greater transparency impact programs initiatives operating results starbucks cpg business march 1 2011 starbucks coffee company “starbucks” without authorization contend violation breach agreements starbucks took control starbucks packaged coffee business “starbucks cpg business” grocery stores channels alleging breached supply license agreement dispute pending arbitration chicago illinois seeking appropriate remedies including limited payment fair market value supply license agreement plus premium agreement specifies starbucks counterclaimed unspecified damages arbitration proceeding set begin july 11 2012 expected conclude july 31 2012 results starbucks cpg business included primarily us beverage canada na foodservice segments march 1 2011 accounting calendar changes 2011 2010 majority operating subsidiaries report results last saturday year portion international operating subsidiaries report results last calendar day last saturday year significant number operating subsidiaries report results last saturday year day fell december 31 results included extra week “53rd week” operating results prior two years 52weeks 2011 changed consolidation date certain operations kraft foods europe segment latin america central eastern europe middle east africa “ceema” regions within kraft foods developing markets segment previously operations primarily reported results two weeks prior end period kraft foods europe segment reports results last saturday period operations latin america certain operations ceema report results last calendar day period last saturday period changes 53rd week 2011 resulted favorable impact net revenues approximately 920 million favorable impact approximately 150 million operating income 2011 2010 changed consolidation date certain european biscuits operations included within kraft foods europe segment certain operations asia pacific latin america within kraft foods developing markets segment previously operations primarily reported periodend results one month two weeks prior end period kraft foods europe moved reporting operations two weeks prior end period asia pacific latin america moved reporting operations last day period changes resulted favorable impact net revenues approximately 200 million insignificant impact operating income 2010 believe changes preferable improve business planning financial reporting better matching close dates operating subsidiaries within kraft foods europe segment kraft foods developing markets segment bringing reporting date closer periodend date effect priorperiod results material revised priorperiod results provision income taxes effective tax rate 257 2011 315 2010 288 2009 2011 effective tax rate favorably impacted net tax benefits 199 million discrete onetime events primarily revaluation uk deferred tax assets liabilities resulting tax legislation enacted 2011 reduced uk corporate income tax rates reversal valuation allowances certain foreign deferred tax assets expected realized net favorable impact various us federal us state foreign tax audit developments year 2011 effective tax rate also reflects increased tax benefits operations outside united states generally taxed lower rates us statutory rate 35 percent mix pretax income various foreign jurisdictions significant impact effective tax rate fourth quarter full year tax rate benefited lower projected taxes earnings outside us fourth quarter also favorable due trueup prior quarter estimates lower actual tax expense reported operations 2010 effective tax rate included net tax benefits 123 million primarily due favorable resolution federal tax audit resolution several items international operations partially offset 137 million writeoff deferred tax assets result us health care legislation enacted march 2010 2009 effective tax rate included net tax benefits 225 million primarily due agreement reached irs specific matters related years 2000 2003 settlements various foreign state tax authorities expiration statutes limitations various jurisdictions divestiture balance bar operations us consolidated results operations following discussion compares consolidated results operations 2011 2010 2009 2011 compared 2010 net revenues net revenues increased 5158 million 105 54365 million 2011 organic net revenues 1 increased 3170 million 66 51533 million follows 1 please see nongaap financial measures section end item 2 impact acquisition reflects incremental january 2011 operating results cadbury acquisition organic net revenue growth driven primarily higher net pricing well favorable volumemix higher net pricing reflected across reportable business segments increased pricing offset higher input costs favorable volumemix driven primarily higher shipments kraft foods developing markets favorable foreign currency increased net revenues 1165 million due primarily strength euro australian dollar canadian dollar brazilian real swedish krona british pound swiss franc russian ruble versus us dollar cadbury acquisition due incremental january 2011 operating results added 697 million net revenues accounting calendar changes including 53rd week shipments 2011 excluding effects foreign currency added 880 million net revenues 2011 compared 193 million 2010 gains partially offset impact divestitures including reporting purposes starbucks cpg business operating income operating income increased 991 million 175 6657 million 2011 due following 1 please see nongaap financial measures section end item 2 impact acquisition reflects incremental january 2011 operating results cadbury acquisition higher pricing outpaced increased input costs 2011 increase input costs driven significantly higher raw material costs partially offset lower manufacturing costs favorable volumemix driven strong contribution kraft foods developing markets partially offset net decline segments within kraft foods north america total selling general administrative expenses increased 139 million 2010 excluding impacts divestitures including reporting purposes starbucks cpg business foreign currency accounting calendar changes cadbury acquisition including integration program acquisitionrelated costs associated proposed spinoff north american grocery business selling general administrative expenses increased 6 million 2010 favorable foreign currency increased operating income 178 million due primarily strength euro australian dollar canadian dollar brazilian real versus us dollar accounting calendar changes including 53rd week shipments 2011 excluding effects foreign currency added 129 million operating income realized operating income accounting calendar changes 152 million 2011 versus 23 million 2010 cadbury acquisition due incremental january 2011 operating results increased operating income 83 million 2011 reversed 7 million restructuring program charges recorded prior years versus reversal 37 million restructuring program charges recorded prior years 2010 recorded asset impairment charges 55 million 2010 related intangible assets china netherlands biscuit plant related property plant equipment france change unrealized gainslosses hedging activities decreased operating income 167 million recognized losses 100 million 2011 versus gains 67 million 2010 impact divestitures including reporting purposes starbucks cpg business 2010 divestitures certain cadbury confectionery operations poland romania decreased operating income 134 million result net effect drivers operating income margin increased 115 2010 122 2011 margin gain driven primarily overhead leverage lower corporate expenses reflecting lower acquisitionrelated costs offset decline gross profit margin driven primarily impact higher revenue base margin calculation net earnings per share attributable kraft foods net earnings attributable kraft foods 3527 million decreased 587 million 143 2011 diluted eps continuing operations attributable kraft foods 199 2011 382 144 2010 diluted eps attributable kraft foods 199 2011 167 239 2010 due following 1 please see nongaap financial measures section end item 2 impact acquisition reflects incremental january 2011 operating results cadbury acquisition 3 excludes impacts acquisitionrelated interest expense net includes loss 157 million related several interest rate swaps settled 2011 4 excludes impact 2010 us health care legislation deferred taxes 2010 compared 2009 net revenues net revenues increased 10453 million 270 49207 million 2010 organic net revenues 1 increased 1229 million 32 39874 million follows 1 please see nongaap financial measures section end item 2011 revised organic net revenue exclude effect accounting calendar changes impact new accounting calendar changes significant 2011 conformed 2010 organic net revenues consistent current year presentation organic net revenue growth driven favorable volumemix higher net pricing favorable volumemix driven higher base business shipments across reportable business segments except us cheese us grocery higher net pricing reflected across reportable business segments except kraft foods europe us snacks increased pricing offset higher input costs cadbury acquisition added 9143 million net revenues accounting calendar changes excluding effects foreign currency added 201 million net revenues 2010 gains partially offset impact divestitures unfavorable foreign currency foreign currency negatively affected net revenue 2010 due primarily impacts highly inflationary venezuelan economy strength us dollar euro partially offset strength canadian dollar brazilian real australian dollar russian ruble us dollar operating income operating income increased 483 million 93 5666 million 2010 due following 1 please see nongaap financial measures section end item input cost increases outpaced pricing year higher raw material costs offset lower manufacturing costs higher pricing driven increased input costs experienced year favorable volumemix driven primarily strong contributions kraft foods developing markets kraft foods europe us beverages us convenient meals partially offset declines us grocery us cheese us snacks total selling general administrative expenses increased 3217 million 2009 excluding impacts divestitures foreign currency accounting calendar changes cadbury acquisition including integration program acquisitionrelated costs selling general administrative expenses decreased 72 million versus prior year cadbury acquisition increased operating income 1139 million accounting calendar changes excluding effects foreign currency added 25 million operating income change unrealized gainslosses hedging activities also decreased operating income 136 million recognized gains 67 million 2010 versus gains 203 million 2009 2010 reversed 37 million restructuring program charges recorded prior years versus reversal 85 million restructuring program charges recorded prior years 2009 recorded asset impairment charges 55 million 2010 related intangible assets china netherlands biscuit plant related property plant equipment france versus asset impairment charges 21 million related intangible assets netherlands write investment norway recorded 2009 addition unfavorable foreign currency decreased operating income 8 million due primarily impacts highly inflationary venezuelan economy strength us dollar euro partially offset strength canadian dollar brazilian real korean australian dollar us dollar result net effect drivers operating income margin decreased 134 2009 115 2010 margin decline driven primarily higher corporate expenses reflecting acquisitionrelated costs integration program costs decline gross profit margin due increased input costs outpacing pricing essentially offset overhead leverage net earnings per share attributable kraft foods net earnings attributable kraft foods 4114 million increased 1093 million 362 2010 diluted eps continuing operations attributable kraft foods 144 2010 238 189 2009 diluted eps attributable kraft foods 239 2010 177 203 2009 due following 1 please see nongaap financial measures section end item 2 excludes impacts acquisitionrelated interest expense net 3 excludes impacts 2010 us health care legislation deferred taxes includes impacts us federal tax audit agreements 2010 2009 results operations reportable segment manage report operating results three geographic units kraft foods north america kraft foods europe kraft foods developing markets manage operations kraft foods north america kraft foods europe product category manage operations kraft foods developing markets location reportable segments us beverages us cheese us convenient meals us grocery us snacks canada na foodservice kraft foods europe kraft foods developing markets results operations cadbury acquisition including integration program acquisitionrelated costs reflected within us snacks canada na foodservice kraft foods europe kraft foods developing markets segments following discussion compares results operations reportable segments 2011 2010 2009 discussed note 16 segment reporting use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales certain components us pension plan cost component cost sales selling general administrative expenses general corporate expenses component selling general administrative expenses amortization intangibles periods presented exclude unrealized gains losses hedging activities segment operating income order provide better transparency segment operating results realized gains losses hedging activities recorded within segment operating results exclude certain components us pension plan cost segment operating income centrally manage pension plan funding decisions determination discount rate expected rate return plan assets actuarial assumptions therefore allocate service cost component us pension plan expense segment operating income march 1 2011 starbucks without authorization contend violation breach agreements starbucks took control starbucks cpg business grocery stores channels alleging breached supply license agreement dispute pending arbitration chicago illinois seeking appropriate remedies including limited payment fair market value supply license agreement plus premium agreement specifies starbucks counterclaimed unspecified damages arbitration proceeding set begin july 11 2012 expected conclude july 31 2012 results starbucks cpg business included primarily us beverage canada na foodservice segments march 1 2011 unfavorable 100 million net change unrealized gains losses hedging activities primarily resulted higher commodity hedge losses partially offset gains currency forward contracts 2010 favorable 67 million net change unrealized gains losses hedging activities primarily resulted gains associated commodity hedge contracts 2009 favorable 203 million net change unrealized gains losses hedging activities primarily resulted 2008 unrealized losses energy derivatives becoming realized 2009 therefore included segment operating income 2011 decrease general corporate expenses due primarily cadbury acquisitionrelated transaction fees prior year lower integration program costs 2010 increase general corporate expenses primarily due acquisitionrelated transaction fees integration program costs impact cadbury’s corporate charges incurred acquisitionrelated transaction fees 218 million 2010 40 million 2009 recorded charges operations part general corporate expenses 2009 general corporate expenses included 50 million charges legal matters related certain european operations us beverages 2011 compared 2010 net revenues decreased 206 million 64 due impact starbucks cpg business cessation 145 pp unfavorable volumemix 02 pp partially offset higher net pricing 69 pp impact 53rd week shipments 14 pp unfavorable volumemix driven primarily lower shipments mainstream coffee primarily maxwell house gevalia coffee partially offset introduction mio liquid concentrate higher shipments readytodrink beverages primarily capri sun koolaid tassimo coffee higher net pricing due primarily input costdriven pricing coffee segment operating income decreased 114 million 202 due primarily impact starbucks cpg business cessation remaining effects higher net pricing lower manufacturing costs favorable volume mix impact 53rd week shipments lower advertising consumer promotion costs offset higher raw material costs higher selling general administrative expenses 2010 compared 2009 net revenues increased 155 million 51 due favorable volumemix 45 pp higher net pricing 06 pp favorable volumemix driven primarily higher shipments readytodrink beverages primarily koolaid capri sun coffee primarily maxwell house starbucks tassimo powdered beverages primarily tang segment operating income increased 53 million 104 due favorable volumemix lower manufacturing costs higher net pricing lower selling general administrative expenses partially offset higher raw material costs higher advertising consumer promotion costs us cheese 2011 compared 2010 net revenues increased 282 million 80 due higher net pricing 82 pp impact 53rd week shipments 13 pp partially offset unfavorable volumemix 11 pp impact divestitures 04 pp higher net pricing across major cheese categories due input costdriven pricing unfavorable volumemix driven primarily lower shipments sandwich cream cheese recipe cheese categories partially offset higher shipments cultured natural cheese grated cheese categories segment operating income increased 31 million 52 due primarily higher net pricing lower selling general administrative expenses including termination fee received due restructuring service contract lower manufacturing costs impact 53rd week shipments 2010 loss divestiture bagelfuls operations partially offset higher raw material costs primarily higher dairy costs unfavorable volumemix higher advertising consumer promotion costs 2010 compared 2009 net revenues decreased 77 million 21 due unfavorable volumemix 47 pp impact divestitures 04 pp partially offset higher net pricing 30 pp unfavorable volumemix driven lower shipments across cheese categories higher net pricing across cheese categories due input costdriven pricing partially offset increased promotional spending segment operating income decreased 69 million 103 due higher raw material costs primarily higher dairy costs unfavorable volumemix higher advertising consumer promotion costs loss divestiture bagelfuls operations partially offset higher net pricing lower manufacturing costs lower selling general administrative expenses impact divestitures us convenient meals 2011 compared 2010 net revenues increased 197 million 63 due higher net pricing 59 pp impact 53rd week shipments 14 pp partially offset unfavorable volumemix 10 pp higher net pricing due input costdriven pricing primarily related bacon cold cuts hot dogs lunchables combination meals unfavorable volumemix driven primarily lower shipments bacon hot dogs partially offset higher shipments cold cuts lunchables combination meals segment operating income increased 51 million 190 due primarily higher net pricing lower manufacturing costs lower selling general administrative expenses impact 53rd week shipments partially offset higher raw material costs higher advertising consumer promotion costs unfavorable volumemix 2010 compared 2009 net revenues increased 102 million 34 due favorable volumemix 31 pp higher net pricing 03 pp favorable volumemix driven higher shipments hot dogs lunchables combination meals cold cuts higher net pricing driven inputcost driven pricing mostly offset increased promotional spending segment operating income increased 34 million 145 due lower selling general administrative expenses lower manufacturing costs favorable volumemix higher net pricing partially offset higher raw material costs higher advertising consumer promotion costs us grocery 2011 compared 2010 net revenues increased 165 million 49 due higher net pricing 64 pp impact 53rd week shipments 14 pp partially offset unfavorable volumemix 29 pp higher net pricing reflected across grocery categories including spoonable dressings kraft macaroni cheese dinners dry packaged desserts readytoeat desserts unfavorable volumemix driven lower shipments primarily spoonable dressings readytoeat desserts barbecue sauces dessert toppings dry packaged desserts partially offset introduction planters peanut butter higher shipments kraft macaroni cheese dinners segment operating income increased 76 million 65 due primarily higher net pricing lower manufacturing costs impact 53rd week shipments lower advertising consumer promotion costs lower selling general administrative expenses partially offset higher raw material costs unfavorable volumemix 2010 compared 2009 net revenues decreased 55 million 16 due unfavorable volumemix 33 pp partially offset higher net pricing 17 pp unfavorable volumemix due primarily lower shipments across key categories including pourable dressings readytoeat desserts spoonable dressings dry packaged desserts higher net pricing across key categories primarily related kraft macaroni cheese dinners pourable dressings readytoeat desserts dry packaged desserts segment operating income increased 18 million 16 due primarily higher net pricing lower manufacturing costs lower selling general administrative expenses partially offset unfavorable volumemix higher advertising consumer promotion costs us snacks 2011 compared 2010 net revenues increased 328 million 55 due higher net pricing 50 pp cadbury acquisition 13 pp impact 53rd week shipments 11 pp partially offset unfavorable volumemix 19 pp biscuits net revenues increased due higher net pricing impact 53rd week shipments favorable volumemix biscuits favorable volumemix due primarily higher shipments cookies primarily chips ahoy oreo newtons partially offset lower shipments crackers primarily premium ritz 100 calorie packs triscuit snack nuts net revenues increased due higher net pricing impact 53rd week shipments partially offset unfavorable volumemix confectionery net revenues increased due cadbury acquisition incremental january 2011 operating results higher net pricing partially offset unfavorable volumemix due primarily lower shipments gum candy segment operating income increased 2 million 02 due higher net pricing lower selling general administrative expenses impact 53rd week shipments cadbury acquisition due incremental january 2011 operating results lower acquisitionrelated costs partially offset higher raw material costs unfavorable volumemix higher manufacturing costs higher integration program costs 2010 compared 2009 net revenues increased 1037 million 209 due cadbury acquisition 217 pp favorable volumemix 05 pp partially offset impact divestitures 11 pp lower net pricing 02 pp biscuits net revenues decreased driven unfavorable volumemix partially offset higher net pricing biscuits unfavorable volumemix due primarily lower shipments crackers primarily wheat thins cheese nips premium honey maid cookies primarily newtons nutter butter snack nuts net revenues increased due favorable volumemix driven higher shipments segment operating income increased 122 million 169 due primarily cadbury acquisition including integration program acquisitionrelated costs favorable resolution settlement relating 2009 pistachio product recall lower manufacturing costs lower selling general administrative expenses favorable variances partially offset higher raw material costs higher advertising consumer promotion costs unfavorable volumemix 2009 gain divestiture balance bar operations us impact divestitures lower net pricing canada na foodservice 2011 compared 2010 net revenues increased 456 million 97 due higher net pricing 53 pp favorable foreign currency 29 pp impact 53rd week shipments 12 pp cadbury acquisition 09 pp partially offset impact divestitures including reporting purposes starbucks cpg business 04 pp unfavorable volumemix 02 pp canada net revenues increased driven primarily favorable foreign currency higher net pricing cadbury acquisition impact 53rd week shipments partially offset unfavorable volumemix reflecting volume declines across retail businesses except grocery cheese impact divestitures including reporting purposes starbucks cpg business na foodservice net revenues increased driven primarily higher net pricing favorable volumemix impact 53rd week shipments favorable foreign currency cadbury acquisition segment operating income increased 100 million 172 due primarily higher net pricing lower manufacturing costs favorable foreign currency cadbury acquisition due incremental january 2011 operating results impact 53rd week shipments partially offset higher raw material costs unfavorable volumemix 2010 compared 2009 net revenues increased 774 million 197 due cadbury acquisition 111 pp significant impact favorable foreign currency 64 pp higher net pricing 15 pp favorable volumemix 08 pp partially offset impact divestitures 01 pp canada net revenues increased driven cadbury acquisition favorable foreign currency higher net pricing favorable volumemix driven higher shipments grocery cheese convenient meals retail businesses na foodservice net revenues increased driven higher net pricing favorable foreign currency partially offset unfavorable volumemix unfavorable product mix net higher shipments segment operating income increased 120 million 260 due primarily cadbury acquisition including integration program acquisitionrelated costs higher net pricing favorable foreign currency lower manufacturing costs favorable volumemix lower advertising consumer promotion costs partially offset higher raw material costs higher selling general administrative expenses kraft foods europe 2011 compared 2010 net revenues increased 1728 million 149 due favorable foreign currency 55 pp higher net pricing 44 pp impact accounting calendar changes including 53rd week shipments 30 pp cadbury acquisition 18 pp favorable volumemix 02 pp favorable foreign currency primarily reflected strength euro swedish krona british pound swiss franc us dollar higher net pricing reflected across major categories except gum candy favorable volumemix due primarily higher shipments cheese biscuits chocolate partially offset lower shipments coffee gum candy segment operating income increased 291 million 261 due primarily higher net pricing lower manufacturing costs lower selling general administrative expenses favorable foreign currency impact accounting calendar changes including 53rd week shipments absence asset impairment charges recorded 2010 cadbury acquisition due incremental january 2011 operating results lower acquisitionrelated costs lower advertising consumer promotion costs favorable volumemix favorable factors partially offset higher raw material costs lower reversal prior years’ restructuring program costs compared 2009 net revenues increased 2860 million 326 due cadbury acquisition 330 pp favorable volumemix 33 pp favorable impact accounting calendar change certain european biscuits operations 06 pp partially offset impact unfavorable foreign currency 31 pp lower net pricing 10 pp impact divestitures 02 pp volumemix gains biscuits chocolate cheese coffee due primarily higher shipments drove net revenues higher lower net pricing reflected across categories except coffee unfavorable foreign currency primarily reflected strength us dollar euro partially offset strength swedish krona swiss franc norwegian krone versus us dollar segment operating income increased 330 million 420 due primarily favorable volumemix lower manufacturing costs lower selling general administrative expenses cadbury acquisition including integration program acquisitionrelated costs 2009 asset impairment charges related certain intangible assets netherlands writeoff investment norway 2009 loss divestiture plant spain lower advertising consumer promotion costs impact accounting calendar change certain european biscuits operations favorable variances partially offset higher raw material costs lower net pricing lower reversal prior years’ restructuring program costs asset impairment charges related intangible assets netherlands biscuit plant related property plant equipment france unfavorable foreign currency kraft foods developing markets 2011 compared 2010 net revenues increased 2208 million 162 due higher net pricing 73 pp favorable volumemix 39 pp favorable foreign currency 29 pp cadbury acquisition 29 pp impact accounting calendar changes including 53rd week shipments 2011 01 pp partially offset impact 2010 divestiture certain cadbury confectionery operations poland romania 09 pp ceema net revenues increased driven higher net pricing across region impact accounting calendar changes including 53rd week shipments 2011 cadbury acquisition favorable foreign currency partially offset impact divestitures unfavorable volumemix latin america net revenues increased driven higher net pricing across region favorable volumemix across region cadbury acquisition favorable foreign currency partially offset impact accounting calendar changes asia pacific net revenues increased due primarily favorable volumemix favorable foreign currency cadbury acquisition higher net pricing across region partially offset impact accounting calendar changes segment operating income increased 476 million 302 due primarily higher net pricing favorable volumemix favorable foreign currency cadbury acquisition due incremental january 2011 operating results 2010 asset impairment charges related trademarks china lower acquisitionrelated costs lower integration program costs favorable variances partially offset higher raw material costs higher manufacturing costs higher selling general administrative expenses net gain sale land higher advertising consumer promotion costs 2010 compared 2009 net revenues increased 5657 million 711 due cadbury acquisition 598 pp favorable volumemix 67 pp higher net pricing 32 pp impact accounting calendar changes asia pacific certain operations latin america 19 pp partially offset impact divestitures 03 pp impact unfavorable foreign currency 02 pp ceema net revenues increased driven cadbury acquisition favorable volumemix across region favorable foreign currency latin america net revenues increased driven cadbury acquisition higher net pricing across region favorable volumemix primarily brazil argentina central america mexico partially offset unfavorable foreign currency impact divestitures asia pacific net revenues increased due primarily cadbury acquisition favorable volumemix driven higher shipments across region primarily china indonesia australianew zealand favorable foreign currency segment operating income increased 641 million 685 due cadbury acquisition including integration program acquisitionrelated costs favorable volumemix higher net pricing lower selling general administrative expenses impact accounting calendar change asia pacific certain operations latin america favorable variances partially offset higher advertising consumer promotion costs higher manufacturing costs higher raw material costs asset impairment charges related trademarks china unfavorable foreign currency venezuela fourth quarter 2009 venezuelan economy classified highly inflationary us gaap effective january 1 2010 began accounting venezuelan subsidiaries highly inflationary accounting rules principally means transactions recorded us dollars use official venezuelan bolivar exchange rate governmentregulated transaction system foreign currency denominated securities “sitme” rate translate venezuelan operations us dollars based nature operations individual subsidiary recorded approximately 10 million favorable foreign currency impacts relating highly inflationary accounting venezuela 2011 approximately 115 million unfavorable foreign currency impacts 2010 loss included onetime impact 34 million translate cash previously recorded secondary market exchange rate expect 2012 operating results significantly affected changes venezuelan foreign currency critical accounting policies note 1 summary significant accounting policies consolidated financial statements includes summary significant accounting policies used prepare consolidated financial statements discussed selection disclosure critical accounting policies estimates audit committee following review significant assumptions estimates well accounting policies used prepare consolidated financial statements principles consolidation consolidated financial statements include kraft foods well wholly owned majority owned subsidiaries majority operating subsidiaries report results last saturday year portion international operating subsidiaries report results last calendar day last saturday year significant number operating subsidiaries report results last saturday year day fell december 31 results included extra week “53rd week” operating results prior two years 52weeks 2011 changed consolidation date certain operations kraft foods europe segment latin america central eastern europe middle east africa “ceema” regions within kraft foods developing markets segment previously operations primarily reported results two weeks prior end period kraft foods europe segment reports results last saturday period operations latin america certain operations ceema report results last calendar day period last saturday period changes 53rd week 2011 resulted favorable impact net revenues approximately 920 million favorable impact approximately 150 million operating income 2011 2010 changed consolidation date certain european biscuits operations included within kraft foods europe segment certain operations asia pacific latin america within kraft foods developing markets segment previously operations primarily reported periodend results one month two weeks prior end period kraft foods europe moved reporting operations two weeks prior end period asia pacific latin america moved reporting operations last day period changes resulted favorable impact net revenues approximately 200 million insignificant impact operating income 2010 believe changes preferable improve business planning financial reporting better matching close dates operating subsidiaries within kraft foods europe segment kraft foods developing markets segment bringing reporting date closer periodend date effect priorperiod results material revised priorperiod results account investments exercise significant influence 2050 ownership interest equity method accounting use cost method accounting investments ownership interest less 20 exercise significant influence noncontrolling interest subsidiaries consists equity interest noncontrolling investors consolidated subsidiaries kraft foods intercompany transactions eliminated use estimates prepare consolidated financial statements accordance us gaap requires us make estimates assumptions affect number amounts consolidated financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions valuation assumptions goodwill intangible assets useful lives longlived assets marketing program accruals insurance selfinsurance reserves income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period know actual amounts historically aggregate differences estimates actual amounts year material effect consolidated financial statements inventories stated lower cost market value inventories using average cost method also record inventory allowances overstocked obsolete inventories due ingredient packaging changes longlived assets review longlived assets including amortizable intangible assets impairment conditions exist indicate carrying amount assets may fully recoverable perform undiscounted operating cash flow analyses determine impairment exists testing impairment assets held use group assets liabilities lowest level cash flows separately identifiable impairment determined exist loss calculated based estimated fair value impairment losses assets disposed based estimated proceeds received less costs disposal 2011 asset impairments recorded 2010 recorded asset impairment 12 million biscuit plant related property plant equipment france 2009 recorded 9 million asset impairment charge write investment norway goodwill intangible assets test goodwill nonamortizable intangible assets impairment least annually october 1 assess goodwill impairment risk first performing qualitative review entityspecific industry market general economic factors reporting unit significant potential goodwill impairment risk exists specific reporting unit apply twostep quantitative test first step compares reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using 20year projection discounted cash flows incorporates planned growth rates marketbased discount rates estimates residual value reporting units within kraft foods north america kraft foods europe geographic units used marketbased weightedaverage cost capital 68 discount projected cash flows operations reporting units within kraft foods developing markets geographic unit used riskrated discount rate 98 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value second step applied measure difference carrying value implied fair value goodwill carrying value goodwill exceeds implied fair value goodwill considered impaired reduced implied fair value test nonamortizable intangible assets impairment comparing fair value intangible asset carrying value fair value nonamortizable intangible assets determined using planned growth rates marketbased discount rates estimates royalty rates carrying value exceeds fair value intangible asset considered impaired reduced fair value record intangible asset impairment charges within asset impairment exit costs 2011 impairments goodwill nonamortizable intangible assets 2010 also noted goodwill impairment disclosed five reporting units sensitive nearterm changes discounted cash flow assumptions 2011 noted one reporting unit us salty snacks continues sensitive primarily ongoing significant input cost pressure us salty snacks 1170 million goodwill december 31 2011 excess fair value carrying value net assets improved 12 2010 19 2011 reporting unit passed first step impairment test substantial margin operating income decline significantly future would adversely affect estimated fair value reporting unit input costs continue rise expect take pricing actions done 2011 however unsuccessful efforts would decrease profitability negatively affect estimated fair value us salty snacks reporting unit could lead potential impairment future 2010 review goodwill nonamortizable intangible assets recorded 13 million charge impairment intangible assets netherlands 30 million charge impairment intangible assets china 2009 review recorded 12 million charge impairment intangible assets netherlands insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee health care benefits liabilities associated risks estimated considering historical claims experience actuarial assumptions revenue recognition recognize revenues title risk loss pass customers generally occurs upon shipment delivery goods revenues recorded net consumer incentives trade promotions include shipping handling charges billed customers shipping handling costs classified part cost sales provisions product returns customer allowances also recorded reductions revenues within period revenue recognized marketing research development promote products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives expense advertising costs either period advertising first takes place incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred advertising expense 2396 million 2011 2270 million 2010 1581 million 2009 expense costs incurred product research development research development expense 702 million 2011 583 million 2010 466 million 2009 record marketing research development expenses within selling general administrative expenses environmental costs subject laws regulations relating protection environment accrue environmental remediation obligations undiscounted basis amounts probable reasonably estimated accruals adjusted new information develops circumstances change recoveries environmental remediation costs third parties recorded assets recovery costs deemed probable december 31 2011 subsidiaries involved 68 active actions us superfund legislation similar actions legislation related current operations certain former divested operations retain liability outside us subject applicable multinational national local environmental laws regulations countries business outside us specific programs across business units designed meet applicable environmental compliance requirements december 31 2011 accrued immaterial amount environmental remediation based information currently available believe ultimate resolution existing environmental remediation actions compliance general environmental laws regulations material effect financial results employee benefit plans provide range benefits employees retired employees include pension benefits postretirement health care benefits postemployment benefits consisting primarily severance record amounts relating plans based calculations specified us gaap calculations require use various actuarial assumptions discount rates assumed rates return plan assets compensation increases turnover rates health care cost trend rates review actuarial assumptions annual basis make modifications assumptions based current rates trends appropriate permitted us gaap generally amortize effect modifications future periods believe assumptions used recording plan obligations reasonable based experience advice actuaries refer note 11 benefit plans consolidated financial statements discussion assumptions used recorded following amounts earnings employee benefit plans years ended december 31 2011 2010 2009 2011 net expense employee benefit plans 1022 million increased 71 million 2010 amount cost increase primarily related higher amortization net loss experience differences us pension plans incorporation canadian postemployment plan obligations 2010 net expense employee benefit plans 951 million increased 164 million 2009 amount cost increase primarily related higher pension plan costs including costs associated cadbury acquisition higher amortization net loss experience differences 2011 comprehensive losses included 23 billion net actuarial pretax losses primarily related decrease discount rate utilized determine pension plan benefit obligations december 31 2011 68 basis point decrease us plans 49 basis point decrease nonus plans unfavorable differences expected actual return pension plan assets decrease discount rate utilized determine postretirement benefit obligations december 31 2011 60 basis point decrease us plans 73 basis point decrease nonus plans 2010 comprehensive earnings included 361 million net actuarial pretax losses primarily related decrease discount rate utilized determine pension plan benefit obligations december 31 2010 40 basis point decrease us plans 10 basis point decrease nonus plans decrease discount rate utilized determine postretirement benefit obligations december 31 2010 40 basis point decrease us plans 23 basis point decrease nonus plans partially offset favorable differences expected actual return pension plan assets 2011 contributed 538 million us pension plans 361 million nonus pension plans addition employees contributed 26 million nonus plans 2011 pension contributions approximately 495 million voluntary make contributions us nonus pension plans primarily extent tax deductible generate excise tax liability us qualified pension plans 2012 currently required make nominal cash contribution us pension plans pension protection act 2006 based current tax law estimate 2012 pension contributions would approximately 55 million us plans approximately 425 million nonus plans total 2012 pension contributions none expected voluntary actual contributions may different due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates factors expect 2012 net expense employee benefit plans increase approximately 180 million primarily due weightedaverage decrease 68 basis points us pension discount rate assumptions 49 basis points nonus pension discount rate assumptions 2009 us pension plans amended freezing us pension plans current salaried nonunion hourly employees effective december 31 2019 pension accruals salaried nonunion employees currently earning pension benefits end december 31 2019 continuing pay service used calculate pension benefits december 31 2019 projected benefit obligation decreased 168 million 2009 incurred 5 million curtailment charge 2009 related freeze beginning 2010 annual us pension plan costs decreased approximately 40 million result change additionally salaried nonunion hourly employees hired us january 1 2009 discontinued benefits us pension plans replaced enhanced company contribution employee savings plan significant impact 2011 2010 2009 pension plan costs postretirement plans 2012 health care cost trend rate assumption decreased 700 750 us postretirement plans decreased 742 883 nonus postretirement plans established rates based upon recent experience well expectation health care trend rates going forward anticipate health care cost trend rate assumption 500 us plans 2016 553 nonus plans 2016 assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects december 31 2011 2012 discount rate assumption decreased 470 530 us postretirement plans decreased 429 502 nonus postretirement plans 2012 discount rate decreased 485 553 us pension plans model discount rates using portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations 2012 discount rate assumption nonus pension plans decreased 462 511 developed discount rates nonus plans local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear 2012 expected rate return plan assets increased 800 795 us pension plans determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class attempt maintain target asset allocation rebalancing asset classes make contributions monthly benefit payments anticipate changes 2012 assumptions us nonus pension postretirement health care plans sensitivity measure fiftybasis point change discount rate fiftybasis point change expected rate return plan assets would following effects increase decrease cost december 31 2011 financial instruments operate globally use certain financial instruments manage foreign currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price interest rate risk management strategies seek reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices interest rates principally use derivative instruments financial instruments qualifying hedge accounting must maintain specified level effectiveness hedging instrument item hedged inception throughout hedged period formally document nature relationships hedging instruments hedged items well risk management objectives strategies undertaking various hedge transactions method assessing hedge effectiveness additionally hedges forecasted transactions significant characteristics expected terms forecasted transactions must specifically identified must probable forecasted transaction occur deem probable forecasted transaction occur recognize gain loss earnings currently using derivatives hedge exposures changes exchange rates commodity prices interest rates exposure derivatives credit market risk exposed credit risk counterparty might fail fulfill performance obligations terms derivative contract minimize credit risk entering transactions high quality counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration greater one year governed international swaps derivatives association master agreement market risk value financial instrument might adversely affected change foreign currency exchange rates commodity prices interest rates manage market risk incorporating monitoring parameters within risk management strategy limit types derivative instruments derivative strategies use degree market risk may undertaken use derivative instruments record derivative financial instruments fair value consolidated balance sheets either current assets current liabilities changes fair value derivative highly effective designated cash flow hedge extent hedge effective recorded period accumulated comprehensive earnings losses gains losses derivative instruments reported accumulated comprehensive earnings losses reclassified consolidated statement earnings periods operating results affected hedged item changes fair value derivative highly effective designated fair value hedge along changes fair value hedged asset liability attributable hedged risk recorded current period earnings cash flows hedging instruments classified manner affected hedged item consolidated statements cash flows also numerous investments foreign subsidiaries net assets subsidiaries exposed volatility foreign currency exchange rates use foreigncurrencydenominated debt hedge portion net investment foreign operations adverse movements exchange rates designated euro pound sterling denominated borrowings net investment hedge portion overall european operations gains losses net investment designated european operations economically offset losses gains euro pound sterling denominated borrowings change debt’s fair value recorded currency translation adjustment component accumulated comprehensive earnings losses income taxes recognize tax benefits financial statements uncertain tax positions likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized new accounting guidance see note 1 summary significant accounting policies consolidated financial statements discussion new accounting standards contingencies see note 13 commitments contingencies consolidated financial statements commodity trends purchase large quantities commodities including dairy coffee cocoa wheat corn products soybean vegetable oils nuts meat products sugar sweeteners addition use significant quantities plastic glass cardboard package products natural gas factories warehouses continuously monitor worldwide supply cost trends commodities act quickly obtain ingredients packaging needed production significant cost items chocolate confectionery products cocoa sugar purchase cocoa sugar world markets prices affected quality availability supply changes value pound sterling us dollar relative certain currencies cocoa bean cocoa butter sugar costs average higher 2011 2010 purchase dairy raw material requirements including milk cheese independent third parties agricultural cooperatives independent processors prices milk dairy products substantially influenced market supply demand well government programs dairy commodity costs average higher 2011 2010 significant cost item coffee products green coffee beans purchased world markets green coffee bean prices affected quality availability supply changes value us dollar relation certain currencies consumer demand coffee products green coffee bean costs average higher 2011 2010 significant cost items biscuit grocery products grains wheat corn soybean oil grain costs experienced significant volatility increased 2010 2011 due largely burgeoning global demand food livestock feed biofuels ethanol biodiesel 2011 aggregate commodity costs increased primarily result higher costs coffee dairy grains oils packaging materials raw materials meat nuts commodity costs increased approximately 26 billion 2011 approximately 10 billion 2010 compared prior year expect higher cost environment commodity cost volatility continue 2012 liquidity capital resources believe cash operations existing 45 billion revolving credit facility supports commercial paper program authorized longterm financing provide sufficient liquidity meet working capital needs planned capital expenditures future contractual obligations payment anticipated quarterly dividends continue utilize commercial paper program primarily uncommitted international credit lines regular funding requirements also use shortterm intercompany loans foreign subsidiaries improve financial flexibility overall expect negative effects funding sources would material effect liquidity net cash provided operating activities operating activities provided net cash 45 billion 2011 37 billion 2010 51 billion 2009 increase operating cash flows 2011 primarily related increased earnings continuing operations absence tax payments prior year connection frozen pizza divestiture partially offset higher working capital mainly higher inventory costs increased interest payments increased integration spending 495 million voluntary contribution us pension plans decrease operating cash flows 2010 primarily related estimated tax payments frozen pizza divestiture increased inventory levels unfavorable impact acquisitionrelated financing fees partially offset increased earnings net cash used investing activities net cash used investing activities 17 billion 2011 75 billion 2010 12 billion 2009 decrease cash used investing activities 2011 primarily related cash payments prior year related 2010 cadbury acquisition partially offset proceeds sale frozen pizza business divestitures poland romania increase cash used investing activities 2010 primarily related cadbury acquisition partially offset higher proceeds divestitures 2010 paid 98 billion net cash cadbury acquisition received 37 billion proceeds sale frozen pizza business 03 billion proceeds divestitures poland romania 2009 divested balance bar operations us juice operation brazil plant spain received 41 million net proceeds capital expenditures funded operating activities 18 billion 2011 17 billion 2010 13 billion 2009 2011 capital expenditures primarily used modernize manufacturing facilities support new product productivity initiatives expect 2012 capital expenditures approximately 2 billion including capital expenditures required systems investments integration program expect fund expenditures operations net cash provided used financing activities net cash used financing activities 32 billion 2011 42 billion provided 2010 31 billion used 2009 net cash used 2011 primarily related 20 billion dividends paid 11 billion longterm debt repayments 565 million repayments shortterm borrowings partially offset 492 million proceeds primarily stock option exercises net cash provided financing activities 2010 primarily related proceeds longterm debt issuance 94 billion partially offset 22 billion dividends paid 21 billion longterm debt repayments primarily related repurchase 15 billion notes tender offer 864 million net repayments shortterm borrowings net cash used financing activities 2009 primarily related 17 billion dividend payments 950 million repayments longterm debt 344 million net commercial paper repayments additionally cash used financing activities 2009 included 69 million costs related bridge facility agreement dated november 9 2009 “cadbury bridge facility” borrowing arrangements april 1 2011 entered agreement 45 billion fouryear senior unsecured revolving credit facility expires april 2015 agreement replaced former revolving credit agreement terminated upon signing new agreement intend use revolving credit facility general corporate purposes including working capital purposes support commercial paper issuances december 31 2011 amounts drawn facility revolving credit agreement includes covenant maintain minimum total shareholders’ equity excluding accumulated comprehensive earnings losses least 286 billion december 31 2011 total shareholders’ equity excluding accumulated comprehensive earnings losses 419 billion expect continue meet covenant revolving credit agreement also contains customary representations covenants events default however revolving credit facility financial covenants credit rating triggers provisions could require us post collateral security addition international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 23 billion december 31 2011 24 billion december 31 2010 borrowings lines amounted 182 million december 31 2011 267 million december 31 2010 part cadbury acquisition november 9 2009 entered cadbury bridge facility first quarter 2010 borrowed £807 million cadbury bridge facility later repaid 1205 million time repayment proceeds divestiture frozen pizza business upon repayment cadbury bridge facility terminated longterm debt total debt 269 billion december 31 2011 287 billion december 31 2010 debttocapitalization ratio 043 december 31 2011 044 december 31 2010 december 31 2011 weightedaverage term outstanding longterm debt 93 years january 10 2012 issued 800 million floating rate notes maturing 2013 bear interest rate equal threemonth london interbank offered rate “libor” plus 0875 intend use net proceeds 7988 million general corporate purposes may include repayment debt notes special mandatory redemption upon public announcement record date proposed spinoff north american grocery business shareholders required issue notice redemption notes redemption price equal 100 aggregate principal amount notes plus accrued unpaid interest day prior redemption date november 1 2011 repaid 11 billion longterm debt cash operations shortterm borrowings december 29 2010 repurchased 900 million principal amount 5625 notes due 2011 600 million principal amount 625 notes due 2012 validly tendered pursuant cash tender offers initiated november 2010 paid 1596 million aggregate consideration including accrued unpaid interest accepted notes december 2010 december 20 2010 repaid £77 million approximately 119 million longterm debt august 11 2010 repaid 500 million longterm debt funded repayments cash operations shortterm borrowings february 8 2010 issued 95 billion senior unsecured notes weightedaverage effective rate 5364 used net proceeds 9379 million finance cadbury acquisition general corporate purposes notes include covenants restrict ability incur debt secured liens certain threshold also must offer purchase notes price equal 101 aggregate principal amount plus accrued unpaid interest date repurchase following occur “change control” triggering event ii downgrade notes investment grade rating moody’s investor service inc standard poor’s ratings services fitch inc within specified period february 2 2010 part cadbury acquisition acquired 2437 million longterm debt terms debt including us dollar par amounts february 2 2010 • £77 million approximately 123 million total principal notes due december 20 2010 fixed annual interest rate 4875 • c150 million approximately 140 million canadian bank loan agreement expiring august 30 2012 variable interest rate interest rate december 31 2011 1507 • 10 billion total principal notes due october 1 2013 fixed annual interest rate 5125 • £300 million approximately 499 million total principal notes due december 11 2014 fixed annual interest rate 5375 • £350 million approximately 626 million total principal notes due july 18 2018 fixed annual interest rate 7250 expect continue comply longterm debt covenants refer note 8 debt borrowing arrangements details debt offerings next twelve months 37 billion longterm debt becomes due follows 20 billion approximately 26 billion march 2012 900 million june 2012 c150 million approximately 147 million due august 2012 expect fund repayments cash operations issuance commercial paper issuance additional debt expect repatriate earnings nonus operations meet obligations time refinance longterm shortterm debt nature amount longterm shortterm debt proportionate amount varies result future business requirements market conditions factors december 31 2011 12 billion remaining longterm financing authority board directors offbalance sheet arrangements aggregate contractual obligations offbalance sheet arrangements guarantees contractual obligations discussed guarantees discussed note 13 commitments contingencies thirdparty guarantees primarily covering longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2011 carrying amount thirdparty guarantees consolidated balance sheet maximum potential payments guarantees 22 million substantially guarantees expire various times 2018 addition december 31 2011 contingently liable 471 million guarantees related performance include letters credit related dairy commodity purchases guarantees related payment custom duties taxes letters credit guarantees expect material effect liquidity aggregate contractual obligations following table summarizes contractual obligations december 31 2011 1 amounts represent expected cash payments longterm debt include unamortized bond premiums discounts 2 amounts represent expected cash payments interest expense longterm debt interest calculated euro notes forecasted using euro us dollar exchange rate december 31 2011 interest pound sterling notes forecasted using pound sterling us dollar exchange rate december 31 2011 insignificant amount interest expense excluded table portion foreign currency obligations due complexities involved forecasting expected interest payments 3 amounts represent expected cash payments capital leases including expected cash payments interest expense approximately 10 million capital leases 4 operating leases represent minimum rental commitments noncancelable operating leases 5 purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 6 longterm liabilities primarily consist estimated future benefit payments postretirement health care plans december 31 2021 approximately 2225 million unable reliably estimate timing payments beyond 2021 excluded table also another 26 million various longterm liabilities expected paid next 5 years addition following longterm liabilities included consolidated balance sheet excluded table accrued pension costs income taxes insurance accruals unable reliably estimate timing payments contributions beyond 2012 case accrued pension costs items currently expect make approximately 480 million contributions pension plans 2012 also expect net pension cost increase approximately 750 million 2012 december 31 2011 total liability income taxes including uncertain tax positions associated accrued interest penalties 16 billion currently estimate paying approximately 300 million next 12 months equity dividends annual meeting shareholders held may 24 2011 shareholders approved kraft foods inc amended restated 2006 stock compensation plan nonemployee directors amended plan includes among provisions increase number shares authorized issue maximum 10 million shares common stock effective date amendment 08 million shares available granted plan stock plans january 2011 granted 15 million shares stock connection longterm incentive plan market value per share 3162 date grant february 2011 part annual equity program issued 26 million shares restricted deferred stock eligible employees market value per restricted deferred share 3183 date grant aggregate issued 51 million restricted deferred shares 2011 including issued part longterm incentive plan weightedaverage market value per share 3197 february 2011 part annual equity program granted 158 million stock options eligible employees exercise price 3183 aggregate granted 163 million stock options 2011 weightedaverage market value per share 3181 december 31 2011 number shares issued upon exercise outstanding stock options vesting nonus deferred shares vesting longterm incentive plan shares 576 million 33 total shares outstanding january 2010 granted 17 million shares stock connection longterm incentive plan market value per share 2733 date grant february 2010 part annual equity program issued 25 million shares restricted deferred stock eligible employees market value per restricted deferred share 2915 date grant aggregate issued 58 million restricted deferred shares 2010 including issued part longterm incentive plan weightedaverage market value per share 2882 february 2010 part annual equity program granted 150 million stock options eligible employees exercise price 2915 aggregate granted 181 million stock options 2010 weightedaverage market value per share 2924 january 2009 granted 15 million shares stock connection longterm incentive plan market value per share 2700 date grant february 2009 part annual equity program issued 41 million shares restricted deferred stock eligible employees market value per restricted deferred share 2364 date grant aggregate issued 58 million restricted deferred shares 2009 including issued part longterm incentive plan weightedaverage market value per share 2468 february 2009 part annual equity program granted 163 million stock options eligible employees exercise price 2364 dividends paid dividends 2043 million 2011 2175 million 2010 1712 million 2009 61 decrease 2011 due dividend payment 224 million prior year related cadbury acquisition increase 270 2010 reflects increase shares outstanding due cadbury acquisition 224 million payment ten pence per share dividend cadbury declared accrued cadbury shares outstanding time acquisition present annualized dividend rate 116 per common share declaration dividends subject discretion board directors depends various factors including net earnings financial condition cash requirements future prospects factors board directors deems relevant analysis decision making 2012 outlook 2012 reflects confidence continuing strong business momentum challenging environment weak consumer category growth well significant input cost inflation expect deliver organic net revenue growth approximately 5 percent including negative impact one percentage point product pruning north america operating eps expected grow least 9 percent constant currency basis nongaap financial measures use certain nongaap financial measures budget make operating strategic decisions evaluate performance disclosed following measures financial data use intention assisting making comparisons historical operating results analyzing underlying performance believe presentation nonus gaap financial measures considered together us gaap financial measures reconciliations corresponding us gaap financial measures provides complete understanding factors trends affecting business could obtained absent disclosures nongaap financial measures may vary among companies nongaap financial measures presented consolidated results operations section may comparable similarly titled measures used companies use nongaap financial measures meant considered isolation substitute us gaap financial measure limitation nongaap financial measures exclude items detailed impact us gaap reported results best way limitation addressed evaluating nongaap financial measures combination us gaap reported results carefully evaluating following tables reconcilie us gaap reported figures nongaap financial measures organic net revenues use nonus gaap financial measure “organic net revenues” corresponding growth ratios difference “organic net revenues” “net revenues” comparable us gaap financial measure organic net revenues exclude impact acquisitions divestitures including reporting purposes starbucks cpg business currency accounting calendar changes including 53rd week 2011 believe organic net revenues better reflect underlying growth ongoing activities business provide improved comparability results note 2011 revised organic net revenues exclude effect accounting calendar changes impact new accounting calendar changes significant 2011 conformed 2010 organic net revenues consistent current year presentation 1 impact divestitures including reporting purposes starbucks cpg business 2 impact acquisitions reflects incremental january 2011 operating results cadbury acquisition 3 includes 53rd week shipments 2011 4 impact acquisitions reflects incremental february 2010 december 2010 operating results cadbury acquisition underlying operating income use nonus gaap financial measure “underlying operating income” corresponding growth ratios difference “underlying operating income” “operating income” comparable us gaap financial measure underlying operating income exclude costs related integration program acquisitionrelated costs including transaction advisory fees uk stamp taxes impact cadbury inventory revaluation costs associated proposed spinoff north american grocery business believe underlying operating income provide improved comparability operating results operating eps use nonus gaap financial measure “operating eps” corresponding growth ratios difference “operating eps” “diluted eps attributable kraft foods continuing operations” comparable us gaap financial measure operating eps exclude costs related integration program acquisitionrelated costs including transaction advisory fees uk stamp taxes impact cadbury inventory revaluation acquisitionrelated financing fees including hedging foreign currency impacts associated cadbury acquisition fees associated cadbury bridge facility impact deferred tax charge resulting recently enacted us health care legislation costs associated proposed spinoff north american grocery business believe operating eps provide improved comparability operating results 1 integration program costs defined costs associated combining kraft foods cadbury businesses separate costs associated acquisition 2 acquisitionrelated costs include transaction advisory fees uk stamp taxes impact cadbury inventory revaluation 3 acquisitionrelated financing fees include hedging foreign currency impacts associated cadbury acquisition fees associated cadbury bridge facility adjusted free cash flow addition use nonus gaap financial measure “adjusted free cash flow” difference “adjusted free cash flow” “net cash provided operating activities” comparable us gaap financial measure adjusted free cash flow includes impact capital expenditures exclude voluntary pension contributions 2010 exclude impact taxes paid divestiture frozen pizza business use adjusted free cash flow primary cash flow metric represents controllable cash flows operations note 2011 revised free cash flow measure exclude effect voluntary pension contributions taxes paid frozen pizza divestiture refer measure adjusted free cash flow conformed 2010 2009 information consistent current year presentation item 7aitem 7 management’s discussion analysis financial condition results operations following read conjunction sections annual report form 10k including consolidated financial statements related notes contained item 8 description company manufacture market primarily snack food beverage products including biscuits chocolate gum candy beverages various cheese grocery products operations 80 countries sell products approximately 165 countries october 1 2012 “distribution date” completed spinoff north american grocery business kraft foods group inc “kraft foods group” shareholders “spinoff” along food beverage categories also retained global snacks business “global snacks business” last several years transformed portfolio expanding geographically building presence fastgrowing snacking category time continued invest product quality marketing innovation behind iconic brands implementing series cost saving initiatives expect global snacks business build upon strong presence across numerous fastgrowing markets categories channels including highmargin instant consumption channel plan target industryleading revenue growth leverage cost structure volume growth improved product mix drive margin gains grow earnings per share toptier peer group summary results significant highlights result spinoff historical results kraft foods group reflected discontinued operation within consolidated statements earnings periods presented discuss results continuing operations discussion analysis follows • net revenues decreased 22 350 billion 2012 increased 137 358 billion 2011 reported net revenues significantly impacted unfavorable foreign currency exchange rates lapping prioryear accounting calendar changes divestitures 2012 • organic net revenues nongaap financial measure use evaluate underlying results see definition organic net revenues reconciliation net revenues within nongaap financial measures appearing later section organic net revenues increased 44 363 billion 2012 increased 70 334 billion 2011 organic net revenues constant currency basis excludes impact accounting calendar changes divestitures • diluted eps attributable mondelēz international decreased 151 169 2012 decreased 167 199 2011 excluding results discontinued operations diluted eps attributable mondelēz international continuing operations decreased 113 086 2012 increased 1553 097 2011 included within reported results onetime spinoff costs 20122014 restructuring program costs cadbury integration program costs gains losses divestitures divested operating results • operating eps nongaap financial measure use evaluate underlying results see definition operating eps reconciliation diluted eps within nongaap financial measures appearing later section operating eps provides transparency underlying results continuing operations excludes spinoff costs spinoff pension expense interest expense adjustments 20122014 restructuring program costs cadbury integration program costs gains losses divestitures divested operating results also evaluate operating eps constant currency basis operating eps increased 07 139 2012 increased 330 141 2011 constant currency basis operating eps increased 51 145 2012 increased 264 134 2011 • october 1 2012 completed spinoff distribution shareholders one share kraft foods group common stock every three shares common stock held record date distribution structured tax free us shareholders us federal income tax purposes see additional information spinoff kraft foods group note 2 divestitures acquisitions consolidated financial statements • 2012 anticipation spinoff kraft foods group executed series debt transactions order adequately capitalize companies secure investment grade credit ratings following spinoff 2012 kraft foods group incurred approximately 10 billion debt direct note issuances exchanges debt kraft foods group received cash note issuances cash distributed us distribution date could reduce debt time successful recapitalizing companies secured maintain investment grade credit rating following spinoff see liquidity capital resources note 8 debt borrowing arrangements consolidated financial statements information discussion analysis items affecting comparability financial results spinoff kraft foods group october 1 2012 completed spinoff kraft foods group shareholders october 1 2012 shareholders record september 19 2012 received one share kraft foods group common stock every three shares common stock held distribution structured tax free us shareholders us federal income tax purposes see note 2 divestitures acquisitions consolidated financial statements additional information divested kraft foods group business presented discontinued operation consolidated statements earnings periods presented kraft foods group balance sheet comprehensive earnings cash flows included within consolidated balance sheet consolidated statements equity comprehensive earnings cash flows october 1 2012 summary results operations divested kraft foods group october 1 2012 follows 1 march 1 2010 kraft foods group completed sale assets north american frozen pizza business nestlē usa inc earnings march 1 2010 gain included discontinued operations kraft foods group year ended december 31 2010 results kraft foods group discontinued operation exclude certain corporate business unit costs allocated kraft foods group historically expected continue mondelēz international spinoff costs include primarily corporate overheads information systems sales force support pretax basis date spinoff costs 150 million nine months ended october 1 2012 236 million year ended december 31 2011 209 million year ended december 31 2010 interest expense relating debt kraft foods group incurred assumed october 1 2012 included results discontinued operations periods presented follows october 1 2012 divested following assets liabilities net 4358 million 4111 million net cash retained kraft foods group distribution date millions additionally 4308 million accumulated comprehensive losses primarily related pension benefit plan net liabilities transferred kraft foods group 89 million unearned compensation recorded within additional paid capital distributed kraft foods group total recorded distribution 8755 million shareholders connection spinoff kraft foods group order implement spinoff entered certain agreements kraft foods group effect legal structural separation govern relationship us allocate various assets liabilities obligations us including among things employee benefits intellectual property taxrelated assets liabilities see note 14 income taxes additional information current deferred tax assets liabilities transferred retained spinoff addition executing spinoff manner provided agreements november 2012 pursuant agreements paid kraft foods group 163 million related targeted cash flows together 247 million cash divested distribution date totaling 410 million cash transferred kraft foods group connection spinoff facilitate management including final payment resolution certain obligations kraft foods group retained certain north american net trade payables receivables also retained approximately 140 million workers’ compensation liabilities claims incurred kraft foods group employees prior spinoff november 2012 paid kraft foods group 95 million cash settle net trade payables receivables also reflected table december 31 2012 also 55 million receivable kraft foods group related cash settlement stock awards held respective employees time spinoff described note 11 stock plans consolidated financial statements results continuing operations include onetime spinoff transaction transition financing related costs “spinoff costs” incurred date recorded spinoff costs 1053 million 039 per diluted share 2012 46 million 002 per diluted share 2011 expect incur spinoff costs approximately 100 million 2013 related primarily human resource customer service logistics information systems processes well legal costs associated revising intellectual property longterm agreements cadbury acquisition 2010 acquired outstanding shares cadbury limited “cadbury” acquisition valued 18547 million 17503 million net cash equivalents 2010 incurred acquisitionrelated transaction costs 218 million recorded selling general administrative expense acquisitionrelated financing fees 96 million recorded interest expenses net condition granting approval acquisition eu required divest certain cadbury confectionery operations poland romania divestitures completed third quarter 2010 generated 342 million sale proceeds impact divestitures reflected adjustments within cadbury final purchase accounting 2010 cadbury contributed net revenues 9143 million net earnings 530 million february 2 2010 december 31 2010 following unaudited pro forma summary presents consolidated results continuing operations cadbury acquired january 1 2010 amounts calculated conversion us gaap applying accounting policies adjusting cadbury’s results reflect additional depreciation amortization would charged assuming fair value adjustments property plant equipment intangible assets applied january 1 2010 together consequential tax effects adjustments also reflect additional interest expense incurred debt finance purchase divestitures certain cadbury confectionery operations poland romania also acquired assets assumed liabilities follows millions 1 gross amount acquired receivables 1474 million 141 million reserved uncollectable 2 goodwill deductible statutory tax purposes attributable cadbury’s workforce significant synergies expect acquisition 3 acquired 103 billion indefinitelived intangible assets primarily trademarks 26 billion amortizable intangible assets primarily customer relationships technology customer relationships amortized approximately 13 years technology amortized approximately 12 years 4 within current liabilities reserve exposures related taxes approximately 70 million established within developing markets segment cumulative exposure approximately 150 million december 31 2010 divestitures sales property three months ended december 31 2012 completed several divestitures within europe segment generated cash proceeds 200 million pretax gains 107 million divestitures primarily included dinners sauces grocery business germany belgium canned meat business italy 2011 significant divestitures 2010 discussed divested businesses poland romania connection acquisition cadbury three months ended march 31 2012 also sold property located russia generated cash proceeds 72 million pretax gain 55 million recorded within selling general administrative expenses aggregate operating results divestitures discussed material financial statements periods presented 20122014 restructuring program march 14 2012 board directors approved 11 billion restructuring related implementation costs “20122014 restructuring program” reflecting primarily severance asset disposals manufacturingrelated onetime costs primary objective restructuring implementation activities ensure kraft foods group mondelēz international set operate efficiently execute respective business strategies upon separation future october 23 2012 board directors approved 400 million additional restructuring related implementation programs totaling 15 billion expected 20122014 restructuring program costs 15 billion 20122014 restructuring program costs 575 million relates kraft foods group approximately 925 million costs expect incur incurred results continuing operations december 31 2012 recorded restructuring charges 102 million 004 per diluted share results continuing operations recorded within asset impairment exit costs 2012 spent 33 million primarily severance related costs also recognized noncash severance related costs asset writedowns including accelerated depreciation asset impairments totaling 33 million december 31 2012 36 million restructuring liabilities recorded within current liabilities 2012 also incurred 8 million implementation costs recorded within cost sales selling general administrative expenses see note 6 20122014 restructuring program additional information integration program result combination cadbury 2010 launched integration program realize annual cost savings approximately 750 million end 2013 revenue synergies investments distribution marketing product development order achieve cost savings synergies integrate two businesses expect incur total integration charges approximately 15 billion end 2013 “integration program” integration program costs include costs associated combining cadbury operations within global snacks business separate costs related acquisition since inception integration program incurred approximately 13 billion estimated 15 billion total integration charges 2012 met exceeded annual cost savings target 750 million achieved approximately 800 million annual costs savings one year ahead schedule recorded integration program charges 185 million 2012 521 million 2011 646 million 2010 2012 reversed 45 million integration program charges previously accrued 2010 primarily related planned announced position eliminations occur within europe segment recorded charges operations part selling general administrative expenses primarily within europe developing markets segments well within general corporate expenses december 31 2012 accrual 202 million related integration program see note 7 integration program cost savings initiatives consolidated financial statements additional information cost savings initiatives cost savings initiatives generally include exit disposal project costs outside integration program 20122014 restructuring program consist following specific initiatives • 2012 recorded 21 million charge primarily within segment operating income europe related severance benefits provided terminated employees charges connection reorganization within europe developing markets segment “europe reorganization” • 2011 recorded 61 million charge primarily within segment operating income europe related severance benefits provided terminated employees charges connection europe reorganization also reversed approximately 15 million cost savings initiative program costs across north america developing markets segments • 2010 recorded 117 million primarily within segment operating income europe connection europe reorganization accounting calendar changes 2011 2010 majority operating subsidiaries report results last saturday year portion international operating subsidiaries report results last calendar day year 2011 last saturday year fell december 31 2011 results included one week operating results “53rd week” 2012 2010 52 weeks 2011 changed consolidation date certain operations europe segment latin america central eastern europe “cee” middle east africa “mea” regions within developing markets segment previously operations primarily reported results two weeks prior end period subsequent 2011 changes europe segment reports results last saturday period certain operations within developing markets segment report results last calendar day period last saturday period changes 53rd week 2011 resulted favorable impact net revenues 679 million favorable impact 93 million operating income 2011 2010 changed consolidation date certain european biscuits operations included within europe segment certain operations asia pacific latin america within developing markets segment previously operations primarily reported periodend results one month two weeks prior end period europe moved reporting operations two weeks prior end period asia pacific latin america moved reporting operations last day period changes resulted favorable impact net revenues 193 million favorable impact 23 million operating income 2010 believe changes preferable improve business planning financial reporting better matching close dates operating subsidiaries within europe segment developing markets segment bringing reporting date closer periodend date effect priorperiod results material revised priorperiod results provision income taxes 2012 effective tax rate favorably impacted mix pretax income various foreign jurisdictions net tax benefits 101 million discrete onetime events primarily related revaluation uk deferred tax assets liabilities resulting tax legislation enacted 2012 reduced uk corporate income tax rates net favorable tax audit settlements partially offset nondeductible expenses 2011 effective tax rate favorably impacted mix pretax income various foreign jurisdictions net tax benefits 226 million discrete onetime events primarily revaluation uk deferred tax assets liabilities resulting tax legislation enacted 2011 reduced uk corporate income tax rates reversal valuation allowances certain foreign deferred tax assets expected realized net favorable impact various us federal foreign tax audit developments year 2010 effective tax rate favorably impacted mix pretax income various foreign jurisdictions net tax benefits 165 million discrete onetime events primarily favorable resolution us federal foreign tax audits revaluation uk deferred tax assets liabilities resulting tax legislation enacted 2010 reduced uk corporate income tax rates partially offset writeoff deferred tax assets result us health care legislation enacted march 2010 consolidated results operations following discussion compares consolidated results operations 2012 2011 2010 2012 compared 2011 net revenues net revenues decreased 795 million 22 35015 million 2012 organic net revenues1 increased 1531 million 44 36347 million follows 1 please see nongaap financial measures section end item organic net revenue growth driven higher net pricing favorable volumemix higher net pricing including impact pricing actions prior year realized across reportable segments increased pricing offset higher input costs favorable volumemix driven higher shipments developing markets europe mostly offset lower shipments north america driven primarily completion comanufacturing agreement previous divestiture unfavorable foreign currency decreased net revenues 1576 million due primarily strength us dollar relative foreign currencies primarily euro brazilian real indian rupee argentinean peso south african rand russian ruble mexican peso nonrecurring accounting calendar changes 2011 resulted yearoveryear decrease net revenues 679 million divested businesses also resulted yearoveryear decrease net revenues 72 million operating income operating income increased 139 million 40 3637 million 2012 adjusted operating income1 increased 138 million 34 4235 million adjusted operating income constant currency basis1 increased 291 million 71 4388 million due following 1 please see nongaap financial measures section end item 2 represents estimated annual benefit plan expense associated certain benefit plan obligations transferred kraft foods group spinoff estimate 91 million based market conditions benefit plan assumptions january 1 2012 year ended december 31 2012 prorated estimate 68 million reflected nine months prior spinoff transfer benefit plan obligations kraft foods group higher net pricing including impact pricing actions taken prior year outpaced increased input costs 2012 increase input costs driven higher raw material costs partially offset lower manufacturing costs favorable volumemix driven strong contributions developing markets europe partially offset unfavorable impact north america total selling general administrative expenses decreased 206 million 2011 including benefits favorable impact foreign currency expenses lower integration program costs including reversal previously accrued integration program charges primarily related planned announced position eliminations occur higher expenses prior year related accounting calendar changes divested businesses gain sale property russia partially offset spinoff costs 20122014 restructuring program costs incurred 2012 excluding factors selling general administrative expenses increased 293 million 2011 driven primarily higher advertising consumer promotion costs geographic units partially offset reversal reserves required carried cadbury acquisition 2010 unfavorable foreign currency decreased operating income 153 million due primarily strength us dollar relative foreign currencies primarily euro brazilian real argentinean peso indian rupee partially offset impact adjustments prior year related highly inflationary venezuelan economy accounting calendar changes made 2011 including 53rd week shipments 2011 decreased operating income 93 million 2012 divested property located russia recorded pretax gain 55 million 2012 recorded 52 million related trademark impairment japan change unrealized gains losses hedging activities increased operating income 37 million recognized gains 1 million 2012 versus losses 36 million 2011 result net effect drivers operating income margin increased 98 2011 104 2012 margin increase due primarily higher gross margin reflecting impact pricing actions net increased input costs favorable change unrealized gains hedging activities overhead leverage partially offset impact higher advertising consumer promotion costs favorable impacts lower integration program costs realized net gain divestitures offset unfavorable impacts higher spinoff costs 20122014 restructuring program costs net earnings per share attributable mondelēz international net earnings attributable mondelēz international 3028 million decreased 499 million 141 2012 diluted eps attributable mondelēz international 169 2012 151 199 2011 diluted eps continuing operations attributable mondelēz international 086 2012 113 097 2011 operating eps1 139 2012 001 07 138 2011 operating eps constant currency basis1 145 2012 007 51 138 2011 changes shown net tax due following 1 please see nongaap financial measures section end item 2 represents interest expense associated assumed reduction 6 billion debt january 1 2011 utilization funds received 6 billion notes kraft foods group issued directly cash proceeds distributed us june 2012 connection spinoff capitalization plan note year ended december 31 2012 portion 6 billion debt retired adjusted interest expense period debt repaid january 1 2011 ensure consistency assumption related results 3 represents estimated annual benefit plan expense associated certain benefit plan obligations transferred kraft foods group spinoff estimate 91 million based market conditions benefit plan assumptions january 1 2012 year ended december 31 2012 prorated estimate 68 million reflected nine months prior spinoff transfer benefit plan obligations kraft foods group 4 excludes favorable foreign currency impact interest expense related foreign denominated debt change interest expense included spinoff costs change interest expense associated assumed reduction 6 billion debt january 1 2011 utilization funds received 6 billion notes kraft foods group issued directly cash proceeds distributed us june 2012 connection spinoff capitalization plan 5 spinoff costs include 444 million pretax spinoff costs selling general administrative expense 609 million pretax spinoff costs interest expense 2011 compared 2010 net revenues net revenues increased 4321 million 137 35810 million 2011 organic net revenues1 increased 2193 million 70 33385 million follows 1 please see nongaap financial measures section end item 2 impact acquisition reflects incremental january 2011 operating results cadbury acquisition organic net revenue growth driven higher net pricing favorable volumemix higher net pricing realized across reportable segments increased pricing offset higher input costs favorable volumemix driven primarily higher shipments developing markets favorable foreign currency increased net revenues 1074 million due primarily strength foreign currencies relative us dollar primarily euro australian dollar brazilian real swedish krona british pound swiss franc canadian dollar russian ruble cadbury acquisition due incremental january 2011 operating results added 697 million net revenues 2011 accounting calendar changes including 53rd week shipments 2011 excluding effects foreign currency added 655 million net revenues 2011 compared 193 million 2010 gains partially offset impact divestitures operating income operating income increased 1002 million 401 3498 million 2011 adjusted operating income1 increased 654 million 187 4156 million adjusted operating income constant currency basis1 increased 495 million 141 3997 million due following 1 please see nongaap financial measures section end item 2 represents estimated annual benefit plan expense associated certain benefit plan obligations transferred kraft foods group spinoff estimate 91 million based market conditions benefit plan obligations january 1 2012 3 impact acquisition reflects incremental january 2011 operating results cadbury acquisition higher pricing outpaced increased input costs 2011 increase input costs driven significantly higher raw material costs well higher manufacturing costs favorable volumemix driven strong contribution developing markets partially offset unfavorable impact north america total selling general administrative expenses increased 242 million 2010 including detriments unfavorable impact foreign currency expenses incremental expenses associated cadbury acquisition 2011 accounting calendar changes partially offset lower integration program costs lower expenses related divested businesses excluding factors selling general administrative expenses increased 71 million 2010 driven primarily higher advertising consumer promotion costs developing markets favorable foreign currency increased operating income 159 million due primarily strength foreign currencies relative us dollar primarily euro australian dollar brazilian real cadbury acquisition due incremental january 2011 operating results increased operating income 83 million change unrealized gainslosses hedging activities decreased operating income 74 million recognized losses 36 million 2011 versus gains 38 million 2010 accounting calendar changes including 53rd week shipments 2011 excluding effects foreign currency added 66 million operating income realized operating income accounting calendar changes 89 million 2011 versus 23 million 2010 2011 reversed 5 million restructuring program charges recorded prior years versus reversal 29 million restructuring program charges recorded prior years 2010 recorded asset impairment charges 55 million 2010 related intangible assets china netherlands biscuit plant related property plant equipment france result net effect drivers operating income margin increased 79 2010 98 2011 margin increase due primarily overhead leverage lower acquisitionrelated costs lower integration program costs offset decline gross profit margin driven primarily impact higher revenue base margin calculation net earnings per share attributable mondelēz international net earnings attributable mondelēz international 3527 million decreased 587 million 143 2011 diluted eps attributable mondelēz international 199 2011 167 239 2010 diluted eps continuing operations attributable mondelēz international 097 2011 1553 038 2010 operating eps1 141 2011 035 330 106 2010 operating eps constant currency basis1 134 2012 028 264 106 2011 changes shown net tax due following 1 please see nongaap financial measures section end item 2 represents interest expense associated assumed reduction 6 billion debt january 1 2010 utilization funds received 6 billion notes kraft foods group issued directly cash proceeds distributed us june 2012 connection spinoff capitalization plan note year ended december 31 2012 portion 6 billion debt retired adjusted interest expense period debt repaid january 1 2010 ensure consistency assumption related results 3 represents estimated annual benefit plan expense associated certain benefit plan obligations transferred kraft foods group spinoff estimate 91 million based market conditions benefit plan assumptions january 1 2012 4 impact acquisition reflects incremental january 2011 operating results cadbury acquisition 5 excludes unfavorable foreign currency impact interest expense related foreign denominated debt impacts acquisitionrelated interest expense net includes loss 157 million related several interest rate swaps settled 2011 6 excludes impact 2010 us health care legislation deferred taxes results operations reportable segment manage report operating results three geographic reporting units developing markets europe north america manage operations developing markets location europe north america product category following discussion compares segment results continuing operations following periods discussed note 16 segment reporting use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales certain components us pension plan cost component cost sales selling general administrative expenses general corporate expenses component selling general administrative expenses amortization intangibles gains losses divestitures acquisitionrelated costs component selling general administrative expenses periods presented exclude unrealized gains losses hedging activities segment operating income order provide better transparency segment operating results realized gains losses hedging activities recorded within segment operating results exclude certain components us pension plan cost segment operating income centrally manage pension plan funding decisions determination discount rate expected rate return plan assets actuarial assumptions therefore allocate service cost component us pension plan expense segment operating income exclude general corporate expenses amortization intangibles gains losses divestitures acquisitionrelated costs segment operating income order provide better transparency segment operating results february 8 2013 venezuelan government announced devaluation official venezuelan bolivar exchange rate 430 bolivars 630 bolivars us dollar elimination secondtier governmentregulated sitme exchange rate previously applied value certain types transactions impact announced changes resulted onetime 30 million unfavorable foreign currency impact record within latin america operating segment first quarter 2013 began accounting results venezuelan subsidiaries us dollars january 1 2010 prescribed us gaap highly inflationary economies use official venezuelan bolivar exchange rate translate results venezuelan operations us dollars 2012 2011 recorded immaterial foreign currency impacts connection highly inflationary accounting venezuela 2010 recorded 115 million unfavorable foreign currency impacts including onetime 34 million charge upon adopting highly inflationary accounting venezuela 2012 divested property developing markets subsidiary located russia 72 million net proceeds recorded 55 million pretax gain within selling general administrative expenses 2012 net changes unrealized gains losses hedging activities favorable primarily related gains foreign currency contracts commodity hedging activity 1 million 2011 net changes unrealized gains losses hedging activities unfavorable primarily related losses foreign currency contracts commodity hedging activity 36 million 2010 net changes unrealized gains losses hedging activities favorable primarily related gains foreign currency contracts commodity hedging activity 38 million connection 20122014 restructuring program 2012 recorded restructuring charges 102 million operations part asset impairment exit costs implementation costs 8 million operations part cost sales selling general administrative expenses charges recorded primarily within north america segment 2012 recorded 44 million benefit within europe segment related reversal reserves carried cadbury acquisition 2010 subsequently determined required recorded integration program charges 185 million 2012 521 million 2011 646 million 2010 2012 reversed 45 million integration program charges previously accrued 2010 primarily related planned announced position eliminations occur within europe segment recorded charges integration program operations part selling general administrative expenses primarily within europe developing markets segments well within general corporate expenses 2012 increase general corporate expenses due primarily 407 million spinoff costs recorded within general corporate expenses partially offset lower integration program costs 2011 decrease general corporate expenses due primarily lower integration program costs 2011 2010 general corporate expenses included 155 million integration program costs well addition cadbury’s corporate charges 2012 received 200 million proceeds recorded pretax gains 107 million primarily related divestitures germany belgium italy 2011 significant divestitures 2010 divested businesses poland romania connection acquisition cadbury reflected impacts divestitures adjustments cadbury purchase price allocations 2010 acquired cadbury incurred 218 million acquisitionrelated costs recorded within selling general administrative expenses 2012 increase interest expense net due primarily 609 million spinoff costs recorded within interest expense partially offset 2011 loss 157 million related several interest rate swaps settled 2011 well lower longterm debt interest expense 2011 decrease interest expense net due primarily 251 million acquisitionrelated financing fees recorded 2010 partially offset loss 157 million related several interest rate swaps settled 2011 developing markets 2012 compared 2011 net revenues increased 34 million 02 due higher net pricing 51 pp favorable volumemix 19 pp mostly offset unfavorable foreign currency 56 pp impact prior year’s accounting calendar changes 12 pp central eastern europe net revenues decreased driven unfavorable foreign currency impact prior year’s accounting calendar changes including 53rd week shipments 2011 partially offset higher net pricing across region favorable volumemix middle east africa net revenues increased driven favorable volumemix higher net pricing across region partially offset unfavorable foreign currency impact prior year’s accounting calendar changes latin america net revenues decreased driven unfavorable foreign currency unfavorable volumemix primarily mexico venezuela impact prior year’s accounting calendar changes partially offset higher net pricing across region asia pacific net revenues increased due higher net pricing across region favorable volumemix primarily china southeast asia australianew zealand partially offset unfavorable foreign currency segment operating income increased 64 million 32 due primarily higher net pricing favorable volumemix lower integration program costs gain sale property russia partially offset higher raw material costs higher advertising consumer promotion costs unfavorable foreign currency asset impairment charge related trademark japan higher selling general administrative expenses higher manufacturing costs spinoff costs incurred impact prior year’s accounting calendar changes costs incurred 20122014 restructuring program 2011 compared 2010 net revenues increased 2201 million 164 due higher net pricing 74 pp favorable volumemix 40 pp favorable foreign currency 30 pp cadbury acquisition 28 pp impact accounting calendar changes including 53rd week shipments 2011 01 pp partially offset impact 2010 divestiture certain cadbury confectionery operations poland romania 09 pp central eastern europe net revenues increased driven higher net pricing across region impact accounting calendar changes including 53rd week shipments 2011 favorable foreign currency cadbury acquisition partially offset impact divestitures unfavorable volumemix middle east africa net revenues increased driven higher net pricing across region cadbury acquisition favorable volumemix impact accounting calendar changes partially offset unfavorable foreign currency latin america net revenues increased driven higher net pricing across region favorable volumemix across region cadbury acquisition favorable foreign currency partially offset impact accounting calendar changes asia pacific net revenues increased due primarily favorable volumemix favorable foreign currency cadbury acquisition higher net pricing across region partially offset impact accounting calendar changes segment operating income increased 470 million 307 due primarily higher net pricing favorable volumemix favorable foreign currency cadbury acquisition due incremental january 2011 operating results 2010 asset impairment charges related trademarks china lower acquisitionrelated costs lower integration program costs favorable variances partially offset higher raw material costs higher manufacturing costs higher selling general administrative expenses net gain sale land higher advertising consumer promotion costs europe 2012 compared 2011 net revenues decreased 899 million 67 due unfavorable foreign currency 53 pp impact prior year’s accounting calendar changes including 53rd week shipments 2011 34 pp impact divestitures 03 pp partially offset favorable volumemix 15 pp higher net pricing 08 pp unfavorable foreign currency due strength us dollar relative foreign currencies primarily euro british pound sterling swedish krona swiss franc favorable volumemix driven primarily higher shipments chocolate biscuits coffee partially offset lower shipments cheese grocery gum candy higher net pricing reflected across categories except chocolate segment operating income increased 207 million 147 due primarily lower integration program costs including 45 million reversal integration program charges previously accrued 2010 primarily related planned announced position eliminations occur upon concluding majority local workers council negotiations april 2012 lower manufacturing costs higher net pricing lower selling general administrative expenses includes 44 million benefit related reversal reserves required carried cadbury acquisition 2010 favorable volumemix partially offset higher advertising consumer promotion costs higher raw material costs unfavorable foreign currency impact prior year’s accounting calendar changes including 53rd week shipments 2011 costs incurred 20122014 restructuring program 2011 compared 2010 net revenues increased 1728 million 149 due favorable foreign currency 55 pp higher net pricing 44 pp impact accounting calendar changes including 53rd week shipments 30 pp cadbury acquisition 18 pp favorable volumemix 02 pp favorable foreign currency due strength foreign currencies relative us dollar primarily euro swedish krona british pound sterling swiss franc higher net pricing reflected across major categories except gum candy favorable volumemix due primarily higher shipments biscuits chocolate partially offset lower shipments coffee cheese grocery gum candy segment operating income increased 291 million 261 due primarily higher net pricing lower manufacturing costs lower selling general administrative expenses favorable foreign currency impact accounting calendar changes including 53rd week shipments absence asset impairment charges recorded 2010 cadbury acquisition due incremental january 2011 operating results lower acquisitionrelated costs lower advertising consumer promotion costs favorable volumemix favorable factors partially offset higher raw material costs lower reversal prior years’ restructuring program costs north america 2012 compared 2011 net revenues increased 70 million 10 due higher net pricing 36 pp partially offset unfavorable volumemix 12 pp impact prior year’s 53rd week shipments 10 pp impact divestitures 02 pp unfavorable foreign currency 02 pp us net revenues increased due higher net pricing partially offset impact prior year’s 53rd week shipments unfavorable volumemix including impact package size changes primarily biscuits impact divestitures higher net pricing reflected primarily biscuits canada net revenues decreased due unfavorable volumemix unfavorable foreign currency impact prior year’s 53rd week shipments partially offset higher net pricing unfavorable volumemix due primarily lower shipments chocolate gum candy well completion comanufacturing agreement previous divestiture partially offset higher shipments biscuits higher net pricing reflected primarily biscuits chocolate segment operating income increased 10 million 12 due primarily higher net pricing lower integration program costs lower manufacturing costs partially offset higher raw material costs incurred 20122014 restructuring program unfavorable volumemix higher advertising consumer promotion costs higher selling general administrative expenses impact prior year’s 53rd week shipments 2011 compared 2010 net revenues increased 392 million 61 due higher net pricing 35 pp cadbury acquisition 18 pp impact 53rd week shipments 11 pp favorable foreign currency 07 pp partially offset unfavorable volumemix 10 pp us net revenues increased due higher net pricing cadbury acquisition impact 53rd week shipments partially offset unfavorable volumemix higher net pricing reflected across categories unfavorable volumemix due primarily lower shipments gum candy partially offset higher shipments biscuits canada net revenues increased driven primarily favorable foreign currency cadbury acquisition impact 53rd week shipments higher net pricing partially offset unfavorable volumemix higher net pricing reflected primarily biscuits unfavorable volumemix due primarily lower shipments chocolate biscuits segment operating income increased 58 million 72 due higher net pricing lower selling general administrative expenses cadbury acquisition due incremental january 2011 operating results impact 53rd week shipments favorable foreign currency lower acquisitionrelated costs lower advertising consumer promotion costs partially offset higher raw material costs higher manufacturing costs unfavorable volumemix higher integration program costs critical accounting policies note 1 summary significant accounting policies consolidated financial statements includes summary significant accounting policies used prepare consolidated financial statements discussed selection disclosure critical accounting policies estimates audit committee following review significant assumptions estimates well accounting policies used prepare consolidated financial statements principles consolidation consolidated financial statements include mondelēz international well wholly owned majority owned subsidiaries majority operating subsidiaries report results last saturday year portion international operating subsidiaries report results last calendar day 2011 last saturday year fell december 31 2011 results included one week operating results “53rd week” 2012 2010 52 weeks 2011 changed consolidation date certain operations europe segment latin america central eastern europe “cee” middle east africa “mea” regions within developing markets segment previously operations primarily reported results two weeks prior end period subsequent 2011 changes europe segment reports results last saturday period certain operations within developing markets segment report results last calendar day period last saturday period changes 53rd week 2011 resulted favorable impact net revenues 679 million favorable impact 93 million operating income 2011 2010 changed consolidation date certain european biscuits operations included within europe segment certain operations asia pacific latin america within developing markets segment previously operations primarily reported periodend results one month two weeks prior end period europe moved reporting operations two weeks prior end period asia pacific latin america moved reporting operations last day period changes resulted favorable impact net revenues 193 million favorable impact 23 million operating income 2010 believe changes preferable improve business planning financial reporting better matching close dates operating subsidiaries within europe developing markets segments bringing reporting dates closer periodend date effect priorperiod results material revised priorperiod results account investments exercise significant influence 2050 ownership interest equity method accounting use cost method accounting investments ownership interest less 20 exercise significant influence noncontrolling interest subsidiaries consists equity interest noncontrolling investors consolidated subsidiaries mondelēz international intercompany transactions eliminated use estimates prepare consolidated financial statements accordance us gaap requires us make estimates assumptions affect number amounts consolidated financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions valuation assumptions goodwill intangible assets useful lives longlived assets marketing program accruals insurance selfinsurance reserves income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period know actual amounts historically aggregate differences estimates actual amounts year material effect consolidated financial statements inventories stated lower cost market value inventories using average cost method also record inventory allowances overstocked obsolete inventories due ingredient packaging changes longlived assets review longlived assets including amortizable intangible assets impairment conditions exist indicate carrying amount assets may fully recoverable perform undiscounted operating cash flow analyses determine impairment exists testing impairment assets held use group assets liabilities lowest level cash flows separately identifiable impairment determined exist loss calculated based estimated fair value impairment losses assets disposed based estimated proceeds received less costs disposal 2012 recorded impairment charges 18 million within 20122014 restructuring program record asset impairments 2011 2010 recorded impairment 12 million certain property plant equipment biscuit plant france goodwill nonamortizable intangible assets test goodwill nonamortizable intangible assets impairment least annually october 1 assess goodwill impairment risk first performing qualitative review entityspecific industry market general economic factors reporting unit significant potential goodwill impairment risk exists specific reporting unit apply twostep quantitative test first step compares reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using 20year projection discounted cash flows incorporates planned growth rates marketbased discount rates estimates residual value reporting units within north america europe geographic units used marketbased weightedaverage cost capital 63 discount projected cash flows operations reporting units within developing markets geographic unit used riskrated discount rate 93 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value second step applied measure difference carrying value implied fair value goodwill carrying value goodwill exceeds implied fair value goodwill considered impaired reduced implied fair value 2012 2011 2010 impairments goodwill connection 2012 annual impairment testing noted two reporting units sensitive nearterm changes discounted cash flow assumptions us confections 2177 million goodwill december 31 2012 fair value excess carrying value net assets 9 europe biscuits 2569 million goodwill december 31 2012 fair value excess carrying value net assets 16 reporting units passed first step impairment test segment operating income another valuation assumption either reporting unit deteriorate significantly future could adversely affect estimated fair value unsuccessful plans increase profitability businesses estimated fair values could fall lead potential goodwill impairment future test nonamortizable intangible assets impairment first performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible asset significant potential impairment risk exists specific nonamortizable intangible asset quantitatively test impairment comparing fair value intangible asset carrying value fair value nonamortizable intangible assets determined using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds fair value intangible asset considered impaired reduced estimated fair value record intangible asset impairment charges within asset impairment exit costs 2012 review nonamortizable intangible assets recorded 52 million charges related trademark japanese chewing gum product within developing markets segment significantly lower revenue fair value intangible asset determined relief royalty valuation models cash flows trademark assuming royalties received licensing arrangement charge calculated excess carrying value intangible asset estimated fair value recorded within asset impairment exit costs 2011 review impairments nonamortizable intangible assets 2010 review recorded 13 million charge impairment intangible assets netherlands 30 million charge impairment intangible assets china insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee health care benefits estimate liabilities associated risks evaluating making judgments historical claims experience actuarial assumptions estimated impact future results revenue recognition recognize revenues title risk loss pass customers generally occurs upon shipment delivery goods revenues recorded net consumer incentives trade promotions include shipping handling charges billed customers shipping handling costs classified part cost sales provisions product returns customer allowances also recorded reductions revenues within period revenue recognized marketing research development promote products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives expense advertising costs either period advertising first takes place incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred advertising expense 1815 million 2012 1860 million 2011 1729 million 2010 expense product research development costs incurred research development expense 462 million 2012 511 million 2011 404 million 2010 record marketing research development expenses within selling general administrative expenses environmental costs throughout countries business subject local national multinational environmental laws regulations relating protection environment programs across business units designed meet applicable environmental compliance requirements united states laws regulations include clean air act clean water act resource conservation recovery act comprehensive environmental response compensation liability act “cercla” cercla imposes joint severable liability potentially responsible party december 31 2012 subsidiaries involved one active proceeding us state equivalent cercla related current operations december 31 2011 subsidiaries involved 68 active actions except one active proceeding retained remaining active actions relate retained divested kraft foods group business december 31 2012 accrued immaterial amount environmental remediation based information currently available believe ultimate resolution existing environmental remediation actions compliance general environmental laws regulations material effect financial results employee benefit plans provide range benefits current retired employees depending jurisdictions tenure presence union job level factors include pension benefits postretirement health care benefits postemployment benefits consisting primarily severance record amounts relating plans based calculations specified us gaap calculations require use various actuarial assumptions discount rates assumed rates return plan assets compensation increases turnover rates health care cost trend rates review actuarial assumptions annual basis make modifications assumptions based current rates trends appropriate permitted us gaap generally amortize effect modifications future periods believe assumptions used recording plan obligations reasonable based experience advice actuaries refer note 10 benefit plans consolidated financial statements discussion assumptions used connection spinoff transferred kraft foods group plan liabilities assets associated kraft foods group active retired employees certain retired employees previously participated north american benefit plans october 1 2012 transferred benefit plan liabilities 12218 million pension plan assets 6550 million accumulated comprehensive losses net tax 3810 million 2146 million related deferred tax assets also expect annual pension expenses decrease 91 million connection certain north american benefit plan obligations transferred kraft foods group spinoff recorded following amounts earnings continuing operations employee benefit plans years ended december 31 2012 2011 2010 2012 net expense employee benefit plans 607 million increased 89 million 2011 amount primarily related higher amortization net loss experience differences related us nonus pension plans 2011 net expense employee benefit plans 518 million increased 59 million 2010 amount primarily related higher amortization net loss experience differences related us pension plans incorporation canadian postemployment plan obligations expect 2013 net expense employee benefit plans decrease approximately 66 million decrease primarily due nonrecurring costs 2012 related primarily certain benefit plan obligations transferred kraft foods group spinoff 2012 onetime costs partially offset increased benefit plan expenses 2013 due lower discount rates 2012 comprehensive losses included 2266 million net actuarial pretax losses primarily related decrease discount rate utilized determine pension plan benefit obligations december 31 2012 65 basis point decrease us plans 81 basis point decrease nonus plans decrease discount rate utilized determine postretirement benefit obligations december 31 2012 50 basis point decrease us plans 21 basis point decrease nonus plans 2011 comprehensive losses included 2333 million net actuarial pretax losses primarily related decrease discount rate utilized determine pension plan benefit obligations december 31 2011 68 basis point decrease us plans 49 basis point decrease nonus plans unfavorable differences expected actual return pension plan assets decrease discount rate utilized determine postretirement benefit obligations december 31 2011 60 basis point decrease us plans 73 basis point decrease nonus plans 2010 comprehensive earnings included 361 million net actuarial pretax losses primarily related decrease discount rate utilized determine pension plan benefit obligations december 31 2010 40 basis point decrease us plans 10 basis point decrease nonus plans decrease discount rate utilized determine postretirement benefit obligations december 31 2010 40 basis point decrease us plans 23 basis point decrease nonus plans partially offset favorable differences expected actual return pension plan assets 2012 contributed 349 million us pension plans including 202 million related kraft foods group us pension plans 329 million nonus pension plans including 42 million related kraft foods group nonus pension plans addition employees contributed 24 million nonus plans 2012 pension contributions 315 million voluntary including 185 million related kraft foods group pension plans make contributions us nonus pension plans primarily extent tax deductible generate excise tax liability 2013 estimate pension contributions 8 million us plans 309 million nonus plans based current tax laws currently required make nominal cash contribution us qualified pension plans pension protection act 2006 total 2013 pension contributions none expected voluntary actual contributions may different due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates factors salaried nonunion hourly employees hired us january 1 2009 discontinued benefits us pension plans replaced enhanced company contribution employee savings plan additionally freezing us pension plans current salaried nonunion hourly employees effective december 31 2019 postretirement plans 2013 health care cost trend rate assumption increased 750 700 us postretirement plans increased 768 742 nonus postretirement plans established rates based upon recent experience well expectation health care trend rates going forward anticipate health care cost trend rate assumption 500 us plans 2018 558 nonus plans 2018 assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects costs obligation december 31 2012 2013 discount rate assumption decreased 420 470 us postretirement plans decreased 408 429 nonus postretirement plans 2013 discount rate decreased 420 485 us pension plans model discount rates using portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations 2013 discount rate assumption nonus pension plans decreased 381 462 developed discount rates nonus plans local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear 2013 expected rate return plan assets decreased 775 800 us pension plans determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class attempt maintain target asset allocation rebalancing asset classes make contributions monthly benefit payments 2013 expected rate return plan assets decreased 608 647 nonus pension plans determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class anticipate changes 2013 assumptions us nonus pension postretirement health care plans sensitivity measure fiftybasis point change discount rates expected rate return plan assets would following effects increase decrease cost december 31 2012 financial instruments use certain financial instruments manage foreign currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principal objective risk management strategies reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices interest rates principally use derivative instruments use combination primarily foreign currency forward contracts futures options swaps commodity forward contracts futures options interest rate swaps manage exposure cash flow variability protect value existing foreign currency assets liabilities protect value debt see note 1 summary significant accounting policies note 9 financial instruments consolidated financial statements information types derivative instruments use record derivative financial instruments fair value consolidated balance sheets within current assets current liabilities due relatively shortterm duration cash flows derivative instruments classified consolidated statements cash flows based nature derivative instrument changes fair value derivative designated cash flow hedge extent hedge effective recorded accumulated comprehensive earnings losses reclassified earnings hedged item affects earnings changes fair value economic hedges ineffective portion hedges recognized current period earnings changes fair value derivative designated fair value hedge along changes fair value related hedged asset liability recorded earnings period use foreign currency denominated debt hedge portion net investment foreign operations adverse movements exchange rates changes value debt recorded within currency translation adjustment accumulated comprehensive earnings losses order qualify hedge accounting specified level hedging effectiveness derivative instrument item hedged must exist inception throughout hedged period must also formally document nature relationship derivative hedged item well risk management objectives strategies undertaking hedge transaction method assessing hedge effectiveness additionally hedge forecasted transaction significant characteristics expected term forecasted transaction must specifically identified must probable forecasted transaction occur longer probable hedged forecasted transaction occur would recognize gain loss related derivative earnings use derivatives exposed credit market risks credit risk exists counterparty derivative contract might fail fulfill performance obligations contract minimize credit risk entering transactions counterparties high quality investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration one year longer governed international swaps derivatives association master agreement market risk exists value derivative financial instrument might adversely affected changes market conditions foreign currency exchange rates commodity prices interest rates manage market risk limiting types derivative instruments derivative strategies use degree market risk plan hedge use derivative instruments income taxes recognize tax benefits financial statements uncertain tax positions assessed likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized contingencies see note 12 commitments contingencies consolidated financial statements new accounting guidance see note 1 summary significant accounting policies consolidated financial statements discussion new accounting standards commodity trends purchase large quantities commodities including sugar sweeteners coffee cocoa wheat corn products soybean vegetable oils dairy addition use significant quantities packaging materials package products natural gas fuels electricity factories warehouses regularly monitor worldwide supply cost trends commodities act quickly obtain ingredients packaging needed production significant cost items biscuit chocolate gum candy many powdered beverage products sugar cocoa purchase sugar cocoa world markets prices commodities affected quality availability supply changes foreign currencies significant cost items biscuit products grains wheat corn soybean oil grain costs experienced volatility increased significantly recent years due largely burgeoning global demand food livestock feed biofuels ethanol biodiesel factors weather significant cost item coffee products green coffee beans purchase world markets well local grower cooperatives green coffee bean prices affected quality availability supply changes value us dollar relation certain currencies consumer demand coffee products significant cost items packaging include cardboards resins plastics energy costs include natural gas electricity diesel fuel purchase packaging energy commodities world markets within countries operate prices affected supply changes foreign currencies 2012 aggregate commodity costs increased primarily result increased packaging energy grains oil costs expect price volatility slightly higher cost environment continue remainder 2013 addressed higher commodity costs primarily higher pricing lower manufacturing costs due endtoend cost management program overhead cost control expect continue use measures address commodity cost increases external factors weather conditions commodity market conditions currency fluctuations effects governmental agricultural programs affect prices raw materials agricultural materials used products use hedging techniques limit impact price fluctuations principal raw materials however fully hedge changes commodity prices strategies may protect us increases specific raw material costs prices principal raw materials expected fluctuate believe continue adequate supply raw materials use generally remain available numerous sources liquidity capital resources believe cash operations existing 45 billion revolving credit facility supports commercial paper program authorized longterm financing provide sufficient liquidity meet working capital needs planned capital expenditures future contractual obligations payment anticipated quarterly dividends continue maintain investment grade credit ratings debt continue utilize commercial paper program primarily uncommitted international credit lines regular funding requirements also use intercompany loans foreign subsidiaries improve financial flexibility overall expect negative effects funding sources would material effect liquidity including permanent reinvestment foreign earnings net cash provided operating activities operating activities provided net cash 3923 million 2012 4520 million 2011 3748 million 2010 decrease operating cash flows 2012 primarily related higher spending associated spinoff costs 20122014 restructuring program partially offset lower net working capital costs primarily related favorable inventory positions due higher inventory costs 2011 favorable accounts payable positions partially offset increased receivables increase operating cash flows 2011 primarily related increased earnings absence tax payments prior year connection kraft foods group’s frozen pizza divestiture partially offset higher working capital mainly higher inventory costs increased interest payments increased integration program spending 495 million voluntary contribution us pension plans net cash used investing activities net cash used investing activities 1687 million 2012 1728 million 2011 7462 million 2010 decrease net cash used investing activities 2012 related proceeds received divested businesses lower capital expenditures current year partially offset cash transferred kraft foods group related spinoff decrease cash used investing activities 2011 primarily related cash payments 2010 related 2010 cadbury acquisition partially offset proceeds kraft foods group’s sale frozen pizza business proceeds received divestitures poland romania related acquisition cadbury capital expenditures funded operating activities include expenditures kraft foods group periods october 1 2012 1610 million 2012 1771 million 2011 1661 million 2010 2012 capital expenditures made primarily modernize manufacturing facilities support new product productivity initiatives expect 2013 capital expenditures approximately 2 billion including capital expenditures required investments systems 20122014 restructuring program integration program expect continue fund expenditures operations net cash provided used financing activities net cash provided financing activities 204 million 2012 3175 million used 2011 4188 million provided 2010 increase net cash provided financing activities 2012 primarily due higher proceeds issuance longterm debt including notes issued kraft foods group june 2012 retained proceeds offset higher longterm debt repayments net cash used 2011 primarily related 2043 million dividends paid 1114 million longterm debt repayments 565 million repayments shortterm borrowings partially offset 492 million primarily proceeds stock option exercises net cash provided financing activities 2010 primarily related proceeds longterm debt issuance 9433 million partially offset 2175 million dividends paid 2134 million longterm debt repayments primarily related repurchase 15 billion notes tender offer 864 million net repayments shortterm borrowings borrowing arrangements maintain revolving credit facility historically used general corporate purposes including working capital purposes support commercial paper issuances 45 billion fouryear senior unsecured revolving credit facility expires april 2015 december 31 2012 amounts drawn facility revolving credit agreement includes covenant maintain minimum shareholders’ equity excluding accumulated comprehensive earnings losses least 286 billion december 31 2012 shareholders’ equity excluding accumulated comprehensive earnings losses 348 billion expect continue meet covenant revolving credit agreement also contains customary representations covenants events default however revolving credit facility financial covenants credit rating triggers provisions could require us post collateral security international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 24 billion december 31 2012 23 billion december 31 2011 aggregate borrowings lines amounted 274 million december 31 2012 182 million december 31 2011 longterm debt total debt 194 billion december 31 2012 269 billion december 31 2011 debttocapitalization ratio 038 december 31 2012 043 december 31 2011 december 31 2012 weightedaverage term outstanding longterm debt 88 years october 2 2012 150 million canadian dollar variable rate loan matured loan accrued interest date repaid cash operations october 1 2012 approximately 10 billion debt balance sheet september 30 2012 transferred retained kraft foods group described debt primarily included 60 billion senior unsecured notes issued june 4 2012 36 billion debt exchanged july 18 2012 400 million migrated october 1 2012 see note 2 divestitures acquisitions information regarding spinoff liabilities transferred october 1 2012 connection spinoff related debt capitalization plan 400 million 755 senior unsecured note retained kraft foods group cash generated transaction july 18 2012 completed debt exchange 36 billion debt held thirdparty note holders exchanged notes issued kraft foods group order migrate debt kraft foods group connection spinoff capitalization plan cash generated exchange incurred onetime financing costs 18 million recorded interest expense result exchange retired following debt • 596 million 6125 notes due february 2018 • 439 million 6125 notes due august 2018 • 900 million 5375 notes due february 2020 • 233 million 6875 notes due january 2039 • 290 million 6875 notes due february 2038 • 185 million 7000 notes due august 2037 • 170 million 6500 notes due november 2031 • 787 million 6500 notes due 2040 june 4 2012 kraft foods group issued 60 billion senior unsecured notes distributed 59 billion net proceeds us connection spinoff capitalization plan used proceeds pay 36 billion outstanding commercial paper borrowings expect use remaining cash proceeds pay additional debt time general corporate purposes debt approximately 260 million related deferred financing costs retained kraft foods group spinoff june 1 2012 900 million 625 notes matured notes accrued interest date repaid using primarily commercial paper borrowings subsequently repaid 59 billion net proceeds received kraft foods group 60 billion notes issuance june 4 2012 march 20 2012 20 billion 575 bonds matured bonds accrued interest date repaid using proceeds issuance commercial paper subsequently repaid june 2012 discussed january 10 2012 issued 800 million floating rate notes bear interest rate equal threemonth london interbank offered rate plus 0875 received net proceeds 7988 million issuance notes set mature july 10 2013 subject mandatory redemption tied public announcement record date spinoff announcing record date september 24 2012 notes redeemed redemption price equal 100 aggregate principal amount notes 800 million plus accrued interest 2 million cash hand november 1 2011 11 billion 5625 notes matured notes accrued interest date repaid cash operations expect continue comply longterm debt covenants refer note 8 debt borrowing arrangements details debt offerings time refinance longterm shortterm debt nature amount longterm shortterm debt proportionate amount varies result future business requirements market conditions factors december 31 2012 112 billion remaining longterm financing authority board directors next twelve months 355 billion longterm debt becomes due follows 750 million february 2013 1 billion may 2013 18 billion october 2013 expect fund repayments cash operations issuance commercial paper offbalance sheet arrangements aggregate contractual obligations offbalance sheet arrangements guarantees contractual obligations discussed guarantees discussed note 12 commitments contingencies enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2012 material thirdparty guarantees recorded consolidated balance sheet addition december 31 2012 contingently liable 516 million guarantees related performance include letters credit guarantees related payment custom duties taxes december 31 2012 three indirect wholly owned subsidiaries joint several guarantors 10 billion indebtedness issued unrelated third party cadbury schweppes us finance llc maturing october 1 2013 following spinoff one guarantors indebtedness became indirect wholly owned subsidiary kraft foods group agreed indemnify kraft foods group pursuant separation distribution agreement event subsidiary called upon satisfy obligation guarantee guarantees expect material effect liquidity aggregate contractual obligations following table summarizes contractual obligations december 31 2012 1 amounts include expected cash payments total debt excluding capital leases presented separately table amounts also excludes 11 million unamortized bond premiums discounts recorded total debt excluded noncash items 2 amounts represent expected cash payments interest expense longterm debt interest calculated euro notes forecasted using euro us dollar exchange rate december 31 2012 interest british pound sterling notes forecasted using british pound sterling us dollar exchange rate december 31 2012 insignificant amount interest expense excluded table portion foreign currency obligations due complexities involved forecasting expected interest payments 3 operating leases represent minimum rental commitments noncancelable operating leases 4 purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 5 longterm liabilities primarily consist estimated future benefit payments postretirement health care plans december 31 2022 164 million unable reliably estimate timing payments beyond 2022 excluded table also another 82 million various longterm liabilities expected paid next 5 years addition following longterm liabilities included consolidated balance sheet excluded table accrued pension costs income taxes insurance accruals unable reliably estimate timing payments contributions beyond 2013 case accrued pension costs items currently expect make approximately 320 million contributions pension plans 2013 also expect net pension cost decrease approximately 370 million 2013 decrease primarily due nonrecurring costs 2012 related primarily certain pension plan obligations transferred kraft foods group spinoff 2012 nonrecurring costs partially offset increased pension plan expenses 2013 related lower discount rates december 31 2012 total liability income taxes including uncertain tax positions associated accrued interest penalties 980 million currently estimate receiving approximately 126 million net estimated payments approximately 128 million related positions next 12 months equity dividends equity result spinoff divested 44 billion kraft foods group net assets 43 billion accumulated comprehensive losses primarily related pension benefits plan net liabilities transferred kraft foods group 89 million unearned compensation recorded within additional paid capital total recorded distribution 88 billion shareholders connection spinoff kraft foods group october 1 2012 see note 2 divestitures acquisitions consolidated financial statements additional information spinoff kraft foods group stock plans connection spinoff divestiture kraft foods group provisions existing plans employee stock option restricted deferred stock awards adjusted preserve fair value awards immediately spinoff longterm incentive plan awards held mondelēz international employees remained mondelēz international awards underlying performance conditions mondelēz international longterm incentive plan awards modified consistent original performance targets adjusted reflect standalone business incremental compensation expense recorded result modifications stock plan awards see note 11 stock plans consolidated financial statements information stock plans awards activity 2012 2011 2010 stock award modifications related spinoff dividends paid dividends 2058 million 2012 2043 million 2011 2175 million 2010 dividends paid relate periods prior spinoff based annualized dividend rate 116 per common share periods 07 increase 2012 reflects increase shares outstanding decrease 61 2011 reflects additional dividend payment 224 million 2010 related cadbury acquisition following spinoff expect pay annualized dividend rate 052 declaration dividends subject discretion board directors depends various factors including net earnings financial condition cash requirements future prospects factors board directors deems relevant analysis decision making 2013 outlook expect 2013 organic net revenue growth low end longterm growth target 5 7 percent additionally expect 2013 operating eps 152 157 reflecting average 2012 foreign currency rates devaluation venezuelan bolivar announced february 8 2013 nongaap financial measures use certain nongaap financial measures budget make operating strategic decisions evaluate performance disclose nongaap financial measures financial data use assist making comparisons historical operating results analyzing underlying performance nongaap financial measures reflect evaluate operating results currently new events circumstances arise definitions could change time • “organic net revenues” defined net revenues excluding impact acquisitions divestitures integration program costs accounting calendar changes including 53rd week 2011 foreign currency rate fluctuations • “adjusted operating income” defined operating income excluding impact spinoff costs 20122014 restructuring program integration program acquisitionrelated costs gains losses divestitures pension costs related obligations transferred spinoff operating income divested businesses also evaluate growth adjusted operating income constant currency basis • “operating eps” defined diluted eps attributable mondelēz international continuing operations excluding impact spinoff costs 20122014 restructuring program integration program acquisitionrelated costs gains losses divestitures pension costs related obligations transferred spinoff interest expense adjustment related spinoff transaction operating income divested businesses 2010 us healthcare legislation change prior periods also evaluate growth operating eps constant currency basis believe presentation nongaap financial measures considered together us gaap financial measures reconciliations corresponding us gaap financial measures provides complete understanding factors trends affecting business could obtained absent disclosures nongaap financial measures may vary among companies nongaap financial measures presented management’s discussion analysis financial condition results operations section may comparable similarly titled measures used companies use nongaap financial measures meant considered isolation substitute us gaap financial measure limitation nongaap financial measures exclude items detailed impact us gaap reported results best way limitation addressed evaluating nongaap financial measures combination us gaap reported results carefully evaluating following tables reconcile us gaap reported figures nongaap financial measures form 10k organic net revenues using definition “organic net revenues” adjustments made “net revenues” comparable us gaap financial measure exclude impact acquisitions divestitures integration program costs accounting calendar changes including 53rd week 2011 foreign currency rate fluctuations believe organic net revenues better reflects underlying growth ongoing activities business provides improved comparability results 1 impact acquisitions reflects incremental january 2011 operating results cadbury acquisition 2 includes 53rd week shipments 2011 adjusted operating income using definition “adjusted operating income” adjustments made “operating income” continuing operations comparable us gaap financial measure exclude spinoff costs integration program costs 20122014 restructuring program costs acquisitionrelated costs gains losses divestitures pension costs related obligations transferred spinoff interest expense adjustment related spinoff transaction operating income divested businesses also evaluate adjusted operating income constant currency basis believe measures provide improved comparability operating results 1 represents estimated annual benefit plan expense associated certain benefit plan obligations transferred kraft foods group spinoff estimate 91 million based market conditions benefit plan obligations january 1 2012 year ended december 31 2012 prorated estimate 68 million reflected nine months prior spinoff transfer benefit plan obligations kraft foods group operating eps using definition “operating eps” adjustments made “diluted eps attributable mondelēz international continuing operations” comparable us gaap financial measure exclude spinoff costs integration program costs 20122014 restructuring program costs acquisition related financing costs gains losses divestitures pension costs related obligations transferred spinoff interest expense adjustment related spinoff transaction operating results divested businesses 2010 us health care legislation change prior periods also evaluate operating eps constant currency basis believe measures provide improved comparability operating results 1 represents interest expense associated assumed reduction 6 billion debt january 1 2010 utilization funds received 6 billion notes kraft foods group issued directly cash proceeds distributed us june 2012 connection spinoff capitalization plan note year ended december 31 2012 portion 6 billion debt retired adjusted interest expense period debt repaid january 1 2010 ensure consistency assumption related results 2 represents estimated annual benefit plan expense associated certain benefit plan obligations transferred kraft foods group spinoff estimate 91 million based market conditions benefit plan assumptions january 1 2012 year ended december 31 2012 prorated estimate 68 million reflected nine months prior spinoff transfer benefit plan obligations kraft foods group item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis contains forwardlooking statements read conjunction sections annual report form 10k including consolidated financial statements related notes contained item 8 “forwardlooking statements” “risk factors” contained item 1a description company manufacture market primarily snack food beverage products including biscuits cookies crackers salted snacks chocolate gum candy coffee powdered beverages various cheese grocery products operations 80 countries sell products approximately 165 countries last several years expanding geographically building presence fastgrowing snacking category time continued invest product quality marketing innovation behind iconic brands implementing series cost saving initiatives expect global snacks businesses build upon strong presence across numerous fastgrowing markets categories channels including highmargin instant consumption channel plan target industryleading revenue growth leverage cost structure supply chain reinvention productivity programs overhead streamlining volume growth improved product mix drive margin gains grow earnings per share toptier peer group business segment reorganization effective january 1 2013 reorganized operations management five reportable operating segments • latin america • asia pacific • eastern europe middle east africa “eemea” • europe • north america changed flattened operating structure reflect greater concentration operations emerging markets enhance collaboration across regions expedite decision making drive greater efficiencies fuel growth coincident change segment structure segment operating income north america region also changed include us pension plan expenses portion previously excluded segment operating results evaluated management costs centrally managed see note 17 segment reporting additional segment information segment results reflect change segment structure periods presented spinoff kraft foods group october 1 2012 completed spinoff north american grocery business kraft foods group inc “kraft foods group” shareholders “spinoff” divested kraft foods group business presented discontinued operation consolidated statements earnings periods presented kraft foods group comprehensive earnings changes equity cash flows included within consolidated statements comprehensive earnings equity cash flows october 1 2012 see note 2 divestitures acquisition information spinoff kraft foods group revision financial statements finalizing 2013 results identified certain outofperiod noncash income taxrelated errors prior interim annual periods errors material previously reported financial results however revised first third quarter 2013 prioryear financial statements filing reflect items appropriate periods net effect revision lower tax expense years prior 2013 impact revision 2013 results third quarter 59 million reduction net earnings related current prioryear corrections impact revision fiscal years prior 2013 increase cumulative net earnings 94 million additional details adjustments see note 1 summary significant accounting policies revision financial statements following discussion analysis relates revised aftertax results periods presented corrected errors material previously reported financial statements determined reasonable possibility material misstatement annual interim financial statements may prevented detected timely basis due control deficiencies internal controls thus management determined control deficiencies constitute material weakness identified material weakness implemented additional procedures verify reliability accounting income taxes based additional procedures believe consolidated financial statements included report fairly stated material respects accordance generally accepted accounting principles additional information procedures controls implementing address material weakness see item 9a controls procedures summary results significant highlights • net revenues increased 08 353 billion 2013 decreased 22 350 billion 2012 • organic net revenues increased 39 359 billion 2013 increased 44 363 billion 2012 organic net revenues nongaap financial measure use evaluate underlying results see definition organic net revenues reconciliation net revenues within nongaap financial measures appearing later section organic net revenues excludes impact currency acquisitions divestitures accounting calendar changes • diluted eps attributable mondelēz international increased 281 219 2013 decreased 149 171 2012 excluding results discontinued operations diluted eps attributable mondelēz international continuing operations increased 466 129 2013 decreased 111 088 2012 • adjusted eps increased 71 151 2013 increased 07 141 2012 constant currency basis adjusted eps increased 135 160 2013 increased 50 147 2012 adjusted eps nongaap financial measure use evaluate underlying results see definition adjusted eps reconciliation diluted eps within nongaap financial measures appearing later section adjusted eps includes diluted eps attributable mondelēz international continuing operations excludes following items discussed spinoff costs related costs 20122014 restructuring program costs integration program costs acquisition integration costs benefit resolution cadbury acquisitionrelated indemnification loss debt extinguishment related expenses net gain acquisition divestitures acquisitionrelated costs net earnings divestitures also evaluate adjusted eps constant currency basis • february 6 2014 completed cash tender offer retired 16 billion longterm us dollar debt connection retiring debt first quarter 2014 recorded 495 million loss debt extinguishment related expenses related amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing costs earnings time debt extinguishment • january 16 2014 issued 30 billion us dollar notes generated approximately 30 billion net cash proceeds used part fund february 2014 tender offer general corporate purposes january 2014 also recorded approximately 18 million discounts deferred financing costs amortized interest expense life notes • december 18 2013 completed cash tender offer retired 34 billion longterm us dollar debt recorded 612 million loss debt extinguishment related expenses related amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing costs earnings time debt extinguishment • december 11 2013 issued 24 billion eurodenominated notes approximately 33 billion us dollars december 31 2013 received net proceeds 2381 million 3239 million us dollars used partially fund december 2013 tender offer also recorded approximately 27 million discounts deferred financing costs amortized interest expense life notes • 2013 board directors authorized repurchase 77 billion common stock share repurchase program 2013 repurchased 27 billion 828 million shares common stock average cost 3309 per share repurchases include 15 billion shares acquired accelerated share repurchase program initiated december 2013 share repurchases funded available cash including cash resolution starbucks arbitration described commercial paper issuances december 31 2013 50 billion remaining share repurchase capacity • december 2013 dispute license supply agreement starbucks coffee company “starbucks” kraft foods group resolved independent arbitrator issued decision final award resulted starbucks paying 28 billion unilateral termination agreement dispute arose within kraft foods group discontinued operation directed mondelēz international part spinoff recapitalization plans net 16 billion aftertax gain resolution arbitration recorded earnings discontinued operations fourth quarter 2013 see item 3 legal proceedings notes 2 divestitures acquisition 12 commitments contingencies additional information • october 1 2013 1 billion 5125 us dollar notes 800 million 5250 us dollar notes matured notes accrued interest date paid cash hand issuance commercial paper • august 2013 resolved outstanding cadburyacquisition related indemnification recorded favorable pretax earnings impact 385 million 363 million net tax see items affecting comparability financial results note 12 commitments contingencies information • may 8 2013 1 billion 2625 us dollar notes matured notes accrued interest date paid cash hand issuance commercial paper • february 11 2013 750 million 600 us dollar notes matured paid cash hand • february 2013 recorded 54 million unfavorable foreign currency charge related devaluation net monetary assets venezuela also incurred net unfavorable devaluationrelated foreign currency impacts within pretax earnings 67 million year ended december 31 2013 related translating earnings venezuelan subsidiary us dollar new exchange rate december 31 2013 net monetary assets denominated venezuelan bolivar 257 million bolivar devalued would result charge net earnings period devaluation see results operations reportable segment later section note 1 summary significant accounting policies foreign currency including highly inflationary accounting information financial outlook develop longterm plans targets achieve sustainable profitable growth time longterm financial targets include • organic net revenue growth expected category growth • adjusted operating income growth high singledigits constant currency basis • doubledigit adjusted eps growth constant currency basis refer nongaap financial measures appearing later section information measures 2014 expect organic net revenues grow approximately 4 percent growth categories expect low doubledigit growth adjusted operating income constant currency fueled focused efforts reduce overheads restructure global supply chain improve product mix continuing invest emerging markets anticipate increase result adjusted operating income margin high 12 percent range primary lever delivering adjusted eps 173 178 double digits constant currency basis 2014 adjusted eps outlook reflects constant currency average 2013 currency rates fluctuation 2013 average currency rates outside 2014 outlook monitor following factors trends expect could impact near longterm revenues profitability longterm demographics consumer trends snack food consumption highly correlated gdp growth urbanization population rising discretionary income levels associated growing middle class longterm expect trends continue leading growth key consumer behaviors including increased snacking occasions greater use convenience food migrating frequent smaller meals demand monitor consumer spending market share within food beverage categories sell products 2013 organic net revenues grew faster global categories expanded market share number categories growth global categories slowed approximately 6 2012 4 2013 slowdown category growth expected impact nearterm net revenue growth reflected organic net revenue outlook 2014 believe slowdown category growth particularly emerging markets temporary expect category growth return levels line expected growth emerging markets consumer spending continue make investments brands build strong routes market address needs consumers emerging developed markets anticipate stimulating demand categories growing position markets volatility global markets growth strategy depends part ability expand operations particularly emerging markets greater political economic volatility vulnerability infrastructure labor disruptions saw past year markets sell products including china russia brazil turkey venezuela argentina volatility affects demand products requires frequent changes operate business likely continued volatility across markets sell continue invest markets believe emerging markets particular deliver significant growth time competition competitors continue grow global operations routes market lowcost local manufacturers also expanding production capacities markets sell products competitors may significantly reduce prices offer incentives saw products coffee past year continually evaluate competitive environment market conditions bring new products innovations market also adjust pricing trade promotional programs compete continue focus growing market share pricing adjust product prices based number variables including demand competitive environment changes input costs net revenue growth profitability may affected adjust prices address new conditions past year generally increased prices modestly response higher commodity costs factors certain categories coffee significantly decreased prices cost coffee beans fell significantly 2013 08 percentage point pp negative impact organic net revenue growth 2013 2014 commodities purchase anticipate slightly higher aggregate commodity costs expect adjust prices accordingly operating costs operating costs include raw materials labor selling marketing costs general administrative expenses taxes currency impacts financing costs manage costs cost saving productivity initiatives sourcing hedging programs pricing actions refinancing tax planning continue work various programs expand profitability margins reflected 2014 outlook expect achieve doubledigit growth adjusted operating income adjusted eps constant currency basis reflects number cost saving programs put place including supply chain reinvention program 20122014 restructuring program among others currency global company 83 net revenues generated outside united states exposed changes global economic conditions currency movements work mitigate currency exposure hedging portion currency exchange business transactions well investments overseas operations however may able effectively hedge currency risks countries currencies operate due factors including limited markets hedging currency transactions current monetary policies restrictions countries venezuela argentina work mitigate exposure currencyrelated risks global market volatility actions foreign governments factors outside control could lead unfavorable currency impacts earnings financing costs regularly evaluate variable fixedrate debt recently refinanced 64 billion longterm us dollardenominated debt lower cost longterm euro us dollardenominated debt continue use lower cost short longterm debt finance ongoing working capital investments dividends share repurchases weightedaverage interest rate debt december 31 2013 48 58 december 31 2012 following january 16 2014 30 billion note issuance completion february 6 2014 tender offer retirement 16 billion longterm debt weightedaverage interest rate debt 43 discussion analysis historical results items affecting comparability financial results spinoff kraft foods group october 1 2012 “distribution date” completed spinoff kraft foods group shareholders divested kraft foods group business presented discontinued operation consolidated statements earnings periods presented kraft foods group comprehensive earnings changes equity cash flows included within consolidated statements comprehensive earnings equity cash flows october 1 2012 see note 2 divestitures acquisition consolidated financial statements additional information summary results related discontinued operation kraft foods group within historical results presented results kraft foods group discontinued operation exclude certain corporate business unit costs historically allocated kraft foods group continued mondelēz international spinoff costs include primarily corporate overheads information systems sales force support pretax basis date spinoff costs 150 million nine months ended october 1 2012 236 million year ended december 31 2011 interest expense relating debt kraft foods group incurred assumed october 1 2012 included results discontinued operations periods presented follows october 1 2012 divested following assets liabilities net 4358 million 4111 million net cash retained kraft foods group distribution date millions additionally 4308 million accumulated comprehensive losses primarily related pension benefit plan net liabilities transferred kraft foods group 89 million unearned compensation recorded within additional paid capital distributed kraft foods group total recorded distribution 8755 million shareholders connection spinoff kraft foods group order implement spinoff entered certain agreements kraft foods group effect legal structural separation govern relationship us allocate various assets liabilities obligations us including among things employee benefits intellectual property taxrelated assets liabilities see note 15 income taxes additional information current deferred tax assets liabilities transferred retained spinoff addition executing spinoff manner provided agreements november 2012 pursuant agreements paid kraft foods group 163 million related targeted cash flows together 247 million cash divested distribution date totaling 410 million cash transferred kraft foods group connection spinoff facilitate management including final payment resolution certain obligations kraft foods group retained certain north american net trade payables receivables also retained approximately 140 million workers’ compensation liabilities claims incurred kraft foods group employees prior spinoff november 2012 paid kraft foods group 95 million cash settle net trade payables receivables also reflected table march 2013 collected 55 million kraft foods group related cash settlement stock awards held respective employees time spinoff described note 11 stock plans consolidated financial statements results continuing operations include onetime spinoff transaction transition financing related costs “spinoff costs” incurred date recorded spinoff costs 62 million 2013 1053 million 2012 46 million 2011 expect incur approximately 30 million remaining spinoff costs 2014 related primarily customer service logistics information systems processes well legal costs associated revising intellectual property longterm agreements december 2013 dispute license supply agreement starbucks kraft foods group resolved independent arbitrator issued decision final award resulted starbucks paying 28 billion unilateral termination agreement dispute arose within kraft foods group discontinued operation directed mondelēz international part spinoff recapitalization plans net 16 billion aftertax gain resolution arbitration recorded earnings discontinued operations fourth quarter 2013 see item 3 legal proceedings notes 2 divestitures acquisition 12 commitments contingencies additional information acquisition divestitures sales property february 22 2013 acquired remaining interest biscuit operation morocco whollyowned subsidiary within eemea segment paid net cash consideration 119 million consisting 155 million purchase price net cash acquired 36 million prior acquisition interest operation accounted equity method result obtaining controlling interest consolidated operation recorded fair value acquired assets including identifiable intangible assets 48 million liabilities assumed goodwill 209 million also recorded pretax gain 22 million related remeasurement previouslyheld equity interest operation fair value accordance us gaap acquisition costs 7 million included within selling general administrative expenses interest expense net year ended december 31 2013 operating results acquisition material condensed consolidated financial statements periods presented 2013 completed several divestitures primarily eemea europe segments generated cash proceeds 60 million pretax gains 8 million divestitures included salty snacks business turkey confectionery business south africa chocolate business spain 2012 completed several divestitures within europe segment generated cash proceeds 200 million pretax gains 107 million divestitures primarily included dinners sauces grocery business germany belgium canned meat business italy aggregate operating results 2013 2012 divestitures material financial statements periods presented 2013 sold properties italy united kingdom norway within europe segment india within asia pacific segment europe property sales generated 29 million pretax net gains 37 million cash proceeds also 52 million receivable related united kingdom property sale india property sale generated 39 million pretax gain 53 million cash proceeds gains recorded within selling general administrative expenses cash proceeds recorded cash flows investing activities year ended december 31 2013 2012 also sold property russia turkey within eemea segment russia property sale generated 55 million pretax gain 72 million cash proceeds turkey property sale generated 22 million pretax gain 29 million cash proceeds gains recorded within selling general administrative expenses cash proceeds recorded cash flows investing activities year ended december 31 2012 20122014 restructuring program 2012 board directors approved 15 billion restructuring related implementation costs “20122014 restructuring program” reflecting primarily severance asset disposals manufacturingrelated onetime costs primary objective restructuring implementation activities ensure mondelēz international kraft foods group set operate efficiently execute respective business strategies upon separation future 15 billion anticipated 20122014 restructuring program costs retained approximately 925 million kraft foods group retained balance program since inception incurred 440 million estimated 925 million total 20122014 restructuring program charges recorded restructuring charges 267 million 2013 102 million 2012 within asset impairment exit costs also incurred implementation costs 63 million 2013 8 million 2012 recorded within cost sales selling general administrative expenses see note 6 20122014 restructuring program note 10 benefit plans additional information integration program result combination cadbury limited formerly cadbury plc “cadbury” 2010 launched integration program “integration program” realize expected annual cost savings approximately 750 million end 2013 revenue synergies investments distribution marketing product development achieved cost savings approximately 800 million one year ahead schedule achieved planned revenue synergies december 31 2013 achieve expected annual cost savings synergies integrate two businesses incurred total integration charges approximately 15 billion end 2013 completed integration program recorded integration program charges 216 million 2013 185 million 2012 521 million 2011 december 31 2013 accrued liability 145 million related integration program 101 million recorded within current liabilities 44 million primarily related leased facilities longer use recorded within longterm liabilities 2012 refined estimate 2010 integration program charges 45 million primarily related planned announced position eliminations occur within europe segment reversal based final negotiations local workers councils majority concluded april 2012 recorded integration program charges operations part selling general administrative expenses primarily within europe eemea asia pacific latin america segments well within general corporate expenses see note 7 integration program cost savings initiatives consolidated financial statements additional information cost savings initiatives cost savings initiatives generally include exit disposal project costs outside integration program 20122014 restructuring program consist following specific initiatives • 2013 recorded 20 million charge primarily within segment operating income latin america related severance benefits provided terminated employees onetime charges within segment operating income north america related supply chain reinvention team expenses • 2012 recorded 21 million charge primarily within segment operating income europe related severance benefits provided terminated employees charges connection reorganization within europe eemea segments “europe reorganization” • 2011 recorded 61 million charge primarily within segment operating income europe related severance benefits provided terminated employees charges connection europe reorganization also reversed approximately 15 million cost savings initiative program costs across north america europe eemea segments accounting calendar changes 2013 2011 majority operating subsidiaries report results last calendar day period connection moving toward common consolidation date across company first quarter 2013 changed consolidation date europe segment change consolidation date europe segment favorable impact 37 million net revenues 6 million operating income 2013 time primarily north american operating subsidiaries report results last saturday period prior changes 2012 2011 majority operating subsidiaries reported results last saturday year 2011 last saturday year fell december 31 2011 results included one week operating results “53rd week” 2013 2012 52 weeks 2011 also changed consolidation dates certain operations europe latin america eemea segments previously operations primarily reported results two weeks prior end period subsequent 2011 changes majority europe segment reported results last saturday period certain operations within latin america eemea segments began report results last calendar day period last saturday period changes 53rd week 2011 resulted favorable impact net revenues 679 million favorable impact 93 million operating income 2011 believe changes improve business planning financial reporting better matching close dates operating subsidiaries bringing reporting date closer periodend date effect priorperiod results material revised priorperiod results tender offer december 18 2013 completed cash tender offer retired 34 billion longterm us dollar debt recorded 612 million loss debt extinguishment related expenses due primarily amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing costs earnings time debt extinguishment see note 8 debt borrowing arrangements additional information benefit indemnification resolution part 2010 cadbury acquisition became responsible party tax matters cadbury schweppes plc dr pepper snapple group inc “dpsg” tax sharing indemnification agreement dated may 1 2008 “tax indemnity” certain 2007 2008 transactions relating demerger cadbury’s americas beverage business us federal tax audit dpsg 20062008 tax years concluded irs august 2013 result recorded favorable aftertax impact 363 million due reversal accrued liability excess amount paid dpsg tax indemnity recorded 336 million selling general administrative expenses 49 million interest expense net 22 million tax expense year ended december 31 2013 provision income taxes income tax provision could significantly affected shift pretax income foreign jurisdictions foreign jurisdictions us changes foreign us tax laws regulations apply earnings foreign subsidiaries well factors 2013 effective tax rate 25 favorably impacted mix pretax income various foreign jurisdictions net tax benefits discrete onetime events nontaxable portion cadbury acquisition related indemnification resolution partially offset unfavorable tax law change 299 million discrete onetime events primarily related favorable tax audit settlements expirations statutes limitations several jurisdictions net reduction uk deferred tax liabilities resulting tax legislation enacted 2013 reduced uk corporate income tax rates 2012 revised effective tax rate 95 favorably impacted mix pretax income various foreign jurisdictions net tax benefits discrete onetime tax events partially offset nondeductible expenses 140 million discrete onetime events primarily related net reduction uk deferred tax liabilities resulting tax legislation enacted 2012 reduced uk corporate income tax rates net favorable tax audit settlements 2011 revised effective tax rate 62 favorably impacted mix pretax income various foreign jurisdictions net tax benefits 253 million discrete onetime events primarily net reduction uk deferred tax liabilities resulting tax legislation enacted 2011 reduced uk corporate income tax rates net favorable impact tax audit developments year reversal valuation allowances certain foreign deferred tax assets expected realized adjustments taxes payable result tax return filings consolidated results operations following discussion compares consolidated results operations 2013 2012 2011 2013 compared 2012 net revenues net revenues increased 284 million 08 35299 million 2013 organic net revenues1 increased 1338 million 39 35938 million changes net revenues organic net revenue detailed 1 please see nongaap financial measures section end item organic net revenues growth driven favorable volumemix higher net pricing favorable volumemix driven primarily higher shipments across segments except asia pacific higher net pricing latin america primarily related venezuela argentina brazil north america partially offset lower net pricing europe asia pacific eemea primarily due lower coffee prices unfavorable foreign currency decreased net revenues 837 million due primarily devaluation venezuelan bolivar strength us dollar relative foreign currencies including brazilian real argentinean peso australian dollar indian rupee japanese yen south african rand partially offset strength euro relative us dollar impact divestitures resulted yearoveryear decrease net revenues 345 million addition acquisition biscuit operation morocco added 91 million net revenues accounting calendar change europe added 37 million net revenues 2013 operating income operating income increased 334 million 92 3971 million 2013 adjusted operating income1 decreased 1 million 00 4213 million adjusted operating income constant currency basis1 increased 199 million 47 4413 million due following 1 please see nongaap financial measures section end item 2 represents estimated annual benefit plan expense associated certain benefit plan obligations transferred kraft foods group spinoff favorable volumemix driven primarily volume gains across segments except asia pacific 2013 increased input costs outpaced higher net pricing increase input costs driven higher raw material costs part due higher foreign exchange transaction costs imported materials partially offset lower manufacturing costs higher net pricing latin america north america partially offset lower net pricing europe asia pacific eemea primarily due lower coffee pricing total selling general administrative expenses decreased 497 million 2012 due part lower spinoff costs benefit resolution cadbury acquisitionrelated indemnification favorable foreign currency impact net negative impact devaluation net monetary assets venezuela gains sales properties 2013 impact businesses divested 2013 2012 partially offset gains sales properties 2012 higher integration program costs higher 20122014 restructuring program costs inclusion expenses related acquired biscuit operations morocco excluding factors selling general administrative expenses increased 246 million 2012 driven primarily higher overhead costs emerging markets including investments sales capabilities routetomarket expansion emerging markets 2012 reversal reserves carried cadbury acquisition 2010 longer required prioryear proceeds insurance settlements higher advertising consumer promotion costs asia pacific eemea latin america 2013 divested properties europe india recorded pretax gains 68 million 2012 divested properties russia turkey recorded pretax gains 77 million change unrealized gainslosses added 61 million operating income 2013 within asset impairment exit costs also recorded 2012 asset impairment charge 52 million related trademark japan acquisition biscuit operation morocco added 16 million operating income 2013 accounting calendar changes went effect europe first quarter 2013 increased operating income 6 million unfavorable foreign currency decreased operating income 200 million due primarily devaluation venezuelan bolivar including 54 million devaluation net monetary assets venezuela strength us dollar relative foreign currencies including brazilian real argentinean peso indian rupee japanese yen south african rand russian ruble partially offset strength euro relative us dollar operating income margin increased 104 2012 112 2013 adjusted operating income margin decreased 122 2012 120 2013 decrease adjusted operating income margin driven primarily modest decline gross margin due timing price increases cover rising foreign exchange transaction costs imported raw materials second half year unfavorable currency impact due devaluation net monetary assets venezuela partially offset benefit leverage selling general administrative expenses net earnings per share attributable mondelēz international net earnings attributable mondelēz international 3915 million increased 848 million 276 2013 diluted eps attributable mondelēz international 219 2013 048 281 171 2012 diluted eps continuing operations attributable mondelēz international 129 2013 041 466 088 2012 adjusted eps1 151 2013 010 71 141 2012 adjusted eps constant currency basis1 160 2013 019 135 141 2012 changes shown net tax due following 1 please see nongaap financial measures section end item 2 spinoff costs include 62 million pretax spinoff costs selling general administrative expense 2013 444 million pretax spinoff costs selling general administrative expense 609 million pretax spinoff costs interest expense 2012 3 represents interest expense associated assumed reduction 6 billion debt january 1 2011 utilization funds received 6 billion notes kraft foods group issued 2012 connection spinoff capitalization plan note year ended december 31 2012 portion 6 billion debt retired adjusted interest expense period debt repaid january 1 2012 ensure consistency assumption related results 4 represents estimated annual benefit plan expense associated certain benefit plan obligations transferred kraft foods group spinoff 5 excludes favorable foreign currency impact interest expense related foreign denominated debt change interest expense included spinoff costs change interest expense associated assumed reduction 6 billion debt january 1 2012 utilization funds received 6 billion notes kraft foods group issued directly cash proceeds distributed us june 2012 connection spinoff capitalization plan 6 december 18 2013 completed cash tender offer retired 34 billion outstanding long term debt recorded pretax loss debt extinguishment related expenses 612 million within interest expense amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing costs earnings time debt extinguishment 7 part 2010 cadbury acquisition became responsible party tax matters cadbury schweppes plc dr pepper snapple group inc “dpsg” tax sharing indemnification agreement dated may 1 2008 “tax indemnity” certain 2007 2008 transactions relating demerger cadbury’s americas beverage business us federal tax audit dpsg 20062008 tax years concluded irs august 2013 result recorded favorable pretax impact 385 million 363 million net tax 2013 due reversal accrued liability excess amount paid dpsg tax indemnity 2012 compared 2011 net revenues net revenues decreased 795 million 22 35015 million 2012 organic net revenues1 increased 1531 million 44 36347 million changes net revenues organic net revenue detailed 1 please see nongaap financial measures section end item organic net revenue growth driven higher net pricing favorable volumemix higher net pricing including impact pricing actions prior year realized across reportable segments increased pricing offset higher input costs favorable volumemix driven higher shipments asia pacific eemea europe partially offset lower shipments north america driven primarily completion comanufacturing agreement previous divestiture latin america unfavorable foreign currency decreased net revenues 1576 million due primarily strength us dollar relative foreign currencies primarily euro brazilian real indian rupee argentinean peso south african rand russian ruble mexican peso accounting calendar changes 2011 resulted yearoveryear decrease net revenues 679 million impact divestitures also resulted yearoveryear decrease net revenues 72 million operating income operating income increased 139 million 40 3637 million 2012 adjusted operating income1 increased 138 million 34 4235 million adjusted operating income constant currency basis1 increased 291 million 71 4388 million due following 1 please see nongaap financial measures section end item 2 represents estimated annual benefit plan expense associated certain benefit plan obligations transferred kraft foods group spinoff estimate 91 million based market conditions benefit plan assumptions january 1 2012 year ended december 31 2012 prorated estimate 68 million reflected nine months prior spinoff transfer benefit plan obligations kraft foods group higher net pricing including impact pricing actions taken prior year outpaced increased input costs 2012 increase input costs driven higher raw material costs partially offset lower manufacturing costs favorable volumemix driven strong contributions europe asia pacific eemea partially offset unfavorable impact north america latin america total selling general administrative expenses decreased 206 million 2011 including benefits favorable impact foreign currency expenses lower integration program costs including reversal previously accrued integration program charges primarily related planned announced position eliminations occur higher expenses prior year related accounting calendar changes divested businesses gain sale property russia partially offset spinoff costs 20122014 restructuring program costs incurred 2012 excluding factors selling general administrative expenses increased 293 million 2011 driven primarily higher advertising consumer promotion costs geographic units partially offset reversal reserves carried cadbury acquisition 2010 longer required accounting calendar changes made 2011 including 53rd week shipments 2011 decreased operating income 93 million 2012 divested property located russia recorded pretax gain 55 million addition divested properties located turkey 2012 2011 immaterial yearoveryear impact operating income 2012 recorded 52 million related trademark impairment japan change unrealized gains losses hedging activities increased operating income 37 million recognized gains 1 million 2012 versus losses 36 million 2011 unfavorable foreign currency decreased operating income 153 million due primarily strength us dollar relative foreign currencies primarily euro brazilian real argentinean peso indian rupee partially offset impact adjustments prior year related highly inflationary venezuelan economy operating income margin increased 98 2011 104 2012 adjusted operating income margin increased 115 2011 122 2012 increase adjusted operating income margin due primarily modest increase gross margin reflecting impact pricing actions net increased input costs favorable change unrealized gains hedging activities overhead leverage partially offset impact higher advertising consumer promotion costs net earnings per share attributable mondelēz international net earnings attributable mondelēz international 3067 million decreased 487 million 137 2012 diluted eps attributable mondelēz international 171 2012 149 201 2011 diluted eps continuing operations attributable mondelēz international 088 2012 111 099 2011 adjusted eps1 141 2012 001 07 140 2011 adjusted eps constant currency basis1 147 2012 007 50 140 2011 changes shown net tax due following 1 please see nongaap financial measures section end item 2 represents interest expense associated assumed reduction 6 billion debt january 1 2011 utilization funds received 6 billion notes kraft foods group issued directly cash proceeds distributed us june 2012 connection spinoff capitalization plan note year ended december 31 2012 portion 6 billion debt retired adjusted interest expense period debt repaid january 1 2011 ensure consistency assumption related results 3 represents estimated annual benefit plan expense associated certain benefit plan obligations transferred kraft foods group spinoff estimate 91 million based market conditions benefit plan assumptions january 1 2012 year ended december 31 2012 prorated estimate 68 million reflected nine months prior spinoff transfer benefit plan obligations kraft foods group 4 excludes favorable foreign currency impact interest expense related foreign denominated debt change interest expense included spinoff costs change interest expense associated assumed reduction 6 billion debt january 1 2011 utilization funds received 6 billion notes kraft foods group issued directly cash proceeds distributed us june 2012 connection spinoff capitalization plan 5 spinoff costs include 444 million pretax spinoff costs selling general administrative expense 609 million pretax spinoff costs interest expense results operations reportable segment effective january 1 2013 reorganized operations management five reportable operating segments • latin america • asia pacific • eemea • europe • north america changed flattened operating structure reflect greater concentration operations highgrowth emerging markets enhance collaboration across regions expedite decision making drive greater efficiencies fuel growth presented segment results reflecting changes periods presented manage operations within latin america asia pacific eemea location europe north america product category following discussion compares segment results continuing operations following periods discussed note 17 segment reporting use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends coincident change reportable segment structure segment operating income north america region also changed include us pension plan expenses portion previously excluded segment operating results evaluated management costs centrally managed segment operating income excludes unrealized gains losses hedging activities component cost sales general corporate expenses component selling general administrative expenses amortization intangibles benefit cadbury acquisitionrelated indemnification resolution component selling general administrative expenses gains losses divestitures acquisitions acquisitionrelated costs component selling general administrative expenses periods presented exclude unrealized gains losses hedging activities general corporate expenses amortization intangibles benefit cadbury acquisitionrelated indemnification resolution gains losses divestitures acquisitions acquisitionrelated costs segment operating income order provide better transparency segment operating results furthermore centrally manage interest expense net accordingly present items segment excluded segment profitability measure management reviews connection 20122014 restructuring program recorded restructuring charges 267 million 2013 102 million 2012 operations part asset impairment exit costs also recorded implementation costs 63 million 2013 8 million 2012 operations part cost sales selling general administrative expenses charges recorded primarily within eemea europe north america segments recorded integration program charges 216 million 2013 185 million 2012 521 million 2011 december 31 2013 101 million net integration program liability recorded within current liabilities 44 million primarily related leased facilities longer use recorded within longterm liabilities 2012 within europe segment refined estimate 2010 integration program charges 45 million primarily related planned announced position eliminations occur upon concluding majority local workers council negotiations april 2012 recorded charges integration program operations part selling general administrative expenses primarily within europe asia pacific latin america eemea segments well within general corporate expenses 2012 recorded 44 million benefit within europe segment related reversal reserves carried cadbury acquisition 2010 subsequently determined required 2013 acquired remaining interest biscuit operation morocco whollyowned subsidiary within eemea segment incurred acquisitionrelated costs 7 million recorded within selling general administrative expenses interest expense net 2013 also recorded integration charges 4 million within segment operating income eemea related acquisition biscuit operation morocco recorded charges selling general administrative expenses within eemea segment significant acquisitions 2012 2011 2013 received cash proceeds 60 million pretax gains 8 million divestitures turkey south africa spain 2012 completed several divestitures within europe segment generated cash proceeds 200 million pretax gains 107 million divestitures primarily included dinners sauces grocery business germany belgium canned meat business italy 2011 significant divestitures 2013 sold properties italy united kingdom norway within europe segment india within asia pacific segment europe property sales generated 29 million pretax net gains 37 million cash proceeds also 52 million receivable related united kingdom property sale india property sale generated 39 million pretax gain 53 million cash proceeds gains recorded within selling general administrative expenses cash proceeds recorded cash flows investing activities year ended december 31 2013 2012 sold property russia turkey within eemea segment turkey property sale generated 22 million pretax gain 29 million cash proceeds russia property sale generated 55 million pretax gain 72 million cash proceeds gains recorded within selling general administrative expenses cash proceeds sales recorded cash flows investing activities february 8 2013 venezuelan government announced devaluation official venezuelan bolivar exchange rate 430 bolivars 630 bolivars us dollar elimination secondtier governmentregulated sitme exchange rate previously applied value certain types transactions connection announced changes recorded 54 million unfavorable foreign currency charge related devaluation net monetary assets venezuela charge recorded selling general administrative expenses within latin america segment also incurred net unfavorable devaluationrelated foreign currency impacts within pretax earnings 67 million year ended december 31 2013 related translating earnings venezuelan subsidiary us dollar new exchange rate 2012 2011 recorded immaterial foreign currency impacts connection highly inflationary accounting venezuela march 19 2013 venezuelan government announced new auctionbased currency transaction program referred sicad allows entities specific sectors bid us dollars used specified import transactions minimum exchange rate offered sicad 630 bolivars us dollar week ended december 30 2013 published sicad rate offered 1130 bolivars us dollar date availability us dollars either exchange rate continues limited january 24 2014 venezuelan government announced expansion sicad auction program prospective dividends royalties new profit margin controls venezuelan subsidiaries declare dividends pay royalties future based availability us dollars exchanged sicad program realized exchange losses payments made us dollars would recognized earnings profit level controls continue evaluate announced measures look protect net revenues profitability light current difficult macroeconomic environment venezuela continue monitor actively manage investment exposures venezuela 2013 net revenues venezuela approximately 800 million december 31 2013 net monetary assets denominated venezuelan bolivar 257 million us dollars applying official exchange rate official exchange rate devalue currently less favorable sicad exchange rate extended apply greater portion net monetary assets venezuela could recognize material devaluation charge earnings continue monitor currency developments venezuela take protective measures currency devaluation converting monetary assets nonmonetary assets use business january 23 2014 central bank argentina adjusted currency policy removed currency stabilization measures allowed argentine peso exchange rate float relative us dollar value argentine peso relative us dollar fell 15 day volatility exchange rate likely time based current state argentine currency rules regulations business environment remains challenging however expect existing controls restrictions material adverse effect business financial condition results operations 2013 net revenues argentina approximately 800 million continue monitor developments argentina explore additional measures protect operations net monetary position net changes unrealized gains losses relate currency commodity hedging activity 62 million 2013 1 million 2012 36 million 2011 unrealized gains losses become realized hedged item affects earnings realized gains losses reclassified segment operating income 2013 decrease general corporate expenses due primarily lower spinoff costs lower corporate functions project expenses spinoff costs decreased 345 million 407 62 million corporate functions project expenses decreased 69 million 277 million 208 million 2012 increase general corporate expenses due primarily 407 million spinoff costs recorded within general corporate expenses partially offset lower integration program costs part 2010 cadbury acquisition became responsible party tax matters cadbury schweppes plc dr pepper snapple group inc “dpsg” tax sharing indemnification agreement dated may 1 2008 “tax indemnity” certain 2007 2008 transactions relating demerger cadbury’s americas beverage business us federal tax audit dpsg 20062008 tax years concluded irs august 2013 result recorded favorable impact 336 million selling general administrative expenses 49 million interest expense net total pretax impact 385 million 363 million net tax 2013 due reversal accrued liability excess amount paid dpsg tax indemnity 2013 decrease interest expense net due primarily absence spinoff costs within interest expense recorded 609 million spinoff costs within interest expense 2012 reduction longterm debt benefit cadbury acquisitionrelated indemnification resolution partially offset loss debt extinguishment related expenses 612 million recorded within interest expense 2012 increase interest expense net due primarily 609 million spinoff costs recorded within interest expense partially offset 2011 loss 157 million related several interest rate swaps settled 2011 well lower longterm debt interest expense latin america 2013 compared 2012 net revenues decreased 14 million 03 due unfavorable foreign currency 126 pp mostly offset higher net pricing 114 pp favorable volumemix 09 pp unfavorable foreign currency due primarily venezuelan bolivar devaluation strength us dollar relative brazilian real argentinean peso partially offset strength mexican peso relative us dollar higher net pricing reflected across entire region except mexico favorable volumemix driven primarily brazil partially offset volumemix declines argentina venezuela segment operating income decreased 199 million 259 due primarily higher raw material costs unfavorable foreign currency including 54 million impact devaluation net monetary assets venezuela higher selling general administrative expenses including prioryear proceeds insurance settlement higher manufacturing costs higher 20122014 restructuring program costs higher advertising consumer promotion costs partially offset higher net pricing lower spinoff costs 2012 compared 2011 net revenues decreased 7 million 01 due unfavorable foreign currency 87 pp unfavorable volumemix 05 pp impact prior year’s accounting calendar changes 04 pp partially offset higher net pricing 95 pp unfavorable foreign currency due primarily strength us dollar relative brazilian real argentinean peso mexican peso unfavorable volumemix driven primarily mexico venezuela partially offset volumemix gains brazil colombia peru bolivia chile higher net pricing reflected across entire region largely argentina venezuela segment operating income increased 10 million 13 due primarily higher net pricing favorable volumemix lower integration program costs lower selling general administrative expenses including proceeds insurance settlement mostly offset higher raw material costs higher manufacturing costs unfavorable foreign currency spinoff costs incurred costs incurred 20122014 restructuring program asia pacific 2013 compared 2012 net revenues decreased 212 million 41 due unfavorable foreign currency 47 pp lower net pricing 19 pp partially offset favorable volumemix 25 pp unfavorable foreign currency due primarily strength us dollar relative australian dollar indian rupee japanese yen lower net pricing reflected region’s developed markets partially offset higher net pricing region’s emerging markets primarily india philippines thailand favorable volumemix driven region’s emerging markets primarily india china philippines malaysia well region’s developed markets australianew zealand segment operating income decreased 145 million 221 due primarily higher raw material costs lower net pricing unfavorable foreign currency higher selling general administrative expenses including investments sales capabilities routetomarket expansion impacts gain sale property india prioryear proceeds insurance settlement higher advertising consumer promotion costs partially offset lower manufacturing costs 2012 asset impairment charge related trademark japan lower spinoff costs favorable volumemix 2012 compared 2011 net revenues increased 300 million 62 due favorable volumemix 40 pp higher net pricing 39 pp partially offset unfavorable foreign currency 17 pp favorable volumemix driven region’s emerging markets primarily china india thailand philippines well region’s developed markets australianew zealand higher net pricing reflected region’s emerging markets primarily china india indonesia philippines partially offset lower net pricing region’s developed markets unfavorable foreign currency due primarily strength us dollar relative indian rupee partially offset strength chinese yuan australian dollar relative us dollar segment operating income decreased 25 million 37 due primarily higher advertising consumer promotion costs higher raw material costs asset impairment charge related trademark japan spinoff costs incurred higher selling general administrative expenses net proceeds insurance settlement unfavorable foreign currency partially offset higher net pricing favorable volumemix lower manufacturing costs lower integration program costs eemea 2013 compared 2012 net revenues increased 180 million 48 due favorable volumemix 110 pp impact acquisition biscuit operation morocco 25 pp partially offset unfavorable foreign currency 47 pp impact divestitures turkey south africa 22 pp lower net pricing 18 pp favorable volumemix driven primarily russia ukraine egypt west africa central east africa south africa unfavorable foreign currency due strength us dollar relative foreign currencies region including south african rand russian ruble egyptian pound lower net pricing reflected primarily russia ukraine due lower coffee chocolate pricing partially offset higher net pricing gulf cooperation council “gcc” countries south africa egypt segment operating income decreased 127 million 251 due primarily higher selling general administrative expenses including investments sales capabilities routetomarket expansion writeoff 15 million vat receivable longer realizable 2012 gains sales property russia turkey lower net pricing higher raw material costs higher integration program morocco biscuit acquisition integration costs unfavorable foreign currency higher advertising consumer promotion costs higher 20122014 restructuring program costs impact divestitures turkey south africa partially offset favorable volumemix lower manufacturing costs impact acquisition morocco 2012 compared 2011 net revenues decreased 101 million 26 due unfavorable foreign currency 46 pp impact prior year’s accounting calendar changes including 53rd week shipments 2011 26 pp partially offset favorable volumemix 25 pp higher net pricing 21 pp unfavorable foreign currency due strength us dollar relative foreign currencies region including russian ruble south african rand turkish lira favorable volumemix primarily driven gcc countries pakistan egypt higher net pricing realized across region primarily south africa turkey egypt ukraine segment operating income increased 73 million 169 due primarily lower manufacturing costs higher net pricing gain sale property russia lower integration program costs favorable volumemix partially offset higher raw material costs higher advertising consumer promotion costs higher selling general administrative expenses unfavorable foreign currency europe 2013 compared 2012 net revenues increased 242 million 18 due favorable volumemix 32 pp favorable foreign currency 21 pp impact accounting calendar change 03 pp partially offset lower pricing 24 pp impact current prioryear divestitures 14 pp favorable volumemix driven higher shipments chocolate biscuits coffee partially offset lower shipments gum candy cheese grocery favorable foreign currency primarily reflected strength euro swedish krona polish zloty relative us dollar partially offset strength us dollar relative british pound sterling lower net pricing driven primarily lower coffee prices segment operating income decreased 63 million 36 due primarily lower net pricing higher 20122014 restructuring program costs impact current prioryear divestitures higher integration program costs partially due reversal 45 million charges due outcome labor negotiations april 2012 partially offset favorable volumemix lower manufacturing costs favorable foreign currency lower selling general administrative expenses including impacts gains sales property uk norway italy 44 million reversal 2012 reserves carried cadbury acquisition 2010 longer required lower advertising consumer promotion costs impact accounting calendar change lower raw material costs primarily coffee 2012 compared 2011 net revenues decreased 1057 million 71 due unfavorable foreign currency 57 pp impact prior year’s accounting calendar changes including 53rd week shipments 2011 34 pp impact divestitures 03 pp partially offset favorable volumemix 15 pp higher net pricing 08 pp unfavorable foreign currency due strength us dollar relative foreign currencies primarily euro polish zloty british pound sterling swedish krona swiss franc favorable volumemix driven primarily higher shipments chocolate coffee biscuits partially offset lower shipments cheese grocery gum candy higher net pricing reflected across categories except chocolate gum segment operating income increased 176 million 111 due primarily lower integration program costs including 45 million reversal integration program charges previously accrued 2010 primarily related planned announced position eliminations occur upon concluding majority local workers council negotiations april 2012 lower manufacturing costs higher net pricing lower selling general administrative expenses includes 44 million benefit related reversal reserves carried cadbury acquisition 2010 longer required favorable volumemix partially offset higher raw material costs higher advertising consumer promotion costs unfavorable foreign currency impact prior year’s accounting calendar changes including 53rd week shipments 2011 costs incurred 20122014 restructuring program north america 2013 compared 2012 net revenues increased 88 million 13 due favorable volumemix 25 pp higher net pricing 04 pp partially offset impact current prioryear divestitures 10 pp unfavorable foreign currency 06 pp favorable volumemix driven primarily higher shipments biscuits candy partially offset lower shipments gum higher net pricing reflected primarily biscuits candy partially offset lower net pricing gum segment operating income increased 108 million 138 due primarily favorable volumemix lower pension expenses due transfer certain benefit plan obligations kraft foods group spinoff higher net pricing lower manufacturing costs lower advertising consumer promotion costs including reversal prioryear accruals lower spinoff costs lower integration program costs partially offset higher 20122014 restructuring program costs higher raw material costs impact current prioryear divestitures 2012 compared 2011 net revenues increased 70 million 10 due higher net pricing 36 pp partially offset unfavorable volumemix 12 pp impact prior year’s 53rd week shipments 10 pp impact divestitures 02 pp unfavorable foreign currency 02 pp higher net pricing reflected primarily biscuits candy partially offset lower net pricing gum unfavorable volumemix due primarily lower shipments candy including completion comanufacturing agreement previous divestiture partially offset higher shipments biscuits segment operating income decreased 6 million 08 due primarily higher raw material costs incurred 20122014 restructuring program unfavorable volumemix higher selling general administrative expenses higher advertising consumer promotion costs impact prior year’s 53rd week shipments spinoff costs incurred partially offset higher net pricing lower integration program costs lower manufacturing costs lower pension expenses due transfer certain obligations kraft foods group spinoff critical accounting policies note 1 summary significant accounting policies consolidated financial statements includes summary significant accounting policies used prepare consolidated financial statements discussed selection disclosure critical accounting policies estimates audit committee following review significant assumptions estimates well accounting policies used prepare consolidated financial statements principles consolidation consolidated financial statements include mondelēz international well wholly owned majority owned subsidiaries account investments exercise significant influence 2050 ownership interest equity method accounting use cost method accounting investments ownership interest less 20 exercise significant influence noncontrolling interest subsidiaries consists equity interest noncontrolling investors consolidated subsidiaries mondelēz international intercompany transactions eliminated accounting calendar changes 2013 majority operating subsidiaries report results last calendar day period connection moving common consolidation date first quarter 2013 changed consolidation date europe segment last saturday period last calendar day period change consolidation date europe segment favorable impact 37 million net revenues 6 million operating income 2013 time primarily north american operating subsidiaries continue report results last saturday period prior changes 2012 2011 majority operating subsidiaries reported results last saturday year 2011 last saturday year also fell december 31 2011 results included one week operating results “53rd week” 2013 2012 52 weeks 2011 also changed consolidation dates certain operations europe latin america eemea segments previously operations primarily reported results two weeks prior end period subsequent 2011 changes majority europe segment reported results last saturday period certain operations within latin america eemea segments began report results last calendar day period last saturday period changes 53rd week 2011 resulted favorable impact net revenues 679 million favorable impact 93 million operating income 2011 believe changes improve business planning financial reporting better matching close dates operating subsidiaries bringing reporting dates closer periodend date effect priorperiod results material revised priorperiod results use estimates prepare consolidated financial statements accordance us gaap require us make estimates assumptions affect number amounts consolidated financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions valuation assumptions goodwill intangible assets useful lives longlived assets marketing program accruals insurance selfinsurance reserves income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts became known historically aggregate differences estimates actual amounts year material effect consolidated financial statements inventories stated lower cost market value inventories using average cost method also record inventory allowances overstocked obsolete inventories due ingredient packaging changes longlived assets review longlived assets including amortizable intangible assets impairment conditions exist indicate carrying amount assets may fully recoverable perform undiscounted operating cash flow analyses determine impairment exists testing impairment assets held use group assets liabilities lowest level cash flows separately identifiable impairment determined exist loss calculated based estimated fair value impairment losses assets disposed based estimated proceeds received less costs disposal connection 20122014 restructuring program recorded impairment charges 91 million 2013 18 million 2012 goodwill nonamortizable intangible assets test goodwill nonamortizable intangible assets impairment least annually october 1 assess goodwill impairment risk first performing qualitative review entityspecific industry market general economic factors reporting unit significant potential goodwill impairment risk exists specific reporting unit apply twostep quantitative test first step compares reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using 20year projection discounted cash flows incorporates planned growth rates marketbased discount rates estimates residual value reporting units within north america europe geographic units used marketbased weightedaverage cost capital 66 discount projected cash flows operations latin america asia pacific eemea reporting units used riskrated discount rate 96 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value second step applied measure difference carrying value implied fair value goodwill carrying value goodwill exceeds implied fair value goodwill considered impaired reduced implied fair value 2013 2012 2011 impairments goodwill connection 2013 annual impairment testing noted one reporting unit sensitive nearterm changes discounted cash flow assumptions us confections 2177 million goodwill december 31 2013 fair value excess carrying value net assets 12 reporting unit passed first step impairment test segment operating income another valuation assumption deteriorate significantly future could adversely affect estimated fair value unsuccessful plans increase profitability business estimated fair value could decline lead potential goodwill impairment future test nonamortizable intangible assets impairment first performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible asset significant potential impairment risk exists specific nonamortizable intangible asset quantitatively test impairment comparing fair value intangible asset carrying value fair value nonamortizable intangible assets determined using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds fair value intangible asset considered impaired reduced estimated fair value record intangible asset impairment charges within asset impairment exit costs 2013 2011 reviews nonamortizable intangible assets impairments identified 2013 impairment testing noted 7 brands 511 million aggregate book value december 31 2013 fair value excess book value 10 less intangible assets passed annual impairment testing though believe current plans brands allow continue impaired expectations met specific valuation factors outside control discount rates change significantly brand brands might become impaired future 2012 recorded 52 million charges related trademark japanese chewing gum product within asia pacific segment insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits estimate liabilities associated risks evaluating making judgments historical claims experience actuarial assumptions estimated impact future results revenue recognition recognize revenues title risk loss pass customers generally occurs upon shipment delivery goods revenues recorded net consumer incentives trade promotions include shipping handling charges billed customers shipping handling costs classified part cost sales provision product returns allowances bad debts also recorded reductions revenues within period revenue recognized marketing research development promote products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives expense advertising costs either period advertising first takes place incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred advertising expense 1721 million 2013 1815 million 2012 1860 million 2011 expense product research development costs incurred research development expense 471 million 2013 462 million 2012 511 million 2011 record marketing research development expenses within selling general administrative expenses environmental costs throughout countries business subject local national multinational environmental laws regulations relating protection environment programs across business units designed meet applicable environmental compliance requirements united states laws regulations include clean air act clean water act resource conservation recovery act comprehensive environmental response compensation liability act “cercla” cercla imposes joint severable liability potentially responsible party december 31 2013 2012 subsidiaries involved one active proceeding us state equivalent cercla related current operations december 31 2013 2012 accrued immaterial amount environmental remediation based information currently available believe ultimate resolution existing environmental remediation compliance environmental laws regulations material effect financial results employee benefit plans provide range benefits current retired employees depending jurisdictions tenure presence union job level factors include pension benefits postretirement health care benefits postemployment benefits consisting primarily severance record amounts relating plans based calculations specified us gaap calculations require use various actuarial assumptions discount rates assumed rates return plan assets compensation increases turnover rates health care cost trend rates review actuarial assumptions annual basis make modifications assumptions based current rates trends appropriate permitted us gaap generally amortize effect modifications future periods believe assumptions used recording plan obligations reasonable based experience advice actuaries refer note 10 benefit plans consolidated financial statements discussion assumptions used connection spinoff transferred kraft foods group plan liabilities assets associated kraft foods group active retired employees certain retired employees previously participated north american benefit plans october 1 2012 transferred benefit plan liabilities 12218 million pension plan assets 6550 million accumulated comprehensive losses net tax 3810 million 2146 million related deferred tax assets recorded following amounts earnings continuing operations employee benefit plans years ended december 31 2013 2012 2011 2013 net expense employee benefit plans 519 million decreased 88 million primarily related certain benefit plan obligations transferred kraft foods group spinoff 2012 onetime costs partially offset increased benefit plan expenses 2013 due lower discount rates 2012 net expense employee benefit plans 607 million increased 89 million primarily related higher amortization net loss experience differences related us nonus pension plans expect 2014 net expense employee benefit plans decrease approximately 95 million primarily due higher discount rates favorable asset performance 2013 comprehensive losses included 713 million net actuarial pretax gains primarily related increase discount rate utilized determine pension plan benefit obligations december 31 2013 90 basis point increase us plans 19 basis point increase nonus plans favorable differences expected actual return pension plan assets well increase discount rate utilized determine postretirement benefit obligations december 31 2013 90 basis point increase us plans 73 basis point increase nonus plans 2012 comprehensive losses included 2266 million net actuarial pretax losses primarily related decrease discount rate utilized determine pension plan benefit obligations december 31 2012 65 basis point decrease us plans 81 basis point decrease nonus plans decrease discount rate utilized determine postretirement benefit obligations december 31 2012 50 basis point decrease us plans 21 basis point decrease nonus plans 2011 comprehensive losses included 2333 million net actuarial pretax losses primarily related decrease discount rate utilized determine pension plan benefit obligations december 31 2011 68 basis point decrease us plans 49 basis point decrease nonus plans unfavorable differences expected actual return pension plan assets decrease discount rate utilized determine postretirement benefit obligations december 31 2011 60 basis point decrease us plans 73 basis point decrease nonus plans 2013 contributed 178 million us pension plans 330 million nonus pension plans addition employees contributed 20 million nonus plans 2013 pension contributions 163 million voluntary make contributions us nonus pension plans primarily extent tax deductible generate excise tax liability 2014 estimate pension contributions 10 million us plans 309 million nonus plans based current tax laws total 2014 pension contributions none expected voluntary actual contributions may different due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates factors salaried nonunion hourly employees hired us january 1 2009 discontinued benefits us pension plans replaced enhanced company contribution employee savings plan additionally freezing us pension plans current salaried nonunion hourly employees effective december 31 2019 postretirement plans 2014 health care cost trend rate assumption decreased 700 750 us postretirement plans decreased 476 647 nonus postretirement plans established rates based upon recent experience well expectation health care trend rates going forward anticipate health care cost trend rate assumption 50 us plans 2018 554 nonus plans 2019 assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects costs obligation december 31 2013 2014 discount rate assumption increased 510 420 us postretirement plans increased 481 408 nonus postretirement plans 2014 discount rate increased 510 420 us pension plans increased 400 381 nonus pension plans model us canadian eurozone united kingdom discount rates using portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations developed discount rates remaining nonus plans local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear 2014 expected rate return plan assets remained constant 775 us pension plans determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class attempt maintain target asset allocation rebalancing asset classes make contributions monthly benefit payments 2014 expected rate return plan assets increased 618 608 nonus pension plans determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class anticipate changes 2014 assumptions us nonus pension postretirement health care plans sensitivity measure fiftybasis point change discount rates expected rate return plan assets would following effects increase decrease cost december 31 2013 financial instruments use certain financial instruments manage foreign currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principal objective risk management strategies reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices interest rates principally use derivative instruments use combination primarily foreign currency forward contracts futures options swaps commodity forward contracts futures options interest rate swaps manage exposure cash flow variability protect value existing foreign currency assets liabilities protect value debt see note 1 summary significant accounting policies note 9 financial instruments consolidated financial statements information types derivative instruments use record derivative financial instruments fair value consolidated balance sheets within current assets current liabilities due relatively shortterm duration cash flows derivative instruments classified consolidated statements cash flows based nature derivative instrument changes fair value derivative designated cash flow hedge extent hedge effective recorded accumulated comprehensive earnings losses reclassified earnings hedged item affects earnings changes fair value economic hedges ineffective portion hedges recognized current period earnings changes fair value derivative designated fair value hedge along changes fair value related hedged asset liability recorded earnings period use foreign currency denominated debt hedge portion net investment foreign operations adverse movements exchange rates changes value debt recorded within currency translation adjustment accumulated comprehensive earnings losses order qualify hedge accounting specified level hedging effectiveness derivative instrument item hedged must exist inception throughout hedged period must also formally document nature relationship derivative hedged item well risk management objectives strategies undertaking hedge transaction method assessing hedge effectiveness additionally hedge forecasted transaction significant characteristics expected term forecasted transaction must specifically identified must probable forecasted transaction occur longer probable hedged forecasted transaction occur would recognize gain loss related derivative earnings use derivatives exposed credit market risks credit risk exists counterparty derivative contract might fail fulfill performance obligations contract minimize credit risk entering transactions counterparties high quality investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration one year longer governed international swaps derivatives association master agreement market risk exists value derivative financial instrument might adversely affected changes market conditions foreign currency exchange rates commodity prices interest rates manage market risk limiting types derivative instruments derivative strategies use degree market risk plan hedge use derivative instruments income taxes recognize tax benefits financial statements uncertain tax positions assessed likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized contingencies see note 12 commitments contingencies consolidated financial statements new accounting guidance see note 1 summary significant accounting policies consolidated financial statements discussion new accounting standards commodity trends purchase use large quantities commodities including sugar sweeteners coffee cocoa wheat corn products soybean vegetable oils dairy addition purchase use significant quantities packaging materials package products natural gas fuels electricity factories warehouses regularly monitor worldwide supply cost trends commodities costeffectively secure ingredients packaging required production significant cost items biscuits chocolate gum candy many powdered beverage products sugar cocoa purchase sugar cocoa world markets quality availability supply changes foreign currencies affect prices commodities cocoa bean cocoa butter costs rose significantly second half 2013 due growing demand chocolate combined threat reduced supply poor weather conditions major cocoa producing countries significant cost items biscuit products grains primarily wheat corn soybean oil recent years grain costs affected largely burgeoning global demand food livestock feed biofuels ethanol biodiesel well factors weather significant cost item coffee products green coffee beans purchase world markets well local grower cooperatives green coffee bean prices affected quality availability supply changes value us dollar relation currencies consumer demand coffee products 2013 coffee bean costs fell dramatically primarily due increased supply bumper crops major coffee producing countries brazil significant cost items packaging include cardboards resins plastics energy costs include natural gas electricity diesel fuel purchase packaging energy commodities world markets within countries operate supply changes foreign currencies affect prices commodities 2013 primary drivers increase aggregate commodity costs increased dairy packaging grains oils local raw material costs well higher foreign exchange costs commodity purchases costs partially offset lower coffee bean costs 2013 generally price protect gross profit dollars address higher commodity costs currency impacts primarily higher pricing hedging manufacturing overhead cost control particular coffee category adjust prices pass changes green coffee costs affect net revenues generally affect bottomline profitability time pricing actions may lag commodity cost changes temporarily competitive market conditions planned trade promotional incentives factors could affect timing pricing decisions expect price volatility slightly higher aggregate cost environment continue remainder 2014 number external factors weather conditions commodity market conditions currency fluctuations effects governmental agricultural programs affect cost raw materials agricultural materials used products also use hedging techniques limit impact fluctuations cost principal raw materials however fully hedge changes commodity costs hedging strategies may protect us increases specific raw material costs principal raw materials fluctuate believe continue adequate supply raw materials use generally remain available numerous sources however significant constraints supply key commodities may limit ability grow net revenues period time liquidity capital resources believe cash operations new 45 billion revolving credit facility supports commercial paper program authorized longterm financing provide sufficient liquidity meet working capital needs planned capital expenditures future contractual obligations share repurchases payment anticipated quarterly dividends continue maintain investment grade credit ratings debt continue utilize commercial paper program primarily uncommitted international credit lines longterm debt issuances regular funding requirements also use intercompany loans foreign subsidiaries improve financial flexibility overall expect negative effects funding sources would material effect liquidity including indefinite reinvestment foreign earnings cash flow activity kraft foods group discontinued operation divested october 1 2012 included within consolidated cash flow results periods prior october 1 2012 net cash provided operating activities operating activities provided net cash 6410 million 2013 3923 million 2012 4520 million 2011 increase operating cash flows 2013 relative 2012 primarily related receipt 26 billion net cash received resolution starbucks arbitration lower spending spinoff costs 20122014 restructuring program lengthening days payables outstanding increased collection receivables lower interest payments decrease operating cash flows 2012 relative 2011 primarily related higher spending associated spinoff costs 20122014 restructuring program partially offset lower net working capital costs primarily related favorable inventory positions due higher inventory costs 2011 favorable accounts payable positions partially offset increased receivables net cash used investing activities net cash used investing activities 1483 million 2013 1687 million 2012 1728 million 2011 decrease net cash used investing activities 2013 relative 2012 related payments made kraft foods group 2012 related spinoff partially offset cash paid net cash received connection 2013 acquisition biscuit operation morocco lower proceeds divestitures 2013 decrease net cash used investing activities 2012 relative 2011 related proceeds received divested businesses lower capital expenditures current year partially offset cash transferred kraft foods group related spinoff capital expenditures funded operating activities include expenditures kraft foods group periods prior october 1 2012 1622 million 2013 1610 million 2012 1771 million 2011 2013 capital expenditures made primarily modernize manufacturing facilities support new product productivity initiatives expect 2014 capital expenditures 20 billion including capital expenditures required investments systems 20122014 restructuring program expect continue fund expenditures operations net cash used provided financing activities net cash used financing activities 6645 million 2013 204 million provided 2012 3175 million used 2011 decrease net cash provided financing activities 2013 relative 2012 primarily due lower net proceeds issuance longterm debt higher repayment longterm debt repurchase common stock partially offset lower dividend payments reflecting new capital structure dividend rate following spinoff higher shortterm borrowings increase net cash provided financing activities 2012 relative 2011 primarily due higher proceeds issuance longterm debt including notes issued kraft foods group june 2012 retained proceeds offset higher longterm debt repayments net cash used 2011 primarily related 2043 million dividends paid 1114 million longterm debt repayments 565 million repayments shortterm borrowings partially offset 492 million primarily proceeds stock option exercises within financing activities borrowing arrangements october 11 2013 entered revolving credit agreement 45 billion fiveyear senior unsecured revolving credit facility agreement replaced former revolving credit agreement terminated upon signing new agreement revolving credit agreement includes covenant maintain minimum shareholders’ equity least 246 billion excluding accumulated comprehensive earnings losses cumulative effects changes accounting principles december 31 2013 met covenant minimum shareholders’ equity 353 billion revolving credit agreement also contains customary representations covenants events default however credit rating triggers provisions financial covenants could require us post collateral security intend use revolving credit facility general corporate purposes including working capital purposes support commercial paper program december 31 2013 amounts drawn facility international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 24 billion december 31 2013 2012 borrowings lines amounted 226 million december 31 2013 274 million december 31 2012 longterm debt total debt 171 billion december 31 2013 194 billion december 31 2012 debttocapitalization ratio 035 december 31 2013 038 december 31 2012 december 31 2013 weightedaverage term outstanding longterm debt 98 years february 6 2014 completed cash tender offer retired 156 billion longterm us dollar debt consisting • 393 million 7000 notes due august 2037 • 382 million 6875 notes due february 2038 • 250 million 6875 notes due january 2039 • 535 million 6500 notes due february 2040 financed repurchase notes including payment accrued interest costs incurred net proceeds received 30 billion notes issuance january 16 2014 connection retiring debt first quarter 2014 recorded 492 million loss extinguishment debt within interest expense related amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing costs earnings time debt extinguishment also recognized 25 million interest expense related interest rate cash flow hedges deferred accumulated comprehensive losses recognized earnings life debt upon extinguishing debt deferred cash flow hedge amounts recorded earnings january 16 2014 issued 30 billion us dollar notes consisting • 400 million floating rate notes bear interest rate equal threemonth libor plus 052 mature february 1 2019 • 850 million 2250 fixed rate notes mature february 1 2019 • 1750 million 4000 fixed rate notes mature february 1 2024 received net proceeds 2982 million used part fund february 2014 tender offer general corporate purposes recorded approximately 18 million discounts deferred financing costs amortized interest expense life notes december 18 2013 completed cash tender offer retired 34 billion longterm us dollar debt consisting • 910 million 6500 notes due august 2017 • 729 million 6125 notes due february 2018 • 334 million 6125 notes due august 2018 • 1467 million 5375 notes due february 2020 financed repurchase notes including payment accrued interest costs net proceeds received 24 billion notes issuance december 11 2013 cash hand commercial paper issuances recorded 608 million loss extinguishment debt within interest expense related amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing costs earnings time debt extinguishment also recognized 4 million interest expense related interest rate cash flow hedges deferred accumulated comprehensive losses recognized earnings life debt upon extinguishing debt deferred cash flow hedge amounts recorded earnings december 11 2013 issued 24 billion euro notes approximately 33 billion us dollars december 31 2013 consisting • 400 million 550 million floating rate notes bear interest rate equal threemonth euribor plus 050 mature june 11 2015 • 750 million 1031 million 1125 fixed rate notes mature january 26 2017 • 1250 million 1718 million 2375 fixed rate notes mature january 26 2021 received net proceeds 2381 million 3239 million us dollars december 11 2013 used partially fund december 2013 tender offer also recorded approximately 27 million discounts deferred financing costs amortized interest expense life notes october 1 2013 1 billion 5125 us dollar notes 800 million 5250 us dollar notes matured notes accrued interest date paid cash hand issuance commercial paper may 8 2013 1 billion 2625 us dollar notes matured notes accrued interest date paid cash hand issuance commercial paper february 11 2013 750 million 600 us dollar notes matured notes accrued interest date paid cash hand october 2 2012 150 million canadian dollar variable rate loan matured loan accrued interest date repaid cash operations october 1 2012 approximately 10 billion us dollar debt balance sheet september 30 2012 transferred retained kraft foods group described debt primarily included 60 billion senior unsecured notes issued june 4 2012 36 billion debt exchanged july 18 2012 400 million migrated october 1 2012 see note 2 divestitures acquisition information regarding spinoff liabilities transferred october 1 2012 connection spinoff related debt capitalization plan 400 million 755 senior unsecured us dollar note retained kraft foods group cash generated transaction july 18 2012 completed debt exchange 36 billion us dollar debt held thirdparty note holders exchanged notes issued kraft foods group order migrate debt kraft foods group connection spinoff capitalization plan cash generated exchange incurred onetime financing costs 18 million recorded interest expense result exchange retired following debt • 596 million 6125 notes due february 2018 • 439 million 6125 notes due august 2018 • 900 million 5375 notes due february 2020 • 233 million 6875 notes due january 2039 • 290 million 6875 notes due february 2038 • 185 million 7000 notes due august 2037 • 170 million 6500 notes due november 2031 • 787 million 6500 notes due 2040 june 4 2012 kraft foods group issued 60 billion senior unsecured us dollar notes distributed 59 billion net proceeds us connection spinoff capitalization plan used proceeds pay 36 billion outstanding commercial paper borrowings expect use remaining cash proceeds pay additional debt time general corporate purposes debt approximately 260 million related deferred financing costs retained kraft foods group spinoff june 1 2012 900 million 625 us dollar notes matured notes accrued interest date repaid using primarily commercial paper borrowings subsequently repaid 59 billion net proceeds received kraft foods group 60 billion notes issuance june 4 2012 march 20 2012 20 billion 575 euro bonds matured bonds accrued interest date repaid using proceeds issuance commercial paper subsequently repaid june 2012 discussed january 10 2012 issued 800 million floating rate us dollar notes bear interest rate equal threemonth libor plus 0875 received net proceeds 7988 million issuance notes set mature july 10 2013 subject mandatory redemption tied public announcement record date spinoff announcing record date september 24 2012 notes redeemed redemption price equal 100 aggregate principal amount notes 800 million plus accrued interest 2 million cash hand expect continue comply longterm debt covenants refer note 8 debt borrowing arrangements details debt offerings time refinance longterm shortterm debt nature amount longterm shortterm debt proportionate amount varies result future business requirements market conditions factors december 31 2013 79 billion remaining longterm financing authority board directors next twelve months 997 billion longterm debt becomes due follows 500 million february 2014 497 million december 2014 expect fund repayments cash operations issuance commercial paper equity dividends stock plans see note 11 stock plans consolidated financial statements information stock plans awards activity 2013 2012 2011 stock award modifications related spinoff share repurchases 2013 board directors authorized repurchase 77 billion common stock march 12 2013 board directors authorized repurchase lesser 40 million shares 12 billion common stock march 12 2016 august 6 2013 audit committee authorization board directors increased repurchase program capacity 60 billion common stock repurchases extended expiration date december 31 2016 december 3 2013 board directors increased repurchase program capacity 17 billion 77 billion repurchases program determined management wholly discretionary 2013 repurchased 828 million shares common stock average cost 3309 per share aggregate cost 27 billion share repurchases include 15 billion shares repurchased accelerated share repurchase program initiated december 3 2013 share repurchases funded available cash including cash resolution starbucks arbitration see notes 12 commitments contingencies 2 divestitures acquisition discussion resolution starbucks arbitration commercial paper issuances repurchased shares held treasury december 31 2013 50 billion remaining share repurchase capacity intend continue use portion cash share repurchases number shares ultimately repurchase share repurchase program may vary depending numerous factors including share price market conditions ongoing capital allocation planning levels cash debt balances demands cash acquisition activity general economic business conditions board management discretion additionally share repurchase activity particular period may fluctuate may accelerate suspend delay discontinue stock repurchase program time without notice dividends paid dividends 943 million 2013 2058 million 2012 2043 million 2011 immediately following spinoff kraft foods group october 1 2012 share kraft foods inc annual dividend rate 052 per common share august 6 2013 audit committee authorization board directors raised quarterly dividend 014 per common share 056 per common share annual basis declaration dividends subject discretion board directors depends various factors including net earnings financial condition cash requirements future prospects factors board directors deems relevant analysis decision making offbalance sheet arrangements aggregate contractual obligations offbalance sheet arrangements guarantees contractual obligations discussed guarantees discussed note 12 commitments contingencies enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2013 material thirdparty guarantees recorded consolidated balance sheet addition december 31 2013 contingently liable 601 million guarantees related performance include letters credit guarantees related payment custom duties taxes part 2010 cadbury acquisition became responsible party tax matters cadbury schweppes plc dr pepper snapple group inc “dpsg” tax sharing indemnification agreement dated may 1 2008 “tax indemnity” certain 2007 2008 transactions relating demerger cadbury’s americas beverage business us federal tax audit dpsg 20062008 tax years concluded irs august 2013 result recorded favorable impact 336 million selling general administrative expenses 49 million interest expense net total pretax impact 385 million 363 million net tax 2013 due reversal accrued liability excess amount paid dpsg tax indemnity guarantees expect material effect liquidity aggregate contractual obligations following table summarizes contractual obligations december 31 2013 1 amounts include expected cash payments total debt excluding capital leases presented separately table amounts also exclude 28 million unamortized noncash bond premiums discounts recorded total debt 2 amounts represent expected cash payments interest expense longterm debt interest calculated euro notes forecasted using euro us dollar exchange rate december 31 2013 interest british pound sterling notes forecasted using british pound sterling us dollar exchange rate december 31 2013 insignificant amount interest expense excluded table portion foreign currency obligations due complexities involved forecasting expected interest payments 3 operating leases represent minimum rental commitments noncancelable operating leases 4 purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 5 longterm liabilities include estimated future benefit payments postretirement health care plans december 31 2023 181 million unable reliably estimate timing payments beyond 2023 excluded table also another 113 million various longterm liabilities expected paid next 5 years addition following longterm liabilities included consolidated balance sheet excluded table accrued pension costs income taxes insurance accruals unable reliably estimate timing payments contributions beyond 2014 case accrued pension costs items currently expect make approximately 319 million contributions pension plans 2014 also expect net pension cost decrease approximately 263 million 2014 decrease primarily due lower discount rates betterthanexpected asset performance december 31 2013 total liability income taxes including uncertain tax positions associated accrued interest penalties 1540 million currently estimate payments approximately 539 million related positions next 12 months nongaap financial measures use nongaap financial information believe useful investors provides additional information facilitate comparisons historical operating results identify trends underlying operating results provide additional transparency evaluate business use certain nongaap financial measures budget make operating strategic decisions evaluate performance disclose nongaap financial measures financial data use assist making comparisons historical operating results analyzing underlying performance nongaap financial measures reflect evaluate operating results currently new events circumstances arise definitions could change time • “organic net revenues” defined net revenues excluding impact acquisitions divestitures including businesses sale agreements exits major product lines sale licensing agreement integration program costs accounting calendar changes including 53rd week 2011 foreign currency rate fluctuations • “adjusted operating income” defined operating income excluding impact spinoff costs pension costs related obligations transferred spinoff 20122014 restructuring program integration program acquisition integration costs benefit cadbury acquisitionrelated indemnification resolution gains losses divestitures acquisitions acquisitionrelated costs operating results divestitures including businesses sale agreements exits major product lines sale licensing agreement also evaluate growth adjusted operating income constant currency basis • “adjusted eps” previously referred “operating eps” defined diluted eps attributable mondelēz international continuing operations excluding impact spinoff costs pension costs related obligations transferred spinoff 20122014 restructuring program integration program acquisition integration costs benefit cadbury acquisitionrelated indemnification resolution losses debt extinguishment related expenses residual tax benefit impact resolution starbucks arbitration gains losses divestitures acquisitions acquisitionrelated costs net earnings divestitures including business sale agreements exits major product lines sale licensing agreement including interest expense adjustment related spinoff transaction also evaluate growth adjusted eps constant currency basis believe presentation nongaap financial measures considered together us gaap financial measures reconciliations corresponding us gaap financial measures provides complete understanding factors trends affecting business could obtained absent disclosures nongaap financial measures may vary among companies nongaap financial measures presented management’s discussion analysis financial condition results operations section may comparable similarly titled measures used companies use nongaap financial measures meant considered isolation substitute us gaap financial measure limitation nongaap financial measures exclude items detailed impact us gaap reported results best way limitation addressed evaluating nongaap financial measures combination us gaap reported results carefully evaluating following tables reconcile us gaap reported figures nongaap financial measures form 10k gaap financial measures forwardlooking basis neither accessible deemed significantly different nongaap financial measures reconciling information available without unreasonable effort provided information connection nongaap financial measures financial outlook organic net revenues using definition “organic net revenues” adjustments made “net revenues” comparable us gaap financial measure exclude impact acquisitions divestitures integration program costs accounting calendar changes including 53rd week 2011 foreign currency believe organic net revenues better reflects underlying growth ongoing activities business provides improved comparability results 1 includes 53rd week shipments 2011 adjusted operating income using definition “adjusted operating income” adjustments made “operating income” continuing operations comparable us gaap financial measure exclude spinoff costs pension costs related obligations transferred spinoff 20122014 restructuring program costs integration program acquisition integration costs benefit cadbury acquisitionrelated indemnification resolution net gain acquisition divestitures acquisitionrelated costs operating income divestitures also evaluate adjusted operating income constant currency basis believe measures provide improved comparability operating results 1 represents estimated annual benefit plan expense associated certain benefit plan obligations transferred kraft foods group spinoff adjusted eps using definition “adjusted eps” adjustments made “diluted eps attributable mondelēz international continuing operations” comparable us gaap financial measure exclude spinoff costs pension costs related obligations transferred spinoff 20122014 restructuring program costs integration program acquisition integration costs benefit cadbury acquisitionrelated indemnification resolution residual tax benefit associated resolution starbucks arbitration net gain acquisition divestitures acquisitionrelated costs net earnings divestitures including interest expense adjustment related spinoff transaction also evaluate adjusted eps constant currency basis believe measures provide improved comparability operating results 1 represents estimated annual benefit plan expense associated certain benefit plan obligations transferred kraft foods group spinoff 2 represents interest expense associated assumed reduction 6 billion debt january 1 2012 utilization funds received kraft foods group 2012 connection spinoff capitalization plan note year ended december 31 2012 portion 6 billion debt retired adjusted interest expense period debt repaid january 1 2012 ensure consistency assumption related results item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis contains forwardlooking statements read conjunction sections annual report form 10k including consolidated financial statements related notes contained item 8 “forwardlooking statements” “risk factors” contained item 1a description company manufacture market primarily snack food beverage products including biscuits cookies crackers salted snacks chocolate gum candy coffee powdered beverages various cheese grocery products operations 80 countries sell products approximately 165 countries last several years expanding geographically building presence snacking category time continued invest product quality marketing innovation behind iconic brands implementing series cost saving initiatives goals achieve industryleading revenue growth time along higher expected growth rates advantaged snack categories leverage cost structure supply chain reinvention productivity programs overhead streamlining volume growth improved product mix drive margin gains grow earnings per share toptier peer group planned coffee business transactions may 7 2014 announced entered agreement combine wholly owned coffee portfolio outside france de master blenders 1753 bv “demb” conjunction transaction acorn holdings bv “ahbv” owner demb also made binding offer receive coffee business france parties also invited partners certain joint ventures join new company upon completion proposed transactions expect receive cash approximately 4 billion 49 percent equity interest new company called jacobs douwe egberts “jde” ahbv hold majority share proposed combined company majority seats board chaired current demb chairman bart becht certain minority rights ahbv owned investor group led jab holding company sà rl transactions collectively “jde coffee transactions” remain subject regulatory approvals completion employee information consultation requirements continue expect transactions completed 2015 subject closing conditions including regulatory approvals december 2014 european commission announced intention evaluate proposed transaction eu antitrust regulations order make final determination merger clearance currently expect second half 2015 demb also continue undertake consultations works councils employee representatives required connection transactions connection expected receipt approximately 4 billion upon closing entered currency exchange forward contracts second quarter 2014 lock expected us dollar value approximately 5 billion december 31 2014 forward contracts recorded derivative assets within current assets december 31 2014 recognized 628 million unrealized gains related hedges within interest expense net february 11 2015 monetized forward contracts recorded additional realized gain 311 million first quarter 2015 total realized gain 939 million also entered new currency exchange forward contracts continue lock expected us dollar value approximately 5 billion transactions based changes eurous dollar exchange rate actual closing date planned jde coffee transactions settlement dates hedges may put place actual amount us dollars receive could change addition hedges also incurred incremental expenses related readying coffee businesses planned transactions totaled 77 million december 31 2014 recorded within selling general administrative expenses europe eemea segments within general corporate expenses additional information jde coffee transactions see note 2 divestitures acquisitionsplanned coffee business transactions 20142018 restructuring program may 6 2014 board directors approved 35 billion restructuring program comprised approximately 25 billion cash costs 1 billion noncash costs “20142018 restructuring program” 22 billion capital expenditures primary objective 20142018 restructuring program reduce operating cost structure supply chain overhead costs expect 20142018 restructuring program generate annualized savings least 15 billion program’s completion end 2018 lower overheads accelerated supply chain cost reductions expected generate roughly half total incremental savings expect incur majority program’s charges 2015 2016 complete program yearend 2018 2014 recorded restructuring related implementation charges 381 million program additional information 20142018 restructuring program see note 6 restructuring programs ummary results • net revenues decreased 30 342 billion 2014 increased 08 353 billion 2013 net revenues 2014 significantly affected unfavorable currency translation us dollar strengthened currencies operate • organic net revenue increased 24 360 billion 2014 increased 39 359 billion 2013 organic net revenue nongaap financial measure use evaluate underlying results see definition organic net revenue reconciliation net revenues within nongaap financial measures appearing later section • diluted eps attributable mondelēz international decreased 416 128 2014 increased 281 219 2013 excluding results discontinued operations diluted eps attributable mondelēz international continuing operations decreased 08 128 2014 increased 466 129 2013 number significant items also affected comparability reported results described discussion analysis historical results appearing later section notes consolidated financial statements • adjusted eps increased 143 176 2014 increased 77 154 2013 constant currency basis adjusted eps increased 234 190 2014 increased 119 160 2013 adjusted eps nongaap financial measure use evaluate underlying results see definition adjusted eps reconciliation diluted eps within nongaap financial measures appearing later section financial outlook seek achieve toptier financial performance manage business achieve goal using number operating metrics including organic net revenue adjusted operating income adjusted eps refer nongaap financial measures appearing later section information measures additional metrics use monitor include product quality measures category growth market share performance pricing net commodity costs net commodity inflation volume growth power brand organic net revenue growth gross net productivity savings brand support related investments capital spending cash conversion cycle free cash flow return invested capital shareholder returns also monitor number factors trends expect may impact near longterm revenues profitability objectives longterm demographics consumer trends snack food consumption highly correlated gdp growth urbanization population rising discretionary income levels associated growing middle class particularly emerging markets longterm expect trends continue leading growth key consumer behaviors including increased snacking occasions greater use convenience food migration frequent smaller meals near term lower gdp growth high unemployment weak consumer confidence europe emerging markets slowed category growth demand monitor consumer spending market share within food beverage categories sell products growth global categories slowed approximately 4 2013 36 2014 believe slowdown category growth continue affect nearterm net revenue growth expect slowdown particularly emerging markets temporary expect category growth return levels line expected growth emerging markets consumer spending markets continue make investments brands build strong routes market address needs consumers emerging developed markets anticipate stimulating demand categories growing position markets volatility global markets growth strategy depends part ability expand operations particularly emerging markets greater political economic volatility vulnerability infrastructure labor disruptions experienced past year markets including russia ukraine venezuela argentina volatility markets affects demand costs products requires frequent changes operate business likely continued volatility across markets sell focused aggressively managing costs currently continue invest brand building routes market competition operate highly competitive markets include global regional local competitors advantaged geographic footprint operating scale portfolio brands significantly contributed building marketleading positions across product categories sell grow maintain market positions focus product quality bringing new products innovations market effectively meeting consumer needs preferences pursue significant growth opportunities expanding global operations growing portfolio power brands innovative products continue optimize manufacturing operations invest brands ongoing research development advertising marketing consumer promotions pricing adjust product prices based number variables including demand competitive environment changes product input costs net revenue growth profitability may affected adjust prices address new conditions 2014 generally increased prices response higher commodity costs currency market factors 2015 continue expect higher aggregate commodity related costs anticipate adjusting prices response changing market conditions price competition delayed price increases competitors customers also affected net revenues 2014 may continue affect net revenues market share near term market adjusts changes input costs market conditions 2015 plan address issues improve revenue mix discontinuing certain low margin customerspecific product lines discontinuing certain lowmargin licensed products continuing simplify portfolio skus operating costs operating costs include raw materials labor selling general administrative expenses taxes currency impacts financing costs manage costs cost saving productivity initiatives sourcing hedging programs pricing actions refinancing tax planning continue work various programs expand profitability margins 20142018 restructuring program designed bring significant reductions operating cost structure supply chain overhead costs currency global company 80 net revenues generated outside united states exposed changes global economic conditions currency movements 2014 us dollar strengthened relative currencies operate several countries experienced significant declines devaluations currency movements significant negative effect reported results operations 2014 net revenues 342 billion 30 2013 including negative 51 percentage point impact currency translation net investment hedges form local currency denominated debt offset translation certain overseas investments generally hedge currency translation primarily seek hedge economic losses crosscurrency transactions due limited markets hedging currency transactions factors may able effectively hedge crosscurrency transaction risks 2014 recognized 167 million currency devaluation charges pretax earnings related remeasurement net monetary assets venezuela economy monetary policies business restrictions venezuela well countries argentina russia created challenging business environment operate ability hedge currencyrelated economic losses may limited work mitigate exposure currency risks factors continued global market volatility actions foreign governments political uncertainty external developments could lead unfavorable currency impacts future financing costs regularly evaluate variable fixedrate debt continue use lower cost short longterm debt finance ongoing working capital expenditures investments dividends share repurchases first quarter 2014 fourth quarter 2013 retired 5 billion longterm us dollardenominated debt issued lowercost longterm euro us dollardenominated debt weightedaverage interest rate total debt december 31 2014 43 48 december 31 2013 58 december 31 2012 discussion analysis historical results items affecting comparability financial results following table includes significant income expense items affected comparability pretax results operations effective tax rates please refer notes consolidated financial statements indicated information refer also consolidated results operations net earnings per share attributable mondelēz international table per share impacts items consolidated results operations following discussion compares consolidated results operations 2014 2013 2012 2014 compared 2013 net revenues net revenues decreased 1055 million 30 34244 million 2014 organic net revenue 1 increased 845 million 24 36036 million change net revenues organic net revenue detailed 1 please see nongaap financial measures section end item organic net revenue growth driven higher net pricing partially offset unfavorable volumemix overall net pricing realized effects input costdriven pricing actions implemented course year higher net pricing reflected primarily latin america eemea europe asia pacific unfavorable volumemix driven primarily europe asia pacific latin america addition price elasticity decline largely due slow response competitors higher input costs well impact pricerelated customer disruptions europe unfavorable currency impacts decreased net revenues 1806 million due primarily devaluation venezuelan bolivar strength us dollar relative several currencies including argentinean peso russian ruble brazilian real ukrainian hryvnya partially offset strength british pound sterling relative us dollar impact divestitures completed 2013 resulted yearoveryear decrease net revenues 70 million included salty snacks business turkey confectionery business south africa chocolate business spain accounting calendar change made europe 2013 resulted yearoveryear decrease net revenues 38 million acquisition biscuit operation morocco february 22 2013 added 14 million incremental net revenues year period prior anniversary date acquisition operating income operating income decreased 729 million 184 3242 million 2014 adjusted operating income 1 increased 149 million 35 4416 million adjusted operating income constant currency basis 1 increased 436 million 102 4703 million due following 1 please see nongaap financial measures section end item 2014 higher net pricing outpaced increased input costs higher net pricing reflected across segments increase input costs driven higher raw material costs part due higher currency exchange transaction costs imported materials partially offset lower manufacturing costs unfavorable volumemix driven latin america asia pacific europe partially offset gains eemea north america total selling general administrative expenses decreased 222 million 2013 due number factors noted table including part favorable currency impact lower integration program costs valueadded tax “vat”related settlements 2014 lower spinoff costs 2013 business divestitures gain sale property 2014 items increased selling general administrative expenses included 2013 benefit received related resolution cadbury acquisition indemnification increased devaluation charges related net monetary assets venezuela costs incurred 20142018 restructuring program costs incurred 2014 related jde coffee transactions gains property sales 2013 higher 20122014 restructuring program costs excluding factors noted selling general administrative expenses decreased 313 million 2013 driven primarily lower overhead costs lower advertising consumer promotion costs overhead costs fell result continued cost reduction efforts advertising consumer promotion costs lower due primarily savings consolidating media providers reductions nonworking media costs efficiencies gained shifting spending lowercost digital media outlets increased spending power brands maintained working media spending change unrealized gains losses decreased operating income 174 million 2014 net unrealized losses primarily commodity hedging activity 112 million compared net unrealized gains 62 million 2013 related currency commodity hedging activity 2013 recorded pretax gains 68 million related sales properties india europe 2014 recorded benefit 84 million related vatrelated settlements latin america 2014 recorded pretax gain 7 million related sale property europe acquisition biscuit operation morocco february 22 2013 added 3 million incremental operating income 2014 period prior anniversary acquisition unfavorable currency impacts decreased operating income 287 million due primarily devaluation venezuelan bolivar 2013 2014 strength us dollar relative several currencies including argentinean peso brazilian real russian ruble ukrainian hryvnya partially offset strength british pound sterling relative us dollar operating income margin decreased 112 2013 95 2014 decrease operating income margin driven primarily costs incurred 20142018 restructuring program yearoveryear negative impact benefit resolution cadbury acquisitionrelated indemnification recorded 2013 higher costs 20122014 restructuring program impact devaluation net monetary assets venezuela costs incurred related jde coffee transactions partially offset lower integration program costs adjusted operating income margin increased 121 2013 129 2014 increase adjusted operating income margin driven primarily lower overhead costs continued cost reduction efforts lower advertising consumer promotion costs due primarily current year productivity initiatives partially offset decline gross profit margin due entirely unfavorable impact unrealized gains losses currency commodity hedging activities net earnings per share attributable mondelēz international net earnings attributable mondelēz international 2184 million 2014 decreased 1731 million 442 due primarily results discontinued operations prior year diluted eps continuing operations attributable mondelēz international 128 2014 001 08 129 2013 adjusted eps 1 176 2014 022 143 154 2013 adjusted eps constant currency basis 1 190 2014 036 234 154 2013 1 please see nongaap financial measures section end item 2 refer note 2 divestitures acquisitions information spinoff costs following kraft foods group inc divestiture resolution starbucks arbitration acquisition eemea segment property sales planned coffee business transactions divestitures note 628 million unrealized gain currency hedges related jde coffee transactions recorded interest expense net included income costs associated jde coffee transactions 019 3 refer note 6 restructuring programs information 20142018 restructuring program 20122014 restructuring program 4 refer note 7 integration program cost savings initiatives information cadbury acquisition integration program note 2 divestitures acquisitions integration charges associated acquisition biscuit operation eemea segment 5 refer note 11 commitments contingencies information benefit related resolution cadbury acquisition indemnification 2013 6 refer note 1 summary significant accounting policiescurrency translation highly inflationary accounting information remeasurements net monetary assets venezuela current prioryear periods 7 refer note 8 debt borrowing arrangements information loss debt extinguishment related expenses connection debt tender offers february 2014 december 2013 8 excludes favorable currency impact interest expense related nonus dollar denominated debt 9 refer note 12 stock plans note 13 capital stock information equity compensation programs share repurchase program note 16 earnings per share earnings per share weightedaverage share information 10 refer note 15 income taxes information change income taxes effective tax rate 11 refer note 5 goodwill intangible assets information impairment charges 2014 recorded related two trademarks 2013 compared 2012 net revenues net revenues increased 284 million 08 35299 million 2013 organic net revenue 1 increased 1338 million 39 35938 million change net revenues organic net revenue detailed 1 please see nongaap financial measures section end item organic net revenue growth driven favorable volumemix higher net pricing favorable volumemix driven primarily higher shipments across segments except asia pacific higher net pricing latin america primarily related venezuela argentina brazil north america partially offset lower net pricing europe asia pacific eemea primarily due lower coffee prices unfavorable currency decreased net revenues 837 million due primarily devaluation venezuelan bolivar strength us dollar relative currencies including brazilian real argentinean peso australian dollar indian rupee japanese yen south african rand partially offset strength euro relative us dollar impact divestitures resulted yearoveryear decrease net revenues 345 million addition acquisition biscuit operation morocco added 91 million net revenues accounting calendar change europe added 37 million net revenues 2013 operating income operating income increased 334 million 92 3971 million 2013 adjusted operating income 1 increased 1 million 00 4267 million adjusted operating income constant currency basis 1 increased 147 million 34 4413 million due following 1 please see nongaap financial measures section end item 2 represents estimated annual benefit plan expense associated certain benefit plan obligations transferred kraft foods group inc spinoff favorable volumemix driven primarily volume gains across segments except asia pacific higher net pricing latin america north america partially offset lower net pricing europe asia pacific eemea primarily due lower coffee pricing 2013 increased input costs outpaced higher net pricing increase input costs driven higher raw material costs part due higher currency exchange transaction costs imported materials partially offset lower manufacturing costs total selling general administrative expenses decreased 497 million 2012 due part lower spinoff costs benefit resolution cadbury acquisitionrelated indemnification favorable currency impact net negative impact devaluation net monetary assets venezuela gains sales properties 2013 impact businesses divested 2013 2012 partially offset gains sales properties 2012 higher integration program costs higher 20122014 restructuring program costs inclusion expenses related acquired biscuit operations morocco excluding factors noted selling general administrative expenses increased 246 million 2012 driven primarily higher overhead costs emerging markets including investments sales capabilities routetomarket expansion emerging markets 2012 reversal reserves carried cadbury acquisition 2010 longer required prioryear proceeds insurance settlements higher advertising consumer promotion costs asia pacific eemea latin america change unrealized gains losses added 61 million operating income 2013 net unrealized gains 62 million compared net unrealized gains 1 million 2012 2013 recorded pretax gains 68 million related sales properties india europe 2012 recorded pretax gains 77 million related sales properties russia turkey acquisition biscuit operation morocco added 16 million operating income 2013 accounting calendar changes went effect europe first quarter 2013 increased operating income 6 million unfavorable currency impacts decreased operating income 146 million due primarily devaluation venezuelan bolivar strength us dollar relative currencies including brazilian real argentinean peso indian rupee japanese yen south african rand russian ruble partially offset strength euro relative us dollar operating income margin increased 104 2012 112 2013 increase operating income margin driven primarily lower spinoff costs benefit resolution cadbury acquisitionrelated indemnification partially offset higher costs 20122014 restructuring program lower integration program costs negative impact divestitures unfavorable impact devaluation net monetary assets venezuela adjusted operating income margin decreased 123 2012 121 2013 decrease adjusted operating income margin driven primarily modest decline gross margin due timing price increases cover rising currency exchange transaction costs imported raw materials second half year partially offset benefit leverage selling general administrative expenses net earnings per share attributable mondelēz international net earnings attributable mondelēz international 3915 million increased 848 million 276 2013 diluted eps attributable mondelēz international 219 2013 048 281 2012 diluted eps continuing operations attributable mondelēz international 129 2013 041 466 2012 adjusted eps 1 154 2013 011 77 2012 adjusted eps constant currency basis 1 160 2013 017 119 2012 1 please see nongaap financial measures section end item 2 refer note 2 divestitures acquisitions information spinoff costs following kraft foods group inc divestiture resolution starbucks arbitration divestitures acquisition eemea segment sales property 3 refer note 6 restructuring programs information 20122014 restructuring program 4 refer note 7 integration program cost savings initiatives information cadbury acquisition integration program note 2 divestitures acquisitions integration charges associated acquisition biscuit operation eemea segment 5 represents interest expense associated assumed reduction 6 billion debt january 1 2011 utilization funds received 6 billion notes kraft foods group inc issued 2012 connection spinoff capitalization plan note year ended december 31 2012 portion 6 billion debt retired adjusted interest expense period debt repaid january 1 2012 ensure consistency assumption related results 6 represents estimated annual benefit plan expense associated certain benefit plan obligations transferred kraft foods group inc spinoff 7 2012 recorded 52 million impairment charges related trademark japanese chewing gum product within asia pacific segment 8 excludes favorable currency impact interest expense related nonus denominated debt change interest expense included spinoff costs change interest expense associated assumed reduction 6 billion debt january 1 2012 utilization funds received 6 billion notes kraft foods group inc issued directly cash proceeds distributed us june 2012 connection spinoff capitalization plan 9 refer note 12 stock plans note 13 capital stock information equity compensation programs share repurchase program note 16 earnings per share earnings per share weightedaverage share information 10 refer note 15 income taxes information change income taxes effective tax rate 11 refer note 8 debt borrowing arrangements information loss debt extinguishment related expenses connection debt tender offer december 2013 12 refer note 11 commitments contingencies information benefit related resolution cadbury acquisition indemnification 2013 13 refer note 1 summary significant accounting policiescurrency translation highly inflationary accounting information remeasurement net monetary assets venezuela 2013 results operations reportable segment operations management structure organized five reportable operating segments • latin america • asia pacific • eemea • europe • north america manage operations region leverage regional operating scale manage different changing business environments effectively local level pursue growth opportunities arise key markets beginning 2015 within region also manage product category historical periods presented discussed managed operations within latin america asia pacific eemea location within europe north america location product category use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends see note 17 segment reporting additional information segments items affecting comparability financial results earlier section items affecting segment operating results segment net revenues earnings following historical periods latin america 2014 compared 2013 net revenues decreased 229 million 43 due unfavorable currency 194 pp unfavorable volumemix 42 pp partially offset higher net pricing 193 pp unfavorable currency impacts due primarily venezuelan bolivar devaluation strength us dollar relative argentinean peso brazilian real unfavorable volumemix driven primarily mexico venezuela argentina partially offset gains brazil western andean countries higher net pricing reflected primarily higher inflationary countries venezuela argentina well brazil mexico segment operating income decreased 95 million 167 due primarily higher raw material costs unfavorable currency unfavorable volumemix yearoveryear net impact remeasurement net monetary assets venezuela costs incurred 20142018 restructuring program higher advertising consumer promotion costs unfavorable items partially offset higher net pricing lower manufacturing costs absence integration program costs 2014 lower selling general administrative expenses including 84 million related primarily vatrelated settlements lower 20122014 restructuring program costs 2013 compared 2012 net revenues decreased 14 million 03 due unfavorable currency 126 pp mostly offset higher net pricing 114 pp favorable volumemix 09 pp unfavorable currency due primarily venezuelan bolivar devaluation strength us dollar relative brazilian real argentinean peso partially offset strength mexican peso relative us dollar higher net pricing reflected across entire region except mexico favorable volumemix driven primarily brazil partially offset volumemix declines argentina venezuela segment operating income decreased 199 million 259 due primarily higher raw material costs unfavorable currency including 54 million impact devaluation net monetary assets venezuela higher selling general administrative expenses including prioryear proceeds insurance settlement higher manufacturing costs higher 20122014 restructuring program costs higher advertising consumer promotion costs unfavorable items partially offset higher net pricing lower spinoff costs asia pacific 2014 compared 2013 net revenues decreased 347 million 70 due unfavorable volumemix 57 pp unfavorable currency 42 pp partially offset higher net pricing 29 pp unfavorable volumemix driven primarily china australianew zealand indonesia malaysia philippines partially offset gains india unfavorable currency impacts due primarily strength us dollar relative australian dollar indian rupee indonesian rupiah japanese yen higher net pricing primarily due india indonesia philippines australianew zealand china segment operating income decreased 127 million 248 due primarily higher raw material costs unfavorable volumemix intangible asset impairment charge related biscuit trademark higher 20122014 restructuring program costs 20142018 restructuring program costs unfavorable currency unfavorable items partially offset higher net pricing lower manufacturing costs lower advertising consumer promotion costs absence integration program costs 2014 lower selling general administrative expenses including unfavorable yearoveryear impact 2013 gain sale property india 2013 compared 2012 net revenues decreased 212 million 41 due unfavorable currency 47 pp lower net pricing 19 pp partially offset favorable volumemix 25 pp unfavorable currency due primarily strength us dollar relative australian dollar indian rupee japanese yen lower net pricing reflected region’s developed markets partially offset higher net pricing region’s emerging markets primarily india philippines thailand favorable volumemix driven region’s emerging markets primarily india china philippines malaysia well region’s developed markets australianew zealand segment operating income decreased 145 million 221 due primarily higher raw material costs lower net pricing unfavorable currency higher selling general administrative expenses including investments sales capabilities routetomarket expansion impacts gain sale property india prioryear proceeds insurance settlement higher advertising consumer promotion costs unfavorable items partially offset lower manufacturing costs 2012 asset impairment charge related trademark japan lower spinoff costs favorable volumemix eemea 2014 compared 2013 net revenues decreased 277 million 71 due unfavorable currency 134 pp impact divestitures 05 pp partially offset higher net pricing 57 pp favorable volumemix 08 pp impact february 2013 acquisition biscuit operation morocco 03 pp unfavorable currency impacts due strength us dollar relative currencies region primarily russian ruble ukrainian hryvnya south african rand turkish lira divestitures completed 2013 resulted 20 million decline net revenues higher net pricing reflected across segment primarily russia ukraine turkey favorable volumemix driven primarily russia gulf cooperation council “gcc” countries turkey acquisition biscuit operation morocco february 2013 added 14 million incremental net revenues 2014 period prior anniversary date acquisition segment operating income decreased 52 million 137 due primarily higher raw material costs unfavorable currency higher 20122014 restructuring program costs incurred 20142018 restructuring program costs associated jde coffee transactions unfavorable items partially offset higher net pricing lower manufacturing costs lower integration program acquisition integration costs favorable volumemix impact 2013 divestitures lower advertising consumer promotion costs 2013 compared 2012 net revenues increased 180 million 48 due favorable volumemix 110 pp impact acquisition biscuit operation morocco 25 pp partially offset unfavorable currency 47 pp impact divestitures turkey south africa 22 pp lower net pricing 18 pp favorable volumemix driven primarily russia ukraine egypt west africa central east africa south africa unfavorable currency due strength us dollar relative currencies region including south african rand russian ruble egyptian pound lower net pricing reflected primarily russia ukraine due lower coffee chocolate pricing partially offset higher net pricing gcc countries south africa egypt segment operating income decreased 127 million 251 due primarily higher selling general administrative expenses including investments sales capabilities routetomarket expansion writeoff 15 million vat receivable longer realizable 2012 gains sales property russia turkey lower net pricing higher raw material costs higher integration program morocco biscuit acquisition integration costs unfavorable currency higher advertising consumer promotion costs higher 20122014 restructuring program costs impact divestitures turkey south africa unfavorable items partially offset favorable volumemix lower manufacturing costs impact acquisition morocco europe 2014 compared 2013 net revenues decreased 147 million 10 due unfavorable volumemix 23 pp impact prior year’s accounting calendar change 02 pp impact divestitures 00 pp partially offset higher net pricing 13 pp favorable currency 02 pp unfavorable volumemix driven lower shipments across categories decline due pricingrelated elasticity across region certain pricingrelated customer disruptions accounting calendar change made 2013 resulted yearoveryear decrease net revenues 38 million addition divestitures completed 2013 resulted 11 million decline net revenues higher net pricing driven chocolate cheese grocery partially offset lower net pricing categories primarily biscuits coffee favorable currency impacts primarily reflected strength british pound sterling relative us dollar partially offset strength us dollar swedish krona euro norwegian krone segment operating income increased 71 million 42 due primarily lower manufacturing costs higher net pricing lower integration program costs including reversal prioryear accrual lower advertising consumer promotion costs lower selling general administrative expenses net unfavorable yearoveryear impact 2013 gains sales property united kingdom norway italy benefit 2014 gain sale property united kingdom favorable items partially offset higher raw material costs primarily higher cocoa costs incurred 20142018 restructuring program unfavorable volume mix higher 20122014 restructuring program costs associated jde coffee transactions intangible asset impairment charge related candy trademark yearoveryear impact last year’s accounting calendar change 2013 compared 2012 net revenues increased 242 million 18 due favorable volumemix 32 pp favorable currency 21 pp impact accounting calendar change 03 pp partially offset lower pricing 24 pp impact current prioryear divestitures 14 pp favorable volumemix driven higher shipments chocolate biscuits coffee partially offset lower shipments gum candy cheese grocery favorable currency primarily reflected strength euro swedish krona polish zloty relative us dollar partially offset strength us dollar relative british pound sterling lower net pricing driven primarily lower coffee prices segment operating income decreased 63 million 36 due primarily lower net pricing higher 20122014 restructuring program costs impact current prioryear divestitures higher integration program costs partially due reversal 45 million charges due outcome labor negotiations april 2012 unfavorable items partially offset favorable volumemix lower manufacturing costs favorable currency lower selling general administrative expenses including impacts gains sales property united kingdom norway italy 44 million reversal 2012 reserves carried cadbury acquisition 2010 longer required lower advertising consumer promotion costs impact accounting calendar change lower raw material costs primarily coffee north america 2014 compared 2013 net revenues decreased 55 million 08 due unfavorable currency 10 pp impact divestitures 06 pp partially offset favorable volumemix 07 pp higher net pricing 01 pp unfavorable currency impact due strength us dollar relative canadian dollar divestitures completed 2013 resulted 39 million decline net revenues favorable volumemix driven primarily higher shipments biscuits partially offset lower shipments gum higher net pricing reflected primarily biscuits gum partially offset lower net pricing chocolate segment operating income increased 33 million 37 due primarily lower raw material costs lower selling general administrative expenses favorable volumemix lower 20122014 restructuring program costs lower advertising consumer promotion costs higher net pricing favorable items partially offset costs incurred 20142018 restructuring program higher manufacturing costs impact divestitures 2013 compared 2012 net revenues increased 88 million 13 due favorable volumemix 25 pp higher net pricing 04 pp partially offset impact current prioryear divestitures 10 pp unfavorable currency 06 pp favorable volumemix driven primarily higher shipments biscuits candy partially offset lower shipments gum higher net pricing reflected primarily biscuits candy partially offset lower net pricing gum segment operating income increased 108 million 138 due primarily favorable volumemix lower pension expenses due transfer certain benefit plan obligations kraft foods group inc spinoff higher net pricing lower manufacturing costs lower advertising consumer promotion costs including reversal prioryear accruals lower spinoff costs lower integration program costs favorable items partially offset higher 20122014 restructuring program costs higher raw material costs impact current prioryear divestitures critical accounting estimates prepare condensed consolidated financial statements conformity us gaap preparation financial statements requires use estimates judgments assumptions affect reported amounts assets liabilities date financial statements reported amounts revenues expenses periods presented actual results could differ estimates assumptions note 1 summary significant accounting policies consolidated financial statements includes summary significant accounting policies used prepare consolidated financial statements discussed selection disclosure critical accounting policies estimates audit committee following review significant assumptions estimates goodwill nonamortizable intangible assets test goodwill nonamortizable intangible assets impairment annual basis fourth quarter assess goodwill impairment risk throughout year performing qualitative review entityspecific industry market general economic factors affecting reporting units goodwill annually may perform qualitative testing depending factors prioryear test results current year developments current risk evaluations practical considerations may elect quantitative testing instead quantitative impairment testing consists twostep evaluation first step compares reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using discounted cash flow method incorporates planned growth rates marketbased discount rates estimates residual value year reporting units europe north america segments used marketbased weightedaverage cost capital 69 discount projected cash flows operations latin america asia pacific eemea reporting units used riskrated discount rate 99 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value apply second step measure difference carrying value implied fair value goodwill carrying value goodwill exceeds implied fair value goodwill impaired carrying value reduced implied fair value goodwill january 1 2014 organizational change occurred within north america region country product category structure regional product category structure result north america region two instead four reporting units reporting units reorganized goodwill allocated new reporting unit structure based relative fair values related business units 2014 2013 2012 reporting units passed annual goodwill impairment testing expectations met specific valuation factors outside control discount rates change significantly estimated fair value reporting unit reporting units might decline lead goodwill impairment future test nonamortizable intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible assets significant potential impairment risk exists specific asset quantitatively test impairment comparing estimated fair value carrying value estimated fair value determined using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds estimated fair value asset impaired carrying value reduced estimated fair value 2014 review nonamortizable intangible assets recorded 57 million impairment charges related two trademarks cases impairments arose due lower expected product growth decisions made fourth quarter redirect support products regional brands recorded 48 million charge related biscuit trademark asia pacific segment 9 million charge related candy trademark europe segment impairment charges calculated excess carrying value estimated fair value intangible assets global basis recorded within asset impairment exit costs primarily use relief royalty valuation method utilizes estimates future sales growth rates royalty rates discount rates determining brand’s global fair value 2014 intangible asset impairment review also noted three brands 341 million aggregate book value december 31 2014 fair value excess book value 10 less intangible assets passed annual impairment testing believe current plans brands allow continue impaired expectations met specific valuation factors outside control discount rates change significantly brand brands could become impaired future refer also note 5 goodwill intangible assets additional information trade marketing programs promote products advertising marketing sales incentives trade promotions programs include limited cooperative advertising instore displays consumer promotions new product introduction fees discounts coupons rebates volumebased incentives expense advertising costs either period advertising first takes place incurred sales incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising expenses sales incentives charged operations percentage volume based estimated volume estimated program spending defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred employee benefit plans sponsor various employee benefit plans throughout world include primarily pension plans postretirement healthcare benefits accounting purposes estimate pension postretirement healthcare benefit obligations utilizing assumptions estimates discount rates expected returns plan assets expected compensation increases employeerelated factors turnover retirement age mortality 2014 applied new mortality tables accounting us pension plans health care cost trends review actuarial assumptions annual basis make modifications assumptions based current rates trends appropriate assumptions also reflect historical experiences management’s best judgment regarding future expectations assumptions affect annual expense obligations recognized underlying plans permitted us gaap generally amortize effect changes assumptions future periods cost benefit plan changes increasing decreasing benefits prior employee service prior service cost deferred included expense straightline basis average remaining service period employees expected receive benefits since pension postretirement liabilities measured discounted basis discount rate significantly affects plan obligations expenses expected return plan assets assumption affects pension plan expenses since many pension plans partially funded assumptions discount rates expected rates return process setting assumptions described note 10 benefit plans consolidated financial statements anticipate changes 2015 assumptions us nonus pension postretirement health care plans sensitivity measure fiftybasis point change discount rates expected rate return plan assets would following effects increase decrease annual benefit plan costs income taxes global company calculate provide income taxes tax jurisdiction operate provision income taxes includes amounts payable refundable current year effect deferred taxes impacts uncertain tax positions provision income taxes significantly affected shifts geographic mix pretax earnings across tax jurisdictions changes tax laws regulations tax planning opportunities available tax jurisdiction ultimate outcome various tax audits deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement tax bases assets liabilities operating losses tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates apply taxable income years differences expected recovered settled valuation allowances established deferred tax assets likely tax benefit realized recognize tax benefits financial statements uncertain tax positions likely tax position sustained examination tax authorities based technical merits position amount recognize measured largest benefit greater 50 percent likelihood realized upon settlement evaluate uncertain tax positions ongoing basis adjust related tax liabilities assets light changing facts circumstances progress tax audit expiration statute limitations believe estimates assumptions used support evaluation uncertain tax positions reasonable however final determination historical tax liabilities either settlement tax authorities expiration statutes limitations could materially different estimates reflected consolidated balance sheet historical income tax provisions outcome final determinations could material effect provision income taxes net earnings cash flows period determination made believe tax positions comply applicable tax laws adequately accounted uncertain tax positions taxes provided undistributed foreign earnings planned indefinitely reinvested future events material changes longterm investment requirements necessitate earnings distributed additional provision taxes may apply could materially affect future effective tax rate see note 15 income taxes additional information effective tax rate current deferred taxes valuation allowances unrecognized tax benefits contingencies see note 11 commitments contingencies consolidated financial statements new accounting guidance see note 1 summary significant accounting policies consolidated financial statements discussion new accounting standards commodity trends regularly monitor worldwide supply commodity cost currency trends costeffectively secure ingredients packaging fuel required production 2014 primary drivers increase aggregate commodity costs increased cocoa dairy packaging energy coffee bean costs higher currencyrelated costs commodity purchases partially offset lower costs sugar grains oils due primarily hedging number external factors weather conditions commodity market conditions currency fluctuations effects governmental agricultural programs affect cost availability raw materials agricultural materials used products address higher commodity costs currency impacts primarily hedging higher pricing manufacturing overhead cost control use hedging techniques limit impact fluctuations cost principal raw materials however may able fully hedge commodity cost changes hedging strategies may protect us increases specific raw material costs generally also price protect gross profit dollars due competitive market conditions planned trade promotional incentives factors pricing actions may lag commodity cost changes temporarily expect price volatility slightly higher aggregate cost environment continue 2015 costs principal raw materials fluctuate believe continue adequate supply raw materials use generally remain available numerous sources liquidity capital resources believe cash operations 45 billion revolving credit facility authorized longterm financing provide sufficient liquidity working capital needs planned capital expenditures future contractual obligations share repurchases payment anticipated quarterly dividends expect maintain investment grade credit ratings debt continue utilize commercial paper program primarily uncommitted international credit lines longterm debt issuances regular funding requirements also use intercompany loans international subsidiaries improve financial flexibility overall expect negative effects funding sources would material effect liquidity including indefinite reinvestment earnings outside united states venezuela consider undistributed earnings indefinitely reinvested access cash 278 million venezuela limited due uncertain economic political environment expect limitation material adverse effect liquidity refer note 1 summary significant accounting policies currency translation highly inflationary accounting additional information cash flow activity kraft foods group inc discontinued operation divested october 1 2012 included within consolidated cash flow results periods prior october 1 2012 net cash provided operating activities operating activities provided net cash 3562 million 2014 6410 million 2013 3923 million 2012 decrease operating cash flows 2014 relative 2013 primarily related receipt 26 billion net cash resolution starbucks arbitration 2013 higher related income taxes paid 2014 lower relative working capital cash improvements 2013 decreased cash conversion cycle metric measures working capital efficiency utilizes days sales outstanding days inventory hand days payables outstanding 10 days 2014 compared 13 day reduction 2013 yearoveryear decreases partially offset lower interest payments 2014 following debt refinancing first quarter 2014 fourth quarter 2013 increase operating cash flows 2013 relative 2012 primarily related receipt 26 billion starbucks arbitration resolution lower spending spinoff costs 20122014 restructuring program lengthening days payables outstanding increased collection receivables lower interest payments net cash used investing activities net cash used investing activities 1642 million 2014 1483 million 2013 1687 million 2012 increase net cash used investing activities 2014 relates lower cash inflows 2014 offset higher capital expenditures 2014 2013 received higher cash proceeds property sales net proceeds divestitures cash kraft foods group inc connection spinoff partially offset cash paid acquisition morocco decrease net cash used investing activities 2013 relative 2012 related payments made kraft foods group inc 2012 connection spinoff partially offset cash paid acquisition morocco lower proceeds divestitures 2013 capital expenditures 1642 million 2014 1622 million 2013 1610 million 2012 2014 capital expenditures funded operating activities made primarily modernize manufacturing facilities support new product productivity initiatives expect 2015 capital expenditures 18 billion including capital expenditures required investments systems 20142018 restructuring program expect continue fund expenditures operations net cash used provided financing activities net cash used provided financing activities 2688 million used 2014 6687 million used 2013 204 million provided 2012 decrease net cash used financing activities 2014 relative 2013 primarily due significantly lower longterm debt repayments lower share repurchases 2014 offset part decreased proceeds issuance longterm debt shortterm borrowings higher dividend payments 2014 decrease net cash provided financing activities 2013 relative 2012 primarily due lower net proceeds issuance longterm debt higher repayment longterm debt repurchases common stock partially offset lower dividend payments reflecting new capital structure dividend rate following spinoff higher shortterm borrowings debt time refinance longterm shortterm debt nature amount longterm shortterm debt proportionate amount varies result current expected business requirements market conditions factors generally first second quarters year working capital requirements grow increasing need shortterm financing third fourth quarters year typically generate higher cash flows may issue commercial paper secure forms financing throughout year meet shortterm working capital needs february 2014 board directors approved 5 billion longterm financing authority remains available december 31 2014 next 12 months 1513 million longterm debt mature follows 1029 million march 2015 400 million 484 million december 31 2014 june 2015 expect fund repayments cash operations issuance commercial paper additional debt total debt 167 billion december 31 2014 171 billion december 31 2013 debttocapitalization ratio 038 december 31 2014 035 december 31 2013 december 31 2014 weightedaverage term outstanding longterm debt 77 years average daily commercial borrowings 19 billion 2014 10 billion 2013 10 billion 2012 expect continue comply longterm debt covenants refer note 8 debt borrowing arrangements information debt covenants equity dividends stock plans see note 12 stock plans consolidated financial statements information stock plans grant activity 2014 2013 2012 stock award modifications related spinoff share repurchases see note 13 capital stock consolidated financial statements information share repurchase accelerated share repurchase programs intend continue use portion cash share repurchases current board directors’ authorization repurchase 77 billion common stock december 31 2016 repurchased 46 billion 19 billion 2014 27 billion 2013 shares 31 billion share repurchase capacity remaining number shares ultimately repurchase share repurchase program may vary depending numerous factors including share price market conditions ongoing capital allocation planning levels cash debt balances demands cash acquisition activity general economic business conditions board management discretion additionally share repurchase activity particular period may fluctuate may accelerate suspend delay discontinue share repurchase program time without notice dividends paid dividends 964 million 2014 943 million 2013 2058 million 2012 immediately following spinoff kraft foods group inc october 1 2012 annual dividend rate changed 052 per common share august 6 2013 audit committee authorization board directors approved 8 increase quarterly dividend 014 per common share 056 per common share annual basis august 5 2014 audit committee authorization board directors approved 7 increase quarterly dividend 015 per common share 060 per common share annual basis declaration dividends subject discretion board directors depends various factors including net earnings financial condition cash requirements future prospects factors board directors deems relevant analysis decision making offbalance sheet arrangements aggregate contractual obligations significant offbalance sheet arrangements contractual obligations discussed guarantees discussed note 11 commitments contingencies enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2014 material thirdparty guarantees recorded consolidated balance sheet addition december 31 2014 contingently liable 743 million guarantees related performance include letters credit guarantees related payment custom duties taxes guarantees expect material effect liquidity aggregate contractual obligations following table summarizes contractual obligations december 31 2014 1 amounts include expected cash payments longterm debt excluding capital leases presented separately table amounts also exclude 10 million net unamortized noncash bond premiums discounts marktomarket adjustments related interest rate swaps recorded total debt 2 amounts represent expected cash payments interest expense longterm debt interest calculated euro british pound sterling notes forecasted using currency exchange rates december 31 2014 insignificant amount interest expense excluded table portion nonus debt obligations due complexities involved forecasting expected interest payments 3 operating lease payments represent minimum rental commitments noncancelable operating leases 4 purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 5 longterm liabilities include estimated future benefit payments postretirement health care plans december 31 2024 203 million unable reliably estimate timing payments beyond 2024 excluded table also another 280 million various longterm liabilities expected paid next 5 years addition following longterm liabilities included consolidated balance sheet excluded table accrued pension costs income taxes insurance accruals unable reliably estimate timing payments contributions beyond 2015 case accrued pension costs items currently expect make approximately 529 million contributions pension plans 2015 also expect net pension cost increase approximately 321 million 2015 increase primarily due lower discount rates offset favorable beginning year asset levels planned contributions december 31 2014 total liability income taxes including uncertain tax positions associated accrued interest penalties 1041 million currently estimate payments approximately 133 million related positions next 12 months nongaap financial measures use nongaap financial information believe useful investors provides additional information facilitate comparisons historical operating results identify trends underlying operating results provide additional transparency evaluate business use certain nongaap financial measures budget make operating strategic decisions evaluate performance disclose nongaap financial measures financial data use assist making comparisons historical operating results analyzing underlying performance nongaap financial measures reflect evaluate current prioryear operating results new events circumstances arise definitions could change time • “organic net revenue” defined net revenues excluding impact acquisitions divestitures including businesses sale agreements exits major product lines sale licensing agreement integration program costs accounting calendar changes currency rate fluctuations • “adjusted operating income” defined operating income excluding impact spinoff costs pension costs related obligations transferred spinoff 20122014 restructuring program 20142018 restructuring program integration program acquisition integration costs remeasurement net monetary assets venezuela benefit cadbury acquisitionrelated indemnification resolution incremental costs associated jde coffee transactions impairment charges related goodwill intangible assets gains losses divestitures acquisitions acquisitionrelated costs operating results divestitures including businesses sale agreements exits major product lines sale licensing agreement also evaluate growth adjusted operating income constant currency basis • “adjusted eps” defined diluted eps attributable mondelēz international continuing operations excluding impact spinoff costs pension costs related obligations transferred spinoff 20122014 restructuring program 20142018 restructuring program integration program acquisition integration costs remeasurement net monetary assets venezuela net benefit cadbury acquisitionrelated indemnification resolution losses debt extinguishment related expenses residual tax benefit impact resolution starbucks arbitration hedging gains losses incremental costs associated jde coffee transactions impairment charges related goodwill intangible assets gains losses divestitures acquisitions acquisitionrelated costs net earnings divestitures including businesses sale agreements exits major product lines sale licensing agreement including interest expense adjustment related spinoff transaction also evaluate growth adjusted eps constant currency basis believe presentation nongaap financial measures considered together us gaap financial measures reconciliations corresponding us gaap financial measures provides complete understanding factors trends affecting business could obtained absent disclosures nongaap financial measures may vary among companies nongaap financial measures presented report may comparable similarly titled measures used companies use nongaap financial measures meant considered isolation substitute us gaap financial measure limitation nongaap financial measures exclude items detailed impact us gaap reported results best way limitation addressed evaluating nongaap financial measures combination us gaap reported results carefully evaluating following tables reconcile us gaap reported figures nongaap financial measures form 10k organic net revenue applying definition “organic net revenue” adjustments made “net revenues” comparable us gaap financial measure exclude impact currency divestitures accounting calendar change 2013 acquisitions believe organic net revenue better reflects underlying growth ongoing activities business provides improved comparability results 1 amount measured prioryear 2012 currency exchange rates adjusted operating income applying definition “adjusted operating income” adjustments made “operating income” comparable us gaap financial measure exclude spinoff costs 2012 pension costs related obligations transferred spinoff 20122014 restructuring program costs 20142018 restructuring program costs integration program acquisition integration costs benefit cadbury acquisitionrelated indemnification resolution remeasurement net monetary assets venezuela impairment charges related intangible assets incremental costs associated jde coffee transactions net gains acquisition divestitures acquisitionrelated costs operating income divestitures also evaluate adjusted operating income constant currency basis believe measures provide improved comparability operating results adjusted eps applying definition “adjusted eps” adjustments made “diluted eps attributable mondelēz international” comparable us gaap financial measure exclude spinoff costs 2012 pension costs related obligations transferred spinoff 20122014 restructuring program costs 20142018 restructuring program costs integration program acquisition integration costs net benefit cadbury acquisitionrelated indemnification resolution residual tax benefit impact resolution starbucks arbitration losses debt extinguishment related expenses remeasurement net monetary assets venezuela impairment charges related intangible assets hedging gains losses incremental costs associated jde coffee transactions net gains acquisition divestitures acquisitionrelated costs net earnings divestitures including 2012 interest expense adjustment related spinoff transaction also evaluate adjusted eps constant currency basis believe adjusted eps provides improved comparability operating results item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis contains forwardlooking statements read conjunction sections annual report form 10k including consolidated financial statements related notes contained item 8 “forwardlooking statements” “risk factors” contained item 1a description company manufacture market primarily snack food products including biscuits cookies crackers salted snacks chocolate gum candy various cheese grocery products well powdered beverage products operations 80 countries sell products approximately 165 countries aim deliver strong profitable longterm growth accelerating core snacks business expanding reach power brands globally leveraging power brands innovation platforms plan innovate boldly connect consumers wherever including new markets around world using traditional digital channels consumer consumption patterns change accessible frequent betterforyou snacking enhancing goodness many brands including providing simpler wholesome ingredientfocused snacks expanding wellbeing offerings portfolio inspiring consumers snack mindfully providing clear simple nutrition information shopping expands online also working grow ecommerce platform online presence consumers fuel investments working optimize cost structure efforts include reinventing supply chain including adding upgrading efficient production lines reducing complexity product offerings ingredients number suppliers also continue aggressively manage overhead costs embraced embedded zerobased budgeting practices across organization identify potential areas cost reductions capture sustain savings within ongoing operating budgets actions we’re leveraging brands platforms capabilities drive longterm value return investment shareholders coffee business transactions jde coffee business transactions july 2 2015 completed transactions combine wholly owned coffee businesses demb create new company jde time equity interest jde 435 remaining 565 held subsidiary acorn holdings bv “ahbv” owner demb prior july 2 2015 connection transactions 2015 recorded final pretax gain 68 billion 66 billion aftertax deconsolidation legacy coffee businesses also recorded approximately 10 billion cumulative pretax net gains 436 million 2015 628 million 2014 cash related currency hedging connection expected cash consideration received euros received 38 billion cash 42 billion july 2 2015 cash hedging currency effectively received 52 billion cash july 5 2016 also received jde expected 275 million cash payment settle receivable tax formation costs part initial sales price part final sales price negotiations also retained right collect future cash payments certain estimated pension liabilities realized agreed amount future may recognize additional income related negotiated term future described following march 2016 exchange jde shares investment keurig stockbased compensation activity jde 2016 december 31 2016 equity interest jde 264 recorded equity earnings 100 million 2016 equity losses 58 million 2015 related investment jde june 30 2016 entered agreements ahbv affiliates establish new stockbased compensation arrangement tied issuance jde equity compensation awards jde employees arrangement replaced temporary equity compensation program tied issuance ahbv equity compensation jde employees new class c e jde shares authorized issued investments made jde employees issue shares jde awards vest new shares jde issued class b ownership interests jde decrease arrangements dilution jde shares limited 2 based estimated award achievement expect jde ownership interest decrease 2627 following stockbased compensation issuances ownership interest jde 264 december 31 2016 see note 2 divestitures acquisitions additional details jde coffee business transactions keurig transaction march 3 2016 subsidiary ahbv completed 139 billion acquisition outstanding common stock keurig merger transaction march 7 2016 exchanged subsidiary ahbv portion equity interest jde carrying value 17 billion approximately 20 billion march 7 2016 interest keurig fair value 20 billion based merger consideration per share keurig recorded difference fair value keurig basis jde shares 43 million gain equity method investment exchange following exchange ownership interest jde became 265 owned 242 interest keurig ahbv hold investments keurig combination equity shareholder loan interests prorata ownership initial 20 billion investment keurig includes 16 billion keurig equity interest 04 billion shareholder loan receivable reported combined basis within equity method investments consolidated balance sheet december 31 2016 shareholder loan 55 interest rate payable end sevenyear term february 27 2023 within equity earnings recorded equity earnings 77 million interest income shareholder loan 20 million 2016 additionally received 14 million interest payments shareholder loan 4 million dividends investment keurig 2016 see note 2 divestitures acquisitions additional details keurig transaction coffee business equity earnings reflected results historical coffee businesses equity earnings jde keurig dongsuh foods corporation “dsf” results continuing operations coffee category continues significant part net earnings business strategy going forward historically coffee businesses income equity method investments recorded within operating income businesses part base business retain ongoing interest coffee equity method investments including jde keurig dsf significant influence equity method investments control operations directly third quarter 2015 began recognize equity method investment earnings consisting primarily investments coffee businesses outside operating income periods prior third quarter 2015 historical coffee business equity method investment earnings included within operating income see note 2 divestitures acquisitions information venezuela deconsolidation effective close 2015 fiscal year concluded longer met accounting criteria consolidation venezuelan subsidiaries due loss control venezuelan operations otherthantemporary lack currency exchangeability time deconsolidated changed cost method accounting venezuelan operations recorded 778 million pretax loss december 31 2015 reduced value cost method investment venezuela venezuelan receivables held subsidiaries realizable fair value resulting full impairment recorded loss also included historical cumulative translation adjustments related venezuelan operations previously recorded accumulated comprehensive losses within equity start 2016 longer include net revenues earnings net assets venezuelan subsidiaries within consolidated financial statements reported gaap results exclude venezuela nongaap results historical periods presented cost method accounting earnings recognized extent cash received distributed cash venezuela operations 2016 given current ongoing difficult economic regulatory business environment venezuela continues significant uncertainty related operations venezuela expect conditions continue foreseeable future monitor extent ability control venezuelan operations liquidity availability cash us dollars needed operate venezuela current situation venezuela may change time lead consolidation future date see discussion analysis historical results items affecting comparability financial results note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information historical venezuelan operating results including remeasurement losses loss deconsolidation summary results • net revenues decreased 125 259 billion 2016 decreased 135 296 billion 2015 net revenues 2016 significantly affected deconsolidation historical coffee business unfavorable currency translation us dollar strengthened currencies operate compared exchange rates prior year deconsolidation historical venezuelan operations yearoveryear impact accounting calendar change 2015 • organic net revenue increased 13 271 billion 2016 increased 14 301 billion 2015 recasting prior years exclude historical venezuela deconsolidated operating results historical operating results small 2016 divestiture latin america region organic net revenue also excludes impact historical global coffee business deconsolidated jde coffee business transactions july 2015 organic net revenue nongaap financial measure constant currency basis use organic net revenue provides improved yearoveryear comparability underlying results see definition organic net revenue reconciliation net revenues within nongaap financial measures appearing later section • diluted eps attributable mondelēz international decreased 764 105 2016 increased 2469 444 2015 gain coffee business deconsolidation significant items affected comparability reported results described discussion analysis historical results appearing later section notes consolidated financial statements • adjusted eps increased 198 194 2016 decreased 64 162 2015 recasting prior years exclude historical venezuela deconsolidated operating results historical operating results small 2016 divestiture latin america region historical marktomarket impacts constant currency basis adjusted eps increased 241 201 2016 increased 98 190 2015 adjusted eps adjusted eps constant currency basis nongaap financial measures use measures provide improved yearoveryear comparability underlying results see definition adjusted eps reconciliation diluted eps within nongaap financial measures appearing later section financial outlook seek achieve profitable longterm growth manage business attain goal using key operating metrics organic net revenue adjusted operating income adjusted eps use nongaap financial metrics related computations margins internally evaluate manage business plan make near longterm operating strategic decisions believe metrics useful investors provide supplemental information addition us gaap financial results believe providing investors financial information use internally ensures investors data make comparisons historical operating results identify trends underlying operating results gain additional insight transparency evaluate business believe nongaap financial measures always considered relation gaap results provided reconciliations gaap nongaap financial measures nongaap financial measures appears later section addition monitoring key operating metrics monitor number developments trends could impact revenue profitability objectives longterm demographics consumer trends snack food consumption highly correlated gdp growth urbanization population rising discretionary income levels associated growing middle class particularly emerging markets longterm expect trends continue leading growth consumer behaviors migration frequent smaller meals snacks greater use convenience foods near term low gdp growth economic recessionary pressures weak consumer confidence strong us dollar changing consumer trends slowed category net revenue growth recognize factors changing consumer trends increasing emphasis wellbeing time compression growing income disparity digital revolution evolving retail landscape investing wellbeing snacks portfolio product marketing innovation new routes market including ecommerce position future growth demand monitor consumer spending market share within food beverage categories sell products growth global categories excluding venezuela decreased approximately 34 2015 24 2016 longterm expect category growth improve macroeconomic environment improves continue make investments brand portfolio build strong routes market address needs consumers emerging developed markets anticipate driving demand categories growing position markets volatility global markets growth strategy depends part ability expand operations particularly emerging markets greater political economic volatility vulnerability infrastructure labor disruptions sensitivity world oil energy prices noted past year markets including brazil russia india china ukraine middle east nigeria volatility markets affects demand costs products requires frequent changes operate business expect continued volatility across markets particularly emerging markets focused investing global power brands routes market protect margins management costs pricing competition operate highly competitive markets include global regional local competitors advantaged geographic footprint operating scale portfolio brands significantly contributed building marketleading positions across product categories sell grow maintain market positions focus meeting consumer needs preferences new product innovations product quality also continue optimize manufacturing operations invest brands ongoing research development advertising marketing consumer promotions pricing adjust product prices based number variables including demand competitive environment changes product input costs net revenue growth profitability may affected adjust prices address new conditions 2015 2016 generally increased prices response higher commodity costs currency market factors 2017 anticipate adjust prices response changing market conditions price competition delayed price increases competitors customers may continue affect net revenues market share near term market adjusts changes input costs market conditions operating costs operating costs include raw materials labor selling general administrative expenses taxes currency impacts financing costs manage costs cost saving productivity initiatives sourcing hedging programs pricing actions refinancing tax planning also continue work programs expand profitability margins 20142018 restructuring program designed bring significant reductions operating cost structure supply chain overhead costs also integrated eemea business europe asia pacific segments effective october 1 2016 expect change favorable impact operating performance prospectively due greater leverage european amea regional businesses resulting cost structure also began renegotiate collective bargaining agreements covering eight us facilities expired february 2016 continue work toward reaching new agreement plans ensure business continuity renegotiations currency global company 756 net revenues generated outside united states exposed changes global economic conditions currency movements last three years us dollar generally strengthened relative currencies operate several countries experienced significant declines devaluations currency movements significant negative effect reported results operations 2016 net revenues 259 billion 125 2015 including negative 46 percentage point impact currency translation 2015 net revenues 296 billion 135 2014 including negative 126 percentage point impact currency translation 120 percentage point impact excluding currency impacts related venezuela 2014 net revenues 342 billion 30 2013 including negative 52 percentage point impact currency translation 39 percentage point impact excluding currency impacts related venezuela historically exposed currency devaluation risks impacting earnings particularly connection venezuela operations deconsolidated close 2015 fiscal year months following brexit significant volatility global stock markets currency exchange rates affecting markets conduct business value british pound sterling relative us dollar declined significantly volatility exchange rate expected brexit transition period devaluation british pound sterling negatively affected translated results reported us dollars partially offset translation certain overseas operations including united kingdom net investment hedges form local currency denominated debt generally hedge currency translation primarily seek hedge economic losses crosscurrency transactions due limited markets hedging currency transactions factors may able effectively hedge crosscurrency transaction risks local economies monetary policies currency hedging availability affect ability hedge currencyrelated economic losses work mitigate exposure currency risks factors continued global local market volatility actions foreign governments political uncertainty limited hedging opportunities factors could lead unfavorable currency impacts future continue monitor work safeguard business brexit could adversely affect future demand products financial results operations relationships customers suppliers employees short longterm may able fully offset increased risks related brexit could impact profitability nearterm longer conditions continue see note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela united kingdom related information financing costs regularly evaluate variable fixedrate debt continue use lowercost short longterm debt finance ongoing working capital expenditures investments dividends share repurchases 2016 retired 62 billion longterm debt related costs issued lowercost longterm euro swiss franc us dollardenominated debt weightedaverage interest rate total debt december 31 2016 22 37 december 31 2015 43 december 31 2014 refer note 7 debt borrowing arrangements additional debt activity 2017 discussion analysis historical results items affecting comparability financial results following table includes significant income expense items affected comparability pretax results operations effective tax rates please refer notes consolidated financial statements indicated information refer also consolidated results operations net earnings per share attributable mondelēz international table aftertax per share impacts items 1 lock expected us dollar value cash received euros upon closing jde coffee business transactions entered currency exchange forward contracts beginning may 2014 transaction announced recognized related currency hedging net gains 436 million 2015 628 million 2014 see note 2 divestitures acquisitions information jde coffee business transactions related hedging transactions 2 gain equity method investment exchange recorded outside pretax operating results consolidated statement earnings relates aftertax equity method investments 3 excludes impact remeasurement losses 20142018 restructuring program charges shown separately 4 unrealized gains losses commodity forecasted currency transaction derivatives 2015 2014 amounts exclude coffee commodity currency derivative impacts included within coffee operating results throughout following sections consolidated results operations following discussion compares consolidated results operations 2016 2015 2014 2016 compared 2015 net revenues net revenues decreased 3713 million 125 25923 million 2016 organic net revenue 1 increased 360 million 13 27067 million power brands net revenues decreased 118 primarily due deconsolidation historical coffee business unfavorable currency deconsolidation historical venezuelan operations power brands organic net revenue increased 28 emerging markets net revenues decreased 191 primarily due deconsolidation historical venezuelan operations unfavorable currency deconsolidation historical coffee business emerging markets organic net revenue increased 27 underlying changes net revenues organic net revenue detailed 1 includes historical global coffee business prior july 2 2015 jde coffee business transactions refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 2 includes historical results venezuelan subsidiaries including venezuela currency impacts prior december 31 2015 deconsolidation refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information 3 please see nongaap financial measures section end item net revenue decline 125 driven impact deconsolidation historical coffee business unfavorable currency deconsolidation historical venezuelan operations yearoveryear impact 2015 accounting calendar change partially offset underlying organic net revenue growth 13 impact acquisitions adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 1627 million 2016 unfavorable currency impacts decreased net revenues 1244 million due primarily strength us dollar relative several currencies including argentinean peso british pound sterling mexican peso brazilian real chinese yuan russian ruble deconsolidation historical venezuelan operations resulted yearoveryear decrease net revenues 1217 million 2016 north america segment accounting calendar change 2015 resulted yearoveryear decrease net revenues 76 million 2016 underlying organic net revenue growth driven higher net pricing partially offset unfavorable volume mix net pricing includes benefit carryover pricing 2015 well effects input costdriven pricing actions taken 2016 higher net pricing reflected latin america amea partially offset lower net pricing europe north america unfavorable volume mix reflected latin america amea mostly offset favorable volume mix europe north america unfavorable volume mix latin america amea largely due price elasticity well strategic decisions exit certain lowmargin product lines impact acquisitions primarily includes july 15 2015 acquisition biscuit operation vietnam added 71 million incremental net revenues 2016 november 2 2016 purchase license manufacture market sell cadburybranded biscuits additional key markets added 16 million incremental net revenues 2016 operating income operating income decreased 6328 million 711 2569 million 2016 adjusted operating income 1 increased 463 million 133 3953 million adjusted operating income constant currency basis 1 increased 639 million 183 4129 million due following 1 refer nongaap financial measures section end item 2 refer note 6 restructuring programs information 20142018 restructuring program 20122014 restructuring program 3 includes historical results venezuelan subsidiaries prior december 31 2015 deconsolidation refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information deconsolidation remeasurement loss 2015 4 refer note 2 divestitures acquisitions information jde coffee business transactions 5 includes historical global coffee business prior july 2 2015 deconsolidation reclassified results historical coffee business adjusted operating income included equity method investment earnings adjusted eps facilitate comparisons past future coffee operating results refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 6 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting jde earnings began record earnings equity method investments equity method investment earnings outside operating income periods prior july 2 2015 reclassified equity method earnings adjusted operating income evaluate operating results consistent basis 7 refer note 2 divestitures acquisitions information april 23 2015 divestiture ajinomoto general foods “agf” december 1 2016 sale confectionery business costa rica divestiture agf generated pretax gain 13 million aftertax loss 9 million 2015 sale confectionery business costa rica generated pretax aftertax gain 9 million 2016 8 refer note 2 divestitures acquisitions note 5 goodwill intangible assets information impairment charges recorded 2016 2015 related trademarks 9 refer note 2 divestitures acquisitions information 2016 purchase license manufacture market sell cadburybranded biscuits additional key markets 2016 intangible asset sale finland 2015 acquisitions biscuit operation vietnam enjoy life foods property sales 2016 10 refer note 8 financial instruments note 16 segment reporting nongaap financial measures appearing later section information unrealized gains losses commodity forecasted currency transaction derivatives 11 refer note 1 summary significant accounting policies accounting calendar change information accounting calendar change 2015 12 includes costs incurred accrued related planned sale confectionery business france refer note 2 divestitures acquisitions information 2016 realized higher net pricing input costs increased modestly higher net pricing included carryover impact pricing actions taken 2015 reflected latin america amea partially offset lower net pricing europe north america increase input costs driven higher raw material costs part due higher currency exchange transaction costs imported materials partially offset lower manufacturing costs due productivity unfavorable volume mix driven latin america amea mostly offset favorable volume mix europe north america total selling general administrative expenses decreased 1037 million 2015 due number factors noted table including part deconsolidation historical coffee business favorable currency impact lower costs associated jde coffee business transactions deconsolidation venezuelan operations gains sales property vatrelated settlements absence devaluation charges related net monetary assets venezuela 2016 decreases partially offset increases divestiturerelated costs associated planned sale confectionery business france reclassification equity method investment earnings higher implementation costs incurred 20142018 restructuring program impact acquisitions excluding factors noted selling general administrative expenses decreased 322 million 2015 decrease driven primarily lower overhead costs due continued cost reduction efforts recorded benefit 54 million 2016 vatrelated settlements latin america compared 30 million 2015 unfavorable currency impacts decreased operating income 176 million due primarily strength us dollar relative currencies including british pound sterling argentinean peso mexican peso excluding portion related deconsolidating historical coffee business change marktomarket gains losses derivatives decreased operating income 150 million 2016 net unrealized losses commodity forecasted currency transaction derivatives 94 million compared net unrealized gains 56 million 96 million including coffee related activity 2015 operating income margin decreased 300 2015 99 2016 decrease operating income margin driven primarily last year’s pretax gain jde coffee business transactions deconsolidation historical coffee business deconsolidation venezuelan operations unfavorable yearoveryear change marktomarket gains losses derivatives higher costs incurred 20142018 restructuring program divestiturerelated costs associated planned sale confectionery business france higher intangible asset impairment charges reclassification equity method earnings items decreased operating income margin partially offset prioryear loss venezuela deconsolidation increase adjusted operating income margin absence costs associated jde coffee business transactions adjusted operating income margin increased 130 2015 153 2016 increase adjusted operating income margin driven primarily lower overheads cost reduction programs improved gross margin reflecting productivity efforts gains sales property vatrelated settlements net earnings per share attributable mondelēz international net earnings attributable mondelēz international 1659 million decreased 5608 million 772 2016 diluted eps attributable mondelēz international 105 2016 339 764 2015 adjusted eps 1 194 2016 032 198 2015 adjusted eps constant currency basis 1 201 2016 039 241 2015 1 refer nongaap financial measures section appearing later section 2 refer note 6 restructuring programs information 20142018 restructuring program 20122014 restructuring program 3 includes historical results venezuelan subsidiaries prior december 31 2015 deconsolidation refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information deconsolidation remeasurement loss 2015 4 refer note 2 divestitures acquisitions information jde coffee business transactions net gains 436 million first nine months 2015 currency hedges related jde coffee business transactions recorded interest expense net included income costs associated jde coffee business transactions 001 table 5 refer note 2 divestitures acquisitions information april 23 2015 divestiture agf december 1 2016 sale confectionery business costa rica divestiture agf generated pretax gain 13 million aftertax loss 9 million 2015 sale confectionery business costa rica generated pretax aftertax gain 9 million 2016 6 refer note 2 divestitures acquisitions note 5 goodwill intangible assets information impairment charges recorded 2016 2015 related trademarks 7 refer note 2 divestitures acquisitions information 2016 purchase license manufacture market sell cadburybranded biscuits additional key markets 2016 intangible asset sale finland 2015 acquisitions biscuit operation vietnam enjoy life foods property sales 2016 8 refer note 8 financial instruments note 16 segment reporting nongaap financial measures appearing later section information unrealized gains losses commodity forecasted currency transaction derivatives 9 refer note 7 debt borrowing arrangements information loss debt extinguishment related expenses connection debt tender offers 10 refer note 8 financial instruments information interest rate swaps longer designate cash flow hedges three months ended march 31 2016 2015 due changes financing hedging plans 11 includes proportionate share unusual infrequent items acquisition divestiturerelated costs restructuring program costs recorded jde keurig equity method investees 12 includes historical global coffee business prior july 2 2015 deconsolidation reclassified results historical coffee business adjusted operating income included equity method investment earnings adjusted eps facilitate comparisons past future coffee operating results refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 13 refer note 1 summary significant accounting policies information accounting calendar change 2015 14 excludes favorable currency impact interest expense related nonus dollardenominated debt included currency translation 15 refer note 10 stock plans information equity compensation programs note 11 capital stock information share repurchase program note 15 earnings per share earnings per share weightedaverage share information 16 refer note 14 income taxes information change income taxes effective tax rate 17 includes costs incurred accrued related planned sale confectionery business france refer note 2 divestitures acquisitions information 2015 compared 2014 net revenues net revenues decreased 4608 million 135 29636 million 2015 organic net revenue 1 increased 407 million 14 30105 million power brands net revenues decreased 126 primarily due unfavorable currency deconsolidation historical coffee business power brands organic net revenue increased 33 emerging markets net revenues decreased 106 primarily due unfavorable currency deconsolidation historical coffee business emerging markets organic net revenue increased 48 underlying changes net revenues organic net revenue detailed 1 includes historical global coffee business prior july 2 2015 coffee business transactions refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 2 includes historical results venezuelan subsidiaries including venezuela currency impacts prior december 31 2015 deconsolidation refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information 3 please see nongaap financial measures section end item net revenue decline 135 driven unfavorable currency impact deconsolidation historical coffee business partially offset historical results venezuelan operations underlying organic net revenue growth 14 impact acquisitions impact accounting calendar change unfavorable currency impacts decreased net revenues 3565 million due primarily strength us dollar relative several currencies including euro brazilian real russian ruble australian dollar british pound sterling adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 2149 million 2015 historical results venezuelan subsidiaries prior december 31 2015 deconsolidation contributed yearover year increase net revenues 457 million 2015 organic net revenue growth driven higher net pricing partially offset unfavorable volume mix net pricing realized effects input costdriven pricing actions taken year higher net pricing reflected across segments unfavorable volume mix largely due price elasticity well strategic decisions exit certain lowmargin product lines unfavorable volume mix reflected segments except north america july 2015 acquisition biscuit operation vietnam added 128 million incremental net revenues constant currency basis year february 2015 acquisition enjoy life foods snack food business north america added 37 million incremental net revenues year north america segment accounting calendar change resulted yearoveryear increase net revenues 78 million year operating income operating income increased 5655 million 1744 8897 million 2015 adjusted operating income 1 decreased 65 million 18 3490 million adjusted operating income constant currency basis 1 increased 388 million 109 3943 million due following 1 refer nongaap financial measures section end item 2 refer note 2 divestitures acquisitions information spinoff costs incurred 2014 following 2012 kraft foods group divestiture 3 refer note 6 restructuring programs information 20142018 restructuring program 20122014 restructuring program 4 refer note 1 summary significant accounting policies information loss deconsolidation venezuela 2015 remeasurements net monetary assets venezuela 2015 2014 accounting calendar change 2015 5 refer note 2 divestitures acquisitions information coffee business transactions 6 includes historical global coffee business prior july 2 2015 divestiture reclassified results historical coffee business adjusted operating income included equity method investment earnings adjusted eps facilitate comparisons past future coffee operating results refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 7 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting jde earnings began record earnings equity method investments aftertax equity method investment earnings outside operating income periods prior july 2 2015 reclassified equity method earnings adjusted operating income evaluate operating results consistent basis 8 refer note 2 divestitures acquisitions information april 23 2015 divestiture agf december 1 2016 sale confectionery business costa rica divestiture agf generated pretax gain 13 million aftertax loss 9 million 2015 sale confectionery business costa rica generated pretax aftertax gain 9 million 2016 9 refer note 5 goodwill intangible assets information impairment charges recorded 2015 2014 related trademarks 10 refer note 7 integration program cost savings initiatives consolidated financial statements form 10k year ended december 31 2015 information integration costs 2015 2014 11 refer note 2 divestitures acquisitions information acquisitions biscuit operation vietnam enjoy life foods 12 refer note 8 financial instruments note 16 segment reporting nongaap financial measures appearing later section information unrealized gains losses commodity forecasted currency transaction derivatives 2015 higher net pricing outpaced increased input costs higher net pricing due inputcost driven pricing actions taken year reflected across segments increase input costs driven higher raw material costs part due higher currency exchange transaction costs imported materials partially offset lower manufacturing costs unfavorable volume mix reflected across segments total selling general administrative expenses decreased 880 million 2014 due number factors noted table including part favorable currency impact adjustment deconsolidating historical coffee business lower devaluation charges related net monetary assets venezuela absence 20122014 restructuring program costs decreases partially offset increases higher costs incurred 20142018 restructuring program costs associated coffee business transactions lower valueadded tax “vat”related settlements reclassification equity method investment earnings impact acquisitions gain sale property 2014 excluding factors noted selling general administrative expenses increased 321 million 2014 increase driven primarily higher advertising consumer promotions support particularly behind power brands recorded benefit 30 million 2015 vatrelated settlements latin america compared 84 million 2014 unfavorable currency impacts decreased operating income 453 million due primarily strength us dollar relative currencies including euro brazilian real british pound sterling australian dollar russian ruble excluding portion related deconsolidating historical coffee business change unrealized gains losses increased operating income 129 million 2015 net unrealized gains currency commodity hedging activity 56 million 96 million including coffee related activity compared net unrealized losses 73 million 112 million including coffee related activity 2014 related currency commodity hedging activity operating income margin increased 95 2014 300 2015 increase operating income margin driven primarily pretax gain coffee business transactions increase adjusted operating income margin absence 20122014 restructuring program costs favorable yearoveryear change marktomarket gains losses derivatives lower devaluation charges related net monetary assets venezuela items increased operating income margin partially offset loss deconsolidation venezuela higher costs incurred 20142018 restructuring program costs associated coffee business transactions adjusted operating income margin increased 120 2014 130 2015 increase adjusted operating income margin driven primarily improved gross margin reflecting productivity efforts improved overhead leverage cost reduction programs partially offset increased advertising consumer promotions support net earnings per share attributable mondelēz international net earnings attributable mondelēz international 7267 million increased 5083 million 2327 2015 diluted eps attributable mondelēz international 444 2015 316 2469 2014 adjusted eps 1 162 2015 011 64 2014 adjusted eps constant currency basis 1 190 2015 017 98 2014 1 refer nongaap financial measures section appearing later section 2 refer note 2 divestitures acquisitions information spinoff costs incurred 2014 following 2012 kraft foods group divestiture 3 refer note 6 restructuring programs information 20142018 restructuring program 20122014 restructuring program 4 refer note 1 summary significant accounting policies information loss deconsolidation venezuela 2015 remeasurements net monetary assets venezuela 2015 2014 accounting calendar change 2015 5 refer note 2 divestitures acquisitions information coffee business transactions net gains 436 million 2015 628 million 2014 currency hedges related coffee business transactions recorded interest expense net included income costs associated coffee business transactions 001 2015 019 2014 6 includes divestiture agf closed april 23 2015 december 1 2016 sale confectionery business costa rica include deconsolidation coffee businesses divestiture agf generated pretax gain 13 million aftertax loss 9 million 2015 sale confectionery business costa rica generated pretax aftertax gain 9 million 2016 refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 7 refer note 5 goodwill intangible assets information impairment charges recorded 2015 2014 related trademarks 8 refer note 7 integration program cost savings initiatives consolidated financial statements form 10k year ended december 31 2015 information integration costs 2015 2014 9 refer note 2 divestitures acquisitions information acquisitions biscuit operation vietnam enjoy life foods 10 refer note 8 financial instruments note 16 segment reporting nongaap financial measures appearing later section information unrealized gains losses commodity forecasted currency transaction derivatives 11 refer note 7 debt borrowing arrangements information loss debt extinguishment related expenses connection debt tender offers 12 includes historical global coffee business prior july 2 2015 deconsolidation reclassified results historical coffee business adjusted operating income included equity method investment earnings adjusted eps facilitate comparisons past future coffee operating results refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 13 excludes favorable currency impact interest expense related nonus dollardenominated debt included currency translation 14 refer note 10 stock plans information equity compensation programs share repurchase program note 15 earnings per share earnings per share weightedaverage share information 15 refer note 14 income taxes information change income taxes effective tax rate 16 refer note 8 financial instruments information interest rate swaps longer designate cash flow hedges three months ended march 31 2015 due change financing hedging plans 17 includes proportionate share unusual infrequent items acquisition divestiturerelated costs restructuring program costs recorded jde equity method investee results operations reportable segment operations management structure organized four reportable operating segments • latin america • amea • europe • north america october 1 2016 integrated eemea operating segment europe asia pacific operating segments leverage optimize operating scale built within europe asia pacific regions russia ukraine turkey belarus georgia kazakhstan combined within europe operating segment remaining middle east african countries combined within asia pacific region form new amea regional operating segment reflected segment change occurred periods presented manage operations region leverage regional operating scale manage different changing business environments effectively pursue growth opportunities arise key markets regional management teams responsibility business product categories financial results regions historically recorded income equity method investments within operating income investments part base business beginning third quarter 2015 align accounting new coffee equity method investment jde began record earnings equity method investments equity method investment earnings outside segment operating income six months ended december 31 2015 aftertax equity method investment net earnings less 1 million combined basis earnings equity method investments july 2 2015 recorded within segment operating income 52 million amea 4 million north america year ended december 31 2014 earnings 104 million amea 9 million north america see note 1 summary significant accounting policies principles consolidation note 2 divestitures acquisitions additional information 2015 also began report stockbased compensation corporate employees within general corporate expenses reported within north america region reclassified 32 million corporate stockbased compensation expense 2015 north america segment general corporate expenses use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends see note 16 segment reporting additional information segments items affecting comparability financial results earlier section items affecting segment operating results segment net revenues earnings revised reflect new segment structure periods 1 net revenues 1217 million 2015 760 million 2014 venezuelan subsidiaries included consolidated financial statements beginning 2016 account venezuelan subsidiaries using cost method accounting longer include net revenues venezuelan subsidiaries within consolidated financial statements refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information 2 july 2 2015 contributed global coffee businesses primarily europe amea segments net revenues global coffee business 1561 million europe 66 million amea year ended december 31 2015 refer note 2 divestitures acquisitions jde coffee business transactions information latin america 2016 compared 2015 net revenues decreased 1596 million 320 due deconsolidation venezuelan operations 219 pp unfavorable currency 148 pp unfavorable volume mix 53 pp impact divestiture 01 pp partially offset higher net pricing 101 pp deconsolidation venezuelan operations resulted yearoveryear decrease net revenues 1217 million unfavorable currency impacts due primarily strength us dollar relative currencies region including argentinean peso mexican peso unfavorable volume mix primarily occurred brazil argentina largely due impact pricingrelated elasticity well strategic decisions exit certain lowmargin product lines unfavorable volume mix driven declines categories except cheese grocery higher net pricing reflected across categories driven primarily argentina brazil mexico segment operating income decreased 214 million 441 primarily due higher raw material costs deconsolidation venezuelan operations unfavorable volume mix unfavorable currency unfavorable items partially offset higher net pricing lower selling general administrative expenses including higher yearover year vatrelated settlements lower manufacturing costs lower advertising consumer promotion costs lower costs incurred 20142018 restructuring program absence remeasurement losses 2016 related net monetary assets venezuela 2015 compared 2014 net revenues decreased 165 million 32 due unfavorable currency 210 pp unfavorable volume mix 51 pp adjustment deconsolidating historical coffee business 01 pp partially offset higher net pricing 120 pp favorable historical results venezuelan subsidiaries prior december 31 2015 deconsolidation 110 pp unfavorable currency impacts due primarily strength us dollar relative currencies region including brazilian real mexican peso argentinean peso unfavorable volume mix largely due impact pricingrelated elasticity well strategic decisions exit certain lowmargin product lines unfavorable volume mix driven declines chocolate refreshment beverages cheese grocery partially offset gains biscuits gum candy adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 5 million higher net pricing reflected across categories unfavorable volume mix higher net pricing driven primarily brazil argentina segment operating income increased 10 million 21 primarily due higher net pricing higher remeasurement losses 2014 related net monetary assets venezuela favorable historical results venezuelan subsidiaries prior december 31 2015 deconsolidation lower manufacturing costs absence 20122014 restructuring program costs favorable items partially offset higher raw material costs unfavorable currency higher advertising consumer promotion costs higher selling general administrative expenses including lower yearoveryear vatrelated settlements unfavorable volume mix higher costs incurred 20142018 restructuring program intangible asset impairment charge 2015 related biscuit trademark amea 2016 compared 2015 net revenues decreased 186 million 31 due unfavorable currency 37 pp adjustment deconsolidating historical coffee business 11 pp unfavorable volume mix 10 pp partially offset higher net pricing 15 pp impact acquisition 12 pp unfavorable currency impacts due primarily strength us dollar relative currencies region including chinese yuan indian rupee south african rand egyptian pound nigerian naira australian dollar philippine peso partially offset strength japanese yen relative us dollar adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 66 million unfavorable volume mix including unfavorable impact strategic decisions exit certain lowmargin product lines driven declines candy cheese grocery refreshment beverages chocolate partially offset gains biscuits gum higher net pricing driven chocolate candy biscuits refreshment beverages partially offset lower net pricing cheese grocery gum acquisition biscuit operation vietnam july 2015 added net revenues 71 million constant currency basis segment operating income increased 117 million 301 primarily due lower manufacturing costs higher net pricing lower selling general administrative expenses lower costs incurred 20142018 restructuring program absence costs associated coffee business transactions impact vietnam acquisition lower advertising consumer promotion costs favorable items partially offset higher raw material costs reclassification equity method investment earnings unfavorable volume mix unfavorable currency deconsolidation historical coffee business impact divestitures 2015 compared 2014 net revenues decreased 365 million 57 due unfavorable currency 88 pp unfavorable volume mix 25 pp adjustment deconsolidating historical coffee business 06 pp partially offset higher net pricing 42 pp impact acquisition 20 pp unfavorable currency impacts due primarily strength us dollar relative currencies region including australian dollar south african rand indian rupee japanese yen nigerian naira chinese yuan egyptian pound unfavorable volume mix due largely impact pricingrelated elasticity well strategic decisions exit certain lowmargin product lines unfavorable volume mix driven declines categories except biscuits gum adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 49 million higher net pricing reflected across categories acquisition biscuit operation vietnam july 2015 added net revenues 128 million constant currency basis segment operating income decreased 141 million 266 primarily due higher raw material costs higher costs incurred 20142018 restructuring program higher advertising consumer promotion costs unfavorable currency higher selling general administrative expenses including phaseout local tax incentive program reclassification equity method investment earnings unfavorable volume mix adjustment deconsolidating historical coffee business costs associated coffee business transactions higher acquisitionrelated integration costs unfavorable items partially offset higher net pricing lower manufacturing costs absence 20122014 restructuring program costs impact vietnam acquisition lower intangible asset impairment charges related candy biscuit trademarks 2015 biscuit trademark 2014 europe 2016 compared 2015 net revenues decreased 1917 million 164 due adjustment deconsolidating historical coffee business 129 pp unfavorable currency 43 pp lower net pricing 04 pp partially offset favorable volume mix 11 pp impact acquisition 01 pp adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 1561 million unfavorable currency impacts reflected strength us dollar currencies region primarily british pound sterling lower net pricing reflected across categories except gum refreshment beverages favorable volume mix including unfavorable impact strategic decisions exit certain lowmargin product lines driven biscuits chocolate cheese grocery partially offset declines gum refreshment beverages candy purchase license manufacture market sell cadburybranded biscuits november 2016 added net revenues 16 million constant currency basis segment operating income decreased 83 million 61 primarily due deconsolidation historical coffee business unfavorable currency higher raw material costs divestiturerelated costs higher costs incurred 20142018 restructuring program lower net pricing higher intangible asset impairment charges unfavorable items partially offset absence costs associated jde coffee business transactions lower manufacturing costs lower selling general administrative expenses favorable volume mix 2015 compared 2014 net revenues decreased 4116 million 261 due unfavorable currency 162 pp adjustment deconsolidating historical coffee business 94 pp unfavorable volume mix 33 pp partially offset higher net pricing 28 pp unfavorable currency impacts primarily reflected strength us dollar currencies region including euro british pound sterling adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 2095 million unfavorable volume mix largely due impact pricingrelated elasticity well strategic decisions exit certain lowmargin product lines unfavorable volume mix driven declines chocolate gum refreshment beverages cheese grocery partially offset gains biscuits higher net pricing driven chocolate gum candy partially offset lower net pricing cheese grocery refreshment beverages segment operating income decreased 602 million 308 primarily due adjustment deconsolidating historical coffee business unfavorable currency higher raw material costs higher costs incurred 20142018 restructuring program costs associated coffee business transactions unfavorable volume mix higher advertising consumer promotion costs higher intangible asset impairment charges related candy trademark unfavorable items partially offset higher net pricing lower manufacturing costs absence 20122014 restructuring program costs lower selling general administrative expenses net unfavorable yearoveryear impact 2014 gain sale property united kingdom north america 2016 compared 2015 net revenues decreased 14 million 02 due impact accounting calendar change made prior year 11 pp unfavorable currency 03 pp lower net pricing 02 pp partially offset favorable volumemix 14 pp prioryear change north america’s accounting calendar resulted yearoveryear decrease net revenues 76 million unfavorable currency impact due strength us dollar relative canadian dollar lower net pricing reflected biscuits partially offset higher net pricing chocolate gum candy favorable volume mix including unfavorable impact strategic decisions exit certain lowmargin product lines driven gains biscuits candy partially offset declines gum chocolate segment operating income decreased 27 million 24 primarily due higher costs incurred 20142018 restructuring program higher advertising consumer promotion costs intangible asset impairment charges yearoveryear impact prioryear accounting calendar change higher raw material costs lower net pricing unfavorable items mostly offset lower selling general administrative expenses including gain sale property lower manufacturing costs favorable volumemix gain sale intangible asset 2015 compared 2014 net revenues increased 38 million 05 due accounting calendar change 12 pp acquisition 05 pp favorable volume mix 05 pp higher net pricing 03 pp partially offset unfavorable currency 20 pp change north america’s accounting calendar added net revenues 78 million constant currency basis acquisition enjoy life foods snack food business february 2015 added net revenues 37 million favorable volume mix driven gains biscuits candy partially offset declines gum chocolate higher net pricing reflected gum chocolate partially offset lower net pricing biscuits candy unfavorable currency impact due strength us dollar relative canadian dollar segment operating income increased 183 million 198 primarily due absence 20122014 restructuring program costs lower manufacturing costs lower selling general administrative expenses including reclassification corporate stockbased compensation impact accounting calendar change higher net pricing lower raw material costs favorable items partially offset higher costs incurred 20142018 restructuring program unfavorable currency higher advertising consumer promotion costs unfavorable volume mix reclassification equity method investment earnings critical accounting estimates prepare consolidated financial statements conformity us gaap preparation financial statements requires use estimates judgments assumptions affect reported amounts assets liabilities date financial statements reported amounts revenues expenses periods presented actual results could differ estimates assumptions note 1 summary significant accounting policies consolidated financial statements includes summary significant accounting policies used prepare consolidated financial statements discussed selection disclosure critical accounting policies estimates audit committee following review significant assumptions estimates goodwill nonamortizable intangible assets test goodwill nonamortizable intangible assets impairment annual basis october 1 assess goodwill impairment risk throughout year performing qualitative review entityspecific industry market general economic factors affecting goodwill reporting units review operating segment reporting unit structure goodwill testing annually significant changes organization occur annually may perform qualitative testing depending factors prioryear test results current year developments current risk evaluations practical considerations may elect quantitative testing instead quantitative impairment testing consists twostep evaluation first step compares reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using discounted cash flow method incorporates planned growth rates marketbased discount rates estimates residual value year europe north america reporting units used marketbased weightedaverage cost capital 67 discount projected cash flows operations latin america amea reporting units used riskrated discount rate 97 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value would apply second step measure difference carrying value implied fair value goodwill carrying value goodwill exceeds implied fair value goodwill impaired carrying value reduced implied fair value goodwill october 1 2016 integrated eemea operating segment europe asia pacific operating segments result eemea goodwill 13 billion reallocated new reporting units based relative fair value eemea component businesses moved europe asia pacific segments goodwill segment december 31 2016 reflects results reallocation december 31 2015 goodwill segment information recast reflect october 1 2016 reallocation goodwill july 2 2015 deconsolidated global coffee businesses europe amea segments goodwill deconsolidated impacted reporting units based relative fair values coffee remaining businesses intangible assets contributed coffee business transactions specifically identified deconsolidated total goodwill 1664 million intangible assets less 1 million third quarter 2015 refer note 2 divestitures acquisitions jde coffee business transactions information 2016 2015 2014 impairments goodwill connection 2016 annual impairment testing reporting units sufficient fair value excess carrying value reporting units passed annual impairment testing planned business performance expectations met specific valuation factors outside control discount rates change significantly estimated fair values reporting unit reporting units might decline lead goodwill impairment future annually assess nonamortizable intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible assets significant potential impairment risk exists specific asset quantitatively test impairment comparing estimated fair value carrying value determine estimated fair value using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds estimated fair value asset impaired carrying value reduced estimated fair value 2016 annual testing nonamortizable intangible assets recorded 98 million impairment charges related five trademarks impairments arose due lower expected product growth part driven decisions redirect support trademarks regional global brands well slowdowns local economies recorded charges related biscuits candy gum trademarks 41 million amea 32 million north america 22 million europe 3 million latin america impairment charges calculated excess carrying value estimated fair value intangible assets global basis recorded within asset impairment exit costs primarily use relief royalty valuation method utilizes estimates future sales growth rates royalty rates discount rates determining brand’s global fair value 2016 intangible asset impairment review noted nine brands including five impaired trademarks 630 million aggregate book value december 31 2016 fair value excess book value 10 less four intangible assets passed annual impairment testing believe current plans brands allow continue impaired planned business performance expectations met specific valuation factors outside control discount rates change significantly brand brands could become impaired future 2015 recorded charge related candy biscuit trademarks 44 million amea segment 22 million europe 5 million latin america additionally connection deconsolidation venezuelan operations december 31 2015 recorded 12 million impairment charges within loss deconsolidation venezuela related biscuit trademark 2014 recorded 48 million charge related biscuit trademark amea segment 9 million charge related candy trademark europe segment refer note 5 goodwill intangible assets additional information trade marketing programs promote products advertising marketing sales incentives trade promotions programs include limited cooperative advertising instore displays consumer promotions new product introduction fees discounts coupons rebates volumebased incentives expense advertising costs either period advertising first takes place incurred sales incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising expenses sales incentives charged operations percentage volume based estimated volume estimated program spending defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred employee benefit plans sponsor various employee benefit plans throughout world include primarily pension plans postretirement healthcare benefits accounting purposes estimate pension postretirement healthcare benefit obligations utilizing assumptions estimates discount rates expected returns plan assets expected compensation increases employeerelated factors turnover retirement age mortality health care cost trends review actuarial assumptions annual basis make modifications assumptions based current rates trends appropriate assumptions also reflect historical experiences management’s best judgment regarding future expectations assumptions affect annual expense obligations recognized underlying plans permitted us gaap generally amortize effect changes assumptions future periods cost benefit plan changes increasing decreasing benefits prior employee service prior service cost deferred included expense straightline basis average remaining service period employees expected receive benefits since pension postretirement liabilities measured discounted basis discount rate significantly affects plan obligations expenses expected return plan assets assumption affects pension plan expenses many pension plans partially funded assumptions discount rates expected rates return process setting assumptions described note 9 benefit plans consolidated financial statements anticipate changes 2017 assumptions us nonus pension postretirement health care plans sensitivity measure fiftybasis point change discount rates expected rate return plan assets would following effects increase decrease annual benefit plan costs income taxes global company calculate provide income taxes tax jurisdiction operate provision income taxes includes amounts payable refundable current year effect deferred taxes impacts uncertain tax positions provision income taxes significantly affected shifts geographic mix pretax earnings across tax jurisdictions changes tax laws regulations tax planning opportunities available tax jurisdiction ultimate outcome various tax audits deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement tax bases assets liabilities operating losses tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates apply taxable income years differences expected recovered settled valuation allowances established deferred tax assets likely tax benefit realized believe tax positions comply applicable tax laws properly accounted uncertain tax positions recognize tax benefits financial statements uncertain tax positions likely tax position sustained examination tax authorities based technical merits position amount recognize measured largest benefit greater 50 percent likelihood realized upon settlement evaluate uncertain tax positions ongoing basis adjust amount recognized light changing facts circumstances progress tax audit expiration statute limitations believe estimates assumptions used support evaluation uncertain tax positions reasonable however final determination historical tax liabilities either settlement tax authorities due expiration statutes limitations could materially different estimates reflected consolidated balance sheet historical income tax provisions outcome final determinations could material effect provision income taxes net earnings cash flows period determination made taxes provided undistributed foreign earnings planned indefinitely reinvested future events material changes longterm investment requirements necessitate earnings distributed additional provision taxes may apply could materially affect provision income taxes net earnings cash flows see note 14 income taxes additional information effective tax rate current deferred taxes valuation allowances unrecognized tax benefits contingencies see note 12 commitments contingencies consolidated financial statements new accounting guidance see note 1 summary significant accounting policies consolidated financial statements discussion new accounting standards liquidity capital resources believe cash operations 45 billion revolving credit facility authorized longterm financing provide sufficient liquidity working capital needs planned capital expenditures future contractual obligations share repurchases payment anticipated quarterly dividends continue utilize commercial paper program international credit lines longterm debt issuances regular funding requirements also use intercompany loans international subsidiaries improve financial flexibility earnings outside united states considered indefinitely reinvested material tax liability accrued december 31 2016 overall expect negative effects funding sources would material effect liquidity including indefinite reinvestment earnings outside united states net cash provided operating activities operating activities provided net cash 2838 million 2016 3728 million 2015 3562 million 2014 cash flows operating activities lower 2016 2015 due higher contributions pension benefit plans 2016 higher working capital cash improvements 2015 2016 cash flows operating activities years favorably impacted working capital improvements primarily due continually decreasing cash conversion cycle metric measures working capital efficiency utilizes days sales outstanding days inventory hand days payables outstanding negative 28 days 2016 negative 12 days 2015 positive 10 days 2014 cash flows operating activities favorable 2015 relative 2014 primarily due higher relative working capital cash improvements 2014 significant tax payments 2014 related 26 billion starbucks arbitration award received late 2013 partially offset higher contributions pension benefit plans 2015 net cash provided used investing activities net cash used investing activities 1029 million 2016 net cash provided investing activities 2649 million 2015 net cash used investing activities 1642 million 2014 increase net cash used investing activities 2016 relative 2015 increase net cash provided investing activities 2015 relative 2014 primarily relate 47 billion proceeds net divested cash transaction costs contribution global coffee businesses divestiture agf cash receipt 10 billion due settlement currency exchange forward contracts related coffee business transactions 2015 increase net cash used investing activities 2016 relative 2015 partially offset lower capital expenditures 2016 290 million increase net cash provided investing activities 2015 relative 2014 also driven lower capital expenditures 2015 128 million partially offset 611 million reduction cash due venezuela deconsolidation 501 million contributed jde receivables 43 million cash payment fund capital increase jde 527 million payments acquire biscuit operation vietnam enjoy life foods snack food business 2015 capital expenditures 1224 million 2016 1514 million 2015 1642 million 2014 continue make capital expenditures primarily modernize manufacturing facilities support new product productivity initiatives expect 2017 capital expenditures 12 billion including capital expenditures connection 20142018 restructuring program expect continue fund expenditures operations net cash used financing activities net cash used financing activities 1862 million 2016 5883 million 2015 2688 million 2014 decrease net cash used financing activities 2016 relative 2015 primarily due higher net shortterm debt issuances 10 billion lower share repurchases following exceptional year share repurchases using proceeds global coffee business transactions 2015 increase net cash used financing activities 2015 relative 2014 primarily due higher repayments longterm debt 2015 including tender offers euro notes maturities 19 billion higher share repurchases higher net shortterm debt repayments partially offset higher proceeds received longterm note issuances debt time refinance longterm shortterm debt refer note 7 debt borrowing arrangements details tender offers debt issuances maturities 2016 2015 2014 nature amount longterm shortterm debt proportionate amount varies result current expected business requirements market conditions factors due seasonality first second quarters year working capital requirements grow increasing need shortterm financing third fourth quarters year typically generate higher cash flows may issue commercial paper secure forms financing throughout year meet shortterm working capital needs 2016 one subsidiaries mondelez international holdings netherlands bv “mihn” issued debt totaling 45 billion operations held mihn generated approximately 741 percent 192 billion 259 billion consolidated net revenue fiscal year 2016 represented approximately 817 percent 206 billion 252 billion net assets december 31 2016 february 3 2017 board directors approved new 5 billion longterm financing authority replace prior authority next 12 months expect 14 billion longterm debt mature follows 750 million 789 million december 31 2016 january 2017 fr175 million swiss franc notes 172 million december 31 2016 march 2017 488 million august 2017 expect fund repayments combination cash operations issuance commercial paper longterm debt total debt 172 billion december 31 2016 154 billion december 31 2015 debttocapitalization ratio 041 december 31 2016 035 december 31 2015 december 31 2016 weightedaverage term outstanding longterm debt 66 years average daily commercial borrowings 22 billion 2016 22 billion 2015 19 billion 2014 24 billion commercial paper borrowings outstanding december 31 2016 none outstanding december 31 2015 commercial paper interest rates continued favorable late 2016 bond maturity refinanced commercial paper december 2016 expect continue use commercial paper borrowings finance various short longterm financing needs expect continue use commercial paper finance various short longterm financing needs comply longterm debt covenants refer note 7 debt borrowing arrangements information debt covenants commodity trends regularly monitor worldwide supply commodity cost currency trends costeffectively secure ingredients packaging fuel required production 2016 primary drivers increase aggregate commodity costs higher currencyrelated costs commodity purchases increased costs packaging raw materials partially offset lower costs nuts dairy energy sugar grains oils cocoa number external factors weather conditions commodity market conditions currency fluctuations effects governmental agricultural programs affect cost availability raw materials agricultural materials used products address higher commodity costs currency impacts primarily hedging higher pricing manufacturing overhead cost control use hedging techniques limit impact fluctuations cost principal raw materials however may able fully hedge commodity cost changes hedging strategies may protect us increases specific raw material costs due competitive market conditions planned trade promotional incentives fluctuations currency exchange rates factors pricing actions may also lag commodity cost changes temporarily expect price volatility slightly higher aggregate cost environment continue 2017 costs principal raw materials fluctuate believe continue adequate supply raw materials use generally remain available numerous sources offbalance sheet arrangements aggregate contractual obligations significant offbalance sheet arrangements contractual obligations discussed guarantees discussed note 12 commitments contingencies enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2016 material thirdparty guarantees recorded consolidated balance sheet addition december 31 2016 contingently liable 758 million guarantees related performance include letters credit surety bonds guarantees related payment custom duties taxes guarantees expect material effect liquidity aggregate contractual obligations following table summarizes contractual obligations december 31 2016 1 amounts include expected cash payments debt excluding capital leases presented separately table amounts also exclude 69 million net unamortized noncash bond premiums discounts marktomarket adjustments related interest rate swaps recorded total debt 2 amounts represent expected cash payments interest expense longterm debt interest calculated euro british pound sterling swiss franc notes forecasted using currency exchange rates december 31 2016 insignificant amount interest expense excluded table portion nonus debt obligations due complexities involved forecasting expected interest payments 3 operating lease payments represent minimum rental commitments noncancelable operating leases 4 purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 5 longterm liabilities include estimated future benefit payments postretirement health care plans december 31 2026 195 million unable reliably estimate timing payments beyond 2026 excluded table also another 179 million various longterm liabilities expected paid next 5 years addition following longterm liabilities included consolidated balance sheet excluded table accrued pension costs income taxes insurance accruals unable reliably estimate timing payments contributions beyond 2017 case accrued pension costs items currently expect make approximately 468 million contributions pension plans 2017 december 31 2016 total liability income taxes including uncertain tax positions associated accrued interest penalties 899 million currently estimate payments approximately 232 million related positions next 12 months equity dividends stock plans see note 10 stock plans consolidated financial statements information stock plans grant activity 2016 2015 2014 share repurchases see note 11 capital stock consolidated financial statements information share repurchase accelerated share repurchase programs intend continue use portion cash share repurchases july 29 2015 finance committee authorization delegated board directors approved increase 60 billion share repurchase program raising authorization 137 billion common stock repurchases extended program december 31 2018 repurchased 108 billion shares 26 billion 2016 36 billion 2015 19 billion 2014 27 billion 2013 december 31 2016 number shares ultimately repurchase share repurchase program may vary depending numerous factors including share price market conditions ongoing capital allocation planning levels cash debt balances demands cash acquisition activity general economic business conditions board management discretion additionally share repurchase activity particular period may fluctuate may accelerate suspend delay discontinue share repurchase program time without notice dividends paid dividends 1094 million 2016 1008 million 2015 964 million 2014 july 19 2016 board directors approved 12 increase quarterly dividend 019 per common share 076 per common share annual basis july 23 2015 board directors approved 13 increase time quarterly dividend 017 per common share 068 per common share annual basis august 5 2014 audit committee authorization board directors approved 7 increase time quarterly dividend 015 per common share 060 per common share annual basis declaration dividends subject discretion board directors depends various factors including net earnings financial condition cash requirements future prospects factors board directors deems relevant analysis decision making us income tax purposes company calculated 100 distributions paid shareholders january 2016 characterized qualified dividend paid us earnings profits distributions company paid shareholders april july october characterized return capital shareholder extent shareholder’s tax basis shareholder sufficient tax basis distributions could result taxable gains shareholder shareholders consult tax advisors full understanding tax consequences receipt dividends including distributions excess us earnings profits nongaap financial measures use nongaap financial information believe useful investors provides additional information facilitate comparisons historical operating results identify trends underlying operating results provide additional insight transparency evaluate business use nongaap financial measures budget make operating strategic decisions evaluate performance detailed nongaap adjustments make nongaap definitions adjustments generally fall within following categories acquisition divestiture activities gains losses intangible asset sales noncash impairments major program restructuring activities constant currency related adjustments major program financing hedging activities major items affecting comparability operating results believe nongaap measures always considered along related us gaap financial measures provided reconciliations gaap nongaap financial measures also discuss underlying gaap results throughout management’s discussion analysis financial condition results operations form 10k primary nongaap financial measures listed reflect evaluate current prioryear operating results new events circumstances arise definitions could change definitions change provide updated definitions present related nongaap historical results comparable basis • “organic net revenue” defined net revenues excluding impacts acquisitions divestitures 1 historical global coffee business 2 historical venezuelan operations accounting calendar changes currency rate fluctuations 3 also evaluate organic net revenue growth emerging markets power brands • emerging markets include latin america region entirety amea region excluding australia new zealand japan following countries europe region russia ukraine turkey kazakhstan belarus georgia poland czech republic slovak republic hungary bulgaria romania baltics east adriatic countries • power brands include largest global regional brands oreo chips ahoy ritz tuc club social belvita biscuits cadbury dairy milk milka lacta chocolate trident gum hall’s candy tang powdered beverages • “adjusted operating income” defined operating income excluding impacts spinoff costs 4 20122014 restructuring program 5 20142018 restructuring program 5 venezuela remeasurement deconsolidation losses historical operating results gains losses including noncash impairment charges goodwill intangible assets divestiture 1 acquisition gains losses related integration acquisition costs jde coffee business transactions 2 gain net incremental costs operating results divestitures 1 historical global coffee business operating results 2 marktomarket impacts commodity forecasted currency transaction derivative contracts 6 equity method investment earnings historically reported within operating income 7 also present “adjusted operating income margin” subject adjustments adjusted operating income also evaluate growth adjusted operating income constant currency basis 3 • “adjusted eps” defined diluted eps attributable mondelēz international continuing operations excluding impacts spinoff costs 4 20122014 restructuring program 5 20142018 restructuring program 5 venezuela remeasurement deconsolidation losses historical operating results losses debt extinguishment related expenses gains losses including noncash impairment charges goodwill intangible assets divestiture 1 acquisition gains losses related integration acquisition costs jde coffee business transactions 2 gain transaction hedging gains losses net incremental costs gain equity method investment exchange net earnings divestitures 1 marktomarket impacts commodity forecasted currency transaction derivative contracts 6 gains losses interest rate swaps longer designated accounting cash flow hedges due changed financing hedging plans similarly within adjusted eps equity method investment net earnings exclude proportionate share investees’ unusual infrequent items 8 acquisition divestiturerelated costs restructuring program costs also evaluate growth adjusted eps constant currency basis 3 1 divestitures include completed sales businesses exits major product lines upon completion sale licensing agreement 2 connection jde coffee business transactions closed july 2 2015 exchanged coffee interests similarlysized coffee interests jde time transaction deconsolidated included historical global coffee business results within divestitures nongaap financial measures related management’s discussion analysis financial condition results operations continue ongoing interest coffee business include earnings jde keurig historical coffee business within continuing results operations within adjusted eps included earnings equity method investment earnings deconsolidated historical coffee business results organic net revenue adjusted operating income facilitate comparisons past future coffee operating results 3 constant currency operating results calculated dividing multiplying appropriate currentperiod local currency operating results currency exchange rates used translate financial statements comparable prioryear period determine currentperiod us dollar operating results would currency exchange rate changed comparable prioryear period 4 refer note 2 divestitures acquisitions spinoff kraft foods group consolidated financial statements information spinoff costs incurred connection october 1 2012 spinoff kraft foods group grocery business 5 nongaap adjustments related 20142018 restructuring program 20122014 restructuring program reflect costs incurred relate objectives program transform supply chain network organizational structure costs meet program objectives reflected nongaap adjustments 6 third quarter 2016 began exclude unrealized gains losses marktomarket impacts outstanding commodity forecasted currency transaction derivatives nongaap earnings measures time related exposures impact operating results since purchase commodity forecasted currency transaction contracts mitigate price volatility primarily inventory requirements future periods made adjustment remove volatility future inventory purchases current operating results facilitate comparisons underlying operating performance across periods also discontinued designating commodity forecasted currency transaction derivatives hedge accounting treatment facilitate comparisons underlying operating results recast historical nongaap earnings measures exclude marktomarket impacts 7 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 began record earnings equity method investments aftertax equity method investment earnings outside operating income following deconsolidation coffee business see note 1 summary significant accounting policies principles consolidation information periods prior july 2 2015 reclassified equity method earnings adjusted operating income aftertax equity method investment earnings within adjusted eps consistent deconsolidation coffee business results july 2 2015 order evaluate operating results consistent basis 8 excluded proportionate share equity method investees’ unusual infrequent items order provide investors comparable view performance across periods although shareholder rights board representation commensurate ownership interests equity method investees review underlying operating results unusual infrequent items reporting period direct control operations resulting revenue expenses use equity method investment net earnings adjusted basis intended imply control gaap “diluted eps attributable mondelēz international continuing operations” includes investees’ unusual infrequent items believe presentation nongaap financial measures considered together us gaap financial measures reconciliations corresponding us gaap financial measures provides complete understanding factors trends affecting business could obtained absent disclosures nongaap financial measures vary among companies nongaap financial measures presented report may comparable similarly titled measures used companies use nongaap financial measures meant considered isolation substitute us gaap financial measure limitation nongaap financial measures exclude items detailed impact us gaap reported results best way limitation addressed evaluating nongaap financial measures combination us gaap reported results carefully evaluating following tables reconcile us gaap reported figures nongaap financial measures form 10k organic net revenue applying definition “organic net revenue” adjustments made “net revenues” comparable us gaap financial measure exclude impact currency historical venezuelan operations adjustment deconsolidating historical coffee business accounting calendar change acquisitions divestiture believe organic net revenue reflects underlying growth ongoing activities business provides improved comparability results also evaluate organic net revenue growth emerging markets power brands underlying measures also reconciled us gaap 1 includes historical results venezuelan subsidiaries prior december 31 2015 deconsolidation refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information 2 includes historical global coffee business prior july 2 2015 jde coffee business transactions refer note 2 divestitures acquisitions nongaap definitions appearing earlier section information 3 year reevaluate power brands confirm brands continue make disproportionate investments may make changes planned investments primarily regional power brands following annual review cycles 2016 made limited changes list regional power brands reclassified 2015 2014 power brand net revenues basis consistent current list power brands adjusted operating income applying definition “adjusted operating income” adjustments made “operating income” comparable us gaap financial measure exclude spinoff costs 20122014 restructuring program costs 20142018 restructuring program costs venezuela historical operating results remeasurement deconsolidation losses jde coffee business transactions gain net incremental costs operating income historical coffee business equity method investment earnings reclassified aftertax earnings q3 2015 connection coffee business transactions operating results agf divestiture pretax gains agf costa rica confectionery business divestitures divestiturerelated costs incurred planned sale confectionery business france gain sale intangible asset impairment charges related intangible assets integration program acquisition integration costs acquisitionrelated costs marktomarket impacts commodity forecasted currency transaction derivative contracts also present “adjusted operating income margin” subject adjustments adjusted operating income evaluate adjusted operating income constant currency basis believe measures provide improved comparability underlying operating results 1 refer note 6 restructuring programs information 20142018 restructuring program 20122014 restructuring program 2 includes historical results venezuelan subsidiaries prior december 31 2015 deconsolidation refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information deconsolidation remeasurement loss 2015 3 refer note 2 divestitures acquisitions information jde coffee business transactions 4 includes historical global coffee business prior july 2 2015 deconsolidation reclassified results historical coffee business adjusted operating income included equity method investment earnings adjusted eps facilitate comparisons past future coffee operating results refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 5 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting jde earnings began record earnings equity method investments equity method investment earnings outside operating income periods prior july 2 2015 reclassified equity method earnings adjusted operating income evaluate operating results consistent basis 6 refer note 2 divestitures acquisitions information december 1 2016 divestiture confectionery business costa rica april 23 2015 divestiture agf divestiture costa rica confectionery business generated pretax gain 9 million 2016 divestiture agf generated pretax gain 13 million aftertax loss 9 million 2015 7 includes costs incurred related planned sale confectionery business france refer note 2 divestitures acquisitions information 8 refer note 2 divestitures acquisitions information 2016 intangible asset sale finland 2015 acquisitions biscuit operation vietnam enjoy life foods property sales 2016 9 refer note 2 divestitures acquisitions note 5 goodwill intangible assets information impairment charges recorded 2016 2015 2014 related trademarks 10 refer note 8 financial instruments note 16 segment reporting nongaap financial measures appearing later section information unrealized gains losses commodity forecasted currency transaction derivatives 11 refer note 2 divestitures acquisitions information spinoff costs incurred 2014 following 2012 kraft foods group divestiture adjusted eps applying definition “adjusted eps” 1 adjustments made “diluted eps attributable mondelēz international” comparable us gaap financial measure exclude spinoff costs 20122014 restructuring program costs 20142018 restructuring program costs venezuela historical operating results deconsolidation remeasurement losses jde coffee business transactions gain hedging gains incremental costs net earnings agf divestiture aftertax gain costa rica confectionery business divestiture aftertax loss agf divestiture divestiturerelated costs incurred planned sale confectionery business france gain sale intangible asset impairment charges related intangible assets acquisition integration costs acquisitionrelated costs marktomarket impacts commodity forecasted currency transaction derivative contracts loss debt extinguishment related expenses losses interest rate swaps longer designated accounting cash flow hedges due changed financing hedging plans gain equity method investment exchange proportionate share unusual infrequent items recorded jde keurig equity method investees also evaluate adjusted eps constant currency basis believe adjusted eps provides improved comparability underlying operating results 1 tax expense benefit pretax items excluded gaap results computed based facts tax assumptions associated item impacts also excluded adjusted eps • year ended december 31 2016 taxes 20142018 restructuring program costs 288 million intangible asset impairment charges 37 million gain sale intangible asset 3 million acquisition integration costs zero gain equity method investment exchange 2 million divestiturerelated costs 15 million loss debt extinguishment related costs 163 million loss related interest rate swaps 36 million marktomarket gains losses derivatives 11 million • year ended december 31 2015 taxes 20142018 restructuring program costs 262 million income costs associated jde coffee business transactions 145 million net earnings venezuelan subsidiaries 107 million gain jde coffee business transactions 183 million intangible asset impairment charges 13 million net earnings divestitures 33 million loss debt extinguishment related costs 275 million loss related interest rate swaps 13 million marktomarket gains losses derivatives 15 million • year ended december 31 2014 taxes spinoff costs 13 million 20122014 restructuring program costs 107 million 20142018 restructuring program costs 101 million net earnings venezuelan subsidiaries 90 million remeasurement net monetary assets venezuela 16 million income costs associated jde coffee business transactions 219 million intangible asset impairment charges 18 million loss debt extinguishment related costs 188 million marktomarket gains losses derivatives 23 million 2 refer note 2 divestitures acquisitions information jde coffee business transactions net gains 436 million 2015 628 million 2014 currency hedges related jde coffee business transactions recorded interest expense net included income costs associated jde coffee business transactions 001 table 3 refer note 2 divestitures acquisitions information april 23 2015 divestiture agf december 1 2016 sale confectionery business costa rica divestiture agf generated pretax gain 13 million aftertax loss 9 million 2015 sale confectionery business costa rica generated pretax aftertax gain 9 million 2016 4 includes costs incurred related planned sale confectionery business france refer note 2 divestitures acquisitions information 5 refer note 2 divestitures acquisitions information 2016 acquisition interest keurig 6 includes proportionate share unusual infrequent items acquisition divestiturerelated costs restructuring program costs recorded jde keurig equity method investees item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis contains forwardlooking statements read conjunction sections annual report form 10k including consolidated financial statements related notes contained item 8 forwardlooking statements item 1a risk factors description company manufacture market primarily snack food products including biscuits cookies crackers salted snacks chocolate gum candy various cheese grocery products well powdered beverage products operations 80 countries sell products approximately 160 countries aim deliver strong profitable longterm growth accelerating core snacks business expanding reach power brands globally fuel investments power brands global digital reach working optimize cost structure efforts include reinventing supply chain operations aggressively managing overhead costs actions we’re leveraging brands platforms capabilities drive longterm value return investment shareholders us tax reform december 22 2017 united states enacted tax reform legislation included broad range business tax provisions including limited reduction us federal tax rate 35 21 well provisions limit eliminate various deductions credits legislation also causes us allocated expenses eg interest general administrative expenses taxed imposes new tax us crossborder payments furthermore legislation includes onetime transition tax accumulated foreign earnings profits response enactment us tax reform sec issued guidance address complexity accounting new legislation initial accounting items new legislation incomplete guidance allows us recognize provisional amounts reasonable estimates made continue apply prior tax law reasonable estimate impact cannot made sec provided oneyear window companies finalize accounting impacts new legislation anticipate finalizing accounting 2018 accounting new us tax legislation complete made reasonable estimates provisions recognized 59 million discrete net tax benefit 2017 financial statements net benefit primarily comprised 1311 million provisional deferred tax benefit revaluing net us deferred tax liabilities reflect new us corporate tax rate well additional 61 million provisional deferred tax benefit related changes indefinite reinvestment assertion partially offset 1317 million provisional charge estimated transition tax however date form 10k continuing evaluate accounting impacts legislation continue assemble analyze information required prepare analyze effects await additional guidance us treasury department irs standardsetting bodies additionally continue analyze information regulatory guidance accordingly may record additional provisional amounts adjustments provisional amounts future periods see note 14 income taxes details impacts us tax reform malware incident june 27 2017 global malware incident impacted business malware affected significant portion global sales distribution financial networks last four days second quarter third quarter executed business continuity contingency plans contain impact minimize damages restore systems environment date found expect find instances company personal data released externally restored main operating systems processes well enhanced system security 2017 estimate loss revenue result malware incident negative impact 04 net revenue organic net revenue growth also incurred incremental expenses 84 million predominantly second half 2017 part recovery effort believe recovery incident largely resolved expect significant ongoing impacts incremental expenses incident future periods also continue make progress efforts strengthen security measures mitigate cybersecurity risk refer risk factors section discussion potential risks operations cybersecurity threats coffee business transactions jde coffee business transactions july 2 2015 completed transactions combine wholly owned coffee businesses de master blenders 1753 bv create new company jacob douwe egberts “jde” connection transactions 2015 recorded final pretax gain 68 billion 66 billion aftertax deconsolidation legacy coffee businesses also recorded approximately 10 billion cumulative pretax net gains 436 million 2015 628 million 2014 cash related currency hedging see note 2 divestitures acquisitionsjde coffee business transactions additional details described march 2016 exchanged portion investment jde investment keurig green mountain inc “keurig” december 31 2017 hold 265 voting interest 264 ownership interest 262 profit dividend sharing interest jde recorded jde equity earnings 129 million 2017 100 million 2016 equity losses 58 million 2015 also recorded 49 million cash dividends received first quarter 2017 keurig transaction following march 3 2016 acorn holdings bv acquisition keurig march 7 2016 exchanged portion equity interest jde interest keurig valued 20 billion recorded difference fair value keurig interest basis jde shares 43 million gain following exchange ownership interest jde became 265 owned 242 interest keurig initial 20 billion investment keurig includes 16 billion keurig equity interest 04 billion shareholder loan receivable reported combined basis within equity method investments consolidated balance sheet shareholder loan 55 interest rate payable end sevenyear term february 27 2023 recorded keurig equity earnings 208 million 2017 approximately 119 million relates provisional tax benefit keurig recorded result us tax reform 77 million 2016 recorded shareholder loan interest 24 million 2017 20 million 2016 additionally received shareholder loan interest payments 30 million 2017 14 million 2016 dividends 14 million 2017 4 million 2016 see note 2 divestitures acquisitions additional details keurig transaction planned keurig dr pepper transaction january 29 2018 announced would exchange ownership interest keurig equity keurig dr pepper contingent upon successful completion planned merger keurig dr pepper snapple group inc following close merger mid2018 expect ownership keurig dr pepper 1314 expect account new investment equity method keurig resulting recognizing share earnings within earnings share dividends within cash flows right nominate two directors board keurig dr pepper certain governance rights keurig dr pepper following transaction venezuela deconsolidation effective close 2015 fiscal year deconsolidated venezuelan subsidiaries due loss control venezuelan operations otherthantemporary lack currency exchangeability recorded 778 million pretax loss december 31 2015 reduced value investment venezuela venezuelan receivables held subsidiaries realizable fair value resulting full impairment start 2016 longer included net revenues earnings net assets venezuelan subsidiaries within gaap consolidated financial statements excluded venezuela nongaap results historical periods presented facilitate comparisons operating results see note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information venezuela operations including currency remeasurement losses loss deconsolidation summary results • net revenues approximately 259 billion 2017 2016 decrease 01 2017 decrease 125 2016 business deconsolidations divestitures reduced net revenues 20152017 net revenues 2016 significantly affected deconsolidations historical coffee business venezuelan operations 2015 well significant unfavorable currency translation impacts 2016 2015 • organic net revenue increased 09 255 billion 2017 increased 15 264 billion 2016 organic net revenue constant currency basis excludes revenue deconsolidated coffee venezuelan operations divestitures acquisition use organic net revenue provides improved yearoveryear comparability underlying operating results see definition organic net revenue reconciliation net revenues within nongaap financial measures appearing later section • diluted eps attributable mondelēz international increased 819 191 2017 decreased 764 105 2016 diluted eps increased 2017 prioryear refinancing higher restructuring activities drove lower interest overhead costs 2017 also recorded benefits resolving two local indirect tax matters gains divesting noncore businesses 2017 diluted eps significantly lower 2016 primarily result 68 billion gain recorded 2015 connection jde coffee business transactions well number significant items affected comparability reported results see discussion analysis historical results appearing later section details • adjusted eps increased 151 214 2017 increased 216 186 2016 constant currency basis adjusted eps increased 145 213 2017 increased 255 192 2016 lower manufacturing costs overhead costs driven strong productivity efforts significant drivers adjusted eps growth years adjusted eps adjusted eps constant currency basis nongaap financial measures use measures provide improved yearoveryear comparability underlying results see definition adjusted eps reconciliation diluted eps within nongaap financial measures appearing later section financial outlook seek achieve profitable longterm growth manage business attain goal using key operating metrics organic net revenue adjusted operating income adjusted eps use nongaap financial metrics related computations margins internally evaluate manage business plan make nearand longterm operating strategic decisions believe metrics useful investors provide supplemental information addition us generally accepted accounting principles “us gaap” financial results believe providing investors financial information use internally ensures investors data make comparisons historical operating results identify trends underlying operating results gain additional insight transparency evaluate business believe nongaap financial measures always considered relation gaap results provided reconciliations gaap nongaap financial measures within nongaap financial measures appearing later section addition monitoring key operating metrics monitor number developments trends could impact revenue profitability objectives longterm demographics consumer trends snack food consumption highly correlated gdp growth urbanization populations rising discretionary income levels associated growing middle class particularly emerging markets long term expect trends continue leading growth consumer behaviors frequent smaller meals snacking greater use convenience foods also recognize changing consumer trends increased emphasis wellbeing time compression wide participation across evolving retail digital landscape position longterm growth investing wellbeing snack offerings product marketing innovation new routes market including ecommerce demand monitor consumer spending market share within food beverage categories sell products recent years low gdp growth economic recessionary pressures weak consumer confidence historically strong us dollar changing consumer trends slowed category net revenue growth begun see improvements global economic growth weaker us dollar 2017 still geopolitical economic uncertainties category growth continues soft growth global snacking categories excluding venezuela decreased approximately 34 2015 24 2016 21 2017 continue make investments brand snacks portfolio building strong routes market address needs consumers emerging developed markets anticipate driving demand categories growing position markets volatility global markets growth strategy depends part ability expand operations particularly emerging markets emerging markets greater political economic currency volatility greater vulnerability infrastructure labor disruptions established markets volatility markets affects demand costs products requires frequent changes operate business refer note 1 summary significant accounting policiesvenezuela discussion issues impacts venezuela operations expect continued volatility across markets particularly emerging markets focused investing global power brands routes market protect margins management costs pricing competition operate highly competitive markets include global regional local competitors advantaged geographic footprint operating scale portfolio brands significantly contributed building marketleading positions across product categories sell grow maintain market positions focus meeting consumer needs preferences new product innovations product quality also continue optimize manufacturing operations invest brands ongoing research development advertising marketing consumer promotions pricing adjust product prices based number variables including demand competitive environment changes product input costs net revenue growth profitability may affected adjust prices address new conditions 20152017 generally increased prices response higher commodity costs currency market factors 2018 anticipate changing market conditions continue impact pricing price competition may continue affect net revenues market share near term market adjusts changes input costs market conditions operating costs operating costs include raw materials labor selling general administrative expenses taxes currency impacts financing costs manage costs cost saving productivity initiatives sourcing hedging programs pricing actions refinancing tax planning continue renegotiate collective bargaining agreements covering eight us facilities expired beginning february 2016 plans ensure business continuity renegotiations remain competitive operating structure continue work programs expand profitability margins 20142018 restructuring program designed bring significant reductions operating cost structure supply chain overhead costs effective october 1 2016 also integrated eemea region operations europe asia pacific operating segments change favorable impact operating performance due greater leverage european amea regional businesses resulting cost structure taxes 2017 us tax reform reduced us corporate tax rate included beneficial depreciation provisions could adverse effect results specifically new provisions cause us allocated expenses eg interest general administrative expenses taxed impose tax us crossborder payments could adversely impact effective tax rate continue evaluate impacts additional guidance implementing legislation becomes available currency global company 758 net revenues generated outside united states continually exposed changes global economic conditions currency movements 2017 us dollar began weaken relative currencies operate 2015 2016 us dollar generally stronger number countries experienced significant declines devaluations currency movements created volatility reported results operations unfavorable currency translation impacts 126 percentage points 120 percentage points excluding currency impacts related venezuela 135 net revenue decrease 2015 46 percentage points 125 net revenue decrease 2016 2017 01 net revenue decrease reflected 03 percentage points favorable currency translation impacts us dollar generally weakened number currencies past year currency movements make comparisons yearoveryear operating performance challenging isolate impact currency also report growth constant currency basis holding prioryear currency exchange rates constant prioryear currentyear results compared consistent basis historically also exposed currency devaluation risks impacting earnings particularly connection venezuela operations deconsolidated close 2015 fiscal year months following brexit vote june 2016 significant volatility global stock markets currency exchange rates value british pound sterling relative us dollar declined significantly negatively affected translated results reported us dollars december 2017 european union united kingdom agreed begin trade negotiations could experience additional volatility british pound sterling brexit negotiations move forward partially offset translation certain overseas operations including united kingdom enter net investment hedges primarily form local currency denominated debt crosscurrency swaps financial instruments generally hedge currency translation primarily seek hedge economic losses crosscurrency transactions due limited markets hedging currency transactions factors may able effectively hedge crosscurrency transaction risks local economies monetary policies currency hedging availability affect ability hedge currencyrelated economic losses work mitigate exposure currency risks factors continued global local market volatility actions foreign governments political uncertainty limited hedging opportunities factors could lead unfavorable currency impacts future monitor currencyrelated risks economies risk qualifying highly inflationary accounting us gaap argentina ukraine work safeguard business currency devaluations could adversely affect future demand products financial results operations relationships customers suppliers employees short longterm may able fully offset increased risks related currency devaluations brexit could impact profitability currencyrelated conditions continue see note 1 summary significant accounting policies currency translation highly inflationary accounting note 8 financial instruments additional information financing costs regularly evaluate variable fixedrate debt continue use lowcost short longterm debt finance ongoing working capital expenditures investments dividends share repurchases also expect use existing cash shortterm borrowings finance estimated 13 billion us tax reform transition tax liability payable 2026 2017 retired 15 billion longterm debt issued lowercost shortterm commercial paper longterm swiss franc debt 2016 retired 62 billion longterm debt issued lowercost longterm euro swiss franc us dollardenominated debt weightedaverage interest rate total debt december 31 2017 21 22 december 31 2016 37 december 31 2015 also continue use interest rate swaps financial instruments manage exposure interest rate cash flow variability protect value existing currency assets liabilities protect value debt example february 8 2018 entered crosscurrency interest rate swaps forwards aggregate notional value 32 billion hedge nonus net investments adverse movements exchange rates designated swaps forwards net investment hedges related operations europe amea regions expect favorable impact prospective financing costs reduce financing costs related currency impacts within interest costs refer note 7 debt borrowing arrangements note 8 financial instruments additional information debt derivative activity discussion analysis historical results items affecting comparability financial results following table includes significant income expense items affected comparability results operations effective tax rates please refer notes consolidated financial statements indicated information refer also consolidated results operations net earnings per share attributable mondelēz international table aftertax per share impacts items 1 lock expected us dollar value cash received euros upon closing jde coffee business transactions entered currency exchange forward contracts beginning may 2014 transaction announced recognized related currency hedging net gains 436 million 2015 see note 2 divestitures acquisitions information jde coffee business transactions related hedging transactions 2 excludes impact remeasurement losses 20142018 restructuring program charges shown separately 3 gain equity method investment transactions recorded outside pretax operating results consolidated statement earnings 4 please see nongaap financial measures section end item additional discussion ceo transition remuneration 5 divestiturerelated costs 2017 totaled 34 million 31 million operating income 3 million interest expense net 6 unrealized gains losses commodity forecasted currency transaction derivatives 2015 amounts exclude coffee commodity currency derivative impacts included within coffee operating results throughout following sections 7 refer note 12 commitments contingencies tax matters information primarily includes reversal tax liabilities connection resolution brazilian indirect tax matter settlement preacquisition cadbury tax matters 8 refer note 14 income taxes information impact us tax reform consolidated results operations following discussion compares consolidated results operations 2017 2016 2015 2017 compared 2016 net revenues net revenues decreased 27 million 01 25896 million 2017 organic net revenue 1 increased 220 million 09 25490 million power brands net revenues increased 29 including favorable currency impact power brands organic net revenue increased 21 emerging markets net revenues increased 37 including favorable currency impact emerging markets organic net revenue increased 36 underlying changes net revenues organic net revenue detailed 1 please see nongaap financial measures section end item net revenue decline 01 driven impact divestitures partially offset underlying organic net revenue growth 09 favorable currency impact acquisition impact divestitures resulted yearoveryear decline net revenues 383 million 2017 underlying organic net revenue increase driven higher net pricing partially offset unfavorable volumemix net pricing includes benefit carryover pricing 2016 well effects input costdriven pricing actions taken 2017 higher net pricing reflected latin america amea partially offset lower net pricing north america europe unfavorable volumemix reflected segments except europe part due expected shipments realize following second quarter malware incident favorable yearoveryear currency impacts increased net revenues 77 million due primarily strength several currencies relative us dollar including brazilian real euro russian ruble australian dollar indian rupee south african rand partially offset strength us dollar relative several currencies including egyptian pound british pound sterling argentinean peso nigerian naira turkish lira philippine peso chinese yuan november 2 2016 acquisition business license manufacture market sell cadburybranded biscuits additional key markets added 59 million constant currency basis incremental net revenues 2017 operating income operating income increased 937 million 365 3506 million 2017 adjusted operating income 1 increased 376 million 99 4178 million adjusted operating income constant currency basis 1 increased 376 million 99 4178 million due following 1 refer nongaap financial measures section end item 2 refer note 6 20142018 restructuring program information 3 refer note 2 divestitures acquisitions note 5 goodwill intangible assets information trademark impairments 4 refer note 8 financial instruments note 16 segment reporting nongaap financial measures appearing later section information unrealized gainslosses commodity forecasted currency transaction derivatives 5 refer note 2 divestitures acquisitions information acquisition biscuit business vietnam 6 refer note 2 divestitures acquisitions information 2017 sales confectionery business france grocery business australia new zealand certain licenses khcowned brands used grocery business within europe region sale one equity method investments sale confectionary business japan additionally 2016 amount includes sale confectionery business costa rica 7 refer note 2 divestitures acquisitions information 2016 intangible asset sale finland 8 refer note 2 divestitures acquisitions information 2016 purchase license manufacture market sell cadburybranded biscuits additional key markets property sales 2016 9 refer note 12 commitments contingencies tax matters information primarily includes reversal tax liabilities connection resolution brazilian indirect tax matter settlement preacquisition cadbury tax matters 2017 realized higher net pricing input costs increased modestly higher net pricing included carryover impact pricing actions taken 2016 well effects input costdriven pricing actions taken 2017 driven latin america amea partially offset lower net pricing north america europe increase input costs driven higher raw material costs partially offset lower manufacturing costs due productivity unfavorable volumemix driven north america latin america amea partially offset favorable volumemix europe total selling general administrative expenses decreased 629 million 2016 due number factors noted table including part benefits resolution tax matters lower implementation costs incurred 20142018 restructuring program lower divestiturerelated costs property insurance recovery amea lower intangible asset impairment charges decreases partially offset gains sales property 2016 unfavorable currency impact valueadded tax “vat” related settlements 2016 incremental expenses incurred due malware incident excluding factors noted selling general administrative expenses decreased 405 million 2016 decrease driven primarily lower overhead costs lower advertising consumer promotion costs due continued cost reduction efforts areas currency changes year impact operating income strength us dollar relative several currencies including egyptian pound british pound sterling argentinean peso offset strength several currencies relative us dollar including euro brazilian real russian ruble australian dollar indian rupee south african rand operating income margin increased 99 2016 135 2017 increase operating income margin driven primarily increase adjusted operating income margin lower 20142018 restructuring program costs benefits resolution tax matters net gain divestitures lower divestiturerelated costs partially offset incremental costs related malware incident ceo transition remuneration costs adjusted operating income margin increased 150 2016 163 2017 increase adjusted operating income margin driven primarily lower overheads lower advertising consumer promotion costs due continued cost reduction efforts areas net earnings per share attributable mondelēz international net earnings attributable mondelēz international 2922 million increased 1263 million 761 2017 diluted eps attributable mondelēz international 191 2017 086 819 2016 adjusted eps 1 214 2017 028 151 2016 adjusted eps constant currency basis 1 213 2017 027 145 2016 1 refer nongaap financial measures section appearing later section 2 see operating income table related footnotes information 3 refer note 8 financial instruments information interest rate swaps longer designate cash flow hedges effective first quarter 2016 due changes financing hedging plans 4 refer note 7 debt borrowing arrangements information loss debt extinguishment related expenses connection debt tender offers 5 refer note 2 divestitures acquisitions keurig transaction information 2016 acquisition interest keurig 6 includes proportionate share unusual infrequent items acquisition divestiturerelated costs restructuring program costs discrete us tax reform impacts recorded jde keurig equity method investees 7 excludes currency impact interest expense related nonus dollardenominated debt included currency translation 8 refer note 10 stock plans information equity compensation programs note 11 capital stock information share repurchase program note 15 earnings per share earnings per share weightedaverage share information 9 refer note 14 income taxes information items affecting income taxes 10 refer note 14 income taxes information impact us tax reform 11 refer note 2 divestitures acquisitions information 2017 sale interest one equity method investments 2016 compared 2015 net revenues net revenues decreased 3713 million 125 25923 million 2016 organic net revenue 1 increased 390 million 15 26411 million power brands net revenues decreased 109 primarily due deconsolidation historical coffee business unfavorable currency deconsolidation historical venezuelan operations power brands organic net revenue increased 33 emerging markets net revenues decreased 191 primarily due deconsolidation historical venezuelan operations unfavorable currency deconsolidation historical coffee business emerging markets organic net revenue increased 27 underlying changes net revenues organic net revenue detailed 1 includes historical global coffee business prior july 2 2015 jde coffee business transactions refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 2 includes historical results venezuelan subsidiaries including venezuela currency impacts prior december 31 2015 deconsolidation refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information 3 please see nongaap financial measures section end item net revenue decline 125 driven impact deconsolidation historical coffee business unfavorable currency deconsolidation historical venezuelan operations yearoveryear impact 2015 accounting calendar change partially offset underlying organic net revenue growth 15 impact acquisitions adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 1627 million 2016 unfavorable currency impacts decreased net revenues 1233 million due primarily strength us dollar relative several currencies including argentinean peso british pound sterling mexican peso brazilian real chinese yuan russian ruble deconsolidation historical venezuelan operations resulted yearoveryear decrease net revenues 1217 million 2016 north america segment accounting calendar change 2015 resulted yearoveryear decrease net revenues 76 million 2016 underlying organic net revenue growth driven higher net pricing partially offset unfavorable volumemix net pricing includes benefit carryover pricing 2015 well effects input costdriven pricing actions taken 2016 higher net pricing reflected latin america amea partially offset lower net pricing europe north america unfavorable volumemix reflected latin america amea mostly offset favorable volumemix europe north america unfavorable volumemix latin america amea largely due price elasticity well strategic decisions exit certain lowmargin product lines impact acquisitions primarily includes july 15 2015 acquisition biscuit operation vietnam added 71 million incremental net revenues 2016 november 2 2016 acquisition business license manufacture market sell cadburybranded biscuits additional key markets added 16 million incremental net revenues 2016 operating income operating income decreased 6328 million 711 2569 million 2016 adjusted operating income 1 increased 486 million 147 3802 million adjusted operating income constant currency basis 1 increased 657 million 198 3973 million due following 1 refer nongaap financial measures section end item 2 refer note 6 20142018 restructuring program information refer annual report form 10k year ended december 31 2016 additional information note 6 restructuring programs 3 refer note 5 goodwill intangible assets information impairment charges recorded 2016 2015 related trademarks 4 refer note 8 financial instruments note 16 segment reporting nongaap financial measures appearing later section information unrealized gains losses commodity forecasted currency transaction derivatives 5 refer note 2 divestitures acquisitions information acquisition biscuit business vietnam 6 refer note 2 divestitures acquisitions information december 1 2016 sale confectionery business costa rica sale confectionery business costa rica generated pretax aftertax gain 9 million 2016 refer annual report form 10k year ended december 31 2016 information april 23 2015 divestiture ajinomoto general foods inc “agf” divestiture agf generated pretax gain 13 million aftertax loss 9 million 2015 7 includes historical results venezuelan subsidiaries prior december 31 2015 deconsolidation refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information deconsolidation remeasurement loss 2015 8 refer note 2 divestitures acquisitions information jde coffee business transactions 9 includes historical global coffee business prior july 2 2015 divestiture reclassified results historical coffee business adjusted operating income included equity method investment earnings adjusted eps facilitate comparisons past future coffee operating results refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 10 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting jde earnings began record earnings equity method investments aftertax equity method investment earnings outside operating income periods prior july 2 2015 reclassified equity method earnings adjusted operating income evaluate operating results consistent basis 11 refer note 2 divestitures acquisitions information 2016 purchase license manufacture market sell cadburybranded biscuits additional key markets property sales 2016 12 refer note 1 summary significant accounting policies accounting calendar change information accounting calendar change 2015 13 includes costs incurred accrued related planned sale confectionery business france refer note 2 divestitures acquisitions information 14 refer note 2 divestitures acquisitions information 2016 intangible asset sale finland 2016 realized higher net pricing input costs increased modestly higher net pricing included carryover impact pricing actions taken 2015 reflected latin america amea partially offset lower net pricing europe north america increase input costs driven higher raw material costs part due higher currency exchange transaction costs imported materials partially offset lower manufacturing costs due productivity favorable volumemix driven europe north america mostly offset unfavorable volumemix latin america amea total selling general administrative expenses decreased 1037 million 2015 due number factors noted table including part deconsolidation historical coffee business favorable currency impact lower costs associated jde coffee business transactions deconsolidation venezuelan operations gains sales property vatrelated settlements absence devaluation charges related net monetary assets venezuela 2016 decreases partially offset increases divestiturerelated costs associated planned sale confectionery business france reclassification equity method investment earnings higher implementation costs incurred 20142018 restructuring program impact acquisitions excluding factors noted selling general administrative expenses decreased 318 million 2015 decrease driven primarily lower overhead costs due continued cost reduction efforts recorded benefit 54 million 2016 vatrelated settlements latin america compared 30 million 2015 unfavorable currency impacts decreased operating income 171 million due primarily strength us dollar relative currencies including british pound sterling argentinean peso mexican peso operating income margin decreased 300 2015 99 2016 decrease operating income margin driven primarily last year’s pretax gain jde coffee business transactions deconsolidation historical coffee business deconsolidation venezuelan operations unfavorable yearoveryear change marktomarket gainslosses derivatives higher costs incurred 20142018 restructuring program divestiturerelated costs associated planned sale confectionery business france higher intangible asset impairment charges reclassification equity method earnings items decreased operating income margin partially offset prioryear loss venezuela deconsolidation increase adjusted operating income margin absence costs associated jde coffee business transactions adjusted operating income margin increased 127 2015 150 2016 increase adjusted operating income margin driven primarily lower overheads cost reduction programs improved gross margin reflecting productivity efforts gains sales property vatrelated settlements net earnings per share attributable mondelēz international net earnings attributable mondelēz international 1659 million decreased 5608 million 772 2016 diluted eps attributable mondelēz international 105 2016 339 764 2015 adjusted eps 1 186 2016 033 216 2015 adjusted eps constant currency basis 1 192 2016 039 255 2015 1 refer nongaap financial measures section appearing later section 2 refer note 6 20142018 restructuring program information 3 refer note 5 goodwill intangible assets information impairment charges recorded 2016 2015 related trademarks 4 refer note 8 financial instruments note 16 segment reporting nongaap financial measures appearing later section information unrealized gains losses commodity forecasted currency transaction derivatives 5 refer note 2 divestitures acquisitions information 2016 purchase license manufacture market sell cadburybranded biscuits additional key markets 2016 intangible asset sale finland 2015 acquisitions biscuit operation vietnam enjoy life foods property sales 2016 6 refer note 2 divestitures acquisitions information december 1 2016 sale confectionery business costa rica sale confectionery business costa rica generated pretax aftertax gain 9 million 2016 refer annual report form 10k year ended december 31 2016 information april 23 2015 divestiture agf divestiture agf generated pretax gain 13 million aftertax loss 9 million 2015 7 includes historical results venezuelan subsidiaries prior december 31 2015 deconsolidation refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information deconsolidation remeasurement loss 2015 8 refer note 2 divestitures acquisitions information jde coffee business transactions net gains 436 million 2015 currency hedges related coffee business transactions recorded interest expense net included incomecosts associated coffee business transactions 001 table 9 refer note 8 financial instruments information interest rate swaps longer designate cash flow hedges due change financing hedging plans 10 refer note 7 debt borrowing arrangements information loss debt extinguishment related expenses connection debt tender offers 11 includes proportionate share unusual infrequent items acquisition divestiturerelated costs restructuring program costs recorded jde keurig equity method investees 12 includes historical global coffee business prior july 2 2015 deconsolidation reclassified results historical coffee business adjusted operating income included equity method investment earnings adjusted eps facilitate comparisons past future coffee operating results refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 13 refer note 1 summary significant accounting policies information accounting calendar change 2015 14 excludes favorable currency impact interest expense related nonus dollardenominated debt included currency translation 15 refer note 10 stock plans information equity compensation programs note 11 capital stock information share repurchase program note 15 earnings per share earnings per share weightedaverage share information 16 refer note 14 income taxes information items affecting income taxes 17 includes costs incurred accrued related planned sale confectionery business france refer note 2 divestitures acquisitions information 18 refer note 2 divestitures acquisitions keurig transaction information 2016 acquisition interest keurig results operations reportable segment operations management structure organized four reportable operating segments • latin america • amea • europe • north america october 1 2016 integrated eemea operating segment europe asia pacific operating segments leverage optimize operating scale built within europe asia pacific regions russia ukraine turkey belarus georgia kazakhstan combined within europe operating segment remaining middle east african countries combined within asia pacific region form new amea regional operating segment reflected segment change occurred periods presented manage operations region leverage regional operating scale manage different changing business environments effectively pursue growth opportunities arise key markets regional management teams responsibility business product categories financial results regions historically recorded income equity method investments within operating income investments part base business beginning third quarter 2015 align accounting new coffee equity method investment jde began record earnings equity method investments equity method investment earnings outside segment operating income six months ended december 31 2015 aftertax equity method investment net earnings less 1 million combined basis earnings equity method investments july 2 2015 recorded within segment operating income 52 million amea 4 million north america see note 1 summary significant accounting policies principles consolidation note 2 divestitures acquisitions additional information 2015 also began report stockbased compensation corporate employees within general corporate expenses reported within north america region reclassified 32 million corporate stockbased compensation expense 2015 north america segment general corporate expenses use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends see note 16 segment reporting additional information segments items affecting comparability financial results earlier section items affecting segment operating results segment net revenues earnings reflecting current segment structure periods presented 1 net revenues 1217 million 2015 venezuelan subsidiaries included consolidated financial statements beginning 2016 account venezuelan subsidiaries using cost method accounting longer include net revenues venezuelan subsidiaries within consolidated financial statements refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information 2 july 2 2015 contributed global coffee businesses primarily europe amea segments net revenues global coffee business 1561 million europe 66 million amea year ended december 31 2015 refer note 2 divestitures acquisitions jde coffee business transactions information latin america 2017 compared 2016 net revenues increased 174 million 51 due higher net pricing 77 pp favorable currency 19 pp partially offset unfavorable volumemix 42 pp impact divestiture 03 pp higher net pricing reflected across categories driven primarily argentina brazil mexico favorable currency impacts due primarily strength several currencies region relative us dollar primarily brazilian real partially offset strength us dollar relative argentinean peso mexican peso unfavorable volumemix occurred across region largely due impact pricingrelated elasticity addition portion shipments delayed end second quarter due malware incident recovered unfavorable volumemix driven declines categories except chocolate candy december 1 2016 sold small confectionery business costa rica segment operating income increased 294 million 1085 primarily due higher net pricing benefit resolution brazilian indirect tax matter 153 million lower manufacturing costs lower costs incurred 20142018 restructuring program favorable currency lower advertising consumer promotion costs favorable items partially offset higher raw material costs unfavorable volumemix higher selling general administrative expenses net prioryear vatrelated settlements 2016 compared 2015 net revenues decreased 1596 million 320 due deconsolidation venezuelan operations 219 pp unfavorable currency 148 pp unfavorable volumemix 53 pp impact divestiture 01 pp partially offset higher net pricing 101 pp deconsolidation venezuelan operations resulted yearoveryear decrease net revenues 1217 million unfavorable currency impacts due primarily strength us dollar relative currencies region including argentinean peso mexican peso unfavorable volumemix primarily occurred brazil argentina largely due impact pricingrelated elasticity well strategic decisions exit certain lowmargin product lines unfavorable volumemix driven declines categories except cheese grocery higher net pricing reflected across categories driven primarily argentina brazil mexico segment operating income decreased 214 million 441 primarily due higher raw material costs deconsolidation venezuelan operations unfavorable volumemix unfavorable currency unfavorable items partially offset higher net pricing lower selling general administrative expenses including higher yearover year vatrelated settlements lower manufacturing costs lower advertising consumer promotion costs lower costs incurred 20142018 restructuring program absence remeasurement losses 2016 related net monetary assets venezuela amea 2017 compared 2016 net revenues decreased 77 million 13 due impact divestitures 22 pp unfavorable currency 18 pp unfavorable volumemix 02 pp partially offset higher net pricing 29 pp impact divestitures primarily related grocery cheese business australia new zealand divested july 4 2017 resulted yearoveryear decline net revenues 128 million 2017 unfavorable currency impacts due primarily strength us dollar relative several currencies region including egyptian pound nigerian naira philippine peso chinese yuan japanese yen partially offset strength several currencies region relative us dollar including australian dollar indian rupee south african rand unfavorable volumemix driven declines refreshment beverages cheese grocery gum candy partially offset gains chocolate biscuits addition portion shipments delayed end second quarter due malware incident recovered higher net pricing reflected across categories except cheese grocery segment operating income increased 10 million 20 primarily due higher net pricing lower selling general administrative expenses including property insurance recovery lower manufacturing costs lower advertising consumer promotion costs favorable items mostly offset higher raw material costs unfavorable currency unfavorable volumemix higher costs incurred 20142018 restructuring program impact divestitures higher intangible asset impairment charges 2016 compared 2015 net revenues decreased 186 million 31 due unfavorable currency 39 pp adjustment deconsolidating historical coffee business 11 pp unfavorable volumemix 10 pp partially offset higher net pricing 17 pp impact acquisition 12 pp unfavorable currency impacts due primarily strength us dollar relative currencies region including chinese yuan indian rupee south african rand egyptian pound nigerian naira philippine peso australian dollar partially offset strength japanese yen relative us dollar adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 66 million unfavorable volumemix including unfavorable impact strategic decisions exit certain lowmargin product lines driven declines candy refreshment beverages cheese grocery chocolate partially offset gains biscuits gum higher net pricing driven chocolate candy biscuits refreshment beverages partially offset lower net pricing gum cheese grocery acquisition biscuit operation vietnam july 2015 added net revenues 71 million constant currency basis segment operating income increased 117 million 301 primarily due lower manufacturing costs higher net pricing lower selling general administrative expenses lower costs incurred 20142018 restructuring program absence costs associated coffee business transactions impact vietnam acquisition favorable items partially offset higher raw material costs reclassification equity method investment earnings unfavorable volumemix unfavorable currency deconsolidation historical coffee business impact divestitures europe 2017 compared 2016 net revenues increased 39 million 04 due favorable volumemix 14 pp favorable currency 10 pp impact acquisition 06 pp partially offset impact divestitures 25 pp lower net pricing 01 pp favorable volumemix driven chocolate biscuits partially offset declines gum cheese grocery candy refreshment beverages addition portion shipments delayed end second quarter due malware incident recovered favorable currency impacts reflected strength several currencies relative us dollar primarily euro russian ruble partially offset strength us dollar several currencies region including british pound sterling turkish lira november 2016 acquisition business license manufacture market sell cadburybranded biscuits added net revenues 59 million constant currency basis impact divestitures primarily due sale confectionery business france resulted yearoveryear decline net revenues 234 million 2017 lower net pricing driven biscuits mostly offset higher net pricing categories segment operating income increased 413 million 326 primarily due lower manufacturing costs lower costs incurred 20142018 restructuring program lower selling general administrative expenses lower divestiturerelated costs lower advertising consumer promotion costs benefit settlement cadbury tax matter favorable volumemix lower intangible asset impairment charges favorable currency impact acquisition favorable items partially offset higher raw material costs impact divestitures incremental costs incurred due malware incident lower net pricing prioryear gain sale intangible asset 2016 compared 2015 net revenues decreased 1917 million 164 due adjustment deconsolidating historical coffee business 129 pp unfavorable currency 44 pp lower net pricing 04 pp impact divestitures 02 pp partially offset favorable volumemix 13 pp impact acquisition 02 pp adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 1561 million unfavorable currency impacts reflected strength us dollar currencies region primarily british pound sterling lower net pricing reflected across categories except candy gum favorable volumemix including unfavorable impact strategic decisions exit certain lowmargin product lines driven biscuits chocolate cheese grocery partially offset declines gum candy refreshment beverages purchase license manufacture market sell cadburybranded biscuits november 2016 added net revenues 16 million constant currency basis segment operating income decreased 83 million 61 primarily due deconsolidation historical coffee business unfavorable currency higher raw material costs divestiturerelated costs higher costs incurred 20142018 restructuring program lower net pricing higher intangible asset impairment charges impact divestitures unfavorable items partially offset absence costs associated jde coffee business transactions lower manufacturing costs lower selling general administrative expenses favorable volumemix gain sale intangible asset north america 2017 compared 2016 net revenues decreased 163 million 23 due unfavorable volumemix 18 pp lower net pricing 06 pp impact divestitures 01 pp partially offset favorable currency 02 pp unfavorable volumemix primarily caused shipments delayed end second quarter due malware incident recovered driven declines gum biscuits candy partially offset gain chocolate lower net pricing reflected biscuits chocolate partially offset higher net pricing candy gum favorable currency impact due strength canadian dollar relative us dollar segment operating income increased 42 million 39 primarily due lower costs incurred 20142018 restructuring program lower selling general administrative expenses net prioryear’s gain sale property lower manufacturing costs lower advertising consumer promotion costs lower raw material costs favorable items partially offset unfavorable volumemix incremental costs incurred due malware incident lower net pricing impact divestitures prioryear gain sale intangible asset 2016 compared 2015 net revenues decreased 14 million 02 due impact accounting calendar change made prior year 11 pp unfavorable currency 03 pp lower net pricing 02 pp mostly offset favorable volumemix 14 pp prioryear change north america’s accounting calendar resulted yearoveryear decrease net revenues 76 million unfavorable currency impact due strength us dollar relative canadian dollar lower net pricing reflected biscuits candy partially offset higher net pricing chocolate gum favorable volume mix including unfavorable impact strategic decisions exit certain lowmargin product lines driven gains biscuits candy partially offset declines gum chocolate segment operating income decreased 27 million 24 primarily due higher costs incurred 20142018 restructuring program higher advertising consumer promotion costs intangible asset impairment charges yearoveryear impact prioryear accounting calendar change higher raw material costs lower net pricing unfavorable items mostly offset lower selling general administrative expenses including gain sale property lower manufacturing costs favorable volumemix gain sale intangible asset critical accounting estimates prepare consolidated financial statements conformity us gaap preparation financial statements requires use estimates judgments assumptions affect reported amounts assets liabilities date financial statements reported amounts revenues expenses periods presented actual results could differ estimates assumptions note 1 summary significant accounting policies consolidated financial statements includes summary significant accounting policies used prepare consolidated financial statements discussed selection disclosure critical accounting policies estimates audit committee following review significant assumptions estimates goodwill nonamortizable intangible assets historically annually tested goodwill nonamortizable intangible assets impairment october 1 year voluntarily changed annual impairment assessment date october 1 july 1 believe measurement date represents change method applying accounting principle preferable better aligns strategic business planning process financial forecasts key components annual impairment tests change measurement date delay accelerate prevent impairment charge quarter evaluated goodwill intangible asset impairment risks recognized related impairments date change annual test date applied july 1 2017 assess goodwill impairment risk throughout year performing qualitative review entityspecific industry market general economic factors affecting goodwill reporting units review operating segment reporting unit structure goodwill testing annually significant changes organization occur annually may perform qualitative testing depending factors prioryear test results current year developments current risk evaluations practical considerations may elect quantitative testing instead quantitative testing compare reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using discounted cash flow method incorporates planned growth rates marketbased discount rates estimates residual value year europe north america reporting units used marketbased weightedaverage cost capital 72 discount projected cash flows operations latin america amea reporting units used riskrated discount rate 102 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value would recognize impairment charge amount carrying value exceeds reporting unit fair value 2017 2016 2015 impairments goodwill connection 2017 annual impairment testing reporting units sufficient fair value excess carrying value reporting units passed annual impairment testing meet business performance expectations specific valuation factors outside control discount rates change significantly estimated fair values reporting unit reporting units might decline lead goodwill impairment future annually assess nonamortizable intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible assets significant potential impairment risk exists specific asset quantitatively test impairment comparing estimated fair value carrying value determine estimated fair value using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds estimated fair value asset impaired carrying value reduced estimated fair value 2017 annual testing nonamortizable intangible assets recorded 70 million impairment charges third quarter 2017 related five trademarks impairments arose due lower expected product growth part driven decisions redirect support trademarks regional global brands recorded charges related candy gum trademarks 52 million amea 11 million europe 5 million latin america 2 million north america impairment charges calculated excess carrying value estimated fair value intangible assets global basis recorded within asset impairment exit costs primarily use relief royalty valuation method utilizes estimates future sales growth rates royalty rates discount rates determining brand’s global fair value also noted thirteen brands including five impaired trademarks 963 million aggregate book value december 31 2017 fair value excess book value 10 less believe current plans brands allow continue impaired meet product line expectations specific valuation factors outside control discount rates change significantly brand brands could become impaired future 2016 recorded charges related biscuits candy gum trademarks 41 million amea 32 million north america 22 million europe 3 million latin america 2015 recorded 44 million charge related candy biscuit trademarks amea 22 million europe 5 million latin america refer note 5 goodwill intangible assets additional information trade marketing programs promote products trade sales incentives well marketing advertising programs include limited new product introduction fees discounts coupons rebates volumebased incentives well cooperative advertising instore displays consumer marketing promotions trade sales incentives recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer promotion expenses charged operations percentage volume based estimated sales volume estimated program spending defer costs yearend consolidated balance sheet marketing advertising costs recorded expense year incurred employee benefit plans sponsor various employee benefit plans throughout world include primarily pension plans postretirement healthcare benefits accounting purposes estimate pension postretirement healthcare benefit obligations utilizing assumptions estimates discount rates expected returns plan assets expected compensation increases employeerelated factors turnover retirement age mortality health care cost trends review actuarial assumptions annual basis make modifications assumptions based current rates trends appropriate assumptions also reflect historical experiences management’s best judgment regarding future expectations assumptions affect annual expense obligations recognized underlying plans permitted us gaap generally amortize effect changes assumptions future periods cost benefit plan changes increasing decreasing benefits prior employee service prior service cost deferred included expense straightline basis average remaining service period employees expected receive benefits since pension postretirement liabilities measured discounted basis discount rate significantly affects plan obligations expenses expected return plan assets assumption affects pension plan expenses many pension plans partially funded assumptions discount rates expected rates return process setting assumptions described note 9 benefit plans consolidated financial statements anticipate changes 2018 assumptions us nonus pension postretirement health care plans sensitivity measure fiftybasis point change discount rates expected rate return plan assets would following effects increasedecrease annual benefit plan costs income taxes global company calculate provide income taxes tax jurisdiction operate provision income taxes includes amounts payable refundable current year effect deferred taxes impacts uncertain tax positions provision income taxes significantly affected shifts geographic mix pretax earnings across tax jurisdictions changes tax laws regulations tax planning opportunities available tax jurisdiction ultimate outcome various tax audits deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement tax bases assets liabilities operating losses tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates apply taxable income years differences expected recovered settled valuation allowances established deferred tax assets likely tax benefit realized believe tax positions comply applicable tax laws properly accounted uncertain tax positions recognize tax benefits financial statements uncertain tax positions likely tax position sustained taxing authorities based technical merits position amount recognize measured largest amount benefit greater 50 percent likely realized upon resolution evaluate uncertain tax positions ongoing basis adjust amount recognized light changing facts circumstances progress tax audit expiration statute limitations believe estimates assumptions used support evaluation uncertain tax positions reasonable however final determination historical tax liabilities whether settlement tax authorities judicial administrative ruling due expiration statutes limitations could materially different estimates reflected consolidated balance sheet historical income tax provisions outcome final determinations could material effect provision income taxes net earnings cash flows period determination made result us tax reform related sec guidance included provisional estimates consolidated financial statements impacts new tax legislation unable make reasonable estimate provisions legislation include estimate consolidated financial statements see note 14 income taxes discussion provisional amounts related us tax reform included financial statements discussion items estimate could made well additional information effective tax rate current deferred taxes valuation allowances unrecognized tax benefits contingencies see note 12 commitments contingencies consolidated financial statements new accounting guidance see note 1 summary significant accounting policies consolidated financial statements discussion new accounting standards liquidity capital resources believe cash operations revolving credit facilities authorized longterm financing provide sufficient liquidity working capital needs planned capital expenditures future contractual obligations share repurchases transition tax liability historical accumulated foreign earnings due us tax reform payment anticipated quarterly dividends continue utilize commercial paper program international credit lines longterm debt issuances regular funding requirements also use intercompany loans international subsidiaries improve financial flexibility overall expect negative effects funding sources would material effect liquidity net cash provided operating activities operating activities provided net cash 2593 million 2017 2838 million 2016 3728 million 2015 cash flows operating activities lower 2017 2016 primarily due increases working capital including higher tax vatrelated payments 2017 lower operating cash flows divested businesses partially offset higher net earnings lower pension contributions 2017 cash flows operating activities lower 2016 2015 due higher contributions pension benefit plans 2016 higher working capital cash improvements 2015 2016 net cash provided byused investing activities net cash used investing activities 301 million 2017 1029 million 2016 net cash provided investing activities 2649 million 2015 decrease net cash used investing activities 2017 relative 2016 due higher net proceeds received divestitures 2017 acquisitionrelated payments 2017 2016 lower capital expenditures 2017 increase net cash used investing activities 2016 relative 2015 primarily relates 47 billion proceeds net divested cash transaction costs contribution global coffee businesses jde divestiture agf cash receipt 10 billion due settlement currency exchange forward contracts related coffee business transactions 2015 capital expenditures 1014 million 2017 1224 million 2016 1514 million 2015 continue make capital expenditures primarily modernize manufacturing facilities support new product productivity initiatives expect 2018 capital expenditures 10 billion including capital expenditures connection 20142018 restructuring program expect continue fund expenditures operations net cash used financing activities net cash used financing activities 3361 million 2017 1862 million 2016 5883 million 2015 increase net cash used financing activities 2017 relative 2016 primarily due lower net issuances shortterm longterm debt well increase dividends paid partly offset lower common stock repurchases compared prior year decrease net cash used financing activities 2016 relative 2015 primarily due higher shortterm debt issuances 10 billion lower share repurchases following exceptional year share repurchases using proceeds global coffee business transactions 2015 debt time refinance longterm shortterm debt refer note 7 debt borrowing arrangements details tender offers debt issuances maturities 20162017 nature amount longterm shortterm debt proportionate amount varies result current expected business requirements market conditions factors due seasonality first second quarters year working capital requirements grow increasing need shortterm financing second half year typically generates higher cash flows may issue commercial paper secure forms financing throughout year meet shortterm working capital needs 2016 one subsidiaries mondelez international holdings netherlands bv “mihn” issued debt totaling 45 billion operations held mihn generated approximately 745 193 billion 259 billion consolidated net revenue fiscal year 2017 represented approximately 755 198 billion 262 billion net assets december 31 2017 february 3 2017 board directors approved new 5 billion longterm financing authority replace prior authority december 31 2017 47 billion longterm financing authority remaining next 12 months expect 12 billion longterm debt mature follows fr250 million swiss franc notes 257 million december 31 2017 january 2018 478 million february 2018 £76 million sterling notes 103 million december 31 2017 july 2018 322 million august 2018 expect fund repayments combination cash operations issuance commercial paper longterm debt total debt 177 billion december 31 2017 172 billion december 31 2016 debttocapitalization ratio 040 december 31 2017 041 december 31 2016 december 31 2017 weightedaverage term outstanding longterm debt 62 years average daily commercial borrowings 44 billion 2017 22 billion 2016 22 billion 2015 34 billion commercial paper borrowings outstanding december 31 2017 24 billion outstanding december 31 2016 expect continue use commercial paper finance various short longterm financing needs continue comply longterm debt covenants refer note 7 debt borrowing arrangements information debt covenants commodity trends regularly monitor worldwide supply commodity cost currency trends costeffectively secure ingredients packaging fuel required production 2017 primary drivers increase aggregate commodity costs higher currencyrelated costs commodity purchases increased costs dairy cocoa sugar packaging raw materials number external factors weather conditions commodity market conditions currency fluctuations effects governmental agricultural programs affect cost availability raw materials agricultural materials used products address higher commodity costs currency impacts primarily hedging higher pricing manufacturing overhead cost control use hedging techniques limit impact fluctuations cost principal raw materials however may able fully hedge commodity cost changes dairy limited ability hedge hedging strategies may protect us increases specific raw material costs due competitive market conditions planned trade promotional incentives fluctuations currency exchange rates factors pricing actions may also lag commodity cost changes temporarily expect price volatility slightly higher aggregate cost environment continue 2018 costs principal raw materials fluctuate believe continue adequate supply raw materials use generally remain available numerous sources offbalance sheet arrangements aggregate contractual obligations significant offbalance sheet arrangements contractual obligations discussed guarantees discussed note 12 commitments contingencies enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2017 material thirdparty guarantees recorded consolidated balance sheet guarantees expect material effect liquidity aggregate contractual obligations following table summarizes contractual obligations december 31 2017 1 amounts include expected cash payments debt excluding capital leases presented separately table amounts also exclude 64 million net unamortized noncash bond premiums discounts bank fees marktomarket adjustments related interest rate swaps recorded total debt 2 amounts represent expected cash payments interest expense longterm debt interest calculated euro british pound sterling swiss franc notes forecasted using currency exchange rates december 31 2017 insignificant amount interest expense excluded table portion nonus debt obligations due complexities involved forecasting expected interest payments 3 operating lease payments represent minimum rental commitments noncancelable operating leases 4 purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 5 connection us tax reform currently estimate paying 13 billion transition tax liability 2026 amounts timing tax payments likely change result additional guidance expected issued 2018 see note 14 income taxes additional information us tax reform impact financial statements 6 longterm liabilities include estimated future benefit payments postretirement health care plans december 31 2027 235 million unable reliably estimate timing payments beyond 2027 excluded table also another 126 million various longterm liabilities expected paid next 5 years addition following longterm liabilities included consolidated balance sheet excluded table accrued pension costs unrecognized tax benefits insurance accruals december 31 2017 unrecognized tax benefit including associated interest penalties classified longterm payable 649 million currently expect make approximately 289 million contributions pension plans 2018 equity dividends stock plans see note 10 stock plans consolidated financial statements information stock plans grant activity 20152017 share repurchases see note 11 capital stock consolidated financial statements information share repurchase program 2013 2017 board directors authorized repurchase total 137 billion common stock december 31 2018 january 31 2018 finance committee authorization delegated board directors approved increase 60 billion share repurchase program raising authorization 197 billion common stock repurchases extended program december 31 2020 repurchased approximately 13 billion shares 22 billion 2017 26 billion 2016 36 billion 2015 19 billion 2014 27 billion 2013 weightedaverage cost 3886 per share december 31 2017 number shares ultimately repurchase share repurchase program may vary depending numerous factors including share price market conditions ongoing capital allocation planning levels cash debt balances demands cash acquisition activity general economic business conditions board management discretion additionally share repurchase activity particular period may fluctuate may accelerate suspend delay discontinue share repurchase program time without notice dividends paid dividends 1198 million 2017 1094 million 2016 1008 million 2015 august 2 2017 finance committee authorization delegated board directors approved 16 increase quarterly dividend 022 per common share 088 per common share annualized basis july 19 2016 board directors approved 12 increase quarterly dividend 019 per common share 076 per common share annual basis july 23 2015 board directors approved 13 increase quarterly dividend 017 per common share 068 per common share annual basis declaration dividends subject discretion board directors depends various factors including net earnings financial condition cash requirements future prospects factors board directors deems relevant analysis decision making us income tax purposes company determined 100 distributions paid shareholders 2017 characterized qualified dividend paid us earnings profits shareholders consult tax advisors full understanding tax consequences receipt dividends nongaap financial measures use nongaap financial information believe useful investors provides additional information facilitate comparisons historical operating results identify trends underlying operating results provide additional insight transparency evaluate business use nongaap financial measures budget make operating strategic decisions evaluate performance detailed nongaap adjustments make nongaap definitions adjustments generally fall within following categories acquisition divestiture activities gains losses intangible asset sales noncash impairments major program restructuring activities constant currency related adjustments major program financing hedging activities major items affecting comparability operating results believe nongaap measures always considered along related us gaap financial measures provided reconciliations gaap nongaap financial measures also discuss underlying gaap results throughout management’s discussion analysis financial condition results operations form 10k primary nongaap financial measures listed reflect evaluate current prioryear operating results new events circumstances arise definitions could change definitions change provide updated definitions present related nongaap historical results comparable basis 1 • “organic net revenue” defined net revenues excluding impacts acquisitions divestitures 2 historical global coffee business 3 historical venezuelan operations accounting calendar changes currency rate fluctuations 4 also evaluate organic net revenue growth emerging markets power brands • emerging markets include latin america region entirety amea region excluding australia new zealand japan following countries europe region russia ukraine turkey kazakhstan belarus georgia poland czech republic slovak republic hungary bulgaria romania baltics east adriatic countries developed markets include entire north america region europe region excluding countries included emerging markets definition australia new zealand japan amea region • power brands include largest global regional brands oreo chips ahoy ritz tucclub social belvita biscuits cadbury dairy milk milka lacta chocolate trident gum halls candy tang powdered beverages • “adjusted operating income” defined operating income excluding impacts 20122014 restructuring program 5 20142018 restructuring program 5 venezuela remeasurement deconsolidation losses historical operating results gains losses including noncash impairment charges goodwill intangible assets divestiture 2 acquisition gains losses related integration acquisition costs jde coffee business transactions 3 gain net incremental costs operating results divestitures 2 historical global coffee business operating results 3 marktomarket impacts commodity forecasted currency transaction derivative contracts 6 equity method investment earnings historically reported within operating income 7 benefits resolution tax matters 8 ceo transition remuneration 9 incremental expenses related malware incident also present “adjusted operating income margin” subject adjustments adjusted operating income also evaluate growth adjusted operating income constant currency basis 4 • “adjusted eps” defined diluted eps attributable mondelēz international continuing operations excluding impacts 20122014 restructuring program 5 20142018 restructuring program 5 venezuela remeasurement deconsolidation losses historical operating results losses debt extinguishment related expenses gains losses including noncash impairment charges goodwill intangible assets divestiture 2 acquisition gains losses related integration acquisition costs jde coffee business transactions 3 gain transaction hedging gains losses net incremental costs gain equity method investment transactions net earnings divestitures 2 marktomarket impacts commodity forecasted currency transaction derivative contracts 6 gains losses interest rate swaps longer designated accounting cash flow hedges due changed financing hedging plans benefits resolution tax matters 8 ceo transition remuneration 9 incremental expenses related malware incident us tax reform discrete impacts 10 similarly within adjusted eps equity method investment net earnings exclude proportionate share investees’ unusual infrequent items 11 also evaluate growth adjusted eps constant currency basis 4 1 items longer impact current future presentation nongaap operating results remove items nongaap definitions 2017 added nongaap definitions exclusion benefits resolution tax matters see footnote 8 ceo transition remuneration see footnote 9 incremental expenses related malware incident discussed malware incident us tax reform discrete impacts see footnote 10 2 divestitures include completed sales businesses exits major product lines upon completion sale licensing agreement 3 continue ongoing interest legacy coffee business deconsolidated 2015 part jde coffee business transactions historical periods prior july 15 2015 coffee business deconsolidation reclassified net revenue operating income historical coffee business included coffee equity method investment earnings presented within adjusted eps organic net revenue adjusted operating income periods include results legacy coffee businesses shown within adjusted eps 4 constant currency operating results calculated dividing multiplying appropriate currentperiod local currency operating results currency exchange rates used translate financial statements comparable prioryear period determine currentperiod us dollar operating results would currency exchange rate changed comparable prioryear period 5 nongaap adjustments related 20142018 restructuring program reflect costs incurred relate objectives program transform supply chain network organizational structure costs meet program objectives reflected nongaap adjustments refer annual report form 10k year ended december 31 2016 information 20122014 restructuring program 6 third quarter 2016 began exclude unrealized gains losses marktomarket impacts outstanding commodity forecasted currency transaction derivatives nongaap earnings measures time related exposures impact operating results since purchase commodity forecasted currency transaction contracts mitigate price volatility primarily inventory requirements future periods made adjustment remove volatility future inventory purchases current operating results facilitate comparisons underlying operating performance across periods also discontinued designating commodity forecasted currency transaction derivatives hedge accounting treatment facilitate comparisons underlying operating results recast historical nongaap earnings measures exclude marktomarket impacts 7 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 began record earnings equity method investments aftertax equity method investment earnings outside operating income following deconsolidation coffee business refer note 1 summary significant accounting policies annual report form 10k year ended december 31 2016 information 8 2017 recorded benefits reversal tax liabilities connection resolution brazilian indirect tax matter settlement preacquisition cadbury tax matters see note 12 commitments contingenciestax matters additional information 9 november 20 2017 dirk van de put succeeded irene rosenfeld ceo mondelēz international advance retirement end march 2018 order incent mr van de put join us provided compensation total combined target value 425 million make whole incentive awards forfeited grants made left former employer compensation granted took form cash deferred stock units performance share units stock options connection irene rosenfeld’s retirement made outstanding grants performance share units 20162018 20172019 performance cycles eligible continued vesting approved 05 million salary service chairman january march 2018 refer elements mr van de put’s ms rosenfeld’s compensation arrangements together “ceo transition remuneration” excluding amounts expense ceo transition remuneration 2017 future nongaap results amounts part regular compensation program incremental amounts would incurred ongoing ceo compensation result 2017 excluded amounts expensed cash payment mr van de put partial vesting equity grants 2018 expect exclude amounts paid ms rosenfeld’s service chairman partial vesting mr van de put’s ms rosenfeld’s equity grants 10 december 22 2017 united states enacted tax reform legislation included broad range business tax provisions detailed note 14 income taxes accounting new legislation complete made reasonable estimates tax provisions exclude discrete us tax reform impacts adjusted eps reflect ongoing tax obligations us tax reform 11 excluded proportionate share equity method investees’ unusual infrequent items acquisition divestiture related costs restructuring program costs discrete us tax reform impacts order provide investors comparable view performance across periods although shareholder rights board representation commensurate ownership interests equity method investees review underlying operating results unusual infrequent items reporting period direct control operations resulting revenue expenses use equity method investment net earnings adjusted basis intended imply control gaap “diluted eps attributable mondelēz international continuing operations” includes investees’ unusual infrequent items believe presentation nongaap financial measures considered together us gaap financial measures reconciliations corresponding us gaap financial measures provides complete understanding factors trends affecting business could obtained absent disclosures nongaap financial measures vary among companies nongaap financial measures presented report may comparable similarly titled measures used companies use nongaap financial measures meant considered isolation substitute us gaap financial measure limitation nongaap financial measures exclude items detailed impact us gaap reported results best way limitation addressed evaluating nongaap financial measures combination us gaap reported results carefully evaluating following tables reconcile us gaap reported figures nongaap financial measures form 10k organic net revenue applying definition “organic net revenue” adjustments made “net revenues” comparable us gaap financial measure exclude impact currency historical venezuelan operations adjustment deconsolidating historical coffee business accounting calendar change acquisitions divestitures believe organic net revenue reflects underlying growth ongoing activities business provides improved comparability results also evaluate organic net revenue growth emerging markets power brands underlying measures also reconciled us gaap 1 includes historical results venezuelan subsidiaries prior december 31 2015 deconsolidation refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information 2 includes historical global coffee business prior july 2 2015 jde coffee business transactions refer note 2 divestitures acquisitions nongaap definitions appearing earlier section information 3 year reevaluate power brands confirm brands continue make disproportionate investments may make changes planned investments primarily regional power brands following annual review cycles 2017 made limited changes list regional power brands reclassified 2016 2015 power brand net revenues basis consistent current list power brands adjusted operating income applying definition “adjusted operating income” adjustments made “operating income” comparable us gaap financial measure exclude 20122014 restructuring program costs 20142018 restructuring program costs impairment charges related intangible assets marktomarket impacts commodity forecasted currency transaction derivative contracts incremental expenses related malware incident acquisition integration costs acquisitionrelated costs divestiturerelated costs operating results divestitures net gain divestitures gain sale intangible assets benefits resolution tax matters ceo transition remuneration venezuela historical operating results remeasurement deconsolidation losses jde coffee business transactions gain net incremental costs operating income historical coffee business equity method investment earnings reclassified aftertax earnings q3 2015 connection coffee business transactions also present “adjusted operating income margin” subject adjustments adjusted operating income evaluate adjusted operating income constant currency basis believe measures provide improved comparability underlying operating results 1 refer note 6 20142018 restructuring program information refer annual report form 10k year ended december 31 2016 additional information note 6 restructuring programs 2 refer note 2 divestitures acquisitions note 5 goodwill intangible assets information trademark impairments 3 refer note 8 financial instruments note 16 segment reporting nongaap financial measures appearing earlier section information unrealized lossesgains commodity forecasted currency transaction derivatives 4 refer note 2 divestitures acquisitions information acquisition biscuit business vietnam 5 refer note 2 divestitures acquisitions information 2017 sales confectionery business france grocery business australia new zealand certain licenses khcowned brands used grocery business within europe region sale one equity method investments sale confectionary business japan additionally 2016 amount includes sale confectionery business costa rica 6 refer note 2 divestitures acquisitions information 2016 intangible asset sale finland 7 refer note 12 commitments contingencies tax matters information primarily includes reversal tax liabilities connection resolution brazilian indirect tax matter settlement preacquisition cadbury tax matters 8 includes historical results venezuelan subsidiaries prior december 31 2015 deconsolidation refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information deconsolidation remeasurement loss 2015 9 refer note 2 divestitures acquisitions information jde coffee business transactions 10 includes historical global coffee business prior july 2 2015 deconsolidation reclassified results historical coffee business adjusted operating income included equity method investment earnings adjusted eps facilitate comparisons past future coffee operating results refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 11 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting jde earnings began record earnings equity method investments equity method investment earnings outside operating income periods prior july 2 2015 reclassified equity method earnings adjusted operating income evaluate operating results consistent basis adjusted eps applying definition “adjusted eps” 1 adjustments made “diluted eps attributable mondelēz international” comparable us gaap financial measure exclude 20142018 restructuring program costs impairment charges related intangible assets marktomarket impacts commodity forecasted currency transaction derivative contracts incremental expenses related malware incident acquisition integration costs divestiturerelated costs net earnings divestitures aftertax gainslosses divestitures gain sale intangible assets benefits resolution tax matters ceo transition remuneration losses interest rate swaps longer designated accounting cash flow hedges due changed financing hedging plans losses debt extinguishment related expenses us tax reform discrete net tax benefit venezuela historical operating results remeasurement deconsolidation losses jde coffee business transactions gain hedging gains net incremental costs operating income historical coffee business equity method investment earnings reclassified aftertax earnings q3 2015 connection coffee business transactions gain equity method investment transactions proportionate share unusual infrequent items recorded jde keurig equity method investees also evaluate adjusted eps constant currency basis believe adjusted eps provides improved comparability underlying operating results 1 tax expensebenefit pretax items excluded gaap results computed based facts tax assumptions associated item impacts also excluded adjusted eps • year ended december 31 2017 taxes 20142018 restructuring program costs 190 million intangible asset impairment charges 30 million acquisition integration costs zero gain equity method investment transactions 15 million net gain divestitures 7 million net earnings divestitures 15 million divestiturerelated costs 8 million loss debt extinguishment related costs 4 million malware incident incremental costs 27 million benefits resolution tax matters 75 million equity method investee acquisitionrelated adjustments 35 million ceo transition remuneration 5 million marktomarket gainslosses derivatives 6 million us tax reform 59 million • year ended december 31 2016 taxes 20142018 restructuring program costs 288 million intangible asset impairment charges 37 million gain sale intangible assets 3 million acquisition integration costs zero net earnings divestitures 40 million divestiturerelated costs 15 million loss debt extinguishment related costs 163 million loss related interest rate swaps 36 million marktomarket gainslosses derivatives 11 million • year ended december 31 2015 taxes 20142018 restructuring program costs 262 million incomecosts associated jde coffee business transactions 145 million net earnings venezuelan subsidiaries 107 million gain jde coffee business transactions 183 million intangible asset impairment charges 13 million net earnings divestitures 80 million loss debt extinguishment related costs 275 million loss related interest rate swaps 13 million marktomarket gainslosses derivatives 15 million 2 see adjusted operating income table related footnotes information 3 refer note 8 financial instruments information interest rate swaps longer designate cash flow hedges first quarter 2016 due changes financing hedging plans 4 refer note 7 debt borrowing arrangements information loss debt extinguishment related expenses connection debt discharge 5 refer note 14 income taxes information impact us tax reform 6 refer note 2 divestitures acquisitions information 2017 sale one equity method investments 2016 acquisition interest keurig 7 includes proportionate share unusual infrequent items acquisition divestiturerelated costs restructuring program costs discrete us tax reform impacts recorded jde keurig equity method investees 8 includes historical results venezuelan subsidiaries prior december 31 2015 deconsolidation refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information deconsolidation remeasurement loss 2015 9 refer note 2 divestitures acquisitions information jde coffee business transactions net gains 436 million 2015 currency hedges related jde coffee business transactions recorded interest expense net included incomecosts associated jde coffee business transactions 001 table item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis contains forwardlooking statements read conjunction sections annual report form 10k including consolidated financial statements related notes contained forwardlooking statements item 1a risk factors description company make sell primarily snacks including biscuits cookies crackers salted snacks chocolate gum candy well various cheese grocery powdered beverage products operations 80 countries sell products 150 countries aim global leader snacking strategy drive longterm growth focusing three strategic priorities accelerating consumercentric growth driving operational excellence creating winning growth culture believe successful implementation strategic priorities leveraging strong foundation iconic global local brands attractive global footprint deep innovation marketing distribution capabilities drive top bottomline growth enabling us continue create longterm value shareholders significant items affecting comparability keurig dr pepper transaction july 9 2018 keurig green mountain inc keurig closed definitive merger agreement dr pepper snapple group inc formed keurig dr pepper inc nyse kdp publicly traded company following close transaction 242 investment keurig together shareholder loan receivable became 138 investment kdp third quarter 2018 recorded preliminary pretax gain 757 million reported gain equity method transaction 184 million deferred tax expense reported provision income taxes 573 million aftertax gain related change ownership interest kdp finalized valuation transaction fourth quarter 2018 kdp finalized opening balance sheet increased pretax gain 21 million 13 million tax 778 million 586 million tax 2018 hold two director positions kdp board well additional governance rights continue significant influence continue account investment kdp equity method resulting recognizing share earnings within earnings share dividends within cash flows connection transaction changed accounting principle reflect share keurigs historical kdps ongoing earnings onequarter lag basis continue record dividends cash received determined lag preferable enables us continue report quarterly annual results timely basis record share kdp’s ongoing results kdp publicly reported results change accounting principle applied retrospectively periods operating income change equity method investment net earnings net earnings per share adjusted reflect lag across reported periods refer note 6 equity method investments additional information us tax reform december 22 2017 united states enacted tax reform legislation us tax reform included broad range business tax provisions including limited reduction us federal tax rate 35 21 well provisions limit eliminate various deductions credits legislation also causes us allocated expenses eg interest general administrative expenses taxed imposes new tax us crossborder payments furthermore legislation includes onetime transition tax accumulated foreign earnings profits clarifying guidance issued internal revenue service “irs” 2018 tax guidance expected 2019 certain impacts new legislation would generally required accounting completed incorporated 2017 yearend financial statements however response complexities new legislation sec issued guidance provide companies relief sec provided oneyear window companies finalize accounting impacts new legislation finalized accounting new provisions fourth quarter 2018 impact finalizing accounting new provisions discrete net tax expense 19 million 19 million expense 2018 primarily comprised 60 million expense related finalizing changes indefinite reinvestment assertion partially offset 38 million decrease transition tax estimated december 31 2017 refer note 15 income taxes information impact us tax reform multiemployer pension plan withdrawal united states contribute multiemployer pension plans based obligations arising collective bargaining agreements 2017 2016 individually significant multiemployer plan contributed bakery confectionery union industry international pension fund “fund” obligation contribute fund arose respect 8 collective bargaining agreements covering employees represented bakery confectionery tobacco grain millers union bctgm collective bargaining agreements expired 2016 fourth quarter 2018 executed complete withdrawal fund estimated withdrawal liability 573 million represents best estimate withdrawal liability absent assessment fund anticipate receiving assessment 2019 ultimate withdrawal liability may change currently estimated amount record future adjustments period liability confirmed new information becomes available expect pay liability period 20 years date assessment 2018 within north america segment recorded discounted liability related charge 423 million 316 million net tax determined net present value liability using riskfree interest rate recorded pretax noncash charges selling general administrative expense noncash items net consolidated statement cash flows liability longterm liabilities 2018 also recorded 6 million accreted interest related longterm liability within interest expense net malware incident june 27 2017 global malware incident impacted business malware affected significant portion global sales distribution financial networks last four days second quarter third quarter 2017 executed business continuity contingency plans contain impact minimize damages restore systems environment date found expect find instances company personal data released externally also restored main operating systems processes enhanced system security second quarter 2017 estimated malware incident negative impact 23 net revenue growth 24 organic net revenue growth also incurred incremental expenses 7 million result incident recognized majority delayed second quarter shipments third quarter 2017 results although permanently lost revenue 2017 fullyear basis estimated loss revenue negative impact 04 net revenue organic net revenue growth also incurred total incremental expenses 84 million predominantly second half 2017 part recovery effort recovery incident largely resolved december 31 2017 continued efforts strengthen security measures enhance general information technology business process disclosure controls summary results • net revenues approximately 259 billion 2018 2017 increase 02 2018 decrease 01 2017 2018 net revenues grew due higher net pricing favorable volumemix net revenues also positively affected acquisition us premium biscuit company tates bake shop 2018 net revenue growth negatively affected impact unfavorable currency translation impact several business divestitures occurred 2017 reduced net revenues 2018 compared prior year 2017 net revenues declined driven several business divestitures occurred year partially offset favorable currency translation impact biscuit acquisition 2016 • organic net revenue increased 24 262 billion 2018 increased 09 255 billion 2017 2018 organic net revenue increased result higher net pricing favorable volumemix 2017 organic net revenue increased result higher net pricing partially offset unfavorable volumemix organic net revenue constant currency basis excludes revenue divestitures acquisitions use organic net revenue provides improved yearoveryear comparability underlying operating results see definition organic net revenue reconciliation net revenues within nongaap financial measures appearing later section • diluted eps attributable mondelēz international increased 232 228 2018 increased 779 185 2017 diluted eps increased 2018 primarily driven aftertax gain kdp transaction favorable yearoveryear change marktomarket impacts currency commodity derivatives operating gains lower costs incurred simplify grow program lower shares outstanding increased equity method investment earnings lower taxes partially offset impact pension participation changes lapping benefit resolution tax matters lapping prioryear net gain divestitures diluted eps increased 2017 prioryear refinancing higher restructuring activities drove lower interest overhead costs 2017 also recorded benefits resolving two local indirect tax matters gains divesting noncore businesses 2017 see discussion analysis historical results appearing later section details • adjusted eps increased 136 243 2018 increased 163 214 2017 constant currency basis adjusted eps increased 150 246 2018 increased 158 213 2017 2018 operating gains lower shares outstanding increased equity method investment earnings lower taxes lower interest drove adjusted eps growth 2017 operating gains lower interest expense increased equity method investment earnings lower shares outstanding significant drivers adjusted eps growth adjusted eps adjusted eps constant currency basis nongaap financial measures use measures provide improved yearoveryear comparability underlying results see definition adjusted eps reconciliation diluted eps within nongaap financial measures appearing later section financial outlook seek achieve profitable longterm growth manage business attain goal using key operating metrics organic net revenue adjusted operating income adjusted eps use nongaap financial metrics related computations particularly growth profit dollars evaluate manage business plan make nearand longterm operating strategic decisions believe metrics useful investors provide supplemental information addition us generally accepted accounting principles “us gaap” financial results believe useful provide investors financial information use internally make comparisons historical operating results identify trends underlying operating results evaluate business believe nongaap financial measures always considered relation gaap results provided reconciliations gaap nongaap financial measures nongaap financial measures appears later section addition monitoring key operating metrics monitor number developments trends could impact revenue profitability objectives longterm demographics consumer trends snack food consumption highly correlated gdp growth urbanization populations rising discretionary income levels associated growing middle class particularly emerging markets long term expect trends continue leading growth consumer behaviors frequent smaller meals snacking greater use convenience foods also recognize changing consumer trends increased emphasis wellbeing time compression wide participation across evolving retail digital landscape position longterm growth investing wellbeing snack offerings product marketing innovation new routes market including ecommerce demand monitor consumer spending market share within food beverage categories sell products recent years low gdp growth economic recessionary pressures weak consumer confidence historically strong us dollar changing consumer trends slowed category growth begun see improvements global economic growth consumer confidence however still geopolitical economic uncertainties may affect category growth global snacking categories improved year approximately 27 2018 21 2017 23 2016 part new strategic plan seek drive category growth leveraging localfirst commercial approach making additional investments brand snacks portfolio building strong routes market emerging developed markets improving position across multiple channels believe actions help drive demand categories strengthen positions across markets volatility global markets growth strategy depends part ability expand operations particularly emerging markets emerging markets greater political economic currency volatility greater vulnerability infrastructure labor disruptions volatility markets affects demand costs products requires frequent changes operate business see discussion brexit argentina designated highly inflationary economy 2018 addition imposition increased new tariffs quotas trade barriers similar restrictions sales key commodities potential changes us trade programs trade relations regulations taxes fiscal policies might negatively affect sales profitability help mitigate adverse effects ongoing volatility across markets aim protect profitability management costs including hedging pricing well invest brands new routes market competition operate highly competitive markets include global regional local competitors advantaged geographic footprint operating scale portfolio brands significantly contributed building marketleading positions across product categories sell grow maintain market positions focus meeting consumer needs preferences localfirst commercial focus new digital sales marketing initiatives agile product innovation high standards product quality also continue optimize manufacturing operations invest brands ongoing research development advertising marketing consumer promotions pricing net revenue growth profitability may affected adjust prices address new conditions adjust product prices based number variables including demand competitive environment changes product input costs generally increased prices response higher commodity costs currency market factors 2019 anticipate changing market conditions continue impact pricing price changes may affect net revenues market share near term market adjusts changes input costs market conditions operating costs operating costs include raw materials labor selling general administrative expenses taxes currency impacts financing costs manage costs cost saving productivity initiatives sourcing hedging programs pricing actions refinancing tax planning remain competitive operating structure continue work programs expand profitability simplify grow program designed bring significant reductions operating cost structure supply chain overhead costs multiemployer pension plan 2018 executed complete withdrawal fund estimated withdrawal liability 573 million represents best estimate withdrawal liability absent assessment fund anticipate receiving assessment 2019 ultimate withdrawal liability may change currently estimated amount record future adjustments period liability confirmed new information becomes available expect pay liability period 20 years date assessment 2018 within north america segment recorded discounted liability related charge 423 million 316 million net tax taxes december 2017 united states enacted us tax reform legislation implements many new us domestic international tax provisions year enactment aspects us tax reform still remain unclear although additional clarifying guidance issued irs us treasury department still areas may clarified time also number us states yet updated laws take account new federal legislation result may impact new laws future results operations financial condition possible us tax reform interpretations could change could adverse effect us effect could material currency global company 753 net revenues generated outside united states continually exposed changes global economic conditions currency movements hedge significant forecasted currency exchange transactions well currency translation impacts certain net assets nonus operations including united kingdom cannot fully predict eliminate adverse impacts arising changes currency exchange rates consolidated financial results partially offset currency translation impacts arising overseas operations enter net investment hedges primarily form local currencydenominated debt crosscurrency swaps financial instruments work mitigate exposure currency risks factors continued global local market volatility actions foreign governments political uncertainty limited hedging opportunities factors could lead unfavorable currency impacts future could adversely affect results operations financial position see additional discussion brexit argentina refer also note 1 summary significant accounting policies currency translation highly inflationary accounting note 9 financial instruments additional information manage currency related risks currency movements make comparison yearoveryear operating performance challenging isolate impact currency also report growth constant currency basis holding prioryear currency exchange rates constant prioryear currentyear results compared consistent basis brexit continue monitor brexit take protective measures response potential impacts results operations financial condition exposure disruptions supply chain imposition tariffs currency devaluation united kingdom could result material impact consolidated revenue earnings cash flow 2018 generated 86 net revenues united kingdom supply chain market relies imports raw packaging materials well finished goods following brexit vote june 2016 significant volatility global stock markets currency exchange rates value british pound sterling relative us dollar declined significantly negatively affected translated results reported us dollars volatility foreign currencies expected continue united kingdom executes exit european union uks membership european union terminates march 2019 without agreement “hard brexit” could increased costs reimposition tariffs trade united kingdom european union shipping delays need customs inspections procedures shortages certain goods united kingdom also need negotiate tax trade treaties countries world could take years complete ultimate terms uk’s separation european union negatively impact uk economy result disruptions sales supply chain impact results operations financial condition could material taking measures increase resources customer service logistics together increasing inventory levels imported raw materials packaging finished goods united kingdom help us manage brexit transition inherent risks resulting impacts market volatility vary significantly depending final terms uk’s exit agreement european union argentina discussed note 1 summary significant accounting policies currency translation highly inflationary accounting july 1 2018 began apply highly inflationary accounting argentinean subsidiaries 2018 recorded 11 million remeasurement loss net earnings related devaluation argentinean peso denominated net monetary assets july 1 2018 december 31 2018 mix monetary assets liabilities exchange rate convert argentinean pesos us dollars could change time difficult predict overall impact argentina highly inflationary accounting future net earnings accounting standards adopted new lease accounting standard january 1 2019 significant impact initial recognition operating lease right use assets lease liabilities balance sheet accounting finance leases ie capital leases remains substantially unchanged refer note 1 summary significant accounting policies information estimated impact new lease accounting standard financing costs regularly evaluate variable fixedrate debt continue use lowcost short longterm debt finance ongoing working capital expenditures investments dividends share repurchases weightedaverage interest rate total debt december 31 2018 23 21 december 31 2017 22 december 31 2016 primarily due higher interest rates commercial paper borrowings 2018 expect use cash proceeds debt issuances finance 12 billion remaining us tax reform transition tax installments payable 2026 estimated 573 million multiemployer pension plan withdrawal liability payable 20 years date final assessment fund continue use interest rate swaps financial instruments manage exposure interest rate cash flow variability protect value existing currency assets liabilities protect value debt also enter crosscurrency interest rate swaps forwards hedge nonus net investments adverse movements exchange rates connection net investment hedge derivative contracts expect favorable impact prospective financing costs reduce financing costs related currency impacts within interest costs refer note 8 debt borrowing arrangements note 9 financial instruments additional information debt derivative activity cybersecurity risks 2017 malware incident impacted operating systems results continue devote focused resources network security backup disaster recovery enhanced training security measures protect systems data also focus enhancing monitoring detection threats environment including limited manufacturing environment operational technologies well adjusting information security controls based updated threats taken number security measures protect systems data security measures cannot provide absolute certainty guarantee successful preventing responding every breach disruption timely basis discussion analysis historical results items affecting comparability financial results following table includes significant income expense items affected comparability results operations effective tax rates please refer notes consolidated financial statements indicated information refer also consolidated results operations net earnings per share attributable mondelēz international table aftertax per share impacts items 1 gain equity method investment transactions recorded outside pretax operating results consolidated statement earnings 2 refer annual report form 10k year ended december 31 2017 information prioryear intangible asset impairment charges 3 please see nongaap financial measures section end item additional information consolidated results operations following discussion compares consolidated results operations 2018 2017 2016 2018 compared 2017 net revenues net revenues increased 42 million 02 25938 million 2018 organic net revenue 1 increased 603 million 24 26229 million power brands net revenues increased 20 including unfavorable currency impact power brands organic net revenue increased 32 emerging markets net revenues decreased 05 including unfavorable currency impact emerging markets organic net revenue increased 57 underlying changes net revenues organic net revenue detailed 1 please see nongaap financial measures section end item net revenue increase 02 driven underlying organic net revenue growth 24 impact acquisition mostly offset unfavorable currency impact divestitures underlying organic net revenue growth driven higher net pricing favorable volumemix net pricing includes benefit carryover pricing 2017 well effects input costdriven pricing actions taken 2018 higher net pricing reflected latin america amea north america partially offset lower net pricing europe favorable volumemix reflected europe amea partially offset unfavorable volumemix latin america north america june 7 2018 acquisition us premium biscuit company tate’s bake shop added net revenues 52 million 2018 unfavorable currency impacts decreased net revenues 343 million due primarily strength us dollar relative several currencies including argentinean peso brazilian real russian ruble indian rupee turkish lira partially offset strength several currencies relative us dollar including euro british pound sterling chinese yuan impact divestitures occurred 2017 resulted yearoveryear decline net revenues 270 million refer note 2 divestitures acquisitions information operating income operating income decreased 150 million 43 3312 million 2018 adjusted operating income 1 increased 202 million 49 4321 million adjusted operating income constant currency basis 1 increased 257 million 62 4376 million due following 1 refer nongaap financial measures section end item 2 refer note 7 restructuring program information 3 refer note 5 goodwill intangible assets information trademark impairments 4 refer note 9 financial instruments note 17 segment reporting nongaap financial measures section end item information unrealized gainslosses commodity forecasted currency transaction derivatives 5 refer note 2 divestitures acquisitions information prioryear divestitures june 7 2018 acquisition tates bake shop 2016 acquisition biscuit business vietnam 6 refer note 13 commitments contingencies tax matters information 7 refer note 2 divestitures acquisitions includes impact june 7 2018 acquisition tates bake shop 8 refer note 1 summary significant accounting policies currency translation highly inflationary accounting information application highly inflationary accounting argentina 9 refer note 10 benefit plans information 2018 realized higher net pricing partially offset increased input costs higher net pricing included carryover impact pricing actions taken 2017 well effects input costdriven pricing actions taken 2018 reflected across regions except europe increase input costs driven higher raw material costs mostly offset lower manufacturing costs due productivity efforts higher raw material costs primarily due higher currency exchange transaction costs imported materials well higher packaging dairy energy partially offset primarily lower cocoa costs favorable volumemix driven europe amea partially offset unfavorable volumemix north america latin america total selling general administrative expenses increased 537 million 2017 due number factors noted table including part impact pension participation changes lapping prioryear benefits resolution tax matters lapping prioryear property insurance recovery acquisitionrelated costs remeasurement net monetary position argentina impact acquisition higher ceo transition remuneration increases partially offset favorable currency impact lower implementation costs incurred simplify grow program lower divestiturerelated costs lapping prioryear malware incident incremental costs valueadded tax “vat” related settlement 2018 impact divestitures net benefit resolution tax matters 2018 excluding factors selling general administrative expenses increased 83 million 2017 increase driven yearover year net unfavorable change miscellaneous income expense items within selling general administrative expenses higher overhead costs offset lower advertising consumer promotion costs recorded benefit 21 million vatrelated settlement latin america 2018 recorded benefit 27 million insurance recovery amea 2017 unfavorable currency changes decreased operating income 55 million due primarily strength us dollar relative several currencies including brazilian real argentinean peso russian ruble turkish lira partially offset strength several currencies relative us dollar including euro british pound sterling operating income margin decreased 134 2017 128 2018 decrease operating income margin driven impact pension participation changes lapping prioryear benefits resolution tax matters lapping prioryear gain divestiture higher ceo transition remuneration unfavorable items partially offset yearoveryear favorable change marktomarket gainslosses currency commodity hedging activities lower simplify grow program costs increase adjusted operating income margin lapping prioryear malware incident incremental costs lower divestiturerelated costs lower intangible asset impairment charges adjusted operating income margin increased 161 2017 167 2018 increase adjusted operating income margin driven primarily higher net pricing lower manufacturing costs due continued cost reduction efforts lower advertising consumer promotion costs partially offset higher raw material costs net earnings per share attributable mondelēz international net earnings attributable mondelēz international 3381 million increased 553 million 196 2018 diluted eps attributable mondelēz international 228 2018 043 232 2017 adjusted eps 1 243 2018 029 136 2017 adjusted eps constant currency basis 1 246 2018 032 150 2017 1 refer nongaap financial measures section appearing later section 2 see operating income table related footnotes information 3 refer note 15 income taxes information impact us tax reform 4 refer note 6 equity method investments information kdp transaction 2018 2017 sale interest one equity method investments 5 includes proportionate share unusual infrequent items acquisition divestiturerelated costs restructuring program costs discrete us tax reform impacts recorded jde keurig equity method investees 6 excludes currency impact interest expense related nonus dollardenominated debt included currency translation 7 refer note 15 income taxes information items affecting income taxes 8 refer note 11 stock plans information equity compensation programs share repurchase program note 16 earnings per share earnings per share weightedaverage share information 9 refer note 9 financial instruments information interest rate swaps longer designate cash flow hedges 10 refer note 8 debt borrowing arrangements information losses debt extinguishment 2017 compared 2016 net revenues net revenues decreased 27 million 01 25896 million 2017 organic net revenue 1 increased 220 million 09 25490 million power brands net revenues increased 29 including favorable currency impact power brands organic net revenue increased 21 emerging markets net revenues increased 37 including favorable currency impact emerging markets organic net revenue increased 36 underlying changes net revenues organic net revenue detailed 1 please see nongaap financial measures section end item net revenue decline 01 driven impact divestitures partially offset underlying organic net revenue growth 09 favorable currency impact acquisition impact divestitures resulted yearoveryear decline net revenues 383 million 2017 underlying organic net revenue increase driven higher net pricing partially offset unfavorable volumemix net pricing includes benefit carryover pricing 2016 well effects input costdriven pricing actions taken 2017 higher net pricing reflected latin america amea partially offset lower net pricing north america europe unfavorable volumemix reflected segments except europe part due expected shipments realize following second quarter malware incident favorable yearoveryear currency impacts increased net revenues 77 million due primarily strength several currencies relative us dollar including brazilian real euro russian ruble australian dollar indian rupee south african rand partially offset strength us dollar relative several currencies including egyptian pound british pound sterling argentinean peso nigerian naira turkish lira philippine peso chinese yuan november 2 2016 acquisition business license manufacture market sell cadburybranded biscuits additional key markets added 59 million constant currency basis incremental net revenues 2017 operating income operating income increased 908 million 356 3462 million 2017 adjusted operating income 1 increased 346 million 92 4119 million adjusted operating income constant currency basis 1 increased 343 million 91 4116 million due following 1 refer nongaap financial measures section end item 2 refer note 7 restructuring program information 3 refer note 2 divestitures acquisitions note 5 goodwill intangible assets information trademark impairments 4 refer note 9 financial instruments note 17 segment reporting nongaap financial measures appearing later section information unrealized gainslosses commodity forecasted currency transaction derivatives 5 refer note 2 divestitures acquisitions information acquisition biscuit business vietnam 6 refer note 2 divestitures acquisitions information 2017 sales confectionery business france grocery business australia new zealand certain licenses khcowned brands used grocery business within europe region sale one equity method investments sale confectionary business japan additionally 2016 amount includes sale confectionery business costa rica 7 refer note 2 divestitures acquisitions information 2016 intangible asset sale finland 8 refer note 2 divestitures acquisitions information 2016 purchase license manufacture market sell cadburybranded biscuits additional key markets property sales 2016 9 refer note 13 commitments contingencies tax matters information primarily includes reversal tax liabilities connection resolution brazilian indirect tax matter settlement preacquisition cadbury tax matters 2017 realized higher net pricing input costs increased modestly higher net pricing included carryover impact pricing actions taken 2016 well effects input costdriven pricing actions taken 2017 driven latin america amea partially offset lower net pricing north america europe increase input costs driven higher raw material costs partially offset lower manufacturing costs due productivity unfavorable volumemix driven north america latin america amea partially offset favorable volumemix europe total selling general administrative expenses decreased 608 million 2016 due number factors noted table including part benefits resolution tax matters lower implementation costs incurred simplify grow program lower divestiturerelated costs property insurance recovery amea lower intangible asset impairment charges decreases partially offset gains sales property 2016 unfavorable currency impact valueadded tax “vat” related settlements 2016 incremental expenses incurred due malware incident excluding factors noted selling general administrative expenses decreased 380 million 2016 decrease driven primarily lower overhead costs lower advertising consumer promotion costs due continued cost reduction efforts areas currency changes year impact operating income strength us dollar relative several currencies including egyptian pound british pound sterling argentinean peso offset strength several currencies relative us dollar including euro brazilian real russian ruble australian dollar indian rupee south african rand operating income margin increased 99 2016 134 2017 increase operating income margin driven primarily increase adjusted operating income margin lower simplify grow program costs benefits resolution tax matters net gain divestitures lower divestiturerelated costs partially offset incremental costs related malware incident ceo transition remuneration costs adjusted operating income margin increased 149 2016 161 2017 increase adjusted operating income margin driven primarily lower overheads lower advertising consumer promotion costs due continued cost reduction efforts areas net earnings per share attributable mondelēz international net earnings attributable mondelēz international 2828 million increased 1193 million 730 2017 diluted eps attributable mondelēz international 185 2017 081 779 2016 adjusted eps 1 214 2017 030 163 2016 adjusted eps constant currency basis 1 213 2017 029 158 2016 1 refer nongaap financial measures section appearing later section 2 see operating income table related footnotes information 3 refer note 9 financial instruments information interest rate swaps longer designate cash flow hedges effective first quarter 2016 due changes financing hedging plans 4 refer note 8 debt borrowing arrangements information loss debt extinguishment related expenses connection debt tender offers 5 refer note 6 equity method investments keurig information 2016 acquisition interest keurig 6 includes proportionate share unusual infrequent items acquisition divestiturerelated costs restructuring program costs discrete us tax reform impacts recorded jde keurig equity method investees 7 excludes currency impact interest expense related nonus dollardenominated debt included currency translation 8 refer note 15 income taxes information items affecting income taxes 9 refer note 11 stock plans information equity compensation programs note 12 capital stock information share repurchase program note 16 earnings per share earnings per share weightedaverage share information 10 refer note 15 income taxes information impact us tax reform 11 refer note 6 equity method investments information 2017 sale interest one equity method investments results operations operating segment operations management structure organized four operating segments • latin america • amea • europe • north america manage operations region leverage regional operating scale manage different changing business environments effectively pursue growth opportunities arise key markets regional management teams responsibility business product categories financial results regions use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends see note 17 segment reporting additional information segments items affecting comparability financial results earlier section items affecting segment operating results segment net revenues earnings 1 first quarter 2018 connection adopting new pension cost classification accounting standard reclassified certain benefit plan component costs service costs operating income new line item benefit plan nonservice income consolidated statements earnings recast historical operating income segment operating income reflect reclassification impact earnings income taxes net earnings latin america 2018 compared 2017 net revenues decreased 364 million 102 due unfavorable currency 138 pp unfavorable volumemix 26 pp partially offset higher net pricing 62 pp unfavorable currency impacts due primarily strength us dollar relative currencies region including argentinean peso brazilian real mexican peso unfavorable volumemix due primarily impact pricingrelated elasticity well part due negative impact brazil trucking strike occurred second quarter unfavorable volumemix driven declines categories except biscuits higher net pricing reflected across categories driven primarily argentina mexico brazil segment operating income decreased 154 million 273 primarily due lapping last years benefit resolution brazilian indirect tax matter 153 million higher raw material costs unfavorable currency higher selling general administrative expenses net benefit vatrelated settlement 2018 unfavorable volumemix loss remeasurement net monetary position argentina unfavorable items partially offset higher net pricing lower manufacturing costs 2018 benefit resolution brazilian tax matter 26 million lower advertising consumer promotion costs lower costs incurred simplify grow program lapping 2017 intangible asset impairment charges 2017 compared 2016 net revenues increased 174 million 51 due higher net pricing 77 pp favorable currency 19 pp partially offset unfavorable volumemix 42 pp impact divestiture 03 pp higher net pricing reflected across categories driven primarily argentina brazil mexico favorable currency impacts due primarily strength several currencies region relative us dollar primarily brazilian real partially offset strength us dollar relative argentinean peso mexican peso unfavorable volumemix occurred across region largely due impact pricingrelated elasticity addition portion shipments delayed end second quarter due malware incident recovered unfavorable volumemix driven declines categories except chocolate candy december 1 2016 sold small confectionery business costa rica segment operating income increased 292 million 1074 primarily due higher net pricing benefit resolution brazilian indirect tax matter 153 million lower manufacturing costs lower costs incurred simplify grow program favorable currency lower advertising consumer promotion costs favorable items partially offset higher raw material costs unfavorable volumemix higher selling general administrative expenses net prioryear vatrelated settlements amea 2018 compared 2017 net revenues decreased 10 million 02 due impact divestitures 24 pp unfavorable currency 13 pp partially offset favorable volumemix 19 pp higher net pricing 16 pp impact divestitures related grocery cheese business australia new zealand divested july 4 2017 confectionery business japan divested december 28 2017 resulted yearoveryear decline net revenues 133 million 2018 unfavorable currency impacts due primarily strength us dollar relative several currencies region including indian rupee australian dollar philippine peso partially offset strength several currencies region relative us dollar including chinese yuan japanese yen favorable volumemix including shift chinese new year first quarter 2018 driven gains chocolate biscuits partially offset declines refreshment beverages cheese grocery gum candy higher net pricing reflected across categories except gum candy segment operating income increased 188 million 366 primarily due higher net pricing lower costs incurred simplify grow program lower manufacturing costs lower intangible asset impairment charges lower advertising consumer promotion costs favorable volumemix favorable items partially offset higher raw material costs impact divestitures unfavorable currency higher selling general administrative expenses net prioryear property insurance recovery 2017 compared 2016 net revenues decreased 77 million 13 due impact divestitures 22 pp unfavorable currency 18 pp unfavorable volumemix 02 pp partially offset higher net pricing 29 pp impact divestitures primarily related grocery cheese business australia new zealand divested july 4 2017 resulted yearoveryear decline net revenues 128 million 2017 unfavorable currency impacts due primarily strength us dollar relative several currencies region including egyptian pound nigerian naira philippine peso chinese yuan japanese yen partially offset strength several currencies region relative us dollar including australian dollar indian rupee south african rand unfavorable volumemix driven declines refreshment beverages cheese grocery gum candy partially offset gains chocolate biscuits addition portion shipments delayed end second quarter due malware incident recovered higher net pricing reflected across categories except cheese grocery segment operating income increased 9 million 18 primarily due higher net pricing lower selling general administrative expenses including property insurance recovery lower manufacturing costs lower advertising consumer promotion costs favorable items mostly offset higher raw material costs unfavorable currency unfavorable volumemix higher costs incurred simplify grow program impact divestitures higher intangible asset impairment charges europe 2018 compared 2017 net revenues increased 328 million 33 due favorable volumemix 31 pp favorable currency 23 pp partially offset impact divestitures 15 pp lower net pricing 06 pp favorable volumemix driven chocolate biscuits candy partially offset declines cheese grocery gum refreshment beverages favorable currency impacts reflected strength several currencies relative us dollar primarily euro british pound sterling polish zloty czech koruna partially offset strength us dollar relative several currencies primarily russian ruble turkish lira impact divestitures due sale confectionery business france termination certain kraft heinz companyowned grocery brand licenses resulted yearoveryear decline net revenues 137 million 2018 lower net pricing driven chocolate biscuits partially offset higher net pricing cheese grocery candy gum segment operating income increased 124 million 77 primarily due favorable volumemix lower manufacturing costs lower costs incurred simplify grow program favorable currency lower raw material costs lower divestiturerelated costs lapping prioryear malware incident incremental costs favorable items partially offset higher advertising consumer promotion costs higher selling general administrative expenses lower net pricing lapping prioryear benefit settlement cadbury tax matter higher intangible asset impairment charges impact divestitures 2017 compared 2016 net revenues increased 39 million 04 due favorable volumemix 14 pp favorable currency 10 pp impact acquisition 06 pp partially offset impact divestitures 25 pp lower net pricing 01 pp favorable volumemix driven chocolate biscuits partially offset declines gum cheese grocery candy refreshment beverages addition portion shipments delayed end second quarter due malware incident recovered favorable currency impacts reflected strength several currencies relative us dollar primarily euro russian ruble partially offset strength us dollar several currencies region including british pound sterling turkish lira november 2016 acquisition business license manufacture market sell cadburybranded biscuits added net revenues 59 million constant currency basis impact divestitures primarily due sale confectionery business france resulted yearoveryear decline net revenues 234 million 2017 lower net pricing driven biscuits mostly offset higher net pricing categories segment operating income increased 412 million 344 primarily due lower manufacturing costs lower costs incurred simplify grow program lower selling general administrative expenses lower divestiturerelated costs lower advertising consumer promotion costs benefit settlement cadbury tax matter favorable volumemix lower intangible asset impairment charges favorable currency impact acquisition favorable items partially offset higher raw material costs impact divestitures incremental costs incurred due malware incident lower net pricing prioryear gain sale intangible asset north america 2018 compared 2017 net revenues increased 88 million 13 due higher net pricing 11 pp impact acquisition 08 pp partially offset unfavorable volumemix 05 pp unfavorable currency 01 pp higher net pricing reflected biscuits gum partially offset lower net pricing chocolate candy june 7 2018 acquisition us premium biscuit company tate’s bake shop added net revenues 52 million 2018 unfavorable volumemix net benefit lapping last years negative impact 2017 malware incident reflected declines gum chocolate partially offset gains biscuits candy unfavorable currency impact due strength us dollar relative canadian dollar segment operating income decreased 295 million 258 primarily due impact pension participation changes higher manufacturing costs unfavorable volumemix higher raw material costs higher selling general administrative expenses unfavorable items partially offset lower advertising consumer promotion costs higher net pricing lapping prioryear malware incident incremental costs lower costs incurred simplify grow program lower intangible asset impairment charges impact acquisition tates bake shop 2017 compared 2016 net revenues decreased 163 million 23 due unfavorable volumemix 18 pp lower net pricing 06 pp impact divestitures 01 pp partially offset favorable currency 02 pp unfavorable volumemix primarily caused shipments delayed end second quarter due malware incident recovered driven declines gum biscuits candy partially offset gain chocolate lower net pricing reflected biscuits chocolate partially offset higher net pricing candy gum favorable currency impact due strength canadian dollar relative us dollar segment operating income increased 16 million 14 primarily due lower costs incurred simplify grow program lower advertising consumer promotion costs lower selling general administrative expenses net prioryear’s gain sale property lower manufacturing costs lower raw material costs favorable items partially offset unfavorable volumemix incremental costs incurred due malware incident lower net pricing impact divestitures prioryear gain sale intangible asset critical accounting estimates prepare consolidated financial statements conformity us gaap preparation financial statements requires use estimates judgments assumptions affect reported amounts assets liabilities date financial statements reported amounts revenues expenses periods presented actual results could differ estimates assumptions note 1 summary significant accounting policies consolidated financial statements includes summary significant accounting policies used prepare consolidated financial statements discussed selection disclosure critical accounting policies estimates audit committee following review significant assumptions estimates goodwill nonamortizable intangible assets test goodwill nonamortizable intangible assets impairment annual basis july 1 assess goodwill impairment risk throughout year performing qualitative review entityspecific industry market general economic factors affecting goodwill reporting units review operating segment reporting unit structure goodwill testing annually significant changes organization occur annually may perform qualitative testing depending factors prioryear test results current year developments current risk evaluations practical considerations may elect quantitative testing instead quantitative testing compare reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using discounted cash flow method incorporates planned growth rates marketbased discount rates estimates residual value year europe north america reporting units used marketbased weightedaverage cost capital 73 discount projected cash flows operations latin america amea reporting units used riskrated discount rate 103 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value would recognize impairment charge amount carrying value exceeds reporting unit fair value 2018 2017 2016 impairments goodwill connection 2018 annual impairment testing reporting units sufficient fair value excess carrying value reporting units passed annual impairment testing planned business performance expectations met specific valuation factors outside control discount rates change significantly estimated fair values reporting unit reporting units might decline lead goodwill impairment future annually assess nonamortizable intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible assets significant potential impairment risk exists specific asset quantitatively test impairment comparing estimated fair value carrying value determine estimated fair value using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds estimated fair value asset impaired carrying value reduced estimated fair value 2018 annual testing nonamortizable intangible assets recorded 68 million impairment charges third quarter 2018 related five trademarks impairments arose due lower expected product growth recorded charges related gum chocolate biscuits candy trademarks 45 million europe 14 million north america 9 million amea impairment charges calculated excess carrying value estimated fair value intangible assets global basis recorded within asset impairment exit costs primarily use relief royalty valuation method utilizes estimates future sales growth rates royalty rates discount rates determining brands global fair value also identified seven brands including five impaired trademarks 538 million aggregate book value december 31 2018 fair value excess book value 10 less believe current plans brands allow continue impaired product line expectations met specific valuation factors outside control discount rates change significantly brand brands could become impaired future 2017 recorded charges related candy gum trademarks 52 million amea 11 million europe 5 million latin america 2 million north america 2016 recorded charges related biscuits candy gum trademarks 41 million amea 32 million north america 22 million europe 3 million latin america refer note 5 goodwill intangible assets additional information trade marketing programs promote products trade sales incentives well marketing advertising programs include limited new product introduction fees discounts coupons rebates volumebased incentives well cooperative advertising instore displays consumer marketing promotions trade sales incentives recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer promotion expenses charged operations percentage volume based estimated sales volume estimated program spending defer costs yearend consolidated balance sheet marketing advertising costs recorded expense year incurred employee benefit plans sponsor various employee benefit plans throughout world include primarily pension plans postretirement healthcare benefits accounting purposes estimate pension postretirement healthcare benefit obligations utilizing assumptions estimates discount rates expected returns plan assets expected compensation increases employeerelated factors turnover retirement age mortality health care cost trends review actuarial assumptions annual basis make modifications assumptions based current rates trends appropriate assumptions also reflect historical experiences management’s best judgment regarding future expectations assumptions affect annual expense obligations recognized underlying plans permitted us gaap generally amortize effect changes assumptions future periods cost benefit plan changes increasing decreasing benefits prior employee service prior service cost deferred included expense straightline basis average remaining service period employees expected receive benefits since pension postretirement liabilities measured discounted basis discount rate significantly affects plan obligations expenses plans assets held trust expected return plan assets assumption affects pension plan expenses assumptions discount rates expected rates return process setting assumptions described note 10 benefit plans consolidated financial statements anticipate changes 2019 assumptions us nonus pension postretirement health care plans sensitivity measure fiftybasis point change discount rates expected rate return plan assets would following effects increasedecrease annual benefit plan costs accordance obligations collective bargaining agreements participate multiemployer pension plans 2017 2016 individually significant multiemployer plan contributed bakery confectionery union industry international pension fund obligation contribute fund arose respect 8 collective bargaining agreements covering employees represented bctgm collective bargaining agreements expired 2016 fourth quarter 2018 executed complete withdrawal fund estimated withdrawal liability 573 million represents best estimate withdrawal liability absent assessment fund anticipate receiving assessment 2019 ultimate withdrawal liability may change currently estimated amount record future adjustments period liability confirmed new information becomes available expect pay liability period 20 years date assessment 2018 within north america segment recorded discounted liability related charge 423 million 316 million net tax determined net present value liability using riskfree interest rate recorded pretax noncash charges selling general administrative expense noncash items net consolidated statement cash flows liability longterm liabilities 2018 also recorded 6 million accreted interest related longterm liability within interest expense net see additional information employee benefit plans note 10 benefit plans income taxes global company calculate provide income taxes tax jurisdiction operate provision income taxes includes amounts payable refundable current year effect deferred taxes impacts uncertain tax positions provision income taxes significantly affected shifts geographic mix pretax earnings across tax jurisdictions changes tax laws regulations tax planning opportunities available tax jurisdiction ultimate outcome various tax audits deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement tax bases assets liabilities operating losses tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates apply taxable income years differences expected recovered settled valuation allowances established deferred tax assets likely tax benefit realized believe tax positions comply applicable tax laws properly accounted uncertain tax positions recognize tax benefits financial statements uncertain tax positions likely tax position sustained taxing authorities based technical merits position amount recognize measured largest amount benefit greater 50 percent likely realized upon resolution evaluate uncertain tax positions ongoing basis adjust amount recognized light changing facts circumstances progress tax audit expiration statute limitations believe estimates assumptions used support evaluation uncertain tax positions reasonable however final determination historical tax liabilities whether settlement tax authorities judicial administrative ruling due expiration statutes limitations could materially different estimates reflected consolidated balance sheet historical income tax provisions outcome final determinations could material effect provision income taxes net earnings cash flows period determination made result us tax reform related sec guidance finalized accounting legislation based guidance issued prior 2018 year end included updates prior provisional estimates 2018 consolidated financial statements see note 15 income taxes discussion amounts recorded related us tax reform financial statements well additional information effective tax rate current deferred taxes valuation allowances unrecognized tax benefits contingencies see note 13 commitments contingencies consolidated financial statements new accounting guidance see note 1 summary significant accounting policies consolidated financial statements discussion new accounting standards liquidity capital resources believe cash operations revolving credit facilities shortterm borrowings authorized longterm financing provide sufficient liquidity working capital needs planned capital expenditures future payments us tax reform transition tax liability contractual benefit plan obligations share repurchases quarterly dividends continue utilize commercial paper program international credit lines longterm debt issuances funding requirements also use intercompany loans international subsidiaries improve financial flexibility overall expect negative effects funding sources would material effect liquidity net cash provided operating activities operating activities provided net cash 3948 million 2018 2593 million 2017 2838 million 2016 increase net cash provided operating activities 2018 relative 2017 due primarily higher cash flow working capital higher net earnings well lower pension contributions cash flows operating activities lower 2017 2016 primarily due increases working capital including higher tax vatrelated payments 2017 lower operating cash flows divested businesses partially offset higher net earnings lower pension contributions 2017 net cash used investing activities net cash used investing activities 1224 million 2018 301 million 2017 1029 million 2016 increase net cash used investing activities 2018 relative 2017 primarily due cash received 2017 proceeds divestitures cash expenditures 2018 acquisition higher capital expenditures 2018 partially offset cash received result settlement replacement several net investment hedge derivative contracts decrease net cash used investing activities 2017 relative 2016 due higher net proceeds received divestitures 2017 acquisitionrelated payments 2017 2016 lower capital expenditures 2017 capital expenditures 1095 million 2018 1014 million 2017 1224 million 2016 continue make capital expenditures primarily modernize manufacturing facilities support new product productivity initiatives expect 2019 capital expenditures 10 billion including capital expenditures connection simplify grow program expect continue fund expenditures operations net cash used financing activities net cash used financing activities 2329 million 2018 3361 million 2017 1862 million 2016 decrease net cash used financing activities 2018 relative 2017 primarily due higher net debt issuances lower share repurchases partially offset higher dividends paid increase net cash used financing activities 2017 relative 2016 primarily due lower net issuances shortterm longterm debt well increase dividends paid partly offset lower share repurchases compared 2016 debt time refinance longterm shortterm debt refer note 8 debt borrowing arrangements details recent tender offers debt issuances maturities nature amount longterm shortterm debt proportionate amount varies result current expected business requirements market conditions factors due seasonality first second quarters year working capital requirements grow increasing need shortterm financing second half year typically generates higher cash flows may issue commercial paper secure forms financing throughout year meet shortterm working capital financing needs 2016 one subsidiaries mondelez international holdings netherlands bv “mihn” issued debt totaling 45 billion operations held mihn generated approximately 741 192 billion 259 billion consolidated net revenue fiscal year 2018 represented approximately 805 207 billion 257 billion net assets december 31 2018 february 7 2019 board directors approved new 50 billion longterm financing authority replace prior 50 billion authority december 31 2018 17 billion longterm financing authority remaining next 12 months expect approximately 27 billion longterm debt mature follows 400 million february 2019 23 billion october 2019 expect fund repayments combination cash operations issuance commercial paper longterm debt total debt 184 billion december 31 2018 177 billion december 31 2017 debttocapitalization ratio 042 december 31 2018 040 december 31 2017 december 31 2018 weightedaverage term outstanding longterm debt 58 years average daily commercial borrowings 45 billion 2018 44 billion 2017 22 billion 2016 31 billion commercial paper borrowings outstanding december 31 2018 34 billion outstanding december 31 2017 expect continue use commercial paper finance various short longterm financing needs continue comply longterm debt covenants refer note 8 debt borrowing arrangements information debt covenants commodity trends regularly monitor worldwide supply commodity cost currency trends costeffectively secure ingredients packaging fuel required production 2018 primary drivers increase aggregate commodity costs higher currencyrelated costs commodity purchases increased costs packaging dairy energy grains oils raw materials partially offset lower costs cocoa sugar nuts number external factors weather conditions commodity market conditions currency fluctuations effects governmental agricultural programs affect cost availability raw materials agricultural materials used products address higher commodity costs currency impacts primarily hedging higher pricing manufacturing overhead cost control use hedging techniques limit impact fluctuations cost principal raw materials however may able fully hedge commodity cost changes dairy limited ability hedge hedging strategies may protect us increases specific raw material costs due competitive market conditions planned trade promotional incentives fluctuations currency exchange rates factors pricing actions may also lag commodity cost changes temporarily expect price volatility slightly higher aggregate cost environment continue 2019 costs principal raw materials fluctuate believe continue adequate supply raw materials use generally remain available numerous sources offbalance sheet arrangements aggregate contractual obligations significant offbalance sheet arrangements contractual obligations discussed guarantees discussed note 13 commitments contingencies enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2018 material thirdparty guarantees recorded consolidated balance sheet guarantees expect material effect liquidity aggregate contractual obligations following table summarizes contractual obligations december 31 2018 1 amounts include expected cash payments debt excluding capital leases presented separately table amounts also exclude 70 million net unamortized noncash bond premiums discounts bank fees marktomarket adjustments related interest rate swaps recorded total debt 2 amounts represent expected cash payments interest expense longterm debt interest calculated euro british pound sterling swiss franc notes forecasted using currency exchange rates december 31 2018 insignificant amount interest expense excluded table portion nonus debt obligations due complexities involved forecasting expected interest payments 3 operating lease payments represent minimum rental commitments noncancelable operating leases 4 purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 5 connection us tax reform currently estimate paying total 13 billion transition tax liability 2026 december 31 2018 amount outstanding 12 billion amounts timing tax payments likely change result additional guidance issued see note 15 income taxes additional information us tax reform impact financial statements 6 longterm liabilities table include current longterm related liabilities included estimated future benefit payments postretirement health care plans december 31 2028 198 million unable reliably estimate timing payments beyond 2028 excluded table also another 15 million various longterm liabilities expected paid next 5 years addition following longterm liabilities included consolidated balance sheet excluded table accrued pension costs estimated multiemployer pension plan withdrawal liabilities unrecognized tax benefits insurance accruals december 31 2018 unrecognized tax benefit including associated interest penalties classified longterm payable 550 million currently expect make approximately 237 million contributions pension plans 2019 2018 estimated multiemployer pension plan withdrawal liability 573 million anticipate receiving assessment 2019 ultimate withdrawal liability may change currently estimated amount record future adjustments period liability confirmed new information becomes available expect pay liability period 20 years date assessment equity dividends stock plans see note 11 stock plans consolidated financial statements information stock plans grant activity 20162018 share repurchases see note 12 capital stock consolidated financial statements information share repurchase program 2013 2017 board directors authorized repurchase total 137 billion common stock december 31 2018 january 31 2018 finance committee authorization delegated board directors approved increase 60 billion share repurchase program raising authorization 197 billion common stock repurchases extended program december 31 2020 repurchased approximately 150 billion shares 20 billion 2018 22 billion 2017 26 billion 2016 36 billion 2015 19 billion 2014 27 billion 2013 weightedaverage cost 3930 per share december 31 2018 number shares ultimately repurchase share repurchase program may vary depending numerous factors including share price market conditions ongoing capital allocation planning levels cash debt balances demands cash acquisition activity general economic business conditions board management discretion additionally share repurchase activity particular period may fluctuate may accelerate suspend delay discontinue share repurchase program time without notice dividends paid dividends 1359 million 2018 1198 million 2017 1094 million 2016 july 25 2018 finance committee authorization delegated board directors declared quarterly cash dividend 026 per share class common stock increase 18 percent would 104 per common share annualized basis august 2 2017 finance committee authorization delegated board directors approved 16 increase quarterly dividend 022 per common share 088 per common share annualized basis july 19 2016 board directors approved 12 increase quarterly dividend 019 per common share 076 per common share annual basis declaration dividends subject discretion board directors depends various factors including net earnings financial condition cash requirements future prospects factors board directors deems relevant analysis decision making us income tax purposes company determined 100 distributions paid shareholders 2018 characterized qualified dividend paid us earnings profits shareholders consult tax advisors full understanding tax consequences receipt dividends nongaap financial measures use nongaap financial information believe useful investors provides additional information facilitate comparisons historical operating results identify trends underlying operating results provide additional insight transparency evaluate business use nongaap financial measures budget make operating strategic decisions evaluate performance detailed nongaap adjustments make nongaap definitions adjustments generally fall within following categories acquisition divestiture activities gains losses intangible asset sales noncash impairments major program restructuring activities constant currency related adjustments major program financing hedging activities major items affecting comparability operating results believe nongaap measures always considered along related us gaap financial measures provided reconciliations gaap nongaap financial measures also discuss underlying gaap results throughout management’s discussion analysis financial condition results operations form 10k primary nongaap financial measures listed reflect evaluate current prioryear operating results new events circumstances arise definitions could change definitions change provide updated definitions present related nongaap historical results comparable basis 1 • “organic net revenue” defined net revenues excluding impacts acquisitions divestitures 2 currency rate fluctuations 3 also evaluate organic net revenue growth emerging markets power brands • emerging markets include latin america region entirety amea region excluding australia new zealand japan following countries europe region russia ukraine turkey kazakhstan belarus georgia poland czech republic slovak republic hungary bulgaria romania baltics east adriatic countries developed markets include entire north america region europe region excluding countries included emerging markets definition australia new zealand japan amea region • power brands include largest global regional brands oreo chips ahoy ritz tucclub social belvita biscuits cadbury dairy milk milka lacta chocolate trident gum halls candy tang powdered beverages shift focus invest wider group global local brands 2018 discontinue tracking power brands included final fullyear comparison results basis • “adjusted operating income” defined operating income excluding impacts simplify grow program 4 gains losses including noncash impairment charges goodwill intangible assets divestiture 2 acquisition gains losses related divestiture 2 acquisition integration costs 2 operating results divestitures 2 remeasurement net monetary position 5 marktomarket impacts commodity forecasted currency transaction derivative contracts 6 impact resolution tax matters 7 ceo transition remuneration 8 impact pension participation changes 9 incremental expenses related 2017 malware incident also present “adjusted operating income margin” subject adjustments adjusted operating income also evaluate growth adjusted operating income constant currency basis 3 • “adjusted eps” defined diluted eps attributable mondelēz international continuing operations excluding impacts items listed adjusted operating income definition well losses debt extinguishment related expenses gain equity method investment transactions net earnings divestitures 2 gains losses interest rate swaps longer designated accounting cash flow hedges due changed financing hedging plans us tax reform discrete impacts 10 similarly within adjusted eps equity method investment net earnings exclude proportionate share investees’ unusual infrequent items 11 also evaluate growth adjusted eps constant currency basis 3 1 items longer impact current future presentation nongaap operating results remove items nongaap definitions 2018 added nongaap definitions exclusion remeasurement gains losses related remeasuring net monetary assets liabilities argentina see footnote 5 impact pension participation changes see footnote 9 2 divestitures include completed sales businesses exits major product lines upon completion sale licensing agreement see note 2 divestitures acquisitions information divestitures acquisitions impacting comparability results 3 constant currency operating results calculated dividing multiplying appropriate currentperiod local currency operating results currency exchange rates used translate financial statements comparable prioryear period determine currentperiod us dollar operating results would currency exchange rate changed comparable prioryear period 4 nongaap adjustments related simplify grow program reflect costs incurred relate objectives program transform supply chain network organizational structure costs meet program objectives reflected nongaap adjustments 5 third quarter 2018 began apply highly inflationary accounting argentina excluded remeasurement gains losses related remeasuring net monetary assets liabilities argentina consistent prior accounting remeasurement gains losses venezuela subject highly inflationary accounting prior 2016 see note 1 summary significant accounting policies information 6 third quarter 2016 began exclude unrealized gains losses marktomarket impacts outstanding commodity forecasted currency transaction derivatives nongaap earnings measures time related exposures impact operating results since purchase commodity forecasted currency transaction contracts mitigate price volatility primarily inventory requirements future periods made adjustment remove volatility future inventory purchases current operating results facilitate comparisons underlying operating performance across periods also discontinued designating commodity forecasted currency transaction derivatives hedge accounting treatment facilitate comparisons underlying operating results recast historical nongaap earnings measures exclude marktomarket impacts 7 see note 13 commitments contingencies tax matters additional information 8 november 20 2017 dirk van de put succeeded irene rosenfeld ceo mondelēz international advance retirement end march 2018 order incent mr van de put join us provided compensation total combined target value 425 million make whole incentive awards forfeited grants made left former employer compensation granted took form cash deferred stock units performance share units stock options connection irene rosenfeld’s retirement made outstanding grants performance share units 20162018 20172019 performance cycles eligible continued vesting approved 05 million salary service chairman january march 2018 refer elements mr van de put’s ms rosenfeld’s compensation arrangements together “ceo transition remuneration” excluding amounts expense ceo transition remuneration nongaap results amounts part regular compensation program incremental amounts would incurred ongoing ceo compensation result 2017 excluded amounts expensed cash payment mr van de put partial vesting equity grants 2018 excluded amounts paid ms rosenfeld’s service chairman partial vesting mr van de put’s ms rosenfeld’s equity grants 9 impact pension participation changes represents charges incurred employee groups withdrawn multiemployer pension plans changes employee group pension plan participation exclude charges nongaap results amounts reflect ongoing pension obligations see note 10 benefit plans information 10 december 22 2017 united states enacted tax reform legislation included broad range business tax provisions detailed note 15 income taxes exclude discrete us tax reform impacts adjusted eps reflect ongoing tax obligations us tax reform 11 excluded proportionate share equity method investees’ unusual infrequent items acquisition divestiture related costs restructuring program costs discrete us tax reform impacts order provide investors comparable view performance across periods although shareholder rights board representation commensurate ownership interests equity method investees review underlying operating results unusual infrequent items reporting period direct control operations resulting revenue expenses use equity method investment net earnings adjusted basis intended imply control gaap “diluted eps attributable mondelēz international continuing operations” includes investees’ unusual infrequent items believe presentation nongaap financial measures considered together us gaap financial measures reconciliations corresponding us gaap financial measures provides complete understanding factors trends affecting business could obtained absent disclosures nongaap financial measures vary among companies nongaap financial measures presented report may comparable similarly titled measures used companies use nongaap financial measures meant considered isolation substitute us gaap financial measure limitation nongaap financial measures exclude items detailed impact us gaap reported results best way limitation addressed evaluating nongaap financial measures combination us gaap reported results carefully evaluating following tables reconcile us gaap reported figures nongaap financial measures form 10k organic net revenue applying definition “organic net revenue” adjustments made “net revenues” comparable us gaap financial measure exclude impact currency acquisitions divestitures believe organic net revenue reflects underlying growth ongoing activities business provides improved comparability results also evaluate organic net revenue growth emerging markets power brands underlying measures also reconciled us gaap 1 year reevaluate power brands confirm brands continue make disproportionate investments may make changes planned investments primarily regional power brands following annual review cycles 2018 made limited changes list regional power brands reclassified 2017 2016 power brand net revenues basis consistent current list power brands shift focus invest wider group global local brands 2018 discontinue tracking power brands included final fullyear comparison results basis adjusted operating income applying definition “adjusted operating income” adjustments made “operating income” comparable us gaap financial measure exclude simplify grow program intangible asset impairment charges marktomarket impacts commodity forecasted currency transaction derivative contracts malware incident incremental expenses acquisition integration costs acquisitionrelated divestiturerelated costs operating results divestitures gain divestitures remeasurement net monetary position impact pension participation changes impact resolution tax matters ceo transition remuneration also evaluate adjusted operating income constant currency basis believe measures provide improved comparability underlying operating results 1 refer note 7 restructuring program information 2 refer note 5 goodwill intangible assets information trademark impairments 3 refer note 9 financial instruments note 17 segment reporting nongaap financial measures section end item information unrealized gainslosses commodity forecasted currency transaction derivatives 4 refer note 2 divestitures acquisitions information acquisition biscuit business vietnam 5 refer note 2 divestitures acquisitions information prioryear divestitures intangible asset sales june 7 2018 acquisition tates bake shop 6 refer note 1 summary significant accounting policies currency translation highly inflationary accounting information application highly inflationary accounting argentina 7 refer note 10 benefit plans information 8 refer note 13 commitments contingencies tax matters information 9 refer nongaap financial measures definition related table notes adjusted eps applying definition “adjusted eps” 1 adjustments made “diluted eps attributable mondelēz international” comparable us gaap financial measure exclude impacts items listed adjusted operating income tables well net gain loss related interest rate swaps loss debt extinguishment us tax reform discrete impacts gain equity method investment transactions proportionate share unusual infrequent items recorded jde keurig equity method investees also evaluate adjusted eps constant currency basis believe adjusted eps provides improved comparability underlying operating results 1 tax expensebenefit pretax items excluded gaap results computed based facts tax assumptions associated item impacts also excluded adjusted eps • year ended december 31 2018 taxes simplify grow program 156 million intangible asset impairment charges 16 million marktomarket gains derivatives 10 million acquisitionrelated costs 3 million impact pension participation changes 108 million impact resolution tax matters 6 million ceo transition remuneration 5 million net gain related interest rate swaps 2 million loss debt extinguishment 35 million us tax reform 19 million gain equity method investment transaction 192 million equity method investee adjustments 16 million • year ended december 31 2017 taxes simplify grow program costs 190 million intangible asset impairment charges 30 million acquisition integration costs zero gain equity method investment transactions 15 million net gain divestitures 7 million net earnings divestitures 15 million divestiturerelated costs 8 million loss debt extinguishment related costs 4 million malware incident incremental costs 27 million benefits resolution tax matters 75 million equity method investee acquisitionrelated adjustments 10 million ceo transition remuneration 5 million marktomarket gainslosses derivatives 6 million us tax reform 44 million • year ended december 31 2016 taxes simplify grow program costs 288 million intangible asset impairment charges 37 million gain sale intangible assets 3 million acquisition integration costs zero net earnings divestitures 40 million divestiturerelated costs 15 million loss debt extinguishment related costs 163 million loss related interest rate swaps 36 million equity method investee acquisitionrelated adjustments 3 million gain equity method investment transactions 2 million marktomarket gainslosses derivatives 11 million 2 see adjusted operating income table related footnotes information 3 refer note 9 financial instruments information interest rate swaps longer designate cash flow hedges 4 refer note 8 debt borrowing arrangements information losses debt extinguishment 5 refer note 15 income taxes information impact us tax reform 6 refer note 6 equity method investments information kdp transaction 2018 2017 sale interest one equity method investments 2016 acquisition interest keurig 7 includes proportionate share unusual infrequent items acquisition divestiturerelated costs restructuring program costs discrete us tax reform impacts recorded jde keurig equity method investees item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis contains forwardlooking statements read conjunction sections annual report form 10k including consolidated financial statements related notes contained forwardlooking statements item 1a risk factors overview business strategy make sell primarily snacks including biscuits cookies crackers salted snacks chocolate gum candy well various cheese grocery powdered beverage products operations approximately 80 countries sell products 150 countries aim global leader snacking strategy drive longterm growth focusing three strategic priorities accelerating consumercentric growth driving operational excellence creating winning growth culture believe successful implementation strategic priorities leveraging strong foundation iconic global local brands attractive global footprint market leadership developed emerging markets deep innovation marketing distribution capabilities efficiency sustainability efforts drive top bottomline growth enabling us continue create longterm value shareholders detailed information business strategy refer item 1 business recent developments significant items affecting comparability swiss us tax reform august 6 2019 switzerland published changes federal tax law official federal collection laws september 27 2019 zurich canton published decision september 1 2019 zurich canton public vote regarding cantonal changes associated swiss federal tax law change intent tax law changes replace certain preferential tax regimes new set internationally accepted measures hereafter referred “swiss tax reform” based federal cantonal events position enactment swiss tax reform us gaap purposes met september 30 2019 recorded impacts third quarter 2019 net impact benefit 767 million consisted 769 million reduction deferred tax expense allowed stepup intangible assets tax purposes remeasurement deferred tax balances partially offset 2 million indirect tax impact selling general administrative expenses future rate impacts swiss tax reform law changes effective starting january 1 2020 continue monitor swiss tax reform additional interpretative guidance could result changes amounts recorded december 22 2017 united states enacted tax reform legislation us tax reform included broad range business tax provisions including limited reduction us federal tax rate 35 21 well provisions limit eliminate various deductions credits legislation causes certain us allocated expenses eg interest general administrative expenses taxed imposes tax us crossborder payments furthermore legislation included onetime transition tax accumulated foreign earnings profits clarifying guidance issued us treasury department internal revenue service irs 2018 2019 continue evaluate impacts additional guidance implementing legislation becomes available impact adopting new provisions discrete net tax expense 5 million 2019 19 million 2018 discrete net tax benefit 44 million 2017 refer note 16 income taxes information annual effective tax rates swiss us tax reform multiemployer pension plan withdrawal united states contribute multiemployer pension plans based obligations arising collective bargaining agreements individually significant multiemployer plan participated prior second quarter 2018 bakery confectionery union industry international pension fund obligation contribute fund arose respect 8 collective bargaining agreements covering employees represented bakery confectionery tobacco grain millers union bctgm collective bargaining agreements expired 2016 continued contribute fund 2018 executed complete withdrawal fund recorded 429 million estimated withdrawal liability july 11 2019 received undiscounted withdrawal liability assessment fund totaling 526 million requiring prorata monthly payments 20 years recorded 35 million final adjustment reduce withdrawal liability june 30 2019 began making monthly payments third quarter 2019 december 31 2019 remaining discounted withdrawal liability 391 million 14 million recorded current liabilities 377 million recorded longterm liabilities adoption new lease accounting standard described note 1 summary significant accounting policies adopted new lease accounting standard january 1 2019 impact adopting standard included initial recognition january 1 2019 710 million leaserelated assets 730 million leaserelated liabilities consolidated balance sheet transition method elected adoption required cumulative effect adjustment retained earnings january 1 2019 material additional information leases refer note 5 leases keurig dr pepper transaction july 9 2018 keurig green mountain inc keurig closed definitive merger agreement dr pepper snapple group inc formed keurig dr pepper inc nyse kdp publicly traded company following close transaction 242 investment keurig together shareholder loan receivable became 138 investment kdp 2018 recorded pretax gain 778 million 586 million aftertax also first quarter 2019 recognized 23 million pretax gain related impact kdp acquisition decreased ownership interest 138 136 connection kdp transaction third quarter 2018 changed accounting principle reflect share keurigs historical kdps ongoing earnings onequarter lag basis periods presented continue record dividends cash received refer note 7 equity method investments additional information kdp transaction malware incident june 27 2017 global malware incident impacted business malware affected significant portion global sales distribution financial networks following incident executed business continuity contingency plans contain impact minimize damages restore systems environment also restored main operating systems processes enhanced system security date found expect find instances company personal data released externally 2017 estimated malware incident negative impact 04 net revenue organic net revenue growth recognized majority delayed second quarter shipments third quarter 2017 results also permanently lost revenue incurred total incremental expenses 84 million predominantly second half 2017 part recovery effort recovery incident largely resolved end 2017 continued efforts strengthen security measures enhance general information technology business process disclosure controls summary results • net revenues approximately 259 billion 2019 2018 decrease 03 2019 increase 02 2018 2019 net revenues declined due impact unfavorable currency translation impact divestiture cheese business middle east africa net revenues positively affected higher net pricing favorable volumemix well acquisitions majority interest perfect snacks 2019 us premium biscuit company tates bake shop 2018 net revenues grew due higher net pricing favorable volumemix net revenues also positively affected acquisition tates bake shop net revenue growth negatively affected impact unfavorable currency translation impact several business divestitures occurred 2017 reduced net revenues 2018 compared prior year • organic net revenue increased 41 269 billion 2019 increased 24 261 billion 2018 2019 2018 organic net revenue increased result higher net pricing favorable volumemix organic net revenue constant currency basis excludes revenue divestitures acquisitions use organic net revenue provides improved yearoveryear comparability underlying operating results see definition organic net revenue reconciliation net revenues within nongaap financial measures appearing later section • diluted eps attributable mondelēz international increased 162 265 2019 increased 232 228 2018 diluted eps increased 2019 primarily driven benefit swiss tax reform lapping prioryear impact pension participation changes operating gains lower simplify grow program costs lapping prioryear loss debt extinguishment fewer shares outstanding gain divestiture increase equity method investment earnings lower interest expense benefit currentyear pension participation changes partially offset lapping prioryear gain equity method investment transactions unfavorable currency translation loss related interest rate swaps expense resolution tax matters 2019 unfavorable yearoveryear change marktomarket impacts currency commodity derivatives diluted eps increased 2018 primarily driven aftertax gain kdp transaction favorable yearoveryear change marktomarket impacts currency commodity derivatives operating gains lower costs incurred simplify grow program fewer shares outstanding lower taxes increased equity method investment earnings partially offset impact pension participation changes lapping benefit resolution tax matters lapping prioryear net gain divestitures see discussion analysis historical results appearing later section details • adjusted eps increased 21 247 2019 increased 142 242 2018 constant currency basis adjusted eps increased 83 262 2019 increased 156 245 2018 2019 operating gains fewer shares outstanding increased equity method investment earnings lower interest expense lower taxes drove adjusted eps growth 2018 operating gains fewer shares outstanding lower taxes increased equity method investment earnings lower interest expense drove adjusted eps growth adjusted eps adjusted eps constant currency basis nongaap financial measures use measures provide improved yearoveryear comparability underlying results see definition adjusted eps reconciliation diluted eps within nongaap financial measures appearing later section financial outlook seek achieve profitable longterm growth manage business attain goal using key operating metrics organic net revenue adjusted operating income adjusted eps use nongaap financial metrics related computations particularly growth profit dollars evaluate manage business plan make nearand longterm operating strategic decisions believe metrics useful investors provide supplemental information addition us generally accepted accounting principles “us gaap” financial results believe useful provide investors financial information use internally make comparisons historical operating results identify trends underlying operating results evaluate business believe nongaap financial measures always considered relation gaap results provided reconciliations gaap nongaap financial measures nongaap financial measures appears later section addition monitoring key operating metrics monitor number developments trends could impact revenue profitability objectives longterm demographics consumer trends snack food consumption highly correlated gdp growth urbanization populations rising discretionary income levels associated growing middle class particularly emerging markets snacking behavior rise around world according first annual “state snacking” report commissioned mondelēz international issued november 2019 summarizes findings interviews thousands consumers across 12 countries majority adults even higher percentage millennial consumers indicated prefer eat small bites throughout day opposed larger meals report concludes consumer needs evolving response busy modern lifestyles desire community connections holistic sense wellbeing also way consumers snack buy snacks around world diverse consumers purchasing snacks across evolving retail digital landscapes expect trends continue order position longterm growth investing wellbeing snack offerings product marketing innovation new routes market including ecommerce demand monitor consumer spending market share within food beverage categories sell products last three years seeing improvements regional economic growth consumer confidence growth categories however geopolitical economic uncertainties time may continue affect economic growth consumer confidence category growth part new strategic plan seek drive category growth offering snack innovations leveraging local consumerfocused commercial approach making investments brand snacks portfolio building strong routes market emerging developed markets improving position across multiple channels believe actions help drive demand categories strengthen positions across markets volatility global markets growth strategy depends part ability expand operations including emerging markets emerging markets greater political economic currency volatility greater vulnerability infrastructure labor disruptions volatility markets affects demand costs products requires frequent changes operate business see discussion brexit well argentina designated highly inflationary economy 2018 addition imposition increased new tariffs quotas trade barriers similar restrictions sales key commodities potential changes us trade programs trade relations regulations taxes fiscal policies might negatively affect sales profitability help mitigate adverse effects ongoing volatility across markets aim protect profitability management costs including hedging pricing well targeted investments brands new routes market coronavirus monitoring outbreak new coronavirus originated china believe could negative impact results short term taking steps protect employees consumers business competition operate highly competitive markets include global regional local competitors advantaged geographic footprint operating scale portfolio brands significantly contributed building marketleading positions across product categories sell grow maintain market positions focus meeting consumer needs preferences localfirst commercial focus new digital sales marketing initiatives product innovation high standards product quality also continue optimize manufacturing operations invest brands ongoing research development advertising marketing consumer promotions pricing net revenue growth profitability may affected adjust prices address new conditions adjust product prices based number variables including demand competitive environment changes product input costs generally increased prices response higher commodity costs currency market factors 2020 anticipate changing market conditions continue impact pricing price changes may affect net revenues market share near term market adjusts changes input costs market conditions operating costs operating costs include raw materials labor selling general administrative expenses taxes currency impacts financing costs manage costs cost saving productivity initiatives sourcing hedging programs pricing actions refinancing tax planning remain competitive operating structure continue work programs expand profitability simplify grow program designed bring significant reductions operating cost structure supply chain overhead costs multiemployer pension plan 2018 executed complete withdrawal fund recorded 429 million estimated withdrawal liability july 11 2019 received undiscounted withdrawal liability assessment fund totaling 526 million recorded 35 million final adjustment reduce withdrawal liability time third quarter 2019 began making monthly prorata payments 20year obligation december 31 2019 remaining discounted withdrawal liability 391 million taxes third quarter 2019 swiss federal zurich cantonal tax events drove recognition 767 million swiss tax reform net benefit results operations future tax rate impacts swiss tax reform law changes became effective january 1 2020 expected material impact overall results operations continue monitor swiss tax reform additional interpretative guidance could result changes amounts recorded united states 2017 us tax reform reduced us corporate tax rate included beneficial provisions future adverse effect results continue evaluate impacts additional guidance implementing legislation becomes available additional guidance issued irs us treasury department still areas may clarified time also number us states updated laws take account new federal legislation result may additional impacts new laws future results operations financial condition possible us tax reform related interpretations could change adverse effect us could material currency global company 744 net revenues generated outside united states continually exposed changes global economic conditions currency movements hedge significant forecasted currency exchange transactions well currency translation impacts certain net assets nonus operations including united kingdom cannot fully predict eliminate adverse impacts arising changes currency exchange rates consolidated financial results partially offset currency translation impacts arising overseas operations enter net investment hedges primarily form local currencydenominated debt crosscurrency swaps financial instruments work mitigate exposure currency risks factors continued global local market volatility actions foreign governments political uncertainty limited hedging opportunities factors could lead unfavorable currency impacts future could adversely affect results operations financial position see additional discussion brexit argentina refer also note 1 summary significant accounting policies currency translation highly inflationary accounting note 10 financial instruments additional information manage currency related risks currency movements make comparison yearoveryear operating performance challenging isolate impact currency also report growth constant currency basis holding prioryear currency exchange rates constant prioryear currentyear results compared consistent basis brexit january 31 2020 united kingdom began withdrawal process european union european uk parliament approved withdrawal agreement transition period currently scheduled end december 31 2020 united kingdom effectively remain eu’s customs union single market trade deal european union negotiated deadline extending transition period ends june 30 2020 transition period extended december 31 2020 united kingdom either exit european union without trade deal begin new trade relationship european union transition period continue take protective measures response potential impacts results operations financial condition exposure disruptions supply chain imposition tariffs currency devaluation united kingdom could result material impact consolidated revenue earnings cash flow 2019 generated 86 net revenues united kingdom supply chain market relies imports raw packaging materials well finished goods following brexit vote june 2016 significant volatility global stock markets currency exchange rates value british pound sterling relative us dollar declined significantly negatively affected translated results reported us dollars volatility foreign currencies markets expected continue united kingdom executes exit european union uks membership european union terminates without trade crossborder operating agreements could increased costs reimposition tariffs trade united kingdom countries including european union shipping delays need customs inspections procedures shortages certain goods united kingdom also need negotiate tax trade treaties countries world could take years complete ultimate terms uk’s separation european union negatively impact uk economy result disruptions sales supply chain impact results operations financial condition could material taken measures increase resources customer service logistics together increasing inventory levels imported raw materials packaging finished goods united kingdom help us manage brexit transition inherent risks resulting impacts market volatility vary significantly depending final terms uk’s exit european union argentina discussed note 1 summary significant accounting policies currency translation highly inflationary accounting july 1 2018 began apply highly inflationary accounting argentinean subsidiaries result recorded remeasurement gain 4 million 2019 remeasurement loss 11 million 2018 within selling general administrative expenses related revaluation argentinean peso denominated net monetary position periods mix monetary assets liabilities exchange rate convert argentinean pesos us dollars could change time difficult predict overall impact argentina highly inflationary accounting future net earnings financing costs regularly evaluate variable fixedrate debt continue use lowcost short longterm debt finance ongoing working capital expenditures investments dividends share repurchases weightedaverage interest rate total debt december 31 2019 22 23 december 31 2018 21 december 31 2017 primarily reflecting changes interest rates commercial paper borrowings periods continue use interest rate swaps financial instruments manage exposure interest rate cash flow variability protect value existing currency assets liabilities protect value debt also enter crosscurrency interest rate swaps forwards hedge nonus net investments adverse movements exchange rates net investment hedge derivative contracts expected favorable impact reduce financing costs related currency impacts within interest costs refer note 9 debt borrowing arrangements note 10 financial instruments additional information debt derivative activity cybersecurity risks 2017 malware incident impacted operating systems results continue devote focused resources network security backup disaster recovery enhanced training security measures protect systems data also focus enhancing monitoring detection threats environment including limited manufacturing environment operational technologies well adjusting information security controls based updated threats taken number security measures protect systems data security measures cannot provide absolute certainty guarantee successful preventing responding every breach disruption timely basis discussion analysis historical results items affecting comparability financial results following table includes significant income expense items affected comparability results operations effective tax rates please refer notes consolidated financial statements indicated information refer also consolidated results operations net earnings per share attributable mondelēz international table aftertax per share impacts items 1 includes impacts recorded operating income interest expense net 2 please see nongaap financial measures section end item additional information 3 net gainloss equity method investment transactions recorded outside pretax operating results consolidated statement earnings 4 amount 2018 primarily relates deferred tax benefit keurig recorded result us tax reform consolidated results operations following discussion compares consolidated results operations 2019 2018 2017 2019 compared 2018 net revenues net revenues decreased 70 million 03 25868 million 2019 organic net revenue 1 increased 1067 million 41 26879 million emerging markets net revenues increased 02 including unfavorable currency impact emerging markets organic net revenue increased 77 underlying changes net revenues organic net revenue detailed 1 please see nongaap financial measures section end item net revenue decrease 03 driven unfavorable currency impact divestiture partially offset underlying organic net revenue growth 41 impact acquisitions unfavorable currency impacts decreased net revenues 1154 million due primarily strength us dollar relative currencies including argentinean peso euro brazilian real british pound sterling australian dollar chinese yuan indian rupee turkish lira south african rand impact divestiture cheese business middle east africa may 28 2019 resulted yearoveryear decline net revenues 71 million underlying organic net revenue growth driven higher net pricing favorable volumemix net pricing includes benefit carryover pricing 2018 well effects input costdriven pricing actions taken 2019 higher net pricing reflected latin america north america amea net pricing europe flat favorable volumemix reflected europe amea partially offset unfavorable volumemix latin america north america july 16 2019 acquisition majority interest perfect snacks added net revenues 53 million june 7 2018 acquisition tate’s bake shop added incremental net revenues 35 million 2019 refer note 2 divestitures acquisitions information operating income operating income increased 531 million 160 3843 million 2019 adjusted operating income 1 decreased 38 million 09 4264 million adjusted operating income constant currency basis 1 increased 189 million 44 4491 million due following 1 refer nongaap financial measures section end item 2 refer note 8 restructuring program information 3 refer note 6 goodwill intangible assets information intangible asset impairments 4 refer note 10 financial instruments note 18 segment reporting nongaap financial measures section end item information unrealized gainslosses commodity forecasted currency transaction derivatives 5 refer annual report form 10k year ended december 31 2018 information acquisition biscuit business vietnam 6 refer note 2 divestitures acquisitions information july 16 2019 acquisition majority interest perfect snacks may 28 2019 divestiture cheese business middle east africa june 7 2018 acquisition tates bake shop 7 refer note 1 summary significant accounting policies currency translation highly inflationary accounting information application highly inflationary accounting argentina 8 refer note 11 benefit plans information 9 refer note 14 commitments contingencies tax matters information 10 refer note 16 income taxes information swiss tax reform 2019 realized higher net pricing partially offset increased input costs higher net pricing included carryover impact pricing actions taken 2018 well effects input costdriven pricing actions taken 2019 reflected latin america north america amea net pricing europe flat increase input costs driven higher raw material costs partially offset lower manufacturing costs due productivity efforts higher raw material costs part due higher currency exchange transaction costs imported materials well higher packaging energy dairy grains cocoa oils costs partially offset lower costs sugar nuts favorable volumemix driven europe amea partially offset unfavorable volumemix latin america north america total selling general administrative expenses decreased 339 million 2018 due number factors noted table including part lapping prioryear impact pension participation changes favorable currency impact benefit currentyear pension participation changes favorable change remeasurement net monetary position argentina remeasurement gain 2019 compared remeasurement loss 2018 lapping prioryear expense resolution tax matter lower ceo transition remuneration lower acquisitionrelated costs decreases partially offset expenses resolution tax matters 2019 higher implementation costs incurred simplify grow program impact acquisitions lapping benefit prioryear valueadded tax “vat” related settlement vat cost settlement 2019 higher divestiturerelated costs excluding factors selling general administrative expenses increased 173 million 2018 increase driven primarily higher overheads reflecting routetomarket investments higher advertising consumer promotion costs recorded expense 11 million vatrelated settlement latin america 2019 benefit 21 million vatrelated settlement latin america 2018 unfavorable currency changes decreased operating income 227 million due primarily strength us dollar relative currencies including euro argentinean peso british pound sterling brazilian real australian dollar chinese yuan indian rupee operating income margin increased 128 2018 149 2019 increase operating income margin driven primarily lapping prioryear impact pension participation changes lower simplify grow program costs gain divestiture benefit currentyear pension participation changes lapping prioryear expense resolution tax matter lower ceo transition remuneration partially offset expenses resolution tax matters 2019 yearoveryear unfavorable change marktomarket gainslosses currency commodity hedging activities adjusted operating income margin decreased 167 2018 165 2019 decrease adjusted operating income margin driven primarily higher raw material costs mostly offset higher pricing lower manufacturing costs net earnings per share attributable mondelēz international net earnings attributable mondelēz international 3870 million increased 489 million 145 2019 diluted eps attributable mondelēz international 265 2019 037 162 2018 adjusted eps 1 247 2019 005 21 2018 adjusted eps constant currency basis 1 262 2019 020 83 2018 1 refer nongaap financial measures section appearing later section 2 see operating income table related footnotes information 3 refer note 10 financial instruments information interest rate swaps longer designated cash flow hedges 4 refer note 9 debt borrowing arrangements information losses debt extinguishment 5 refer note 16 income taxes information impacts us swiss tax reform 6 refer note 7 equity method investments information gain net loss equity method investment transactions 7 includes proportionate share unusual infrequent items acquisition divestiturerelated costs restructuring program costs discrete us tax reform impacts recorded jde keurig equity method investees 8 excludes currency impact interest expense related nonus dollardenominated debt included currency translation 9 refer note 16 income taxes information items affecting income taxes 10 refer note 12 stock plans information equity compensation programs share repurchase program note 17 earnings per share earnings per share weightedaverage share information 2018 compared 2017 net revenues net revenues increased 42 million 02 25938 million 2018 organic net revenue 1 increased 609 million 24 26103 million emerging markets net revenues decreased 05 including unfavorable currency impact emerging markets organic net revenue increased 59 underlying changes net revenues organic net revenue detailed 1 please see nongaap financial measures section end item net revenue increase 02 driven underlying organic net revenue growth 24 impact acquisition mostly offset unfavorable currency impact divestitures underlying organic net revenue growth driven higher net pricing favorable volumemix net pricing includes benefit carryover pricing 2017 well effects input costdriven pricing actions taken 2018 higher net pricing reflected latin america amea north america partially offset lower net pricing europe favorable volumemix reflected europe amea partially offset unfavorable volumemix latin america north america june 7 2018 acquisition us premium biscuit company tate’s bake shop added net revenues 52 million 2018 unfavorable currency impacts decreased net revenues 343 million due primarily strength us dollar relative several currencies including argentinean peso brazilian real russian ruble indian rupee turkish lira partially offset strength several currencies relative us dollar including euro british pound sterling chinese yuan businesses divested 2019 2017 resulted decline net revenues 276 million refer note 2 divestitures acquisitions information operating income operating income decreased 150 million 43 3312 million 2018 adjusted operating income 1 increased 214 million 52 4302 million adjusted operating income constant currency basis 1 increased 269 million 66 4357 million due following 1 refer nongaap financial measures section end item 2 refer note 8 restructuring program information 3 refer note 6 goodwill intangible assets information intangible asset impairments 4 refer note 10 financial instruments note 18 segment reporting nongaap financial measures section end item information unrealized gainslosses commodity forecasted currency transaction derivatives 5 refer annual report form 10k year ended december 31 2018 information acquisition biscuit business vietnam 6 refer note 2 divestitures acquisitions information june 7 2018 acquisition tates bake shop 2019 2017 divestitures 7 refer note 14 commitments contingencies tax matters information 8 refer note 1 summary significant accounting policies currency translation highly inflationary accounting information application highly inflationary accounting argentina 9 refer note 11 benefit plans information 2018 realized higher net pricing partially offset increased input costs higher net pricing included carryover impact pricing actions taken 2017 well effects input costdriven pricing actions taken 2018 reflected across regions except europe increase input costs driven higher raw material costs mostly offset lower manufacturing costs due productivity efforts higher raw material costs primarily due higher currency exchange transaction costs imported materials well higher packaging dairy energy partially offset primarily lower cocoa costs favorable volumemix driven europe amea partially offset unfavorable volumemix north america latin america total selling general administrative expenses increased 537 million 2017 due number factors noted table including part impact pension participation changes lapping prioryear benefits resolution tax matters lapping prioryear property insurance recovery acquisitionrelated costs remeasurement net monetary position argentina impact acquisition higher ceo transition remuneration increases partially offset favorable currency impact lower implementation costs incurred simplify grow program lower divestiturerelated costs lapping prioryear malware incident incremental costs vat related settlement 2018 impact divestitures net benefit resolution tax matters 2018 excluding factors selling general administrative expenses increased 75 million 2017 increase driven yearover year net unfavorable change miscellaneous income expense items within selling general administrative expenses higher overhead costs offset lower advertising consumer promotion costs recorded benefit 21 million vatrelated settlement latin america 2018 recorded benefit 27 million insurance recovery amea 2017 unfavorable currency changes decreased operating income 55 million due primarily strength us dollar relative several currencies including brazilian real argentinean peso russian ruble turkish lira partially offset strength several currencies relative us dollar including euro british pound sterling operating income margin decreased 134 2017 128 2018 decrease operating income margin driven impact pension participation changes lapping prioryear benefits resolution tax matters lapping prioryear gain divestiture higher ceo transition remuneration unfavorable items partially offset yearoveryear favorable change marktomarket gainslosses currency commodity hedging activities lower simplify grow program costs increase adjusted operating income margin lapping prioryear malware incident incremental costs lower divestiturerelated costs lower intangible asset impairment charges adjusted operating income margin increased 160 2017 167 2018 increase adjusted operating income margin driven primarily higher net pricing lower manufacturing costs due continued cost reduction efforts lower advertising consumer promotion costs partially offset higher raw material costs net earnings per share attributable mondelēz international net earnings attributable mondelēz international 3381 million increased 553 million 196 2018 diluted eps attributable mondelēz international 228 2018 043 232 2017 adjusted eps 1 242 2018 030 142 2017 adjusted eps constant currency basis 1 245 2018 033 156 2017 1 refer nongaap financial measures section appearing later section 2 see operating income table related footnotes information 3 refer note 16 income taxes information impact us tax reform 4 refer note 7 equity method investments information kdp transaction 2018 2017 sale interest one equity method investments 5 includes proportionate share unusual infrequent items acquisition divestiturerelated costs restructuring program costs discrete us tax reform impacts recorded jde keurig equity method investees 6 excludes currency impact interest expense related nonus dollardenominated debt included currency translation 7 refer note 16 income taxes information items affecting income taxes 8 refer note 12 stock plans information equity compensation programs share repurchase program note 17 earnings per share earnings per share weightedaverage share information 9 refer note 10 financial instruments information interest rate swaps longer designated cash flow hedges 10 refer note 9 debt borrowing arrangements information losses debt extinguishment results operations operating segment operations management structure organized four operating segments • latin america • amea • europe • north america manage operations region leverage regional operating scale manage different changing business environments effectively pursue growth opportunities arise across key markets regional management teams responsibility business product categories financial results regions use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends see note 18 segment reporting additional information segments items affecting comparability financial results earlier section items affecting segment operating results segment net revenues earnings latin america 2019 compared 2018 net revenues decreased 184 million 57 due unfavorable currency 135 pp unfavorable volumemix 21 pp partially offset higher net pricing 99 pp unfavorable currency impacts due primarily strength us dollar relative currencies region including argentinean peso brazilian real unfavorable volumemix due impact pricingrelated elasticity driven declines refreshment beverages candy cheese grocery chocolate partially offset gains biscuits gum higher net pricing reflected across categories driven primarily argentina brazil mexico segment operating income decreased 69 million 168 primarily due higher raw material costs unfavorable currency unfavorable volumemix lapping 2018 benefit resolution brazilian indirect tax matter 26 million higher manufacturing costs higher selling general administrative expenses including lapping benefit vatrelated settlement 2018 expense vatrelated settlement 2019 unfavorable items partially offset higher net pricing lower costs incurred simplify grow program favorable change remeasurement net monetary position argentina remeasurement gain 2019 compared remeasurement loss 2018 lower advertising consumer promotion costs 2018 compared 2017 net revenues decreased 364 million 102 due unfavorable currency 138 pp unfavorable volumemix 26 pp partially offset higher net pricing 62 pp unfavorable currency impacts due primarily strength us dollar relative currencies region including argentinean peso brazilian real mexican peso unfavorable volumemix due primarily impact pricingrelated elasticity well part due negative impact brazil trucking strike occurred second quarter unfavorable volumemix driven declines categories except biscuits higher net pricing reflected across categories driven primarily argentina mexico brazil segment operating income decreased 154 million 273 primarily due lapping last years benefit resolution brazilian indirect tax matter 153 million higher raw material costs unfavorable currency higher selling general administrative expenses net benefit vatrelated settlement 2018 unfavorable volumemix loss remeasurement net monetary position argentina unfavorable items partially offset higher net pricing lower manufacturing costs 2018 benefit resolution brazilian tax matter 26 million lower advertising consumer promotion costs lower costs incurred simplify grow program lapping 2017 intangible asset impairment charges amea 2019 compared 2018 net revenues increased 41 million 07 due favorable volumemix 36 pp higher net pricing 17 pp mostly offset unfavorable currency 33 pp impact divestiture 13 pp favorable volumemix driven gains across categories except refreshment beverages candy higher net pricing reflected across categories unfavorable currency impacts due strength us dollar relative several currencies region including australian dollar chinese yuan indian rupee south african rand divestiture cheese business middle east africa may 28 2019 resulted yearoveryear decline net revenues 71 million segment operating income decreased 11 million 16 primarily due higher raw material costs expenses resolution tax matters india totaling 87 million higher advertising consumer promotion costs unfavorable currency higher selling general administrative expenses impact divestiture higher intangible asset impairment charges unfavorable items partially offset lower manufacturing costs higher net pricing lower costs incurred simplify grow program favorable volumemix 2018 compared 2017 net revenues decreased 10 million 02 due impact divestitures 26 pp unfavorable currency 13 pp partially offset favorable volumemix 22 pp higher net pricing 15 pp impact divestitures related cheese business middle east africa may 28 2019 grocery cheese business australia new zealand divested july 4 2017 confectionery business japan divested december 28 2017 resulted yearoveryear decline net revenues 139 million 2018 unfavorable currency impacts due primarily strength us dollar relative several currencies region including indian rupee australian dollar philippine peso partially offset strength several currencies region relative us dollar including chinese yuan japanese yen favorable volumemix driven gains chocolate biscuits including shift volume first quarter 2018 due timing chinese new year partially offset declines refreshment beverages cheese grocery gum candy higher net pricing reflected across categories except gum candy segment operating income increased 188 million 366 primarily due higher net pricing lower costs incurred simplify grow program lower manufacturing costs lower intangible asset impairment charges lower advertising consumer promotion costs favorable volumemix favorable items partially offset higher raw material costs impact divestitures unfavorable currency higher selling general administrative expenses net prioryear property insurance recovery europe 2019 compared 2018 net revenues decreased 150 million 15 due unfavorable currency 52 pp partially offset favorable volumemix 37 pp net pricing flat unfavorable currency impacts reflected strength us dollar relative currencies region primarily euro british pound sterling turkish lira swedish krona favorable volumemix driven gains across categories except gum net pricing flat higher net pricing gum candy offset lower net pricing categories segment operating income decreased 2 million 01 primarily due unfavorable currency higher raw material costs higher advertising consumer promotion costs unfavorable items mostly offset favorable volumemix lower manufacturing costs lower intangible asset impairment charges 2018 compared 2017 net revenues increased 328 million 33 due favorable volumemix 31 pp favorable currency 23 pp partially offset impact divestitures 15 pp lower net pricing 06 pp favorable volumemix driven chocolate biscuits candy partially offset declines cheese grocery gum refreshment beverages favorable currency impacts reflected strength several currencies relative us dollar primarily euro british pound sterling polish zloty czech koruna partially offset strength us dollar relative several currencies primarily russian ruble turkish lira impact divestitures due sale confectionery business france termination certain kraft heinz companyowned grocery brand licenses resulted yearoveryear decline net revenues 137 million 2018 lower net pricing driven chocolate biscuits partially offset higher net pricing cheese grocery candy gum segment operating income increased 124 million 77 primarily due favorable volumemix lower manufacturing costs lower costs incurred simplify grow program favorable currency lower raw material costs lower divestiturerelated costs lapping prioryear malware incident incremental costs favorable items partially offset higher advertising consumer promotion costs higher selling general administrative expenses lower net pricing lapping prioryear benefit settlement cadbury tax matter higher intangible asset impairment charges impact divestitures north america 2019 compared 2018 net revenues increased 223 million 32 due higher net pricing 23 pp impact acquisitions 13 pp partially offset unfavorable currency 03 pp unfavorable volumemix 01 pp higher net pricing reflected across categories except chocolate july 16 2019 acquisition majority interest perfect snacks added net revenues 53 million june 7 2018 acquisition tate’s bake shop added incremental net revenues 35 million 2019 unfavorable currency impact due strength us dollar relative canadian dollar unfavorable volumemix driven declines gum chocolate candy mostly offset favorable volumemix biscuits segment operating income increased 602 million 709 primarily due lapping prioryear pension participation changes higher net pricing lower manufacturing costs lower costs incurred simplify grow program benefit currentyear pension participation changes lapping prioryear intangible asset impairment charges impact acquisitions perfect snacks tates bake shop favorable items partially offset higher raw material costs higher selling general administrative expenses unfavorable volumemix 2018 compared 2017 net revenues increased 88 million 13 due higher net pricing 11 pp impact acquisition 08 pp partially offset unfavorable volumemix 05 pp unfavorable currency 01 pp higher net pricing reflected biscuits gum partially offset lower net pricing chocolate candy june 7 2018 acquisition us premium biscuit company tate’s bake shop added net revenues 52 million 2018 unfavorable volumemix net benefit lapping last years negative impact 2017 malware incident reflected declines gum chocolate partially offset gains biscuits candy unfavorable currency impact due strength us dollar relative canadian dollar segment operating income decreased 295 million 258 primarily due impact pension participation changes higher manufacturing costs unfavorable volumemix higher raw material costs higher selling general administrative expenses unfavorable items partially offset lower advertising consumer promotion costs higher net pricing lapping prioryear malware incident incremental costs lower costs incurred simplify grow program lower intangible asset impairment charges impact acquisition tates bake shop critical accounting estimates prepare consolidated financial statements conformity us gaap preparation financial statements requires use estimates judgments assumptions affect reported amounts assets liabilities date financial statements reported amounts revenues expenses periods presented actual results could differ estimates assumptions note 1 summary significant accounting policies consolidated financial statements includes summary significant accounting policies used prepare consolidated financial statements discussed selection disclosure critical accounting policies estimates audit committee following review significant assumptions estimates goodwill nonamortizable intangible assets test goodwill nonamortizable intangible assets impairment annual basis july 1 assess goodwill impairment risk throughout year performing qualitative review entityspecific industry market general economic factors affecting goodwill reporting units review operating segment reporting unit structure goodwill testing annually significant changes organization occur annually may perform qualitative testing depending factors prioryear test results current year developments current risk evaluations practical considerations may elect quantitative testing instead quantitative testing compare reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using discounted cash flow method incorporates planned growth rates marketbased discount rates estimates residual value year europe north america reporting units used marketbased weightedaverage cost capital 59 discount projected cash flows operations latin america amea reporting units used riskrated discount rate 89 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value would recognize impairment charge amount carrying value exceeds reporting unit fair value 2019 2018 2017 impairments goodwill connection 2019 annual impairment testing reporting units sufficient fair value excess carrying value reporting units passed annual impairment testing planned business performance expectations met specific valuation factors outside control discount rates change significantly estimated fair values reporting unit reporting units might decline lead goodwill impairment future annually assess nonamortizable intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible assets significant potential impairment risk exists specific asset quantitatively test impairment comparing estimated fair value carrying value determine estimated fair value using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds estimated fair value asset impaired carrying value reduced estimated fair value 2019 annual testing nonamortizable intangible assets recorded 57 million impairment charges third quarter 2019 related nine brands impairments arose due lower expected brand earnings growth recorded charges related gum chocolate biscuits candy brands 39 million europe 15 million amea 3 million latin america impairment charges calculated excess carrying value estimated fair value intangible assets global basis recorded within asset impairment exit costs use several accepted valuation methods including relief royalty excess earnings excess margin utilize estimates future sales earnings growth rates royalty rates discount rates determining brands global fair value also identified fourteen brands including nine impaired brands 635 million aggregate book value december 31 2019 fair value excess book value 10 less believe current plans brands allow impaired brand earnings expectations met specific valuation factors outside control discount rates change significantly brand brands could become impaired future 2018 recorded charges related gum chocolate biscuits candy brands 45 million europe 14 million north america 9 million amea 2017 recorded charges related candy gum brands 52 million amea 11 million europe 5 million latin america 2 million north america refer note 6 goodwill intangible assets additional information trade marketing programs promote products trade sales incentives well marketing advertising programs include limited new product introduction fees discounts coupons rebates volumebased incentives well cooperative advertising instore displays consumer marketing promotions trade sales incentives recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer promotion expenses charged operations percentage volume based estimated sales volume estimated program spending defer costs yearend consolidated balance sheet marketing advertising costs recorded expense year incurred employee benefit plans sponsor various employee benefit plans throughout world include primarily pension plans postretirement healthcare benefits accounting purposes estimate pension postretirement healthcare benefit obligations utilizing assumptions estimates discount rates expected returns plan assets expected compensation increases employeerelated factors turnover retirement age mortality health care cost trends review actuarial assumptions annual basis make modifications assumptions based current rates trends appropriate assumptions also reflect historical experiences management’s best judgment regarding future expectations assumptions affect annual expense obligations recognized underlying plans permitted us gaap generally amortize effect changes assumptions future periods cost benefit plan changes increasing decreasing benefits prior employee service prior service cost deferred included expense straightline basis average remaining service period employees expected receive benefits since pension postretirement liabilities measured discounted basis discount rate significantly affects plan obligations expenses plans assets held trust expected return plan assets assumption affects pension plan expenses assumptions discount rates expected rates return process setting assumptions described note 11 benefit plans consolidated financial statements anticipate changes 2020 assumptions us nonus pension postretirement health care plans sensitivity measure fiftybasis point change discount rates expected rate return plan assets would following effects increasedecrease annual benefit plan costs accordance obligations collective bargaining agreements participate multiemployer pension plans 2017 individually significant multiemployer plan contributed bakery confectionery union industry international pension fund obligation contribute fund arose respect 8 collective bargaining agreements covering employees represented bctgm collective bargaining agreements expired 2016 2018 executed complete withdrawal fund recorded 429 million estimated withdrawal liability july 11 2019 received undiscounted withdrawal liability assessment fund totaling 526 million requiring prorata monthly payments 20 years recorded 35 million final adjustment reduce withdrawal liability june 30 2019 began making monthly payments third quarter 2019 december 31 2019 remaining discounted withdrawal liability 391 million see additional information employee benefit plans note 11 benefit plans income taxes global company calculate provide income taxes tax jurisdiction operate provision income taxes includes amounts payable refundable current year effect deferred taxes impacts uncertain tax positions provision income taxes significantly affected shifts geographic mix pretax earnings across tax jurisdictions changes tax laws regulations tax planning opportunities available tax jurisdiction ultimate outcome various tax audits deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement tax bases assets liabilities operating losses tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates apply taxable income years differences expected recovered settled valuation allowances established deferred tax assets likely tax benefit realized believe tax positions comply applicable tax laws properly accounted uncertain tax positions recognize tax benefits financial statements uncertain tax positions likely tax position sustained taxing authorities based technical merits position amount recognize measured largest amount benefit greater 50 percent likely realized upon resolution evaluate uncertain tax positions ongoing basis adjust amount recognized light changing facts circumstances progress tax audit expiration statute limitations believe estimates assumptions used support evaluation uncertain tax positions reasonable however final determination historical tax liabilities whether settlement tax authorities judicial administrative ruling due expiration statutes limitations could materially different estimates reflected consolidated balance sheet historical income tax provisions outcome final determinations could material effect provision income taxes net earnings cash flows period determination made result swiss us tax reform related sec guidance finalized accounting legislation based guidance issued prior 2019 year end see note 16 income taxes discussion amounts recorded related swiss us tax reform financial statements well additional information effective tax rate current deferred taxes valuation allowances unrecognized tax benefits contingencies see note 14 commitments contingencies consolidated financial statements new accounting guidance see note 1 summary significant accounting policies consolidated financial statements discussion new accounting standards liquidity capital resources believe cash operations revolving credit facilities shortterm borrowings authorized longterm financing provide sufficient liquidity working capital needs planned capital expenditures future payments us tax reform transition tax liability contractual benefit plan obligations share repurchases quarterly dividends continue utilize commercial paper program international credit lines longterm debt issuances funding requirements also use intercompany loans international subsidiaries improve financial flexibility overall expect negative effects funding sources would material effect liquidity net cash provided operating activities operating activities provided net cash 3965 million 2019 3948 million 2018 2593 million 2017 increase net cash provided operating activities 2019 relative 2018 due primarily higher earnings increased distributions equity method investments lower pension contributions partially offset increased working capital requirements including higher tax payments cash flows operating activities higher 2018 2017 primarily due higher cash flow working capital higher net earnings well lower pension contributions net cash used investing activities net cash used investing activities 960 million 2019 1224 million 2018 301 million 2017 decrease net cash used investing activities 2019 relative 2018 primarily due less cash expended acquisitions 2019 2018 lower capital expenditures 2019 cash proceeds divestiture primarily cheese business middle east africa partially offset lower cash received result settlement replacement several net investment hedge derivative contracts cash paid settle forwardstarting interest rate swaps increase net cash used investing activities 2018 relative 2017 primarily due cash received 2017 proceeds divestitures cash expenditures 2018 acquisition higher capital expenditures 2018 partially offset cash received result settlement replacement several net investment hedge derivative contracts capital expenditures 925 million 2019 1095 million 2018 1014 million 2017 continue make capital expenditures primarily modernize manufacturing facilities support new product productivity initiatives expect 2020 capital expenditures 09 billion including capital expenditures connection simplify grow program expect continue fund expenditures operations net cash used financing activities net cash used financing activities 2787 million 2019 2329 million 2018 3361 million 2017 increase net cash used financing activities 2019 relative 2018 primarily due lower net debt issuances higher dividends paid 2019 partially offset lower share repurchases decrease net cash used financing activities 2018 relative 2017 primarily due higher net debt issuances lower share repurchases partially offset higher dividends paid debt time refinance longterm shortterm debt refer note 9 debt borrowing arrangements details recent tender offers debt issuances maturities nature amount longterm shortterm debt proportionate amount varies result current expected business requirements market conditions factors due seasonality first second quarters year working capital requirements grow increasing need shortterm financing second half year typically generates higher cash flows may issue commercial paper secure forms financing throughout year meet shortterm working capital financing needs one subsidiaries mondelez international holdings netherlands bv “mihn” outstanding debt refer note 9 debt borrowing arrangements operations held mihn generated approximately 730 189 billion 259 billion consolidated net revenue fiscal year 2019 represented approximately 872 239 billion 274 billion net assets december 31 2019 february 7 2019 board directors approved new 50 billion longterm financing authority replace prior 50 billion authority december 31 2019 18 billion longterm financing authority remaining next 12 months expect approximately 15 billion longterm debt mature follows 427 million february 2020 233 million march 2020 750 million may 2020 140 million october 2020 expect fund repayments combination cash operations shortterm debt including issuance commercial paper longterm debt total debt 184 billion december 31 2019 184 billion december 31 2018 debttocapitalization ratio 040 december 31 2019 042 december 31 2018 december 31 2019 weightedaverage term outstanding longterm debt 58 years average daily commercial borrowings 41 billion 2019 45 billion 2018 44 billion 2017 26 billion commercial paper borrowings outstanding december 31 2019 31 billion outstanding december 31 2018 expect continue use commercial paper finance various shortterm financing needs continue comply debt covenants refer note 9 debt borrowing arrangements information debt covenants commodity trends regularly monitor worldwide supply commodity cost currency trends costeffectively secure ingredients packaging fuel required production 2019 primary drivers increase aggregate commodity costs higher currency exchange transaction costs imported materials well increased costs packaging energy dairy grains cocoa oils partially offset lower costs sugar nuts number external factors weather conditions commodity market conditions currency fluctuations effects governmental agricultural programs affect cost availability raw materials agricultural materials used products address higher commodity costs currency impacts primarily hedging higher pricing manufacturing overhead cost control use hedging techniques limit impact fluctuations cost principal raw materials however may able fully hedge commodity cost changes dairy limited ability hedge hedging strategies may protect us increases specific raw material costs due competitive market conditions planned trade promotional incentives fluctuations currency exchange rates factors pricing actions may also lag commodity cost changes temporarily expect price volatility higher aggregate cost environment continue 2020 costs principal raw materials fluctuate believe continue adequate supply raw materials use generally remain available numerous sources offbalance sheet arrangements aggregate contractual obligations significant offbalance sheet arrangements contractual obligations discussed guarantees discussed note 14 commitments contingencies enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2019 material thirdparty guarantees recorded consolidated balance sheet guarantees expect material effect liquidity aggregate contractual obligations following table summarizes contractual obligations december 31 2019 1 amounts include expected cash payments longterm debt including current portion excluding finance leases presented separately table amounts also exclude 76 million net unamortized noncash bond premiums discounts bank fees marktomarket adjustments related interest rate swaps recorded total debt 2 amounts represent expected cash payments interest expense longterm debt interest calculated nonus dollar denominated debt forecasted using currency exchange rates december 31 2019 3 amounts exclude imputed interest finance leases 11 million 4 purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 5 connection us tax reform estimate paying total 13 billion transition tax liability 2026 december 31 2019 amount outstanding 10 billion amounts timing tax payments may change result additional guidance issued see note 16 income taxes additional information us tax reform impact financial statements 6 2018 executed complete withdrawal liability individually significant multiemployer pension plan july 11 2019 received undiscounted withdrawal liability assessment fund totaling 526 million requiring prorata monthly payments 20 years 2039 see note 11 benefit plans additional information multiemployer pension plan withdrawal liability 7 longterm liabilities table include longterm liabilities current portion obligations included estimated future benefit payments postretirement health care plans december 31 2029 198 million unable reliably estimate timing payments beyond 2029 excluded table also another 1 million various longterm liabilities expected paid next 5 years addition following longterm liabilities included consolidated balance sheet excluded table accrued pension costs unrecognized tax benefits insurance accruals december 31 2019 unrecognized tax benefit including associated interest penalties classified longterm payable 507 million currently expect make approximately 246 million contributions pension plans 2020 equity dividends stock plans see note 12 stock plans consolidated financial statements information stock plans grant activity 20172019 share repurchases see note 13 capital stock consolidated financial statements information share repurchase program 2013 2017 board directors authorized repurchase total 137 billion common stock december 31 2018 january 31 2018 finance committee authorization delegated board directors approved increase 60 billion share repurchase program raising authorization 197 billion common stock repurchases extended program december 31 2020 december 31 2019 repurchased approximately 165 billion shares 15 billion 2019 20 billion 2018 22 billion 2017 26 billion 2016 36 billion 2015 19 billion 2014 27 billion 2013 weightedaverage cost 3965 per share number shares ultimately repurchase share repurchase program may vary depending numerous factors including share price market conditions ongoing capital allocation planning levels cash debt balances demands cash acquisition activity general economic business conditions board management discretion additionally share repurchase activity particular period may fluctuate may accelerate suspend delay discontinue share repurchase program time without notice dividends paid dividends 1542 million 2019 1359 million 2018 1198 million 2017 july 30 2019 finance committee authorization delegated board directors declared quarterly cash dividend 0285 per share class common stock increase 10 percent would 114 per common share annualized basis july 25 2018 finance committee authorization delegated board directors declared quarterly cash dividend 026 per share class common stock increase 18 percent would 104 per common share annualized basis august 2 2017 finance committee authorization delegated board directors approved 16 increase quarterly dividend 022 per common share 088 per common share annualized basis declaration dividends subject discretion board directors depends various factors including net earnings financial condition cash requirements future prospects factors board directors deems relevant analysis decision making us income tax purposes company determined 100 distributions paid shareholders 2019 characterized qualified dividend paid us earnings profits shareholders consult tax advisors full understanding tax consequences receipt dividends nongaap financial measures use nongaap financial information believe useful investors provides additional information facilitate comparisons historical operating results identify trends underlying operating results provide additional insight transparency evaluate business use nongaap financial measures budget make operating strategic decisions evaluate performance detailed nongaap adjustments make nongaap definitions adjustments generally fall within following categories acquisition divestiture activities gains losses intangible asset sales noncash impairments major program restructuring activities constant currency related adjustments major program financing hedging activities major items affecting comparability operating results believe nongaap measures always considered along related us gaap financial measures provided reconciliations gaap nongaap financial measures also discuss underlying gaap results throughout management’s discussion analysis financial condition results operations form 10k primary nongaap financial measures listed reflect evaluate current prioryear operating results new events circumstances arise definitions could change definitions change provide updated definitions present related nongaap historical results comparable basis 1 • “organic net revenue” defined net revenues excluding impacts acquisitions divestitures 2 currency rate fluctuations 3 also evaluate organic net revenue growth emerging developed markets • emerging markets include latin america region entirety amea region excluding australia new zealand japan following countries europe region russia ukraine turkey kazakhstan belarus georgia poland czech republic slovak republic hungary bulgaria romania baltics east adriatic countries developed markets include entire north america region europe region excluding countries included emerging markets definition australia new zealand japan amea region • “adjusted operating income” defined operating income excluding impacts simplify grow program 4 gains losses including noncash impairment charges goodwill intangible assets divestiture 2 acquisition gains losses related divestiture 2 acquisition integration costs 2 operating results divestitures 2 remeasurement net monetary position 5 marktomarket impacts commodity forecasted currency transaction derivative contracts 6 impact resolution tax matters 7 ceo transition remuneration 8 impact pension participation changes 9 swiss tax reform impacts 10 incremental expenses related 2017 malware incident also present “adjusted operating income margin” subject adjustments adjusted operating income also evaluate growth adjusted operating income constant currency basis 3 • “adjusted eps” defined diluted eps attributable mondelēz international continuing operations excluding impacts items listed adjusted operating income definition well losses debt extinguishment related expenses gain equity method investment transactions net earnings divestitures 2 gains losses interest rate swaps longer designated accounting cash flow hedges due changed financing hedging plans us swiss tax reform impacts 10 similarly within adjusted eps equity method investment net earnings exclude proportionate share investees’ unusual infrequent items 11 also evaluate growth adjusted eps constant currency basis 3 1 items longer impact current future presentation nongaap operating results remove items nongaap definitions 2019 added nongaap definitions exclusion impact swiss tax reform described footnote 10 2018 added nongaap definitions exclusion remeasurement gains losses related remeasuring net monetary assets liabilities argentina see footnote 5 impact pension participation changes see footnote 9 2 divestitures include completed sales businesses exits major product lines upon completion sale licensing agreement see note 2 divestitures acquisitions information divestitures acquisitions impacting comparability results 3 constant currency operating results calculated dividing multiplying appropriate currentperiod local currency operating results currency exchange rates used translate financial statements comparable prioryear period determine currentperiod us dollar operating results would currency exchange rate changed comparable prioryear period 4 nongaap adjustments related simplify grow program reflect costs incurred relate objectives program transform supply chain network organizational structure costs meet program objectives reflected nongaap adjustments 5 third quarter 2018 began apply highly inflationary accounting argentina refer note 1 summary significant accounting policies excluded remeasurement gains losses related remeasuring net monetary assets liabilities argentina consistent prior accounting remeasurement gainslosses venezuela subject highly inflationary accounting prior 2016 6 third quarter 2016 began exclude unrealized gains losses marktomarket impacts outstanding commodity forecasted currency transaction derivatives nongaap earnings measures time related exposures impact operating results since purchase commodity forecasted currency transaction contracts mitigate price volatility primarily inventory requirements future periods made adjustment remove volatility future inventory purchases current operating results facilitate comparisons underlying operating performance across periods also discontinued designating commodity forecasted currency transaction derivatives hedge accounting treatment facilitate comparisons underlying operating results recast historical nongaap earnings measures exclude marktomarket impacts 7 see note 14 commitments contingencies tax matters additional information 8 november 20 2017 dirk van de put succeeded irene rosenfeld ceo mondelēz international advance retirement end march 2018 order incent mr van de put join us provided compensation total combined target value 425 million make whole incentive awards forfeited grants made left former employer compensation granted took form cash deferred stock units performance share units stock options connection irene rosenfeld’s retirement made outstanding grants performance share units 20162018 20172019 performance cycles eligible continued vesting approved 05 million salary service chairman january march 2018 refer elements mr van de put’s ms rosenfeld’s compensation arrangements together “ceo transition remuneration” excluding amounts expense ceo transition remuneration nongaap results amounts part regular compensation program incremental amounts would incurred ongoing ceo compensation result 2017 excluded amounts expensed cash payment mr van de put partial vesting equity grants 2018 excluded amounts paid ms rosenfeld’s service chairman partial vesting mr van de put’s ms rosenfeld’s equity grants 2019 excluded amounts related partial vesting mr van de put’s equity grants 9 impact pension participation changes represents charges incurred employee groups withdrawn multiemployer pension plans changes employee group pension plan participation exclude charges nongaap results amounts reflect ongoing pension obligations see note 11 benefit plans information multiemployer pension plan withdrawal 10 exclude impact 2019 swiss tax reform 2017 us tax reform third quarter 2019 swiss federal zurich cantonal tax events drove recognition swiss tax reform net benefit results operations december 22 2017 united states enacted tax reform legislation included broad range business tax provisions exclude tax reform impacts adjusted eps reflect ongoing tax obligations new tax reforms refer note 16 income taxes information current year estimated annual effective tax rate us swiss tax reform 11 excluded proportionate share equity method investees’ unusual infrequent items acquisition divestiture related costs restructuring program costs discrete us tax reform impacts order provide investors comparable view performance across periods although shareholder rights board representation commensurate ownership interests equity method investees review underlying operating results unusual infrequent items reporting period direct control operations resulting revenue expenses use equity method investment net earnings adjusted basis intended imply control gaap “diluted eps attributable mondelēz international continuing operations” includes investees’ unusual infrequent items believe presentation nongaap financial measures considered together us gaap financial measures reconciliations corresponding us gaap financial measures provides complete understanding factors trends affecting business could obtained absent disclosures nongaap financial measures vary among companies nongaap financial measures presented report may comparable similarly titled measures used companies use nongaap financial measures meant considered isolation substitute us gaap financial measure limitation nongaap financial measures exclude items detailed impact us gaap reported results best way limitation addressed evaluating nongaap financial measures combination us gaap reported results carefully evaluating following tables reconcile us gaap reported figures nongaap financial measures form 10k organic net revenue applying definition “organic net revenue” adjustments made “net revenues” comparable us gaap financial measure exclude impact currency acquisitions divestitures believe organic net revenue reflects underlying growth ongoing activities business provides improved comparability results also evaluate organic net revenue growth emerging markets underlying measures also reconciled us gaap adjusted operating income applying definition “adjusted operating income” adjustments made “operating income” comparable us gaap financial measure exclude simplify grow program intangible asset impairment charges marktomarket impacts commodity forecasted currency transaction derivative contracts malware incident incremental expenses acquisition integration costs acquisition divestiturerelated costs operating income divestitures net gains divestitures remeasurement net monetary position impact pension participation changes impact resolution tax matters ceo transition remuneration swiss tax reform impact also evaluate adjusted operating income constant currency basis believe measures provide improved comparability underlying operating results 1 refer note 8 restructuring program information 2 refer note 6 goodwill intangible assets information trademark impairments 3 refer note 10 financial instruments note 18 segment reporting nongaap financial measures section end item information unrealized gainslosses commodity forecasted currency transaction derivatives 4 refer note 2 divestitures acquisitions information acquisition biscuit business vietnam 5 refer note 2 divestitures acquisitions information prioryear divestitures intangible asset sales june 7 2018 acquisition tates bake shop 6 refer note 1 summary significant accounting policies currency translation highly inflationary accounting information application highly inflationary accounting argentina 7 refer note 11 benefit plans information 8 refer note 14 commitments contingencies tax matters information 9 refer nongaap financial measures definition related table notes 10 refer note 16 income taxes information swiss tax reform adjusted eps applying definition “adjusted eps” 1 adjustments made “diluted eps attributable mondelēz international” comparable us gaap financial measure exclude impacts items listed adjusted operating income tables well gainslosses related interest rate swaps loss debt extinguishment us tax reform discrete net tax impact net gainslosses equity method investment transactions proportionate share unusual infrequent items recorded jde keurig equity method investees also evaluate adjusted eps constant currency basis believe adjusted eps provides improved comparability underlying operating results 1 tax expensebenefit pretax items excluded gaap results computed based facts tax assumptions associated item impacts also excluded adjusted eps • 2019 taxes simplify grow program 103 million intangible asset impairment charges 14 million marktomarket gains derivatives 19 million divestiturerelated costs zero net earnings divestiture zero net gain divestiture 3 million impact pension participation changes 8 million impact resolution tax matters 21 million ceo transition remuneration zero net loss related interest rate swaps zero swiss tax reform 769 million net loss equity method investment transactions 6 million equity method investee chargesbenefits 12 million • 2018 taxes simplify grow program 156 million intangible asset impairment charges 16 million marktomarket gains derivatives 10 million acquisitionrelated costs 3 million net earnings divestiture zero impact pension participation changes 108 million impact resolution tax matters 6 million ceo transition remuneration 5 million net gain related interest rate swaps 2 million loss debt extinguishment 35 million us tax reform 19 million gain equity method investment transaction 192 million equity method investee chargesbenefits 16 million • 2017 taxes simplify grow program 190 million intangible asset impairment charges 30 million marktomarket losses derivatives 6 million malware incident incremental costs 27 million divestiturerelated costs 8 million net earnings divestitures 16 million net gain divestitures 7 million impact resolution tax matters 75 million ceo transition remuneration 5 million us tax reform 44 million gain equity method investment transactions 15 million equity method investee chargesbenefits 10 million 2 see adjusted operating income table related footnotes information 3 refer note 10 financial instruments information interest rate swaps longer designated cash flow hedges 4 refer note 9 debt borrowing arrangements information losses debt extinguishment 5 refer note 16 income taxes information impact us tax reform 6 refer note 7 equity method investments information kdp transaction 2018 2017 sale interest one equity method investments 2016 acquisition interest keurig 7 includes proportionate share unusual infrequent items acquisition divestiturerelated costs restructuring program costs discrete us tax reform impacts recorded jde keurig equity method investees item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis contains forwardlooking statements read conjunction sections annual report form 10k including consolidated financial statements related notes contained item 8 “forwardlooking statements” “risk factors” contained item 1a description company manufacture market primarily snack food products including biscuits cookies crackers salted snacks chocolate gum candy various cheese grocery products well powdered beverage products operations 80 countries sell products 165 countries last several years built presence snacking category expanded geographically continue invest product quality marketing innovation behind iconic brands also implementing series cost saving initiatives goals achieve industryleading revenue growth time driven higher expected growth rates advantaged snack categories leverage cost structure supply chain reinvention productivity programs overhead streamlining volume growth improved product mix drive margin gains grow earnings per share toptier peer group coffee business transactions july 2 2015 completed transactions combine wholly owned coffee businesses including coffee portfolio france de master blenders 1753 bv “demb” create new company jacobs douwe egberts jde currently hold 435 equity interest jde acorn holdings bv “ahbv” owner demb holds remaining 565 equity interest connection contribution global coffee businesses jde recorded pretax gain 68 billion 66 billion taxes 2015 also recorded approximately 10 billion pretax net gains related hedging expected cash proceeds transactions described consideration received date consists 38 billion cash 42 billion us dollars july 2 2015 435 equity interest jde 794 million receivables related sales price adjustments tax formation cost payments third quarter 2015 also recorded 283 million cash receivables jde related reimbursement costs incurred separating coffee businesses cash equity consideration received closing reflects retained interest koreabased joint venture dongsuh foods corporation second quarter 2015 also completed sale interest japanese coffee joint venture ajinomoto general foods inc “agf” lieu contributing interest agf joint venture jde contributed net cash proceeds sale transaction change consideration received global coffee businesses please see note 2 divestitures acquisitions divestitures acquisitions sales property discussion divestiture agf fourth quarter jde concluded negotiations sales price adjustment completed valuation investment jde primarily related negotiated resolution sales price adjustment fourth quarter recorded 313 million reduction pretax gain coffee transaction reducing 71 billion estimated gain third quarter 68 billion final gain 2015 part sales price negotiations retained right collect future cash payments certain estimated pension liabilities come agreed amount future may recognize additional income related negotiated term future final value investment jde july 2 2015 41 billion 45 billion fair value jde investment determined using incomebased marketbased valuation techniques discounted cash flow analysis reflected growth discount tax rates assumptions reflecting underlying combined businesses countries combined coffee businesses operate connection expected receipt cash euros time closing entered number consecutive currency exchange forward contracts 2014 2015 lock equivalent expected value us dollars date coffee business transactions first announced may 2014 cumulatively realized aggregate net gains received cash approximately 10 billion hedging contracts increased cash received connection coffee business transactions 42 billion cash consideration received 52 billion connection currency contracts transfer sale proceeds subsidiaries deconsolidated net assets shares recognized net gain 628 million 2014 net gain 436 million 2015 within interest expense net additional information jde coffee transactions see note 2 divestitures acquisitions december 18 2015 ahbv agreed provide jde additional capital pay debt lenders pro rata share capital increase 499 million 544 million us dollars december 18 2015 made return additional shares jde retained 435 interest jde following capital increase fund share capital increase contributed 460 million 501 million jde receivables made 39 million 43 million cash payment december 6 2015 agreed make investment keurig green mountain inc “keurig” contingent upon successful completion planned acquisition keurig jab holding co “jab” parent company ahbv following close jab’s planned acquisition keurig early 2016 intend exchange portion equity interest jde equity interest keurig following exchange shares expect ownership jde decrease approximately 265 interest keurig somewhat lower expect account investments equity method resulting recognizing share earnings within earnings share dividends within cash flows governance rights jde change significantly similar governance rights keurig following transaction investment keurig follow acquisition keurig jab expected completed end first quarter 2016 early second quarter exchange shares jde investment keurig conditioned upon actions jab keurig’s existing shareholders subject regulatory antitrust reviews reflected portion investment jde would exchanged keurig investment assets held sale december 31 2015 venezuela deconsolidation effective close 2015 fiscal year concluded longer met accounting criteria consolidation venezuela subsidiaries due loss control venezuelan operations otherthantemporary lack currency exchangeability close 2015 fiscal year deconsolidated changed cost method accounting venezuelan operations recorded 778 million pretax loss reduced value cost method investment venezuela venezuelan receivables held subsidiaries realizable fair value resulting full impairment recorded loss also included historical cumulative translation adjustments related venezuelan operations previously recorded accumulated comprehensive losses within equity beginning 2016 longer include net revenues earnings net assets venezuelan subsidiaries within consolidated financial statements cost method accounting recognize earnings extent cash received venezuelan subsidiaries given current ongoing difficult economic regulatory business environment venezuela continues significant uncertainty related operations venezuela expect conditions continue foreseeable future monitor extent ability control venezuelan operations liquidity availability us dollars different rates current situation venezuela may change time lead consolidation future date see discussion analysis historical results items affecting comparability financial results note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information historical venezuela operating results including remeasurement losses loss deconsolidation summary results • net revenues decreased 135 296 billion 2015 decreased 30 342 billion 2014 net revenues 2015 significantly affected unfavorable currency translation us dollar strengthened currencies operate compared exchange rates prior year july 2 2015 deconsolidation global coffee business • organic net revenue increased 37 316 billion 2015 increased 25 321 billion 2014 organic net revenue nongaap financial measure use evaluate underlying results see definition organic net revenue reconciliation net revenues within nongaap financial measures appearing later section • diluted eps attributable mondelēz international increased 2469 444 2015 decreased 416 128 2014 excluding results discontinued operations 2013 diluted eps attributable mondelēz international continuing operations decreased 08 128 2014 number significant items also affected comparability reported results described discussion analysis historical results appearing later section notes consolidated financial statements • adjusted eps remained flat 175 2015 increased 136 175 2014 constant currency basis adjusted eps increased 189 208 2015 increased 227 189 2014 adjusted eps nongaap financial measure use evaluate underlying results see definition adjusted eps reconciliation diluted eps within nongaap financial measures appearing later section financial outlook seek achieve toptier financial performance manage business achieve goal using three key operating metrics organic net revenue adjusted operating income adjusted eps refer nongaap financial measures appearing later section information measures additional metrics use monitor include product quality measures category growth market share performance margins pricing net commodity costs net commodity inflation volume growth power brand organic net revenue growth gross net productivity savings brand support related investments capital spending cash conversion cycle free cash flow return invested capital shareholder returns also monitor number factors trends expect may impact revenues profitability objectives longterm demographics consumer trends snack food consumption highly correlated gdp growth urbanization population rising discretionary income levels associated growing middle class particularly emerging markets longterm expect trends continue leading growth key consumer behaviors including increased snacking occasions greater use convenience food migration frequent smaller meals near term low gdp growth high unemployment weak consumer confidence europe emerging markets slowed category growth demand monitor consumer spending market share within food beverage categories sell products growth global categories increased approximately 36 2014 55 2015 organic net revenue growth also increased 25 2014 37 2015 organic net revenue included 90 basis point headwind strategic decisions improve revenue mix 2015 began improve revenue mix discontinuing certain low margin customerspecific product lines discontinuing certain lowmargin licensed products continuing simplify portfolio anticipate taking similar actions optimize portfolio 2016 improvement global category growth largely driven price relating higher commodity costs currencyrelated inflationary impacts longterm expect category growth return levels line historical growth rates macroeconomic environment emerging markets recovers better balance price volumemix continue make investments brands build strong routes market address needs consumers emerging developed markets anticipate stimulating demand categories growing position markets volatility global markets growth strategy depends part ability expand operations particularly emerging markets greater political economic volatility vulnerability infrastructure labor disruptions experienced past year markets including argentina brazil russia ukraine venezuela volatility markets affects demand costs products requires frequent changes operate business likely continued volatility across markets sell focused continuing manage costs adjusting prices needed recover changing costs continue invest global power brands routes market competition operate highly competitive markets include global regional local competitors advantaged geographic footprint operating scale portfolio brands significantly contributed building marketleading positions across product categories sell grow maintain market positions focus product quality bringing new products innovations market effectively meeting consumer needs preferences pursue growth opportunities expanding global operations growing portfolio power brands innovative products continue optimize manufacturing operations invest brands ongoing research development advertising marketing consumer promotions pricing adjust product prices based number variables including demand competitive environment changes product input costs net revenue growth profitability may affected adjust prices address new conditions 2015 generally increased prices response higher commodity costs currency market factors 2016 anticipate adjust prices response changing market conditions price competition delayed price increases competitors customers may continue affect net revenues market share near term market adjusts changes input costs market conditions operating costs operating costs include raw materials labor selling general administrative expenses taxes currency impacts financing costs manage costs cost saving productivity initiatives sourcing hedging programs pricing actions refinancing tax planning also continue work programs expand profitability margins 20142018 restructuring program designed bring significant reductions operating cost structure supply chain overhead costs currency global company nearly 80 net revenues generated outside united states exposed changes global economic conditions currency movements last three years us dollar strengthened relative currencies operate several countries experienced significant declines devaluations currency movements significant negative effect reported results operations 2015 net revenues 296 billion 135 2014 including negative 126 percentage point impact currency translation 2014 net revenues 342 billion 30 2013 including negative 52 percentage point impact currency translation 2013 net revenues 353 billion 08 including negative 24 percentage point impact currency translation net investment hedges form local currency denominated debt offset translation certain overseas operations generally hedge currency translation primarily seek hedge economic losses crosscurrency transactions due limited markets hedging currency transactions factors may able effectively hedge crosscurrency transaction risks historically also exposed currency devaluation risks impacting earnings particularly connection venezuela operations december 31 2015 deconsolidated see note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information economy monetary policies business restrictions venezuela well developing countries created challenging business environment operate ability hedge currencyrelated economic losses may limited work mitigate exposure currency risks factors continued global market volatility actions foreign governments political uncertainty external developments could lead unfavorable currency impacts future financing costs regularly evaluate variable fixedrate debt continue use lower cost short longterm debt finance ongoing working capital expenditures investments dividends share repurchases 2015 2014 2013 repaid 156 billion longterm debt issued lowercost longterm euro british pound sterling swiss franc us dollardenominated debt weightedaverage interest rate total debt december 31 2015 37 43 december 31 2014 48 december 31 2013 refer note 8 debt borrowing arrangements additional debt activity 2016 discussion analysis historical results items affecting comparability financial results following table includes significant income expense items affected comparability pretax results operations effective tax rates please refer notes consolidated financial statements indicated information refer also consolidated results operations net earnings per share attributable mondelēz international table per share impacts items 1 lock expected us dollar value approximately 5 billion related estimated 4 billion cash receipt upon closing entered currency exchange forward contracts beginning may 2014 transaction announced recognized net gains 405 million contracts 2015 net gains 628 million 2014 also monetized additional hedges july 2015 realized net pretax gains 17 million connection transferring funds subsidiaries deconsolidated net assets shares incurred additional currency gains 14 million 2015 2 includes 2015 divestiture agf 2013 divestures salty snacks business turkey confectionary business south africa chocolate business spain include deconsolidation coffee businesses presented separately table consolidated results operations following discussion compares consolidated results operations 2015 2014 2013 2015 compared 2014 net revenues net revenues decreased 4608 million 135 29636 million 2015 organic net revenue 1 increased 1131 million 37 31599 million organic net revenue growth power brands 54 emerging markets 106 underlying changes net revenues organic net revenue detailed 1 please see nongaap financial measures section end item 2 includes historical global coffee business prior july 2 2015 coffee business transactions refer note 2 divestitures acquisitions nongaap financial measures appearing later section information organic net revenue growth driven higher net pricing partially offset unfavorable volumemix net pricing realized effects input costdriven pricing actions taken year higher net pricing reflected across segments unfavorable volumemix largely due price elasticity well strategic decisions exit certain lowmargin product lines unfavorable volumemix reflected segments except north america unfavorable currency impacts decreased net revenues 3833 million due primarily strength us dollar relative several currencies including euro brazilian real russian ruble venezuelan bolivar australian dollar british pound sterling adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 2149 million year july 15 2015 acquisition biscuit operation vietnam added 128 million incremental net revenues constant currency basis year north america segment accounting calendar change resulted yearoveryear increase net revenues 78 million year february 16 2015 acquisition enjoy life foods snack food business north america added 37 million incremental net revenues year operating income operating income increased 5655 million 1744 8897 million 2015 adjusted operating income 1 increased 172 million 47 3830 million adjusted operating income constant currency basis 1 increased 694 million 190 4352 million due following 1 refer nongaap financial measures section end item 2 refer note 2 divestitures acquisitions information spinoff costs incurred 2014 following 2012 kraft foods group divestiture 3 refer note 6 restructuring programs information 20142018 restructuring program 20122014 restructuring program 4 refer note 7 integration program cost savings initiatives information integration costs 2015 2014 5 refer note 1 summary significant accounting policies information loss deconsolidation venezuela 2015 remeasurements net monetary assets venezuela 2015 2014 accounting calendar change 2015 6 refer note 5 goodwill intangible assets information impairment charges recorded 2015 2014 related trademarks 7 refer note 2 divestitures acquisitions information coffee business transactions 8 includes historical global coffee business prior july 2 2015 divestiture refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 9 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting jde earnings began record earnings equity method investments aftertax equity method investment earnings outside operating income periods prior july 2 2015 reclassified equity method earnings adjusted operating income evaluate operating results consistent basis 10 includes divestiture agf closed april 23 2015 include deconsolidation coffee businesses divestiture agf generated pretax gain 13 million aftertax loss 9 million second quarter refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 11 refer note 2 divestitures acquisitions information acquisitions biscuit operation vietnam enjoy life foods 2015 higher net pricing outpaced increased input costs higher net pricing due inputcost driven pricing actions taken year reflected across segments increase input costs driven higher raw material costs part due higher currency exchange transaction costs imported materials partially offset lower manufacturing costs unfavorable volumemix reflected across segments total selling general administrative expenses decreased 880 million 2014 due number factors noted table including part favorable currency impact adjustment deconsolidating historical coffee business lower devaluation charges related net monetary assets venezuela absence 20122014 restructuring program costs decreases partially offset increases higher costs incurred 20142018 restructuring program costs associated coffee business transactions lower valueadded tax “vat”related settlements reclassification equity method investment earnings impact acquisitions gain sale property 2014 excluding factors noted selling general administrative expenses increased 327 million 2014 increase driven primarily higher advertising consumer promotions support particularly behind power brands excluding portion related deconsolidating historical coffee business change unrealized gains losses increased operating income 129 million 2015 net unrealized gains currency commodity hedging activity 56 million 96 million including coffee related activity compared net unrealized losses 73 million 112 million including coffee related activity 2014 related currency commodity hedging activity recorded benefit 30 million 2015 vatrelated settlements latin america compared 84 million 2014 unfavorable currency impacts decreased operating income 522 million due primarily strength us dollar relative currencies including euro brazilian real venezuelan bolivar british pound sterling australian dollar russian ruble operating income margin increased 95 2014 300 2015 increase operating income margin driven primarily pretax gain coffee business transactions increase adjusted operating income margin absence 20122014 restructuring program costs lower devaluation charges related net monetary assets venezuela items increased operating income margin partially offset loss deconsolidation venezuela higher costs incurred 20142018 restructuring program costs associated coffee business transactions adjusted operating income margin increased 120 2014 137 2015 increase adjusted operating income margin driven primarily improved gross margin reflecting productivity efforts yearoveryear favorable impact unrealized gains losses currency commodity hedging activities improved overhead leverage cost reduction programs partially offset increased advertising consumer promotions support net earnings per share attributable mondelēz international net earnings attributable mondelēz international 7267 million increased 5083 million 2327 2015 diluted eps attributable mondelēz international 444 2015 316 2469 2014 adjusted eps 1 175 2015 flat 2014 adjusted eps constant currency basis 1 208 2015 033 189 2014 1 refer nongaap financial measures section end item 2 refer note 2 divestitures acquisitions information spinoff costs incurred 2014 following 2012 kraft foods group divestiture 3 refer note 6 restructuring programs information 20142018 restructuring program 20122014 restructuring program 4 refer note 7 integration program cost savings initiatives information integration costs 2015 2014 5 refer note 1 summary significant accounting policies information loss deconsolidation venezuela 2015 remeasurements net monetary assets venezuela 2015 2014 accounting calendar change 2015 6 refer note 5 goodwill intangible assets information impairment charges recorded 2015 2014 related trademarks 7 refer note 2 divestitures acquisitions information coffee business transactions net gains 436 million 2015 628 million 2014 currency hedges related coffee business transactions recorded interest expense net included income costs associated coffee business transactions 001 2015 019 2014 8 includes divestiture agf closed april 23 2015 include deconsolidation coffee businesses divestiture agf generated pretax gain 13 million aftertax loss 9 million second quarter refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 9 refer note 2 divestitures acquisitions information acquisitions biscuit operation vietnam enjoy life foods 10 refer note 8 debt borrowing arrangements information loss debt extinguishment related expenses connection debt tender offers march 2015 february 2014 11 includes historical coffee business results equity earnings jde equity method investees refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 12 excludes favorable currency impact interest expense related nonus dollardenominated debt included currency translation 13 refer note 11 stock plans information equity compensation programs share repurchase program note 16 earnings per share earnings per share weightedaverage share information 14 refer note 15 income taxes information change income taxes effective tax rate 15 refer note 9 financial instruments information interest rate swaps longer designate cash flow hedges three months ended march 31 2015 due change financing hedging plans 16 includes proportionate share unusual infrequent items acquisition divestiturerelated costs restructuring program costs recorded jde equity method investee 2014 compared 2013 net revenues net revenues decreased 1055 million 30 34244 million 2014 organic net revenue 1 increased 785 million 25 32080 million organic net revenue growth power brands 44 emerging markets 73 underlying changes net revenues organic net revenue detailed 1 please see nongaap financial measures section end item 2 includes historical global coffee business prior july 2 2015 coffee business transactions refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 3 includes 2013 divestures salty snacks business turkey confectionary business south africa chocolate business spain include deconsolidation coffee businesses refer note 2 divestitures acquisitions nongaap financial measures appearing later section information organic net revenue growth driven higher net pricing partially offset unfavorable volumemix overall net pricing realized effects input costdriven pricing actions implemented course year higher net pricing reflected primarily latin america eemea europe asia pacific unfavorable volumemix driven primarily europe asia pacific latin america addition price elasticity decline largely due slow response competitors higher input costs well impact pricerelated customer disruptions europe unfavorable currency impacts decreased net revenues 1626 million due primarily devaluation venezuelan bolivar strength us dollar relative several currencies including argentinean peso brazilian real russian ruble australian dollar ukrainian hryvnya partially offset strength british pound sterling relative us dollar historical coffee business recorded yearoveryear decrease net revenues 128 million year impact divestitures completed 2013 including salty snacks business turkey confectionery business south africa chocolate business spain resulted yearoveryear decrease net revenues 70 million accounting calendar change made europe 2013 resulted yearoveryear decrease net revenues 30 million acquisition biscuit operation morocco february 22 2013 added 14 million incremental net revenues 2014 period prior anniversary date acquisition operating income operating income decreased 729 million 184 3242 million 2014 adjusted operating income 1 increased 198 million 57 3658 million adjusted operating income constant currency basis 1 increased 446 million 129 3906 million due following 1 refer nongaap financial measures section end item 2 refer note 2 divestitures acquisitions information spinoff costs incurred 2014 2013 following 2012 kraft foods group divestiture divestitures acquisition 2013 property sales 2014 2013 3 refer note 6 restructuring programs information 20142018 restructuring program 20122014 restructuring program 4 refer note 7 integration program cost savings initiatives information integration costs 2014 2013 5 see note 13 commitments contingencies information resolution cadbury acquisitionrelated indemnification 6 refer note 1 summary significant accounting policies information remeasurements net monetary assets venezuela 2014 2013 7 includes historical global coffee business prior july 2 2015 coffee business transactions refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 8 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting jde earnings began record earnings equity method investments aftertax equity method investment earnings outside operating income periods prior july 2 2015 reclassified equity method earnings adjusted operating income evaluate operating results consistent basis 9 includes 2013 divestures salty snacks business turkey confectionary business south africa chocolate business spain 2013 acquisition biscuit operation morocco include deconsolidation coffee businesses refer note 2 divestitures acquisitions nongaap financial measures appearing later section information 10 refer note 5 goodwill intangible assets information impairment charges 2014 recorded related two trademarks 11 refer note 2 divestitures acquisitions information coffee business transactions 2014 higher net pricing outpaced increased input costs higher net pricing reflected across segments increase input costs driven higher raw material costs part due higher currency exchange transaction costs imported materials partially offset lower manufacturing costs unfavorable volumemix driven latin america asia pacific europe eemea partially offset gains north america total selling general administrative expenses decreased 222 million 2013 due number factors noted table including part favorable currency impact lower integration program costs vatrelated settlements 2014 lower costs associated historical coffee business lower spinoff costs 2013 business divestitures gain sale property 2014 decreases offset increases 2013 benefit received related resolution cadbury acquisition indemnification increased devaluation charges related net monetary assets venezuela costs incurred 20142018 restructuring program costs related coffee business transactions gains property sales 2013 higher 20122014 restructuring program costs excluding factors noted selling general administrative expenses decreased 306 million 2013 driven primarily lower overhead costs lower advertising consumer promotion costs overhead costs fell result continued cost reduction efforts advertising consumer promotion costs lower due primarily savings consolidating media providers reductions nonworking media costs efficiencies gained shifting spending lowercost digital media outlets increased spending power brands maintained working media spending excluding portion related deconsolidating historical coffee business change unrealized gains losses decreased operating income 116 million 2014 net unrealized losses primarily commodity hedging activity 73 million 112 million including coffeerelated activity compared net unrealized gains 43 million 2013 62 million including coffeerelated activity related currency commodity hedging activity 2013 recorded pretax gains 68 million related sales properties india europe 2014 recorded benefit 84 million related vatrelated settlements latin america 2014 recorded pretax gain 7 million related sale property europe acquisition biscuit operation morocco february 22 2013 added 3 million incremental operating income 2014 period prior anniversary acquisition unfavorable currency impacts decreased operating income 248 million due primarily devaluation venezuelan bolivar 2013 2014 strength us dollar relative several currencies including argentinean peso brazilian real australian dollar russian ruble canadian dollar partially offset strength british pound sterling relative us dollar operating income margin decreased 112 2013 95 2014 decrease operating income margin driven primarily costs incurred 20142018 restructuring program yearoveryear negative impact benefit resolution cadbury acquisitionrelated indemnification recorded 2013 higher costs 20122014 restructuring program impact devaluation net monetary assets venezuela costs incurred associated coffee business transactions partially offset increase adjusted operating income margin lower integration program costs adjusted operating income margin increased 110 2013 120 2014 increase adjusted operating income margin driven primarily lower overhead costs continued cost reduction efforts lower advertising consumer promotion costs due primarily productivity initiatives partially offset decline gross profit margin due entirely unfavorable impact unrealized gains losses currency commodity hedging activities net earnings per share attributable mondelēz international net earnings attributable mondelēz international 2184 million 2014 decreased 1731 million 442 due primarily results discontinued operations prior year diluted eps continuing operations attributable mondelēz international 128 2014 001 08 129 2013 adjusted eps 1 175 2014 021 136 154 2013 adjusted eps constant currency basis 1 189 2014 035 227 154 2013 1 refer nongaap financial measures section end item 2 refer note 2 divestitures acquisitions information spinoff costs following 2012 kraft foods group divestiture resolution starbucks arbitration coffee business transactions divestitures acquisition property sales note 628 million unrealized gain currency hedges related jde coffee transactions recorded interest expense net included income costs associated jde coffee transactions 019 3 refer note 6 restructuring programs information 20142018 restructuring program 20122014 restructuring program 4 refer note 7 integration program cost savings initiatives information cadbury acquisition integration program acquisition integration charges 5 refer note 13 commitments contingencies information benefit related resolution cadbury acquisition indemnification 2013 6 refer note 1 summary significant accounting policiescurrency translation highly inflationary accounting information remeasurements net monetary assets venezuela 2014 2013 7 refer note 8 debt borrowing arrangements information loss debt extinguishment related expenses connection debt tender offers february 2014 december 2013 8 excludes favorable currency impact interest expense related nonus dollar denominated debt included currency translation 9 refer note 11 stock plans note 12 capital stock information equity compensation programs share repurchase program note 16 earnings per share earnings per share weightedaverage share information 10 refer note 15 income taxes information change income taxes effective tax rate 11 refer note 5 goodwill intangible assets information impairment charges 2014 recorded related two trademarks results operations reportable segment operations management structure organized five reportable operating segments • latin america • asia pacific • eemea • europe • north america manage operations region leverage regional operating scale manage different changing business environments effectively pursue growth opportunities arise key markets regional management teams responsibility business product categories financial results regions historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting deconsolidated coffee business related investment jde began record earnings equity method investments aftertax equity method investment earnings outside segment operating income six months ended december 31 2015 aftertax equity method investment net earnings less 1 million combined basis earnings equity method investments july 2 2015 recorded within segment operating income 49 million asia pacific 3 million eemea 4 million north america year ended december 31 2014 earnings 98 million asia pacific 6 million eemea 9 million north america year ended december 31 2013 earnings 99 million asia pacific 7 million eemea 1 million north america see note 1 summary significant accounting policies principles consolidation additional information 2015 also began report stockbased compensation corporate employees previously reported within north america region within general corporate expenses reclassified 32 million corporate stockbased compensation expense north america segment 2015 use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends see note 17 segment reporting additional information segments items affecting comparability financial results earlier section items affecting segment operating results segment net revenues earnings following historical periods 1 july 2 2015 part jde coffee transactions deconsolidated global coffee businesses primarily europe eemea asia pacific segments impact deconsolidating coffee businesses july 2 2015 1699 million europe 413 million eemea 32 million asia pacific 5 million latin america yearoveryear basis refer note 2 divestitures acquisitions coffee business transactions information latin america 2015 compared 2014 net revenues decreased 165 million 32 due unfavorable currency 230 pp unfavorable volumemix 82 pp adjustment deconsolidating historical coffee business 01 pp partially offset higher net pricing 281 pp unfavorable currency impacts due primarily strength us dollar relative currencies region including brazilian real venezuelan bolivar mexican peso argentinean peso unfavorable volumemix largely due impact pricingrelated elasticity well strategic decisions exit certain lowmargin product lines unfavorable volumemix driven declines refreshment beverages cheese grocery chocolate biscuits partially offset gains gum candy adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 5 million higher net pricing reflected across categories unfavorable volumemix higher net pricing driven primarily higher inflationary countries venezuela argentina well brazil segment operating income increased 10 million 21 primarily due higher net pricing higher remeasurement losses 2014 related net monetary assets venezuela lower manufacturing costs absence 20122014 restructuring program costs favorable items partially offset higher raw material costs unfavorable currency unfavorable volumemix higher selling general administrative expenses including lower yearoveryear vatrelated settlements higher advertising consumer promotion costs higher costs incurred 20142018 restructuring program intangible asset impairment charge 2015 related biscuit trademark 2014 compared 2013 net revenues decreased 229 million 43 due unfavorable currency 194 pp unfavorable volumemix 42 pp partially offset higher net pricing 193 pp unfavorable currency impacts due primarily venezuelan bolivar devaluation strength us dollar relative argentinean peso brazilian real unfavorable volumemix driven declines categories except biscuits addition unfavorable volumemix driven primarily mexico venezuela argentina partially offset gains brazil western andean countries higher net pricing reflected primarily higher inflationary countries venezuela argentina well brazil mexico segment operating income decreased 95 million 167 primarily due higher raw material costs unfavorable currency unfavorable volumemix yearoveryear net impact remeasurement net monetary assets venezuela costs incurred 20142018 restructuring program higher advertising consumer promotion costs unfavorable items partially offset higher net pricing lower manufacturing costs absence integration program costs 2014 lower selling general administrative expenses including 84 million related primarily vatrelated settlements lower 20122014 restructuring program costs asia pacific 2015 compared 2014 net revenues decreased 245 million 53 due unfavorable currency 92 pp unfavorable volumemix 22 pp adjustment deconsolidating historical coffee business 06 pp partially offset higher net pricing 39 pp impact acquisition 28 pp unfavorable currency impacts due primarily strength us dollar relative currencies region including australian dollar indian rupee japanese yen unfavorable volumemix due largely impact pricingrelated elasticity well strategic decisions exit certain lowmargin product lines unfavorable volumemix driven declines categories except gum biscuits adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 32 million higher net pricing reflected across categories except refreshment beverages acquisition biscuit operation vietnam july 2015 added net revenues 128 million constant currency basis segment operating income decreased 117 million 304 primarily due higher costs incurred 20142018 restructuring program higher raw material costs higher advertising consumer promotion costs unfavorable currency reclassification equity method investment earnings unfavorable volumemix higher selling general administrative expenses including phaseout local tax incentive program adjustment deconsolidating historical coffee business divestiture acquisitionrelated integration costs associated coffee business transactions unfavorable items partially offset higher net pricing lower manufacturing costs absence 20122014 restructuring program costs impact vietnam acquisition lower intangible asset impairment charges related candy biscuit trademarks 2015 biscuit trademark 2014 compared 2013 net revenues decreased 347 million 70 due unfavorable volumemix 57 pp unfavorable currency 43 pp decrease historical coffee business 04 pp partially offset higher net pricing 34 pp unfavorable volumemix driven declines categories except gum unfavorable currency impacts due primarily strength us dollar relative australian dollar indian rupee indonesian rupiah japanese yen decline historical coffee business resulted 28 million decrease net revenues higher net pricing reflected across categories except gum candy segment operating income decreased 127 million 248 primarily due higher raw material costs unfavorable volumemix intangible asset impairment charge related biscuit trademark higher 20122014 restructuring program costs incurred 20142018 restructuring program impact historical coffee business unfavorable currency unfavorable items partially offset higher net pricing lower manufacturing costs lower advertising consumer promotion costs absence integration program costs 2014 lower selling general administrative expenses including unfavorable yearoveryear impact 2013 gain sale property india eemea 2015 compared 2014 net revenues decreased 852 million 234 due unfavorable currency 207 pp adjustment deconsolidating historical coffee business 87 pp unfavorable volumemix 54 pp partially offset higher net pricing 114 pp unfavorable currency impacts due strength us dollar relative currencies region primarily russian ruble ukrainian hryvnya south african rand adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 413 million unfavorable volumemix driven declines categories except biscuits higher net pricing reflected across categories segment operating income decreased 133 million 407 primarily due higher raw material costs adjustment deconsolidating historical coffee business higher costs incurred 20142018 restructuring program unfavorable currency higher advertising consumer promotion costs unfavorable volumemix higher selling general administrative expenses costs associated coffee business transactions unfavorable items partially offset higher net pricing lower manufacturing costs absence 20122014 restructuring program costs 2014 compared 2013 net revenues decreased 277 million 71 due unfavorable currency 112 pp unfavorable mix 07 pp decrease historical coffee business 06 pp impact divestitures 06 pp partially offset higher net pricing 56 pp impact february 2013 acquisition biscuit operation morocco 04 pp unfavorable currency impacts due strength us dollar relative currencies region primarily russian ruble ukrainian hryvnya south african rand turkish lira unfavorable volumemix driven declines chocolate refreshment beverages partially offset gains biscuits gum candy cheese grocery decline historical coffee business resulted 71 million decrease net revenues divestitures completed 2013 resulted 20 million decline net revenues higher net pricing reflected across categories except refreshment beverages acquisition biscuit operation morocco february 2013 added 14 million incremental net revenues 2014 period prior anniversary date acquisition segment operating income decreased 52 million 137 primarily due higher raw material costs higher 20122014 restructuring program costs unfavorable currency costs incurred 20142018 restructuring program impact historical coffee business unfavorable volumemix costs associated jde coffee transactions unfavorable items partially offset higher net pricing lower manufacturing costs lower integration program acquisition integration costs lower advertising consumer promotion costs impact 2013 divestitures europe 2015 compared 2014 net revenues decreased 3384 million 243 due unfavorable currency 136 pp adjustment deconsolidating historical coffee business 88 pp unfavorable volumemix 27 pp partially offset higher net pricing 08 pp unfavorable currency impacts primarily reflected strength us dollar currencies region including euro british pound sterling adjustment deconsolidating historical coffee business resulted yearoveryear decrease net revenues 1699 million unfavorable volumemix largely due impact pricingrelated elasticity well strategic decisions exit certain lowmargin product lines unfavorable volumemix driven declines chocolate gum refreshment beverages cheese grocery partially offset gains biscuits candy higher net pricing driven chocolate partially offset lower net pricing biscuits cheese grocery gum candy refreshment beverages segment operating income decreased 493 million 279 primarily due unfavorable currency adjustment deconsolidating historical coffee business higher costs incurred 20142018 restructuring program costs associated coffee business transactions unfavorable volumemix higher raw material costs higher advertising consumer promotion costs higher intangible asset impairment charges related candy trademark unfavorable items partially offset lower manufacturing costs absence 20122014 restructuring program costs higher net pricing lower selling general administrative expenses net unfavorable yearoveryear impact 2014 gain sale property united kingdom 2014 compared 2013 net revenues decreased 147 million 10 due unfavorable volumemix 28 pp impact prior year’s accounting calendar change 03 pp impact divestitures 01 pp partially offset higher net pricing 17 pp favorable currency 04 pp impact historical coffee business 01 pp unfavorable volumemix due pricingrelated elasticity across region certain pricingrelated customer disruptions unfavorable volumemix driven declines categories accounting calendar change made 2013 resulted yearoveryear decrease net revenues 30 million addition divestitures completed 2013 resulted 11 million decline net revenues higher net pricing driven chocolate cheese grocery partially offset lower net pricing categories favorable currency impacts primarily reflected strength british pound sterling relative us dollar partially offset strength us dollar swedish krona euro norwegian krone addition decline historical coffee business though lower rate rest european segment resulted 29 million decrease net revenues segment operating income increased 71 million 42 primarily due lower manufacturing costs higher net pricing lower selling general administrative expenses net unfavorable yearoveryear impact 2013 gains sales property united kingdom norway italy benefit 2014 gain sale property united kingdom lower advertising consumer promotion costs lower integration program costs including reversal prioryear accrual impact historical coffee business favorable items partially offset higher raw material costs primarily higher cocoa costs incurred 20142018 restructuring program unfavorable volume mix higher 20122014 restructuring program costs associated coffee business transactions intangible asset impairment charge related candy trademark yearoveryear impact accounting calendar change made 2013 north america 2015 compared 2014 net revenues increased 38 million 05 due accounting calendar change 12 pp acquisition 05 pp favorable volumemix 05 pp higher net pricing 03 pp partially offset unfavorable currency 20 pp change north america’s accounting calendar added net revenues 78 million acquisition enjoy life foods snack food business february 2015 added net revenues 37 million favorable volumemix driven gains biscuits candy partially offset declines gum chocolate higher net pricing reflected gum chocolate partially offset lower net pricing biscuits candy unfavorable currency impact due strength us dollar relative canadian dollar segment operating income increased 183 million 198 primarily due absence 20122014 restructuring program costs lower manufacturing costs lower selling general administrative expenses including reclassification corporate stockbased compensation impact accounting calendar change higher net pricing lower raw material costs favorable items partially offset higher costs incurred 20142018 restructuring program unfavorable currency higher advertising consumer promotion costs unfavorable volumemix reclassification equity method investment earnings 2014 compared 2013 net revenues decreased 55 million 08 due unfavorable currency 10 pp impact divestitures 06 pp partially offset favorable volumemix 07 pp higher net pricing 01 pp unfavorable currency impact due strength us dollar relative canadian dollar divestitures completed 2013 resulted 39 million decline net revenues favorable volumemix driven primarily gains categories except gum higher net pricing reflected primarily biscuits gum partially offset lower net pricing chocolate candy segment operating income increased 33 million 37 primarily due lower raw material costs lower selling general administrative expenses including higher equity method investment earnings favorable volumemix lower 20122014 restructuring program costs lower advertising consumer promotion costs higher net pricing favorable items partially offset costs incurred 20142018 restructuring program higher manufacturing costs impact divestitures critical accounting estimates prepare consolidated financial statements conformity us gaap preparation financial statements requires use estimates judgments assumptions affect reported amounts assets liabilities date financial statements reported amounts revenues expenses periods presented actual results could differ estimates assumptions note 1 summary significant accounting policies consolidated financial statements includes summary significant accounting policies used prepare consolidated financial statements discussed selection disclosure critical accounting policies estimates audit committee following review significant assumptions estimates goodwill nonamortizable intangible assets test goodwill nonamortizable intangible assets impairment annual basis october 1 assess goodwill impairment risk throughout year performing qualitative review entityspecific industry market general economic factors affecting goodwill reporting units review operating segment reporting unit structure goodwill testing annually significant changes organization occur annually may perform qualitative testing depending factors prioryear test results current year developments current risk evaluations practical considerations may elect quantitative testing instead quantitative impairment testing consists twostep evaluation first step compares reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using discounted cash flow method incorporates planned growth rates marketbased discount rates estimates residual value year europe north america reporting units used marketbased weightedaverage cost capital 68 discount projected cash flows operations latin america asia pacific eemea reporting units used riskrated discount rate 98 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value would apply second step measure difference carrying value implied fair value goodwill carrying value goodwill exceeds implied fair value goodwill impaired carrying value reduced implied fair value goodwill july 2 2015 deconsolidated global coffee businesses europe eemea asia pacific segments goodwill deconsolidated impacted reporting units based relative fair values coffee remaining businesses intangible assets contributed coffee business transactions specifically identified deconsolidated total goodwill 1664 million intangible assets less 1 million third quarter 2015 refer note 2 divestitures acquisitions coffee business transactions information 2015 2014 2013 impairments goodwill connection 2015 annual impairment testing reporting units sufficient fair value excess carrying value connection deconsolidation venezuelan operations december 31 2015 tested latin america reporting unit determined remaining businesses excluding venezuela sufficient fair value excess carrying value impairments goodwill reporting units passed annual impairment testing expectations met specific valuation factors outside control discount rates change significantly estimated fair values reporting unit reporting units might decline lead goodwill impairment future annually assess nonamortizable intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible assets significant potential impairment risk exists specific asset quantitatively test impairment comparing estimated fair value carrying value estimated fair value determined using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds estimated fair value asset impaired carrying value reduced estimated fair value 2015 annual testing nonamortizable intangible assets recorded 71 million impairment charges related four trademarks impairments arose due lower expected product growth partly driven decisions made fourth quarter redirect support products regional global brands slowdowns local economies recorded charges related candy biscuit trademarks 44 million asia pacific 22 million europe 5 million latin america impairment charges calculated excess carrying value estimated fair value intangible assets global basis recorded within asset impairment exit costs primarily use relief royalty valuation method utilizes estimates future sales growth rates royalty rates discount rates determining brand’s global fair value 2015 intangible asset impairment review noted seven brands including four impaired trademarks 598 million aggregate book value december 31 2015 fair value excess book value 10 less intangible assets passed annual impairment testing believe current plans brands allow continue impaired expectations met specific valuation factors outside control discount rates change significantly brand brands could become impaired future 2014 recorded 48 million charge related biscuit trademark asia pacific segment 9 million charge related candy trademark europe segment additionally connection deconsolidation venezuelan operations december 31 2015 recorded 12 million impairment charges within loss deconsolidation venezuela related biscuit trademark refer also note 5 goodwill intangible assets additional information trade marketing programs promote products advertising marketing sales incentives trade promotions programs include limited cooperative advertising instore displays consumer promotions new product introduction fees discounts coupons rebates volumebased incentives expense advertising costs either period advertising first takes place incurred sales incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising expenses sales incentives charged operations percentage volume based estimated volume estimated program spending defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred employee benefit plans sponsor various employee benefit plans throughout world include primarily pension plans postretirement healthcare benefits accounting purposes estimate pension postretirement healthcare benefit obligations utilizing assumptions estimates discount rates expected returns plan assets expected compensation increases employeerelated factors turnover retirement age mortality health care cost trends review actuarial assumptions annual basis make modifications assumptions based current rates trends appropriate assumptions also reflect historical experiences management’s best judgment regarding future expectations assumptions affect annual expense obligations recognized underlying plans 2016 expect pension postretirement medical costs decrease approximately 135 million 185 million due combination factors including decreased number plan participants changes discount rates company contributions plans change approach measuring service interest costs 2015 measured service interest costs utilizing single weightedaverage discount rate derived yield curve used measure plan obligations 2016 elected measure service interest costs applying specific spot rates along yield curve plans’ liability cash flows believe new approach provides precise measurement service interest costs aligning timing plans’ liability cash flows corresponding spot rates yield curve change affect measurement plan obligations funded status plans permitted us gaap generally amortize effect changes assumptions future periods cost benefit plan changes increasing decreasing benefits prior employee service prior service cost deferred included expense straightline basis average remaining service period employees expected receive benefits since pension postretirement liabilities measured discounted basis discount rate significantly affects plan obligations expenses expected return plan assets assumption affects pension plan expenses since many pension plans partially funded assumptions discount rates expected rates return process setting assumptions described note 10 benefit plans consolidated financial statements anticipate changes 2016 assumptions us nonus pension postretirement health care plans sensitivity measure fiftybasis point change discount rates expected rate return plan assets would following effects increase decrease annual benefit plan costs income taxes global company calculate provide income taxes tax jurisdiction operate provision income taxes includes amounts payable refundable current year effect deferred taxes impacts uncertain tax positions provision income taxes significantly affected shifts geographic mix pretax earnings across tax jurisdictions changes tax laws regulations tax planning opportunities available tax jurisdiction ultimate outcome various tax audits deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement tax bases assets liabilities operating losses tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates apply taxable income years differences expected recovered settled valuation allowances established deferred tax assets likely tax benefit realized recognize tax benefits financial statements uncertain tax positions likely tax position sustained examination tax authorities based technical merits position amount recognize measured largest benefit greater 50 percent likelihood realized upon settlement evaluate uncertain tax positions ongoing basis adjust related tax liabilities assets light changing facts circumstances progress tax audit expiration statute limitations believe estimates assumptions used support evaluation uncertain tax positions reasonable however final determination historical tax liabilities either settlement tax authorities expiration statutes limitations could materially different estimates reflected consolidated balance sheet historical income tax provisions outcome final determinations could material effect provision income taxes net earnings cash flows period determination made believe tax positions comply applicable tax laws properly accounted uncertain tax positions taxes provided undistributed foreign earnings planned indefinitely reinvested future events material changes longterm investment requirements necessitate earnings distributed additional provision taxes may apply could materially affect future effective tax rate see note 15 income taxes additional information effective tax rate current deferred taxes valuation allowances unrecognized tax benefits contingencies see note 13 commitments contingencies consolidated financial statements new accounting guidance see note 1 summary significant accounting policies consolidated financial statements discussion new accounting standards commodity trends regularly monitor worldwide supply commodity cost currency trends costeffectively secure ingredients packaging fuel required production prior july 2 2015 coffee business transactions increased costs coffee beans highest driver increased commodity costs first half 2015 primary drivers increase aggregate commodity costs excluding coffee increased costs packaging nuts cocoa energy grains oils higher currencyrelated costs commodity purchases partially offset lower costs dairy sugar number external factors weather conditions commodity market conditions currency fluctuations effects governmental agricultural programs affect cost availability raw materials agricultural materials used products address higher commodity costs currency impacts primarily hedging higher pricing manufacturing overhead cost control use hedging techniques limit impact fluctuations cost principal raw materials however may able fully hedge commodity cost changes hedging strategies may protect us increases specific raw material costs due competitive market conditions planned trade promotional incentives fluctuations currency exchange rates factors pricing actions may also lag commodity cost changes temporarily expect price volatility slightly higher aggregate cost environment continue 2016 costs principal raw materials fluctuate believe continue adequate supply raw materials use generally remain available numerous sources liquidity capital resources believe cash operations 45 billion revolving credit facility authorized longterm financing provide sufficient liquidity working capital needs planned capital expenditures future contractual obligations share repurchases payment anticipated quarterly dividends continue utilize commercial paper program international credit lines longterm debt issuances regular funding requirements also use intercompany loans international subsidiaries improve financial flexibility overall expect negative effects funding sources would material effect liquidity including indefinite reinvestment earnings outside united states net cash provided operating activities operating activities provided net cash 3728 million 2015 3562 million 2014 6410 million 2013 cash flows operating activities years impacted working capital improvements primarily due continually decreasing cash conversion cycle metric measures working capital efficiency utilizes days sales outstanding days inventory hand days payables outstanding negative 12 days 2015 positive 10 days 2014 positive 20 days 2013 cash flows operating activities favorable 2015 relative 2014 primarily due higher relative working capital cash improvements 2014 significant tax payments 2014 related 26 billion starbucks arbitration award received late 2013 partially offset higher contributions related pensions benefit plans cash flows operating activities unfavorable 2014 relative 2013 primarily related receipt 26 billion net cash resolution starbucks arbitration 2013 higher related income taxes paid 2014 lower relative working capital cash improvements 2013 partially offset lower interest payments 2014 following debt refinancing first quarter 2014 fourth quarter 2013 net cash provided used investing activities net cash provided investing activities 2649 million 2015 net cash used investing activities 1642 million 2014 1483 million 2013 increase net cash provided investing activities 2015 relative 2014 primarily relates 47 billion proceeds net divested cash transaction costs contribution global coffee businesses divestiture agf cash receipt 10 billion due settlement currency exchange forward contracts related coffee business transactions lower capital expenditures 2015 128 million partially offset 611 million reduction cash due venezuela deconsolidation 501 million contributed jde receivables 43 million cash payment fund capital increase jde 527 million payments acquire biscuit operation vietnam enjoy life foods snack food business 2015 increase net cash used investing activities 2014 relative 2013 relates lower cash inflows offset higher capital expenditures 2014 2013 received higher cash proceeds property sales net proceeds 60 million divestitures 55 million cash kraft foods group connection spinoff partially offset 119 million payments acquire biscuit operation morocco 2013 capital expenditures 1514 million 2015 1642 million 2014 1622 million 2013 2015 capital expenditures made primarily modernize manufacturing facilities support new product productivity initiatives expect 2016 capital expenditures 15 billion including capital expenditures required investments systems 20142018 restructuring program expect continue fund expenditures operations net cash used financing activities net cash used financing activities 5883 million 2015 2688 million 2014 6687 million 2013 increase net cash used financing activities 2015 relative 2014 primarily due higher repayments longterm debt 2015 including tender offers euro notes maturities 19 billion higher share repurchases higher net shortterm debt repayments partially offset higher proceeds received longterm note issuances decrease net cash used financing activities 2014 relative 2013 primarily due significantly lower longterm debt repayments lower share repurchases 2014 offset part decreased proceeds issuance longterm debt shortterm borrowings higher dividend payments 2014 debt time refinance longterm shortterm debt refer note 8 debt borrowing arrangements details tender offers debt issuances 2015 2014 2013 nature amount longterm shortterm debt proportionate amount varies result current expected business requirements market conditions factors generally first second quarters year working capital requirements grow increasing need shortterm financing third fourth quarters year typically generate higher cash flows may issue commercial paper secure forms financing throughout year meet shortterm working capital needs july 2015 board directors approved 5 billion longterm financing authority replace prior authority december 31 2015 4 billion longterm financing authority remaining 2016 1750 million longterm debt matured february funded repayment net proceeds debt issuances january 2016 cash operations issuance commercial paper scheduled maturities longterm debt within 12 months following december 31 2015 total debt 154 billion december 31 2015 167 billion december 31 2014 debttocapitalization ratio 035 december 31 2015 038 december 31 2014 december 31 2015 weightedaverage term outstanding longterm debt 86 years average daily commercial borrowings 22 billion 2015 19 billion 2014 10 billion 2013 expect continue comply longterm debt covenants refer note 8 debt borrowing arrangements information debt covenants equity dividends stock plans see note 11 stock plans consolidated financial statements information stock plans grant activity 2015 2014 2013 share repurchases see note 12 capital stock consolidated financial statements information share repurchase accelerated share repurchase programs intend continue use portion cash share repurchases july 29 2015 finance committee authorization delegated board directors approved increase 60 billion share repurchase program raising authorization 137 billion common stock repurchases extended program december 31 2018 repurchased 83 billion shares 36 billion 2015 19 billion 2014 27 billion 2013 december 31 2015 number shares ultimately repurchase share repurchase program may vary depending numerous factors including share price market conditions ongoing capital allocation planning levels cash debt balances demands cash acquisition activity general economic business conditions board management discretion additionally share repurchase activity particular period may fluctuate may accelerate suspend delay discontinue share repurchase program time without notice dividends paid dividends 1008 million 2015 964 million 2014 943 million 2013 immediately following spinoff kraft foods group october 1 2012 annual dividend rate changed 052 per common share august 6 2013 audit committee authorization board directors approved 8 increase quarterly dividend 014 per common share 056 per common share annual basis august 5 2014 audit committee authorization board directors approved 7 increase quarterly dividend 015 per common share 060 per common share annual basis july 23 2015 board directors approved 13 increase quarterly dividend 017 per common share 068 per common share annual basis declaration dividends subject discretion board directors depends various factors including net earnings financial condition cash requirements future prospects factors board directors deems relevant analysis decision making offbalance sheet arrangements aggregate contractual obligations significant offbalance sheet arrangements contractual obligations discussed guarantees discussed note 13 commitments contingencies enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2015 material thirdparty guarantees recorded consolidated balance sheet addition december 31 2015 contingently liable 842 million guarantees related performance include letters credit surety bonds guarantees related payment custom duties taxes guarantees expect material effect liquidity aggregate contractual obligations following table summarizes contractual obligations december 31 2015 1 amounts include expected cash payments longterm debt excluding capital leases presented separately table amounts also exclude 70 million net unamortized noncash bond premiums discounts marktomarket adjustments related interest rate swaps recorded total debt 2 amounts represent expected cash payments interest expense longterm debt interest calculated euro british pound sterling swiss franc notes forecasted using currency exchange rates december 31 2015 insignificant amount interest expense excluded table portion nonus debt obligations due complexities involved forecasting expected interest payments 3 operating lease payments represent minimum rental commitments noncancelable operating leases 4 purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 5 longterm liabilities include estimated future benefit payments postretirement health care plans december 31 2025 197 million unable reliably estimate timing payments beyond 2025 excluded table also another 300 million various longterm liabilities expected paid next 5 years addition following longterm liabilities included consolidated balance sheet excluded table accrued pension costs income taxes insurance accruals unable reliably estimate timing payments contributions beyond 2016 case accrued pension costs items currently expect make approximately 449 million contributions pension plans 2016 december 31 2015 total liability income taxes including uncertain tax positions associated accrued interest penalties 1046 million currently estimate payments approximately 316 million related positions next 12 months nongaap financial measures use nongaap financial information believe useful investors provides additional information facilitate comparisons historical operating results identify trends underlying operating results provide additional transparency evaluate business use certain nongaap financial measures budget make operating strategic decisions evaluate performance disclose nongaap financial measures financial data use assist making comparisons historical operating results analyzing underlying performance primary nongaap financial measures reflect evaluate current prioryear operating results new events circumstances arise definitions could change time • “organic net revenue” defined net revenues excluding impacts acquisitions divestitures 1 historical global coffee business 2 integration program costs accounting calendar changes currency rate fluctuations also evaluate organic net revenue growth emerging markets power brands • emerging markets include latin america eemea regions entirety asia pacific region excluding australia new zealand japan following countries europe region poland czech republic slovak republic hungary bulgaria romania baltics east adriatic countries • power brands include largest global regional brands oreo chips ahoy ritz tucclub social belvita biscuits cadbury dairy milk milka lacta chocolate trident gum hall’s candy tang powdered beverages • “adjusted operating income” defined operating income excluding impacts spinoff costs pension costs related obligations transferred spinoff 20122014 restructuring program 20142018 restructuring program integration program acquisition integration costs remeasurement net monetary assets venezuela loss deconsolidation venezuela benefit cadbury acquisitionrelated indemnification resolution incremental costs associated coffee business transactions impairment charges related goodwill intangible assets gains losses divestitures 1 acquisitions gain coffee business transactions 2 divestiturerelated costs acquisitionrelated costs operating results divestitures 1 historical global coffee business operating results 2 equity method investment earnings historically reported within operating income 3 also evaluate growth adjusted operating income constant currency basis • “adjusted eps” defined diluted eps attributable mondelēz international continuing operations excluding impacts spinoff costs pension costs related obligations transferred spinoff 20122014 restructuring program 20142018 restructuring program integration program acquisition integration costs remeasurement net monetary assets venezuela loss deconsolidation venezuela net benefit cadbury acquisitionrelated indemnification resolution losses debt extinguishment related expenses residual tax benefit impact resolution starbucks arbitration hedging gains losses incremental costs associated coffee business transactions impairment charges related goodwill intangible assets gains losses interest rate swaps longer designated accounting cash flow hedges due changed financing hedging plans gains losses divestitures 1 acquisitions gain coffee business transactions 2 divestiturerelated costs acquisitionrelated costs net earnings divestitures1 including interest expense adjustment related spinoff transaction addition adjusted equity method investment earnings proportionate share unusual infrequent items acquisition divestiturerelated costs restructuring program costs recorded jde equity method investee also evaluate growth adjusted eps constant currency basis 1 divestitures include businesses sale agreements cleared significant salerelated conditions pending sale probable end reporting period exits major product lines sale licensing agreement see 2 connection global coffee business transactions closed july 2 2015 exchanged coffee interests similarlysized coffee interests jde following july 2 2015 closing 435 historical demb’s combined global coffee businesses deconsolidated included historical global coffee business results within divestitures nongaap financial measures related management’s discussion analysis financial condition results operations continue ongoing interest coffee business beginning third quarter 2015 included aftertax earnings jde historical coffee business results within continuing results operations adjusted eps included earnings equity method investment earnings deconsolidated historical coffee business results organic net revenue adjusted operating income facilitate comparisons past future coffee operating results 3 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 began record earnings equity method investments aftertax equity method investment earnings outside operating income following deconsolidation coffee business see note 1 summary significant accounting policies principles consolidation information periods prior july 2 2015 reclassified equity method earnings adjusted operating income aftertax equity method investment earnings within adjusted eps consistent deconsolidation coffee business results july 2 order evaluate operating results consistent basis believe presentation nongaap financial measures considered together us gaap financial measures reconciliations corresponding us gaap financial measures provides complete understanding factors trends affecting business could obtained absent disclosures nongaap financial measures may vary among companies nongaap financial measures presented report may comparable similarly titled measures used companies use nongaap financial measures meant considered isolation substitute us gaap financial measure limitation nongaap financial measures exclude items detailed impact us gaap reported results best way limitation addressed evaluating nongaap financial measures combination us gaap reported results carefully evaluating following tables reconcile us gaap reported figures nongaap financial measures form 10k organic net revenue applying definition “organic net revenue” adjustments made “net revenues” comparable us gaap financial measure exclude impact currency adjustment deconsolidating historical coffee business divestitures acquisitions accounting calendar changes believe organic net revenue better reflects underlying growth ongoing activities business provides improved comparability results also evaluate organic net revenue growth emerging markets power brands underlying measures also reconciled us gaap 1 includes historical global coffee business prior july 2 2015 coffee business transactions refer note 2 divestitures acquisitions nongaap definitions appearing earlier section information 2 includes 2013 divestures salty snacks business turkey confectionary business south africa chocolate business spain include deconsolidation coffee businesses refer note 2 divestitures acquisitions nongaap definitions appearing earlier section information adjusted operating income applying definition “adjusted operating income” adjustments made “operating income” comparable us gaap financial measure exclude spinoff costs 20122014 restructuring program costs 20142018 restructuring program costs integration program acquisition integration costs benefit cadbury acquisitionrelated indemnification resolution loss deconsolidation venezuela remeasurement net monetary assets venezuela impairment charges related intangible assets incremental costs associated coffee business transactions operating income historical coffee business gain coffee business transactions operating results divestitures gains acquisitions divestitures acquisitionrelated costs adjustment equity method investment earnings historically reported within operating income reclassified aftertax earnings also evaluate adjusted operating income constant currency basis believe measures provide improved comparability operating results 1 includes historical global coffee business prior july 2 2015 coffee business transactions refer note 2 divestitures acquisitions nongaap definitions appearing earlier section information 2 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting jde earnings began record earnings equity method investments aftertax equity method investment earnings outside operating income periods prior july 2 2015 reclassified equity method earnings adjusted operating income evaluate operating results consistent basis 3 includes divestiture agf april 23 2015 include deconsolidation global coffee businesses gain coffee business transactions divestiture agf generated pretax gain 13 million aftertax loss 9 million second quarter refer note 2 divestitures acquisitions nongaap definitions appearing earlier section information 4 includes 2013 divestures salty snacks business turkey confectionary business south africa chocolate business spain include deconsolidation coffee businesses refer note 2 divestitures acquisitions nongaap definitions appearing earlier section information adjusted eps applying definition “adjusted eps” adjustments made “diluted eps attributable mondelēz international” comparable us gaap financial measure exclude spinoff costs 20122014 restructuring program costs 20142018 restructuring program costs integration program acquisition integration costs net benefit cadbury acquisitionrelated indemnification resolution residual tax benefit impact resolution starbucks arbitration losses debt extinguishment related expenses loss deconsolidation venezuela remeasurement net monetary assets venezuela impairment charges related intangible assets hedging gains incremental costs associated coffee business transactions gain coffee business transactions losses interest rate swaps longer designated accounting cash flow hedges due changed financing hedging plans net earnings divestitures aftertax gainloss divestitures proportionate share unusual infrequent items recorded jde equity method investee acquisitionrelated costs also evaluate adjusted eps constant currency basis believe adjusted eps provides improved comparability operating results 1 includes divestiture agf april 23 2015 include deconsolidation global coffee businesses gain coffee business transactions divestiture agf generated pretax gain 13 million aftertax loss 9 million second quarter refer note 2 divestitures acquisitions nongaap definitions appearing earlier section information 1 includes 2013 divestures salty snacks business turkey confectionary business south africa chocolate business spain include deconsolidation coffee businesses refer note 2 divestitures acquisitions nongaap definitions appearing earlier section information item 7aitem 7 management’s discussion analysis financial condition results operations following discussion analysis contains forwardlooking statements read conjunction sections annual report form 10k including consolidated financial statements related notes contained forwardlooking statements item 1a risk factors overview business strategy make sell primarily snacks including biscuits cookies crackers salted snacks chocolate gum candy well various cheese grocery powdered beverage products around world aim global leader snacking strategy drive longterm growth focusing three strategic priorities accelerating consumercentric growth driving operational excellence creating winning growth culture believe successful implementation strategic priorities leveraging strong foundation iconic global local brands attractive global footprint market leadership developed emerging markets deep innovation marketing distribution capabilities efficiency sustainability efforts drive top bottomline growth enabling us continue create longterm value shareholders detailed information business strategy refer item 1 business recent developments significant items affecting comparability covid19 actively monitoring outbreak covid19 impact globally highest priorities continue safety employees working employees network suppliers customers help maintain global food supply chain 2020 experienced significant increase demand revenue growth certain markets consumers increased food purchases inhome consumption results particularly strong modern trade large grocery supermarkets retail chains ecommerce especially categories biscuits parts business negatively affected mandated lockdowns related restrictions including emerging markets greater concentration traditional trade small familyrun stores well world travel retail international dutyfree stores foodservice businesses second quarter especially lockdowns related measures restrictions negative impact emerging markets greater concentration traditional trade due store closures particularly latin america region well parts amea region well categories like gum candy traditionally purchased consumed home second half year demand grew developed emerging markets negative impacts covid19 second quarter subsided number key markets returned higher growth sharp reduction global travel continues negatively impact world travel retail business lower outofhome consumption continues negatively impact foodservice business well sales gum candy products 2020 also experienced temporary disruptions operations emerging markets material consolidated results discuss impacts covid19 employees customers communities taken number actions promote health safety employees customers consumers first priority •we implemented enhanced protocols provide safe sanitary working environment employees many locations employees working remotely whenever possible employees unable work remotely adopted number heightened protocols consistent prescribed world health organization related social distancing including staggering lunchtimes shifts possible restricting inperson gatherings nonessential travel enhanced hygiene workplace sanitation local level also provided additional flexibility support employees manufacturing facilities distribution logistics operations sales organization •we hiring frontline employees us locations meet additional marketplace demand promote uninterrupted functioning manufacturing distribution sales network •we increased 15 million global commitment assist impacted covid19 approximately 28 million date supporting local global organizations responding food instability providing emergency relief supply chain operations operate food beverages industry part global food supply chain one main objectives pandemic maintain availability products meet needs consumers response increased demand increased production date experienced material disruptions supply chain operations •we able leverage learnings timely response initial outbreak china put place procedures across supply chain help mitigate risk manufacturing sites experience material closures disruptions •we able continue source raw ingredients packaging energy transportation deliver products customers •we experienced material disruptions workforce however mandatory voluntary stayathome restrictions resulted increased levels absenteeism •commodity costs become volatile due covid19 outbreak although monitor exposure commodity prices hedge input price increases cannot fully hedge changes commodity costs hedging strategies may protect us increases specific raw material costs anticipate continued commodity cost volatility pandemic continues •we experienced temporary disruptions operations emerging markets disruptions material consolidated results 2020 future ongoing covid19 outbreak could disrupt global supply chain operations routes market suppliers comanufacturers distributors disruptions failure effectively respond could increase product distribution costs prices potentially affect availability products •our 2020 net revenue net earnings us dollars negatively affected currency translation losses generally stronger us dollar relative currencies countries operate •during second quarter 2020 incurred higher operating costs primarily labor customer service logistics security personal protective equipment cleaning second half 2020 spending areas significantly less still precovid levels continued incur higher costs areas response ongoing pandemic worked protect employees deliver products timely safely customers aspects global supply chain operations change materially 2020 material disruptions date know whether supply chain operations may negatively affected pandemic persists extended period worsens respond evolving situation intend continue execute strategic operating plans however disruptions higher operating costs uncertainties like noted could result delays modifications plans initiatives liquidity believe steps taken enhance capital structure liquidity last several years months strengthened ability operate current conditions •during 2019 generated 40 billion cash operations 30 billion deducting capital expenditures •during 2020 generated 40 billion cash operations 31 billion capital expenditures also december 31 2020 36 billion cash equivalents hand •during 2020 also received cash €350 million 394 million participation jde peets public share offerings 2094 million participation kdp secondary offering subsequent kdp share sales see additional information note 7 equity method investments •as precautionary measure march also suspended share repurchase program reinstated fourth quarter •in connection various legislatively authorized tax payment deferral mechanisms available income tax indirect tax valueadded tax payroll tax number jurisdictions able defer certain tax payments provided cash benefit reverses payments come due payments made fourth quarter 2020 remainder come due 2021 2022 benefits associated deferral tax payments material financial statements •based current available cash access financing markets anticipate issue funding next longterm debt maturities approximately 15 billion october 2021 approximately 03 billion december 2021 paying approximately 08 billion maturing debt january 2021 •we also access shortterm longterm financing markets actively utilized markets 2020 initial outbreak covid19 march put supplemental shortterm credit facilities place since retired full also continued utilize commercial paper markets united states europe flexible lowcost shortterm financing also issued additional longterm debt several times 2020 due favorable market conditions opportunities shift portion funding mix shortterm debt longterm debt low cost continue 60 billion undrawn credit facilities well forms shortterm longterm financing options available refer liquidity capital resources section note 9 debt borrowing arrangements expect continue compliance debt covenants financial position •we evaluated realizability assets whether impairment indicators reviewed receivables inventory rightofuse lease assets longlived assets equity method longterm investments deferred tax assets goodwill intangible assets •in connection ongoing pandemic identified decline demand certain brands primarily gum category prompted additional evaluation indefinitelife intangible assets second quarter 2020 addition annual testing third quarter 2020 connection testing concluded eight brands impaired recorded 144 million impairment charges 2020 identify impairment triggers brands continues significant uncertainty due pandemic brand earnings expectations met specific valuation factors outside control discount rates change significantly brand brands could become impaired future refer note 6 goodwill intangible assets additional details intangible asset impairment evaluation •restructuring implementation activities line simplify grow program strategic objectives •our equity investments jde peets kdp give us additional financial flexibility •we continue monitor quality assets overall financial position coming quarters •we continue maintain oversight core process controls centralized shared service model key controls operating designed initial impacts pandemic business moderated second half 2020 business economic environment remains uncertain additional impacts may arise cannot currently anticipate barring material business disruptions negative developments expect continue meet demand consumers snacks food beverage products however elevated consumer demand experienced primarily developed market countries 2020 may continue unable predict long sustained demand last significant expect covid19 outbreak result lower revenues primarily emerging market countries higher concentration traditional trade outlets small familyrun stores gum candy categories instant consumption nature well world travel retail international dutyfree stores foodservice businesses continue proactively manage business response evolving impacts pandemic continue communicate support employees customers monitor take steps safeguard supply chain operations technology assets protect liquidity financial position work toward strategic priorities monitor financial performance seek position company withstand current uncertainty related pandemic kdp jde peets equity method investment transactions july 9 2018 keurig green mountain inc keurig closed definitive merger agreement dr pepper snapple group inc formed keurig dr pepper inc nyse kdp publicly traded company following close transaction 242 investment keurig together shareholder loan receivable became 138 investment kdp 2018 recorded pretax gain 778 million 586 million aftertax connection kdp transaction third quarter 2018 changed accounting principle reflect share keurigs historical kdps ongoing earnings onequarter lag basis periods presented continue record dividends cash received 2019 recognized 23 million pretax gain related impact kdp acquisition decreased ownership interest 138 136 march 4 2020 participated secondary offering kdp shares sold approximately 68 million shares reduced ownership interest 05 131 total outstanding shares received 185 million proceeds recorded pretax gain 71 million 54 million aftertax first quarter 2020 subsequently august 3 2020 sold approximately 141 million shares september 9 2020 sold approximately 125 million shares aggregate reduced kdp ownership interest 112 total outstanding shares third quarter 2020 received 777 million proceeds recorded pretax gains 335 million 258 million tax november 17 2020 sold approximately 400 million shares reduced ownership interest 28 84 received 1132 million proceeds recorded pretax gain 459 million 350 million tax fourth quarter 2020 cash taxes associated kdp share sales paid 2020 second quarter 2020 connection jde peets offering ordinary shares exchanged 264 ownership interest jde 265 equity interest jde peet’s may 29 2020 participated jde peets offering subsequent exercise overallotment option sold total approximately 111 million shares second quarter 2020 retaining 229 ownership interest jde peets received €350 million 394 million total proceeds sales jde peets shares recorded preliminary pretax gain 121 million second quarter 2020 also incurred 261 million tax expense payable 2020 2021 third quarter 2020 increased preliminary gain 10 million 131 million fourth quarter 2020 reduced tax expense 11 million 250 million consistent accounting kdp connection jde peets becoming public company second quarter 2020 changed accounting principle reflect share jde historical results jde peets ongoing results onequarter lag basis continue record dividends cash received determined lag preferable enables us continue report quarterly annual results timely basis record share jde peets ongoing results jde peets publicly reported results change applied retrospectively periods presented additional information refer note 7 equity method investments note 16 income taxes swiss us tax reform august 6 2019 switzerland published changes federal tax law official federal collection laws september 27 2019 zurich canton published decision september 1 2019 zurich canton public vote regarding cantonal changes associated swiss federal tax law change intent tax law changes replace certain preferential tax regimes new set internationally accepted measures hereafter referred “swiss tax reform” based federal cantonal events position enactment swiss tax reform us gaap purposes met september 30 2019 recorded impacts third quarter 2019 net impact benefit 767 million consisted 769 million reduction deferred tax expense allowed stepup intangible assets tax purposes remeasurement deferred tax balances partially offset 2 million indirect tax impact selling general administrative expenses ongoing impacts swiss tax reform law changes became effective january 1 2020 december 22 2017 united states enacted tax reform legislation us tax reform included broad range business tax provisions onetime transition tax accumulated foreign earnings profits see note 16 income taxes information annual effective tax rates swiss us tax reform multiemployer pension plan withdrawal 2018 executed complete withdrawal bakery confectionery union industry international pension fund recorded 429 million estimated withdrawal liability july 11 2019 received undiscounted withdrawal liability assessment fund totaling 526 million requiring prorata monthly payments 20 years began making monthly payments third quarter 2019 within selling general administrative expenses recorded 35 million 26 million net tax adjustment related discounted withdrawal liability within interest expense net recorded accreted interest longterm liability 11 million 2020 12 million 2019 6 million 2018 december 31 2020 remaining discounted withdrawal liability 375 million 14 million recorded current liabilities 361 million recorded longterm liabilities summary results •net revenues approximately 266 billion 2020 259 billion 2019 increase 28 2020 decrease 03 2019 2020 net revenues significantly impacted covid19 outbreak response developed markets particularly north america demand products primarily biscuits chocolate grew significantly consumers increased food purchases inhome consumption emerging markets greater concentration traditional trade well gum candy world travel retail foodservice businesses sell products typically consumed away home net revenues negatively affected mandated lockdowns related restrictions second half year negative impacts experienced covid19 particularly second quarter subsided resulting return revenue growth across number key markets net revenue increased 2020 driven higher net pricing favorable volumemix incremental net revenues acquisitions give go 2020 perfect snacks 2019 items partially offset significant impact unfavorable currency translation us dollar strengthened currencies operate compared exchange rates prior year well may 28 2019 divestiture cheese business middle east africa net revenue decreased 2019 driven impact unfavorable currency translation impact divestiture cheese business middle east africa net revenues positively affected higher net pricing favorable volumemix well acquisitions perfect snacks 2019 tates bake shop 2018 •organic net revenue increased 37 268 billion 2020 increased 41 269 billion 2019 organic net revenue 2020 impacted covid19 outbreak response described organic net revenue increased 2020 2019 due higher net pricing favorable volumemix organic net revenue constant currency basis excludes revenue acquisitions divestitures use organic net revenue provides improved yearoveryear comparability underlying operating results see definition organic net revenue reconciliation net revenues within nongaap financial measures appearing later section •diluted eps attributable mondelēz international decreased 82 247 2020 increased 206 269 2019 diluted eps decreased 2020 primarily driven lapping prioryear benefit swiss tax reform costs associated jde peets transaction loss debt extinguishment higher intangible asset impairment charges unfavorable yearoveryear marktomarket impacts currency commodity derivatives lapping prioryear gain divestiture lapping prioryear benefit pension participation changes unfavorable impact net earnings divestitures factors partially offset gains equity method investment transactions higher adjusted eps favorable change resolution tax matters benefit 2020 compared expense 2019 lower simplify grow program costs lower losses related interest rate swaps diluted eps increased 2019 primarily driven benefit swiss tax reform lapping prioryear impact pension participation changes operating gains lower simplify grow program costs increase equity method investment earnings lapping prioryear loss debt extinguishment fewer shares outstanding gain divestiture lower interest expense benefit currentyear pension participation changes partially offset lapping prioryear gain equity method investment transactions unfavorable currency translation loss related interest rate swaps expense resolution tax matters 2019 unfavorable yearoveryear change marktomarket impacts currency commodity derivatives see discussion analysis historical results appearing later section details •adjusted eps increased 53 259 2020 increased 42 246 2019 constant currency basis adjusted eps increased 65 262 2020 increased 110 262 2019 2020 operating gains increase benefit plan nonservice income fewer shares outstanding partially offset unfavorable currency translation decrease equity method investment earnings drove adjusted eps growth 2019 operating gains increased equity method investment earnings fewer shares outstanding lower interest expense lower taxes partially offset unfavorable currency translation drove adjusted eps growth adjusted eps adjusted eps constant currency basis nongaap financial measures use measures provide improved yearoveryear comparability underlying results see definition adjusted eps reconciliation diluted eps within nongaap financial measures appearing later section financial outlook seek achieve profitable longterm growth manage business attain goal using key operating metrics organic net revenue adjusted operating income adjusted eps use nongaap financial metrics related computations particularly growth profit dollars evaluate manage business plan make nearand longterm operating strategic decisions believe metrics useful investors provide supplemental information addition us generally accepted accounting principles “us gaap” financial results believe useful provide investors financial information use internally make comparisons historical operating results identify trends underlying operating results evaluate business believe nongaap financial measures always considered relation gaap results provided reconciliations gaap nongaap financial measures nongaap financial measures appears later section addition monitoring key operating metrics monitor number developments trends could impact revenue profitability objectives covid19 continue monitor respond covid19 outbreak full impact yet known material negative effect economic conditions globally could material negative effect business results future particularly significant adverse changes consumer demand significant disruptions supply production distribution products credit financial stability customers business partners economic credit crisis could occur impair credit availability ability raise capital needed disruption financial markets may also negative effect derivative counterparties could also impair banking business partners rely access capital counterparties number derivative contracts developments could materially harm business results operations financial condition continue prioritize safety employees consumers manage operations pandemic may continue incur increased labor customer service logistics costs consumer demand products evolves could see continued shifts product mix could negative impact results discussed recent developments significant items affecting comparability working mitigate negative impacts business covid19 outbreak may able fully predict respond impacts timely basis prevent near longterm adverse impacts results demand monitor consumer spending market share within food beverage categories sell products gum candy category growth due less onthego consumption overall snack category continued grow 2020 part due increased consumer demand snacks purchases inhome consumption covid19 outbreak part strategic plan seek drive category growth leveraging local consumerfocused commercial approach making investments brand snacks portfolio building strong routes market emerging developed markets improving availability across multiple channels believe actions help drive demand categories strengthen positions across markets longterm demographics consumer trends snack food consumption highly correlated gdp growth urbanization populations rising discretionary income levels associated growing middle class particularly emerging markets recent research underscores growth snacking worldwide behavior sentiment routines surrounding food reshaped covid19 snacking already increasing among consumers accelerated 2020 consumers spend time home according second annual state snacking report commissioned mondelēz international issued november 2020 report conducted conjunction consumer poll specialist harris poll summarizes findings interviews thousands consumers across 12 countries report shows consumers see snacking important source comfort connection community especially past year many snacking offers moments satisfaction peace majority respondents noting helped distract challenging year volatility global markets growth strategy depends part ability expand operations including emerging markets emerging markets greater political economic currency volatility greater vulnerability infrastructure labor disruptions volatility markets affects demand costs products requires frequent changes operate business discussed covid19 item 7a quantitative qualitative disclosures market risk volatility global consumer commodity currency capital markets increased significantly 2020 expected continue covid19 outbreak largely resolved see also discussion brexit well argentina designated highly inflationary economy 2018 addition imposition increased new tariffs quotas trade barriers similar restrictions sales key commodities potential changes us trade programs trade relations regulations taxes fiscal policies might negatively affect sales profitability help mitigate adverse effects ongoing volatility across markets aim protect profitability management costs including hedging pricing well targeted investments brands new routes market competition operate highly competitive markets include global regional local competitors advantaged geographic footprint operating scale portfolio brands significantly contributed building marketleading positions across product categories sell grow maintain market positions focus meeting consumer needs preferences localfirst commercial focus new digital sales marketing initiatives product innovation high standards product quality also continue optimize manufacturing operations invest brands ongoing research development advertising marketing consumer promotions pricing net revenue growth profitability may affected adjust prices address new conditions adjust product prices based number variables including demand competitive environment changes product input costs generally increased prices response higher commodity costs currency market factors 2021 anticipate changing market conditions continue impact pricing price changes may affect net revenues market share near term market adjusts changes input costs market conditions operating costs operating costs include raw materials labor selling general administrative expenses taxes currency impacts financing costs manage costs cost saving productivity initiatives sourcing hedging programs pricing actions refinancing tax planning remain competitive operating structure continue work programs expand profitability simplify grow program designed bring significant reductions operating cost structure supply chain overhead costs taxes continue monitor existing potential future tax reform third quarter 2019 recorded impact swiss tax reform continue monitor additional interpretative guidance could result changes amounts recorded united states 2017 us tax reform reduced us corporate tax rate included beneficial provisions continue adverse effect results currency global company 732 net revenues generated outside united states continually exposed changes global economic conditions currency movements hedge significant forecasted currency exchange transactions well currency translation impacts certain net assets nonus operations including united kingdom cannot fully predict eliminate adverse impacts arising changes currency exchange rates consolidated financial results partially offset currency translation impacts arising overseas operations enter net investment hedges primarily form local currencydenominated debt crosscurrency swaps financial instruments work mitigate exposure currency risks factors continued global local market volatility actions foreign governments political uncertainty limited hedging opportunities factors could lead unfavorable currency impacts future could adversely affect results operations financial position see additional discussion brexit argentina refer also note 1 summary significant accounting policies currency translation highly inflationary accounting note 10 financial instruments additional information manage currency related risks currency movements make comparison yearoveryear operating performance challenging isolate impact currency also report growth constant currency basis holding prioryear currency exchange rates constant prioryear currentyear results compared consistent basis brexit december 24 2020 european union united kingdom reached agreement new trade arrangement became effective january 1 2021 main trade provisions include continuation tariffs quotas trade uk eu long meet prescribed trade terms also need meet product labeling standards uk eu already begun introduce changes gradually uk may also set trade policies countries united states australia new zealand currently free trade agreements eu crossborder trade uk eu subject new customs regulations documentation reviews date experienced significant delays ukeu border crossings however anticipate increased shipping costs nearterm delays need ongoing customs inspections related procedures supply chain market relies imports raw packaging materials well finished goods volatility foreign currencies markets may also arise uk eu work though new trade arrangements new rules formalized could near longterm negative impacts taking protective measures limit disruptions supply chain sales limit potential negative impacts results operations financial condition cash flows continue increase resources customer service logistics well factories customs support teams adapting systems processes new increased customs transactions continue enhance resilience plans aid dealing anticipated border delays working address new regulatory requirements packaging changes also continue closely monitor manage inventory levels imported raw materials packaging finished goods uk disagreements trade terms supply chain distribution delays disruptions could negatively affect uk business 2020 generated 90 net revenues uk argentina discussed note 1 summary significant accounting policies currency translation highly inflationary accounting july 1 2018 began apply highly inflationary accounting argentinean subsidiaries result recorded remeasurement loss 9 million 2020 remeasurement gain 4 million 2019 remeasurement loss 11 million 2018 within selling general administrative expenses related revaluation argentinean peso denominated net monetary position periods mix monetary assets liabilities exchange rate convert argentinean pesos us dollars could change time difficult predict overall impact argentina highly inflationary accounting future net earnings financing costs regularly evaluate variable fixedrate debt continue use lowcost short longterm debt finance ongoing working capital expenditures investments dividends share repurchases continued secure lowcost short longterm debt 2020 continue use interest rate swaps financial instruments manage exposure interest rate cash flow variability protect value existing currency assets liabilities protect value debt also enter crosscurrency interest rate swaps forwards hedge nonus net investments adverse movements exchange rates net investment hedge derivative contracts expected favorable impact reduce financing costs related currency impacts within interest costs refer note 9 debt borrowing arrangements note 10 financial instruments additional information debt derivative activity cybersecurity risks continue devote focused resources network security backup disaster recovery enhanced training security measures protect systems data also focus enhancing monitoring detection threats environment including limited manufacturing environment operational technologies well adjusting information security controls based updated threats taken number security measures protect systems data security measures cannot provide absolute certainty guarantee successful preventing responding every breach disruption timely basis discussion analysis historical results items affecting comparability financial results following table includes significant income expense items affected comparability results operations effective tax rates please refer notes consolidated financial statements indicated information refer also consolidated results operations net earnings per share attributable mondelēz international table aftertax per share impacts items 1includes impacts recorded operating income interest expense net 2please see nongaap financial measures section end item additional information 3gainloss equity method investment transactions recorded outside pretax operating results consolidated statement earnings 4includes proportionate share significant operating nonoperating items recorded jde peets kdp equity method investees including acquisition divestiturerelated costs restructuring program costs consolidated results operations following discussion compares consolidated results operations 2020 2019 2018 2020 compared 2019 net revenues net revenues increased 713 million 28 26581 million 2020 organic net revenue increased 960 million 37 26773 million developed markets net revenue increased 80 developed markets organic net revenue increased 45 emerging markets net revenues decreased 60 including unfavorable currency impact emerging markets organic net revenue increased 23 underlying changes net revenues organic net revenue detailed 1please see nongaap financial measures section end item net revenues higher developed markets particularly north america due covid19 outbreak response demand products primarily biscuits chocolate grew significantly consumers increased food purchases inhome consumption however gum candy categories well world travel retail foodservice businesses negatively impacted covid19 emerging markets greater concentration traditional trade several markets challenged covid19 impacts particularly significant gum candy portfolios overall negative impacts covid19 experienced first half year subsided second half year revenue growth began recover number key emerging markets though overall emerging markets net revenues declined due unfavorable currency impacts net revenue increase 28 driven underlying organic net revenue growth 37 impact acquisitions mostly offset unfavorable currency impact prioryear divestiture organic net revenue growth driven higher net pricing favorable volumemix higher net pricing regions except europe due benefit carryover pricing 2019 well effects input costdriven pricing actions taken 2020 favorable volumemix north america europe partially offset unfavorable volumemix latin america amea included strong volume gains tempered unfavorable mix reflecting shifts consumer purchases response covid19 outbreak april 1 2020 acquisition give go added incremental net revenues 390 million july 16 2019 acquisition majority interest perfect snacks added incremental net revenues 55 million 2020 unfavorable currency impacts decreased net revenues 637 million due primarily strength us dollar relative currencies including brazilian real argentinean peso russian ruble mexican peso indian rupee south african rand turkish lira partially offset strength several currencies relative us dollar including euro philippine peso british pound sterling egyptian pound swedish krona impact may 28 2019 divestiture cheese business middle east africa resulted yearoveryear decline net revenues 55 million refer note 2 acquisitions divestitures information operating income operating income increased 10 million 03 3853 million 2020 adjusted operating income increased 137 million 32 4401 million adjusted operating income constant currency basis increased 196 million 46 4460 million due following 1refer nongaap financial measures section end item 2refer note 8 restructuring program information 3refer note 6 goodwill intangible assets information intangible asset impairments 4refer note 10 financial instruments note 18 segment reporting nongaap financial measures section end item information unrealized gainslosses commodity forecasted currency transaction derivatives 5refer note 2 acquisitions divestitures information april 1 2020 acquisition significant majority interest give go july 16 2019 acquisition majority interest perfect snacks may 28 2019 divestiture cheese business middle east africa 6refer note 1 summary significant accounting policies currency translation highly inflationary accounting information application highly inflationary accounting argentina 7refer note 11 benefit plans information 8refer note 14 commitments contingencies tax matters information 9refer note 16 income taxes information swiss tax reform 10refer note 7 equity method investments information jde peets transaction 2020 realized higher net pricing favorable volumemix largely offset increased input costs higher net pricing included carryover impact pricing actions taken 2019 well effects input costdriven pricing actions taken 2020 reflected regions except europe favorable volumemix driven north america europe partially offset unfavorable volumemix latin america amea increase input costs driven higher raw material costs partially offset lower manufacturing costs driven productivity net incremental covid19 related costs higher raw material costs part due higher currency exchange transaction costs imported materials well higher cocoa dairy sugar energy packaging nuts grains ingredients costs partially offset lower costs oils total selling general administrative expenses decreased 38 million 2019 due number factors noted table including part favorable currency impact related expenses favorable change resolution tax matters benefit 2020 compared expense 2019 lower implementation costs incurred simplify grow program lapping prioryear valueadded tax “vat” related settlements lapping prioryear ceo transition remuneration lapping prioryear divestiture decreases partially offset impact acquisitions costs associated jde peets transaction lapping benefit prioryear pension participation changes unfavorable change remeasurement net monetary position argentina remeasurement loss 2020 compared remeasurement gain 2019 higher acquisitionrelated costs excluding factors selling general administrative expenses increased 77 million 2019 increase driven primarily higher advertising consumer promotion costs partially offset lower overhead spending net incremental covid19 related costs recorded expense 11 million vatrelated settlement latin america 2019 unfavorable currency changes decreased operating income 59 million due primarily strength us dollar relative currencies including brazilian real russian ruble indian rupee swiss franc south african rand turkish lira partially offset strength several currencies relative us dollar including euro egyptian pound philippine peso british pound sterling swedish krona operating income margin decreased 149 2019 145 2020 decrease operating income margin driven primarily yearoveryear unfavorable change marktomarket gainslosses currency commodity hedging activities higher intangible asset impairment charges costs associated jde peets transaction lapping prioryear gain divestiture lapping benefit prioryear pension participation changes partially offset favorable impact resolution tax matters lower costs simplify grow program adjusted operating income margin increased 165 2019 166 2020 increase adjusted operating income margin driven primarily higher pricing lower manufacturing costs reflecting productivity net incremental covd19 costs selling general administrative cost leverage mostly offset higher raw material costs net earnings per share attributable mondelēz international net earnings attributable mondelēz international 3555 million decreased 374 million 95 2020 diluted eps attributable mondelēz international 247 2020 022 82 2019 adjusted eps 259 2020 013 53 2019 adjusted eps constant currency basis 262 2020 016 65 2019 1refer nongaap financial measures section appearing later section 2see operating income table related footnotes information within earnings per share taxes related jde peets transaction included costs associated jde peets transaction 3divestitures include completed sales businesses partial full sales equity method investments exits major product lines upon completion sale licensing agreement record share kdp jde peet’s ongoing earnings onequarter lag basis reflected impact priorquarter sales kdp jde peet’s shares within divested results sales occurred beginning periods presented 4refer note 10 financial instruments information interest rate swaps longer designated cash flow hedges 5refer note 16 income taxes information impacts swiss us tax reform 6refer note 7 equity method investments information gains losses equity method investment transactions 7includes proportionate share significant operating nonoperating items recorded jde peets kdp equity method investees acquisition divestiturerelated costs restructuring program costs 8refer note 12 stock plans information equity compensation programs share repurchase program note 17 earnings per share earnings per share weightedaverage share information 9refer note 9 debt borrowing arrangements information losses debt extinguishment 2019 compared 2018 net revenues net revenues decreased 70 million 03 25868 million 2019 organic net revenue increased 1067 million 41 26879 million emerging markets net revenues increased 02 including unfavorable currency impact emerging markets organic net revenue increased 77 underlying changes net revenues organic net revenue detailed 1please see nongaap financial measures section end item net revenue decrease 03 driven unfavorable currency impact divestiture partially offset underlying organic net revenue growth 41 impact acquisitions unfavorable currency impacts decreased net revenues 1154 million due primarily strength us dollar relative currencies including argentinean peso euro brazilian real british pound sterling australian dollar chinese yuan indian rupee turkish lira south african rand impact divestiture cheese business middle east africa may 28 2019 resulted yearoveryear decline net revenues 71 million underlying organic net revenue growth driven higher net pricing favorable volumemix net pricing includes benefit carryover pricing 2018 well effects input costdriven pricing actions taken 2019 higher net pricing reflected latin america north america amea net pricing europe flat favorable volumemix reflected europe amea partially offset unfavorable volumemix latin america north america july 16 2019 acquisition majority interest perfect snacks added net revenues 53 million june 7 2018 acquisition tate’s bake shop added incremental net revenues 35 million 2019 refer note 2 acquisitions divestitures information operating income operating income increased 531 million 160 3843 million 2019 adjusted operating income decreased 38 million 09 4264 million adjusted operating income constant currency basis increased 189 million 44 4491 million due following 1refer nongaap financial measures section end item 2refer note 8 restructuring program information 3refer note 6 goodwill intangible assets information intangible asset impairments 4refer note 10 financial instruments note 18 segment reporting nongaap financial measures section end item information unrealized gainslosses commodity forecasted currency transaction derivatives 5refer annual report form 10k year ended december 31 2018 information acquisition biscuit business vietnam 6refer note 2 acquisitions divestitures information july 16 2019 acquisition majority interest perfect snacks may 28 2019 divestiture cheese business middle east africa june 7 2018 acquisition tates bake shop 7refer note 1 summary significant accounting policies currency translation highly inflationary accounting information application highly inflationary accounting argentina 8refer note 11 benefit plans information 9refer note 14 commitments contingencies tax matters information 10refer note 16 income taxes information swiss tax reform 2019 realized higher net pricing partially offset increased input costs higher net pricing included carryover impact pricing actions taken 2018 well effects input costdriven pricing actions taken 2019 reflected latin america north america amea net pricing europe flat increase input costs driven higher raw material costs partially offset lower manufacturing costs due productivity efforts higher raw material costs part due higher currency exchange transaction costs imported materials well higher packaging energy dairy grains cocoa oils costs partially offset lower costs sugar nuts favorable volumemix driven europe amea partially offset unfavorable volumemix latin america north america total selling general administrative expenses decreased 339 million 2018 due number factors noted table including part lapping prioryear impact pension participation changes favorable currency impact benefit currentyear pension participation changes favorable change remeasurement net monetary position argentina remeasurement gain 2019 compared remeasurement loss 2018 lapping prioryear expense resolution tax matter lower ceo transition remuneration lower acquisitionrelated costs decreases partially offset expenses resolution tax matters 2019 higher implementation costs incurred simplify grow program impact acquisitions lapping benefit prioryear vatrelated settlement vat cost settlement 2019 higher divestiturerelated costs excluding factors selling general administrative expenses increased 173 million 2018 increase driven primarily higher overheads reflecting routetomarket investments higher advertising consumer promotion costs recorded expense 11 million vatrelated settlement latin america 2019 benefit 21 million vatrelated settlement latin america 2018 unfavorable currency changes decreased operating income 227 million due primarily strength us dollar relative currencies including euro argentinean peso british pound sterling brazilian real australian dollar chinese yuan indian rupee operating income margin increased 128 2018 149 2019 increase operating income margin driven primarily lapping prioryear impact pension participation changes lower simplify grow program costs gain divestiture benefit currentyear pension participation changes lapping prioryear expense resolution tax matter lower ceo transition remuneration partially offset expenses resolution tax matters 2019 yearoveryear unfavorable change marktomarket gainslosses currency commodity hedging activities adjusted operating income margin decreased 167 2018 165 2019 decrease adjusted operating income margin driven primarily higher raw material costs mostly offset higher pricing lower manufacturing costs net earnings per share attributable mondelēz international net earnings attributable mondelēz international 3929 million increased 612 million 185 2019 diluted eps attributable mondelēz international 269 2019 046 206 2018 adjusted eps 246 2019 010 42 2018 adjusted eps constant currency basis 262 2019 026 110 2018 1refer nongaap financial measures section appearing later section 2see operating income table related footnotes information 3divestitures include completed sales businesses partial full sales equity method investments exits major product lines upon completion sale licensing agreement record share kdp jde peet’s ongoing earnings onequarter lag basis reflected impact priorquarter sales kdp jde peet’s shares within divested results sales occurred beginning periods presented 4refer note 10 financial instruments information interest rate swaps longer designated cash flow hedges 5refer note 9 debt borrowing arrangements information losses debt extinguishment 6refer note 16 income taxes information impacts us swiss tax reform 7refer note 7 equity method investments information gains losses equity method investment transactions 8includes proportionate share significant operating nonoperating items recorded jde peets kdp equity method investees acquisition divestiturerelated costs restructuring program costs 9excludes currency impact interest expense related nonus dollardenominated debt included currency translation 10refer note 16 income taxes information items affecting income taxes 11refer note 12 stock plans information equity compensation programs share repurchase program note 17 earnings per share earnings per share weightedaverage share information results operations operating segment operations management structure organized four operating segments •latin america •amea •europe •north america manage operations region leverage regional operating scale manage different changing business environments effectively pursue growth opportunities arise across key markets regional management teams responsibility business product categories financial results regions use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends see note 18 segment reporting additional information segments items affecting comparability financial results earlier section items affecting segment operating results segment net revenues earnings latin america 2020 compared 2019 net revenues decreased 541 million 179 due unfavorable currency 181 pp unfavorable volumemix 75 pp partially offset higher net pricing 77 pp unfavorable currency impacts due primarily strength us dollar relative currencies region including brazilian real argentinean peso mexican peso unfavorable volumemix due negative volume impact covid19 outbreak well impact pricingrelated elasticity unfavorable volumemix driven declines gum candy partially offset gains cheese grocery chocolate refreshment beverages biscuits higher net pricing reflected across categories driven primarily argentina brazil mexico segment operating income decreased 152 million 446 primarily due higher raw material costs unfavorable volumemix unfavorable currency higher selling general administrative expenses net lapping expense vatrelated settlements 2019 unfavorable change remeasurement net monetary position argentina remeasurement loss 2020 compared remeasurement gain 2019 unfavorable items partially offset higher net pricing lower manufacturing costs net incremental covid19 related costs lower costs incurred simplify grow program higher benefits resolution tax matters 2019 compared 2018 net revenues decreased 184 million 57 due unfavorable currency 135 pp unfavorable volumemix 21 pp partially offset higher net pricing 99 pp unfavorable currency impacts due primarily strength us dollar relative currencies region including argentinean peso brazilian real unfavorable volumemix due impact pricingrelated elasticity driven declines refreshment beverages candy cheese grocery chocolate partially offset gains biscuits gum higher net pricing reflected across categories driven primarily argentina brazil mexico segment operating income decreased 69 million 168 primarily due higher raw material costs unfavorable currency unfavorable volumemix lapping 2018 benefit resolution brazilian indirect tax matter 26 million higher manufacturing costs higher selling general administrative expenses including lapping benefit vatrelated settlement 2018 expense vatrelated settlement 2019 unfavorable items partially offset higher net pricing lower costs incurred simplify grow program favorable change remeasurement net monetary position argentina remeasurement gain 2019 compared remeasurement loss 2018 lower advertising consumer promotion costs amea 2020 compared 2019 net revenues decreased 30 million 05 due unfavorable currency 13 pp impact divestiture 09 pp unfavorable volumemix 06 pp partially offset higher net pricing 23 pp unfavorable currency impacts due strength us dollar relative several currencies region including indian rupee south african rand australian dollar pakistan rupee partially offset strength several currencies relative us dollar including philippine peso egyptian pound japanese yen chinese yuan may 28 2019 divestiture cheese business middle east africa resulted yearoveryear decline net revenues 55 million unfavorable volumemix due unfavorable product mix overall higher volume tempered negative volume impact covid19 related lockdowns impacting traditional trade markets unfavorable volumemix driven declines gum chocolate candy refreshment beverages partially offset gains biscuits cheese grocery higher net pricing driven chocolate biscuits refreshment beverages cheese grocery partially offset lower net pricing candy gum segment operating income increased 130 million 188 primarily due higher net pricing lapping prioryear expenses resolution tax matters india totaling 87 million lower manufacturing costs net incremental covid19 related costs lower selling general administrative expenses lower intangible asset impairment charges lower costs incurred simplify grow program favorable items partially offset higher raw material costs unfavorable volumemix unfavorable currency impact prioryear divestiture 2019 compared 2018 net revenues increased 41 million 07 due favorable volumemix 36 pp higher net pricing 17 pp mostly offset unfavorable currency 33 pp impact divestiture 13 pp favorable volumemix driven gains across categories except refreshment beverages candy higher net pricing reflected across categories unfavorable currency impacts due strength us dollar relative several currencies region including australian dollar chinese yuan indian rupee south african rand divestiture cheese business middle east africa may 28 2019 resulted yearoveryear decline net revenues 71 million segment operating income decreased 11 million 16 primarily due higher raw material costs expenses resolution tax matters india totaling 87 million higher advertising consumer promotion costs unfavorable currency higher selling general administrative expenses impact divestiture higher intangible asset impairment charges unfavorable items partially offset lower manufacturing costs higher net pricing lower costs incurred simplify grow program favorable volumemix europe 2020 compared 2019 net revenues increased 235 million 24 due favorable volumemix 28 pp partially offset lower net pricing 03 pp unfavorable currency 01 pp favorable volumemix due overall higher volume tempered net impact covid19 outbreak overall increased food purchases inhome consumption partially offset negative volume impact world travel retail foodservice businesses due lockdowns restrictions favorable volumemix driven gains chocolate cheese grocery biscuits refreshment beverages partially offset declines candy gum lower net pricing driven biscuits chocolate partially offset higher net pricing cheese grocery candy gum refreshment beverages unfavorable currency impacts reflected strength us dollar relative several currencies region including russian ruble turkish lira norwegian krone ukrainian hryvnya mostly offset strength several currencies region relative us dollar primarily euro british pound sterling swedish krona swiss franc segment operating income increased 43 million 25 primarily due favorable volumemix lower costs incurred simplify grow program lower advertising consumer promotion costs favorable items partially offset higher raw material costs lower net pricing higher intangible asset impairment charges higher selling general administrative expenses unfavorable currency 2019 compared 2018 net revenues decreased 150 million 15 due unfavorable currency 52 pp partially offset favorable volumemix 37 pp net pricing flat unfavorable currency impacts reflected strength us dollar relative currencies region primarily euro british pound sterling turkish lira swedish krona favorable volumemix driven gains across categories except gum net pricing flat higher net pricing gum candy offset lower net pricing categories segment operating income decreased 2 million 01 primarily due unfavorable currency higher raw material costs higher advertising consumer promotion costs unfavorable items mostly offset favorable volumemix lower manufacturing costs lower intangible asset impairment charges north america 2020 compared 2019 net revenues increased 1049 million 148 due favorable volumemix 63 pp impact acquisitions 63 pp higher net pricing 23 pp partially offset unfavorable currency 01 pp favorable volumemix part due positive volume impact covid19 consumers increased food purchases inhome consumption driven gains biscuits partially offset declines gum chocolate candy april 1 2020 acquisition give go added incremental net revenues 390 million july 16 2019 acquisition majority interest perfect snacks added net revenues 55 million 2020 higher net pricing driven biscuits chocolate candy partially offset lower net pricing gum unfavorable currency impact due strength us dollar relative canadian dollar segment operating income increased 136 million 94 primarily due favorable volumemix higher net pricing impact acquisitions favorable items partially offset higher advertising consumer promotion costs intangible asset impairment charges higher selling general administrative expenses including incremental covid19 related costs higher raw material costs lapping benefit prioryear pension participation changes higher costs incurred simplify grow program 2019 compared 2018 net revenues increased 223 million 32 due higher net pricing 23 pp impact acquisitions 13 pp partially offset unfavorable currency 03 pp unfavorable volumemix 01 pp higher net pricing reflected across categories except chocolate july 16 2019 acquisition majority interest perfect snacks added net revenues 53 million june 7 2018 acquisition tate’s bake shop added incremental net revenues 35 million 2019 unfavorable currency impact due strength us dollar relative canadian dollar unfavorable volumemix driven declines gum chocolate candy mostly offset favorable volumemix biscuits segment operating income increased 602 million 709 primarily due lapping prioryear pension participation changes higher net pricing lower manufacturing costs lower costs incurred simplify grow program benefit currentyear pension participation changes lapping prioryear intangible asset impairment charges impact acquisitions perfect snacks tates bake shop favorable items partially offset higher raw material costs higher selling general administrative expenses unfavorable volumemix critical accounting estimates prepare consolidated financial statements conformity us gaap preparation financial statements requires use estimates judgments assumptions affect reported amounts assets liabilities date financial statements reported amounts revenues expenses periods presented actual results could differ estimates assumptions note 1 summary significant accounting policies consolidated financial statements includes summary significant accounting policies used prepare consolidated financial statements discussed selection disclosure critical accounting policies estimates audit committee following review significant assumptions estimates goodwill indefinitelife intangible assets test goodwill indefinitelife intangible assets impairment annual basis july 1 assess goodwill impairment risk throughout year performing qualitative review entityspecific industry market general economic factors affecting goodwill reporting units review operating segment reporting unit structure goodwill testing annually significant changes organization occur annually may perform qualitative testing depending factors prioryear test results current year developments current risk evaluations practical considerations may elect quantitative testing instead quantitative testing compare reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using discounted cash flow method incorporates planned growth rates marketbased discount rates estimates residual value year europe north america reporting units used marketbased weightedaverage cost capital 61 discount projected cash flows operations latin america amea reporting units used riskrated discount rate 91 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions based available information given uncertainty global economic environment impact covid19 estimates could significantly different future performance carrying value reporting unit’s net assets exceeds fair value would recognize impairment charge amount carrying value exceeds reporting unit fair value 2020 2019 2018 impairments goodwill connection 2020 annual impairment testing reporting units sufficient fair value excess carrying value reporting units passed annual impairment testing planned business performance expectations met specific valuation factors outside control discount rates change significantly estimated fair values reporting unit reporting units might decline lead goodwill impairment future annually assess indefinitelife intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value assets significant potential impairment risk exists specific asset quantitatively test impairment comparing estimated fair value carrying value determine estimated fair value using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds estimated fair value asset impaired carrying value reduced estimated fair value 2020 recorded 144 million intangible asset impairment charges related eight brands recorded charges related gum chocolate biscuits candy brands 83 million north america 53 million europe 5 million amea 3 million latin america impairment charges calculated excess carrying value estimated fair value intangible assets global basis recorded within asset impairment exit costs use several accepted valuation methods including relief royalty excess earnings excess margin utilize estimates future sales earnings growth rates royalty rates discount rates determining brands global fair value also identified nine brands including eight impaired brands 753 million aggregate book value december 31 2020 fair value excess book value 10 less continue monitor brand performance particularly light significant uncertainty due covid19 pandemic related impacts business brand earnings expectations met specific valuation factors outside control discount rates change significantly brand brands could become impaired future 2019 recorded charges related gum chocolate biscuits candy brands 39 million europe 15 million amea 3 million latin america 2018 recorded charges related gum chocolate biscuits candy brands 45 million europe 14 million north america 9 million amea refer note 6 goodwill intangible assets additional information trade marketing programs promote products trade sales incentives well marketing advertising programs include limited new product introduction fees discounts coupons rebates volumebased incentives well cooperative advertising instore displays consumer marketing promotions trade sales incentives recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer promotion expenses charged operations percentage volume based estimated sales volume estimated program spending defer costs yearend consolidated balance sheet marketing advertising costs recorded expense year incurred employee benefit plans sponsor various employee benefit plans throughout world include primarily pension plans postretirement healthcare benefits accounting purposes estimate pension postretirement healthcare benefit obligations utilizing assumptions estimates discount rates expected returns plan assets expected compensation increases employeerelated factors turnover retirement age mortality health care cost trends review actuarial assumptions annual basis make modifications assumptions based current rates trends appropriate assumptions also reflect historical experiences management’s best judgment regarding future expectations assumptions affect annual expense obligations recognized underlying plans permitted us gaap generally amortize effect changes assumptions future periods cost benefit plan changes increasing decreasing benefits prior employee service prior service cost deferred included expense straightline basis average remaining service period employees expected receive benefits since pension postretirement liabilities measured discounted basis discount rate significantly affects plan obligations expenses plans assets held trust expected return plan assets assumption affects pension plan expenses assumptions discount rates expected rates return process setting assumptions described note 11 benefit plans consolidated financial statements anticipate changes 2020 assumptions us nonus pension postretirement health care plans sensitivity measure fiftybasis point change discount rates expected rate return plan assets would following effects increasedecrease annual benefit plan costs accordance obligations collective bargaining agreements participate multiemployer pension plans 2017 individually significant multiemployer plan contributed bakery confectionery union industry international pension fund obligation contribute fund arose respect 8 collective bargaining agreements covering employees represented bakery confectionery tobacco grain millers union collective bargaining agreements expired 2016 2018 executed complete withdrawal fund recorded 429 million estimated withdrawal liability july 11 2019 received undiscounted withdrawal liability assessment fund totaling 526 million requiring prorata monthly payments 20 years recorded 35 million final adjustment reduce withdrawal liability june 30 2019 began making monthly payments third quarter 2019 december 31 2020 remaining discounted withdrawal liability 375 million see additional information employee benefit plans note 11 benefit plans income taxes global company calculate provide income taxes tax jurisdiction operate provision income taxes includes amounts payable refundable current year effect deferred taxes impacts uncertain tax positions provision income taxes significantly affected shifts geographic mix pretax earnings across tax jurisdictions changes tax laws regulations tax planning opportunities available tax jurisdiction ultimate outcome various tax audits deferred tax assets liabilities recognized expected future tax consequences temporary differences financial statement tax bases assets liabilities operating losses tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates apply taxable income years differences expected recovered settled valuation allowances established deferred tax assets likely tax benefit realized believe tax positions comply applicable tax laws properly accounted uncertain tax positions recognize tax benefits financial statements uncertain tax positions likely tax position sustained taxing authorities based technical merits position amount recognize measured largest amount benefit greater 50 percent likely realized upon resolution evaluate uncertain tax positions ongoing basis adjust amount recognized light changing facts circumstances progress tax audit expiration statute limitations believe estimates assumptions used support evaluation uncertain tax positions reasonable however final determination historical tax liabilities whether settlement tax authorities judicial administrative ruling due expiration statutes limitations could materially different estimates reflected consolidated balance sheet historical income tax provisions outcome final determinations could material effect provision income taxes net earnings cash flows period determination made see note 16 income taxes discussion impacts swiss us tax reform financial statements well additional information effective tax rate current deferred taxes valuation allowances unrecognized tax benefits contingencies see note 14 commitments contingencies consolidated financial statements new accounting guidance see note 1 summary significant accounting policies consolidated financial statements discussion new accounting standards liquidity capital resources believe cash operations revolving credit facilities shortterm borrowings authorized longterm financing continue provide sufficient liquidity working capital needs planned capital expenditures future payments contractual tax benefit plan obligations payments acquisitions share repurchases quarterly dividends light current uncertainty global markets related covid19 pandemic however economic credit crisis could occur impair credit availability ability raise capital needed disruption financial markets could also impair banking business partners rely access capital counterparties number derivative contracts developments could materially harm access capital financial condition precautionary measure preserve financial flexibility temporarily increased credit facility borrowing capacity 2020 third quarter 2020 completed retirement incremental shortterm borrowing capacity returned credit facility available capacity precovid19 levels refer note 9 debt borrowing arrangements additional details connection covid19 various legislatively authorized tax payment deferral mechanisms available income tax indirect tax valueadded tax payroll tax number jurisdictions able defer certain tax payments provided cash benefit reverses payments come due payments made fourth quarter 2020 remainder come due 2021 2022 benefits associated deferral payments material expect continue utilize commercial paper program international credit lines needed secured continue evaluate longterm debt issuances meet short longerterm funding requirements also use intercompany loans international subsidiaries improve financial flexibility overall expect negative effects funding sources would material effect liquidity however serious economic credit market crisis ensues could material adverse effect liquidity results operations financial condition net cash provided operating activities operating activities provided net cash 3964 million 2020 3965 million 2019 3948 million 2018 net cash provided operating activities largely flat 2020 relative 2019 higher cash tax payments 2020 primarily related sales kdp jde peets shares resolution several indirect tax matters tax amnesty program india payment costs associated jde peets transaction 2020 largely offset working capital improvements increase net cash provided operating activities 2019 relative 2018 due primarily higher earnings increased distributions equity method investments lower pension contributions partially offset increased working capital requirements including higher tax payments net cash provided byused investing activities net cash provided investing activities 500 million 2020 compared net cash used investing activities 960 million 2019 1224 million 2018 increase net cash provided investing activities 2020 relative 2019 primarily due cash received sale shares jde peets kdp offerings lower capital expenditures partially offset cash paid acquire majority interest give go decrease net cash used investing activities 2019 relative 2018 primarily due less cash expended acquisitions 2019 2018 lower capital expenditures 2019 cash proceeds divestiture primarily cheese business middle east africa partially offset lower cash received result settlement replacement several net investment hedge derivative contracts cash paid settle forwardstarting interest rate swaps capital expenditures 863 million 2020 925 million 2019 1095 million 2018 continue make capital expenditures primarily modernize manufacturing facilities support new product productivity initiatives expect 2021 capital expenditures 10 billion including capital expenditures connection simplify grow program expect continue fund expenditures cash operations net cash used financing activities net cash used financing activities 2215 million 2020 2787 million 2019 2329 million 2018 decrease net cash used financing activities 2020 relative 2019 primarily due higher net debt issuances lower share repurchases partially offset higher dividends paid lower proceeds stock option exercises 2020 increase net cash used financing activities 2019 relative 2018 primarily due lower net debt issuances higher dividends paid 2019 partially offset lower share repurchases debt time refinance longterm shortterm debt refer note 9 debt borrowing arrangements details recent tender offers debt issuances maturities nature amount longterm shortterm debt proportionate amount varies result current expected business requirements market conditions factors due seasonality first second quarters year working capital requirements grow increasing need shortterm financing second half year typically generates higher cash flows may issue commercial paper secure forms financing throughout year meet shortterm working capital financing needs one subsidiaries mondelez international holdings netherlands bv “mihn” outstanding debt refer note 9 debt borrowing arrangements operations held mihn generated approximately 718 191 billion 266 billion consolidated net revenue fiscal year 2020 represented approximately 762 211 billion 277 billion net assets december 31 2020 december 2020 board directors approved new 60 billion longterm financing authority replace prior 80 billion authority december 31 2020 60 billion longterm financing authority remaining january 2021 repaid approximately 08 billion maturing debt next 12 months expect repay approximately 18 billion maturing longterm debt including 15 billion october 2021 03 billion december 2021 expect fund repayments cash hand well shortterm longterm debt total debt 200 billion december 31 2020 184 billion december 31 2019 debttocapitalization ratio 042 december 31 2020 040 december 31 2019 december 31 2020 weightedaverage term outstanding longterm debt 74 years average daily commercial borrowings 23 billion 2020 41 billion 2019 45 billion 2018 commercial paper borrowings outstanding december 31 2020 26 billion outstanding december 31 2019 expect continue use cash commercial paper finance various shortterm financing needs december 31 2020 continued compliance debt covenants refer note 9 debt borrowing arrangements information debt covenants commodity trends regularly monitor worldwide supply commodity cost currency trends costeffectively secure ingredients packaging fuel required production 2020 primary drivers increase aggregate commodity costs higher currency exchange transaction costs imported materials well increased costs cocoa dairy sugar energy packaging nuts grains ingredients costs partially offset lower costs oils number external factors weather conditions commodity market conditions currency fluctuations effects governmental agricultural programs affect cost availability raw materials agricultural materials used products address higher commodity costs currency impacts primarily hedging higher pricing manufacturing overhead cost control use hedging techniques limit impact fluctuations cost principal raw materials however may able fully hedge commodity cost changes dairy limited ability hedge hedging strategies may protect us increases specific raw material costs due competitive market conditions planned trade promotional incentives fluctuations currency exchange rates factors pricing actions may also lag commodity cost changes temporarily expect price volatility higher aggregate cost environment continue 2021 costs principal raw materials fluctuate believe continue adequate supply raw materials use generally remain available numerous sources offbalance sheet arrangements aggregate contractual obligations significant offbalance sheet arrangements contractual obligations discussed guarantees discussed note 14 commitments contingencies enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2020 material thirdparty guarantees recorded consolidated balance sheet guarantees expect material effect liquidity aggregate contractual obligations following table summarizes contractual obligations december 31 2020 1amounts include expected cash payments longterm debt including current portion excluding finance leases presented separately table amounts also exclude 94 million net unamortized noncash bond premiums discounts bank fees marktomarket adjustments related interest rate swaps recorded total debt 2amounts represent expected cash payments interest expense longterm debt interest calculated nonus dollar denominated debt forecasted using currency exchange rates december 31 2020 3amounts exclude imputed interest finance leases 20 million 4purchase obligations inventory production costs raw materials indirect materials supplies packaging comanufacturing arrangements storage distribution commitments projected needs utilized normal course business purchase obligations include commitments marketing advertising capital expenditures information technology professional services arrangements considered purchase obligations contract specifies significant terms including fixed minimum quantities purchased pricing structure approximate timing transaction arrangements cancelable without significant penalty short notice usually 30 days amounts reflected consolidated balance sheet accounts payable accrued liabilities excluded table 5in connection us tax reform estimate paying total 13 billion transition tax liability 2026 december 31 2020 amount outstanding 09 billion see note 16 income taxes additional information us tax reform impact financial statements 6during 2018 executed complete withdrawal liability individually significant multiemployer pension plan july 11 2019 received undiscounted withdrawal liability assessment fund totaling 526 million requiring prorata monthly payments 20 years 2039 see note 11 benefit plans additional information multiemployer pension plan withdrawal liability 7other longterm liabilities table include longterm liabilities current portion obligations included estimated future benefit payments postretirement health care plans december 31 2030 172 million unable reliably estimate timing payments beyond 2030 excluded table also another 18 million various longterm liabilities expected paid next 5 years addition following longterm liabilities included consolidated balance sheet excluded table accrued pension costs unrecognized tax benefits insurance accruals december 31 2020 unrecognized tax benefit including associated interest penalties classified longterm payable 515 million currently expect make approximately 236 million contributions pension plans 2021 equity dividends stock plans see note 12 stock plans consolidated financial statements information stock plans grant activity 20182020 share repurchases see note 13 capital stock consolidated financial statements item 5 market registrant’s common equity related stockholder matters issuer purchases equity securities issuer purchases equity securities information share repurchase program december 31 2020 board director authorized share repurchases 237 billion december 31 2023 program repurchased approximately 179 billion shares december 31 2020 14 billion 2020 15 billion 2019 20 billion 2018 22 billion 2017 26 billion 2016 36 billion 2015 19 billion 2014 27 billion 2013 weightedaverage cost 4057 per share number shares ultimately repurchase share repurchase program may vary depending numerous factors including share price market conditions ongoing capital allocation planning levels cash debt balances demands cash acquisition activity general economic business conditions board management discretion additionally share repurchase activity particular period may fluctuate may accelerate suspend delay discontinue share repurchase program time without notice dividends paid dividends 1678 million 2020 1542 million 2019 1359 million 2018 july 28 2020 finance committee authorization delegated board directors declared quarterly cash dividend 0315 per share class common stock increase 11 percent would 126 per common share annualized basis 2019 quarterly cash dividend increased 026 0285 per share class common stock increase 10 percent 2018 quarterly cash dividend increased 022 026 per share class common stock increase 18 percent declaration dividends subject discretion board directors depends various factors including net earnings financial condition cash requirements future prospects factors board directors deems relevant analysis decision making us income tax purposes company determined 100 distributions paid shareholders 2020 characterized qualified dividend paid us earnings profits shareholders consult tax advisors full understanding tax consequences receipt dividends nongaap financial measures use nongaap financial information believe useful investors provides additional information facilitate comparisons historical operating results identify trends underlying operating results provide additional insight transparency evaluate business use nongaap financial measures budget make operating strategic decisions evaluate performance detailed nongaap adjustments make nongaap definitions adjustments generally fall within following categories acquisition divestiture activities gains losses intangible asset sales noncash impairments major program restructuring activities constant currency related adjustments major program financing hedging activities major items affecting comparability operating results believe nongaap measures always considered along related us gaap financial measures provided reconciliations gaap nongaap financial measures also discuss underlying gaap results throughout management’s discussion analysis financial condition results operations form 10k primary nongaap financial measures listed reflect evaluate current prioryear operating results new events circumstances arise definitions could change definitions change provide updated definitions present related nongaap historical results comparable basis 1 •“organic net revenue” defined net revenues excluding impacts acquisitions divestitures 2 currency rate fluctuations 3 also evaluate organic net revenue growth emerging developed markets •our emerging markets include latin america region entirety amea region excluding australia new zealand japan following countries europe region russia ukraine turkey kazakhstan belarus georgia poland czech republic slovak republic hungary bulgaria romania baltics east adriatic countries •our developed markets include entire north america region europe region excluding countries included emerging markets definition australia new zealand japan amea region •“adjusted operating income” defined operating income excluding impacts simplify grow program 4 gains losses including noncash impairment charges goodwill intangible assets divestiture 2 acquisition gains losses related divestiture 2 acquisition integration costs 2 operating results divestitures 2 remeasurement net monetary position 5 marktomarket impacts commodity forecasted currency transaction derivative contracts 6 impact resolution tax matters 7 ceo transition remuneration 8 impact pension participation changes 9 swiss tax reform impacts 10 costs associated jde peets transaction 1 also present “adjusted operating income margin” subject adjustments adjusted operating income also evaluate growth adjusted operating income constant currency basis 3 •“adjusted eps” defined diluted eps attributable mondelēz international continuing operations excluding impacts items listed adjusted operating income definition well losses debt extinguishment related expenses gains losses equity method investment transactions net earnings divestitures 2 gains losses interest rate swaps longer designated accounting cash flow hedges due changed financing hedging plans us swiss tax reform impacts 10 similarly within adjusted eps equity method investment net earnings exclude proportionate share investees’ significant operating nonoperating items 11 also evaluate growth adjusted eps constant currency basis 3 1 items longer impact current future presentation nongaap operating results remove items nongaap definitions 2020 added nongaap definitions exclusion costs associated jde peets transaction refer note 7 equity method investments note 16 income taxes information jde peets transaction 2 divestitures include completed sales businesses including partial full sale equity method investment exits major product lines upon completion sale licensing agreement record share kdp jde peet’s ongoing earnings onequarter lag basis kdp jde peet’s ownership reductions reflected divestitures within nongaap results following quarter see note 2 acquisitions divestitures note 7 equity method investments information acquisitions divestitures impacting comparability results 3 constant currency operating results calculated dividing multiplying appropriate currentperiod local currency operating results currency exchange rates used translate financial statements comparable prioryear period determine currentperiod us dollar operating results would currency exchange rate changed comparable prioryear period 4 nongaap adjustments related simplify grow program reflect costs incurred relate objectives program transform supply chain network organizational structure costs meet program objectives reflected nongaap adjustments 5 third quarter 2018 began apply highly inflationary accounting argentina refer note 1 summary significant accounting policies excluded remeasurement gains losses related remeasuring net monetary assets liabilities argentina consistent prior accounting remeasurement gainslosses venezuela subject highly inflationary accounting prior 2016 6 third quarter 2016 began exclude unrealized gains losses marktomarket impacts outstanding commodity forecasted currency transaction derivatives nongaap earnings measures time related exposures impact operating results since purchase commodity forecasted currency transaction contracts mitigate price volatility primarily inventory requirements future periods made adjustment remove volatility future inventory purchases current operating results facilitate comparisons underlying operating performance across periods also discontinued designating commodity forecasted currency transaction derivatives hedge accounting treatment facilitate comparisons underlying operating results recast historical nongaap earnings measures exclude marktomarket impacts 7 see note 14 commitments contingencies tax matters additional information 8 november 20 2017 dirk van de put succeeded irene rosenfeld ceo mondelēz international advance retirement end march 2018 order incent mr van de put join us provided compensation total combined target value 425 million make whole incentive awards forfeited grants made left former employer compensation granted took form cash deferred stock units performance share units stock options connection irene rosenfeld’s retirement made outstanding grants performance share units 20162018 20172019 performance cycles eligible continued vesting approved 05 million salary service chairman january march 2018 refer elements mr van de put’s ms rosenfeld’s compensation arrangements together “ceo transition remuneration” excluding amounts expense ceo transition remuneration nongaap results amounts part regular compensation program incremental amounts would incurred ongoing ceo compensation result 2017 excluded amounts expensed cash payment mr van de put partial vesting equity grants 2018 excluded amounts paid ms rosenfeld’s service chairman partial vesting mr van de put’s ms rosenfeld’s equity grants 2019 excluded amounts related partial vesting mr van de put’s equity grants first quarter 2020 mr van de puts equity grants became fully vested 9 impact pension participation changes represents charges incurred employee groups withdrawn multiemployer pension plans changes employee group pension plan participation exclude charges nongaap results amounts reflect ongoing pension obligations see note 11 benefit plans information multiemployer pension plan withdrawal 10 exclude impact 2019 swiss tax reform 2017 us tax reform third quarter 2019 swiss federal zurich cantonal tax events drove recognition swiss tax reform net benefit results operations december 22 2017 united states enacted tax reform legislation included broad range business tax provisions exclude tax reform impacts adjusted eps reflect ongoing tax obligations new tax reforms refer note 16 income taxes information current year estimated annual effective tax rate swiss us tax reform 11 excluded proportionate share equity method investees’ significant operating nonoperating items acquisition divestiture related costs restructuring program costs discrete us tax reform impacts order provide investors comparable view performance across periods although shareholder rights board representation commensurate ownership interests equity method investees review underlying operating results significant operating nonoperating items reporting period direct control operations resulting revenue expenses use equity method investment net earnings adjusted basis intended imply control gaap “diluted eps attributable mondelēz international continuing operations” includes investees’ significant operating nonoperating items believe presentation nongaap financial measures considered together us gaap financial measures reconciliations corresponding us gaap financial measures provides complete understanding factors trends affecting business could obtained absent disclosures nongaap financial measures vary among companies nongaap financial measures presented report may comparable similarly titled measures used companies use nongaap financial measures meant considered isolation substitute us gaap financial measure limitation nongaap financial measures exclude items detailed impact us gaap reported results best way limitation addressed evaluating nongaap financial measures combination us gaap reported results carefully evaluating following tables reconcile us gaap reported figures nongaap financial measures form 10k organic net revenue applying definition “organic net revenue” adjustments made “net revenues” comparable us gaap financial measure exclude impact currency acquisitions divestitures believe organic net revenue reflects underlying growth ongoing activities business provides improved comparability results also evaluate organic net revenue growth emerging markets underlying measures also reconciled us gaap adjusted operating income applying definition “adjusted operating income” adjustments made “operating income” comparable us gaap financial measure exclude simplify grow program intangible asset impairment charges marktomarket impacts commodity forecasted currency transaction derivative contracts acquisition integration costs acquisition divestiturerelated costs operating income divestiture net gain divestiture costs associated jde peets transaction remeasurement net monetary position impact pension participation changes impact resolution tax matters ceo transition remuneration swiss tax reform impact also evaluate adjusted operating income constant currency basis believe measures provide improved comparability underlying operating results 1refer note 8 restructuring program information 2refer note 6 goodwill intangible assets information trademark impairments 3refer note 10 financial instruments note 18 segment reporting nongaap financial measures section end item information unrealized gainslosses commodity forecasted currency transaction derivatives 4refer note 2 acquisitions divestitures information april 1 2020 acquisition significant majority interest give go june 7 2018 acquisition tates bake shop refer annual report form 10k year ended december 31 2018 information acquisition biscuit business vietnam 5refer note 2 acquisitions divestitures information april 1 2020 acquisition significant majority interest give go july 16 2019 acquisition majority interest perfect snacks may 28 2019 divestiture cheese business middle east africa june 7 2018 acquisition tates bake shop 6refer note 7 equity method investments information jde peets transaction 7refer note 1 summary significant accounting policies currency translation highly inflationary accounting information application highly inflationary accounting argentina 8refer note 11 benefit plans information 9refer note 14 commitments contingencies tax matters information 10refer nongaap financial measures definition related table notes 11refer note 16 income taxes information swiss tax reform adjusted eps applying definition “adjusted eps” 1 adjustments made “diluted eps attributable mondelēz international” comparable us gaap financial measure exclude impacts items listed adjusted operating income tables well gainslosses related interest rate swaps loss debt extinguishment swiss tax reform net impacts us tax reform discrete net tax impact gains losses equity method investment transactions proportionate share significant operating nonoperating items recorded jde peets kdp equity method investees also evaluate adjusted eps constant currency basis believe adjusted eps provides improved comparability underlying operating results 1 tax expensebenefit pretax items excluded gaap results computed based facts tax assumptions associated item impacts also excluded adjusted eps •2020 taxes simplify grow program 81 million intangible asset impairment charges 33 million marktomarket gains derivatives 8 million acquisitionrelated costs zero net earnings divestitures 5 million costs associated jde peets transaction 250 million loss remeasurement net monetary position zero impact pension participation changes 2 million impact resolution tax matters 16 million net loss related interest rate swaps 24 million loss debt extinguishment 46 million gains equity method investment transactions 202 million equity method investee items 10 million •2019 taxes simplify grow program 103 million intangible asset impairment charges 14 million marktomarket gains derivatives 19 million net earnings divestitures 7 million net gain divestiture 3 million impact pension participation changes 8 million impact resolution tax matters 21 million ceo transition remuneration zero net loss related interest rate swaps zero swiss tax reform 769 million net loss equity method investment transactions 6 million equity method investee items 9 million •2018 taxes simplify grow program 156 million intangible asset impairment charges 16 million marktomarket gains derivatives 10 million acquisitionrelated costs 3 million net earnings divestitures 9 million impact pension participation changes 108 million impact resolution tax matters 6 million ceo transition remuneration 5 million net gain related interest rate swaps 2 million loss debt extinguishment 35 million us tax reform 19 million gain equity method investment transaction 192 million equity method investee items 15 million 2 see adjusted operating income table related footnotes information 3 refer note 10 financial instruments information interest rate swaps longer designated cash flow hedges 4 refer note 9 debt borrowing arrangements information losses debt extinguishment 5 refer note 16 income taxes information impact us tax reform 6 refer note 7 equity method investments information gains losses equity method investment transactions 7 includes proportionate share significant operating nonoperating items recorded jde peets kdp equity method investees acquisition divestiturerelated costs restructuring program costs item 7aitem 7 managements discussion analysis financial condition results operations information called item hereby incorporated reference paragraphs captioned managements discussion analysis financial condition results operations mda pages 22 37 2001 annual report made part hereof item 7a item 7a quantitative qualitative disclosures market risk item 8item 7a quantitative qualitative disclosures market risk information called item hereby incorporated reference paragraphs mda captioned market risk value risk pages 36 37 2003 annual report made part hereof item 8item 7a quantitative qualitative disclosures market risk see paragraphs captioned market risk value risk item 7 item 8item 7a quantitative qualitative disclosures market risk see paragraphs captioned market risk value risk item 7 item 8item 7a quantitative qualitative disclosures market risk see paragraphs captioned market risk value risk item 7 item 8item 7a quantitative qualitative disclosures market risk kraft operates globally use certain financial instruments manage foreign currency exchange rate commodity price risks monitor manage exposures part overall riskmanagement program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price risk management policies principally use derivative instruments reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices occasionally use related futures crosshedge commodity exposure however party leveraged derivatives policy use financial instruments speculative purposes refer notes 1 14 consolidated financial statements details foreign currency commodity price risk management policies types derivative instruments use hedge exposures value risk use value risk “var” computation estimate 1 potential oneday loss fair value interest ratesensitive financial instruments 2 potential oneday loss pretax earnings foreign currency commodity pricesensitive derivative financial instruments included debt shortterm investments foreign currency forwards swaps options commodity futures forwards options var computation anticipated transactions foreign currency trade payables receivables net investments foreign subsidiaries abovementioned instruments intended hedge excluded computation made var estimates assuming normal market conditions using 95 confidence interval used “variancecovariance” model determine observed interrelationships movements interest rates various currencies interrelationships determined observing interest rate forward currency rate movements prior quarter calculation var amounts december 31 2007 2006 four prior quarters calculation average var amounts year values foreign currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation estimated potential oneday loss fair value interest ratesensitive instruments primarily debt normal market conditions estimated potential oneday loss pretax earnings foreign currency commodity instruments normal market conditions calculated var model millions var computation risk analysis tool designed statistically estimate maximum probable daily loss adverse movements interest rates foreign currency rates commodity prices normal market conditions computation represent actual losses fair value earnings incurred kraft consider effect favorable changes market rates cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future financial results item 8item 7a quantitative qualitative disclosures market risk kraft operates globally use certain financial instruments manage foreign currency exchange rate commodity price risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price risk management policies principally use derivative instruments reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes refer note 1 summary significant accounting policies note 12 financial instruments consolidated financial statements details foreign currency commodity price risk management policies types derivative instruments use hedge exposures october 2008 one counterparties lehman brothers commercial corporation filed bankruptcy consequently wrote insignificant asset related derivatives held significant impact foreign currency risk management program value risk use value risk “var” computation estimate 1 potential oneday loss fair value interest ratesensitive financial instruments 2 potential oneday loss pretax earnings foreign currency commodity pricesensitive derivative financial instruments included debt shortterm investments foreign currency forwards swaps options commodity futures forwards options var computation anticipated transactions foreign currency trade payables receivables net investments foreign subsidiaries abovementioned instruments intended hedge excluded computation made var estimates assuming normal market conditions using 95 confidence interval used “variance covariance” model determine observed interrelationships movements interest rates various currencies interrelationships determined observing interest rate forward currency rate movements prior quarter calculation var amounts december 31 2008 2007 four prior quarters calculation average var amounts year values foreign currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation estimated potential oneday loss fair value interest ratesensitive instruments primarily debt normal market conditions estimated potential oneday loss pretax earnings foreign currency commodity instruments normal market conditions calculated var model millions var computation risk analysis tool designed statistically estimate maximum probable daily loss adverse movements interest rates foreign currency rates commodity prices normal market conditions computation represent actual losses fair value earnings incurred kraft consider effect favorable changes market rates cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future financial results item 8item 7a quantitative qualitative disclosures market risk operate globally use certain financial instruments manage foreign currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price interest rate risk management policies principally use derivative instruments reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices interest rates also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes refer note 1 summary significant accounting policies note 12 financial instruments consolidated financial statements details foreign currency commodity price interest rate risk management policies types derivative instruments use hedge exposures october 2008 one counterparties lehman brothers commercial corporation filed bankruptcy consequently wrote insignificant asset related derivatives held significant impact foreign currency risk management program value risk use value risk “var” computation estimate 1 potential oneday loss fair value interest ratesensitive financial instruments 2 potential oneday loss pretax earnings foreign currency commodity pricesensitive derivative financial instruments included debt shortterm investments foreign currency forwards swaps options commodity futures forwards options var computation anticipated transactions foreign currency trade payables receivables net investments foreign subsidiaries abovementioned instruments intended hedge excluded computation made var estimates assuming normal market conditions using 95 confidence interval used “variance covariance” model determine observed interrelationships movements interest rates various currencies interrelationships determined observing interest rate forward currency rate movements prior quarter calculation var amounts december 31 2009 2008 four prior quarters calculation average var amounts year values foreign currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation december 31 2009 estimated potential oneday loss fair value interest ratesensitive instruments primarily debt normal market conditions estimated potential oneday loss pretax earnings foreign currency commodity instruments normal market conditions calculated var model millions var computation risk analysis tool designed statistically estimate maximum probable daily loss adverse movements interest rates foreign currency rates commodity prices normal market conditions computation represent actual losses fair value earnings incurred kraft foods consider effect favorable changes market rates cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future financial results item 8item 7a quantitative qualitative disclosures market risk operate globally use certain financial instruments manage foreign currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price interest rate risk management policies principally use derivative instruments reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices interest rates also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes refer note 1 summary significant accounting policies note 12 financial instruments consolidated financial statements details foreign currency commodity price interest rate risk management policies types derivative instruments use hedge exposures value risk use value risk “var” computation estimate 1 potential oneday loss fair value interest ratesensitive financial instruments 2 potential oneday loss pretax earnings foreign currency commodity pricesensitive derivative financial instruments included debt foreign currency forwards futures swaps options commodity futures forwards options var computation anticipated transactions foreign currency trade payables receivables net investments foreign subsidiaries abovementioned instruments intended hedge excluded computation made var estimates assuming normal market conditions using 95 confidence interval used “variance covariance” model determine observed interrelationships movements interest rates various currencies interrelationships determined observing interest rate forward currency rate movements prior quarter calculation var amounts december 31 2010 2009 four prior quarters calculation average var amounts year values foreign currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation december 31 2010 estimated potential oneday loss fair value interest ratesensitive instruments primarily debt normal market conditions estimated potential oneday loss pretax earnings foreign currency commodity instruments normal market conditions calculated var model millions var computation risk analysis tool designed statistically estimate maximum probable daily loss adverse movements interest rates foreign currency rates commodity prices normal market conditions computation represent actual losses fair value earnings incurred kraft foods consider effect favorable changes market rates cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future financial results item 8item 7a quantitative qualitative disclosures market risk operate globally use certain financial instruments manage foreign currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price interest rate risk management policies principally use derivative instruments reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices interest rates also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes refer note 1 summary significant accounting policies note 12 financial instruments consolidated financial statements details foreign currency commodity price interest rate risk management policies types derivative instruments use hedge exposures value risk use value risk “var” computation estimate 1 potential oneday loss fair value interest ratesensitive financial instruments 2 potential oneday loss pretax earnings foreign currency commodity pricesensitive derivative financial instruments included debt foreign currency forwards futures swaps options commodity futures forwards options var computation excluded computation anticipated transactions foreign currency trade payables receivables net investments foreign subsidiaries abovementioned instruments intended hedge made var estimates assuming normal market conditions using 95 confidence interval used “variance covariance” model determine observed interrelationships movements interest rates various currencies interrelationships determined observing interest rate forward currency rate movements prior quarter calculation var amounts december 31 2011 2010 four prior quarters calculation average var amounts year values foreign currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation december 31 2011 estimated potential oneday loss fair value interest ratesensitive instruments primarily debt estimated potential oneday loss pretax earnings foreign currency commodity instruments calculated var model millions var computation risk analysis tool designed statistically estimate maximum probable daily loss adverse movements interest rates foreign currency rates commodity prices normal market conditions computation represent actual losses fair value earnings incurred kraft foods consider effect favorable changes market rates cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future financial results item 8item 7a quantitative qualitative disclosures market risk operate globally use certain financial instruments manage foreign currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price interest rate risk management policies principally use derivative instruments reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices interest rates also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes refer note 1 summary significant accounting policies note 9 financial instruments consolidated financial statements details foreign currency commodity price interest rate risk management policies types derivative instruments use hedge exposures value risk use value risk “var” computation estimate 1 potential oneday loss fair value interest ratesensitive financial instruments 2 potential oneday loss pretax earnings foreign currency commodity pricesensitive derivative financial instruments included debt foreign currency forwards futures swaps options commodity futures forwards options var computation excluded computation anticipated transactions foreign currency trade payables receivables net investments foreign subsidiaries abovementioned instruments intended hedge made var estimates assuming normal market conditions using 95 confidence interval used “variance covariance” model determine observed interrelationships movements interest rates various currencies interrelationships determined observing interest rate forward currency rate movements prior quarter calculation var amounts december 31 2012 2011 four prior quarters calculation average var amounts year values foreign currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation december 31 2012 estimated potential oneday loss fair value interest ratesensitive instruments primarily debt estimated potential oneday loss pretax earnings foreign currency commodity instruments calculated var model millions spinoff significant portion primarily us derivative instruments divested fourth quarter 2012 impacts presented table recast reflect divestiture periods prior spinoff impracticable var computation risk analysis tool designed statistically estimate maximum probable daily loss adverse movements interest rates foreign currency rates commodity prices normal market conditions computation represent actual losses fair value earnings incur consider effect favorable changes market rates cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future financial results item 8item 7a quantitative qualitative disclosures market risk operate globally use certain financial instruments manage foreign currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price interest rate risk management policies principally use derivative instruments reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices interest rates also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes refer note 1 summary significant accounting policies note 9 financial instruments consolidated financial statements details foreign currency commodity price interest rate risk management policies types derivative instruments use hedge exposures currency risks associated highly inflationary economies value risk use value risk “var” computation estimate 1 potential oneday loss fair value interest ratesensitive financial instruments 2 potential oneday loss pretax earnings foreign currency commodity pricesensitive derivative financial instruments included debt foreign currency forwards futures swaps options commodity futures forwards options var computation excluded computation anticipated transactions foreign currency trade payables receivables net investments foreign subsidiaries abovementioned instruments intended hedge made var estimates assuming normal market conditions using 95 confidence interval used “variance covariance” model determine observed interrelationships movements interest rates various currencies interrelationships determined observing interest rate forward currency rate movements prior quarter calculation var amounts december 31 2013 2012 four prior quarters calculation average var amounts year values foreign currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation december 31 2013 estimated potential oneday loss fair value interest ratesensitive instruments primarily debt estimated potential oneday loss pretax earnings foreign currency commodity instruments calculated var model spinoff significant portion primarily us derivative instruments divested fourth quarter 2012 impacts presented table recast reflect divestiture periods prior spinoff impracticable var computation risk analysis tool designed statistically estimate maximum probable daily loss adverse movements interest rates foreign currency rates commodity prices normal market conditions computation represent actual losses fair value earnings incur consider effect favorable changes market rates cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future financial results item 8item 7a quantitative qualitative disclosures market risk operate globally primarily exposed currency exchange rate commodity price interest rate market risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principally utilize derivative instruments reduce significant unanticipated earnings fluctuations may arise volatility currency exchange rates commodity prices interest rates additional information derivative activity types derivative instruments use hedge currency exchange commodity price interest rate exposures see note 9 financial instruments many nonus subsidiaries operate functional currencies us dollar fluctuations currency exchange rates create volatility reported results translate balance sheets operating results cash flows subsidiaries us dollar consolidated reporting purposes translation nonus dollar denominated balance sheets statements earnings subsidiaries us dollar consolidated reporting generally results cumulative translation adjustment comprehensive income within equity stronger us dollar relative functional currencies adversely affects consolidated earnings net assets weaker us dollar benefits consolidated earnings net assets hedge significant forecasted currency exchange transactions well certain net assets nonus operations currency impacts cannot fully predict eliminate volatility arising changes currency exchange rates consolidated financial results see consolidated results operations results operations reportable segment discussion analysis historical results currency exchange effects financial results 2014 additional information impact currency policies remeasurement venezuelan net monetary assets financial condition results operations also see note 1 summary significant accounting policiescurrency translation highly inflationary accounting also continually monitor market commodities use products input costs may fluctuate widely due international demand weather conditions government policy regulation unforeseen conditions manage input cost volatility enter forward purchase agreements derivative financial instruments also pursue productivity cost saving measures take pricing actions necessary mitigate impact higher input costs earnings regularly evaluate variable fixedrate debt well current expected interest rates markets raise capital primary exposures include movements us treasury rates corporate credit spreads london interbank offered rates “libor” euro interbank offered rate “euribor” commercial paper rates periodically use interest rate swaps forward interest rate contracts achieve desired proportion variable versus fixed rate debt based current projected market conditions addition using interest rate derivatives manage future interest payments earlier year fourth quarter 2013 also retired 5 billion longterm debt issued 63 billion lower borrowing cost debt weightedaverage interest rate total debt december 31 2014 43 48 december 31 2013 value risk use value risk “var” computation estimate 1 potential oneday loss fair value interest ratesensitive financial instruments 2 potential oneday loss pretax earnings currency commodity pricesensitive derivative financial instruments var analysis done separately currency exchange fixed income commodity risk portfolios quarter end 2014 instruments included var computation currency exchange forwards options currency exchange risk debt swaps interest rate risk commodity forwards futures options commodity risk excluded computation anticipated transactions currency trade payables receivables net investments nonus subsidiaries abovementioned instruments intended hedge var model assumes normal market conditions 95 confidence interval oneday holding period parametric deltagamma approximation technique used determine expected return distribution interest rates currencies commodity prices purpose calculating fixed income currency exchange commodity var respectively parameters used estimating expected return distributions determined observing interest rate currency exchange commodity price movements prior quarter calculation var amounts december 31 2014 2013 four prior quarters calculation average var amounts year values currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation december 31 2014 estimated potential oneday loss fair value interest ratesensitive instruments primarily debt estimated potential oneday loss pretax earnings currency commodity instruments calculated var model var computation risk analysis tool designed statistically estimate maximum expected daily loss specified confidence interval assuming normal market conditions adverse movements interest rates currency exchange rates commodity prices computation represent actual losses fair value earnings incur consider effect favorable changes market rates cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future financial results item 8item 7a quantitative qualitative disclosures market risk operate globally primarily exposed currency exchange rate commodity price interest rate market risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principally utilize derivative instruments reduce significant unanticipated earnings fluctuations may arise volatility currency exchange rates commodity prices interest rates additional information derivative activity types derivative instruments use hedge currency exchange commodity price interest rate exposures see note 8 financial instruments many nonus subsidiaries operate functional currencies us dollar fluctuations currency exchange rates create volatility reported results translate balance sheets operating results cash flows subsidiaries us dollar consolidated reporting purposes translation nonus dollar denominated balance sheets statements earnings subsidiaries us dollar consolidated reporting generally results cumulative translation adjustment comprehensive income within equity stronger us dollar relative functional currencies adversely affects consolidated earnings net assets weaker us dollar benefits consolidated earnings net assets hedge significant forecasted currency exchange transactions well certain net assets nonus operations currency impacts cannot fully predict eliminate volatility arising changes currency exchange rates consolidated financial results see consolidated results operations results operations reportable segment discussion analysis historical results currency exchange effects financial results additional information impact currency policies brexit recent currency devaluations deconsolidation venezuelan operation historical remeasurement venezuelan net monetary assets financial condition results operations also see note 1 summary significant accounting policiescurrency translation highly inflationary accounting also continually monitor market commodities use products input costs may fluctuate widely due international demand weather conditions government policy regulation unforeseen conditions manage input cost volatility enter forward purchase agreements derivative financial instruments also pursue productivity cost saving measures take pricing actions necessary mitigate impact higher input costs earnings regularly evaluate variable fixedrate debt well current expected interest rates markets raise capital primary exposures include movements us treasury rates corporate credit spreads london interbank offered rates “libor” euro interbank offered rate “euribor” commercial paper rates periodically use interest rate swaps forward interest rate contracts achieve desired proportion variable versus fixed rate debt based current projected market conditions addition using interest rate derivatives manage future interest payments 2016 retired 62 billion longterm debt related costs issued 64 billion lower borrowing cost debt weightedaverage interest rate total debt december 31 2016 22 37 december 31 2015 significant changes types derivative instruments use hedge exposures december 31 2015 december 31 2016 see note 8 financial instruments information 2016 derivative activity value risk use value risk “var” computation estimate 1 potential oneday loss fair value interest ratesensitive financial instruments 2 potential oneday loss pretax earnings currency commodity pricesensitive derivative financial instruments var analysis done separately currency exchange fixed income commodity risk portfolios quarter end periods presented instruments included var computation currency exchange forwards options currency exchange risk debt swaps interest rate risk commodity forwards futures options commodity risk excluded computation anticipated transactions currency trade payables receivables net investments nonus subsidiaries abovementioned instruments intended hedge var model assumes normal market conditions 95 confidence interval oneday holding period parametric deltagamma approximation technique used determine expected return distribution interest rates currencies commodity prices purpose calculating fixed income currency exchange commodity var respectively parameters used estimating expected return distributions determined observing interest rate currency exchange commodity price movements prior quarter calculation var amounts december 31 2016 2015 four prior quarters calculation average var amounts year values currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation december 31 2016 december 31 2015 estimated potential oneday loss fair value interest ratesensitive instruments primarily debt estimated potential oneday loss pretax earnings currency commodity instruments calculated var model impacts 2015 tables recast reflect deconsolidation legacy coffee business venezuela business related derivative activity businesses impracticable var computation risk analysis tool designed statistically estimate maximum expected daily loss specified confidence interval assuming normal market conditions adverse movements interest rates currency exchange rates commodity prices computation represent actual losses fair value earnings incur consider effect favorable changes market rates cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future financial results item 8item 7a quantitative qualitative disclosures market risk operate globally primarily exposed currency exchange rate commodity price interest rate market risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principally utilize derivative instruments reduce significant unanticipated earnings fluctuations may arise volatility currency exchange rates commodity prices interest rates additional information derivative activity types derivative instruments use hedge currency exchange commodity price interest rate exposures see note 8 financial instruments many nonus subsidiaries operate functional currencies us dollar fluctuations currency exchange rates create volatility reported results translate balance sheets operating results cash flows subsidiaries us dollar consolidated reporting purposes translation nonus dollar denominated balance sheets statements earnings subsidiaries us dollar consolidated reporting generally results cumulative translation adjustment comprehensive income within equity stronger us dollar relative functional currencies adversely affects consolidated earnings net assets weaker us dollar benefits consolidated earnings net assets hedge significant forecasted currency exchange transactions well certain net assets nonus operations currency impacts cannot fully predict eliminate volatility arising changes currency exchange rates consolidated financial results see consolidated results operations results operations reportable segment discussion analysis historical results currency exchange effects financial results additional information impact currency policies recent currency devaluations deconsolidation venezuelan operation historical remeasurement venezuelan net monetary assets financial condition results operations also see note 1 summary significant accounting policiescurrency translation highly inflationary accounting also continually monitor market commodities use products input costs may fluctuate widely due international demand weather conditions government policy regulation unforeseen conditions manage input cost volatility enter forward purchase agreements derivative financial instruments also pursue productivity cost saving measures take pricing actions necessary mitigate impact higher input costs earnings regularly evaluate variable fixedrate debt well current expected interest rates markets raise capital primary exposures include movements us treasury rates corporate credit spreads london interbank offered rates “libor” euro interbank offered rate “euribor” commercial paper rates periodically use interest rate swaps forward interest rate contracts achieve desired proportion variable versus fixed rate debt based current projected market conditions weightedaverage interest rate total debt 21 december 31 2017 22 december 31 2016 significant changes types derivative instruments use hedge exposures december 31 2016 december 31 2017 see note 8 financial instruments information 2017 2018 derivative activity value risk use value risk “var” computation estimate 1 potential oneday loss fair value interest ratesensitive financial instruments 2 potential oneday loss pretax earnings currency commodity pricesensitive derivative financial instruments var analysis done separately currency exchange fixed income commodity risk portfolios quarter end periods presented instruments included var computation currency exchange forwards options currency exchange risk debt swaps interest rate risk commodity forwards futures options commodity risk excluded computation anticipated transactions currency trade payables receivables net investments nonus subsidiaries abovementioned instruments intended hedge var model assumes normal market conditions 95 confidence interval oneday holding period parametric deltagamma approximation technique used determine expected return distribution interest rates currencies commodity prices purpose calculating fixed income currency exchange commodity var respectively parameters used estimating expected return distributions determined observing interest rate currency exchange commodity price movements prior quarter calculation var amounts december 31 2017 2016 four prior quarters calculation average var amounts year values currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation december 31 2017 december 31 2016 estimated potential oneday loss fair value interest ratesensitive instruments primarily debt estimated potential oneday loss pretax earnings currency commodity instruments calculated var model var computation risk analysis tool designed statistically estimate maximum expected daily loss specified confidence interval assuming normal market conditions adverse movements interest rates currency exchange rates commodity prices computation represent actual losses fair value earnings incur consider effect favorable changes market rates cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future financial results item 8item 7a quantitative qualitative disclosures market risk operate globally primarily exposed currency exchange rate commodity price interest rate market risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principally utilize derivative instruments reduce significant unanticipated earnings fluctuations may arise volatility currency exchange rates commodity prices interest rates additional information derivative activity types derivative instruments use hedge currency exchange commodity price interest rate exposures see note 1 summary significant accounting policies note 9 financial instruments many nonus subsidiaries operate functional currencies us dollar fluctuations currency exchange rates create volatility reported results translate balance sheets operating results cash flows subsidiaries us dollar consolidated reporting purposes translation nonus dollar denominated balance sheets statements earnings subsidiaries us dollar consolidated reporting generally results cumulative translation adjustment comprehensive income within equity stronger us dollar relative functional currencies adversely affects consolidated earnings net assets weaker us dollar benefits consolidated earnings net assets hedge significant forecasted currency exchange transactions well certain net assets nonus operations currency impacts cannot fully predict eliminate volatility arising changes currency exchange rates consolidated financial results see consolidated results operations results operations reportable segment discussion analysis historical results currency exchange effects financial results additional information impact currency policies recent currency devaluations highly inflationary accounting financial condition results operations also see note 1 summary significant accounting policiescurrency translation highly inflationary accounting also continually monitor market commodities use products input costs may fluctuate widely due international demand weather conditions government policy regulation unforeseen conditions manage input cost volatility enter forward purchase agreements derivative financial instruments also pursue productivity cost saving measures take pricing actions necessary mitigate impact higher input costs earnings regularly evaluate variable fixedrate debt well current expected interest rates markets raise capital primary exposures include movements us treasury rates corporate credit spreads commercial paper rates well limited debt tied london interbank offered rates “libor” financial conduct authority united kingdom plans phase libor end 2021 anticipate significant impact financial position planned phase libor given current mix variable fixedrate debt periodically use interest rate swaps forward interest rate contracts achieve desired proportion variable versus fixed rate debt based current projected market conditions weightedaverage interest rate total debt 23 december 31 2018 21 december 31 2017 primarily due higher interest rates commercial paper borrowings beginning first quarter 2018 entered new investment hedge derivative contracts specifically crosscurrency interest rate swaps forwards hedge certain investments nonus operations movements exchange rates see note 9 financial instruments information derivative activity significant changes types derivative instruments use hedge exposures december 31 2017 december 31 2018 value risk use value risk “var” computation estimate 1 potential oneday loss fair value interest ratesensitive financial instruments 2 potential oneday loss pretax earnings currency commodity pricesensitive derivative financial instruments var analysis done separately currency exchange fixed income commodity risk portfolios quarter end periods presented instruments included var computation currency exchange forwards options currency exchange risk debt swaps interest rate risk commodity forwards futures options commodity risk excluded computation anticipated transactions currency trade payables receivables net investments nonus subsidiaries abovementioned instruments intended hedge var model assumes normal market conditions 95 confidence interval oneday holding period parametric deltagamma approximation technique used determine expected return distribution interest rates currencies commodity prices purpose calculating fixed income currency exchange commodity var respectively parameters used estimating expected return distributions determined observing interest rate currency exchange commodity price movements prior quarter calculation var amounts december 31 2018 2017 four prior quarters calculation average var amounts year values currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation december 31 2018 december 31 2017 estimated potential oneday loss fair value interest ratesensitive instruments primarily debt estimated potential oneday loss pretax earnings currency commodity instruments calculated var model var computation risk analysis tool designed statistically estimate maximum expected daily loss specified confidence interval assuming normal market conditions adverse movements interest rates currency exchange rates commodity prices computation represent actual losses fair value earnings incur consider effect favorable changes market rates cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future financial results item 8item 7a quantitative qualitative disclosures market risk operate globally primarily exposed currency exchange rate commodity price interest rate market risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principally utilize derivative instruments reduce significant unanticipated earnings fluctuations may arise volatility currency exchange rates commodity prices interest rates additional information derivative activity types derivative instruments use hedge currency exchange commodity price interest rate exposures see note 1 summary significant accounting policies note 10 financial instruments many nonus subsidiaries operate functional currencies us dollar fluctuations currency exchange rates create volatility reported results translate balance sheets operating results cash flows subsidiaries us dollar consolidated reporting purposes translation nonus dollar denominated balance sheets statements earnings subsidiaries us dollar consolidated reporting generally results cumulative translation adjustment comprehensive income within equity stronger us dollar relative functional currencies adversely affects consolidated earnings net assets weaker us dollar benefits consolidated earnings net assets hedge significant forecasted currency exchange transactions well certain net assets nonus operations currency impacts cannot fully predict eliminate volatility arising changes currency exchange rates consolidated financial results see consolidated results operations results operations reportable segment discussion analysis historical results currency exchange effects financial results additional information impact currency policies recent currency devaluations highly inflationary accounting financial condition results operations also see note 1 summary significant accounting policiescurrency translation highly inflationary accounting also continually monitor market commodities use products input costs may fluctuate widely due international demand weather conditions government policy regulation unforeseen conditions manage input cost volatility enter forward purchase agreements derivative financial instruments also pursue productivity cost saving measures take pricing actions necessary mitigate impact higher input costs earnings regularly evaluate variable fixedrate debt well current expected interest rates markets raise capital primary exposures include movements us treasury rates corporate credit spreads commercial paper rates well limited debt tied london interbank offered rates “libor” financial conduct authority united kingdom plans phase libor end 2021 anticipate significant impact financial position planned phase libor given current mix variable fixedrate debt periodically use interest rate swaps forward interest rate contracts achieve desired proportion variable versus fixedrate debt based current projected market conditions weightedaverage interest rate total debt 22 december 31 2019 23 december 31 2018 primarily due lower interest rates commercial paper borrowings beginning 2018 entered new investment hedge derivative contracts specifically crosscurrency interest rate swaps forwards hedge certain investments nonus operations movements exchange rates see note 10 financial instruments information derivative activity value risk use value risk “var” computation estimate 1 potential oneday loss fair value interest ratesensitive financial instruments 2 potential oneday loss pretax earnings currency commodity pricesensitive derivative financial instruments var analysis done separately currency exchange fixed income commodity risk portfolios quarter end periods presented instruments included var computation currency exchange forwards options currency exchange risk debt swaps interest rate risk commodity forwards futures options commodity risk excluded computation anticipated transactions currency trade payables receivables net investments nonus subsidiaries abovementioned instruments intended hedge var model assumes normal market conditions 95 confidence interval oneday holding period parametric deltagamma approximation technique used determine expected return distribution interest rates currencies commodity prices purpose calculating fixed income currency exchange commodity var respectively parameters used estimating expected return distributions determined observing interest rate currency exchange commodity price movements prior quarter calculation var amounts december 31 2019 2018 four prior quarters calculation average var amounts year values currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation december 31 2019 december 31 2018 estimated potential oneday loss fair value interest ratesensitive instruments primarily debt estimated potential oneday loss pretax earnings currency commodity instruments calculated var model var computation risk analysis tool designed statistically estimate maximum expected daily loss specified confidence interval assuming normal market conditions adverse movements interest rates currency exchange rates commodity prices computation represent actual losses fair value earnings incur consider effect favorable changes market rates cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future financial results item 8item 7a quantitative qualitative disclosures market risk operate globally primarily exposed currency exchange rate commodity price interest rate market risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principally utilize derivative instruments reduce significant unanticipated earnings fluctuations may arise volatility currency exchange rates commodity prices interest rates additional information derivative activity types derivative instruments use hedge currency exchange commodity price interest rate exposures see note 9 financial instruments many nonus subsidiaries operate functional currencies us dollar fluctuations currency exchange rates create volatility reported results translate balance sheets operating results cash flows subsidiaries us dollar consolidated reporting purposes translation nonus dollar denominated balance sheets statements earnings subsidiaries us dollar consolidated reporting generally results cumulative translation adjustment comprehensive income within equity stronger us dollar relative functional currencies adversely affects consolidated earnings net assets weaker us dollar benefits consolidated earnings net assets hedge significant forecasted currency exchange transactions well certain net assets nonus operations currency impacts cannot fully predict eliminate volatility arising changes currency exchange rates consolidated financial results see consolidated results operations results operations reportable segment discussion analysis historical results currency exchange effects financial results 2015 additional information impact currency policies deconsolidation venezuelan operation historical remeasurement venezuelan net monetary assets financial condition results operations also see note 1 summary significant accounting policiescurrency translation highly inflationary accounting also continually monitor market commodities use products input costs may fluctuate widely due international demand weather conditions government policy regulation unforeseen conditions manage input cost volatility enter forward purchase agreements derivative financial instruments also pursue productivity cost saving measures take pricing actions necessary mitigate impact higher input costs earnings regularly evaluate variable fixedrate debt well current expected interest rates markets raise capital primary exposures include movements us treasury rates corporate credit spreads london interbank offered rates “libor” euro interbank offered rate “euribor” commercial paper rates periodically use interest rate swaps forward interest rate contracts achieve desired proportion variable versus fixed rate debt based current projected market conditions addition using interest rate derivatives manage future interest payments 2015 retired 42 billion longterm debt issued 45 billion lower borrowing cost debt weightedaverage interest rate total debt december 31 2015 37 43 december 31 2014 value risk use value risk “var” computation estimate 1 potential oneday loss fair value interest ratesensitive financial instruments 2 potential oneday loss pretax earnings currency commodity pricesensitive derivative financial instruments var analysis done separately currency exchange fixed income commodity risk portfolios quarter end 2015 instruments included var computation currency exchange forwards options currency exchange risk debt swaps interest rate risk commodity forwards futures options commodity risk excluded computation anticipated transactions currency trade payables receivables net investments nonus subsidiaries abovementioned instruments intended hedge var model assumes normal market conditions 95 confidence interval oneday holding period parametric deltagamma approximation technique used determine expected return distribution interest rates currencies commodity prices purpose calculating fixed income currency exchange commodity var respectively parameters used estimating expected return distributions determined observing interest rate currency exchange commodity price movements prior quarter calculation var amounts december 31 2015 2014 four prior quarters calculation average var amounts year values currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation december 31 2015 estimated potential oneday loss fair value interest ratesensitive instruments primarily debt estimated potential oneday loss pretax earnings currency commodity instruments calculated var model var computation risk analysis tool designed statistically estimate maximum expected daily loss specified confidence interval assuming normal market conditions adverse movements interest rates currency exchange rates commodity prices computation represent actual losses fair value earnings incur consider effect favorable changes market rates cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future financial results item 8item 7a quantitative qualitative disclosures market risk operate globally primarily exposed currency exchange rate commodity price interest rate market risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results 2020 covid19 pandemic related global response significantly impacted economic activity markets around world national local governments imposed preventative protective restrictions travel business operations advised required citizens remain home temporary closures businesses ordered numerous businesses temporarily closed voluntarily impact global pandemic response material unfavorable impact global markets including commodity currency capital markets us major stock markets certain currencies rebounded significantly second third quarters 2020 markets likely continue remain volatile situation continues economic credit crisis could occur impair credit availability ability raise capital needed disruption financial markets may negative effect derivative counterparties could impair banking business partners rely access capital counterparties number derivative contracts actively working mitigate risks largely employed existing strategies described mitigate market risks related currency commodity interest rate risks principally utilize derivative instruments reduce significant unanticipated earnings fluctuations may arise volatility currency exchange rates commodity prices interest rates additional information derivative activity types derivative instruments use hedge currency exchange commodity price interest rate exposures see note 10 financial instruments many nonus subsidiaries operate functional currencies us dollar fluctuations currency exchange rates create volatility reported results translate balance sheets operating results cash flows subsidiaries us dollar consolidated reporting purposes translation nonus dollar denominated balance sheets statements earnings subsidiaries us dollar consolidated reporting generally results cumulative translation adjustment comprehensive income within equity stronger us dollar relative functional currencies adversely affects consolidated earnings net assets weaker us dollar benefits consolidated earnings net assets hedge significant forecasted currency exchange transactions well certain net assets nonus operations currency impacts cannot fully predict eliminate volatility arising changes currency exchange rates consolidated financial results see consolidated results operations results operations operating segment discussion analysis historical results currency exchange effects financial results throughout discussion analysis results isolate currency impacts supplementally provide net revenues operating income diluted earnings per share constant currency basis additional information impact currency policies recent currency devaluations highly inflationary accounting financial condition results operations also see note 1 summary significant accounting policies currency translation highly inflationary accounting also continually monitor market commodities use products input costs may fluctuate widely due international demand weather conditions government policy regulation unforeseen conditions current covid19 pandemic manage input cost volatility enter forward purchase agreements derivative financial instruments also pursue productivity cost saving measures take pricing actions necessary mitigate impact higher input costs earnings regularly evaluate variable fixedrate debt well current expected interest rates markets raise capital primary exposures include movements us treasury rates corporate credit spreads commercial paper rates well limited debt tied london interbank offered rates “libor” financial conduct authority united kingdom plans phase libor end 2021 anticipate significant impact financial position planned phase libor given current mix variable fixedrate debt periodically use interest rate swaps forward interest rate contracts achieve desired proportion variable versus fixed rate debt based current projected market conditions information 2020 debt activity see note 9 debt borrowing arrangements see note 10 financial instruments information derivative activity value risk use value risk “var” computation estimate 1 potential oneday loss fair value interest ratesensitive financial instruments 2 potential oneday loss pretax earnings currency commodity pricesensitive derivative financial instruments var analysis done separately currency exchange fixed income commodity risk portfolios quarter end periods presented instruments included var computation currency exchange forwards options currency exchange risk debt swaps interest rate risk commodity forwards futures options commodity risk excluded computation anticipated transactions currency trade payables receivables net investments nonus subsidiaries abovementioned instruments intended hedge var model assumes normal market conditions 95 confidence interval oneday holding period parametric deltagamma approximation technique used determine expected return distribution interest rates currencies commodity prices purpose calculating fixed income currency exchange commodity var respectively parameters used estimating expected return distributions determined observing interest rate currency exchange commodity price movements prior quarter calculation var amounts december 31 2020 2019 four prior quarters calculation average var amounts year values currency commodity options change onetoone basis underlying currency commodity valued accordingly var computation december 31 2020 december 31 2019 estimated potential oneday loss fair value interest ratesensitive instruments primarily debt estimated potential oneday loss pretax earnings currency commodity instruments calculated var model var computation risk analysis tool designed statistically estimate maximum expected daily loss specified confidence interval assuming normal market conditions adverse movements interest rates currency exchange rates commodity prices computation represent actual losses fair value earnings incur consider effect favorable changes market rates cannot predict actual future movements market rates present var results indicative future movements market rates representative actual impact future changes market rates may future financial results item 8item 7a quantitative qualitative disclosures market risk information called item hereby incorporated reference paragraphs mda captioned market risk value risk pages 34 36 2001 annual report made part hereof item 8 item 8 financial statements supplementary data item 9item 8 financial statements supplementary data information called item hereby incorporated reference 2003 annual report set forth caption quarterly financial data unaudited page 59 index consolidated financial statements schedules see item 15 made part hereof item 9item 8 financial statements supplementary data report management internal control financial reporting management company responsible establishing maintaining adequate internal control financial reporting defined rules 13a15f 15d15f securities exchange act 1934 companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance accounting principles generally accepted united states america companys internal control financial reporting includes written policies procedures •pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company •provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance accounting principles generally accepted united states america •provide reasonable assurance receipts expenditures company made accordance authorizations management directors company •provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect consolidated financial statements internal control financial reporting includes controls monitoring internal auditing practices actions taken correct deficiencies identified inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness companys internal control financial reporting december 31 2004 management based assessment criteria effective internal control financial reporting described internal controlintegrated framework issued committee sponsoring organizations treadway commission coso managements assessment included evaluation design companys internal control financial reporting testing operational effectiveness companys internal control financial reporting management reviewed results assessment audit committee companys board directors based assessment management determined december 31 2004 company maintained effective internal control financial reporting pricewaterhousecoopers llp independent registered public accounting firm audited reported consolidated financial statements company included report issued attestation report managements assessment internal control financial reporting february 2 report independent registered public accounting firm board directors shareholders kraft foods inc completed integrated audit kraft foods incs 2004 consolidated financial statements internal control financial reporting december 31 2004 audits 2003 2002 consolidated financial statements accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements opinion accompanying consolidated balance sheets related consolidated statements earnings shareholders equity cash flows present fairly material respects financial position kraft foods inc subsidiaries company december 31 2004 2003 results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion internal control financial reporting also opinion managements assessment included report management internal control financial reporting dated february 2 2005 company maintained effective internal control financial reporting december 31 2004 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion company maintained material respects effective internal control financial reporting december 31 2004 based criteria established internal controlintegrated framework issued coso companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions managements assessment effectiveness companys internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating managements assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp chicago illinois february 2 2005 kraft foods inc subsidiaries consolidated balance sheets december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements earnings years ended december 31 millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements shareholders equity millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements cash flows years ended december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries notes consolidated financial statements note 1 background basis presentation background kraft foods inc kraft incorporated 2000 commonwealth virginia kraft subsidiaries kraft subsidiaries hereinafter referred company engaged manufacture sale branded foods beverages united states canada europe latin america asia pacific middle east africa prior june 13 2001 company whollyowned subsidiary altria group inc june 13 2001 company completed initial public offering ipo 280000000 shares class common stock price 3100 per share december 31 2004 altria group inc held 980 combined voting power companys outstanding capital stock owned 854 outstanding shares companys capital stock november 15 2004 company announced sale substantially sugar confectionery business approximately 15 billion transaction subject regulatory approval expected completed second quarter 2005 company reflected results sugar confectionery business discontinued operations consolidated statements earnings years presented assets related sugar confectionery business reflected assets discontinued operations held sale consolidated balance sheet december 31 2004 accordingly historical statements earnings amounts included notes consolidated financial statements restated reflect discontinued operation january 2004 company announced new global organization structure resulted new segments fourth quarter 2004 following sale sugar confectionery business company realigned north american segments companys new segments reflected financial statements notes us beverages us cheese canada north america foodservice us convenient meals us grocery us snacks cereals europe middle east africa latin america asia pacific new segment structure north america reflects shift certain divisions brands segments closely align businesses consumer sectors provide focus separate beverage grocery businesses benefit synergies grain based products historical data restated reflect new segment structure basis presentation consolidated financial statements include kraft well whollyowned majorityowned subsidiaries investments company exercises significant influence 2050 ownership interest accounted equity method accounting investments company ownership interest less 20 exercise significant influence accounted cost method accounting intercompany transactions balances among krafts subsidiaries eliminated transactions companys businesses altria group inc affiliates included financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities dates financial statements reported amounts net revenues expenses reporting periods significant estimates assumptions include among things pension benefit plan assumptions lives valuation assumptions goodwill intangible assets income taxes actual results could differ estimates companys operating subsidiaries report yearend results saturday closest end year certain prior years amounts reclassified conform current years presentation due primarily new segment structure classification sugar confectionery business discontinued operations note 2 summary significant accounting policies cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less depreciation amortization goodwill valuation property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years definite life intangible assets amortized estimated useful lives company required conduct annual review goodwill intangible assets potential impairment goodwill impairment testing requires comparison carrying value fair value reporting unit carrying value exceeds fair value goodwill considered impaired amount impairment loss measured difference carrying value implied fair value goodwill determined using discounted cash flows impairment testing nonamortizable intangible assets requires comparison fair value carrying value intangible asset carrying value exceeds fair value intangible asset considered impaired reduced fair value 2004 company completed annual review goodwill intangible assets review resulted 29 million noncash pretax charge related intangible asset impairment small confectionery business united states certain brands mexico portion charge 12 million recorded asset impairment exit costs consolidated statement earnings remainder charge 17 million included discontinued operations december 31 2004 2003 goodwill reportable segment follows millions intangible assets december 31 2004 2003 follows millions nonamortizable intangible assets substantially comprised brand names purchased nabisco acquisition amortizable intangible assets consist primarily certain trademark licenses noncompete agreements pretax amortization expense intangible assets 11 million 9 million 7 million years ended december 31 2004 2003 2002 respectively amortization expense next five years currently estimated 12 million less movement goodwill gross carrying amount intangible assets follows includes reclassification goodwill certain amounts previously classified indefinite life intangible assets well tax adjustments related nabisco acquisition environmental costs company subject laws regulations relating protection environment company provides expenses associated environmental remediation obligations undiscounted basis amounts probable reasonably estimated accruals adjusted new information develops circumstances change possible quantify certainty potential impact actions regarding environmental remediation compliance efforts company may undertake future opinion management environmental remediation compliance costs taking account recoveries third parties material adverse effect companys consolidated financial position results operations cash flows foreign currency translation company translates results operations foreign subsidiaries using average exchange rates period whereas balance sheet accounts translated using exchange rates end period currency translation adjustments recorded component shareholders equity transaction gains losses recorded consolidated statements earnings significant periods presented guarantees effective january 1 2003 company adopted financial accounting standards board fasb interpretation 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others interpretation 45 required disclosure certain guarantees existing december 31 2002 addition interpretation 45 requires recognition liability fair value obligation qualifying guarantee activities initiated modified december 31 2002 company applied recognition provisions interpretation 45 guarantee activity initiated december 31 2002 adoption interpretation 45 january 1 2003 material impact companys consolidated financial statements see note 18 contingencies discussion guarantees hedging instruments derivative financial instruments recorded fair value consolidated balance sheets either assets liabilities changes fair value derivatives recorded period either accumulated comprehensive earnings losses earnings depending whether derivative designated effective part hedge transaction type hedge transaction gains losses derivative instruments reported accumulated comprehensive earnings losses reclassified consolidated statement earnings periods operating results affected hedged item cash flows hedging instruments classified manner affected hedged item consolidated statements cash flows impairment longlived assets company reviews longlived assets including amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable company performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use company groups assets liabilities lowest level cash flows separately identifiable impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal income taxes company accounts income taxes accordance statement financial accounting standards sfas 109 accounting income taxes accounts company included consolidated federal income tax return altria group inc income taxes generally computed separate company basis extent foreign tax credits capital losses credits generated company cannot currently utilized separate company basis utilized altria group incs consolidated federal income tax return benefit recognized calculation companys provision income taxes based companys current estimate benefit calculated approximately 70 million 100 million 240 million years ended december 31 2004 2003 2002 respectively company makes payments reimbursed altria group inc tax effects resulting inclusion altria group incs consolidated federal income tax return significant judgment required determining income tax provisions evaluating tax positions company establishes additional provisions income taxes despite belief tax positions fully supportable remain certain positions likely challenged may sustained review tax authorities company adjusts additional accruals light changing facts circumstances consolidated tax provision includes impact changes accruals considered appropriate well related net interest inventories stated lower cost market lastin firstout lifo method used cost majority domestic inventories cost inventories principally determined average cost method 2004 fasb issued sfas 151 inventory costs sfas 151 requires abnormal idle facility expense spoilage freight handling costs recognized currentperiod charges addition sfas 151 requires allocation fixed production overhead costs inventories based normal capacity production facility company required adopt provisions sfas 151 prospectively january 1 2006 effect adoption expected material impact consolidated results operations financial position cash flows marketing costs company promotes products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volume based incentives advertising costs expensed incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period based principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year revenue recognition company recognizes revenues net sales incentives including shipping handling charges billed customers upon shipment goods title risk loss pass customers shipping handling costs classified part cost sales software costs company capitalizes certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment consolidated balance sheets amortized straightline basis estimated useful lives software exceed five years stockbased compensation company accounts employee stock compensation plans accordance intrinsic valuebased method permitted sfas 123 accounting stockbased compensation resulted compensation cost stock options market value date grant restricted stock rights receive shares stock recorded compensation expense period restriction december 31 2004 company stockbased employee compensation plans described fully note 11 stock plans company applies recognition measurement principles accounting principles board opinion 25 accounting stock issued employees related interpretations accounting stock options within plans compensation expense employee stock options reflected net earnings stock options granted plans exercise price equal market value common stock date grant net earnings reported includes pretax compensation expense related restricted stock rights receive shares stock 106 million 57 million 4 million years ended december 31 2004 2003 2002 respectively following table illustrates effect net earnings per share eps company applied fair value recognition provisions sfas 123 measure stockbased compensation expense outstanding stock option awards years ended december 31 2004 2003 2002 millions except per share data 2004 fasb issued sfas 123 revised 2004 sharebased payment sfas 123r sfas 123r requires companies measure compensation cost sharebased payments fair value company adopt new standard prospectively july 1 2005 expect adoption sfas 123r material impact 2005 consolidated financial position results operations cash flows note 3 asset impairment exit implementation costs restructuring program january 2004 company announced threeyear restructuring program objectives leveraging companys global scale realigning lowering cost structure optimizing capacity utilization part program company anticipates closing sale twenty plants elimination approximately six thousand positions 2004 2006 company expects incur 12 billion pretax charges reflecting asset disposals severance implementation costs including 641 million incurred 2004 approximately onehalf pretax charges expected require cash payments restructuring costs 2004 pretax charges restructuring program 583 million recorded asset impairment exit costs consolidated statement earnings charges resulted 2004 announcement closing thirteen plants termination comanufacturing agreements commencement number workforce reduction programs approximately 216 million pretax charges incurred 2004 require cash payments pretax restructuring liability activity year ended december 31 2004 follows severance costs schedule relate workforce reduction programs include cost related benefits specific programs announced 2004 part overall restructuring program result elimination approximately 3500 positions asset writedowns relate impairment assets caused plant closings costs incurred relate primarily contract termination costs associated plant closings termination comanufacturing agreements implementation costs 2004 company recorded 58 million pretax implementation costs associated restructuring program 7 million recorded reduction net revenues 30 million recorded cost sales 13 million recorded marketing administration research costs 8 million related sugar confectionery business recorded loss discontinued operations consolidated statement earnings costs include discontinuance certain product lines incremental costs related integration functions closure facilities approximately 36 million costs require cash payments asset impairment charges 2004 company completed annual review goodwill intangible assets review resulted 29 million noncash pretax charge related intangible asset impairment small confectionery business united states certain brands mexico portion charge 17 million relates sugar confectionery business recorded loss discontinued operations consolidated statement earnings remaining charge recorded asset impairment exit costs consolidated statement earnings november 2004 company completed valuation equity investment joint venture turkey following determination nontemporary decline value occurred valuation resulted 47 million noncash pretax charge recorded marketing administration research costs consolidated statement earnings november 15 2004 company announced sale substantially sugar confectionery business approximately 15 billion result anticipated transaction expected close second quarter 2005 company recorded noncash asset impairments totaling 107 million charge included loss discontinued operations consolidated statement earnings december 2004 company announced sale yogurt business approximately 59 million result anticipated transaction expected close first quarter 2005 company recorded asset impairments totaling 8 million charge recorded asset impairment exit costs consolidated statement earnings total pretax asset impairment exit implementation costs discussed year ended december 31 2004 included operating companies income following segments 2003 company recorded pretax charge 6 million asset impairment exit costs related closure nordic snacks plant 2002 company recorded pretax charge 142 million related employee acceptances voluntary retirement program approximately 700 employees elected retire terminate employment program charges included operating companies income following segments years ended december 31 2003 2002 note 4 related party transactions altria group incs subsidiary altria corporate services inc provides company various services including planning legal treasury accounting auditing insurance human resources office secretary corporate affairs information technology aviation tax services billings services based cost altria corporate services inc provide services management fee 310 million 318 million 327 million years ended december 31 2004 2003 2002 respectively costs paid altria corporate services inc monthly although cost services cannot quantified standalone basis management assessed billings reasonable based level support provided altria corporate services inc reflect services provided cost nature services reviewed annually companys audit committee comprised independent directors effects transactions included operating cash flows companys consolidated statements cash flows december 2004 company purchased two corporate aircraft altria corporate services inc aggregate purchase price approximately 47 million company also entered aircraft management agreement altria corporate services inc december 2004 pursuant altria corporate services inc agreed perform aircraft management pilot services maintenance aviation services company 2004 altria corporate services inc provided company certain financial services including payroll accounts payable processing cost approximately 25 million included 310 million charge shown beginning 2005 company perform functions similar cost december 31 2004 2003 company shortterm amounts payable altria group inc 227 million 543 million respectively interest borrowings based applicable london interbank offered rate fair values companys shortterm amounts due altria group inc affiliates approximate carrying amounts note 5 divestitures discontinued operations november 15 2004 company announced sale substantially sugar confectionery business approximately 15 billion proposed sale includes life savers creme savers altoids trolli sugus brands transaction subject regulatory approval expected completed second quarter 2005 company reflected results sugar confectionery business discontinued operations consolidated statements earnings years presented pursuant sugar confectionery sale agreement company agreed provide certain transition supply services buyer service arrangements primarily terms one year less exception one supply arrangement term three years expected cash flow supply arrangement significant summary results operations sugar confectionery business follows addition company expects additional tax expense approximately 270 million recorded loss sale discontinued operations 2005 accordance provisions sfas 109 tax expense recorded transaction consummated assets sugar confectionery business reflected assets discontinued operations held sale consolidated balance sheet december 31 2004 follows millions 2004 company sold brazilian snack nuts business trademarks associated candy business norway aggregate proceeds received sale businesses 18 million pretax losses 3 million recorded december 2004 company announced sale uk desserts business approximately 135 million expected result estimated gain 004 per share transaction subject required approvals expected close first quarter 2005 following completion necessary employee consultation requirements company also announced december 2004 sale yogurt business approximately 59 million expected result aftertax loss approximately 12 million 5 million 2004 remainder closing transaction also subject regulatory approval expected completed first quarter 2005 2003 company sold european rice business branded fresh cheese business italy aggregate proceeds received sales businesses 96 million company recorded pretax gains 31 million 2002 company sold several small north american food businesses previously classified businesses held sale arising acquisition nabisco net revenues operating results businesses held sale significant excluded companys consolidated statements earnings gain loss recognized sales addition company sold latin american yeast industrial bakery ingredients business approximately 110 million recorded pretax gain 69 million aggregate proceeds received sales businesses 219 million company recorded pretax gains 80 million operating results businesses sold discussed material companys consolidated financial position results operations cash flows periods presented note 6 acquisitions 2004 company acquired usbased beverage business total cost 137 million 2003 company acquired biscuits business egypt trademarks associated small usbased natural foods business total cost smaller acquisitions 98 million 2002 company acquired snacks business turkey biscuits business australia total cost smaller acquisitions 122 million effects acquisitions material companys consolidated financial position results operations cash flows periods presented note 7 inventories cost approximately 37 39 inventories 2004 2003 respectively determined using lifo method stated lifo amounts inventories approximately 81 million 155 million higher current cost inventories december 31 2004 2003 respectively note 8 shortterm borrowings borrowing arrangements december 31 2004 2003 company shortterm borrowings 1818 million 2453 million respectively consisting principally commercial paper borrowings average yearend interest rate 24 14 respectively amounts company reclassified 1900 million december 31 2003 commercial paper borrowings longterm debt based upon intent ability refinance borrowings longterm basis fair values companys shortterm borrowings december 31 2004 2003 based upon current market interest rates approximate amounts disclosed following 101 billion judgment march 21 2003 altria group incs domestic tobacco subsidiary philip morris usa inc three major credit rating agencies took series ratings actions resulting lowering companys shortterm longterm debt ratings despite fact company neither party exposure litigation companys credit ratings moodys december 31 2004 p2 shortterm debt a3 longtermdebt stable outlook companys credit ratings standard poors december 31 2004 a2 shortterm debt bbb longterm debt stable outlook companys credit ratings fitch rating services december 31 2004 f2 shortterm debt bbb longterm debt stable outlook none companys debt agreements requires accelerated repayment event decrease credit ratings company maintains revolving credit facilities historically used support issuance commercial paper 364day revolving credit facility expires july 2005 although contains provision allowing company extend maturity outstanding borrowings one additional year december 31 2004 credit lines company related activity follows billions dollars companys revolving credit facilities sole use require maintenance minimum net worth 182 billion december 31 2004 companys net worth 299 billion company expects continue meet covenant foregoing revolving credit facilities include financial tests credit rating triggers provisions could require posting collateral addition certain international subsidiaries kraft maintain uncommitted credit lines meet shortterm working capital needs international businesses credit lines amounted approximately 600 million december 31 2004 sole use companys international businesses borrowings lines amounted approximately 150 million 220 million december 31 2004 2003 respectively note 9 longterm debt december 31 2004 2003 companys longterm debt consisted following aggregate maturities longterm debt follows millions based market quotes available interest rates currently available company issuance debt similar terms remaining maturities aggregate fair value companys longterm debt including current portion longterm debt 11017 million 12873 million december 31 2004 2003 respectively note 10 capital stock companys articles incorporation authorize 30 billion shares class common stock 20 billion shares class b common stock 500 million shares preferred stock shares class common stock issued repurchased outstanding follows kraft repurchases class common stock open market transactions december 14 2004 kraft completed multiyear 700 million class common stock repurchase program acquiring 21718847 class shares average price 3223 per share 2004 repurchases 700 million program 20135247 shares cost 650 million 3228 per share december 14 2004 company commenced repurchasing shares new 15 billion class common stock repurchase program authorized board directors december 2 2004 december 31 2004 repurchases 15 billion program 1408413 shares cost 50 million 3549 per share december 3 2003 kraft completed 500 million class common stock repurchase program acquiring 15308458 class shares average price 3266 per share addition 118 billion class b common shares issued outstanding december 31 2004 2003 altria group inc holds 2765 million class common shares class b common shares december 31 2004 preferred shares issued outstanding class common shares entitled one vote class b common shares entitled ten votes therefore altria group inc holds 980 combined voting power companys outstanding capital stock december 31 2004 december 31 2004 66663515 shares common stock reserved stock options stock awards note 11 stock plans 2001 kraft performance incentive plan 2001 plan company may grant stock options stock appreciation rights restricted stock reload options awards based companys class common stock well performancebased annual longterm incentive awards maximum 75 million shares companys class common stock may issued 2001 plan addition company may grant 500000 shares class common stock members board directors fulltime employees company altria group inc subsidiaries kraft directors plan 2001 directors plan shares available granted 2001 plan 2001 directors plan december 31 2004 46707241 458633 respectively company applies intrinsic valuebased methodology accounting various stock plans accordingly compensation expense recognized restricted stock awards december 2004 fasb issued sfas 123r requires companies measure compensation cost sharebased payments fair value company adopt new standard prospectively july 1 2005 stock option activity follows years ended december 31 2002 2003 2004 following table summarizes status companys stock options outstanding exercisable december 31 2004 prior ipo certain employees company participated altria group incs stock compensation plans altria group inc intend issue additional altria group inc stock compensation companys employees except reloads previously issued options altria group inc accounts plans accordance intrinsic valuebased method permitted sfas 123 accounting stockbased compensation result compensation cost stock options companys employees held options purchase following number shares altria group inc stock december 31 2004 december 31 2003 2002 companys employees held options purchase following number shares altria group inc stock 39241651 shares average exercise price 3725 per share december 31 2003 46615162 shares average exercise price 3578 per share december 31 2002 amounts following exercisable date 39025325 average exercise price 3719 per share december 31 2003 46231629 average exercise price 3569 per share december 31 2002 compensation cost stock option awards kraft plans altria group inc plans determined using fair value grant date companys net earnings basic diluted eps would 2658 million 156 155 respectively year ended december 31 2004 3464 million 201 200 respectively year ended december 31 2003 3316 million 191 respectively year ended december 31 2002 foregoing impact compensation cost determined using modified blackscholes methodology following assumptions company may grant shares restricted stock rights receive shares stock eligible employees giving instances rights stockholders except may sell assign pledge otherwise encumber shares rights shares rights subject forfeiture certain employment conditions met 2004 2003 company granted approximately 41 million 37 million restricted class shares respectively eligible usbased employees 2004 2003 also issued eligible nonus employees rights receive approximately 19 million 16 million class equivalent shares respectively market value per restricted share right 3223 3656 dates 2004 2003 grants respectively december 31 2004 restrictions shares rights net forfeitures lapse follows 200513719 shares 20064520120 shares 20075532500 shares 2009150000 shares 2012100000 shares fair value shares restricted stock rights receive shares stock date grant amortized expense ratably restriction period company recorded compensation expense related restricted stock rights 106 million 57 million years ended december 31 2004 2003 respectively unamortized portion reported consolidated balance sheets reduction earnings reinvested business 190 million 129 million december 31 2004 2003 respectively note 12 earnings per share basic diluted eps continuing discontinued operations calculated using following 2003 computation 18 million class common stock options excluded calculation weighted average shares diluted eps effects antidilutive note 13 income taxes earnings continuing operations income taxes minority interest provision income taxes consisted following years ended december 31 2004 2003 2002 loss earnings discontinued operations year ended december 31 2004 included deferred income tax benefit 43 million company also anticipates additional tax expense approximately 270 million 2005 sale sugar confectionery business consummated december 31 2004 applicable united states federal income taxes foreign withholding taxes provided approximately 38 billion accumulated earnings foreign subsidiaries expected permanently reinvested october 22 2004 american jobs creation act jobs act signed law jobs act includes deduction 85 certain foreign earnings repatriated company may elect apply provision qualifying earnings repatriations 2005 conducting analyses effects us treasury department recently provided additional clarifying language key elements provision consideration part companys evaluation company expects complete evaluation effects repatriation provision within reasonable period time company expect repatriation provisions jobs act significant impact consolidated results operations consolidated cash flows jobs act also provides tax relief us domestic manufacturers providing tax deduction 9 lesser qualified production activities income taxable income december 2004 fasb issued fasb staff position 1091 application fasb statement 109 accounting income taxes tax deduction qualified production activities provided american jobs creation act 2004 fsp 1091 fsp 1091 requires companies account deduction special deduction rather rate reduction accordance sfas 109 therefore company recognize benefits expected significant year earned effective income tax rate pretax earnings differed us federal statutory rate following reasons years ended december 31 2004 2003 2002 tax provision 2004 includes 81 million favorable resolution outstanding tax item majority occurred third quarter 2004 reversal 35 million tax accruals longer required due tax events occurred first quarter 2004 tax effects temporary differences gave rise deferred income tax assets liabilities consisted following december 31 2004 2003 note 14 segment reporting company manufactures markets packaged food products consisting principally beverages cheese snacks convenient meals various packaged grocery products kraft manages reports operating results two units kraft north america commercial kraft international commercial reportable segments kraft north america commercial organized managed principally product category kraft international commercials operations organized managed geographic location january 2004 company announced new global organizational structure resulted new segments fourth quarter 2004 following sale sugar confectionery business discussed note 5 divestitures company realigned north american segments kraft north america commercials new segments us beverages us cheese canada north america foodservice us convenient meals us grocery us snacks cereals kraft international commercials segments europe middle east africa latin america asia pacific new segment structure north america reflects shift certain divisions brands segments closely align businesses consumer sectors provide focus separate beverage grocery businesses benefit synergies grain based products historical data restated reflect new segment structure companys management uses operating companies income defined operating income general corporate expenses amortization intangibles evaluate segment performance allocate resources management believes appropriate disclose measure help investors analyze business performance trends various business segments interest debt expense net provision income taxes centrally managed accordingly items presented segment since included measure segment profitability reviewed management companys assets principally united states europe managed geographically accounting policies segments described note 2 summary significant accounting policies segment data follows companys largest customer walmart stores inc affiliates accounted approximately 14 12 consolidated net revenues 2004 2003 2002 respectively net revenues occurred primarily united states across segments net revenues consumer sector include separation canada north america foodservice sector components follows years ended december 31 2004 2003 2002 items affecting comparability companys continuing operating results follows •asset impairment exit implementation costsas discussed note 3 asset impairment exit implementation costs company recorded asset impairment exit implementation costs 700 million 6 million 142 million years ended december 31 2004 2003 2002 respectively see note 3 breakdown pretax charges segment •losses gains sales businessesduring 2004 company sold brazilian snack nuts business trademarks associated candy business norway aggregate pretax losses 3 million 2003 company sold european rice business branded fresh cheese business italy aggregate pretax gains 31 million 2002 company sold latin american yeast industrial bakery ingredients business resulting pretax gain 69 million several small food businesses resulting pretax gains 11 million pretax losses gains included operating companies income following segments •integration costs loss sale food factoryduring 2003 company reversed 13 million related previously recorded integration charges 2002 company recorded pretax integrationrelated charges 115 million consolidate production lines north america close kraft facility consolidation programs addition 2002 company reversed 4 million related loss sale food factory items included operating companies income following segments see notes 5 6 respectively regarding divestitures acquisitions geographic data net revenues total assets longlived assets consist noncurrent assets goodwill intangible assets net prepaid pension assets follows note 15 benefit plans december 2003 fasb issued revised sfas 132 employers disclosures pensions postretirement benefits accordance pronouncement company adopted revised disclosure requirements pronouncement us plans 2003 nonus plans 2004 company sponsors noncontributory defined benefit pension plans covering substantially us employees pension coverage employees companys nonus subsidiaries provided extent deemed appropriate separate plans many governed local statutory requirements addition companys us canadian subsidiaries provide health care benefits substantially retired employees health care benefits retirees outside united states canada generally covered local government plans plan assets benefit obligations companys us canadian pension plans measured december 31 year nonus pension plans measured september 30 year benefit obligations companys postretirement plans measured december 31 year pension plans obligations funded status benefit obligations plan assets funded status companys pension plans december 31 2004 2003 follows combined us nonus pension plans resulted net prepaid pension asset 2404 million 1985 million december 31 2004 2003 respectively amounts recognized companys consolidated balance sheets december 31 2004 2003 prepaid pension assets 3569 million 3243 million respectively plans plan assets exceeded accumulated benefit obligations liabilities 1165 million 1258 million respectively plans accumulated benefit obligations exceeded plan assets us nonus pension plans change additional minimum liability 2004 2003 follows accumulated benefit obligation us pension plans 5327 million 4898 million december 31 2004 2003 respectively accumulated benefit obligation nonus pension plans 3251 million 2708 million december 31 2004 2003 respectively december 31 2004 2003 certain companys us pension plans underfunded projected benefit obligations accumulated benefit obligations fair value plan assets 260 million 188 million 11 million respectively 2004 261 million 208 million 14 million respectively 2003 majority relate plans salaried employees cannot funded irs regulations certain nonus plans accumulated benefit obligations excess plan assets projected benefit obligation accumulated benefit obligation fair value plan assets 2012 million 1877 million 950 million respectively december 31 2004 1648 million 1532 million 588 million respectively december 31 2003 following weightedaverage assumptions used determine companys benefit obligations plans december 31 components net periodic benefit cost net periodic pension cost income consisted following years ended december 31 2004 2003 2002 retiring employees elected lumpsum payments resulting settlement losses 41 million 51 million 21 million 2004 2003 2002 respectively addition 2002 certain salaried employees united states left company voluntary early retirement program instituted 2001 resulted special termination benefits curtailment settlement losses 109 million 2002 2004 nonus plant closure early retirement benefits resulted curtailment settlement losses 7 million following weightedaverage assumptions used determine companys net pension cost years ended december 31 companys expected rate return plan assets determined plan assets historical longterm investment performance current asset allocation estimates future longterm returns asset class company reduced assumption 8 determining us plans pension expense 2005 discount rate used determine companys net pension cost us plans 575 rate compensation increase us plans 400 kraft certain subsidiaries sponsor employee savings plans company contributes plans cover certain salaried nonunion union employees companys contributions costs determined matching employee contributions defined plans amounts charged expense defined contribution plans totaled 92 million 84 million 64 million 2004 2003 2002 respectively plan assets percentage fair value pension plan assets december 31 2004 2003 follows companys investment strategy based expectation equity securities outperform debt securities long term accordingly composition companys us plan assets broadly characterized 7030 allocation equity debt securities strategy utilizes indexed us equity securities actively managed investment grade debt securities constitute 80 debt securities lesser allocations high yield international debt securities plans outside us investment strategy subject local regulations assetliability profiles plans individual country specific circumstances result level equity exposure typically less us plans aggregate actual asset allocations nonus plans virtually identical respective asset policy targets company attempts mitigate investment risk rebalancing equity debt asset classes companys contributions monthly benefit payments made company presently plans make contributions extent tax deductible order maintain plan assets excess accumulated benefit obligation funded us nonus plans currently company anticipates making contributions approximately 250 million 2005 us plans approximately 90 million 2005 nonus plans based current tax law however estimates subject change result changes tax law well asset performance significantly assumed longterm rate return pension assets significant changes interest rates estimated future benefit payments companys pension plans december 31 2004 follows postretirement benefit plans net postretirement health care costs consisted following years ended december 31 2004 2003 2002 certain salaried employees united states left company voluntary early retirement program instituted 2001 resulted curtailment losses 16 million 2002 included expense december 2003 united states enacted law medicare prescription drug improvement modernization act 2003 act establishes prescription drug benefit medicare known medicare part federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare part may 2004 fasb issued fasb staff position 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 fsp 1062 fsp 1062 requires companies account effect subsidy benefits attributable past service actuarial experience gain reduction service cost component net postretirement health care costs amounts attributable current service benefit provided least actuarially equivalent medicare part company adopted fsp 1062 third quarter 2004 impact adoption 2004 reduction pretax net postretirement health care costs increase net earnings 24 million included reduction 3 million service cost 10 million interest cost 11 million amortization unrecognized net loss experience differences addition july 1 2004 company reduced accumulated postretirement benefit obligation subsidy related benefits attributed past service 315 million decreased unrecognized actuarial losses amount following weightedaverage assumptions used determine companys net postretirement cost years ended december 31 2005 discount rate used determine companys net postretirement cost 575 health care cost trend rate 800 us plans 950 canadian plans companys postretirement health care plans funded changes accumulated benefit obligation net amount accrued december 31 2004 2003 follows current portion companys accrued postretirement health care costs 217 million 199 million december 31 2004 2003 respectively included accrued liabilities consolidated balance sheets following weightedaverage assumptions used determine companys postretirement benefit obligations december 31 assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects december 31 2004 companys estimated future benefit payments postretirement health care plans december 31 2004 follows postemployment benefit plans kraft certain affiliates sponsor postemployment benefit plans covering substantially salaried certain hourly employees cost plans charged expense working life covered employees net postemployment costs consisted following years ended december 31 2004 2003 2002 previously discussed note 3 asset impairment exit implementation costs company announced several workforce reduction programs 2004 part overall restructuring program cost programs 167 million included expense 2002 certain salaried employees united states left company voluntary early retirement integration programs resulted incremental postemployment costs 23 million included expense companys postemployment plans funded changes benefit obligations plans december 31 2004 2003 follows accumulated benefit obligation determined using assumed ultimate annual turnover rate 03 2004 2003 assumed compensation cost increases 40 2004 2003 assumed benefits defined respective plans postemployment costs arising actions offer employees benefits excess specified respective plans charged expense incurred note 16 additional information amounts shown continuing operations minimum rental commitments noncancelable operating leases effect december 31 2004 follows millions note 17 financial instruments derivative financial instruments company operates globally manufacturing sales facilities various locations around world utilizes certain financial instruments manage foreign currency commodity exposures derivative financial instruments used company principally reduce exposures market risks resulting fluctuations foreign exchange rates commodity prices creating offsetting exposures company party leveraged derivatives policy use financial instruments speculative purposes financial instruments qualifying hedge accounting must maintain specified level effectiveness hedging instrument item hedged inception throughout hedged period company formally documents nature relationships hedging instruments hedged items well riskmanagement objectives strategies undertaking various hedge transactions method assessing hedge effectiveness additionally hedges forecasted transactions significant characteristics expected terms forecasted transaction must specifically identified must probable forecasted transaction occur deemed probable forecasted transaction occur gain loss would recognized earnings currently company uses forward foreign exchange contracts foreign currency options mitigate exposure changes exchange rates thirdparty intercompany actual forecasted transactions substantially companys derivative financial instruments effective hedges primary currencies company exposed based size location businesses include euro swiss franc british pound canadian dollar december 31 2004 2003 company foreign exchange option forward contracts aggregate notional amounts 29 billion 25 billion respectively effective portion unrealized gains losses associated forward option contracts deferred component accumulated comprehensive earnings losses underlying hedged transactions reported companys consolidated statement earnings company exposed price risk related forecasted purchases certain commodities used raw materials businesses accordingly company uses commodity forward contracts cash flow hedges primarily coffee cocoa milk cheese commodity futures options also used hedge price certain commodities including milk coffee cocoa wheat corn sugar soybean oil general commodity forward contracts qualify normal purchase exception sfas 133 therefore subject provisions sfas 133 december 31 2004 2003 company net long commodity positions 443 million 255 million respectively unrealized gains losses net commodity positions immaterial december 31 2004 2003 effective portion unrealized gains losses commodity futures option contracts deferred component accumulated comprehensive earnings losses recognized component cost sales companys consolidated statement earnings related inventory sold ineffectiveness related cash flow hedges material years ended december 31 2004 2003 2002 december 31 2004 company hedging forecasted transactions periods exceeding fifteen months expects substantially amounts reported accumulated comprehensive earnings losses reclassified consolidated statement earnings within next twelve months derivative gains losses reported accumulated comprehensive earnings losses result qualifying hedging activity transfers gains losses accumulated comprehensive earnings losses earnings offset corresponding gains losses underlying hedged item hedging activity affected accumulated comprehensive earnings losses net income taxes years ended december 31 2004 2003 2002 follows millions credit exposure credit risk company exposed credit loss event nonperformance counterparties however company anticipate nonperformance exposure material december 31 2004 fair value aggregate fair value based market quotes companys thirdparty debt december 31 2004 12835 million compared carrying value 12291 million aggregate fair value companys thirdparty debt december 31 2003 13426 million compared carrying value 12919 million see notes 4 8 9 additional disclosures fair value shortterm borrowings longterm debt note 18 contingencies kraft subsidiaries parties variety legal proceedings arising normal course business including cases substantial amounts damages sought results litigation cannot predicted certainty management believes final outcome proceedings material adverse effect companys consolidated financial position results operations cash flows thirdparty guarantees december 31 2004 companys thirdparty guarantees primarily derived acquisition divestiture activities approximated 25 million substantially guarantees expire 2013 1 million expiring 2005 company required perform guarantees event third party fails make contractual payments achieve performance measures company liability 20 million consolidated balance sheet december 31 2004 relating guarantees note 19 quarterly financial data unaudited basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may agree total year 2004 2003 company recorded following pretax charges gains earnings continuing operations item 9item 8 financial statements supplementary data report management internal control financial reporting management company responsible establishing maintaining adequate internal control financial reporting defined rules 13a15f 15d15f securities exchange act 1934 companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance accounting principles generally accepted united states america companys internal control financial reporting includes written policies procedures •pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company •provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance accounting principles generally accepted united states america •provide reasonable assurance receipts expenditures company made accordance authorizations management directors company •provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect consolidated financial statements internal control financial reporting includes controls monitoring internal auditing practices actions taken correct deficiencies identified inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness companys internal control financial reporting december 31 2005 management based assessment criteria effective internal control financial reporting described internal controlintegrated framework issued committee sponsoring organizations treadway commission coso managements assessment included evaluation design companys internal control financial reporting testing operational effectiveness companys internal control financial reporting management reviewed results assessment audit committee companys board directors based assessment management determined december 31 2005 company maintained effective internal control financial reporting pricewaterhousecoopers llp independent registered public accounting firm audited reported consolidated financial statements company included report audited managements assessment effectiveness companys internal control financial reporting december 31 2005 february 7 report independent registered public accounting firm board directors shareholders kraft foods inc completed integrated audits kraft foods incs 2005 2004 consolidated financial statements internal control financial reporting december 31 2005 audit 2003 consolidated financial statements accordance standards public company accounting oversight board united states opinions kraft foods incs 2005 2004 2003 consolidated financial statements internal control financial reporting december 31 2005 based audits presented consolidated financial statements opinion accompanying consolidated balance sheets related consolidated statements earnings shareholders equity cash flows present fairly material respects financial position kraft foods inc subsidiaries december 31 2005 2004 results operations cash flows three years period ended december 31 2005 conformity accounting principles generally accepted united states america financial statements responsibility kraft foods incs management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion internal control financial reporting also opinion managements assessment included report management internal control financial reporting dated february 7 2006 kraft foods inc maintained effective internal control financial reporting december 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion kraft foods inc maintained material respects effective internal control financial reporting december 31 2005 based criteria established internal controlintegrated framework issued coso kraft foods incs management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions managements assessment effectiveness kraft foods incs internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating managements assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp chicago illinois february 7 2006 kraft foods inc subsidiaries consolidated balance sheets december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements earnings years ended december 31 millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements shareholders equity millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements cash flows years ended december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries notes consolidated financial statements note 1 background basis presentation background kraft foods inc kraft incorporated 2000 commonwealth virginia kraft subsidiaries kraft subsidiaries hereinafter referred company engaged manufacture sale packaged foods beverages united states canada europe latin america asia pacific middle east africa prior june 13 2001 company whollyowned subsidiary altria group inc june 13 2001 company completed initial public offering ipo 280000000 shares class common stock price 3100 per share december 31 2005 altria group inc held 983 combined voting power companys outstanding capital stock owned 872 outstanding shares companys capital stock june 2005 company sold substantially sugar confectionery business pretax proceeds approximately 14 billion company reflected results sugar confectionery business prior closing date discontinued operations consolidated statements earnings assets related sugar confectionery business reflected assets discontinued operations held sale consolidated balance sheet december 31 2004 october 2005 company announced effective january 1 2006 canadian business realigned better integrate companys north american business product category beginning first quarter 2006 operating results canadian business reported throughout north american food segments addition first quarter 2006 companys international businesses realigned reflect reorganization announced within europe november 2005 beginning first quarter 2006 operating results companys international businesses reported two revised segmentseuropean union reflect increased management attention reporting companys developing marketsdeveloping markets oceania north asia accordingly prior period segment results restated basis presentation consolidated financial statements include kraft well whollyowned majorityowned subsidiaries investments company exercises significant influence 2050 ownership interest accounted equity method accounting investments company ownership interest less 20 exercise significant influence accounted cost method accounting intercompany transactions balances among krafts subsidiaries eliminated transactions companys businesses altria group inc affiliates included financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities dates financial statements reported amounts net revenues expenses reporting periods significant estimates assumptions include among things pension benefit plan assumptions lives valuation assumptions goodwill intangible assets marketing programs income taxes actual results could differ estimates companys operating subsidiaries generally report yearend results saturday closest end year resulted fiftythree weeks operating results companys consolidated statement earnings year ended december 31 2005 versus fiftytwo weeks years ended december 31 2004 2003 discussed note 13 income taxes classification certain prior years amounts revised conform current years presentation note 2 summary significant accounting policies cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less depreciation amortization goodwill valuation property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years definite life intangible assets amortized estimated useful lives company required conduct annual review goodwill intangible assets potential impairment goodwill impairment testing requires comparison carrying value fair value reporting unit carrying value exceeds fair value goodwill considered impaired amount impairment loss measured difference carrying value implied fair value goodwill determined using discounted cash flows impairment testing nonamortizable intangible assets requires comparison fair value carrying value intangible asset carrying value exceeds fair value intangible asset considered impaired reduced fair value first quarter 2005 company completed annual review goodwill intangible assets impairment charges resulted review however part sale pending sale certain canadian assets two brands company recorded total noncash pretax asset impairment charges 269 million 2005 included impairment goodwill intangible assets 13 million 118 million respectively well 138 million asset writedowns 2004 companys annual review goodwill intangible assets resulted 29 million noncash pretax charge related intangible asset impairment small confectionery business united states certain brands mexico portion charge 12 million recorded asset impairment exit costs consolidated statement earnings remainder charge 17 million included discontinued operations december 31 2005 2004 goodwill reportable segment follows millions intangible assets december 31 2005 2004 follows millions nonamortizable intangible assets consist substantially brand names purchased nabisco acquisition amortizable intangible assets consist primarily certain trademark licenses noncompete agreements amortization expense intangible assets 10 million 11 million 9 million years ended december 31 2005 2004 2003 respectively amortization expense next five years currently estimated approximately 7 million less movement goodwill gross carrying amount intangible assets follows 2004 includes reclassification goodwill certain amounts previously classified indefinite life intangible assets well tax adjustments related nabisco acquisition environmental costs company subject laws regulations relating protection environment company provides expenses associated environmental remediation obligations undiscounted basis amounts probable reasonably estimated accruals adjusted new information develops circumstances change possible quantify certainty potential impact actions regarding environmental remediation compliance efforts company may undertake future opinion management environmental remediation compliance costs taking account recoveries third parties material adverse effect companys consolidated financial position results operations cash flows foreign currency translation company translates results operations foreign subsidiaries using average exchange rates period whereas balance sheet accounts translated using exchange rates end period currency translation adjustments recorded component shareholders equity transaction gains losses recorded consolidated statements earnings significant periods presented guarantees company accounts guarantees accordance financial accounting standards board fasb interpretation 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others interpretation 45 requires disclosure certain guarantees recognition liability fair value obligation qualifying guarantee activities see note 18 contingencies discussion guarantees hedging instruments derivative financial instruments recorded fair value consolidated balance sheets either assets liabilities changes fair value derivatives recorded period either accumulated comprehensive earnings losses earnings depending whether derivative designated effective part hedge transaction type hedge transaction gains losses derivative instruments reported accumulated comprehensive earnings losses reclassified consolidated statement earnings periods operating results affected hedged item cash flows hedging instruments classified manner affected hedged item consolidated statements cash flows impairment longlived assets company reviews longlived assets including amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable company performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use company groups assets liabilities lowest level cash flows separately identifiable impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal income taxes company accounts income taxes accordance statement financial accounting standards sfas 109 accounting income taxes us accounts company included consolidated federal income tax return altria group inc income taxes generally computed separate company basis extent foreign tax credits capital losses credits generated company cannot currently utilized separate company basis utilized altria group incs consolidated federal income tax return benefit recognized calculation companys provision income taxes based companys current estimate benefit calculated approximately 225 million 70 million 100 million years ended december 31 2005 2004 2003 respectively increase 2005 driven primarily dividend repatriations certain legal entity reorganizations company makes payments reimbursed altria group inc tax effects resulting inclusion altria group incs consolidated federal income tax return including current taxes payable net changes tax provisions significant judgment required determining income tax provisions evaluating tax positions company establishes additional provisions income taxes despite belief tax positions fully supportable remain certain positions likely challenged may sustained review tax authorities company evaluates potentially adjusts provisions light changing facts circumstances consolidated tax provision includes impact changes accruals considered appropriate upon closure current future tax audits various jurisdictions significant income tax accrual reversals could continue occur could trigger reimbursements altria group inc inventories stated lower cost market lastin firstout lifo method used cost majority domestic inventories cost inventories principally determined average cost method 2004 fasb issued sfas 151 inventory costs sfas 151 requires abnormal idle facility expense spoilage freight handling costs recognized currentperiod charges addition sfas 151 requires allocation fixed production overhead costs inventories based normal capacity production facility company required adopt provisions sfas 151 prospectively january 1 2006 effect adoption material impact consolidated results operations financial position cash flows marketing costs company promotes products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives advertising costs expensed incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period based principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year revenue recognition company recognizes revenues net sales incentives including shipping handling charges billed customers upon shipment delivery goods title risk loss pass customers shipping handling costs classified part cost sales software costs company capitalizes certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment consolidated balance sheets amortized straightline basis estimated useful lives software exceed five years stockbased compensation company accounts employee stock compensation plans accordance intrinsic valuebased method permitted sfas 123 accounting stockbased compensation resulted compensation cost stock options market value date grant restricted stock rights receive shares stock recorded compensation expense period restriction three years december 31 2005 company stockbased employee compensation plans described fully note 11 stock plans company applies recognition measurement principles accounting principles board opinion 25 accounting stock issued employees related interpretations accounting stock options within plans compensation expense employee stock options reflected net earnings stock options granted plans exercise price equal market value common stock date grant net earnings reported includes pretax compensation expense related restricted stock rights receive shares stock 148 million 106 million 57 million years ended december 31 2005 2004 2003 respectively following table illustrates effect net earnings per share eps company applied fair value recognition provisions sfas 123 measure compensation expense outstanding stock option awards using modified blackscholes methodology years ended december 31 2005 2004 2003 millions except per share data 2004 fasb issued sfas 123 revised 2004 sharebased payment sfas 123r sfas 123r requires companies measure compensation cost sharebased payments fair value company adopt new standard prospectively january 1 2006 adoption sfas 123r material impact consolidated financial position results operations cash flows note 3 asset impairment exit implementation costs restructuring program january 2004 company announced threeyear restructuring program objectives leveraging companys global scale realigning lowering cost structure optimizing capacity utilization part program company anticipates closing sale 20 plants elimination approximately 6000 positions 2004 2006 company expects incur approximately 12 billion pretax charges reflecting asset disposals severance implementation costs including 297 million 641 million incurred 2005 2004 respectively approximately 60 pretax charges expected require cash payments addition january 2006 company announced plans continue restructuring efforts beyond originally contemplated additional pretax charges anticipated 25 billion 2006 2009 approximately 16 billion expected require cash payments charges result anticipated closure 20 additional facilities elimination approximately 8000 additional positions initiatives expanded program include additional organizational streamlining facility closures entire restructuring program expected ultimately result 37 billion pretax charges closure 40 facilities elimination approximately 14000 positions approximately 23 billion 37 billion pretax charges expected require cash payments restructuring costs 2005 2004 pretax charges restructuring program 210 million 583 million respectively recorded asset impairment exit costs consolidated statements earnings pretax charges resulted announcement closing 19 plants since january 2004 6 occurred 2005 termination comanufacturing agreements 2004 continuation number workforce reduction programs approximately 170 million pretax charges incurred 2005 require cash payments pretax restructuring liability activity years ended december 31 2005 2004 follows severance costs schedule relate workforce reduction programs include cost related benefits specific programs announced 2004 2005 part overall restructuring program result elimination approximately 5500 positions december 31 2005 approximately 4900 positions eliminated asset writedowns relate impairment assets caused plant closings related activity costs incurred relate primarily contract termination costs associated plant closings termination comanufacturing leasing agreements severance charges taken assets relate incremental pension costs reduce prepaid pension assets implementation costs 2005 2004 company recorded pretax implementation costs associated restructuring program costs include discontinuance certain product lines incremental costs related integration streamlining functions closure facilities substantially implementation costs incurred 2005 require cash payments costs recorded consolidated statements earnings follows asset impairment charges 2005 company sold fruit snacks assets approximately 30 million incurred pretax asset impairment charge 93 million recognition sale december 2005 company reached agreements sell certain assets canada small biscuit brand us transactions expected close first quarter 2006 company incurred pretax asset impairment charges 176 million recognition pending sales charges include writeoff associated intangible assets recorded asset impairment exit costs consolidated statement earnings 2005 company completed annual review goodwill intangible assets charges resulted review 2004 company recorded noncash pretax charges 29 million related intangible asset impairment small confectionery business united states certain brands mexico portion charge 17 million reclassified earnings discontinued operations consolidated statement earnings fourth quarter 2004 remaining charge recorded asset impairment exit costs consolidated statement earnings november 2004 following discussions companys joint venture partner turkey independent valuation equity investment determined permanent decline value occurred valuation resulted 47 million noncash pretax charge recorded marketing administration research costs consolidated statement earnings 2005 companys interest joint venture sold june 2005 company sold substantially sugar confectionery business approximately 14 billion 2004 result anticipated transaction company recorded noncash asset impairments totaling 107 million charge included loss discontinued operations consolidated statement earnings december 2004 company announced sale yogurt assets closed first quarter 2005 2004 result anticipated transaction company recorded asset impairments totaling 8 million charge recorded asset impairment exit costs consolidated statement earnings total pretax asset impairment exit implementation costs discussed years ended december 31 2005 2004 included operating companies income following segments 2003 company recorded pretax charge 6 million asset impairment exit costs related closure nordic snacks plant charge included operating companies income europe middle east africa segment note 4 related party transactions altria group incs subsidiary altria corporate services inc provides company various services including planning legal treasury auditing insurance human resources office secretary corporate affairs information technology aviation tax services billings services based cost altria corporate services inc provide services management fee 237 million 310 million 318 million years ended december 31 2005 2004 2003 respectively company performed similar cost various functions 2005 previously provided altria corporate services inc resulting lower service charge 2005 costs paid altria corporate services inc monthly although cost services cannot quantified standalone basis management assessed billings reasonable based level support provided altria corporate services inc reflect services provided cost nature services reviewed annually companys audit committee comprised independent directors effects transactions included operating cash flows companys consolidated statements cash flows 2005 company repatriated certain foreign earnings part altria group incs dividend repatriation plan provisions american jobs creation act increased taxes repatriation 21 million reimbursed altria group inc reimbursement reported companys financial statements increase additional paidin capital december 2005 company purchased airport hangar certain personal property located hangar milwaukee wisconsin altria corporate services inc aggregate purchase price approximately 33 million december 2004 company purchased two corporate aircraft altria corporate services inc aggregate purchase price approximately 47 million company also entered aircraft management agreement altria corporate services inc december 2004 pursuant altria corporate services inc agreed perform aircraft management pilot services maintenance aviation services company 2004 altria corporate services inc provided company certain financial services including payroll accounts payable processing cost approximately 25 million included 310 million charge shown 2005 company performed functions similar cost december 31 2005 2004 company shortterm amounts payable altria group inc 652 million 227 million respectively amounts payable altria group inc generally include accrued dividends taxes service fees interest intercompany borrowings based applicable london interbank offered rate fair values companys shortterm amounts due altria group inc affiliates approximate carrying amounts note 5 divestitures discontinued operations june 2005 company sold substantially sugar confectionery business pretax proceeds approximately 14 billion sale included life savers creme savers altoids trolli sugus brands company reflected results sugar confectionery business prior closing date discontinued operations consolidated statements earnings years presented pursuant sugar confectionery sale agreement company agreed provide certain transition supply services buyer service arrangements primarily terms one year less exception one supply arrangement term three years expected cash flow supply arrangement significant summary results operations sugar confectionery business follows loss sale discontinued operations year ended december 31 2005 related largely taxes transaction assets sugar confectionery business reflected assets discontinued operations held sale consolidated balance sheet december 31 2004 follows millions 2005 company sold fruit snacks assets incurred pretax asset impairment charge 93 million recognition sale additionally 2005 company sold uk desserts assets us yogurt assets small business colombia minor trademark mexico small equity investment turkey aggregate proceeds received sales 238 million company recorded pretax gains 108 million december 2005 company announced sale certain canadian assets small us biscuit brand incurring pretax asset impairment charges 176 million recognition sales transactions expected close first quarter 2006 2004 company sold brazilian snack nuts business trademarks associated candy business norway aggregate proceeds received sale businesses 18 million pretax losses 3 million recorded 2003 company sold european rice business branded fresh cheese business italy aggregate proceeds received sales businesses 96 million company recorded pretax gains 31 million operating results divestitures discussed aggregate material companys consolidated financial position results operations cash flows periods presented note 6 acquisitions 2004 company acquired usbased beverage business total cost 137 million 2003 company acquired biscuits business egypt trademarks associated small usbased natural foods business smaller acquisitions total cost 98 million effects acquisitions material companys consolidated financial position results operations cash flows periods presented note 7 inventories cost approximately 40 37 inventories 2005 2004 respectively determined using lifo method stated lifo amounts inventories approximately 71 million 81 million higher current cost inventories december 31 2005 2004 respectively note 8 shortterm borrowings borrowing arrangements december 31 2005 2004 companys shortterm borrowings related average interest rates consisted following fair values companys shortterm borrowings december 31 2005 2004 based upon current market interest rates approximate amounts disclosed company maintains revolving credit facilities historically used support issuance commercial paper april 2005 company terminated 20 billion multiyear revolving credit facility expiring july 2006 25 billion 364day revolving credit facility expiring july 2005 replaced new 45 billion multiyear revolving credit facility expires april 2010 december 31 2005 credit line company related activity follows billions dollars companys revolving credit facility sole use requires maintenance minimum net worth 200 billion december 31 2005 companys net worth 296 billion company expects continue meet covenant revolving credit facility include financial tests credit rating triggers provisions could require posting collateral addition certain international subsidiaries kraft maintain credit lines meet shortterm working capital needs international businesses credit lines amounted approximately 13 billion december 31 2005 sole use companys international businesses borrowings lines amounted approximately 400 million 150 million december 31 2005 2004 respectively note 9 longterm debt december 31 2005 2004 companys longterm debt consisted following aggregate maturities longterm debt follows millions based market quotes available interest rates currently available company issuance debt similar terms remaining maturities aggregate fair value companys longterm debt including current portion longterm debt 9945 million 11017 million december 31 2005 2004 respectively note 10 capital stock companys articles incorporation authorize 30 billion shares class common stock 20 billion shares class b common stock 500 million shares preferred stock shares class common stock issued repurchased outstanding follows kraft repurchases class common stock open market transactions december 2004 company began 15 billion twoyear share repurchase program 2005 company repurchased 392 million shares class common stock cost 12 billion average price 3065 per share december 31 2005 company repurchased 406 million shares class common stock 15 billion authority aggregate cost 125 billion december 2004 kraft completed multiyear 700 million class common stock repurchase program acquiring 21718847 class shares average price 3223 per share december 2003 kraft completed 500 million class common stock repurchase program acquiring 15308458 class shares average price 3266 per share class b common shares issued outstanding december 31 2005 2004 118 billion altria group inc holds 2765 million class common shares class b common shares december 31 2005 preferred shares issued outstanding class common shares entitled one vote class b common shares entitled ten votes therefore altria group inc holds 983 combined voting power companys outstanding capital stock december 31 2005 december 31 2005 170243228 shares common stock reserved stock options stock awards note 11 stock plans 2005 companys board directors adopted stockholders approved kraft 2005 performance incentive plan 2005 plan 2005 plan replaced companys 2001 performance incentive plan 2001 plan 2005 plan company may grant eligible employees awards stock options stock appreciation rights restricted stock restricted deferred stock units awards based companys class common stock well performancebased annual longterm incentive awards maximum 150 million shares companys class common stock may issued 2005 plan 45 million shares may awarded restricted stock addition company may grant 500000 shares class common stock members board directors fulltime employees company altria group inc subsidiaries kraft directors plan 2001 directors plan shares available granted 2005 plan 2001 directors plan december 31 2005 149879210 439367 respectively restricted shares available grant 2005 plan december 31 2005 44879210 company applies intrinsic valuebased methodology accounting various stock plans accordingly compensation expense recognized restricted stock awards 2004 fasb issued sfas 123 revised 2004 sharebased payment sfas 123r sfas 123r requires companies measure compensation cost sharebased payments fair value company adopt new standard prospectively january 1 2006 adoption sfas 123r material impact consolidated financial position results operations cash flows stock option activity follows years ended december 31 2003 2004 2005 following table summarizes status companys stock options outstanding exercisable december 31 2005 prior ipo certain employees company participated altria group incs stock compensation plans altria group inc intend issue additional altria group inc stock compensation companys employees except reloads previously issued options altria group inc accounts plans accordance intrinsic valuebased method permitted sfas 123 accounting stockbased compensation result compensation cost stock options companys employees held options purchase following number shares altria group inc stock december 31 2005 december 31 2004 2003 companys employees held options purchase following number shares altria group inc stock 29487149 shares average exercise price 3838 per share december 31 2004 39241651 shares average exercise price 3725 per share december 31 2003 amounts following exercisable date 29033020 average exercise price 3819 per share december 31 2004 39025325 average exercise price 3719 per share december 31 2003 compensation cost stock option awards kraft plans altria group inc plans determined using fair value grant date companys net earnings basic diluted eps would 2625 million 156 155 respectively year ended december 31 2005 2658 million 156 155 respectively year ended december 31 2004 3464 million 201 200 respectively year ended december 31 2003 foregoing impact compensation cost determined using modified blackscholes methodology following assumptions company may grant shares restricted stock rights receive shares stock eligible employees giving instances rights stockholders except may sell assign pledge otherwise encumber shares rights shares rights subject forfeiture certain employment conditions met 2005 2004 2003 company granted approximately 42 million 41 million 37 million restricted class shares respectively eligible usbased employees 2005 2004 2003 also issued eligible nonus employees rights receive approximately 18 million 19 million 16 million class equivalent shares respectively market value per restricted share right 3332 3223 3656 dates 2005 2004 2003 grants respectively december 31 2005 restrictions shares rights net forfeitures lapse follows 20064140552 shares 20075079097 shares 20085596297 shares 2009100000 shares 201069170 shares 2012100000 shares fair value shares restricted stock rights receive shares stock date grant amortized expense ratably restriction period company recorded compensation expense related restricted stock rights 148 million 106 million 57 million years ended december 31 2005 2004 2003 respectively unamortized portion reported consolidated balance sheets reduction shareholders equity 202 million 190 million december 31 2005 2004 respectively note 12 earnings per share basic diluted eps continuing discontinued operations calculated using following incremental shares assumed conversions calculated number shares would issued net number shares could purchased marketplace cash received upon stock option exercise case restricted stock rights number shares corresponding unamortized compensation expense 2005 2004 number stock options excluded calculation weighted average shares diluted eps effects antidilutive ie cash would received upon exercise greater average market price stock period immaterial 2003 computation 18 million class common stock options excluded calculation weighted average shares diluted eps effects antidilutive note 13 income taxes earnings continuing operations income taxes minority interest provision income taxes consisted following years ended december 31 2005 2004 2003 loss discontinued operations year ended december 31 2005 includes additional tax expense 280 million sale sugar confectionery business loss discontinued operations year ended december 31 2004 included deferred income tax benefit 43 million december 31 2005 applicable united states federal income taxes foreign withholding taxes provided approximately 36 billion accumulated earnings foreign subsidiaries expected permanently reinvested october 2004 american jobs creation act jobs act signed law jobs act includes deduction 85 certain foreign earnings repatriated 2005 company repatriated approximately 500 million earnings provisions jobs act deferred taxes previously provided portion dividends remitted reversal deferred taxes offset tax costs repatriate earnings resulted net tax reduction 28 million consolidated income tax provision 2005 majority recorded second quarter jobs act also provides tax relief us domestic manufacturers providing tax deduction related percentage lesser qualified production activities income taxable income deduction 3 2005 increases 9 2010 accordance sfas 109 company recognize benefits year earned tax benefit 2005 approximately 25 million effective income tax rate pretax earnings differed us federal statutory rate following reasons years ended december 31 2005 2004 2003 tax rate 2005 includes settlement outstanding us tax claim 24 million second quarter 82 million resolution outstanding items companys international operations majority first quarter 33 million tax impacts associated sale us biscuit brand 2005 rate also includes 53 million aggregate benefit domestic manufacturers deduction provision dividend repatriation provision jobs act tax provision 2004 includes 81 million favorable resolution outstanding tax item majority occurred third quarter 2004 reversal 35 million tax accruals longer required due tax events occurred first quarter 2004 company regularly audited federal state foreign tax authorities audits various stages given time company anticipates several domestic foreign audits close 2006 favorable settlements tax contingency reserves excess additional assessed liabilities reversed time audits close tax effects temporary differences gave rise deferred income tax assets liabilities consisted following december 31 2005 2004 conform current years presentation amounts shown december 31 2004 revised previously reported amounts reflect state deferred tax amounts previously included liabilities consolidated balance sheet result deferred income tax liabilities december 31 2004 consolidated balance sheet increased 618 million 5850 million 6468 million corresponding reduction liabilities note 14 segment reporting company manufactures markets packaged food products consisting principally beverages cheese snacks convenient meals various packaged grocery products kraft manages reports operating results two units kraft north america commercial kraft international commercial reportable segments kraft north america commercial organized managed principally product category kraft north america commercials segments us beverages us cheese canada north america foodservice us convenient meals us grocery us snacks cereals kraft international commercials operations organized managed geographic location kraft international commercials segments europe middle east africa latin america asia pacific october 2005 company announced effective january 1 2006 canadian business realigned better integrate companys north american business product category beginning first quarter 2006 operating results canadian business reported throughout north american food segments addition first quarter 2006 companys international businesses realigned reflect reorganization announced within europe november 2005 beginning first quarter 2006 operating results companys international businesses reported two revised segmentseuropean union reflect increased management attention reporting companys developing marketsdeveloping markets oceania north asia accordingly prior period segment results restated companys management uses operating companies income defined operating income general corporate expenses amortization intangibles evaluate segment performance allocate resources management believes appropriate disclose measure help investors analyze business performance trends various business segments interest debt expense net provision income taxes centrally managed accordingly items presented segment since included measure segment profitability reviewed management companys assets principally united states europe managed geographically accounting policies segments described note 2 summary significant accounting policies segment data follows companys largest customer walmart stores inc affiliates accounted approximately 14 12 consolidated net revenues 2005 2004 2003 respectively net revenues occurred primarily united states across segments net revenues consumer sector include separation canada north america foodservice sector components follows years ended december 31 2005 2004 2003 items affecting comparability companys continuing operating results follows •asset impairment exit implementation costsas discussed note 3 asset impairment exit implementation costs company recorded charges items 566 million 700 million 6 million years ended december 31 2005 2004 2003 respectively see note 3 breakdown pretax charges segment •gains losses sales businessesduring 2005 company sold fruit snacks assets uk desserts assets us yogurt assets small business colombia minor trademark mexico small equity investment turkey aggregate pretax gains 108 million 2004 company sold brazilian snack nuts business trademarks associated candy business norway aggregate pretax losses 3 million 2003 company sold european rice business branded fresh cheese business italy aggregate pretax gains 31 million pretax gains losses included operating companies income following segments see notes 5 6 respectively regarding divestitures acquisitions geographic data net revenues total assets long lived assets consist non current assets goodwill intangible assets net prepaid pension assets follows note 15 benefit plans company sponsors noncontributory defined benefit pension plans covering substantially us employees pension coverage employees companys nonus subsidiaries provided extent deemed appropriate separate plans many governed local statutory requirements addition companys us canadian subsidiaries provide health care benefits substantially retired employees health care benefits retirees outside united states canada generally covered local government plans plan assets benefit obligations companys us canadian pension plans measured december 31 year nonus pension plans measured september 30 year benefit obligations companys postretirement plans measured december 31 year pension plans obligations funded status benefit obligations plan assets funded status companys pension plans december 31 2005 2004 follows combined us nonus pension plans resulted net prepaid pension asset 2385 million 2404 million december 31 2005 2004 respectively amounts recognized companys consolidated balance sheets december 31 2005 2004 prepaid pension assets 3617 million 3569 million respectively plans plan assets exceeded accumulated benefit obligations liabilities 1232 million 1165 million respectively plans accumulated benefit obligations exceeded plan assets us nonus pension plans change additional minimum liability 2005 2004 follows accumulated benefit obligation represents benefits earned date us pension plans 5580 million 5327 million december 31 2005 2004 respectively accumulated benefit obligation nonus pension plans 3494 million 3251 million december 31 2005 2004 respectively december 31 2005 2004 certain companys us pension plans underfunded projected benefit obligations accumulated benefit obligations fair value plan assets 268 million 211 million 14 million respectively 2005 260 million 188 million 11 million respectively 2004 majority relate plans salaried employees cannot funded irs regulations certain nonus plans accumulated benefit obligations excess plan assets projected benefit obligation accumulated benefit obligation fair value plan assets 2134 million 1993 million 1088 million respectively december 31 2005 2012 million 1877 million 950 million respectively december 31 2004 following weightedaverage assumptions used determine companys benefit obligations plans december 31 companys 2005 year end us canadian plans discount rates developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations 2005 year end discount rates companys nonus plans developed local bond indices match local benefit obligations closely possible components net periodic benefit cost net periodic pension cost income consisted following years ended december 31 2005 2004 2003 2005 employees left company workforce reduction programs resulting settlement losses 10 million us plans addition retiring employees elected lumpsum payments resulting settlement losses 73 million 41 million 51 million 2005 2004 2003 respectively nonus plant closures early retirement benefits resulted curtailment settlement losses 25 million 7 million 2005 2004 respectively following weightedaverage assumptions used determine companys net pension cost years ended december 31 companys expected rate return plan assets determined plan assets historical longterm investment performance current asset allocation estimates future longterm returns asset class kraft certain subsidiaries sponsor employee savings plans company contributes plans cover certain salaried nonunion union employees companys contributions costs determined matching employee contributions defined plans amounts charged expense defined contribution plans totaled 94 million 92 million 84 million 2005 2004 2003 respectively plan assets percentage fair value pension plan assets december 31 2005 2004 follows companys investment strategy based expectation equity securities outperform debt securities long term accordingly composition companys us plan assets broadly characterized 7030 allocation equity debt securities strategy utilizes indexed us equity securities actively managed international equity securities actively managed investment grade debt securities constitute 80 debt securities lesser allocations high yield international debt securities plans outside us investment strategy subject local regulations assetliability profiles plans individual country specific circumstances result level equity exposure typically less us plans aggregate actual asset allocations nonus plans virtually identical respective asset policy targets company attempts mitigate investment risk rebalancing equity debt asset classes companys contributions monthly benefit payments made company presently makes plans make contributions extent generate excise tax liability order maintain plan assets excess accumulated benefit obligation funded us nonus plans currently company anticipates making contributions approximately 140 million 2006 us plans approximately 106 million 2006 nonus plans based current tax law however estimates subject change result many factors including changes tax benefit laws well asset performance significantly assumed longterm rate return pension assets significant changes interest rates estimated future benefit payments companys pension plans december 31 2005 follows postretirement benefit plans net postretirement health care costs consisted following years ended december 31 2005 2004 2003 december 2003 united states enacted law medicare prescription drug improvement modernization act 2003 act establishes prescription drug benefit medicare known medicare part federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare part may 2004 fasb issued fasb staff position 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 fsp 1062 fsp 1062 requires companies account effect subsidy benefits attributable past service actuarial experience gain reduction service cost component net postretirement health care costs amounts attributable current service benefit provided least actuarially equivalent medicare part company adopted fsp 1062 third quarter 2004 impact 2005 2004 reduction pretax net postretirement health care costs increase net earnings amounts table reflect following benefits addition july 1 2004 company reduced accumulated postretirement benefit obligation subsidy related benefits attributed past service 315 million decreased unrecognized actuarial losses amount following weightedaverage assumptions used determine companys net postretirement cost years ended december 31 2006 discount rate used determine companys net postretirement cost 560 us plans 500 canadian plans health care cost trend rate 800 us plans 900 canadian plans companys postretirement health care plans funded changes accumulated benefit obligation net amount accrued december 31 2005 2004 follows current portion companys accrued postretirement health care costs 208 million 217 million december 31 2005 2004 respectively included accrued liabilities consolidated balance sheets following weightedaverage assumptions used determine companys postretirement benefit obligations december 31 assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects december 31 2005 companys estimated future benefit payments postretirement health care plans december 31 2005 follows postemployment benefit plans kraft certain affiliates sponsor postemployment benefit plans covering substantially salaried certain hourly employees cost plans charged expense working life covered employees net postemployment costs consisted following years ended december 31 2005 2004 2003 previously discussed note 3 asset impairment exit implementation costs company announced several workforce reduction programs 2005 2004 part overall restructuring program cost programs 139 million 167 million 2005 2004 respectively included expense companys postemployment plans funded changes benefit obligations plans december 31 2005 2004 follows accumulated benefit obligation determined using assumed ultimate annual turnover rate 03 2005 2004 assumed compensation cost increases 40 2005 2004 assumed benefits defined respective plans postemployment costs arising actions offer employees benefits excess specified respective plans charged expense incurred note 16 additional information amounts shown continuing operations minimum rental commitments noncancelable operating leases effect december 31 2005 follows millions note 17 financial instruments derivative financial instruments company operates globally manufacturing sales facilities various locations around world utilizes certain financial instruments manage foreign currency commodity exposures derivative financial instruments used company principally reduce exposures market risks resulting fluctuations foreign exchange rates commodity prices creating offsetting exposures company party leveraged derivatives policy use financial instruments speculative purposes financial instruments qualifying hedge accounting must maintain specified level effectiveness hedging instrument item hedged inception throughout hedged period company formally documents nature relationships hedging instruments hedged items well riskmanagement objectives strategies undertaking various hedge transactions method assessing hedge effectiveness additionally hedges forecasted transactions significant characteristics expected terms forecasted transaction must specifically identified must probable forecasted transaction occur deemed probable forecasted transaction occur gain loss would recognized earnings currently company uses forward foreign exchange contracts foreign currency options mitigate exposure changes exchange rates thirdparty intercompany actual forecasted transactions substantially companys derivative financial instruments effective hedges primary currencies company exposed based size location businesses include euro swiss franc british pound canadian dollar december 31 2005 2004 company foreign exchange option forward contracts aggregate notional amounts 22 billion 29 billion respectively effective portion unrealized gains losses associated forward option contracts deferred component accumulated comprehensive earnings losses underlying hedged transactions reported companys consolidated statement earnings company exposed price risk related forecasted purchases certain commodities used raw materials businesses accordingly company uses commodity forward contracts cash flow hedges primarily coffee cocoa commodity futures options also used hedge price certain commodities including milk coffee cocoa wheat corn sugar soybean oil general commodity forward contracts qualify normal purchase exception sfas 133 therefore subject provisions sfas 133 december 31 2005 2004 company net long commodity positions 521 million 443 million respectively unrealized gains losses net commodity positions immaterial december 31 2005 2004 effective portion unrealized gains losses commodity futures option contracts deferred component accumulated comprehensive earnings losses recognized component cost sales companys consolidated statement earnings related inventory sold ineffectiveness related cash flow hedges material years ended december 31 2005 2004 2003 december 31 2005 company hedging forecasted transactions periods exceeding next fifteen months december 31 2005 company estimates derivative losses approximately 2 million net income taxes reported accumulated comprehensive earnings losses reclassified consolidated statement earnings within next twelve months derivative gains losses reported accumulated comprehensive earnings losses result qualifying hedging activity transfers gains losses accumulated comprehensive earnings losses earnings offset corresponding gains losses underlying hedged item hedging activity affected accumulated comprehensive earnings losses net income taxes years ended december 31 2005 2004 2003 follows millions credit exposure credit risk company exposed credit loss event nonperformance counterparties however company anticipate nonperformance exposure material december 31 2005 fair value aggregate fair value based market quotes companys thirdparty debt december 31 2005 10750 million compared carrying value 10548 million aggregate fair value companys thirdparty debt december 31 2004 12835 million compared carrying value 12291 million see notes 4 8 9 additional disclosures fair value shortterm borrowings longterm debt note 18 contingencies kraft subsidiaries parties variety legal proceedings arising normal course business including cases substantial amounts damages sought results litigation cannot predicted certainty management believes final outcome proceedings material adverse effect companys consolidated financial position results operations cash flows thirdparty guarantees december 31 2005 companys thirdparty guarantees primarily derived acquisition divestiture activities approximated 27 million substantially guarantees expire 2013 14 million expiring 2006 company required perform guarantees event third party fails make contractual payments achieve performance measures company liability 17 million consolidated balance sheet december 31 2005 relating guarantees note 19 quarterly financial data unaudited basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may agree total year 2005 2004 company recorded following pretax charges gains earnings continuing operations discussed note 13 income taxes kraft recognized income tax benefits consolidated statements earnings 2005 2004 result various tax events including benefits earned provisions american jobs creation act note 20 subsequent event january 2006 company announced plans continue restructuring efforts beyond originally contemplated see note 3 asset impairment exit implementation costs additional pretax charges anticipated 25 billion 2006 2009 approximately 16 billion expected require cash payments charges result anticipated closure 20 additional facilities elimination approximately 8000 additional positions initiatives expanded program include additional organizational streamlining facility closures entire restructuring program expected ultimately result 37 billion pretax charges closure 40 facilities elimination approximately 14000 positions approximately 23 billion 37 billion pretax charges expected require cash payments item 9item 8 financial statements supplementary data report management internal control financial reporting management company responsible establishing maintaining adequate internal control financial reporting defined rules 13a15f 15d15f securities exchange act 1934 companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance accounting principles generally accepted united states america companys internal control financial reporting includes written policies procedures •pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company •provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance accounting principles generally accepted united states america •provide reasonable assurance receipts expenditures company made accordance authorizations management directors company •provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect consolidated financial statements internal control financial reporting includes controls monitoring internal auditing practices actions taken correct deficiencies identified inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness companys internal control financial reporting december 31 2006 management based assessment criteria effective internal control financial reporting described internal controlintegrated framework issued committee sponsoring organizations treadway commission coso managements assessment included evaluation design companys internal control financial reporting testing operational effectiveness companys internal control financial reporting management reviewed results assessment audit committee companys board directors based assessment management determined december 31 2006 company maintained effective internal control financial reporting pricewaterhousecoopers llp independent registered public accounting firm audited reported consolidated financial statements company included report audited managements assessment effectiveness companys internal control financial reporting december 31 2006 february 5 report independent registered public accounting firm board directors shareholders kraft foods inc completed integrated audits kraft foods incs consolidated financial statements internal control financial reporting december 31 2006 accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements opinion accompanying consolidated balance sheets related consolidated statements earnings shareholders equity cash flows present fairly material respects financial position kraft foods inc subsidiaries december 31 2006 2005 results operations cash flows three years period ended december 31 2006 conformity accounting principles generally accepted united states america financial statements responsibility kraft foods incs management responsibility express opinion financial statements based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion discussed note 15 consolidated financial statements kraft foods inc changed manner accounts pension postretirement postemployment plans fiscal 2006 internal control financial reporting also opinion managements assessment included report management internal control financial reporting dated february 5 2007 kraft foods inc maintained effective internal control financial reporting december 31 2006 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion kraft foods inc maintained material respects effective internal control financial reporting december 31 2006 based criteria established internal controlintegrated framework issued coso kraft foods incs management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions managements assessment effectiveness kraft foods incs internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating managements assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp chicago illinois february 5 2007 kraft foods inc subsidiaries consolidated balance sheets december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements earnings years ended december 31 millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements shareholders equity millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements cash flows years ended december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries notes consolidated financial statements note 1 background basis presentation background kraft foods inc kraft incorporated 2000 commonwealth virginia kraft subsidiaries kraft subsidiaries hereinafter referred company engaged manufacture sale packaged foods beverages united states canada europe latin america asia pacific middle east africa prior june 13 2001 company whollyowned subsidiary altria group inc june 13 2001 company completed initial public offering ipo 280000000 shares class common stock price 3100 per share december 31 2006 altria group inc held 985 combined voting power companys outstanding capital stock owned 890 outstanding shares companys capital stock discussed note 20 subsequent event january 31 2007 altria group incs board directors approved taxfree distribution stockholders interest company june 2005 company sold substantially sugar confectionery business pretax proceeds approximately 14 billion company reflected results sugar confectionery business prior closing date discontinued operations consolidated statements earnings october 2005 company announced effective january 1 2006 canadian business would realigned better integrate companys north american business product category beginning first quarter 2006 operating results canadian business reported throughout north american food segments addition first quarter 2006 companys international businesses realigned reflect reorganization announced within europe november 2005 two revised international segments reflected consolidated financial statements notes european union developing markets oceania north asia latter reflect companys increased management focus developing markets accordingly prior period segment results restated basis presentation consolidated financial statements include kraft well whollyowned majorityowned subsidiaries investments company exercises significant influence 2050 ownership interest accounted equity method accounting investments company ownership interest less 20 exercise significant influence accounted cost method accounting intercompany transactions balances among krafts subsidiaries eliminated transactions companys businesses altria group inc affiliates included financial statements preparation financial statements conformity accounting principles generally accepted united states america requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities dates financial statements reported amounts net revenues expenses reporting periods significant estimates assumptions include among things pension benefit plan assumptions lives valuation assumptions goodwill intangible assets marketing programs income taxes actual results could differ estimates companys operating subsidiaries generally report yearend results saturday closest end year resulted fiftythree weeks operating results companys consolidated statement earnings year ended december 31 2005 versus fiftytwo weeks years ended december 31 2006 2004 classification certain prior year balance sheet amounts related pension plans reclassified conform current years presentation note 2 summary significant accounting policies cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less depreciation amortization goodwill valuation property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years definite life intangible assets amortized estimated useful lives company required conduct annual review goodwill intangible assets potential impairment goodwill impairment testing requires comparison carrying value fair value reporting unit carrying value exceeds fair value goodwill considered impaired amount impairment loss measured difference carrying value implied fair value goodwill determined using discounted cash flows impairment testing nonamortizable intangible assets requires comparison fair value carrying value intangible asset carrying value exceeds fair value intangible asset considered impaired reduced fair value first quarter 2006 company completed annual review goodwill intangible assets recorded noncash pretax charges 24 million related intangible asset impairment biscuits assets egypt hot cereal assets united states additionally 2006 part sale pet snacks brand assets company recorded noncash pretax asset impairment charges 86 million included writeoff portion associated goodwill intangible assets 25 million 55 million respectively well 6 million asset writedowns january 2007 company announced sale hot cereal assets trademarks recognition anticipated sale company recorded pretax asset impairment charge 69 million 2006 assets included writeoff portion associated goodwill intangible assets 15 million 52 million respectively well 2 million asset writedowns first quarter 2005 company completed annual review goodwill intangible assets impairment charges resulted review however part sale certain canadian assets two brands company recorded total noncash pretax asset impairment charges 269 million 2005 included impairment goodwill intangible assets 13 million 118 million respectively well 138 million asset writedowns december 31 2006 2005 goodwill reportable segment follows millions intangible assets december 31 2006 2005 follows millions nonamortizable intangible assets consist substantially brand names purchased nabisco acquisition amortizable intangible assets consist primarily certain trademark licenses noncompete agreements amortization expense intangible assets 7 million 10 million 11 million years ended december 31 2006 2005 2004 respectively amortization expense next five years currently estimated approximately 10 million less movement goodwill gross carrying amount intangible assets follows increase goodwill intangible assets acquisitions related preliminary allocations purchase price companys acquisition certain united biscuits operations nabisco trademarks discussed note 6 acquisitions allocations based upon preliminary estimates assumptions subject revision appraisals finalized expected occur first half 2007 environmental costs company subject laws regulations relating protection environment company provides expenses associated environmental remediation obligations undiscounted basis amounts probable reasonably estimated accruals adjusted new information develops circumstances change possible quantify certainty potential impact actions regarding environmental remediation compliance efforts company may undertake future opinion management environmental remediation compliance costs taking account recoveries third parties material adverse effect companys consolidated financial position results operations cash flows foreign currency translation company translates results operations foreign subsidiaries using average exchange rates period whereas balance sheet accounts translated using exchange rates end period currency translation adjustments recorded component shareholders equity transaction gains losses recorded consolidated statements earnings significant periods presented guarantees company accounts guarantees accordance financial accounting standards board fasb interpretation 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others interpretation 45 requires disclosure certain guarantees recognition liability fair value obligation qualifying guarantee activities see note 18 contingencies discussion guarantees hedging instruments derivative financial instruments recorded fair value consolidated balance sheets either assets liabilities changes fair value derivatives recorded period either accumulated comprehensive earnings losses earnings depending whether derivative designated effective part hedge transaction type hedge transaction gains losses derivative instruments reported accumulated comprehensive earnings losses reclassified consolidated statement earnings periods operating results affected hedged item cash flows hedging instruments classified manner affected hedged item consolidated statements cash flows impairment longlived assets company reviews longlived assets including amortizable intangible assets impairment whenever events changes business circumstances indicate carrying amount assets may fully recoverable company performs undiscounted operating cash flow analyses determine impairment exists purposes recognition measurement impairment assets held use company groups assets liabilities lowest level cash flows separately identifiable impairment determined exist related impairment loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal 2006 company recorded noncash pretax asset impairment charges 245 million related tassimo hot beverage business charges included asset impairment exit costs consolidated statement earnings income taxes company accounts income taxes accordance statement financial accounting standards sfas 109 accounting income taxes us accounts company included consolidated federal income tax return altria group inc income taxes generally computed separate company basis extent foreign tax credits capital losses credits generated company cannot currently utilized separate company basis utilized altria group incs consolidated federal income tax return benefit recognized calculation companys provision income taxes based companys current estimate benefit calculated approximately 195 million 225 million 70 million years ended december 31 2006 2005 2004 respectively amounts 2005 2006 include dividend repatriations impact certain legal entity reorganizations company makes payments reimbursed altria group inc tax effects resulting inclusion altria group incs consolidated federal income tax return including current taxes payable net changes tax provisions company assessing opportunities mitigate loss tax benefits upon altria group incs distribution kraft shares currently estimates annual amount lost tax benefits range 50 million 75 million significant judgment required determining income tax provisions evaluating tax positions company establishes additional provisions income taxes despite belief existing tax positions fully supportable remain certain positions likely challenged may sustained review tax authorities company evaluates potentially adjusts provisions light changing facts circumstances consolidated tax provision includes impact changes accruals deemed necessary july 2006 fasb issued fasb interpretation 48 accounting uncertainty income taxesan interpretation fasb statement 109 fin 48 become effective company january 1 2007 interpretation prescribes recognition threshold measurement attribute financial statement recognition measurement tax positions taken expected taken tax return benefits recognized tax position must morelikelythannot sustained upon examination taxing authorities amount recognized measured largest amount benefit greater 50 percent likely realized upon ultimate settlement adoption fin 48 result increase shareholders equity january 1 2007 approximately 200 million 225 million inventories stated lower cost market lastin firstout lifo method used cost majority domestic inventories cost inventories principally determined average cost method company adopted provisions sfas 151 inventory costs prospectively january 1 2006 sfas 151 requires abnormal idle facility expense spoilage freight handling costs recognized currentperiod charges addition sfas 151 requires allocation fixed production overhead costs inventories based normal capacity production facility effect adoption material impact companys consolidated results operations financial position cash flows marketing costs company promotes products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives advertising costs expensed incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period based principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year revenue recognition company recognizes revenues net sales incentives including shipping handling charges billed customers upon shipment delivery goods title risk loss pass customers shipping handling costs classified part cost sales software costs company capitalizes certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment consolidated balance sheets amortized straightline basis estimated useful lives software exceed five years stockbased compensation effective january 1 2006 company adopted provisions sfas 123 revised 2004 sharebased payment sfas 123r using modified prospective method requires measurement compensation cost stockbased awards fair value date grant recognition compensation service periods awards expected vest fair value restricted stock rights receive shares stock determined based number shares granted market value date grant fair value stock options determined using modified blackscholes methodology impact adoption material adoption sfas 123r resulted cumulative effect gain 6 million net 3 million taxes consolidated statement earnings year ended december 31 2006 gain resulted impact estimating future forfeitures restricted stock rights receive shares stock determination periodic expense unvested awards rather recording forfeitures occur gross cumulative effect recorded marketing administration research costs year ended december 31 2006 company previously applied recognition measurement principles accounting principles board opinion 25 accounting stock issued employees apb 25 provided pro forma disclosures required sfas 123 accounting stockbased compensation sfas 123 compensation expense employee stock options reflected net earnings 2005 2004 stock options granted plans exercise price equal market value common stock date grant historical consolidated statements earnings already include compensation expense restricted stock rights receive shares stock following table illustrates effect net earnings per share eps company applied fair value recognition provisions sfas 123 measure compensation expense stock option awards years ended december 31 2005 2004 millions except per share data company elected calculate initial pool tax benefits resulting tax deductions excess stockbased employee compensation expense recognized statement earnings fasb staff position 123r3 transition election related accounting tax effects sharebased payment awards sfas 123r tax shortfalls occur actual tax deductible compensation expense less cumulative stockbased compensation expense recognized financial statements tax shortfalls 8 million recognized year ended december 31 2006 recorded additional paidin capital note 3 asset impairment exit implementation costs restructuring program january 2004 company announced threeyear restructuring program objectives leveraging companys global scale realigning lowering cost structure optimizing capacity utilization january 2006 company announced plans expand restructuring efforts 2008 entire restructuring program expected result 30 billion pretax charges reflecting asset disposals severance implementation costs decline 700 million 37 billion pretax charges previously announced due primarily lower projected severance costs cancellation initiative generate sales efficiencies sale one plant originally planned closed part program company anticipates closure 40 facilities elimination approximately 14000 positions approximately 19 billion 30 billion pretax charges expected require cash payments pretax restructuring program charges including implementation costs years ended december 31 2006 2005 2004 673 million 297 million 641 million respectively total pretax restructuring charges incurred since inception program january 2004 16 billion 2006 company announced sevenyear 17 billion agreement receive information technology services electronic data systems eds agreement includes data centers web hosting telecommunications workplace services began june 1 2006 pursuant agreement approximately 670 employees provided certain support company transitioned eds result agreement 2006 company incurred pretax asset impairment exit costs 51 million implementation costs 56 million related transition costs included pretax restructuring program charges discussed restructuring costs 2006 2005 2004 pretax charges restructuring program 578 million 210 million 583 million respectively recorded asset impairment exit costs consolidated statements earnings pretax charges resulted announcement closing 27 plants since january 2004 8 occurred 2006 continuation number workforce reduction programs termination comanufacturing agreements 2004 approximately 332 million pretax charges incurred 2006 require cash payments pretax restructuring liability activity years ended december 31 2006 2005 follows severance costs schedule relate workforce reduction programs include cost related benefits specific programs announced since 2004 part overall restructuring program result elimination approximately 9800 positions december 31 2006 approximately 8400 positions eliminated asset writedowns relate impairment assets caused plant closings related activity costs incurred relate primarily contract termination costs associated plant closings termination leasing agreements severance costs taken assets relate incremental pension costs reduce prepaid pension assets implementation costs 2006 2005 2004 company recorded pretax implementation costs associated restructuring program costs include discontinuance certain product lines incremental costs related integration streamlining functions closure facilities substantially implementation costs incurred 2006 require cash payments costs recorded consolidated statements earnings follows asset impairment charges 2006 company sold pet snacks brand assets recorded tax expense 57 million incurred pretax asset impairment charge 86 million 2006 recognition sale january 2007 company announced sale hot cereal assets trademarks recognition anticipated sale company recorded pretax asset impairment charge 69 million 2006 assets pretax asset impairment charges included writeoff portion associated goodwill intangible fixed assets recorded asset impairment exit costs consolidated statement earnings 2006 company completed annual review goodwill intangible assets recorded noncash pretax charges 24 million related intangible asset impairment biscuits assets egypt hot cereal assets united states also 2006 company reevaluated business model tassimo hot beverage system revenues lagged companys projections evaluation resulted 245 million noncash pretax asset impairment charge related lower utilization existing manufacturing capacity charges recorded asset impairment exit costs consolidated statement earnings addition company anticipates impairment result related cash expenditures approximately 3 million primarily related decommissioning idle production lines 2005 company completed annual review goodwill intangible assets charges resulted review 2004 company recorded 29 million noncash pretax charge related intangible asset impairment small confectionery business united states certain brands mexico portion charge 17 million reclassified earnings discontinued operations consolidated statement earnings fourth quarter 2004 remaining charge recorded asset impairment exit costs consolidated statement earnings 2005 company sold fruit snacks assets incurred pretax asset impairment charge 93 million recognition sale december 2005 company reached agreements sell certain assets canada small biscuit brand united states incurred pretax asset impairment charges 176 million recognition sales transactions closed 2006 charges included writeoff associated intangible assets recorded asset impairment exit costs consolidated statement earnings november 2004 following discussions companys joint venture partner turkey independent valuation equity investment determined permanent decline value occurred valuation resulted 47 million noncash pretax charge recorded marketing administration research costs consolidated statement earnings 2005 companys interest joint venture sold june 2005 company sold substantially sugar confectionery business approximately 14 billion 2004 result anticipated transaction company recorded noncash asset impairments totaling 107 million charges included loss discontinued operations consolidated statement earnings december 2004 company announced sale us yogurt assets closed first quarter 2005 2004 result anticipated transaction company recorded asset impairments totaling 8 million charge recorded asset impairment exit costs consolidated statement earnings total pretax asset impairment exit implementation costs discussed years ended december 31 2006 2005 2004 included operating companies income following segments note 4 related party transactions altria group incs subsidiary altria corporate services inc provides company various services including planning legal treasury auditing insurance human resources office secretary corporate affairs information technology aviation tax services billings services based cost altria corporate services inc provide services 5 management fee based wages benefits 178 million 237 million 310 million years ended december 31 2006 2005 2004 respectively company performed similar cost various functions 2006 2005 previously provided altria corporate services inc resulting lower service charges 2006 2005 company plans undertake remaining services currently provided altria corporate services inc similar cost 2007 costs paid altria corporate services inc monthly although cost services cannot quantified standalone basis management assessed billings reasonable based level support provided altria corporate services inc reflect services provided cost nature services reviewed annually companys audit committee comprised independent directors effects transactions included operating cash flows companys consolidated statements cash flows 2006 company purchased certain real estate personal property located wilkes barre pennsylvania altria corporate services inc aggregate purchase price 93 million addition company assumed altria corporate services incs rights lease certain real property located san antonio texas company also purchased certain personal property located san antonio texas altria corporate services inc aggregate purchase price 60 million also see note 13 income taxes regarding favorable impact company closure internal revenue service review altria group incs consolidated federal income tax return recorded 2006 2005 company repatriated certain foreign earnings part altria group incs dividend repatriation plan provisions american jobs creation act increased taxes repatriation 21 million reimbursed altria group inc reimbursement reported companys financial statements increase additional paidin capital december 2005 company purchased airport hangar certain personal property located hangar milwaukee wisconsin altria corporate services inc aggregate purchase price approximately 33 million december 2004 company purchased two corporate aircraft altria corporate services inc aggregate purchase price approximately 47 million company also entered aircraft management agreement altria corporate services inc december 2004 pursuant altria corporate services inc agreed perform aircraft management pilot services maintenance aviation services company december 31 2006 2005 company shortterm amounts payable altria group inc 607 million 652 million respectively amounts payable altria group inc generally include accrued dividends taxes service fees interest intercompany borrowings based applicable london interbank offered rate fair values companys shortterm amounts due altria group inc affiliates approximate carrying amounts note 5 divestitures discontinued operations june 2005 company sold substantially sugar confectionery business pretax proceeds approximately 14 billion sale included life savers creme savers altoids trolli sugus brands company reflected results sugar confectionery business prior closing date discontinued operations consolidated statements earnings summary results operations sugar confectionery business follows loss sale discontinued operations year ended december 31 2005 related largely taxes transaction 2006 company sold rice brand assets industrial coconut assets company also sold pet snacks brand assets 2006 recorded tax expense 57 million related sale addition company incurred pretax asset impairment charge 86 million 2006 recognition sale additionally 2006 company sold certain canadian assets small us biscuit brand incurred pretax asset impairment charges 176 million 2005 recognition sales also 2006 company sold us coffee plant aggregate proceeds received sales 946 million company recorded pretax gains 117 million 2005 company sold fruit snacks assets incurred pretax asset impairment charge 93 million recognition sale additionally 2005 company sold uk desserts assets us yogurt assets small business colombia minor trademark mexico small equity investment turkey aggregate proceeds received sales 238 million company recorded pretax gains 108 million 2004 company sold brazilian snack nuts business trademarks associated candy business norway aggregate proceeds received sale businesses 18 million pretax losses 3 million recorded operating results divestitures discussed aggregate material companys consolidated financial position results operations cash flows periods presented note 6 acquisitions united biscuits september 2006 company acquired spanish portuguese operations united biscuits ub rights nabisco trademarks european union eastern europe middle east africa ub held since 2000 total cost approximately 11 billion spanish portuguese operations ub include biscuits dry desserts canned meats tomato fruit juice businesses well seven manufacturing facilities 1300 employees september 2006 december 31 2006 businesses contributed net revenues approximately 111 million noncash acquisition financed companys assumption approximately 541 million debt issued acquired business immediately prior acquisition well 530 million value redemption companys outstanding investment ub primarily deepdiscount securities redemption companys investment ub resulted pretax gain closing approximately 251 million 148 million aftertax 009 per diluted share aside debt assumed part acquisition price company acquired assets consisting primarily goodwill 734 million intangible assets 217 million property plant equipment 161 million receivables 101 million inventories 34 million amounts represent preliminary allocation purchase price subject revision appraisals finalized expected occur first half 2007 2004 company acquired usbased beverage business total cost 137 million effect acquisition material companys consolidated financial position results operations cash flows periods presented note 7 inventories cost approximately 41 40 inventories 2006 2005 respectively determined using lifo method stated lifo amounts inventories approximately 70 million 71 million higher current cost inventories december 31 2006 2005 respectively note 8 shortterm borrowings borrowing arrangements december 31 2006 2005 companys shortterm borrowings related average interest rates consisted following fair values companys shortterm borrowings december 31 2006 2005 based upon current market interest rates approximate amounts disclosed company maintains revolving credit facilities historically used support issuance commercial paper december 31 2006 company 45 billion multiyear revolving credit facility expires april 2010 amounts drawn companys revolving credit facility sole use requires maintenance minimum net worth 200 billion december 31 2006 companys net worth 286 billion company expects continue meet covenant revolving credit facility include financial tests credit rating triggers provisions could require posting collateral addition certain international subsidiaries kraft maintain credit lines meet shortterm working capital needs international businesses credit lines amounted approximately 11 billion december 31 2006 sole use companys international businesses borrowings lines amounted approximately 200 million 400 million december 31 2006 2005 respectively december 31 2006 company also approximately 03 billion outstanding shortterm debt related united biscuits acquisition discussed note 6 acquisitions note 9 longterm debt december 31 2006 2005 companys longterm debt consisted following aggregate maturities longterm debt follows millions based market quotes available interest rates currently available company issuance debt similar terms remaining maturities aggregate fair value companys longterm debt including current portion longterm debt 8706 million 9945 million december 31 2006 2005 respectively note 10 capital stock companys articles incorporation authorize 30 billion shares class common stock 20 billion shares class b common stock 500 million shares preferred stock shares class common stock issued repurchased outstanding follows company repurchases class common stock open market transactions march 2006 company completed 15 billion twoyear class common stock repurchase program acquiring 491 million class shares average price 3057 per share 2006 repurchases 15 billion program 85 million shares cost 250 million 2942 per share additionally march 2006 company began 20 billion class common stock repurchase program expected run 2008 2006 company repurchased 302 million shares class common stock 20 billion authority cost 10 billion average price 3306 per share 2005 company repurchased 392 million shares class common stock cost 12 billion average price 3065 per share 2004 company repurchased 215 million shares class common stock cost 700 million average price 3249 per share class b common shares issued outstanding december 31 2006 2005 118 billion altria group inc held 2765 million class common shares class b common shares december 31 2006 preferred shares issued outstanding class common shares entitled one vote class b common shares entitled ten votes therefore altria group inc held 985 combined voting power companys outstanding capital stock december 31 2006 december 31 2006 161915095 shares common stock reserved stock options stock awards note 11 stock plans kraft 2005 performance incentive plan 2005 plan company may grant eligible employees awards stock options stock appreciation rights restricted stock restricted deferred stock units awards based companys class common stock well performancebased annual longterm incentive awards maximum 150 million shares companys class common stock may issued 2005 plan 45 million shares may awarded restricted stock addition 2006 companys board directors adopted stockholders approved kraft 2006 stock compensation plan nonemployee directors 2006 directors plan 2006 directors plan replaced kraft 2001 directors plan 2006 directors plan company may grant 500000 shares class common stock members board directors fulltime employees company altria group inc subsidiaries fiveyear period shares available granted 2005 plan 2006 directors plan december 31 2006 143669750 481555 respectively restricted shares available grant 2005 plan december 31 2006 38669750 generally stock options granted exercise price equal market value underlying stock date grant become exercisable first anniversary grant date maximum term ten years however company granted stock options employees since 2002 stock option plan stock option activity follows year ended december 31 2006 total intrinsic value options exercised 67 million 06 million 34 million years ended december 31 2006 2005 2004 respectively prior initial public offering ipo certain employees company participated altria group incs stock compensation plans altria group inc intend issue additional altria group inc stock compensation companys employees except reloads previously issued options reload feature altria group inc stock options cease 2007 pretax compensation cost related tax benefit altria stock option awards reloads totaled 3 million 1 million respectively year ended december 31 2006 fair value awards determined using modified blackscholes methodology using following weighted average assumptions altria group inc common stock companys employees held options purchase following number shares altria group inc stock december 31 2006 restricted stock plans company may grant shares restricted stock rights receive shares stock eligible employees giving instances rights stockholders except may sell assign pledge otherwise encumber shares rights shares rights subject forfeiture certain employment conditions met restricted stock generally vests third anniversary grant date fair value restricted shares rights date grant amortized expense ratably restriction period company recorded pretax compensation expense related restricted stock rights 139 million including pretax cumulative effect gain 9 million adoption sfas 123r 148 million 106 million years ended december 31 2006 2005 2004 respectively deferred tax benefit recorded related compensation expense 51 million 54 million 39 million years ended december 31 2006 2005 2004 respectively unamortized compensation expense related companys restricted stock rights 184 million december 31 2006 expected recognized weighted average period 2 years companys restricted stock rights activity follows year ended december 31 2006 weightedaverage grant date fair value restricted stock rights granted years ended december 31 2006 2005 2004 200 million 200 million 195 million respectively 2916 3326 3223 per restricted share right respectively total fair value restricted stock rights vested years ended december 31 2006 2005 2004 123 million 2 million 1 million respectively note 12 earnings per share basic diluted eps continuing discontinued operations calculated using following years ended december 31 2006 2005 2004 number stock options excluded calculation weighted average shares diluted eps effects antidilutive immaterial note 13 income taxes earnings continuing operations income taxes minority interest provision income taxes consisted following years ended december 31 2006 2005 2004 2006 united states internal revenue service concluded examination altria group incs consolidated tax returns years 1996 1999 issued final revenue agents report march 15 2006 consequently altria group inc reimbursed company cash unrequired federal tax reserves 337 million pretax interest 46 million 29 million aftertax company also recognized net state tax reversals 39 million resulting total net earnings benefit 405 million year ended december 31 2006 loss discontinued operations year ended december 31 2005 includes additional tax expense 280 million sale sugar confectionery business loss discontinued operations year ended december 31 2004 included deferred income tax benefit 43 million december 31 2006 applicable united states federal income taxes foreign withholding taxes provided approximately 32 billion accumulated earnings foreign subsidiaries expected permanently reinvested october 2004 american jobs creation act jobs act signed law jobs act includes deduction 85 certain foreign earnings repatriated 2005 company repatriated approximately 500 million earnings provisions jobs act deferred taxes previously provided portion dividends remitted reversal deferred taxes offset tax costs repatriate earnings resulted net tax reduction 28 million consolidated income tax provision 2005 effective income tax rate pretax earnings differed us federal statutory rate following reasons years ended december 31 2006 2005 2004 tax rate 2006 includes reimbursement altria group inc cash unrequired federal tax reserves 337 million also includes net state tax reversals 39 million due conclusion audit altria group incs consolidated federal income tax returns years 1996 1999 first quarter 2006 included within change tax rates among things benefit 52 million 2006 resolution outstanding items companys international operations majority occurred first quarter tax rate 2005 includes settlement outstanding us tax claim 24 million second quarter 82 million resolution outstanding items companys international operations majority first quarter 33 million tax impacts associated sale us biscuit brand 2005 rate also includes 53 million aggregate benefit domestic manufacturers deduction provision dividend repatriation provision jobs act tax provision 2004 includes 81 million favorable resolution outstanding tax item majority occurred third quarter 2004 reversal 35 million tax accruals longer required due tax events occurred first quarter 2004 previously discussed note 2 summary significant accounting policies companys adoption fin 48 result increase shareholders equity january 1 2007 approximately 200 million 225 million tax effects temporary differences gave rise deferred income tax assets liabilities consisted following december 31 2006 2005 note 14 segment reporting company manufactures markets packaged food products consisting principally beverages cheese snacks convenient meals various packaged grocery products kraft manages reports operating results two units kraft north america commercial kraft international commercial reportable segments kraft north america commercial organized managed principally product category kraft north america commercials segments north america beverages north america cheese foodservice north america convenient meals north america grocery north america snacks cereals kraft international commercials operations organized managed geographic location kraft international commercials segments european union developing markets oceania north asia october 2005 company announced effective january 1 2006 canadian business realigned better integrate companys north american business product category beginning first quarter 2006 operating results canadian business reported throughout north american food segments addition first quarter 2006 companys international businesses realigned reflect reorganization announced within europe november 2005 two revised international segments reflected consolidated financial statements notes european union developing markets oceania north asia latter reflect companys increased management focus developing markets accordingly prior period segment results restated companys management uses operating companies income defined operating income general corporate expenses amortization intangibles evaluate segment performance allocate resources management believes appropriate disclose measure help investors analyze business performance trends various business segments interest debt expense net provision income taxes centrally managed accordingly items presented segment since included measure segment profitability reviewed management companys assets principally united states europe managed geographically accounting policies segments described note 2 summary significant accounting policies segment data follows companys largest customer walmart stores inc affiliates accounted approximately 15 14 consolidated net revenues 2006 2005 2004 respectively net revenues occurred primarily united states across segments net revenues consumer sector includes separation foodservice sector components cereals grocery sector follows years ended december 31 2006 2005 2004 items affecting comparability companys continuing operating results follows •asset impairment exit implementation costsas discussed note 3 asset impairment exit implementation costs company recorded charges items 1097 million 566 million 700 million years ended december 31 2006 2005 2004 respectively see note 3 breakdown pretax charges segment •gain redemption ub investmentas fully discussed note 6 acquisitions third quarter 2006 company acquired spanish portuguese operations ub rights nabisco trademarks european union eastern europe middle east africa redemption companys outstanding investment ub resulted pretax gain closing approximately 251 million gain included operating companies income european union segment •gainslosses sales businessesduring 2006 company sold rice brand assets pet snacks brand assets industrial coconut assets certain canadian assets small us biscuit brand us coffee plant aggregate pretax gains 117 million 2005 company sold fruit snacks assets uk desserts assets us yogurt assets small business colombia minor trademark mexico small equity investment turkey aggregate pretax gains 108 million 2004 company sold brazilian snack nuts business trademarks associated candy business norway aggregate pretax losses 3 million pretax gains losses included operating companies income following segments see notes 5 6 respectively regarding divestitures acquisitions geographic data net revenues total assets longlived assets consist noncurrent assets goodwill intangible assets net prepaid pension assets follows note 15 benefit plans september 2006 fasb issued sfas 158 employers accounting defined benefit pension postretirement plans sfas 158 sfas 158 requires employers recognize funded status defined benefit pension postretirement plans consolidated balance sheet record component comprehensive income net tax gains losses prior service costs credits recognized components net periodic benefit cost company adopted recognition related disclosure provisions sfas 158 prospectively december 31 2006 sfas 158 also requires entity measure plan assets benefit obligations date fiscal yearend statement financial position fiscal years ending december 15 2008 companys nonus pension plans canadian pension plans measured september 30 year company expects adopt measurement date provision sfas 158 measure plans december 31 year beginning december 31 2008 company presently evaluating impact measurement date change expected significant incremental effect applying sfas 158 individual line items consolidated balance sheet december 31 2006 follows amounts recorded accumulated comprehensive losses december 31 2006 consisted following company sponsors noncontributory defined benefit pension plans covering substantially us employees pension coverage employees companys nonus subsidiaries provided extent deemed appropriate separate plans many governed local statutory requirements addition companys us canadian subsidiaries provide health care benefits substantially retired employees health care benefits retirees outside united states canada generally covered local government plans plan assets benefit obligations companys us canadian pension plans measured december 31 year nonus pension plans measured september 30 year benefit obligations companys postretirement plans measured december 31 year pension plans obligations funded status benefit obligations plan assets funded status companys pension plans december 31 2006 2005 follows combined us nonus pension plans resulted net prepaid pension asset 128 million december 31 2006 2385 million december 31 2005 amounts recognized companys consolidated balance sheets december 31 2006 2005 follows accumulated benefit obligation represents benefits earned date us pension plans 5584 million 5580 million december 31 2006 2005 respectively accumulated benefit obligation nonus pension plans 3784 million 3494 million december 31 2006 2005 respectively us plans accumulated benefit obligations excess plan assets projected benefit obligations accumulated benefit obligations fair value plan assets 247 million 196 million 11 million respectively december 31 2006 268 million 211 million 14 million respectively december 31 2005 majority relate plans salaried employees cannot funded irs regulations certain nonus plans accumulated benefit obligations excess plan assets projected benefit obligation accumulated benefit obligation fair value plan assets 1364 million 1281 million 646 million respectively december 31 2006 2134 million 1993 million 1088 million respectively december 31 2005 following weightedaverage assumptions used determine companys benefit obligations plans december 31 companys 2006 yearend us canadian plans discount rates developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations 2006 yearend discount rates companys nonus plans developed local bond indices match local benefit obligations closely possible components net periodic benefit cost net periodic pension cost consisted following years ended december 31 2006 2005 2004 2006 2005 employees left company workforce reduction programs resulting settlement losses 17 million 10 million respectively us plans addition retiring employees elected lumpsum payments resulting settlement losses 49 million 73 million 41 million 2006 2005 2004 respectively nonus plant closures early retirement benefits resulted curtailment settlement losses 13 million 25 million 7 million 2006 2005 2004 respectively estimated net loss prior service cost combined us nonus pension plans expected amortized accumulated comprehensive income net periodic benefit cost 2007 203 million 15 million respectively following weightedaverage assumptions used determine companys net pension cost years ended december 31 companys expected rate return plan assets determined plan assets historical longterm investment performance current asset allocation estimates future longterm returns asset class kraft certain subsidiaries sponsor employee savings plans company contributes plans cover certain salaried nonunion union employees companys contributions costs determined matching employee contributions defined plans amounts charged expense defined contribution plans totaled 84 million 94 million 92 million 2006 2005 2004 respectively plan assets percentage fair value pension plan assets december 31 2006 2005 follows companys investment strategy based expectation equity securities outperform debt securities long term accordingly composition companys us plan assets broadly characterized 7030 allocation equity debt securities strategy utilizes indexed us equity securities actively managed international equity securities actively managed investment grade debt securities constitute 80 debt securities lesser allocations high yield international debt securities plans outside us investment strategy subject local regulations assetliability profiles plans individual country specific circumstances result level equity exposure typically less us plans aggregate actual asset allocations nonus plans virtually identical respective asset policy targets company attempts mitigate investment risk rebalancing equity debt asset classes companys contributions monthly benefit payments made company presently makes plans make contributions extent tax deductible generate excise tax liability order maintain plan assets excess accumulated benefit obligation funded us nonus plans currently company anticipates making contributions approximately 16 million 2007 us plans approximately 157 million 2007 nonus plans based current tax law however estimates subject change result many factors including changes tax benefit laws well asset performance significantly assumed longterm rate return pension assets significant changes interest rates estimated future benefit payments companys pension plans december 31 2006 follows postretirement benefit plans net postretirement health care costs consisted following years ended december 31 2006 2005 2004 estimated net loss prior service cost postretirement benefit plans expected amortized accumulated comprehensive income net postretirement health care costs 2007 67 million 26 million respectively december 2003 united states enacted law medicare prescription drug improvement modernization act 2003 act establishes prescription drug benefit medicare known medicare part federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare part may 2004 fasb issued fasb staff position 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 fsp 1062 fsp 1062 requires companies account effect subsidy benefits attributable past service actuarial experience gain reduction service cost component net postretirement health care costs amounts attributable current service benefit provided least actuarially equivalent medicare part company adopted fsp 1062 third quarter 2004 impact 2006 2005 2004 reduction pretax net postretirement health care costs increase net earnings amounts table reflect following benefits following weightedaverage assumptions used determine companys net postretirement cost years ended december 31 2007 discount rate used determine companys net postretirement cost 590 us plans 500 canadian plans health care cost trend rate 800 us plans 850 canadian plans companys postretirement health care plans funded changes accumulated benefit obligation net amount accrued december 31 2006 2005 follows current portion companys accrued postretirement health care costs 216 million 208 million december 31 2006 2005 respectively included accrued liabilities consolidated balance sheets following weightedaverage assumptions used determine companys postretirement benefit obligations december 31 assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects december 31 2006 companys estimated future benefit payments postretirement health care plans december 31 2006 follows postemployment benefit plans kraft certain affiliates sponsor postemployment benefit plans covering substantially salaried certain hourly employees cost plans charged expense working life covered employees net postemployment costs consisted following years ended december 31 2006 2005 2004 previously discussed note 3 asset impairment exit implementation costs company announced several workforce reduction programs 2006 2005 2004 part overall restructuring program cost programs 247 million 139 million 167 million 2006 2005 2004 respectively included expense estimated net gain postemployment benefit plans amortized accumulated comprehensive income net postemployment costs 2007 7 million companys postemployment plans funded changes benefit obligations plans december 31 2006 2005 follows accumulated benefit obligation determined using discount rate 63 2006 assumed ultimate annual turnover rate 03 2006 2005 assumed compensation cost increases 40 2006 2005 assumed benefits defined respective plans postemployment costs arising actions offer employees benefits excess specified respective plans charged expense incurred note 16 additional information amounts shown continuing operations minimum rental commitments noncancelable operating leases effect december 31 2006 follows millions note 17 financial instruments derivative financial instruments company operates globally manufacturing sales facilities various locations around world utilizes certain financial instruments manage foreign currency commodity exposures derivative financial instruments used company principally reduce exposures market risks resulting fluctuations foreign exchange rates commodity prices creating offsetting exposures company party leveraged derivatives policy use financial instruments speculative purposes financial instruments qualifying hedge accounting must maintain specified level effectiveness hedging instrument item hedged inception throughout hedged period company formally documents nature relationships hedging instruments hedged items well riskmanagement objectives strategies undertaking various hedge transactions method assessing hedge effectiveness additionally hedges forecasted transactions significant characteristics expected terms forecasted transaction must specifically identified must probable forecasted transaction occur deemed probable forecasted transaction occur gain loss would recognized earnings currently company uses forward foreign exchange contracts foreign currency options mitigate exposure changes exchange rates thirdparty intercompany actual forecasted transactions substantially companys derivative financial instruments effective hedges primary currencies company exposed based size location businesses include euro swiss franc british pound canadian dollar december 31 2006 2005 company foreign exchange option forward contracts aggregate notional amounts 26 billion 22 billion respectively effective portion unrealized gains losses associated forward option contracts deferred component accumulated comprehensive earnings losses underlying hedged transactions reported companys consolidated statement earnings company exposed price risk related forecasted purchases certain commodities used raw materials businesses accordingly company uses commodity forward contracts cash flow hedges primarily coffee milk sugar cocoa general commodity forward contracts qualify normal purchase exception sfas 133 therefore subject provisions sfas 133 addition commodity futures options also used hedge price certain commodities including milk coffee cocoa wheat corn sugar soybean oil natural gas heating oil qualifying contracts effective portion unrealized gains losses commodity futures option contracts deferred component accumulated comprehensive earnings losses recognized component cost sales companys consolidated statement earnings related inventory sold unrealized gains losses net commodity positions immaterial december 31 2006 2005 december 31 2006 2005 company net long commodity positions 533 million 521 million respectively ineffectiveness related cash flow hedges material years ended december 31 2006 2005 2004 december 31 2006 company hedging forecasted transactions periods exceeding next fifteen months expects substantially amounts reported accumulated comprehensive earnings losses reclassified consolidated statement earnings within next twelve months derivative gains losses reported accumulated comprehensive earnings losses result qualifying hedging activity transfers gains losses accumulated comprehensive earnings losses earnings offset corresponding gains losses underlying hedged item hedging activity affected accumulated comprehensive earnings losses net income taxes years ended december 31 2006 2005 2004 follows millions credit exposure credit risk company exposed credit loss event nonperformance counterparties however company anticipate nonperformance exposure material december 31 2006 fair value aggregate fair value based market quotes companys thirdparty debt december 31 2006 10421 million compared carrying value 10214 million aggregate fair value companys thirdparty debt december 31 2005 10750 million compared carrying value 10548 million september 2006 fasb issued sfas 157 fair value measurements effective financial statements issued fiscal years beginning november 15 2007 statement defines fair value establishes framework measuring fair value expands disclosures fair value measurements adoption statement material impact companys financial statements see notes 4 8 9 additional disclosures fair value shortterm borrowings longterm debt note 18 contingencies kraft subsidiaries parties variety legal proceedings arising normal course business including cases substantial amounts damages sought results litigation cannot predicted certainty management believes final outcome proceedings material adverse effect companys consolidated financial position results operations cash flows thirdparty guarantees december 31 2006 companys thirdparty guarantees primarily derived acquisition divestiture activities approximated 21 million 8 million specified expiration dates substantially remainder expire 2016 guarantees expiring 2007 company required perform guarantees event third party fails make contractual payments achieve performance measures company liability 16 million consolidated balance sheet december 31 2006 relating guarantees note 19 quarterly financial data unaudited basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may agree total year 2006 2005 company recorded following pretax charges gains earnings continuing operations discussed note 13 income taxes company recognized income tax benefits consolidated statements earnings 2006 2005 result various tax events including reimbursement altria group inc cash unrequired federal tax reserves net state tax reversals due conclusion audit altria group incs consolidated federal income tax returns years 1996 1999 benefits earned provisions american jobs creation act note 20 subsequent event january 31 2007 altria group inc board directors announced altria group inc plans spin remaining interest 890 company pro rata basis altria group inc stockholders taxfree transaction distribution kraft shares owned altria group inc made march 30 2007 distribution date altria group inc stockholders record close business march 16 2007 based number shares altria group inc outstanding december 31 2006 distribution ratio would approximately 07 shares kraft class common stock every share altria group inc common stock outstanding prior distribution altria group inc convert class b shares kraft common stock carry ten votes per share class shares kraft carry one vote per share following distribution class common shares kraft outstanding altria group inc shares kraft stock compensation holders altria group inc stock options treated stockholders accordingly stock awards split two instruments holders altria group inc stock options receive following stock options immediately spinoff aggregate intrinsic value equal intrinsic value prespin altria group inc options •a new kraft option acquire number shares kraft class common stock equal product number altria group inc options held person distribution date b approximate distribution ratio 07 mentioned •an adjusted altria group inc option number shares altria group inc common stock reduced exercise price holders altria group inc restricted stock rights awarded prior january 31 2007 retain existing award receive restricted stock rights kraft class common stock amount kraft restricted stock rights awarded holders calculated using formula set forth respect new kraft options restricted stock rights vest completion original restriction period typically three years date original grant recipients altria group inc stock rights awarded january 31 2007 receive restricted stock rights kraft rather receive additional stock rights altria group inc preserve intrinsic value original award extent employees remaining altria group inc receive kraft stock options altria group inc reimburse company cash blackscholes fair value stock options received extent kraft employees hold altria group inc stock options company reimburse altria group inc cash blackscholes fair value stock options extent holders altria group inc stock rights receive kraft stock rights altria group inc pay company fair value kraft stock rights less value projected forfeitures based upon number altria group inc stock awards outstanding december 31 2006 net amount reimbursements would payment approximately 133 million company altria group inc based upon number altria group inc stock awards outstanding december 31 2006 company would issue 28 million stock options 3 million shares restricted stock rights company estimates issuance awards would result approximate 002 decrease diluted earnings per share however estimates subject change stock awards vest case restricted stock exercised case stock options prior record date distribution matters previously mentioned note 2 summary significant accounting policies company currently included altria group inc consolidated federal income tax return federal income tax contingencies recorded liabilities balance sheet altria group inc prior distribution kraft shares altria group inc reimburse company cash liabilities approximately 300 million plus interest previously mentioned note 4 related party transactions subsidiary altria group inc currently provides company certain services cost plus 5 management fee distribution date company undertake activities services provided subsidiary altria group inc cease 2007 intercompany accounts settled cash item 9item 8 financial statements supplementary data kraft foods inc subsidiaries consolidated statements earnings years ended december 31 millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated balance sheets december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements shareholders’ equity millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements cash flows years ended december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature operations basis presentation kraft foods inc incorporated 2000 commonwealth virginia kraft foods inc subsidiaries kraft foods inc subsidiaries hereinafter referred “kraft” “we” “us” “our” manufactures markets packaged foods beverages worldwide 150 countries prior june 13 2001 kraft whollyowned subsidiary altria group inc “altria” june 13 2001 completed initial public offering 280000000 shares class common stock “common stock” price 3100 per share first quarter 2007 altria spun remaining interest 890 kraft pro rata basis altria stockholders taxfree transaction effective close business march 30 2007 kraft shares owned altria distributed altria’s stockholders separation altria completed “distribution” distribution altria converted class b shares kraft common stock class shares kraft common stock distribution ratio calculated dividing number shares kraft common stock held altria number altria shares outstanding record date march 16 2007 distribution ratio 0692024 shares kraft common stock every share altria common stock outstanding following distribution class common stock outstanding principles consolidation consolidated financial statements include kraft well whollyowned majorityowned subsidiaries domestic operating subsidiaries report yearend results saturday closest end year international operating subsidiaries generally report yearend results two weeks prior saturday closest end year resulted 53 weeks operating results consolidated statement earnings year ended december 31 2005 versus 52 weeks years ended december 31 2007 2006 results operations newly acquired global biscuit business groupe danone sa reported one month lag account investments exercise significant influence 2050 ownership interest equity method accounting account investments ownership interest less 20 exercise significant influence cost method accounting minority interest subsidiaries consists equity interest minority investors consolidated subsidiaries kraft’s consolidated minority interest expense net taxes 3 million 2007 5 million 2006 3 million 2005 intercompany transactions eliminated transactions kraft altria included financial statements use estimates prepare financial statements conformity accounting principles generally accepted united states america requires us make certain elections accounting policy estimates assumptions affect reported amounts assets liabilities disclosure contingent liabilities dates financial statements reported amounts net revenues expenses reporting periods significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions lives valuation assumptions goodwill intangible assets marketing programs income taxes actual results could differ estimates foreign currencies translate results operations foreign subsidiaries using average exchange rates period whereas balance sheet accounts translated using exchange rates end period record currency translation adjustments component shareholders’ equity transaction gains losses recorded consolidated statements earnings significant periods presented cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less inventories stated lower cost market lastin firstout “lifo” method used cost majority domestic inventories cost inventories principally determined average cost method used lifo method determine cost 37 inventories december 31 2007 41 inventories december 31 2006 stated lifo amounts inventories 142 million lower december 31 2007 70 million higher december 31 2006 current cost inventories also record inventory allowances overstocked obsolete inventories due ingredient packaging changes prospectively adopted provisions statement financial accounting standards “sfas” 151 inventory costs january 1 2006 sfas 151 requires us recognize abnormal idle facility expense spoilage freight handling costs currentperiod charges ii allocate fixed production overhead costs inventories based normal capacity production facility effect adoption material impact financial statements longlived assets property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years review longlived assets including amortizable intangible assets impairment conditions exist indicate carrying amount assets may fully recoverable perform undiscounted operating cash flow analyses determine impairment exists testing assets held use impairment group assets liabilities lowest level cash flows separately identifiable impairment determined exist loss calculated based fair value impairment losses assets disposed based estimated proceeds received less costs disposal 2006 recorded noncash asset impairment charges 245 million related tassimo hot beverage system longlived assets charges included asset impairment exit costs consolidated statement earnings software costs capitalize certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment consolidated balance sheets amortized straightline basis estimated useful lives software exceed five years goodwill intangible assets sfas 142 goodwill intangible assets “sfas 142” requires us test goodwill nonamortizable intangible assets least annually impairment test goodwill compare fair value reporting unit carrying value reporting unit carrying value exceeds fair value goodwill considered impaired impairment loss measured difference carrying value implied fair value goodwill determined using discounted cash flows test nonamortizable intangible assets impairment compare fair value intangible asset carrying value carrying value exceeds fair value intangible asset considered impaired reduced fair value definite lived intangible assets amortized estimated useful lives since adoption sfas 142 completed annual impairment review goodwill nonamortizable intangible assets january 1 first quarter 2007 completed annual review goodwill nonamortizable intangible assets found impairments effective october 1 2007 adopted new accounting policy perform annual impairment review goodwill nonamortizable intangible assets october 1 instead january 1 year change testing date made align revised timing annual strategic planning process implemented 2007 result performed annual impairment tests october 1 2007 found impairments first quarter 2006 completed annual review goodwill intangible assets recorded 24 million noncash charge impairment biscuits assets egypt hot cereal assets us charge included asset impairment exit costs consolidated statement earnings first quarter 2005 completed annual review goodwill intangible assets impairments resulted review insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits liabilities associated risks estimated considering historical claims experience actuarial assumptions revenue recognition recognize revenues title risk loss pass customers generally occurs upon shipment delivery goods revenues recorded net consumer incentives trade promotions include shipping handling charges billed customers kraft’s shipping handling costs classified part cost sales provision product return allowances also recorded reduction revenues within period revenue recognized marketing administration research costs marketing promote products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives expense advertising costs either period advertising first takes place incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year defer amounts yearend consolidated balance sheet marketing costs recorded expense year incurred advertising expense 1554 million 2007 1396 million 2006 1314 million 2005 research expense costs incurred product research development research development expense 447 million 2007 419 million 2006 385 million 2005 environmental costs subject laws regulations relating protection environment accrue environmental remediation obligations undiscounted basis amounts probable reasonably estimated accruals adjusted new information develops circumstances change recoveries environmental remediation costs third parties recorded assets receipt deemed probable december 31 2007 subsidiaries involved 70 active superfund similar actions us related current operations certain former divested operations retain liability based information currently available believe ultimate resolution existing environmental remediation actions compliance general environmental laws regulations material effect financial results however cannot quantify certainty potential impact future compliance efforts environmental remediation actions income taxes account income taxes accordance sfas 109 accounting income taxes prior distribution included altria’s consolidated federal income tax return generally computed income taxes separate company basis however foreign tax credits capital losses credits could used separate company basis extent altria used foreign tax credits tax benefits consolidated federal income tax return recognized benefit calculation provision income taxes benefit approximately 270 million 2007 date distribution well postdistribution carryback claims predistribution periods 195 million 2006 225 2005 made payments reimbursed altria tax effects resulting included altria’s tax return march 31 2007 longer member altria consolidated tax return group file federal consolidated income tax return altria also previously carried federal tax contingencies balance sheet reported financial statements result distribution altria transferred federal tax contingencies 375 million balance sheet related interest income 77 million second quarter altria paid us 305 million federal tax contingencies held less impact federal reserves reversed due adoption financial accounting standards board “fasb” interpretation 48 amount reflected component within net cash provided operating activities section consolidated statement cash flows july 2006 fasb issued fasb interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” adopted provisions fin 48 effective january 1 2007 fin 48 clarifies tax benefits recorded financial statements provides measurement criteria valuing benefits order us recognize benefits tax position must likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement implementation fin 48 established additional provisions certain positions likely challenged even though believe existing tax positions fully supportable adoption fin 48 resulted increase shareholders’ equity january 1 2007 213 million resulted • 265 million decrease liability unrecognized tax benefits comprised 247 million tax 18 million interest • reduction goodwill 85 million • increase federal state deferred tax assets 33 million recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized stockbased compensation effective january 1 2006 adopted sfas 123 revised 2004 sharebased payment “sfas 123r” using modified prospective method requires measurement compensation cost stockbased awards fair value date grant recognition compensation service periods awards expected vest determine fair value restricted stock rights receive shares stock based number shares granted market value date grant determine fair value stock options using modified blackscholes methodology adoption sfas 123r resulted cumulative effect gain 6 million net 3 million taxes consolidated statement earnings year ended december 31 2006 gross cumulative effect recorded marketing administration research costs year ended december 31 2006 elected calculate initial pool tax benefits resulting tax deductions excess stockbased employee compensation expense recognized statement earnings fasb staff position “fsp” 123r3 transition election related accounting tax effects sharebased payment awards sfas 123r tax shortfalls occur actual tax deductible compensation expense less cumulative stockbased compensation expense recognized financial statements previously applied recognition measurement principles accounting principles board opinion 25 accounting stock issued employees “apb 25” provided pro forma disclosures required sfas 123 accounting stockbased compensation “sfas 123” compensation expense employee stock options reflected net earnings 2005 stock options granted plans exercise price equal market value common stock date grant historical consolidated statements earnings already include compensation expense restricted stock rights receive shares stock reported net earnings year ended december 31 2005 2632 million applied fair value recognition provisions sfas 123 measure compensation expense stock option awards 2005 total stockbased employee compensation expense net related tax effects would 7 million result pro forma net earnings would 2625 million would impact pro forma basic diluted eps year ended december 31 2005 financial instruments kraft operates globally use certain financial instruments manage foreign currency exchange rate commodity price risks monitor manage exposures part overall riskmanagement program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price risk management strategies seek reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices principally use derivative instruments financial instruments qualifying hedge accounting must maintain specified level effectiveness hedging instrument item hedged inception throughout hedged period formally document nature relationships hedging instruments hedged items well riskmanagement objectives strategies undertaking various hedge transactions method assessing hedge effectiveness additionally hedges forecasted transactions significant characteristics expected terms forecasted transaction must specifically identified must probable forecasted transaction occur deem probable forecasted transaction occur recognize gain loss earnings currently using derivatives hedge exposures changes exchange rates commodity prices kraft exposure derivatives credit market risk exposed credit risk counterparty might fail fulfill performance obligations terms derivative contract minimize credit risk entering transactions highquality counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts governed international swaps derivatives association master agreement market risk value financial instrument might adversely affected change foreign currency exchange rates commodity prices interest rates manage market risk incorporating monitoring parameters within risk management strategy limits types derivative instruments derivative strategies degree market risk may undertaken use derivative instruments record derivative financial instruments fair value consolidated balance sheets either current assets current liabilities changes fair value derivatives recorded period either accumulated comprehensive earnings losses earnings depending whether derivative designated effective part hedge transaction type hedge transaction gains losses derivative instruments reported accumulated comprehensive earnings losses reclassified consolidated statement earnings periods operating results affected hedged item cash flows hedging instruments classified manner affected hedged item consolidated statements cash flows guarantees account guarantees accordance fasb interpretation 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others “fin 45” fin 45 requires us disclose certain guarantees recognize liability fair value obligation qualifying guarantee activities see note 15 commitments contingencies discussion guarantees reclassification reclassified minority interest earnings prior year statement earnings separate line item general corporate expenses within marketing administration research costs conform current year’s presentation additionally reclassified dividends payable prior year balance sheet accrued liabilities separate line item conform current year’s presentation new accounting pronouncements september 2006 fasb issued statement financial accounting standards “sfas” 157 fair value measurements amended february 2008 fsp fas 1572 effective date fasb statement 157 provisions sfas 157 effective kraft january 1 2008 however fsp fas 1572 defers effective date nonfinancial assets liabilities except items recognized disclosed fair value annual frequently recurring basis january 1 2009 sfas 157 defines fair value establishes framework measuring fair value expands disclosures fair value measurements expect adoption statement material impact financial statements february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities including amendment fasb statement 115 provisions effective kraft january 1 2008 statement permits entities choose measure many financial instruments certain items fair value report unrealized gains losses instruments earnings expect adoption statement material impact financial statements december 2007 fasb issued sfas 141r business combinations provisions change way companies account business combinations effective kraft january 1 2009 statement requires acquiring entity business combination recognize assets acquired liabilities assumed transaction establishes acquisitiondate fair value measurement objective assets acquired liabilities assumed requires acquirer disclose information needed investors understand nature financial effect business combination expect adoption statement material impact financial statements december 2007 fasb also issued sfas 160 noncontrolling interests consolidated financial statements amendment accounting research bulletin 51 provisions effective kraft january 1 2009 statement requires entity classify noncontrolling interests subsidiaries separate component equity additionally transactions entity noncontrolling interests required treated equity transactions currently evaluating impact statement financial statements note 2 asset impairment exit implementation costs restructuring program january 2004 announced threeyear restructuring program “restructuring program” january 2006 extended 2008 objectives program leverage global scale realign lower cost structure optimize capacity part restructuring program anticipate • incurring approximately 28 billion pretax charges reflecting asset disposals severance implementation costs • closing 35 facilities eliminating approximately 13500 positions • using cash pay approximately 17 billion 28 billion charges incurred charges restructuring program 459 million 2007 673 million 2006 297 million 2005 since inception restructuring program incurred 21 billion charges paid cash 11 billion february 2008 announced implementation new operating structure built three core elements accountable business units shared services leverage scale global portfolio streamlined corporate staff within new structure business units full pl accountability staffed accordingly also ensures putting resources closer decisions made affect consumers corporate shared service functions streamlining organizations focusing core activities efficiently support goals business units intent simplify streamline increase accountability ultimate goal generating reliable growth kraft result eliminated approximately 700 positions streamline headquarters functions also process reorganizing european union segment function paneuropean centralized category management value chain model reorganization complete european principal company “epc” manage european union segment categories centrally make decisions aspects value chain except sales distribution european subsidiaries execute sales distribution locally local production companies act toll manufacturers behalf epc legal entity already incorporated kraft foods europe gmbh zurich switzerland part reorganization incurred 21 million restructuring costs 24 million implementation costs 10 million nonrecurring costs 2007 incurred 7 million restructuring costs 2006 implementation costs included total restructuring program charges costs relating european union segment reorganization recorded marketing administration research costs management believes disclosure implementation nonrecurring charges provides readers financial statements greater transparency total costs european union segment reorganization second quarter 2006 entered sevenyear 17 billion agreement receive information technology services electronic data systems “eds” june 1 2006 began using eds’s data centers eds started providing us web hosting telecommunications workplace services 2007 reversed 6 million restructuring costs severance costs lower originally anticipated incurred implementation costs 47 million related eds transition 2006 incurred restructuring costs 51 million implementation costs 56 million amounts included total restructuring program charges restructuring costs restructuring program recorded asset impairment exit costs 332 million 2007 578 million 2006 210 million 2005 announced closure three plants 2007 announced closure 30 facilities since program began 2004 expect pay cash approximately 250 million charges incurred 2007 restructuring liability activity years ended december 31 2007 2006 severance costs include cost benefits received terminated employees connection severance initiatives eliminated approximately 11000 positions december 31 2007 time announced elimination additional 400 positions severance charges assets primarily relate incremental pension costs reduce prepaid pension assets asset writedowns relate impairment assets caused plant closings related activity cash received asset writedowns relates proceeds received sale assets previously writtenoff restructuring program incurred costs related primarily renegotiation supplier contract costs workforce reductions associated plant closings termination leasing agreements implementation costs implementation costs directly attributable exit costs however qualify treatment sfas 146 accounting costs associated exit disposal activities costs primarily include discontinuance certain product lines incremental expenses related closure facilities eds transition discussed management believes disclosure implementation charges provides readers financial statements greater transparency total costs restructuring program substantially implementation costs incurred 2007 require cash payments implementation costs associated restructuring program asset impairment charges 2007 sold flavored water juice brand assets related trademarks including veryfine fruit2o recognition sale recorded 120 million asset impairment charge assets charge included writeoff associated goodwill 3 million intangible assets 70 million property plant equipment 47 million recorded asset impairment exit costs consolidated statement earnings 2006 annual review goodwill intangible assets recorded 24 million noncash charge impairment biscuits assets egypt hot cereal assets us additionally 2006 reevaluated business model tassimo hot beverage system revenues lagged projections evaluation resulted 245 million noncash asset impairment charge related lower utilization existing manufacturing capacity recorded charges asset impairment exit costs consolidated statement earnings also incurred asset impairment charge 86 million 2006 recognition pet snacks brand assets sale charge included writeoff portion associated goodwill 25 million intangible assets 55 million property plant equipment 6 million recorded asset impairment exit costs consolidated statement earnings january 2007 announced sale hot cereal assets trademarks recorded asset impairment charge 69 million fourth quarter 2006 connection anticipated sale charge included writeoff portion associated goodwill 15 million intangible assets 52 million property plant equipment 2 million recorded asset impairment exit costs consolidated statement earnings transaction closed 2007 impairment charges incurred divestiture 2005 sold fruit snacks assets incurred asset impairment charge 93 million recognition sale december 2005 reached agreements sell certain assets canada small biscuit brand us incurred asset impairment charges 176 million recognition sales transactions closed 2006 impairment charges incurred divestitures aggregate charges included writeoff associated goodwill 13 million intangible assets 118 million asset writedowns 138 million recorded asset impairment exit costs consolidated statement earnings total asset impairment exit implementation costs included asset impairment exit implementation costs discussed years ended december 31 2007 2006 2005 segment operating income follows nonamortizable intangible assets consist substantially brand names purchased acquisitions nabisco holdings corp “nabisco” global biscuit business groupe danone sa “danone biscuit” certain united biscuits operations see note 11 acquisitions details amortizable intangible assets consist primarily trademark licenses noncompete agreements 2007 completed purchase price allocation reclassified 101 million nonamortizable amortizable intangible assets part 2006 acquisition certain united biscuits operations movements goodwill intangible assets significant changes goodwill intangible assets 2007 • acquisitions increased goodwill 5239 million intangible assets 2196 million related preliminary allocations purchase price acquisition danone biscuit allocations based upon preliminary estimates assumptions subject revision appraisals finalized occur 2008 • divestitures reduced goodwill 45 million intangible assets 134 million primarily due divestiture hot cereal assets trademarks • asset impairments recorded asset impairment charge 70 million intangible assets conjunction flavored water juice brand assets related trademarks sale • reduced goodwill 87 million primarily due adoption fin 48 see note 5 income taxes details reduced intangible assets 17 million primarily due removal fully amortized intangible asset significant changes goodwill intangible assets 2006 • acquisitions increased goodwill 734 million intangible assets 217 million related preliminary allocations purchase price acquisition certain united biscuits operations allocations based upon preliminary estimates assumptions revised appraisals finalized 2007 • divestitures reduced goodwill 196 million intangible assets 356 million primarily due divestitures pet snacks brand assets rice brand assets industrial coconut assets • asset impairments recorded asset impairment charge 24 million intangible assets impairment biscuits assets egypt hot cereal assets us conjunction annual review goodwill intangible assets first quarter 2006 additionally recorded asset impairment charges 40 million goodwill 107 million intangible assets related anticipated sale hot cereal assets trademarks sale pet snacks brand assets • reduced goodwill 47 million intangible assets 64 million primarily relating deferred tax purchase price allocation adjustment nabisco acquisition amortization expense intangible assets 13 million 2007 7 million 2006 10 million 2005 currently estimate amortization expense next five years approximately 13 million less estimated amortization next five years subject revision appraisals finalized danone biscuit acquisition note 4 debt borrowing arrangements shortterm borrowings december 31 2007 2006 shortterm borrowings related average interest rates consisted fair values shortterm borrowings december 31 2007 2006 based upon current market interest rates approximate amounts disclosed borrowing arrangements october 12 2007 entered 364day bridge facility agreement 53 billion pending acquisition danone biscuit “danone biscuit bridge facility” upon closing transaction borrowed 51 billion approximately 75 billion facility finance acquisition intend repay outstanding borrowings facility proceeds issuance investment grade bonds securities according credit agreement aggregate net cash proceeds excess 10 billion debt offerings maturity greater one year required repaid approximately 13 billion 20 billion bridge facility proceeds december 2007 debt issuance additionally proceeds equity offerings also required repaid facility drawings facility may reduced aggregate proceeds excess 10 billion certain divestitures assets facility replaced commitment letter entered upon announcement danone biscuit acquisition may 24 2007 entered 15 billion 364day revolving credit agreement accordance terms agreement terminated upon issuance 35 billion senior unsecured notes august 2007 maintain revolving credit facility historically used general corporate purposes support commercial paper issuances 45 billion multiyear revolving credit facility expires april 2010 amounts drawn facility december 31 2007 must maintain net worth least 200 billion terms revolving credit facility december 31 2007 net worth 273 billion expect continue meet covenant revolving credit facility financial covenants credit rating triggers provisions could require us post collateral security addition international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 15 billion december 31 2007 borrowings lines amounted 250 million december 31 2007 465 million december 31 2006 included 282 million outstanding shortterm debt related united biscuits acquisition discussed note 11 acquisitions longterm debt august 13 2007 issued 35 billion senior unsecured notes used net proceeds 3462 million general corporate purposes including repayment outstanding commercial paper general terms 35 billion notes • 250 million total principal notes due august 11 2010 fixed annual interest rate 5625 interest payable semiannually beginning february 11 2008 • 750 million total principal notes due february 11 2013 fixed annual interest rate 6000 interest payable semiannually beginning february 11 2008 • 15 billion total principal notes due august 11 2017 fixed annual interest rate 6500 interest payable semiannually beginning february 11 2008 • 750 million total principal notes due august 11 2037 fixed annual interest rate 7000 interest payable semiannually beginning february 11 2008 • 250 million total principal notes due august 11 2010 floating annual interest rate libor plus 50 basis points resets quarterly rate december 31 2007 5387 interest floating rate notes payable quarterly began november 13 2007 december 12 2007 issued 30 billion senior unsecured notes used net proceeds 2966 million general corporate purposes including repayment outstanding commercial paper portion danone biscuit bridge facility general terms 30 billion notes • 20 billion total principal notes due february 1 2018 fixed annual interest rate 6125 interest payable semiannually beginning august 1 2008 • 10 billion total principal notes due february 1 2038 fixed annual interest rate 6875 interest payable semiannually beginning august 1 2008 notes issuances discussed include covenants restrict ability incur debt secured liens engage saleleaseback transactions also required offer purchase notes price equal 101 aggregate principal amount plus accrued unpaid interest date repurchase experience following “change control” triggering event ii downgrade notes investment grade rating moody’s investors service inc standard poor’s ratings services fitch ratings within specified period december 31 2007 2006 longterm debt consisted fair value aggregate fair value longterm debt based market quotes available interest rates currently available us issuance debt similar terms remaining maturities 13903 million december 31 2007 8706 million december 31 2006 aggregate fair value thirdparty debt based market quotes december 31 2007 21288 million compared carrying value 21009 million aggregate fair value thirdparty debt december 31 2006 10421 million compared carrying value 10214 million interest debt expense interest debt income expense last three years note 5 income taxes earnings continuing operations income taxes provision income taxes consisted following years ended december 31 2007 2006 2005 loss discontinued operations year ended december 31 2005 includes additional tax expense 280 million sale sugar confectionery business implementation fin 48 january 1 2007 unrecognized tax benefits 667 million recognized benefits net impact income tax provision would 530 million unrecognized tax benefits 850 million december 31 2007 recognized benefits net impact income tax provision would 666 million expect unrecognized tax benefits decrease insignificant amount next twelve months furthermore recorded 72 million unrecognized tax benefits 30 million accrued interest penalties part preliminary purchase price allocation danone biscuit subject revision purchase price allocations finalized 2008 include accrued interest penalties related uncertain tax positions tax provision accrued interest penalties 125 million january 1 2007 232 million december 31 2007 provision income taxes includes 90 million interest penalties paid 13 million 2007 change unrecognized tax benefits year ended december 31 2007 millions regularly examined federal various state foreign tax authorities us federal statute limitations remains open year 2000 onward years 2000 2003 currently examination irs also currently examination taxing authorities various us state foreign jurisdictions us state foreign jurisdictions statutes limitations generally ranging three seven years still open examination foreign tax authorities major jurisdictions include germany 1999 onward brazil 2001 onward canada 2001 onward spain 2001 onward france 2004 onward 2006 irs concluded examination altria’s consolidated tax returns years 1996 1999 irs issued final revenue agents report march 15 2006 consequently altria reimbursed us 337 million federal tax reserves longer necessary 46 million interest 29 million net tax also recognized net state tax reversals 39 million total tax provision benefit 376 million 337 million federal plus 39 million state total benefit net earnings recognized first quarter 2006 due irs settlement 405 million october 2004 american jobs creation act “the jobs act” signed law jobs act includes deduction 85 certain foreign earnings repatriated 2005 repatriated approximately 500 million earnings provisions jobs act deferred taxes previously provided portion dividends remitted reversal deferred taxes offset tax costs repatriate earnings resulted net tax reduction 28 million consolidated income tax provision 2005 december 31 2007 applicable us federal income taxes foreign withholding taxes provided approximately 39 billion accumulated earnings foreign subsidiaries expected permanently reinvested effective income tax rate pretax earnings differed us federal statutory rate following reasons years ended december 31 2007 2006 2005 2007 effective tax rate includes 184 million favorable tax rate items primarily including effects dividend repatriation benefits foreign earnings taxed us federal statutory tax rate foreign joint venture earnings effect foreign deferred taxes lower foreign tax rates enacted 2007 partially offset foreign tax expense items 2007 tax rate also benefited increased domestic manufacturing deduction divestiture flavored water juice brand assets related trademarks benefits partially offset state tax expense 2006 effective tax rate includes previously discussed 337 million reimbursement altria federal tax reserves longer required along net state tax reserve reversals 39 million 2006 tax rate also benefited resolution various tax items foreign operations dividend repatriation benefits joint venture earnings lower foreign tax rates enacted 2006 primarily canada benefits partially offset state tax expense tax costs associated 2006 divestitures 2005 effective tax rate includes tax benefits 117 million dividend repatriation including impact american jobs creation act 2004 resolution outstanding items international operations settlement outstanding us tax claim 2005 tax rate also benefited 2005 divestitures partially offset state tax expense tax effects temporary differences gave rise deferred income tax assets liabilities consisted following december 31 2007 2006 distribution altria converted class b shares kraft common stock class shares kraft common stock following distribution class common stock outstanding 118 billion class b common shares issued outstanding december 31 2006 held altria preferred shares issued outstanding december 31 2007 2006 december 31 2007 148912292 shares common stock reserved stock options stock awards board directors authorized following common stock repurchase programs obligated repurchase common stock may suspend program discretion total repurchases programs 1101 million shares 3640 million 2007 387 million shares 1250 million 2006 392 million shares 1200 million 2005 made repurchases common stock open market transactions additionally march 2007 repurchased 14 million shares common stock altria cost 465 million paid 32085 per share average high low price kraft common stock reported nyse march 1 2007 repurchase accordance distribution agreement note 7 accumulated comprehensive losses components accumulated comprehensive losses note 8 stock plans kraft 2005 performance incentive plan “2005 plan” may grant eligible employees awards stock options stock appreciation rights restricted stock restricted deferred stock units awards based common stock well performancebased annual longterm incentive awards may issue maximum 150 million shares common stock 2005 plan 45 million shares may awarded restricted stock addition 2006 board directors adopted stockholders approved kraft 2006 stock compensation plan nonemployee directors “2006 directors plan” 2006 directors plan replaced kraft 2001 directors plan 2006 directors plan may grant 500000 shares common stock members board directors fulltime employees december 31 2007 110980293 shares available granted 2005 plan 457018 shares available granted 2006 directors plan restricted shares available grant 2005 plan december 31 2007 30422325 bifurcation stock awards distribution described note 1 summary significant accounting policies altria stock awards modified issuance kraft stock awards accordingly altria stock awards split two instruments holders altria stock options received 1 new kraft option acquire shares kraft common stock 2 adjusted altria stock option number shares altria common stock previously held proportionally reduced exercise price employee stock option outstanding aggregate intrinsic value immediately distribution greater aggregate intrinsic value immediately prior distribution holders altria restricted stock rights awarded january 31 2007 retained existing awards received restricted stock rights kraft common stock recipients altria restricted stock rights awarded january 31 2007 receive kraft restricted stock rights altria announced distribution time reimbursed altria 179 million net settlement employee stock awards detailed determined fair value stock options using blackscholes option valuation model adjusted fair value restricted stock rights value projected forfeitures april 2007 paid following altria millions based upon number altria stock awards outstanding distribution granted stock options 242 million shares kraft common stock weightedaverage price 1575 options expire 2007 2012 addition issued 30 million shares restricted stock rights market value per restricted share right 3166 date grant restrictions majority restricted stock rights lapse first quarter either 2008 2009 stock option plan stock options granted exercise price equal market value underlying stock grant date become exercisable first anniversary grant date maximum term ten years prior 2007 granted stock options broadbased program since 2002 stock option activity year ended december 31 2007 total intrinsic value options exercised 896 million 2007 67 million 2006 06 million 2005 may 3 2007 board directors approved stock option grant ceo recognize election chairman received 300000 stock options 2005 performance incentive plan vest varying market service conditions expire ten years grant date prior ipo certain kraft employees participated altria’s stock compensation plans reloads previously issued options stock compensation issued result distribution altria issued altria stock compensation employees since ipo reloads issued 2007 compensation expense altria stock option awards reloads totaled 3 million year ended december 31 2006 related tax benefit totaled 1 million year ended december 31 2005 stock compensation plans accounted accordance intrinsic valuebased method permitted sfas 123 result compensation cost stock options fair value awards determined using modified blackscholes methodology using following weighted average assumptions altria common stock restricted stock plans may grant shares restricted stock rights receive shares stock eligible employees giving instances rights stockholders except may sell assign pledge otherwise encumber shares rights shares restricted stock rights subject forfeiture certain employment conditions met restricted stock generally vests third anniversary grant date fair value restricted shares rights date grant amortized ratably restriction period recorded pretax compensation expense related restricted stock rights 136 million 2007 139 million including pretax cumulative effect gain 9 million adoption sfas 123r 2006 148 million 2005 deferred tax benefit recorded related compensation expense 47 million year ended december 31 2007 51 million year ended december 31 2006 54 million year ended december 31 2005 unamortized compensation expense related restricted stock rights 230 million december 31 2007 expected recognized weighted average period two years restricted stock rights activity year ended december 31 2007 january 2007 issued 52 million shares restricted stock rights eligible us nonus employees part annual incentive program restrictions shares rights lapse first quarter 2010 market value per restricted share right 34655 date grant additionally issued 10 million offcycle shares restricted stock rights 2007 weightedaverage market value per restricted share right 34085 date grant total number restricted shares rights issued 2007 92 million including issued result distribution weightedaverage grant date fair value restricted stock rights granted 310 million 3363 per restricted share right 2007 200 million 2916 per restricted share right 2006 200 million 3326 per restricted share right 2005 vesting date fair value restricted stock rights 153 million 2007 123 million 2006 2 million 2005 note 9 benefit plans september 2006 fasb issued sfas 158 employers’ accounting defined benefit pension postretirement plans “sfas 158” sfas 158 requires us recognize funded status defined benefit pension postretirement plans consolidated balance sheet subsequent changes funded status recognized component net periodic benefit cost recorded component comprehensive income prospectively adopted recognition related disclosure provisions sfas 158 december 31 2006 adoption resulted decrease total assets 2286 million decrease total liabilities 235 million decrease shareholders’ equity 2051 million sfas 158 also requires us measure plan assets benefit obligations balance sheet date beginning 2008 currently measure nonus pension plans canadian pension plans september 30 year expect adopt measurement date provision sfas 158 measure plans operating subsidiaries yearend close date beginning 2008 expect adoption statement material impact financial statements sponsor noncontributory defined benefit pension plans covering us employees appropriate provide pension coverage employees nonus subsidiaries separate plans local statutory requirements govern many plans addition us canadian subsidiaries provide health care benefits retired employees local government plans generally cover health care benefits retirees outside us canada plan assets benefit obligations us canadian pension plans measured december 31 year nonus pension plans currently measured september 30 year benefit obligations postretirement plans measured december 31 year pension plans obligations funded status projected benefit obligations plan assets funded status pension plans december 31 2007 2006 combined us nonus pension plans resulted net prepaid pension asset 820 million december 31 2007 128 million december 31 2006 recognized amounts consolidated balance sheets december 31 2007 2006 follows accumulated benefit obligation represents benefits earned date 5349 million december 31 2007 5584 million december 31 2006 us pension plans accumulated benefit obligation nonus pension plans 3979 million december 31 2007 3784 million december 31 2006 included tables us nonus plans accumulated benefit obligations excess plan assets majority us plans salaried employees cannot funded irs regulations projected benefit obligations accumulated benefit obligations fair value plan assets december 31 2007 2006 employees left kraft workforce reduction programs resulting settlement losses us plans 21 million 2007 17 million 2006 10 million 2005 addition retiring employees elected lumpsum payments resulting settlement losses 47 million 2007 49 million 2006 73 million 2005 nonus plant closures early retirement benefits resulted curtailment settlement losses 4 million 2007 13 million 2006 25 million 2005 costs included expense estimated net loss combined us nonus pension plans expected amortized accumulated comprehensive losses net periodic pension cost 2008 115 million estimated prior service cost combined us nonus pension plans expected amortized accumulated comprehensive losses net periodic pension cost 2008 14 million following weightedaverage assumptions used determine net pension cost years ended december 31 expected rate return plan assets determined plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class sponsor contribute employee savings plans cover eligible salaried nonunion union employees contributions costs determined matching employee contributions defined plans amounts charged expense defined contribution plans totaled 83 million 2007 84 million 2006 94 million 2005 plan assets percentage fair value pension plan assets december 31 2007 2006 investment strategy based expectation equity securities outperform debt securities long term accordingly composition us plan assets broadly characterized 7030 allocation equity debt securities strategy uses indexed us equity securities actively managed international equity securities actively managed investment grade debt securities constitute 80 debt securities lesser allocations high yield international debt securities plans outside us investment strategy subject local regulations asset liability profiles plans individual country specific circumstances result level equity exposure typically less us plans aggregate actual asset allocations nonus plans virtually identical respective asset policy targets attempt mitigate investment risk rebalancing equity debt asset classes make contributions monthly benefit payments primarily make contributions us nonus pension plans extent tax deductible generate excise tax liability based current tax law plan make contributions approximately 15 million us plans approximately 160 million nonus plans 2008 however actual contributions may different due many factors including changes tax benefit laws pension asset performance differs significantly expected performance significant changes interest rates estimated future benefit payments pension plans december 31 2007 postretirement benefit plans net postretirement health care costs consisted following years ended december 31 2007 2006 2005 estimated net loss postretirement benefit plans expected amortized accumulated comprehensive losses net postretirement health care costs 2008 48 million estimated prior service cost postretirement benefit plans expected amortized accumulated comprehensive losses net postretirement health care costs 2008 net credit 23 million following weightedaverage assumptions used determine net postretirement cost years ended december 31 2008 discount rate used determine net postretirement cost 610 us plans 580 canadian plans health care cost trend rate 750 us plans 900 canadian plans postretirement health care plans funded changes accumulated benefit obligation net amount accrued december 31 2007 2006 current portion accrued postretirement health care costs 217 million december 31 2007 216 million december 31 2006 included accrued liabilities consolidated balance sheets following weightedaverage assumptions used determine postretirement benefit obligations december 31 assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects december 31 2007 estimated future benefit payments postretirement health care plans december 31 2007 postemployment benefit plans sponsor postemployment benefit plans covering salaried certain hourly employees cost plans charged expense working life covered employees net postemployment costs consisted following years ended december 31 2007 2006 2005 previously discussed note 2 asset impairment exit implementation costs employees left kraft workforce reduction programs 2007 2006 2005 part overall restructuring program cost programs 132 million 2007 247 million 2006 139 million 2005 costs included expense estimated net gain postemployment benefit plans amortized accumulated comprehensive losses net postemployment costs 2008 3 million postemployment plans funded changes benefit obligations plans december 31 2007 2006 accumulated benefit obligation determined using weightedaverage discount rate 70 2007 63 2006 assumed ultimate annual turnover rate 05 2007 03 2006 assumed compensation cost increases 40 2007 2006 assumed benefits defined respective plans postemployment costs arising actions offer employees benefits excess specified respective plans charged expense incurred note 10 earnings per share basic diluted eps continuing discontinued operations calculated using following years ended december 31 2007 2006 2005 excluded insignificant number kraft stock options calculation weighted average shares diluted eps antidilutive note 11 acquisitions danone biscuit november 30 2007 acquired global biscuit business groupe danone sa “danone biscuit” 51 billion approximately 76 billion cash subject customary purchase price adjustments october 12 2007 entered 364day bridge facility agreement closing borrowed 51 billion facility order finance acquisition included 32 manufacturing facilities approximately 14000 employees danone biscuit generated global revenues approximately 28 billion 2007 acquired assets consisting primarily goodwill 5239 million deductible statutory tax purposes intangible assets 2196 million substantially expected indefinite lived receivables 759 million property plant equipment 561 million inventories 198 million amounts represent preliminary allocation purchase price subject revision appraisals finalized occur 2008 danone biscuit report results operations one month lag impact operating results 2007 proforma basis danone biscuit’s net earnings year ended december 31 2007 would insignificant kraft united biscuits september 2006 acquired spanish portuguese operations united biscuits “ub” approximately 11 billion noncash acquisition financed assumption 541 million debt issued acquired business immediately prior acquisition well 530 million value redemption outstanding investment ub primarily deepdiscount securities redemption investment ub resulted 251 million gain part transaction also recovered rights nabisco trademarks european union eastern europe middle east africa ub held since 2000 spanish portuguese operations ub include biscuits dry desserts canned meats tomato fruit juice businesses operations also include seven manufacturing facilities 1300 employees businesses contributed net revenues approximately 466 million year ended december 31 2007 september 2006 december 31 2006 businesses contributed net revenues approximately 111 million acquired assets consisting primarily goodwill 730 million intangible assets 217 million property plant equipment 149 million receivables 101 million inventories 34 million note 12 divestitures post distribution november 15 2007 announced definitive agreement merge post cereals business “post business” ralcorp holdings inc “ralcorp” taxfree distribution shareholders “post distribution” signed agreement ralcorp execute post distribution means “reversemorris trust” transaction subject customary closing conditions including antitrust approval irs taxfree ruling ralcorp shareholder approvals date antitrust approval obtained anticipate transaction completed mid2008 post business net revenues approximately 11 billion 2007 includes cereals honey bunches oats pebbles shredded wheat selects grape nuts honeycomb brands transaction distributed primarily north america addition post brands transaction includes four manufacturing facilities certain manufacturing equipment anticipate approximately 1250 employees join ralcorp following consummation transaction shareholders receive least 303 million shares ralcorp stock post distribution subsequent merger post business ralcorp based market conditions prior closing determine whether shares distributed spinoff splitoff transaction either type transaction expected taxfree us shareholders spinoff transaction shareholders would receive pro rata number ralcorp shares splitoff transaction shareholders would option exchange kraft shares receive ralcorp shares closing resulting reduction number shares common stock outstanding addition kraft receive approximately 960 million cashequivalent value used repay debt discontinued operations june 2005 sold substantially sugar confectionery business pretax proceeds approximately 14 billion sale included life savers creme savers altoids trolli sugus brands reflected results sugar confectionery business prior closing date discontinued operations consolidated statements earnings summary results operations sugar confectionery business loss sale discontinued operations year ended december 31 2005 related largely taxes transaction 2007 received 216 million proceeds recorded pretax gains 15 million divestitures hot cereal assets trademarks sugar confectionery assets romania related trademarks flavored water juice brand assets related trademarks recorded aftertax loss 3 million divestitures reflects differing book tax bases hot cereal assets trademarks divestiture 2006 received 946 million proceeds recorded pretax gains 117 million divestitures pet snacks brand assets rice brand assets certain canadian assets industrial coconut assets small us biscuit brand us coffee plant recorded aftertax gains 31 million divestitures reflects tax expense 57 million related differing book tax bases pet snacks brand assets divestiture 2005 received 238 million proceeds recorded pretax gains 108 million divestitures fruit snacks assets uk desserts assets us yogurt assets small operation colombia minor trademark mexico small equity investment turkey gains losses divestitures reflect related asset impairment charges discussed note 2 asset impairment exit implementation costs aggregate operating results divestitures discussed material financial statements periods presented note 13 transactions altria group inc march 30 2007 entered postspin transition services agreement altria’s subsidiary altria corporate services inc “alcs” agreement alcs providing information technology services kraft eds transition billings postspin services 10 million april 2007 december 31 2007 distribution alcs provided prespin administrative services us separate corporate services agreement expired march 30 2007 services included planning legal treasury auditing insurance human resources office secretary corporate affairs information technology aviation tax services billings prespin services based cost alcs provide services 5 management fee based wages benefits 19 million quarter ended march 31 2007 178 million year ended december 31 2006 237 million year ended december 31 2005 performed similar cost various functions 2007 2006 previously provided alcs resulting lower expense 2007 2006 january 1 2008 alcs longer provides services kraft march 30 2007 also entered employee matters tax sharing agreements altria employee matters agreement sets company’s obligations employee transfers equity compensation employee benefits matters individuals moving previously moved companies tax sharing agreement identifies altria’s kraft’s rights responsibilities obligations respect income taxes following distribution also places certain restrictions us including 2year limit share repurchases 20 common stock outstanding time distribution shortterm amounts payable altria affiliates 449 million included 364 million accrued dividends paid amounts april 2007 december 31 2007 amounts payable altria affiliates transition services december 31 2006 shortterm amounts payable altria affiliates 607 million fair values shortterm amounts due altria affiliates approximated carrying amounts also see note 5 income taxes information closure irs review altria’s consolidated federal income tax return 2006 impacted us note 14 financial instruments commodity cash flow hedges kraft exposed price risk related forecasted purchases certain commodities primarily use raw materials accordingly use commodity forward contracts cash flow hedges primarily coffee milk sugar cocoa wheat commodity forward contracts generally qualify normal purchase exception sfas 133 accounting derivative instruments hedging activities “sfas 133” therefore subject provisions also use commodity futures options hedge price certain commodities including dairy coffee cocoa wheat corn products soybean vegetable oils nuts meat products sugar sweeteners natural gas derivative instruments highly effective qualify hedge accounting sfas 133 occasionally use related futures crosshedge commodity exposure however party leveraged derivatives policy use financial instruments speculative purposes net unrealized gains commodity positions insignificant december 31 2007 2006 derivative instruments highly effective qualify hedge accounting sfas 133 defer effective portion unrealized gains losses commodity futures option contracts component accumulated comprehensive earnings losses recognize deferred portion component cost sales consolidated statement earnings related inventory sold expect transfer insignificant amount unrealized gains losses earnings next 12 months recognized insignificant amount years ended december 31 2007 2006 2005 ineffectiveness recorded component interest debt expense consolidated statement earnings insignificant years ended december 31 2007 2006 2005 derivative instruments considered economic hedges designate hedge accounting sfas 133 recognized net gains 56 million 2007 directly component cost sales consolidated statement earnings impact earnings insignificant 2006 2005 derivatives designated hedge accounting aggregate net long commodity positions 1069 million december 31 2007 533 million december 31 2006 december 31 2007 hedged forecasted commodity transactions periods exceeding next 19 months foreign currency cash flow hedges use various financial instruments mitigate exposure changes exchange rates thirdparty intercompany actual forecasted transactions instruments include forward foreign exchange contracts foreign currency swaps foreign currency options based size location business primary currencies exposed include euro swiss franc british pound canadian dollar net unrealized losses foreign currency positions 166 million december 31 2007 net unrealized gains insignificant december 31 2006 substantially derivative instruments highly effective qualify hedge accounting sfas 133 defer effective portion unrealized gains losses associated forward swap option contracts component accumulated comprehensive earnings losses underlying hedged transactions reported consolidated statement earnings recognize deferred portion component cost sales consolidated statement earnings related inventory sold foreign currency translation gain loss hedges intercompany loans payments made expect transfer insignificant amount unrealized gains losses earnings next 12 months recognized insignificant amount years ended december 31 2007 2006 2005 ineffectiveness recorded component interest debt expense consolidated statement earnings however recorded ineffectiveness foreign currency cash flow hedges years ended december 31 2007 2006 2005 derivative instruments consider economic hedges designate hedge accounting sfas 133 recognize gains losses directly component cost sales foreign currency translation loss consolidated statement earnings depending nature underlying transaction derivative instruments recognized net losses 231 million 2007 net losses 124 million 2006 net gains 199 million 2005 consolidated statement earnings majority losses gains attributable hedges intercompany loans economically offset foreign currency gains losses intercompany receivable aggregate forward foreign exchange contracts foreign currency swaps foreign exchange options aggregate notional amounts 40 billion december 31 2007 26 billion december 31 2006 december 31 2007 hedged forecasted foreign currency transactions periods exceeding next 48 months first quarter 2007 hedged currency exposure related new longer term intercompany loans foreign subsidiaries excluding intercompany loans hedged forecasted foreign currency transactions periods exceeding next twelve months hedging activity affected accumulated comprehensive losses net income taxes years ended december 31 2007 2006 2005 follows hedges net investments foreign operations numerous investments foreign subsidiaries net assets subsidiaries exposed volatility foreign currency exchange rates upon acquisition danone biscuit designated euro denominated borrowings used finance transaction net investment hedge portion overall european operations gains losses net investment designated european operations economically offset losses gains euro denominated borrowings year ended december 31 2007 28 million gains related euro denominated borrowings included cumulative translation adjustment note 15 commitments contingencies legal proceedings defendants variety legal proceedings plaintiffs cases seek substantial damages cannot predict certainty results proceedings however believe final outcome proceedings materially affect financial results thirdparty guarantees thirdparty guarantees acquisition divestiture construction activities part transactions guarantee third parties make contractual payments achieve performance measures december 31 2007 maximum potential payments thirdparty guarantees approximately 32 million approximately 8 million specified expiration dates substantially remainder expire various times 2016 carrying amounts guarantees 25 million consolidated balance sheet december 31 2007 leases rental expenses 456 million 2007 441 million 2006 436 million 2005 minimum rental commitments noncancelable operating leases effect december 31 2007 millions note 16 segment reporting kraft manufactures markets packaged food products including snacks beverages cheese convenient meals various packaged grocery products manage report operating results two commercial units kraft north america kraft international manage kraft north america’s operations product category reportable segments north america beverages north america cheese foodservice north america convenient meals north america grocery north america snacks cereals manage kraft international’s operations geographic location reportable segments european union developing markets formerly known developing markets oceania north asia february 2008 announced implementation new operating structure new structure reflects strategy rewire organization growth within new structure business units full pl accountability staffed accordingly also ensures putting resources closer decisions made affect consumers corporate shared service functions streamlining organizations focusing core activities efficiently support goals business units result implementing new operating structure report results operations new structure beginning first quarter 2008 restate results prior periods consistent manner management uses segment operating income evaluate segment performance allocate resources segment operating income excludes unallocated general corporate expenses amortization intangibles management believes appropriate disclose measure help investors analyze segment performance trends centrally manage interest debt expense provision income taxes accordingly present items segment excluded segment profitability measure management reviews use accounting policies segments described note 1 summary significant accounting policies segment data largest customer walmart stores inc affiliates accounted approximately 15 consolidated net revenues 2007 15 2006 14 2005 net revenues occurred primarily us across segments incurred asset impairment exit implementation costs 579 million 2007 1097 million 2006 566 million 2005 refer note 2 asset impairment exit implementation costs breakout charges segment described note 11 acquisitions third quarter 2006 acquired spanish portuguese operations ub rights nabisco trademarks european union eastern europe middle east africa redemption outstanding investment ub resulted gain closing approximately 251 million gain included segment operating income european union segment discussed note 12 divestitures 2007 sold hot cereal assets trademarks sugar confectionery assets romania related trademarks flavored water juice brand assets related trademarks aggregate gains 15 million 2006 sold rice brand assets pet snacks brand assets industrial coconut assets certain canadian assets small us biscuit brand us coffee plant aggregate gains 117 million 2005 sold fruit snacks assets uk desserts assets us yogurt assets small operation colombia minor trademark mexico small equity investment turkey aggregate gains 108 million gains losses divestitures included segment operating income follows discussed note 5 income taxes recognized income tax benefits consolidated statements earnings 2007 2006 result various tax events including reimbursement altria cash federal tax reserves longer necessary net state tax reversals 2006 due conclusion audit altria’s consolidated federal income tax returns years 1996 1999 item 9item 8 financial statements supplementary data kraft foods inc subsidiaries consolidated statements earnings years ended december 31 millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated balance sheets december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements shareholders’ equity millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements cash flows years ended december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature operations basis presentation kraft foods inc incorporated 2000 commonwealth virginia kraft foods inc subsidiaries kraft foods inc subsidiaries hereinafter referred “kraft” “we” “us” “our” manufactures markets packaged foods beverages approximately 150 countries prior june 13 2001 kraft wholly owned subsidiary altria group inc “altria” june 13 2001 completed initial public offering 280000000 shares class common stock “common stock” price 3100 per share first quarter 2007 altria spun remaining interest 890 kraft pro rata basis altria stockholders taxfree transaction effective close business march 30 2007 kraft shares owned altria distributed altria’s stockholders separation altria completed principles consolidation consolidated financial statements include kraft well wholly owned majority owned subsidiaries domestic operating subsidiaries report yearend results saturday closest end year international operating subsidiaries generally report yearend results two weeks prior saturday closest end year account investments exercise significant influence 2050 ownership interest equity method accounting account investments ownership interest less 20 exercise significant influence cost method accounting minority interest subsidiaries consists equity interest minority investors consolidated subsidiaries kraft’s consolidated minority interest expense net taxes 9 million 2008 3 million 2007 5 million 2006 intercompany transactions eliminated use estimates prepare financial statements accordance accounting principles generally accepted united states america require us make estimates assumptions affect number amounts financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions lives valuation assumptions goodwill intangible assets marketing programs income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year significant impact consolidated financial statements foreign currencies translate results operations foreign subsidiaries using average exchange rates period whereas balance sheet accounts translated using exchange rates end period record currency translation adjustments component shareholders’ equity transaction gains losses recorded earnings significant periods presented cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less inventories stated lower cost market lastin firstout “lifo” method used cost majority domestic inventories cost inventories principally determined average cost method also record inventory allowances overstocked obsolete inventories due ingredient packaging changes longlived assets property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years review longlived assets including amortizable intangible assets impairment conditions exist indicate carrying amount assets may fully recoverable perform undiscounted operating cash flow analyses determine impairment exists testing assets held use impairment group assets liabilities lowest level cash flows separately identifiable impairment determined exist loss calculated based estimated fair value impairment losses assets disposed based estimated proceeds received less costs disposal software costs capitalize certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment amortized straightline basis estimated useful lives software exceed seven years goodwill intangible assets statement financial accounting standards “sfas” 142 goodwill intangible assets requires us test goodwill nonamortizable intangible assets least annually impairment recognized goodwill reporting units generally one level operating segments use two step process test goodwill reporting unit level first step involves comparison estimated fair value reporting unit carrying value fair value estimated using discounted cash flows reporting unit based planned growth rates estimates discount rates residual values carrying value exceeds fair value second step process necessary second step measures difference carrying value implied fair value goodwill test nonamortizable intangible assets impairment compare fair value intangible asset carrying value fair value nonamortizable intangible assets determined using planned revenue growth rates estimates discount rates royalty rates carrying value exceeds fair value intangible asset considered impaired reduced fair value definite lived intangible assets amortized estimated useful lives effective october 1 2007 adopted new accounting policy perform annual impairment review goodwill nonamortizable intangible assets october 1 year change testing date made align revised timing annual strategic planning process implemented 2007 prior change performed annual impairment reviews january 1 year fourth quarter 2008 completed annual review goodwill nonamortizable intangible assets recorded 44 million charge impairment intangible assets netherlands france puerto rico estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions 2008 impairment review determined kraft biscuit europe reporting unit sensitive nearterm changes discounted cash flow assumptions contains significant portion goodwill recorded upon 2007 acquisition global lu biscuit business groupe danone sa “lu biscuit” 2007 due change testing date completed two reviews goodwill nonamortizable intangible assets first quarter january 1 fourth quarter october 1 found impairments reviews goodwill nonamortizable intangible assets first quarter 2006 completed annual review goodwill nonamortizable intangible assets recorded 24 million charge impairment intangible assets egypt hot cereal intangible assets us charges included within asset impairment exit costs insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits liabilities associated risks estimated considering historical claims experience actuarial assumptions revenue recognition recognize revenues title risk loss pass customers generally occurs upon shipment delivery goods revenues recorded net consumer incentives trade promotions include shipping handling charges billed customers kraft’s shipping handling costs classified part cost sales provision product returns allowances bad debts also recorded reduction revenues within period revenue recognized marketing administration research costs marketing promote products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives expense advertising costs either period advertising first takes place incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred advertising expense 1639 million 2008 1471 million 2007 1308 million 2006 research expense costs incurred product research development research development expense 499 million 2008 442 million 2007 414 million 2006 environmental costs subject laws regulations relating protection environment accrue environmental remediation obligations undiscounted basis amounts probable reasonably estimated accruals adjusted new information develops circumstances change recoveries environmental remediation costs third parties recorded assets receipt deemed probable december 31 2008 subsidiaries involved 67 active superfund similar actions us related current operations certain former divested operations retain liability based information currently available believe ultimate resolution existing environmental remediation actions compliance general environmental laws regulations material effect financial results however cannot quantify certainty potential impact future compliance efforts environmental remediation actions employee benefit plans september 2006 financial accounting standards board “fasb” issued sfas 158 employers’ accounting defined benefit pension postretirement plans “sfas 158” sfas 158 requires us measure plan assets benefit obligations balance sheet date beginning 2008 previously measured nonus pension plans certain canadian french pension plans september 30 year december 31 2008 recorded aftertax decrease 8 million retained earnings using 15month approach proportionally allocate transition adjustment required upon adoption measurement provision sfas 158 plan assets benefit obligations pension plans benefit obligations postretirement plans measured yearend provide range benefits employees retired employees include pension plans postretirement health care benefits postemployment benefits consisting primarily severance provide pension coverage certain employees nonus subsidiaries separate plans local statutory requirements govern many plans certain employees hired us january 1 2009 discontinued benefits us pension plans replaced enhanced company contribution employee savings plan us canadian subsidiaries provide health care benefits retired employees local government plans generally cover health care benefits retirees outside us canada postemployment benefit plans cover salaried certain hourly employees cost plans charged expense working life covered employees financial instruments kraft operates globally use certain financial instruments manage foreign currency exchange rate commodity price risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price risk management strategies seek reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices principally use derivative instruments financial instruments qualifying hedge accounting must maintain specified level effectiveness hedging instrument item hedged inception throughout hedged period formally document nature relationships hedging instruments hedged items well risk management objectives strategies undertaking various hedge transactions method assessing hedge effectiveness additionally hedges forecasted transactions significant characteristics expected terms forecasted transaction must specifically identified must probable forecasted transaction occur deem probable forecasted transaction occur recognize gain loss earnings currently using derivatives hedge exposures changes exchange rates commodity prices kraft exposure derivatives credit market risk exposed credit risk counterparty might fail fulfill performance obligations terms derivative contract minimize credit risk entering transactions high quality counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties october 2008 one counterparties lehman brothers commercial corporation filed bankruptcy consequently wrote insignificant asset related derivatives held significant impact foreign currency risk management program also maintain policy requiring significant nonexchange traded derivative contracts duration greater one year governed international swaps derivatives association master agreement market risk value financial instrument might adversely affected change foreign currency exchange rates commodity prices interest rates manage market risk incorporating monitoring parameters within risk management strategy limit types derivative instruments derivative strategies use degree market risk may undertaken use derivative instruments record derivative financial instruments fair value consolidated balance sheets either current assets current liabilities cash flows hedging instruments classified manner affected hedged item consolidated statements cash flows commodity cash flow hedges exposed price risk related forecasted purchases certain commodities primarily use raw materials accordingly use commodity forward contracts cash flow hedges primarily meat coffee dairy sugar cocoa wheat commodity forward contracts generally qualify normal purchase exception sfas 133 accounting derivative instruments hedging activities “sfas 133” therefore subject provisions use commodity futures options hedge price certain input costs including dairy coffee cocoa wheat corn products soybean oils meat products sugar natural gas heating oil derivative instruments highly effective qualify hedge accounting treatment sfas 133 also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes derivative instruments highly effective qualify hedge accounting treatment sfas 133 defer effective portion unrealized gains losses commodity futures option contracts component accumulated comprehensive earnings losses recognize deferred portion component cost sales related inventory sold ineffectiveness directly recorded component cost sales derivative instruments considered economic hedges designate hedge accounting treatment sfas 133 recognize gains losses directly component cost sales foreign currency cash flow hedges use various financial instruments mitigate exposure changes exchange rates thirdparty intercompany actual forecasted transactions instruments include forward foreign exchange contracts foreign currency swaps foreign currency options based size location businesses use instruments hedge exposure certain currencies including euro swiss franc british pound canadian dollar derivative instruments highly effective qualify hedge accounting treatment sfas 133 defer effective portion unrealized gains losses associated forward swap option contracts component accumulated comprehensive earnings losses underlying hedged transactions reported earnings recognize deferred portion component cost sales related inventory sold foreign currency translation gain loss hedges intercompany loans payments made derivative instruments consider economic hedges designate hedge accounting treatment sfas 133 recognize gains losses directly component cost sales foreign currency translation loss depending nature underlying transaction hedges net investments foreign operations numerous investments foreign subsidiaries net assets subsidiaries exposed volatility foreign currency exchange rates use foreigncurrencydenominated debt hedge net investment foreign operations adverse movements exchange rates designated euro denominated borrowings net investment hedge portion overall european operations gains losses net investment designated european operations economically offset losses gains euro denominated borrowings change debt’s fair value recorded cumulative translation adjustment component accumulated comprehensive earnings losses guarantees account guarantees accordance fasb interpretation 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others “fin 45” fin 45 requires us disclose certain guarantees recognize liability fair value obligation qualifying guarantee activities see note 13 commitments contingencies discussion guarantees income taxes account income taxes accordance sfas 109 accounting income taxes prior spinoff altria included altria’s consolidated federal income tax return generally computed income taxes separate company basis however foreign tax credits capital losses credits could used separate company basis extent altria used foreign tax credits tax benefits consolidated federal income tax return recognized benefit calculation provision income taxes benefit approximately 270 million 2007 date spinoff altria well postspin carryback claims prespin periods 195 million 2006 made payments reimbursed altria tax effects resulting included altria’s tax return march 31 2007 longer member altria consolidated tax return group file federal consolidated income tax returns altria also previously carried federal tax contingencies balance sheet reported financial statements result spinoff altria transferred federal tax contingencies 375 million balance sheet related interest income 77 million 2007 additionally 2007 altria paid us 305 million federal tax contingencies held less impact federal reserves reversed due adoption fasb interpretation 48 amount reflected component within net cash provided operating activities section consolidated statement cash flows july 2006 fasb issued interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 “fin 48” adopted provisions fin 48 effective january 1 2007 fin 48 clarifies tax benefits recorded financial statements provides measurement criteria valuing benefits order us recognize benefits tax position must likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement implementation fin 48 established additional provisions certain positions likely challenged even though believe existing tax positions fully supportable adoption fin 48 resulted increase shareholders’ equity january 1 2007 213 million resulted • 265 million decrease liability unrecognized tax benefits comprised 247 million tax 18 million interest • reduction goodwill 85 million • increase federal state deferred tax assets 33 million recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized reclassification reclassified dividends payable income taxes consolidated balance sheet december 31 2007 separate line items current liabilities conform current year’s presentation also reclassified income taxes working capital items consolidated statements cash flows years ended december 31 2007 2006 separate line items current assets current liabilities conform current year’s presentation addition reclassified stockbased compensation expense consolidated statements cash flows years ended december 31 2007 2006 operating activities separate line item conform current year’s presentation new accounting pronouncements september 2006 fasb issued sfas 157 fair value measurements “sfas 157” amended february 2008 fasb staff position “fsp” fas 1572 effective date fasb statement 157 “fsp fas 1572” sfas 157 defines fair value establishes framework measuring fair value expands disclosures fair value measurements fsp fas 1572 defers effective date sfas 157 nonfinancial assets liabilities except items recognized disclosed fair value annual frequently recurring basis january 1 2009 partially adopted provisions sfas 157 effective january 1 2008 partial adoption statement material impact financial statements expect adopt remaining provisions sfas 157 beginning 2009 expect adoption impact way calculate fair value annual impairment review goodwill nonamortizable intangible assets conditions exist require us calculate fair value longlived assets however expect adoption material impact financial statements december 2007 fasb issued sfas 141r business combinations provisions change way companies account business combinations effective kraft january 1 2009 statement requires acquiring entity business combination recognize assets acquired liabilities assumed transaction establishes acquisitiondate fair value measurement objective assets acquired liabilities assumed requires acquirer disclose information needed investors understand nature financial effect business combination expect adoption statement material impact financial statements december 2007 fasb also issued sfas 160 noncontrolling interests consolidated financial statements amendment accounting research bulletin 51 provisions effective kraft january 1 2009 statement requires entity classify noncontrolling interests subsidiaries separate component equity additionally transactions entity noncontrolling interests required treated equity transactions expect adoption statement material impact financial statements march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities provisions effective kraft january 1 2009 statement requires enhanced disclosures use derivative instruments ii account derivative instruments related hedged items sfas 133 iii derivative instruments related hedged items affect financial results expect adoption statement material impact financial statements june 2008 fasb issued fsp emerging issues task force “eitf” 0361 determining whether instruments granted sharebased payment transactions participating securities “fsp eitf 0361” provisions effective kraft january 1 2009 fsp eitf 0361 considers unvested sharebased payment awards right receive nonforfeitable dividends equivalents participating securities included calculation eps twoclass method following adoption fsp eitf 0361 restricted deferred stock awards considered participating units calculation eps expect adoption statement material impact financial statements december 2008 fasb issued fsp fas 132r1 employers’ disclosures postretirement benefit plan assets “fsp fas 132r1” provisions effective kraft january 1 2009 fsp fas 132r1 provides guidance employer’s disclosures plan assets defined benefit pension postretirement plan expect adoption statement material impact financial statements note 2 acquisitions divestitures lu biscuit acquisition november 30 2007 acquired lu biscuit 51 billion approximately 76 billion cash acquisition included 32 manufacturing facilities approximately 14000 employees acquired net assets consisting primarily goodwill 4052 million deductible statutory tax purposes intangible assets 3546 million substantially indefinitelived receivables 757 million property plant equipment 1054 million inventories 204 million assumed liabilities 1063 million consisting primarily accounts payable accruals purchase price allocations based upon appraisals finalized third quarter 2008 second quarter 2008 also repaid groupe danone sa excess cash received upon acquisition lu biscuit lu biscuit contributed net revenues 32 billion 2008 28 billion proforma basis 2007 lu biscuit reported results operations one month lag 2007 impact operating results proforma basis lu biscuit’s net earnings year ended december 31 2007 would insignificant kraft united biscuits acquisition september 2006 acquired spanish portuguese operations united biscuits “ub” approximately 11 billion noncash acquisition financed assumption 541 million debt issued acquired business immediately prior acquisition well 530 million value redemption outstanding investment ub primarily deepdiscount securities redemption investment ub resulted 251 million gain post cereals splitoff august 4 2008 completed splitoff post cereals business ralcorp holdings inc “ralcorp” exchange shareholders exchange expected taxfree participating shareholders us federal income tax purposes splitoff transaction approximately 461 million shares kraft common stock tendered 1644 million shareholders option exchange shares kraft common stock receive shares common stock cable holdco inc “cable holdco” cable holdco wholly owned subsidiary owned certain assets liabilities post cereals business exchange contribution post cereals business cable holdco issued approximately 665 million debt securities issued shares common stock assumed 300 million credit facility upon closing used cash equivalent net proceeds approximately 960 million repay debt june 25 2008 cable holdco filed registration statement form s1s4a sec announced start exchange offer approximately 305 million shares cable holdco offered exchange kraft common stock exchange ratio 06606 exchange ratio calculated using daily volumeweighted average prices kraft common stock ralcorp common stock nyse last three trading days offer expired august 4 2008 exchange offer oversubscribed result number shares kraft common stock accepted exchange offer prorated following merger cable holdco ralcorp subsidiary cable holdco common stock exchanged shares ralcorp common stock oneforone basis post cereals business included cereals honey bunches oats pebbles shredded wheat selects grapenuts honeycomb kraft brands transaction distributed primarily north america addition post brands transaction included four manufacturing facilities certain manufacturing equipment approximately 1230 employees joined ralcorp part transaction results post cereals business reflected discontinued operations consolidated statement earnings prior period results restated consistent manner pursuant post cereals business transition services agreement agreed provide certain sales comanufacturing distribution information technology accounting finance services ralcorp 12 months ralcorp’s option extend additional 6 months fourth quarter 2008 increased gain discontinued operations 77 million correct deferred tax liability writtenoff upon splitoff post cereals business gain splitoff post cereals business 937 million summary results operations post cereals business august 4 2008 follows following assets post cereals business included post splitoff millions divestitures february 2009 reached agreement divest juice operation brazil transaction subject customary closing conditions including regulatory approvals expect close mid2009 2008 received 153 million net proceeds recorded pretax losses 92 million divestitures primarily related nordic baltic snacks operation four operations spain recorded aftertax losses 64 million divestitures included divestitures following condition eu commission’s approval lu biscuit acquisition • divested operation spain divestiture received 86 million proceeds recorded pretax losses 74 million • divested biscuit operation spain trademark hungary previously acquired part lu biscuit acquisition impacts divestitures reflected adjustments purchase price allocations 2007 received 216 million proceeds recorded pretax gains 15 million divestitures hot cereal assets trademarks sugar confectionery assets romania related trademarks flavored water juice brand assets related trademarks including veryfine fruit2o recorded aftertax loss 3 million divestitures reflect differing book tax bases hot cereal assets trademarks divestiture 2006 received 946 million proceeds recorded pretax gains 117 million divestitures pet snacks brand assets rice brand assets certain canadian assets industrial coconut assets us biscuit brand us coffee plant recorded aftertax gains 31 million divestitures reflects tax expense 57 million related differing book tax bases pet snacks brand assets divestiture gains losses divestitures reflect related asset impairment charges discussed note 6 asset impairment exit implementation costs aggregate operating results divestitures discussed divestiture post cereals business material financial statements periods presented refer note 17 segment reporting details losses gains divestitures segment note 3 inventories december 31 2008 2007 used lifo method determine cost 35 inventories december 31 2008 37 inventories december 31 2007 note 4 property plant equipment property plant equipment december 31 2008 2007 nonamortizable intangible assets consist substantially brand names purchased acquisitions nabisco holdings corp lu biscuit certain operations ub see note 2 acquisitions divestitures details amortizable intangible assets consist primarily trademark licenses customerrelated intangibles noncompete agreements movements goodwill intangible assets significant changes goodwill intangible assets 2008 • acquisitions decreased goodwill 1187 million increased intangible assets 1356 million primarily due refinements preliminary allocations purchase price acquisition lu biscuit allocations based upon appraisals finalized third quarter 2008 • divestitures reduced goodwill 1234 million due splitoff post cereals business reduced goodwill 38 million intangible assets 37 million due divestiture operation spain • asset impairments recorded asset impairment charges 34 million goodwill 1 million intangible assets connection divestiture nordic baltic snacks operation also recorded asset impairment charges 1 million goodwill 8 million intangible assets connection anticipated divestiture juice operation brazil addition fourth quarter 2008 completed annual review goodwill nonamortizable intangible assets recorded 44 million charge impairment intangible assets netherlands france puerto rico • reduced goodwill 56 million primarily related reconciliation inventory deferred tax items also resulted writedown net deferred tax liabilities significant changes goodwill intangible assets 2007 • acquisitions increased goodwill 5239 million intangible assets 2196 million related preliminary allocations purchase price acquisition lu biscuit allocations later finalized 2008 • divestitures reduced goodwill 45 million intangible assets 134 million primarily due divestiture hot cereal assets trademarks • asset impairments recorded asset impairment charge 70 million intangible assets conjunction divestiture flavored water juice brand assets related trademarks • reduced goodwill 87 million primarily due adoption fin 48 see note 1 summary significant accounting policies details reduced intangible assets 17 million primarily due removal fully amortized intangible asset amortization expense intangible assets 23 million 2008 13 million 2007 7 million 2006 currently estimate amortization expense next five years approximately 20 million less note 6 asset impairment exit implementation costs restructuring program 2008 completed fiveyear restructuring program “restructuring program” objectives program leverage global scale realign lower cost structure optimize capacity part restructuring program • incurred 31 billion pretax charges reflecting asset disposals severance implementation costs • announced closure 36 facilities announced elimination approximately 19000 positions • use cash pay 20 billion 31 billion charges incurred charges restructuring program 989 million 2008 459 million 2007 673 million 2006 since inception restructuring program paid cash 15 billion 31 billion charges december 31 2008 489 million accrued restructuring program costs 2008 implemented new operating structure built three core elements business units shared services leverage scale global portfolio streamlined corporate staff within new structure business units full pl accountability staffed accordingly also ensures putting resources closer make decisions affect consumers customers corporate shared service functions continue streamline organizations focus core activities efficiently support goals business units intent simplify streamline increase accountability ultimate goal generating reliable growth kraft total eliminate approximately 1500 positions streamline headquarter functions also process reorganizing european operations function paneuropean centralized category management value chain model reorganization complete european principal company “epc” manage european categories centrally make decisions aspects value chain except sales distribution european subsidiaries execute sales distribution locally local production companies act toll manufacturers behalf epc legal entity incorporated kraft foods europe gmbh zurich switzerland part reorganization incurred 16 million restructuring costs 39 million implementation costs 11 million nonrecurring costs 2008 21 million restructuring costs 24 million implementation costs 10 million nonrecurring costs 2007 7 million restructuring costs 2006 restructuring implementation costs included total restructuring program charges costs relating kraft europe reorganization recorded marketing administration research costs management believes disclosure implementation nonrecurring charges provides readers financial statements greater transparency total costs kraft europe reorganization second quarter 2006 entered sevenyear 17 billion agreement receive information technology services electronic data systems “eds” june 1 2006 began using eds’s data centers eds started providing us web hosting telecommunications workplace services 2008 incurred restructuring costs 2 million implementation costs 14 million related eds transition 2007 reversed 6 million restructuring costs severance costs lower originally anticipated incurred implementation costs 47 million 2006 incurred restructuring costs 51 million implementation costs 56 million amounts included total restructuring program charges restructuring costs restructuring program recorded asset impairment exit costs 884 million 2008 332 million 2007 578 million 2006 pay cash 659 million charges incurred 2008 part program announced closure six plants 2008 restructuring liability activity years ended december 31 2008 2007 severance charges include cost benefits received terminated employees december 31 2008 eliminated approximately 15200 positions announced intent eliminate additional 3800 positions severance charges assets primarily relate incremental pension costs reduce prepaid pension assets asset impairment writedowns caused plant closings related activity cash received asset writedowns reflects net cash proceeds sales assets previously writtendown restructuring program incurred costs related primarily renegotiation supplier contract costs workforce reductions associated facility closings termination leasing agreements implementation costs implementation costs directly attributable exit costs however qualify treatment sfas 146 accounting costs associated exit disposal activities costs primarily include discontinuance certain product lines incremental expenses related closure facilities eds transition reorganization european operations discussed management believes disclosure implementation charges provides readers financial statements greater transparency total costs restructuring program substantially implementation costs incurred 2008 require cash payments implementation costs associated restructuring program asset impairment charges 2008 review goodwill nonamortizable intangible assets recorded 44 million charge impairment intangible assets netherlands france puerto rico addition december 2008 reached preliminary agreement divest juice operation brazil reached agreement sell cheese plant australia anticipation divesting juice operation brazil recorded asset impairment charge 13 million fourth quarter 2008 charge primarily included writeoff associated intangible assets 8 million property plant equipment 4 million anticipation selling cheese plant australia recorded asset impairment charge 28 million property plant equipment fourth quarter 2008 additionally 2008 divested nordic baltic snacks operation incurred asset impairment charge 55 million connection divestiture charge primarily included writeoff associated goodwill 34 million property plant equipment 16 million recorded aggregate asset impairment charges within asset impairment exit costs 2007 divested flavored water juice brand assets related trademarks recognition divestiture recorded 120 million asset impairment charge assets charge primarily included writeoff associated intangible assets 70 million property plant equipment 47 million recorded within asset impairment exit costs 2006 annual review goodwill nonamortizable intangible assets recorded 24 million charge impairment intangible assets egypt hot cereal intangible assets us additionally 2006 reevaluated business model tassimo hot beverage system revenues lagged projections evaluation resulted 245 million asset impairment charge related lower utilization existing manufacturing capacity also incurred asset impairment charge 86 million 2006 recognition pet snacks brand assets divestiture charge primarily included writeoff portion associated goodwill 25 million intangible assets 55 million addition january 2007 announced divestiture hot cereal assets trademarks recorded asset impairment charge 69 million fourth quarter 2006 connection anticipated divestiture charge primarily included writeoff portion associated goodwill 15 million intangible assets 52 million transaction closed 2007 impairment charges incurred divestiture recorded aggregate asset impairment charges within asset impairment exit costs total asset impairment exit implementation costs included asset impairment exit implementation costs discussed years ended december 31 2008 2007 2006 segment operating income follows fair values shortterm borrowings december 31 2008 2007 based upon current market interest rates approximate amounts disclosed borrowing arrangements maintain revolving credit facility historically used general corporate purposes support commercial paper issuances 45 billion multiyear revolving credit facility expires april 2010 amounts drawn facility october 2008 one syndicate banks credit facility lehman commercial paper inc filed bankruptcy protection lehman’s commitment credit facility approximately 136 million expect replace capacity credit facility accordingly reduced approximately 44 billion must maintain net worth least 200 billion terms revolving credit facility december 31 2008 net worth 222 billion expect continue meet covenant revolving credit facility financial covenants credit rating triggers provisions could require us post collateral security addition international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 17 billion december 31 2008 borrowings lines amounted 291 million december 31 2008 250 million december 31 2007 december 31 2007 borrowed 38 billion approximately 55 billion 364day bridge facility agreement used acquire lu biscuit “lu biscuit bridge facility” terms credit agreement required repay borrowings net cash proceeds debt offerings maturity greater one year repaid 38 billion approximately 59 billion time repayments proceeds march 20 2008 may 22 2008 debt issuances discussed upon repayment facility terminated longterm debt december 19 2008 issued 500 million senior unsecured notes used net proceeds 498 million general corporate purposes including repayment outstanding commercial paper general terms 500 million notes 500 million total principal notes due february 19 2014 fixed annual interest rate 6750 interest payable semiannually began february 19 2009 may 22 2008 issued 20 billion senior unsecured notes used net proceeds 1967 million general corporate purposes including repayment borrowings lu biscuit bridge facility shortterm borrowings general terms 20 billion notes • 1250 million total principal notes due august 23 2018 fixed annual interest rate 6125 interest payable semiannually beginning february 23 2009 • 750 million total principal notes due january 26 2039 fixed annual interest rate 6875 interest payable semiannually began january 26 2009 march 20 2008 issued 285 billion approximately 45 billion senior unsecured notes used net proceeds approximately 4470 million repay portion lu biscuit bridge facility general terms 285 billion notes • 20 billion approximately 32 billion total principal notes due march 20 2012 fixed annual interest rate 5750 interest payable annually beginning march 20 2009 • 850 million approximately 13 billion total principal notes due march 20 2015 fixed annual interest rate 6250 interest payable annually beginning march 20 2009 december 12 2007 issued 30 billion senior unsecured notes used net proceeds 2966 million general corporate purposes including repayment outstanding commercial paper portion lu biscuit bridge facility general terms 30 billion notes • 20 billion total principal notes due february 1 2018 fixed annual interest rate 6125 interest payable semiannually began august 1 2008 • 10 billion total principal notes due february 1 2038 fixed annual interest rate 6875 interest payable semiannually began august 1 2008 august 13 2007 issued 35 billion senior unsecured notes used net proceeds 3462 million general corporate purposes including repayment outstanding commercial paper general terms 35 billion notes • 250 million total principal notes due august 11 2010 fixed annual interest rate 5625 interest payable semiannually began february 11 2008 • 750 million total principal notes due february 11 2013 fixed annual interest rate 6000 interest payable semiannually began february 11 2008 • 15 billion total principal notes due august 11 2017 fixed annual interest rate 6500 interest payable semiannually began february 11 2008 • 750 million total principal notes due august 11 2037 fixed annual interest rate 7000 interest payable semiannually began february 11 2008 • 250 million total principal notes due august 11 2010 floating annual interest rate libor plus 50 basis points resets quarterly rate december 31 2008 2735 interest floating rate notes payable quarterly began november 13 2007 notes issuances discussed include covenants restrict ability incur debt secured liens certain threshold also required offer purchase notes price equal 101 aggregate principal amount plus accrued unpaid interest date repurchase experience following “change control” triggering event ii downgrade notes investment grade rating moody’s investors service inc standard poor’s ratings services fitch inc within specified period expect continue comply longterm debt covenants december 31 2008 2007 longterm debt consisted interest rates december 31 2008 note 8 capital stock articles incorporation authorize 30 billion shares class common stock 20 billion shares class b common stock 500 million shares preferred stock shares class common stock issued repurchased outstanding march 2007 repurchased 14 million additional shares common stock altria cost 465 million paid 32085 per share average high low price kraft common stock reported nyse march 1 2007 repurchase accordance altria spinoff agreement note 9 accumulated comprehensive losses components accumulated comprehensive losses note 10 stock plans beginning 2008 changed annual longterm incentive compensation programs align shareholder returns annual incentive program grant equity form restricted deferred stock options restricted deferred stock continue vest 100 three years stock options vest onethird year beginning first anniversary grant date additionally changed longterm incentive plan cashbased program sharebased program shares vest based varying performance market service conditions kraft 2005 performance incentive plan “2005 plan” may grant eligible employees awards stock options stock appreciation rights restricted stock restricted deferred stock units awards based common stock well performancebased annual longterm incentive awards authorized issue maximum 150 million shares common stock 2005 plan 45 million shares may awarded restricted deferred stock addition kraft 2006 stock compensation plan nonemployee directors “2006 directors plan” may grant 500000 shares common stock members board directors fulltime employees december 31 2008 95075163 shares available granted 2005 plan 412996 shares available granted 2006 directors plan restricted deferred shares available grant 2005 plan december 31 2008 27229592 stock awards issued employees treasury stock specific policy repurchase common stock mitigate dilutive impact options however historically made adequate discretionary purchases based cash availability market trends factors satisfy stock option exercise activity january 1 2006 adopted sfas 123 revised 2004 sharebased payment “sfas 123r” modified prospective method adoption sfas 123r insignificant impact earnings 2006 gross cumulative effect recorded marketing administration research costs stock option plan stock options granted exercise price equal market value underlying stock grant date generally become exercisable onethird year beginning first anniversary grant date maximum term ten years prior 2008 granted stock options broadbased program since 2002 account employee stock options fair value method accounting using modified blackscholes methodology measure stock option expense date grant fair value stock options date grant amortized expense vesting period recorded compensation expense related stock options 18 million 2008 deferred tax benefit recorded related compensation expense 6 million 2008 unamortized compensation expense related stock options 40 million december 31 2008 expected recognized weightedaverage period two years weightedaverage blackscholes fair value assumptions follows february 2008 part annual incentive program granted 135 million stock options eligible us nonus employees exercise price 2949 also granted 01 million offcycle stock options 2008 exercise price 3078 may 3 2007 board directors approved stock option grant ceo recognize election chairman received 300000 stock options 2005 plan vest varying market service conditions expire ten years grant date grant insignificant impact earnings 2007 prior ipo certain kraft employees participated altria’s stock compensation plans ipo altria issue stock awards employees reloads previously issued options stock awards issued result spinoff altria reloads issued 2008 2007 compensation expense altria stock option awards reloads totaled 3 million 2006 related tax benefit totaled 1 million fair value awards determined using modified blackscholes methodology using following weightedaverage assumptions altria common stock january 2008 granted 14 million shares stock connection longterm incentive plan market value per share 3226 date grant february 2008 part annual incentive program issued 34 million shares restricted deferred stock eligible us nonus employees market value per restricted deferred share 2949 date grant also issued 02 million offcycle shares restricted deferred stock 2008 weightedaverage market value per restricted deferred share 3038 date grant january 2007 issued 52 million shares restricted deferred stock eligible us nonus employees part annual incentive program market value per restricted deferred share 34655 date grant additionally issued 10 million offcycle shares restricted deferred stock 2007 weightedaverage market value per restricted deferred share 34085 date grant total number restricted deferred shares issued 2007 92 million including issued result spinoff altria discussed weightedaverage grant date fair value restricted deferred stock granted 151 million 3038 per restricted deferred share 2008 310 million 3363 per restricted deferred share 2007 200 million 2916 per restricted deferred share 2006 vesting date fair value restricted deferred stock 196 million 2008 153 million 2007 123 million 2006 bifurcation stock awards upon spinoff altria upon spinoff altria stock awards modified issuance kraft stock awards accordingly altria stock awards split two instruments holders altria stock options received 1 new kraft option acquire shares kraft common stock 2 adjusted altria stock option number shares altria common stock previously held proportionally reduced exercise price employee stock option outstanding aggregate intrinsic value immediately spinoff altria greater aggregate intrinsic value immediately prior holders altria restricted stock rights awarded january 31 2007 retained existing awards received restricted stock rights kraft common stock recipients altria restricted stock rights awarded january 31 2007 receive kraft restricted stock rights altria announced spinoff time reimbursed altria 179 million net settlement employee stock awards determined fair value stock options using blackscholes option valuation model adjusted fair value restricted stock rights value projected forfeitures based upon number altria stock awards outstanding upon spinoff granted stock options 242 million shares kraft common stock weightedaverage price 1575 options expire 2007 2012 addition issued 30 million shares restricted stock rights market value per restricted share right 3166 date grant restrictions majority restricted stock rights lapse first quarter either 2008 2009 note 11 benefit plans pension plans obligations funded status projected benefit obligations plan assets funded status pension plans december 31 2008 2007 accumulated benefit obligation represents benefits earned measurement date 5464 million december 31 2008 5349 million december 31 2007 us pension plans accumulated benefit obligation nonus pension plans 3024 million december 31 2008 3979 million december 31 2007 combined us nonus pension plans resulted net pension liability 2340 million december 31 2008 net prepaid pension asset 820 million december 31 2007 recognized amounts consolidated balance sheets december 31 2008 2007 follows retired employees elected lumpsum payments resulting settlement losses us plans 55 million 2008 47 million 2007 49 million 2006 additionally previously discussed note 6 asset impairment exit implementation costs announced several workforce reduction initiatives part restructuring program employees left kraft initiatives resulting settlement losses us plans 19 million 2008 21 million 2007 17 million 2006 nonus plant closures early retirement benefits resulted curtailment settlement losses 16 million 2008 4 million 2007 13 million 2006 costs included expense us plans determine expected return plan assets component net periodic benefit cost using calculated market return value recognizes cost four year period nonus plans utilize similar approach varying cost recognition periods plans others determine expected return plan assets based asset fair values measurement date combined us nonus pension plans expect amortize accumulated comprehensive losses net periodic pension cost 2009 • estimated 180 million net loss experience differences • estimated 11 million prior service cost used following weightedaverage assumptions determine net pension cost years ended december 31 investment strategy based expectation equity securities outperform debt securities long term accordingly composition us plan assets broadly characterized 70 30 allocation equity debt securities strategy uses indexed us equity securities actively managed international equity securities actively managed investment grade debt securities constitute 80 debt securities lesser allocations high yield international debt securities plans outside us investment strategy subject local regulations asset liability profiles plans individual country specific circumstances result level equity exposure typically less us plans aggregate asset allocation targets nonus plans broadly characterized mix 50 equity securities 40 debt securities 10 real estate attempt maintain target asset allocation rebalancing equity debt asset classes make contributions monthly benefit payments intend rebalance plan portfolios mid2009 making contributions monthly benefit payments make contributions us nonus pension plans primarily extent tax deductible generate excise tax liability based current tax law plan make contributions approximately 220 million us plans approximately 170 million nonus plans 2009 however actual contributions may different due many factors including changes tax benefit laws pension asset performance differs significantly expected performance significant changes interest rates future benefit payments estimated future benefit payments pension plans december 31 2008 current portion accrued postretirement health care costs 221 million december 31 2008 217 million december 31 2007 included accrued liabilities used following weightedaverage assumptions determine postretirement benefit obligations december 31 future benefit payments estimated future benefit payments postretirement health care plans december 31 2008 postemployment benefit plan cost workforce reduction initiatives announced restructuring program 560 million 2008 132 million 2007 247 million 2006 costs included expense estimated net gain postemployment benefit plans amortized accumulated comprehensive losses net postemployment costs 2009 insignificant note 12 financial instruments commodity cash flow hedges derivative instruments highly effective qualify hedge accounting sfas 133 expect transfer unrealized losses 108 million net taxes earnings next 12 months recognized insignificant amount years ended december 31 2008 2007 2006 recorded insignificant amount ineffectiveness earnings years ended december 31 2008 2007 2006 derivative instruments considered economic hedges designate hedge accounting treatment sfas 133 recognized net gains 56 million 2007 impact earnings insignificant 2008 2006 december 31 2008 hedged forecasted commodity transactions periods exceeding next 15 months foreign currency cash flow hedges derivative instruments highly effective qualify hedge accounting treatment sfas 133 expect transfer unrealized gains 77 million net taxes earnings next 12 months recognized insignificant amount years ended december 31 2008 2007 2006 recorded ineffectiveness foreign currency cash flow hedges earnings years ended december 31 2008 2007 2006 october 2008 one counterparties lehman brothers commercial corporation filed bankruptcy consequently wrote insignificant asset related derivatives held significant impact foreign currency risk management program derivative instruments consider economic hedges designate hedge accounting treatment sfas 133 recognized net losses earnings 50 million 2008 231 million 2007 124 million 2006 majority losses attributable hedges intercompany loans economically offset foreign currency gains intercompany receivable december 31 2008 hedged forecasted foreign currency transactions periods exceeding next 36 months excluding intercompany loans hedged forecasted foreign currency transactions periods exceeding next 12 months impact comprehensive losses derivatives accounted hedges affected accumulated comprehensive losses net taxes years ended december 31 2008 2007 2006 follows hedges net investments foreign operations designated euro denominated borrowings used finance lu biscuit acquisition net investment hedge portion overall european operations cumulative translation adjustment net taxes included gains 83 million year ended december 31 2008 28 million year ended december 31 2007 related euro denominated borrowings note 13 commitments contingencies legal proceedings defendants variety legal proceedings plaintiffs cases seek substantial damages cannot predict certainty results proceedings however believe final outcome proceedings materially affect financial results 2008 recorded charges 72 million legal matters related certain us european operations including us coffee operations thirdparty guarantees thirdparty guarantees acquisition divestiture construction activities part transactions guarantee third parties make contractual payments achieve performance measures december 31 2008 maximum potential payments thirdparty guarantees 43 million approximately 8 million specified expiration dates substantially remainder expire various times 2018 carrying amounts guarantees 38 million consolidated balance sheet december 31 2008 leases rental expenses 505 million 2008 433 million 2007 416 million 2006 minimum rental commitments noncancelable operating leases effect december 31 2008 millions thereafter note 14 income taxes earnings continuing operations income taxes provision income taxes consisted following years ended december 31 2008 2007 2006 additionally 2008 earnings gain discontinued operations splitoff post cereals business included net tax benefit 104 million january 1 2008 unrecognized tax benefits 850 million recognized benefits net impact income tax provision would 666 million unrecognized tax benefits 807 million december 31 2008 recognized benefits net impact income tax provision would 612 million expect unrecognized tax benefits decrease approximately 70 million 75 million next 12 months due various audit resolutions expirations statutes limitations include accrued interest penalties related uncertain tax positions tax provision accrued interest penalties 232 million january 1 2008 239 million december 31 2008 provision income taxes included 17 million interest penalties paid 6 million 2008 furthermore 2008 decreased interest penalties accrual 4 million due refinements preliminary allocations purchase price acquisition lu biscuit changes unrecognized tax benefits years ended december 31 2008 2007 millions 2008 effective tax rate included net tax benefits 242 million discrete tax events total net tax benefits 29 million related reconciliation inventory deferred tax items resulted writedown net deferred tax liabilities third quarter 42 million related fourth quarter corrections state federal foreign tax liabilities remaining net tax benefits primarily related resolution various tax audits expiration statutes limitations various jurisdictions discrete tax benefits included impact divestitures nordic baltic snacks operation several operations spain tax benefit impairment charges taken 2008 addition 2008 tax rate benefited foreign earnings taxed us federal statutory tax rate expected tax benefit 2008 restructuring expenses benefits partially offset state tax expense certain foreign costs 2007 effective tax rate included net tax benefits 184 million primarily including effects dividend repatriation benefits foreign joint venture earnings effect foreign deferred taxes lower foreign tax rates enacted 2007 tax rate also benefited foreign earnings taxed us federal statutory tax rate increased domestic manufacturing deduction divestiture flavored water juice brand assets related trademarks benefits partially offset state tax expense tax costs associated divestiture hot cereal assets trademarks interest income altria related transfer federal tax contingencies discussed note 1 summary significant accounting policies 2006 irs concluded examination altria’s consolidated tax returns years 1996 1999 irs issued final revenue agents report march 15 2006 consequently altria reimbursed us 337 million federal tax reserves longer necessary 46 million interest 29 million net tax also recognized net state tax reversals 39 million total tax provision benefit 376 million 337 million federal plus 39 million state total benefit net earnings recognized first quarter 2006 due irs settlement 405 million 2006 tax rate also benefited resolution various tax items foreign operations dividend repatriation benefits joint venture earnings lower foreign tax rates enacted 2006 primarily canada benefits partially offset state tax expense tax costs associated 2006 divestitures tax effects temporary differences gave rise deferred income tax assets liabilities consisted following december 31 2008 2007 note 15 earnings per share basic diluted eps continuing discontinued operations calculated using following year ended december 31 2008 excluded 113 million kraft stock options calculation weightedaverage shares diluted eps antidilutive years ended december 31 2007 2006 excluded insignificant number kraft stock options calculation weightedaverage shares diluted eps antidilutive note 16 transactions altria group inc march 30 2007 entered postspin transition services agreement altria’s subsidiary altria corporate services inc “alcs” agreement alcs provided information technology services kraft eds transition spinoff altria alcs provided prespin administrative services us separate corporate services agreement expired march 30 2007 services included planning legal treasury auditing insurance human resources office secretary corporate affairs information technology aviation tax services billings services 29 million 2007 178 million 2006 january 1 2008 alcs longer provided services kraft march 30 2007 also entered employee matters tax sharing agreements altria employee matters agreement set company’s obligations employee transfers equity compensation employee benefits matters individuals moving previously moved companies tax sharing agreement identified altria’s kraft’s rights responsibilities obligations respect income taxes following spinoff altria also placed certain restrictions us including 2year limit share repurchases 20 common stock outstanding time spinoff altria also see note 14 income taxes information closure irs review altria’s consolidated federal income tax return 2006 impacted us note 17 segment reporting kraft manufactures markets packaged food products including snacks beverages cheese convenient meals various packaged grocery products manage report operating results two commercial units kraft north america kraft international manage kraft north america’s operations product category reportable segments us beverages us cheese us convenient meals us grocery us snacks formerly known us snacks cereals canada north america foodservice manage kraft international’s operations geographic location reportable segments european union developing markets effective august 4 2008 completed splitoff post cereals business results post cereals business reflected discontinued operations consolidated statement earnings prior period results restated consistent manner 2008 implemented new operating structure result began reporting results operations new structure first quarter 2008 restated results prior periods consistent manner changes • us cheese organized standalone operating segment order create selfcontained integrated business unit support faster growth • macaroni cheese category well dinner products moved us convenient meals segment us grocery segment take advantage operating synergies • canada north america foodservice structured standalone reportable segment change allows us deliver unique requirements canadian consumer customer maintaining strong north american linkages innovation new product development new capabilities drive business furthermore allows us manage strategic customer decisions continue capture crossborder sales marketing synergies within foodservice operations management uses segment operating income evaluate segment performance allocate resources management believes appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales general corporate expenses amortization intangibles periods presented second quarter 2008 began excluding unrealized gains losses hedging activities segment operating income order provide better transparency segment operating results realized gains losses hedging activities recorded within segment operating results centrally manage interest expense provision income taxes accordingly present items segment excluded segment profitability measure management reviews use accounting policies segments described note 1 summary significant accounting policies segment data total assets depreciation expense capital expenditures segment note 18 quarterly financial data unaudited item 9item 8 financial statements supplementary data kraft foods inc subsidiaries consolidated statements earnings years ended december 31 millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated balance sheets december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements equity millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements cash flows years ended december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature operations basis presentation kraft foods inc incorporated 2000 commonwealth virginia kraft foods inc subsidiaries collectively “kraft foods” “we” “us” “our” sells packaged food beverage products consumers approximately 160 countries prior june 13 2001 kraft foods wholly owned subsidiary altria group inc “altria” june 13 2001 completed initial public offering 280000000 shares class common stock “common stock” first quarter 2007 altria spun remaining interest 890 kraft foods pro rata basis altria stockholders taxfree transaction effective close business march 30 2007 kraft foods shares owned altria distributed altria’s stockholders separation altria completed principles consolidation consolidated financial statements include kraft foods well wholly owned majority owned subsidiaries domestic operating subsidiaries report yearend results last saturday year international operating subsidiaries generally report yearend results two weeks prior last saturday year account investments exercise significant influence 2050 ownership interest equity method accounting use cost method accounting investments ownership interest less 20 exercise significant influence noncontrolling interest subsidiaries consists equity interest noncontrolling investors consolidated subsidiaries kraft foods intercompany transactions eliminated use estimates prepare financial statements accordance accounting principles generally accepted united states america “us gaap” require us make estimates assumptions affect number amounts financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions lives valuation assumptions goodwill intangible assets marketing programs income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year significant impact consolidated financial statements foreign currencies translate results operations foreign subsidiaries using average exchange rates period whereas balance sheet accounts translated using exchange rates end period record currency translation adjustments component equity transaction gains losses recorded earnings significant periods presented highly inflationary accounting fourth quarter 2009 venezuelan economy classified highly inflationary us gaap effective january 1 2010 venezuelan subsidiary accounted highly inflationary accounting rules principally means transactions recorded us dollars venezuela three exchange rates official rate consumer staples rate secondary parallel rate historically used continue use official rate translate venezuelan operations however prior change accounting cash exchanged us dollars using secondary market carried rate upon change highly inflationary accounting required translate us dollars hand using official rate additionally january 8 2010 venezuelan government devalued currency accordingly required revalue net assets venezuela recorded insignificant loss reflected first quarter 2010 results disclosure reflect impacts recent acquisition activity cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less inventories stated lower cost market record inventory allowances overstocked obsolete inventories due ingredient packaging changes effective january 1 2009 changed method valuing us inventories average cost method prior years principally us inventories valued using lastin firstout “lifo” method believe average cost method accounting us inventories preferable improve financial reporting better matching revenues expenses current costs better aligning external reporting competitors aligning external reporting tax basis accounting financial statements periods presented conformed change accounting policy change value inventories using average cost method following line items within statements earnings affected change accounting policy result accounting change retained earnings january 1 2007 decreased 11128 million computed using lifo method 11109 million using average cost method impact net cash provided operating activities result change accounting policy longlived assets property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years review longlived assets including amortizable intangible assets impairment conditions exist indicate carrying amount assets may fully recoverable perform undiscounted operating cash flow analyses determine impairment exists testing assets held use impairment group assets liabilities lowest level cash flows separately identifiable impairment determined exist loss calculated based estimated fair value impairment losses assets disposed based estimated proceeds received less costs disposal software costs capitalize certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment amortized straightline basis estimated useful lives software exceed seven years goodwill intangible assets test goodwill nonamortizable intangible assets least annually impairment recognized goodwill reporting units generally one level operating segments use two step process test goodwill reporting unit level first step involves comparison estimated fair value reporting unit carrying value fair value estimated using discounted cash flows reporting unit based planned growth rates estimates discount rates residual values carrying value exceeds fair value second step process necessary second step measures difference carrying value implied fair value goodwill test nonamortizable intangible assets impairment compare fair value intangible asset carrying value fair value nonamortizable intangible assets determined using planned growth rates estimates discount rates royalty rates carrying value exceeds fair value intangible asset considered impaired reduced fair value definitelived intangible assets amortized estimated useful lives perform annual impairment review goodwill nonamortizable intangible assets october 1 year basis valuation methodology estimating fair value 20 reporting units 20year projection discounted cash flows based annual strategic planning process estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions reporting units within kraft foods north america kraft foods europe geographic units used marketparticipant weightedaverage cost capital 75 discount projected cash flows operations reporting units within kraft foods developing markets geographic unit used riskrated discount rate 105 insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits liabilities associated risks estimated considering historical claims experience actuarial assumptions revenue recognition recognize revenues title risk loss pass customers generally occurs upon shipment delivery goods revenues recorded net consumer incentives trade promotions include shipping handling charges billed customers kraft foods’ shipping handling costs classified part cost sales provision product returns allowances bad debts also recorded reductions revenues within period revenue recognized excise taxes effective january 1 2009 changed classification certain excise taxes net presentation within cost sales prior years excise taxes classified gross within net revenues cost sales change report excise similar taxes using net presentation method made change better align net revenues various countries provide better clarity net revenues margins result removed 269 million 2008 276 million 2007 net revenues netted amounts within cost sales made change 2009 net revenues 40386 million would 40621 million cost sales 25786 million would 26021 million change material impact net revenues cost sales marketing administration research costs marketing promote products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives expense advertising costs either period advertising first takes place incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred advertising expense 1648 million 2009 1639 million 2008 1471 million 2007 research expense costs incurred product research development research development expense 477 million 2009 498 million 2008 442 million 2007 environmental costs subject laws regulations relating protection environment accrue environmental remediation obligations undiscounted basis amounts probable reasonably estimated accruals adjusted new information develops circumstances change recoveries environmental remediation costs third parties recorded assets recovery costs deemed probable december 31 2009 subsidiaries involved 71 active actions us superfund legislation similar actions related current operations certain former divested operations retain liability based information currently available believe ultimate resolution existing environmental remediation actions compliance general environmental laws regulations material effect financial results however cannot quantify certainty potential impact future compliance efforts environmental remediation actions employee benefit plans september 2006 new guidance issued surrounding employers’ accounting defined benefit pension postretirement plans new guidance required us measure plan assets benefit obligations balance sheet date beginning 2008 previously measured nonus pension plans certain canadian french pension plans september 30 year december 31 2008 recorded aftertax decrease 8 million retained earnings using 15month approach proportionally allocate transition adjustment required upon adoption measurement provision new guidance plan assets benefit obligations pension plans benefit obligations postretirement plans measured yearend provide range benefits employees retired employees include pension benefits postretirement health care benefits postemployment benefits consisting primarily severance provide pension coverage certain employees nonus subsidiaries separate plans local statutory requirements govern many plans salaried nonunion hourly employees hired us january 1 2009 discontinued benefits us pension plans replaced enhanced company contribution employee savings plan additionally freezing us pension plans current salaried nonunion hourly employees effective december 31 2019 pension accruals salaried nonunion employees currently earning pension benefits end december 31 2019 continuing pay service used calculate pension benefits december 31 2019 projected benefit obligation decreased 168 million 2009 incurred 5 million curtailment charge 2009 related freeze us canadian subsidiaries provide health care benefits retired employees local government plans generally cover health care benefits retirees outside us canada postemployment benefit plans cover salaried certain hourly employees cost plans charged expense working life covered employees financial instruments operate globally use certain financial instruments manage foreign currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price interest rate risk management strategies seek reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices interest rates principally use derivative instruments financial instruments qualifying hedge accounting must maintain specified level effectiveness hedging instrument item hedged inception throughout hedged period formally document nature relationships hedging instruments hedged items well risk management objectives strategies undertaking various hedge transactions method assessing hedge effectiveness additionally hedges forecasted transactions significant characteristics expected terms forecasted transaction must specifically identified must probable forecasted transaction occur deem probable forecasted transaction occur recognize gain loss earnings currently using derivatives hedge exposures changes exchange rates commodity prices interest rates exposure derivatives credit market risk exposed credit risk counterparty might fail fulfill performance obligations terms derivative contract minimize credit risk entering transactions high quality counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties october 2008 one counterparties lehman brothers commercial corporation filed bankruptcy consequently wrote insignificant asset related derivatives held significant impact foreign currency risk management program also maintain policy requiring significant nonexchange traded derivative contracts duration greater one year governed international swaps derivatives association master agreement market risk value financial instrument might adversely affected change foreign currency exchange rates commodity prices interest rates manage market risk incorporating monitoring parameters within risk management strategy limit types derivative instruments derivative strategies use degree market risk may undertaken use derivative instruments record derivative financial instruments fair value consolidated balance sheets either current assets current liabilities cash flows hedging instruments classified manner affected hedged item consolidated statements cash flows commodity cash flow hedges exposed price risk related forecasted purchases certain commodities primarily use raw materials accordingly use commodity forward contracts cash flow hedges primarily meat coffee dairy sugar cocoa wheat commodity forward contracts generally qualify normal purchase exception guidance derivative instruments hedging activities therefore subject provisions use commodity futures options hedge price certain input costs including dairy coffee cocoa wheat corn products soybean oils meat products sugar natural gas heating oil derivative instruments highly effective qualify hedge accounting treatment also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes derivative instruments highly effective qualify hedge accounting treatment defer effective portion unrealized gains losses commodity futures option contracts component accumulated comprehensive earnings losses recognize deferred portion component cost sales related inventory sold ineffectiveness directly recorded component cost sales derivative instruments consider economic hedges designate hedge accounting treatment recognize gains losses directly component cost sales foreign currency cash flow hedges use various financial instruments mitigate exposure changes exchange rates thirdparty intercompany actual forecasted transactions instruments include forward foreign exchange contracts foreign currency swaps foreign currency options based size location businesses use instruments hedge exposure certain currencies including euro swiss franc british pound canadian dollar derivative instruments highly effective qualify hedge accounting treatment defer effective portion unrealized gains losses associated forward swap option contracts component accumulated comprehensive earnings losses underlying hedged transactions reported earnings recognize deferred portion component cost sales related inventory sold interest expense net hedges intercompany loans payments made derivative instruments consider economic hedges designate hedge accounting treatment recognize gains losses directly component cost sales interest expense net depending nature underlying transaction interest rate cash flow fair value hedges manage interest rate volatility modifying repricing maturity characteristics certain liabilities net interest margin material basis adversely affected movements interest rates result interest rate fluctuations hedged fixedrate liabilities appreciate depreciate market value effect unrealized appreciation depreciation expected substantially offset gains losses derivative instruments linked hedged liabilities use derivative instruments including interest rate swaps indices related pricing specific liabilities part interest rate risk management strategy matter policy use highly leveraged derivative instruments interest rate risk management use interest rate swaps economically convert portion nonprepayable fixedrate debt variablerate debt interest rate swap contracts agree parties exchange specified intervals difference fixedrate floatingrate interest amounts calculated based agreedupon notional amount also use interest rate swaps hedge variability interest payment cash flows portion future debt obligations substantially derivative instruments highly effective qualify hedge accounting treatment derivative instruments highly effective qualify hedge accounting treatment either record impacts current period earnings defer effective portion unrealized gains losses component accumulated comprehensive earnings losses depending whether hedging relationship satisfies criteria fair value cash flow hedge fair value hedges record gains losses interest rate swaps ii corresponding changes fair value hedged longterm debt directly component interest expense net cash flow hedges recognize deferred portion component interest expense net incur interest expense ineffective portion directly recorded component interest expense net derivative instruments consider economic hedges designate hedge accounting treatment recognize gains losses directly component interest expense net hedges net investments foreign operations numerous investments foreign subsidiaries net assets subsidiaries exposed volatility foreign currency exchange rates use foreigncurrencydenominated debt hedge net investment foreign operations adverse movements exchange rates designated euro denominated borrowings net investment hedge portion overall european operations gains losses net investment designated european operations economically offset losses gains euro denominated borrowings change debt’s fair value recorded currency translation adjustment component accumulated comprehensive earnings losses guarantees authoritative guidance related guarantor’s accounting disclosure requirements guarantees requires us disclose certain guarantees recognize liability fair value obligation qualifying guarantee activities see note 13 commitments contingencies discussion guarantees income taxes prior spinoff altria included altria’s consolidated federal income tax return generally computed income taxes separate company basis however foreign tax credits capital losses credits could used separate company basis extent altria used foreign tax credits tax benefits consolidated federal income tax return recognized benefit calculation provision income taxes benefit approximately 270 million 2007 made payments reimbursed altria tax effects resulting included altria’s tax return march 31 2007 longer member altria consolidated tax return group file federal consolidated income tax returns result spinoff altria transferred federal tax contingencies balance sheet related interest income 77 million 2007 additionally 2007 altria paid us 305 million federal tax contingencies held less impact federal reserves reversed due adoption new guidance discussed addressed accounting uncertainty income taxes amount reflected component change current assets within net cash provided operating activities section consolidated statement cash flows july 2006 new guidance issued addressed accounting uncertainty income taxes adopted guidance effective january 1 2007 guidance clarified tax benefits recorded financial statements provided measurement criteria valuing benefits order us recognize benefits tax position must likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement implementation guidance established additional provisions certain positions likely challenged even though believe existing tax positions fully supportable adoption guidance resulted increase equity january 1 2007 213 million recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized reclassification 2009 separately disclosed noncash expense net within net cash provided operating activities section consolidated statement cash flows made conforming changes presentation prior years change impact cash provided operating activities periods presented 2009 also changed cost assignment methodology headquarter functional costs across operating structure result reclassified 188 million 2008 83 million 2007 marketing administration research costs cost sales change impact net earnings periods presented new accounting pronouncements september 2006 new guidance issued fair value measurements guidance defines fair value establishes framework measuring fair value expands disclosures fair value measurements effective date guidance items recognized disclosed fair value annual frequently recurring basis january 1 2008 effective date guidance nonfinancial assets liabilities january 1 2009 partially adopted guidance effective january 1 2008 partial adoption guidance material impact financial statements adopted remaining provisions effective january 1 2009 adoption affects way calculate fair value annual impairment review goodwill nonamortizable intangible assets conditions exist require us calculate fair value longlived assets however adoption material impact financial statements december 2007 new guidance issued business combinations adopted guidance effective january 1 2009 guidance requires acquiring entity business combination recognize assets acquired liabilities assumed transaction establishes acquisitiondate fair value measurement objective assets acquired liabilities assumed requires acquirer disclose information needed investors understand nature financial effect business combination adoption guidance material impact financial statements december 2007 new guidance also issued noncontrolling interests consolidated financial statements adopted guidance effective january 1 2009 guidance requires us classify noncontrolling interests subsidiaries separate component equity instead within liabilities additionally transactions entity noncontrolling interests must treated equity transactions therefore longer removed net income rather accounted equity adoption guidance material impact financial statements june 2008 new guidance issued assist determining whether instruments granted sharebased payment transactions participating securities adopted guidance effective january 1 2009 guidance considers unvested sharebased payment awards right receive nonforfeitable dividends equivalents participating securities included calculation eps twoclass method accordingly restricted deferred stock awards considered participating units calculation eps adoption guidance material impact financial statements may 2009 new guidance issued subsequent events requires management evaluate subsequent events date financial statements either issued available issued depending company’s expectation whether widely distribute financial statements shareholders financial statement users companies required disclose date subsequent events evaluated adopted guidance effective june 30 2009 june 2009 new guidance issued consolidation variable interest entities provisions effective kraft foods january 1 2010 guidance improves financial reporting enterprises involved variable interest entities expect adoption guidance material impact financial statements note 2 acquisitions divestitures cadbury acquisition january 19 2010 announced terms final offer outstanding ordinary share cadbury plc “cadbury” including ordinary share represented american depositary share “cadbury ads” cadbury board directors recommended cadbury shareholders accept terms final offer terms offer agreed pay cadbury shareholders 500 pence cash 01874 shares kraft foods common stock per cadbury ordinary share validly tendered 2000 pence cash 07496 shares kraft foods common stock per cadbury ads validly tendered valued cadbury ordinary share 840 pence cadbury ads £3360 based closing price 2958 share kraft foods common stock january 15 2010 exchange rate 163 per £100 valued entire issued share capital cadbury £119 billion approximately 194 billion january 15 2010 last trading day publication final offer combination kraft foods cadbury create global powerhouse snacks confectionery quick meals rich portfolio iconic brands february 2 2010 conditions offer satisfied validly waived initial offer period expired subsequent offer period immediately began point received acceptances 7173 outstanding cadbury ordinary shares including represented cadbury adss subsequent offer period remains open notice least 14 days notice given kraft foods decides close offer february 15 2010 received acceptances 1262356520 shares representing 9102 outstanding cadbury ordinary shares including represented cadbury adss received acceptances 90 cadbury shares n process acquiring remaining cadbury ordinary shares tendered offer including represented cadbury adss compulsory acquisition procedure united kingdom companies act 2006 amended additionally condition eu commission’s approval cadbury acquisition required divest confectionary operations poland romania part acquisition cadbury expensed approximately 40 million transaction related fees 2009 incurred also incurred 40 million financing fees 2009 related acquisition accounting cadbury acquisition incomplete time issued financial statements accordingly impracticable us make certain business combination disclosures time filing impracticable us complete reconciliation cadbury’s ifrs financial statements us gaap accordingly unable present acquisition date fair value assets acquired liabilities assumed assets liabilities arising contingencies b calculate amount goodwill intangibles acquired total amount goodwill expected deductible tax purposes c provide proforma segment disclosures present supplemental proforma combined information us gaap basis recent period presented pizza divestiture january 4 2010 entered agreement sell assets north american frozen pizza business “frozen pizza” nestlé usa inc “nestlé” total consideration 37 billion frozen pizza business component us convenient meals canada north america foodservice segments sale subject customary conditions including regulatory clearances includes digiorno tombstone jack’s brands us delissio brand canada california pizza kitchen trademark license also includes two wisconsin manufacturing facilities medford little chute leases pizza depots delivery trucks estimated approximately 3400 employees transfer business nestlé anticipate transaction close first quarter 2010 december 31 2009 frozen pizza business meet criteria considered heldforsale beginning first quarter 2010 results frozen pizza business presented discontinued operation consolidated financial statements prior periods restated consistent manner following reflects summary results frozen pizza business treated discontinued operation going forward lu biscuit acquisition november 30 2007 acquired groupe danone sa global lu biscuit business “lu biscuit”  51 billion approximately 76 billion cash acquisition included 32 manufacturing facilities approximately 14000 employees 2008 repaid groupe danone sa excess cash received upon acquisition lu biscuit reports results operations one month lag accordingly effect 2007 operating results proforma basis lu biscuit would contributed net revenues 28 billion 2007 lu biscuit’s contribution net earnings would insignificant kraft foods divestitures 2009 received 41 million net proceeds recorded pretax losses 6 million divestitures balance bar operations us juice operation brazil plant spain recorded aftertax gains 58 million divestitures primarily due differing book tax bases balance bar operations 2008 received 153 million net proceeds recorded pretax losses 92 million divestitures primarily related nordic baltic snacks operation four operations spain recorded aftertax losses 64 million divestitures included 2008 divestitures following condition eu commission’s approval lu biscuit acquisition • divested biscuit operation spain divestiture received 86 million net proceeds recorded pretax losses 74 million • divested another biscuit operation spain trademark hungary previously acquired part lu biscuit acquisition impacts divestitures reflected adjustments purchase price allocations 2007 received 216 million net proceeds recorded pretax gains 14 million divestitures hot cereal assets trademarks sugar confectionery assets romania related trademarks flavored water juice brand assets related trademarks including veryfine fruit2o recorded aftertax loss 5 million divestitures reflect differing book tax bases hot cereal assets trademarks divestiture gains losses divestitures reflect related asset impairment charges discussed note 5 goodwill intangible assets aggregate operating results divestitures discussed divestiture post cereals business material financial statements periods presented refer note 16 segment reporting details gains losses divestitures segment note 3 inventories december 31 2009 2008 intangible assets december 31 2009 2008 changes goodwill intangible assets 2009 • divestitures reduced goodwill 17 million due divestiture balance bar operations us • asset impairments 2009 review goodwill nonamortizable intangible assets recorded 12 million charge impairment intangible assets netherlands changes goodwill intangible assets 2008 • acquisitions decreased goodwill 1187 million increased intangible assets 1356 million primarily due refinements preliminary allocations purchase price acquisition lu biscuit allocations based upon appraisals finalized third quarter 2008 • divestitures reduced goodwill 1234 million due splitoff post cereals business reduced goodwill 38 million intangible assets 37 million due divestiture operation spain • asset impairments recorded asset impairment charges 34 million goodwill 1 million intangible assets connection divestiture nordic baltic snacks operation also recorded asset impairment charges 1 million goodwill 8 million intangible assets connection anticipated divestiture juice operation brazil addition 2008 review goodwill nonamortizable intangible assets recorded 44 million charge impairment intangible assets netherlands france puerto rico • reduced goodwill 56 million primarily related reconciliation inventory deferred tax items also resulted writedown net deferred tax liabilities amortization expense intangible assets 26 million 2009 23 million 2008 13 million 2007 currently estimate amortization expense next five years approximately 15 million less annual impairment review asset impairment charges result 2009 annual review goodwill nonamortizable intangible assets recorded 12 million charge impairment intangible assets netherlands addition 2009 recorded 9 million asset impairment charge write investment norway recorded aggregate charges within asset impairment exit costs 2009 impairment review also noted following three reporting units sensitive nearterm changes discounted cash flow assumptions fourth quarter 2008 completed annual review goodwill nonamortizable intangible assets recorded 44 million charge impairment intangible assets netherlands france puerto rico 2008 impairment review determined europe biscuits reporting unit sensitive nearterm changes discounted cash flow assumptions contains significant portion goodwill recorded upon 2007 acquisition lu biscuit addition december 2008 reached preliminary agreement divest juice operation brazil reached agreement sell cheese plant australia anticipation divesting juice operation brazil recorded asset impairment charge 13 million fourth quarter 2008 charge primarily included writeoff associated intangible assets 8 million property plant equipment 4 million anticipation selling cheese plant australia recorded asset impairment charge 28 million property plant equipment fourth quarter 2008 additionally 2008 divested nordic baltic snacks operation incurred asset impairment charge 55 million connection divestiture charge primarily included writeoff associated goodwill 34 million property plant equipment 16 million recorded aggregate charges within asset impairment exit costs 2007 divested flavored water juice brand assets related trademarks recognition divestiture recorded 120 million asset impairment charge assets charge primarily included writeoff associated intangible assets 70 million property plant equipment 47 million recorded within asset impairment exit costs note 6 restructuring costs cost savings initiatives incurred costs associated cost savings initiatives 318 million 2009 charges recorded operations primarily within segment operating income kraft foods europe remainder spread across segments kraft foods europe charges largely result reorganization european operations discussed cost savings initiatives include exit disposal implementation costs even though implementation costs directly attributable exit disposal costs qualify special accounting treatment exit disposal activities 2009 cost savings initiatives primarily included severance charges benefits received terminated employees associated benefit plan costs related activities 20042008 restructuring program 2008 completed fiveyear restructuring program “restructuring program” restructuring program’s objectives leverage global scale realign lower cost structure optimize capacity part restructuring program • incurred 30 billion pretax charges reflecting asset disposals severance implementation costs • announced closure 35 facilities announced elimination approximately 18600 positions • use cash pay 20 billion 30 billion charges 2009 reversed 85 million previously accrued restructuring program charges reversals related following • sold plant spain previously announced would close restructuring program accordingly reversed 35 million restructuring program charges primarily related severance recorded 17 million loss divestiture plant 2009 reversal occurred kraft foods europe segment • also reversed 50 million restructuring program charges primarily due planned position eliminations occur primarily result redeployment natural attrition majority reversals occurred kraft foods europe segment remainder spread across segments incurred charges restructuring program 989 million 2008 459 million 2007 since inception restructuring program paid cash 17 billion 20 billion expected cash payments including 176 million paid 2009 december 31 2009 accrual 270 million eliminated approximately 17300 positions restructuring program 2008 implemented new operating structure built three core elements business units shared services leverage scale global portfolio streamlined corporate staff within new structure business units full pl accountability staffed accordingly also ensures putting resources closer make decisions affect consumers customers corporate shared service functions streamlined organizations focus core activities efficiently support goals business units intent simplify streamline increase accountability ultimate goal generating reliable growth kraft foods total eliminated approximately 1400 positions streamlined headquarter functions reorganization european operations function paneuropean centralized category management value chain model completed 2009 chocolate coffee cheese categories significant progress made 2009 related integration europe biscuits business expect integration completed mid2010 european principal company “epc” manage european categories centrally make decisions aspects value chain except sales distribution european subsidiaries execute sales distribution locally local production companies act toll manufacturers behalf epc legal entity incorporated kraft foods europe gmbh zurich switzerland part reorganization incurred 32 million severance costs 25 million implementation costs 56 million nonrecurring costs 2009 incurred 16 million restructuring costs 39 million implementation costs 11 million nonrecurring costs 2008 incurred 21 million restructuring costs 24 million implementation costs 10 million nonrecurring costs 2007 2009 incurred aggregate charges 241 million related kraft foods europe reorganization expect incur approximately 40 million additional charges 2010 complete integration europe biscuits business 2009 charges recorded within cost sales marketing administration research costs 2008 2007 restructuring implementation costs included total restructuring program charges nonrecurring costs relating kraft foods europe reorganization recorded marketing administration research costs management believes disclosure implementation nonrecurring charges provides readers financial statements greater transparency total costs kraft foods europe reorganization restructuring costs restructuring program recorded asset impairment exit costs 884 million 2008 332 million 2007 restructuring liability activity years ended december 31 2009 2008 total restructuring program costs included asset impairment exit implementation costs discussed years ended december 31 2008 2007 segment operating income follows fair values shortterm borrowings december 31 2009 2008 based upon current market interest rates approximate amounts disclosed borrowing arrangements november 30 2009 entered revolving credit agreement 45 billion threeyear senior unsecured revolving credit facility agreement replaced former revolving credit agreement terminated upon signing new agreement intend use revolving credit facility general corporate purposes including working capital purposes support commercial paper issuances amounts drawn facility revolving credit agreement requires us maintain minimum total shareholders’ equity excluding accumulated comprehensive earnings losses least 230 billion upon completion acquisition cadbury covenant increase 75 increase total shareholders’ equity direct result issuance certain types equity securities finance acquisition b refinancing certain indebtedness december 31 2009 total shareholders’ equity excluding accumulated comprehensive earnings losses 298 billion expect continue meet covenant revolving credit agreement also contains customary representations covenants events default however revolving credit facility financial covenants credit rating triggers provisions could require us post collateral security addition international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 15 billion december 31 2009 borrowings lines amounted 191 million december 31 2009 291 million december 31 2008 november 9 2009 entered agreement £55 billion approximately 89 billion 364day senior unsecured bridge facility “cadbury bridge facility” january 18 2010 amended agreement increase cadbury bridge facility aggregate £71 billion february 11 2010 issuance 95 billion senior unsecured notes amended agreement decrease cadbury bridge facility aggregate £13 billion expect use borrowings cadbury bridge facility proceeds financing sources finance cadbury acquisition refinance certain indebtedness cadbury subsidiaries certain restrictions borrowings cadbury bridge facility also available general corporate purposes cadbury bridge facility agreement includes minimum shareholders’ equity requirement 45 billion revolving credit agreement addition event longterm senior unsecured indebtedness rated investment grade either moody’s standard poor’s cadbury bridge facility agreement requires us maintain net debt adjusted ebitda ratio 425 100 december 31 2009 continued maintain investment grade debt rating net debt adjusted ebitda ratio 264 cadbury bridge facility agreement also contains customary representations covenants events default requires prepayment advances permanent reduction commitments facility net cash proceeds received certain disposals debt issuances equity capital markets transactions amounts drawn facility december 31 2009 subject market conditions expect refinance reduce advances cadbury bridge facility proceeds alternative financing sources longterm debt february 8 2010 issued 95 billion senior unsecured notes weightedaverage effective rate 5364 using net proceeds 9379 million finance cadbury acquisition general corporate purposes general terms 95 billion notes • 375 billion total principal notes due february 10 2020 fixed annual interest rate 5375 interest payable semiannually beginning august 10 2010 • 300 billion total principal notes due february 9 2040 fixed annual interest rate 6500 interest payable semiannually beginning august 9 2010 • 175 billion total principal notes due february 9 2016 fixed annual interest rate 4125 interest payable semiannually beginning august 9 2010 • 100 billion total principal notes due may 8 2013 fixed annual interest rate 2625 interest payable semiannually beginning november 8 2010 december 19 2008 issued 500 million senior unsecured notes used net proceeds 498 million general corporate purposes including repayment outstanding commercial paper general terms 500 million notes 500 million total principal notes due february 19 2014 fixed annual interest rate 6750 interest payable semiannually began february 19 2009 may 22 2008 issued 20 billion senior unsecured notes used net proceeds 1967 million general corporate purposes including repayment borrowings 364day bridge facility agreement used acquire lu biscuit shortterm borrowings general terms 20 billion notes • 1250 million total principal notes due august 23 2018 fixed annual interest rate 6125 interest payable semiannually began february 23 2009 • 750 million total principal notes due january 26 2039 fixed annual interest rate 6875 interest payable semiannually began january 26 2009 march 20 2008 issued 285 billion approximately 45 billion senior unsecured notes used net proceeds approximately 4470 million repay portion 364day bridge facility agreement used acquire lu biscuit general terms 285 billion notes • 20 billion approximately 32 billion total principal notes due march 20 2012 fixed annual interest rate 5750 interest payable annually began march 20 2009 • 850 million approximately 13 billion total principal notes due march 20 2015 fixed annual interest rate 6250 interest payable annually began march 20 2009 notes issuances include covenants restrict ability incur debt secured liens certain threshold also required offer purchase notes price equal 101 aggregate principal amount plus accrued unpaid interest date repurchase experience following “change control” triggering event ii downgrade notes investment grade rating moody’s standard poor’s fitch within specified period expect continue comply longterm debt covenants december 31 2009 2008 longterm debt consisted interest rates december 31 2009 september 3 2009 redeemed november 2011 7 200 million debenture par value upon redemption recorded loss 14 million within interest expense net represented writeoff remaining discount november 12 2009 repaid 750 million notes october 1 2008 repaid 700 million notes repayments primarily financed commercial paper issuances fair value aggregate fair value longterm debt based quoted prices active markets identical liabilities 19769 million december 31 2009 19629 million december 31 2008 aggregate fair value thirdparty debt based market quotes december 31 2009 20222 million compared carrying value 18990 million aggregate fair value thirdparty debt december 31 2008 20526 million compared carrying value 20251 million interest expense interest expense effective date spinoff altria converted class b shares kraft foods common stock class shares kraft foods common stock following spinoff class common stock outstanding class b common shares preferred shares issued outstanding december 31 2009 2008 2007 august 4 2008 completed splitoff post cereals business transaction approximately 461 million shares kraft foods common stock tendered 1644 million december 31 2009 146863809 shares common stock reserved stock options stock awards 2010 expect issue approximately 260 million additional shares common stock part cadbury acquisition board directors authorized following common stock repurchase programs 50 billion share repurchase authority expired march 30 2009 repurchase shares 2009 total repurchased 253 million shares 777 million 2008 1101 million shares 3640 million 2007 programs made repurchases common stock open market transactions march 2007 repurchased 14 million additional shares common stock altria cost 465 million paid 32085 per share average high low price kraft foods common stock reported nyse march 1 2007 repurchase accordance altria spinoff agreement note 9 accumulated comprehensive earnings losses components accumulated comprehensive earnings losses note 10 stock plans 2009 annual meeting shareholders approved kraft foods inc amended restated 2005 performance incentive plan 2005 plan 2005 plan includes among provisions limit number shares may granted plan vesting restrictions prohibition stock option repricing 2005 plan may grant eligible employees awards stock options stock appreciation rights restricted stock restricted deferred stock units awards based common stock well performancebased annual longterm incentive awards authorized issue maximum 1680 million shares common stock 2005 plan effective date amendment 921 million shares available granted 2005 plan 275 million shares may awarded restricted deferred stock addition kraft foods 2006 stock compensation plan nonemployee directors “2006 directors plan” may grant 500000 shares common stock members board directors fulltime employees december 31 2009 93740465 shares available granted 2005 plan 372097 shares available granted 2006 directors plan restricted deferred shares available grant 2005 plan december 31 2009 27984072 2008 changed annual longterm incentive compensation programs align shareholder returns annual equity program grant equity form restricted deferred stock options restricted deferred stock continues vest 100 three years stock options vest three annual installments beginning first anniversary grant date additionally changed longterm incentive plan cashbased program sharebased program shares vest based varying performance market service conditions stock awards issued employees treasury stock specific policy repurchase common stock mitigate dilutive impact options however historically made adequate discretionary purchases based cash availability market trends factors satisfy stock option exercise activity stock options stock options granted exercise price equal market value underlying stock grant date generally become exercisable three annual installments beginning first anniversary grant date maximum term ten years prior 2008 granted stock options broadbased program since 2002 account employee stock options fair value method accounting using modified blackscholes methodology measure stock option expense date grant fair value stock options date grant amortized expense vesting period recorded compensation expense related stock options 31 million 2009 18 million 2008 deferred tax benefit recorded related compensation expense 11 million 2009 6 million 2008 unamortized compensation expense related stock options 48 million december 31 2009 expected recognized weightedaverage period two years weightedaverage blackscholes fair value assumptions follows february 2009 part annual equity program granted 163 million stock options eligible employees exercise price 2364 february 2008 part annual equity program granted 135 million stock options eligible employees exercise price 2949 also granted 01 million offcycle stock options 2008 exercise price 3078 may 3 2007 board directors approved stock option grant ceo recognize election chairman received 300000 stock options vest varying market service conditions expire ten years grant date grant insignificant impact earnings 2007 total intrinsic value options exercised 72 million 2009 76 million 2008 90 million 2007 cash received options exercised 79 million 2009 80 million 2008 124 million 2007 actual tax benefit realized tax deductions option exercises totaled 52 million 2009 44 million 2008 35 million 2007 restricted deferred stock may grant shares restricted deferred stock eligible employees giving instances rights shareholders except may sell assign pledge otherwise encumber shares restricted deferred stock subject forfeiture certain employment conditions met restricted deferred stock generally vest third anniversary grant date shares granted connection longterm incentive plan vest based varying performance market service conditions unvested shares voting rights pay dividends fair value restricted deferred shares date grant amortized earnings restriction period recorded compensation expense related restricted deferred stock 133 million 2009 160 million 2008 136 million 2007 deferred tax benefit recorded related compensation expense 44 million 2009 53 million 2008 47 million 2007 unamortized compensation expense related restricted deferred stock 149 million december 31 2009 expected recognized weightedaverage period two years restricted deferred stock activity year ended december 31 2009 january 2009 granted 15 million shares stock connection longterm incentive plan market value per share 2700 date grant february 2009 part annual equity program issued 41 million shares restricted deferred stock eligible employees market value per restricted deferred share 2364 date grant also issued 02 million offcycle shares restricted deferred stock 2009 weightedaverage market value per restricted deferred share 2555 date grant january 2008 granted 14 million shares stock connection longterm incentive plan market value per share 3226 date grant february 2008 part annual equity program issued 34 million shares restricted deferred stock eligible employees market value per restricted deferred share 2949 date grant also issued 02 million offcycle shares restricted deferred stock 2008 weightedaverage market value per restricted deferred share 3038 date grant total number restricted deferred shares issued 2008 50 million january 2007 issued 52 million shares restricted deferred stock eligible employees part annual equity program market value per restricted deferred share 34655 date grant additionally issued 10 million offcycle shares restricted deferred stock 2007 weightedaverage market value per restricted deferred share 34085 date grant total number restricted deferred shares issued 2007 92 million including issued result spinoff altria discussed weightedaverage grant date fair value restricted deferred stock granted 143 million 2468 per restricted deferred share 2009 151 million 3038 per restricted deferred share 2008 310 million 3363 per restricted deferred share 2007 vesting date fair value restricted deferred stock 153 million 2009 196 million 2008 153 million 2007 bifurcation stock awards upon spinoff altria effective date spinoff altria stock awards modified issuance kraft foods stock awards accordingly altria stock awards split two instruments holders altria stock options received 1 new kraft foods option acquire shares kraft foods common stock 2 adjusted altria stock option number shares altria common stock previously held proportionally reduced exercise price employee stock option outstanding aggregate intrinsic value immediately spinoff altria greater aggregate intrinsic value immediately prior holders altria restricted stock rights awarded january 31 2007 retained existing awards received restricted stock rights kraft foods common stock recipients altria restricted stock rights awarded january 31 2007 receive kraft foods restricted stock rights altria announced spinoff time reimbursed altria 179 million net settlement employee stock awards determined fair value stock options using blackscholes option valuation model adjusted fair value restricted stock rights value projected forfeitures based upon number altria stock awards outstanding upon spinoff granted stock options 242 million shares kraft foods common stock weightedaverage price 1575 options expire 2007 2012 addition issued 30 million shares restricted stock rights market value per restricted share right 3166 date grant restrictions majority restricted shares stock rights lapsed first quarter either 2008 2009 note 11 benefit plans pension plans obligations funded status projected benefit obligations plan assets funded status pension plans december 31 2009 2008 following costs included within expenses severance payments related cost savings initiatives restructuring program retired employees elected lumpsum payments resulted settlement losses us plans 107 million 2009 74 million 2008 68 million 2007 addition incurred 5 million curtailment charge 2009 related freeze certain us pension plans nonus plant closures early retirement benefits resulted curtailment settlement losses 8 million 2009 16 million 2008 4 million 2007 us plans determine expected return plan assets component net periodic benefit cost using calculated market return value recognizes cost four year period nonus plans utilize similar approach varying cost recognition periods plans others determine expected return plan assets based asset fair values measurement date december 31 2009 combined us nonus pension plans expected amortize accumulated comprehensive earnings losses net periodic pension cost 2010 • estimated 244 million net loss experience differences • estimated 12 million prior service cost used following weightedaverage assumptions determine net pension cost years ended december 31 excluded 172 million plan assets table related certain insurance contracts reported contract value accordance authoritative guidance us nonus equity securities government bonds primarily classified level one valued using quoted prices active markets corporate bonds fixed income securities primarily classified level two valued using independent observable market inputs matrix pricing yield curves indices pooled funds including assets real estate pooled funds primarily classified level two valued using net asset values participation units held common collective trusts reported managers trusts supported unit prices actual purchase sale transactions level three assets valued using unobservable inputs reflect plans’ assumptions market participants would use pricing assets based best information available investment manager pricing limited partnerships using company financial statements relevant valuation multiples discounted cash flow analyses percentage fair value pension plan assets december 31 2009 2008 components net postretirement health care costs net postretirement health care costs consisted following years ended december 31 2009 2008 2007 costs made contributions multiemployer medical plans totaling 35 million 2009 33 million 2008 33 million 2007 postemployment benefit plans obligations postemployment plans funded changes benefit obligations plans net amount accrued december 31 2009 2008 following costs included within expense • incurred severance charges 32 million related kraft foods europe reorganization 170 million related cost savings initiatives 2009 • reversed 77 million severance charges 2009 related restructuring program discussed note 6 restructuring costs • incurred severance charges 560 million 2008 132 million 2007 related workforce reduction initiatives announced restructuring program december 31 2009 estimated net loss postemployment benefit plans expected amortize accumulated comprehensive earnings losses net postemployment costs 2010 insignificant note 12 financial instruments fair value derivative instruments fair values derivative instruments recorded consolidated balance sheet december 31 2009 record gain loss reclassified accumulated comprehensive earnings losses earnings ii gain loss ineffectiveness iii gain loss amount excluded effectiveness testing • cost sales commodity contracts • cost sales marketing administration research costs foreign exchange contracts related forecasted transactions depending type transaction • interest expense net interest rate contracts foreign exchange contracts related intercompany loans december 31 2009 expected transfer unrealized losses 2 million net taxes commodity cash flow hedges unrealized gains 5 million net taxes foreign currency cash flow hedges earnings next 12 months hedge coverage december 31 2009 hedged forecasted transactions following durations • commodity transactions periods exceeding next 19 months • interest rate transactions periods exceeding next 33 years 1 month • foreign currency transactions periods exceeding next 24 months excluding intercompany loans hedged forecasted foreign currency transactions periods exceeding next 12 months fair value hedges effect fair value hedges year ended december 31 2009 commodity contracts designated hedging instruments impact earnings insignificant 2008 recognized net gains 56 million 2007 foreign exchange contracts designated hedging instruments recognized net losses 50 million 2008 231 million 2007 majority losses attributable hedges intercompany loans economically offset foreign currency gains intercompany receivable volume december 31 2009 following outstanding hedges note 14 income taxes earnings continuing operations income taxes provision income taxes consisted following years ended december 31 2009 2008 2007 additionally 2008 earnings gain discontinued operations splitoff post cereals business included net tax benefit 104 million january 1 2009 unrecognized tax benefits 807 million recognized benefits net impact income tax provision would 612 million unrecognized tax benefits 829 million december 31 2009 recognized benefits net impact income tax provision would 661 million expect significant change unrecognized tax benefits next 12 months disclosure made december 31 2009 reflect impacts recent acquisition divestiture activity include accrued interest penalties related uncertain tax positions tax provision accrued interest penalties 239 million january 1 2009 210 million december 31 2009 provision income taxes included 26 million net benefit interest penalties reversals exceeded expense accruals year due agreements reached irs specific matters settlements various foreign state tax authorities expiration statutes limitations various jurisdictions also paid interest penalties 10 million 2009 changes unrecognized tax benefits years ended december 31 2009 2008 2007 millions 2009 effective tax rate included net tax benefits 225 million primarily due agreement reached irs specific matters settlements various foreign state tax authorities expiration statutes limitations various jurisdictions divestiture balance bar operations us 2008 effective tax rate included net tax benefits 222 million discrete tax events total net tax benefits approximately 50 million related fourth quarter corrections state federal foreign tax liabilities third quarter reconciliation inventory deferred tax items resulted writedown net deferred tax liabilities remaining net tax benefits primarily related resolution various tax audits expiration statutes limitations various jurisdictions discrete tax benefits included impact divestitures nordic baltic snacks operation several operations spain tax benefit impairment charges taken 2008 addition 2008 tax rate benefited foreign earnings taxed us federal statutory tax rate expected tax benefit 2008 restructuring expenses benefits partially offset state tax expense certain foreign costs 2007 effective tax rate included net tax benefits 184 million primarily including effects dividend repatriation benefits foreign joint venture earnings effect foreign deferred taxes lower foreign tax rates enacted 2007 tax rate also benefited foreign earnings taxed us federal statutory tax rate increased domestic manufacturing deduction divestiture flavored water juice brand assets related trademarks benefits partially offset state tax expense tax costs associated divestiture hot cereal assets trademarks interest income altria related transfer federal tax contingencies discussed note 1 summary significant accounting policies tax effects temporary differences gave rise deferred income tax assets liabilities consisted following december 31 2009 2008 note 15 earnings per share basic diluted eps continuing discontinued operations calculated using following exclude antidilutive kraft foods stock options calculation weightedaverage shares diluted eps excluded 230 million antidilutive options year ended december 31 2009 113 million antidilutive options year ended december 31 2008 excluded insignificant number antidilutive options year ended december 31 2007 note 16 segment reporting kraft foods manufactures markets packaged food products including snacks beverages cheese convenient meals various packaged grocery products manage report operating results three geographic units kraft foods north america kraft foods europe kraft foods developing markets manage operations kraft foods north america kraft foods europe product category manage operations kraft foods developing markets location reportable segments us beverages us cheese us convenient meals us grocery us snacks canada na foodservice kraft foods europe formerly known european union kraft foods developing markets effective january 2009 began implementing changes operating structure based organizing growth initiative kraft foods europe reorganization line strategies reorganizing european operations function paneuropean centralized category management value chain model changed work europe two key ways • transitioned european biscuit chocolate coffee cheese categories fully integrated business units strengthening focus core categories ensure decisions made faster closer customers consumers category fully accountable financial results including marketing manufacturing rd category leadership based zurich switzerland reports kraft foods europe president business units comprise kraft foods europe segment • aligned reporting central europe operations kraft foods developing markets segment help build critical scale countries operate countryled model markets management uses segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales certain components us pension plan cost component cost sales marketing administration research costs general corporate expenses component marketing administration research costs amortization intangibles periods presented 2009 began excluding certain components us pension plan cost segment operating income centrally manage pension plan funding decisions determination discount rate expected rate return plan assets actuarial assumptions therefore allocate service cost component us pension plan expense segment operating income exclude unrealized gains losses hedging activities segment operating income order provide better transparency segment operating results realized gains losses hedging activities recorded within segment operating results furthermore centrally manage interest expense net accordingly present items segment excluded segment profitability measure management reviews use accounting policies segments described note 1 summary significant accounting policies segment data largest customer walmart stores inc affiliates accounted approximately 16 consolidated net revenues 2009 16 2008 15 2007 net revenues occurred primarily kraft foods north america segments 2009 unrealized gains hedging activities 203 million primarily resulted 2008 unrealized losses energy derivatives becoming realized 2009 2008 unrealized losses hedging activities 205 million primarily related energy derivatives including heating oil used primarily hedge transportation costs natural gas contracts 2009 general corporate expenses included 50 million charges legal matters related certain european operations see part item 3 legal proceedings description matters 2008 recorded 72 million charges legal matters related certain us european operations including us coffee operations represented primary reason general corporate expenses increased 101 million 2008 incurred costs associated cost savings initiatives 318 million 2009 charges recorded operations primarily within segment operating income kraft foods europe remainder spread across segments 2009 also reversed 85 million restructuring program costs majority relating kraft foods europe segment remainder spread across segments incurred restructuring program costs 989 million 2008 459 million 2007 refer note 6 restructuring costs breakout 2008 2007 charges segment also incurred asset impairment charges 21 million 2009 related kraft foods europe segment 140 million 2008 related kraft foods europe kraft foods developing markets segments 120 million 2007 related us beverages segment refer note 5 goodwill intangible assets details charges described note 2 acquisitions divestitures divested several operations recorded net gains losses divestitures segment operating income follows basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may equal total year note 18 subsequent events evaluated subsequent events february 16 2010 included accounting disclosure requirements related subsequent events financial statements item 9item 8 financial statements supplementary data kraft foods inc subsidiaries consolidated statements earnings years ended december 31 millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated balance sheets december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements equity millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements cash flows years ended december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature operations basis presentation kraft foods inc incorporated 2000 commonwealth virginia kraft foods inc subsidiaries collectively “kraft foods” “we” “us” “our” sells packaged food beverage products consumers approximately 170 countries principles consolidation consolidated financial statements include kraft foods well wholly owned majority owned subsidiaries domestic operating subsidiaries report results last saturday year international operating subsidiaries generally report results two weeks prior last saturday year results operations newly acquired cadbury limited formerly cadbury plc “cadbury” reported last day calendar month 2010 changed consolidation date certain european biscuits operations included within kraft foods europe segment certain operations asia pacific latin america included within kraft foods developing markets segment previously operations primarily reported periodend results one month two weeks prior end period kraft foods europe segment primarily reports periodend results two weeks prior last saturday period certain operations asia pacific latin america report results last day period believe change preferable improve financial reporting better matching close dates operating subsidiaries within kraft foods europe segment operations asia pacific latin america consolidated reporting change resulted favorable impact net revenues approximately 200 million insignificant impact operating income net income 2010 impacts prior period results material financial results revised prior period results change domestic operating subsidiaries continue report periodend results saturday closest end period international operating subsidiaries continue report periodend results two weeks prior saturday closest end period account investments exercise significant influence 2050 ownership interest equity method accounting use cost method accounting investments ownership interest less 20 exercise significant influence noncontrolling interest subsidiaries consists equity interest noncontrolling investors consolidated subsidiaries kraft foods intercompany transactions eliminated use estimates prepare financial statements accordance accounting principles generally accepted united states america “us gaap” require us make estimates assumptions affect number amounts financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions lives valuation assumptions goodwill intangible assets marketing programs income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year significant impact consolidated financial statements foreign currencies translate results operations foreign subsidiaries using average exchange rates period whereas balance sheet accounts translated using exchange rates end period record currency translation adjustments component equity transaction gains losses recorded earnings significant periods presented highly inflationary accounting fourth quarter 2009 venezuelan economy classified highly inflationary us gaap effective january 1 2010 began accounting venezuelan subsidiaries highly inflationary accounting rules principally means transactions recorded us dollars january 8 2010 venezuelan government devalued currency established preferential exchange rate imports food medicine essential items accordingly required revalue net assets venezuela july 2010 venezuelan government eliminated secondary parallel market exchange rate replaced governmentregulated transaction system foreign currency denominate securities “sitme” rate accordingly required revalue net assets venezuela maintained parallel rate december 30 2010 venezuelan government eliminated preferential exchange rate although elimination preferential exchange rate immediately cause us revalue net assets venezuela impacts operating results future periods venezuela two exchange rates official rate sitme rate used official rate sitme rate translate venezuelan operations us dollars based nature operations individual subsidiary 2010 recorded approximately 115 million unfavorable foreign currency impacts relating highly inflationary accounting venezuela included onetime impact translate cash 34 million previously carried secondary rate upon change highly inflationary accounting january required translate us dollars hand using official rate cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less inventories stated lower cost market value inventories using average cost method also record inventory allowances overstocked obsolete inventories due ingredient packaging changes longlived assets property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years review longlived assets including amortizable intangible assets impairment conditions exist indicate carrying amount assets may fully recoverable perform undiscounted operating cash flow analyses determine impairment exists testing impairment assets held use group assets liabilities lowest level cash flows separately identifiable impairment determined exist loss calculated based estimated fair value impairment losses assets disposed based estimated proceeds received less costs disposal software costs capitalize certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment amortized straightline basis estimated useful lives software exceed seven years goodwill intangible assets test goodwill nonamortizable intangible assets least annually impairment recognized goodwill reporting units generally one level operating segments use two step process test goodwill reporting unit level first step involves comparison estimated fair value reporting unit carrying value fair value estimated using discounted cash flows reporting unit based planned growth rates estimates discount rates residual values carrying value exceeds fair value must proceed second step process second step measures difference carrying value implied fair value goodwill test nonamortizable intangible assets impairment compare fair value intangible asset carrying value fair value nonamortizable intangible assets determined using planned growth rates estimates discount rates royalty rates carrying value exceeds fair value intangible asset considered impaired reduced fair value definitelived intangible assets amortized estimated useful lives perform annual impairment review goodwill nonamortizable intangible assets october 1 year basis valuation methodology estimating fair value 21 reporting units 20year projection discounted cash flows based annual strategic planning process estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions reporting units within kraft foods north america kraft foods europe geographic units used marketparticipant weightedaverage cost capital 75 discount projected cash flows operations reporting units within kraft foods developing markets geographic unit used riskrated discount rate 105 insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits liabilities associated risks estimated considering historical claims experience actuarial assumptions revenue recognition recognize revenues title risk loss pass customers generally occurs upon shipment delivery goods revenues recorded net consumer incentives trade promotions include shipping handling charges billed customers kraft foods’ shipping handling costs classified part cost sales provision product returns allowances bad debts also recorded reductions revenues within period revenue recognized selling general administrative expenses marketing promote products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives expense advertising costs either period advertising first takes place incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred advertising expense 2269 million 2010 1581 million 2009 1598 million 2008 research expense costs incurred product research development research development expense 583 million 2010 466 million 2009 487 million 2008 environmental costs subject laws regulations relating protection environment accrue environmental remediation obligations undiscounted basis amounts probable reasonably estimated accruals adjusted new information develops circumstances change recoveries environmental remediation costs third parties recorded assets recovery costs deemed probable december 31 2010 subsidiaries involved 74 active actions us superfund legislation similar actions legislation related current operations certain former divested operations retain liability outside us subject applicable multinational national local environmental laws regulations countries business outside us specific programs across business units designed meet applicable environmental compliance requirements december 31 2010 accrued insignificant amount environmental remediation based information currently available believe ultimate resolution existing environmental remediation actions compliance general environmental laws regulations material effect financial results however cannot quantify certainty potential impact future compliance efforts environmental remediation actions employee benefit plans provide range benefits employees retired employees include pension benefits postretirement health care benefits postemployment benefits consisting primarily severance provide pension coverage certain employees nonus subsidiaries separate plans local statutory requirements govern many plans salaried nonunion hourly employees hired us january 1 2009 discontinued benefits us pension plans replaced enhanced company contribution employee savings plan additionally freezing us pension plans current salaried nonunion hourly employees effective december 31 2019 pension accruals salaried nonunion employees currently earning pension benefits end december 31 2019 continuing pay service used calculate pension benefits december 31 2019 projected benefit obligation decreased 168 million 2009 incurred 5 million curtailment charge 2009 related freeze us canadian united kingdom subsidiaries provide health care benefits retired employees local government plans generally cover health care benefits retirees outside us canada united kingdom postemployment benefit plans cover salaried certain hourly employees cost plans charged expense working life covered employees september 2006 new guidance issued surrounding employers’ accounting defined benefit pension postretirement plans new guidance required us measure plan assets benefit obligations balance sheet date beginning 2008 previously measured nonus pension plans certain canadian french pension plans september 30 year december 31 2008 recorded aftertax decrease 8 million retained earnings using 15month approach proportionally allocate transition adjustment required upon adoption measurement provision new guidance financial instruments operate globally use certain financial instruments manage foreign currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results maintain foreign currency commodity price interest rate risk management strategies seek reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices interest rates principally use derivative instruments financial instruments qualifying hedge accounting must maintain specified level effectiveness hedging instrument item hedged inception throughout hedged period formally document nature relationships hedging instruments hedged items well risk management objectives strategies undertaking various hedge transactions method assessing hedge effectiveness additionally hedges forecasted transactions significant characteristics expected terms forecasted transaction must specifically identified must probable forecasted transaction occur deem probable forecasted transaction occur recognize gain loss earnings currently using derivatives hedge exposures changes exchange rates commodity prices interest rates exposure derivatives credit market risk exposed credit risk counterparty might fail fulfill performance obligations terms derivative contract minimize credit risk entering transactions high quality counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration greater one year governed international swaps derivatives association master agreement market risk value financial instrument might adversely affected change foreign currency exchange rates commodity prices interest rates manage market risk incorporating monitoring parameters within risk management strategy limit types derivative instruments derivative strategies use degree market risk may undertaken use derivative instruments record derivative financial instruments fair value consolidated balance sheets either current assets current liabilities cash flows hedging instruments classified manner affected hedged item consolidated statement cash flows commodity cash flow hedges exposed price risk related forecasted purchases certain commodities primarily use raw materials accordingly use commodity forward contracts cash flow hedges primarily meat coffee dairy sugar cocoa wheat commodity forward contracts generally qualify normal purchase exception guidance derivative instruments hedging activities therefore subject provisions use commodity futures options hedge price certain input costs including dairy coffee cocoa wheat corn products soybean oils meat products sugar natural gas heating oil derivative instruments highly effective qualify hedge accounting treatment also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes derivative instruments highly effective qualify hedge accounting treatment defer effective portion unrealized gains losses commodity futures option contracts component accumulated comprehensive earnings losses recognize deferred portion component cost sales related inventory sold ineffectiveness directly recorded component cost sales derivative instruments consider economic hedges designate hedge accounting treatment recognize gains losses directly component cost sales foreign currency cash flow hedges use various financial instruments mitigate exposure changes exchange rates thirdparty intercompany actual forecasted transactions instruments include forward foreign exchange contracts foreign currency swaps foreign currency options based size location businesses use instruments hedge exposure certain currencies including euro swiss franc pound sterling canadian dollar derivative instruments highly effective qualify hedge accounting treatment defer effective portion unrealized gains losses associated forward swap option contracts component accumulated comprehensive earnings losses underlying hedged transactions reported earnings recognize deferred portion component cost sales related inventory sold interest expense net hedges intercompany loans payments made derivative instruments consider economic hedges designate hedge accounting treatment recognize gains losses directly component cost sales interest expense net depending nature underlying transaction interest rate cash flow fair value hedges manage interest rate volatility modifying repricing maturity characteristics certain liabilities net interest margin material basis adversely affected movements interest rates result interest rate fluctuations hedged fixedrate liabilities appreciate depreciate market value expect effect unrealized appreciation depreciation substantially offset gains losses derivative instruments linked hedged liabilities use derivative instruments including interest rate swaps indices related pricing specific liabilities part interest rate risk management strategy matter policy use highly leveraged derivative instruments interest rate risk management use interest rate swaps economically convert portion nonprepayable fixedrate debt variablerate debt interest rate swap contracts agree parties exchange specified intervals difference fixedrate floatingrate interest amounts calculated based agreedupon notional amount also use interest rate swaps hedge variability interest payment cash flows portion future debt obligations substantially derivative instruments highly effective qualify hedge accounting treatment derivative instruments highly effective qualify hedge accounting treatment either record impacts current period earnings defer effective portion unrealized gains losses component accumulated comprehensive earnings losses depending whether hedging relationship satisfies criteria fair value cash flow hedge fair value hedges record gains losses interest rate swaps ii corresponding changes fair value hedged longterm debt directly component interest expense net cash flow hedges recognize deferred portion component interest expense net incur interest expense ineffective portion directly recorded component interest expense net derivative instruments consider economic hedges designate hedge accounting treatment recognize gains losses directly component interest expense net hedges net investments foreign operations numerous investments foreign subsidiaries net assets subsidiaries exposed volatility foreign currency exchange rates use foreigncurrencydenominated debt hedge net investment foreign operations adverse movements exchange rates designated euro pound sterling denominated borrowings net investment hedge portion overall european operations gains losses net investment designated european operations economically offset losses gains euro pound sterling denominated borrowings change debt’s fair value recorded currency translation adjustment component accumulated comprehensive earnings losses guarantees authoritative guidance related guarantor’s accounting disclosure requirements guarantees requires us disclose certain guarantees recognize liability fair value obligation qualifying guarantee activities see note 13 commitments contingencies discussion guarantees income taxes recognize tax benefits financial statements uncertain tax positions likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized new accounting pronouncements june 2009 new guidance issued consolidation variable interest entities adopted guidance effective january 1 2010 guidance increases likelihood enterprise classified variable interest entity adoption guidance material impact financial results note 2 acquisitions divestitures cadbury acquisition january 19 2010 announced terms final offer outstanding ordinary share cadbury including ordinary share represented american depositary share “cadbury ads” cadbury board directors recommended cadbury shareholders accept terms final offer february 2 2010 conditions offer satisfied validly waived initial offer period expired subsequent offer period immediately began point received acceptances 7173 outstanding cadbury ordinary shares including represented cadbury adss “cadbury shares” june 1 2010 owned 100 outstanding cadbury shares believe combination kraft foods cadbury create global snacks powerhouse unrivaled portfolio brands people love terms final offer subsequent offer agreed pay cadbury shareholders 500 pence cash 01874 shares kraft foods common stock per cadbury ordinary share validly tendered 2000 pence cash 07496 shares kraft foods common stock per cadbury ads validly tendered valued cadbury 185 billion approximately £116 billion based average price 2836 share kraft foods common stock february 2 2010 exchange rate 1595 per £100 february 2 2010 acquired 7173 cadbury shares 131 billion value attributed noncontrolling interests 54 billion february 2 2010 june 1 2010 acquired remaining 2827 cadbury shares 54 billion 38 million gain noncontrolling interest acquired recorded within additional paid capital part cadbury acquisition incurred expensed transaction related fees 218 million 2010 40 million 2009 recorded expenses within selling general administrative expenses also incurred acquisition financing fees 96 million 2010 recorded expenses within interest expense net cadbury contributed net revenues 9143 million net earnings 530 million february 2 2010 december 31 2010 following unaudited pro forma summary presents kraft foods’ consolidated information cadbury acquired january 1 2009 amounts calculated conversion us gaap applying accounting policies adjusting cadbury’s results reflect additional depreciation amortization would charged assuming fair value adjustments property plant equipment intangible assets applied january 1 2009 together consequential tax effects adjustments also reflect additional interest expense incurred debt finance purchase divestitures certain cadbury confectionery operations poland romania required eu commission condition cadbury acquisition 1 gross amount due receivables acquired 1474 million 141 million expected uncollectable 2 goodwill deductible statutory tax purposes attributable cadbury’s workforce significant synergies expect acquisition 3 acquired 103 billion indefinitely lived intangible assets primarily trademarks 26 billion amortizable intangible assets primarily customer relationships technology customer relationships amortized approximately 13 years technology amortized approximately 12 years 4 within current liabilities reserve exposures related taxes approximately 70 million established within developing markets segment cumulative exposure approximately 150 million december 31 2010 amounts represent allocation purchase price completed fourth quarter 2010 pizza divestiture march 1 2010 completed sale assets north american frozen pizza business “frozen pizza” nestlé usa inc “nestlé” 37 billion frozen pizza business component us convenient meals canada north america foodservice segments sale included digiorno tombstone jack’s brands us delissio brand canada california pizza kitchen trademark license also included two wisconsin manufacturing facilities medford little chute leases pizza depots delivery trucks approximately 3600 employees transferred business nestlé accordingly results frozen pizza business reflected discontinued operations consolidated statement earnings prior period results revised consistent manner pursuant frozen pizza business transition services agreement agreed provide certain sales comanufacturing distribution information technology accounting finance services nestlé two years summary results operations frozen pizza business march 1 2010 follows post cereals splitoff august 4 2008 completed splitoff post cereals business ralcorp holdings inc “ralcorp” exchange shareholders accordingly post cereals business prior period results reflected discontinued operations consolidated statement earnings exchange expected taxfree participating shareholders us federal income tax purposes splitoff transaction approximately 46 million shares kraft foods common stock tendered 1644 million shareholders option exchange shares kraft foods common stock receive shares common stock cable holdco inc “cable holdco” cable holdco wholly owned subsidiary owned certain assets liabilities post cereals business exchange contribution post cereals business cable holdco issued approximately 665 million debt securities issued shares common stock assumed 300 million credit facility upon closing used cash equivalent net proceeds approximately 960 million repay debt post cereals business included brands honey bunches oats pebbles shredded wheat selects grapenuts honeycomb kraft foods brands transaction distributed primarily north america addition post brands transaction included four manufacturing facilities certain manufacturing equipment approximately 1230 employees joined ralcorp part transaction pursuant post cereals business transition services agreement provided certain sales comanufacturing distribution information technology accounting finance services ralcorp 2009 summary results operations post cereals business august 4 2008 follows divestitures eu commission required condition cadbury acquisition divest certain cadbury confectionery operations poland romania 2010 completed sale assets confectionery operations poland romania total proceeds divestitures 342 million impacts divestitures primarily reflected adjustments purchase price allocations 2009 received 41 million net proceeds recorded pretax losses 6 million divestitures balance bar operations us juice operation brazil plant spain recorded aftertax gains 58 million divestitures primarily due differing book tax bases balance bar operations 2008 received 153 million net proceeds recorded pretax losses 92 million divestitures primarily related nordic baltic snacks operation four operations spain recorded aftertax losses 64 million divestitures included 2008 divestitures following condition eu commission’s approval groupe danone sa global lu biscuit business “lu biscuit” acquisition • divested biscuit operation spain divestiture received 86 million net proceeds recorded pretax losses 74 million • divested another biscuit operation spain trademark hungary previously acquired part lu biscuit acquisition impacts divestitures reflected adjustments purchase price allocations gains losses divestitures reflect related asset impairment charges discussed note 5 goodwill intangible assets aggregate operating results divestitures discussed divestiture frozen pizza post cereals businesses material financial statements periods presented refer note 16 segment reporting details gains losses divestitures segment note 3 inventories december 31 2010 2009 note 4 property plant equipment property plant equipment december 31 2010 2009 refer note 5 goodwill intangible assets asset impairment charges taken property plant equipment note 5 goodwill intangible assets december 31 2010 2009 goodwill reportable segment nonamortizable intangible assets consist principally brand names purchased acquisitions nabisco holdings corp lu biscuit spanish portuguese operations united biscuits cadbury amortizable intangible assets consist primarily trademark licenses customerrelated intangibles process technology license agreements noncompete agreements december 31 2010 weightedaverage life amortizable intangible assets 132 years movements goodwill intangible assets changes goodwill intangible assets 2010 • acquisitions increased goodwill 9530 million intangible assets 12907 million related allocations purchase price cadbury acquisition recorded 2177 million acquired goodwill us snacks segment 937 million canada na foodservice segment 2671 million kraft foods europe segment 3745 million kraft foods developing markets segment • divestitures reduced goodwill 475 million due frozen pizza business divestiture • asset impairments 2010 review goodwill nonamortizable intangible assets recorded 43 million charge impairment intangible assets recorded aggregate asset impairment charges within asset impairment exit costs changes goodwill intangible assets 2009 • divestitures reduced goodwill 17 million due divestiture balance bar operations us • asset impairments 2009 review goodwill nonamortizable intangible assets recorded 12 million charge impairment intangible assets netherlands amortization expense intangible assets 211 million 2010 26 million 2009 23 million 2008 currently estimate amortization expense next five years approximately 220 million annual impairment review asset impairment charges result 2010 annual review goodwill nonamortizable intangible assets recorded 13 million charge impairment intangible assets netherlands 30 million charge impairment intangible assets china fourth quarter 2010 also recorded asset impairment 12 million biscuit plant related property plant equipment france recorded aggregate asset impairment charges within asset impairment exit costs 2010 impairment review also noted following five reporting units sensitive nearterm changes discounted cash flow assumptions reporting units passed first step 2010 annual impairment review estimated fair value greater 105 carrying value looking past 2010 uncertainties within five identified reporting units could potentially require analysis future order us determine goodwill impairment exists within individual reporting units significant uncertainties • across kraft foods north america specifically within us grain snacks reporting unit experienced significant input cost inflation past year 2010 contribution pricing trailed input cost inflation consequently 2011 announced price increases selective portions portfolio also implementing sizing changes portions portfolio input costs continue rise expect additional price increases required expect take needed pricing actions midst persistent consumer weakness however unable would decrease profitability adversely affect estimated fair value us grain snacks reporting unit • us salty snacks business grew 2010 experiencing two years volume declines revenues operating income grew substantially increased pricing implemented cost saving measures volume revenue operating income declines would adversely affect estimated fair value us salty snacks reporting unit however noted also experienced significant input cost inflation past year within us salty snacks business input costs continue rise expect additional price increases required expect take needed pricing actions midst persistent consumer weakness however unable would decrease profitability adversely affect estimated fair value us salty snacks reporting unit • us confections asia pacific central eastern europe middle east africa businesses compose significant portion 2010 cadbury acquisition cadbury acquisition eight months prior annual review goodwill october 1 2010 expect significant amount excess estimated fair value book value realized short period expect integrate combined businesses reporting units next two years however unable would adversely affect estimated fair values reporting units fourth quarter 2009 completed annual review goodwill nonamortizable intangible assets recorded 12 million charge impairment intangible assets netherlands addition 2009 recorded 9 million asset impairment charge write investment norway recorded aggregate charges within asset impairment exit costs fourth quarter 2008 completed annual review goodwill nonamortizable intangible assets recorded 44 million charge impairment intangible assets netherlands france puerto rico 2008 impairment review determined europe biscuits reporting unit sensitive nearterm changes discounted cash flow assumptions contains significant portion goodwill recorded upon 2007 acquisition lu biscuit addition december 2008 reached preliminary agreement divest juice operation brazil reached agreement sell cheese plant australia anticipation divesting juice operation brazil recorded asset impairment charge 13 million fourth quarter 2008 charge primarily included writeoff associated intangible assets 8 million property plant equipment 4 million anticipation selling cheese plant australia recorded asset impairment charge 28 million property plant equipment fourth quarter 2008 additionally 2008 divested nordic baltic snacks operation incurred asset impairment charge 55 million connection divestiture charge primarily included writeoff associated goodwill 34 million property plant equipment 16 million recorded aggregate charges within asset impairment exit costs note 6 restructuring costs within restructuring programs initiatives include certain costs along exit disposal costs directly attributable activities yet qualify treatment exit disposal costs us gaap costs commonly refer project costs implementation costs generally include integration reorganization operations facilities discontinuance certain product lines incremental expenses related closure facilities management believes disclosure inclusion charges provides readers financial statements greater transparency total costs programs initiatives integration program combination cadbury potential meaningful synergies costs savings expect recognize least 750 million cost savings end third year following completion acquisition additionally expect create revenue synergies investments distribution marketing product development order achieve cost savings synergies expect incur total integration charges approximately 15 billion first three years following acquisition combine integrate two businesses “integration program” integration program costs include costs associated combining operations cadbury’s separate costs related acquisition incurred charges integration program 657 million 2010 recorded charges primarily operations part selling general administrative expenses within kraft foods europe kraft foods developing markets segments well general corporate expenses second quarter 2010 evaluated cadbury’s vision action “via” restructuring program began managing within overall integration program cadbury initiated via restructuring program 2007 planned run 2011 accordingly acquired accrual 228 million relating charges taken previous periods evaluating program part corporate strategies integration plans included remaining charges within overall integration program move forward combined company basis intend manage programs separately liability activity integration program 2010 millions cost savings initiatives cost savings initiatives generally include exit disposal project costs incurred costs associated cost savings initiatives 170 million 2010 318 million 2009 none 2008 • 2010 primarily recorded changes within segment operating income kraft foods europe canada na foodservice majority charges incurred project costs associated kraft foods europe reorganization • 2009 charges primarily included severance charges benefits received terminated employees associated benefit plan costs related activities recorded operations primarily within segment operating income kraft foods europe remainder spread across segments even though project costs directly attributable exit disposal costs qualify special accounting treatment exit disposal activities management believes disclosure project costs provides readers financial statements greater transparency total costs cost savings initiatives 20042008 restructuring program 2008 completed fiveyear restructuring program “restructuring program” restructuring program’s objectives leverage global scale realign lower cost structure optimize capacity part restructuring program • incurred 29 billion pretax charges reflecting asset disposals severance implementation costs • announced closure 35 facilities announced elimination approximately 18200 positions • use cash pay 19 billion 29 billion charges 2010 reversed 37 million previously accrued restructuring program charges primarily related severance 2009 reversed 85 million previously accrued restructuring program charges reversal 2009 related following • sold plant spain previously announced would close restructuring program accordingly reversed 35 million restructuring program charges primarily related severance recorded 17 million loss divestiture plant 2009 reversal occurred kraft foods europe segment • also reversed 50 million previously accrued restructuring program charges 2009 primarily due planned position eliminations occur primarily result redeployment natural attrition majority reversals occurred kraft foods europe segment remainder spread across segments incurred charges continuing operations restructuring program 989 million 2008 since inception restructuring program paid cash 18 billion 19 billion expected cash payments including 94 million paid 2010 december 31 2010 accrual 125 million related restructuring program restructuring costs restructuring program recorded asset impairment exit costs 884 million 2008 recorded implementation costs 105 million 2008 restructuring liability activity years ended december 31 2010 2009 millions 2010 activity related cash outflows prior year restructuring program charges reversals relating severance benefits charges prior year charges liability included severance benefits received terminated employees costs related primarily renegotiation supplier contract costs workforce reductions associated facility closings termination leasing agreements anticipate utilizing majority remaining accrual 2011 implementation costs implementation costs directly attributable exit disposal costs however qualify special accounting treatment exit disposal activities costs primarily included discontinuance certain product lines incremental expenses related closure facilities reorganization european operations discussed management believes disclosure implementation charges provides readers financial statements greater transparency total costs restructuring program implementation costs associated restructuring program fair values shortterm borrowings december 31 2010 2009 based upon current market interest rates approximate amounts disclosed borrowing arrangements maintain revolving credit facility historically used general corporate purposes including working capital purposes support commercial paper issuances 45 billion threeyear senior unsecured revolving credit facility expires november 2012 amounts drawn facility revolving credit facility agreement requires us maintain minimum total shareholders’ equity excluding accumulated comprehensive earnings losses least 286 billion threshold increased 56 billion 286 billion due equity issued part cadbury acquisition december 31 2010 total shareholders’ equity excluding accumulated comprehensive earnings losses 397 billion expect continue meet covenant revolving credit agreement also contains customary representations covenants events default however revolving credit facility financial covenants credit rating triggers provisions could require us post collateral security addition international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 24 billion december 31 2010 borrowings lines amounted 267 million december 31 2010 191 million december 31 2009 cadbury maintained threeyear £450 million senior unsecured revolving credit facility terminated 2010 part cadbury acquisition november 9 2009 entered agreement 364day senior unsecured bridge facility “cadbury bridge facility” first quarter 2010 borrowed £807 million cadbury bridge facility later repaid 1205 million time repayment proceeds divestiture frozen pizza business upon repayment cadbury bridge facility terminated longterm debt february 8 2010 issued 95 billion senior unsecured notes weightedaverage effective rate 5364 used net proceeds 9379 million finance cadbury acquisition general corporate purposes general terms 95 billion notes • 375 billion total principal notes due february 10 2020 fixed annual interest rate 5375 interest payable semiannually beginning august 10 2010 • 300 billion total principal notes due february 9 2040 fixed annual interest rate 6500 interest payable semiannually beginning august 9 2010 • 175 billion total principal notes due february 9 2016 fixed annual interest rate 4125 interest payable semiannually beginning august 9 2010 • 100 billion total principal notes due may 8 2013 fixed annual interest rate 2625 interest payable semiannually beginning november 8 2010 addition notes include covenants restrict ability incur debt secured liens certain threshold also must offer purchase notes price equal 101 aggregate principal amount plus accrued unpaid interest date repurchase following occur “change control” triggering event ii downgrade notes investment grade rating moody’s investors service inc standard poor’s ratings services fitch inc within specified period expect continue comply longterm debt covenants fair value longterm debt acquired part cadbury acquisition 2437 million february 2 2010 acquired debt following terms including us dollar par amounts • £77 million approximately 123 million total principal notes due december 20 2010 fixed annual interest rate 4875 • c150 million approximately 140 million canadian bank loan agreement expiring august 30 2012 variable interest rate interest rate december 31 2010 1573 • 100 billion total principal notes due october 1 2013 fixed annual interest rate 5125 • £300 million approximately 478 million total principal notes due december 11 2014 fixed annual interest rate 5375 • £350 million approximately 558 million total principal notes due july 18 2018 fixed annual interest rate 7250 december 31 2010 2009 longterm debt consisted interest rates december 31 2010 class b common shares preferred shares issued outstanding december 31 2010 2009 2008 december 31 2010 136402967 shares common stock reserved stock options stock awards 2010 issued 262 million additional shares common stock part cadbury acquisition issued stock total fair value 7457 million based average high low market prices dates issuance august 4 2008 completed splitoff post cereals business transaction approximately 46 million shares kraft foods common stock tendered 1644 million march 30 2007 board directors authorized 50 billion share repurchase program expired march 30 2009 repurchase shares 2010 2009 total repurchased 253 million shares 777 million 2008 program made repurchases common stock open market transactions note 9 accumulated comprehensive earnings losses components accumulated comprehensive earnings losses note 10 stock plans align annual longterm incentive compensation programs shareholder returns amended restated 2005 performance incentive plan “2005 plan” may grant eligible employees awards stock options stock appreciation rights restricted stock restricted deferred stock units awards based common stock well performancebased annual longterm incentive awards authorized issue maximum 1680 million shares common stock 2005 plan addition kraft foods 2006 stock compensation plan nonemployee directors “2006 directors plan” may grant 500000 shares common stock members board directors fulltime employees december 31 2010 73897346 shares available granted 2005 plan 326766 shares available granted 2006 directors plan restricted deferred shares available grant 2005 plan december 31 2010 23599273 stock awards issued employees treasury stock specific policy repurchase common stock mitigate dilutive impact options however historically made adequate discretionary purchases based cash availability market trends factors satisfy stock option exercise activity stock options stock options granted exercise price equal market value underlying stock grant date generally become exercisable three annual installments beginning first anniversary grant date maximum term ten years prior 2008 granted stock options broadbased program since 2002 account employee stock options fair value method accounting using modified blackscholes methodology measure stock option expense date grant fair value stock options date grant amortized expense vesting period recorded compensation expense related stock options 46 million 2010 31 million 2009 18 million 2008 deferred tax benefit recorded related compensation expense 15 million 2010 11 million 2009 6 million 2008 unamortized compensation expense related stock options 60 million december 31 2010 expected recognized weightedaverage period two years weightedaverage blackscholes fair value assumptions follows february 2010 part annual equity program granted 150 million stock options eligible employees exercise price 2915 also issued 31 million offcycle shares stock options 2010 weightedaverage exercise price 2973 date grant including options issued cadbury employees annual equity program february 2009 part annual equity program granted 163 million stock options eligible employees exercise price 2364 february 2008 part annual equity program granted 135 million stock options eligible employees exercise price 2949 also granted 01 million offcycle stock options 2008 exercise price 3078 total intrinsic value options exercised 92 million 2010 72 million 2009 76 million 2008 cash received options exercised 134 million 2010 79 million 2009 80 million 2008 actual tax benefit realized tax deductions option exercises totaled 60 million 2010 52 million 2009 44 million 2008 restricted deferred stock may grant shares restricted deferred stock eligible employees giving instances rights shareholders except may sell assign pledge otherwise encumber shares restricted deferred stock subject forfeiture certain employment conditions met restricted deferred stock generally vest third anniversary grant date shares granted connection longterm incentive plan vest based varying performance market service conditions unvested shares voting rights pay dividends fair value restricted deferred shares date grant amortized earnings restriction period recorded compensation expense related restricted deferred stock 128 million 2010 133 million 2009 160 million 2008 deferred tax benefit recorded related compensation expense 39 million 2010 44 million 2009 53 million 2008 unamortized compensation expense related restricted deferred stock 150 million december 31 2010 expected recognized weightedaverage period two years restricted deferred stock activity year ended december 31 2010 january 2010 granted 17 million shares stock connection longterm incentive plan market value per share 2733 date grant 2010 granted additional 06 million shares stock connection longterm incentive plan market value per share 2915 date grant february 2010 part annual equity program issued 25 million shares restricted deferred stock eligible employees market value per restricted deferred share 2915 date grant 2010 issued additional 10 million offcycle shares restricted deferred stock weightedaverage market value per restricted deferred share 2957 date grant including shares issued cadbury employees annual equity program aggregate issued 58 million restricted deferred shares 2010 including issued part longterm incentive plan january 2009 granted 15 million shares stock connection longterm incentive plan market value per share 2700 date grant february 2009 part annual equity program issued 41 million shares restricted deferred stock eligible employees market value per restricted deferred share 2364 date grant also issued 02 million offcycle shares restricted deferred stock 2009 weightedaverage market value per restricted deferred share 2555 date grant january 2008 granted 14 million shares stock connection longterm incentive plan market value per share 3226 date grant february 2008 part annual equity program issued 34 million shares restricted deferred stock eligible employees market value per restricted deferred share 2949 date grant also issued 02 million offcycle shares restricted deferred stock 2008 weightedaverage market value per restricted deferred share 3038 date grant total number restricted deferred shares issued 2008 50 million weightedaverage grant date fair value restricted deferred stock granted 167 million 2882 per restricted deferred share 2010 143 million 2468 per restricted deferred share 2009 151 million 3038 per restricted deferred share 2008 vesting date fair value restricted deferred stock 117 million 2010 153 million 2009 196 million 2008 note 11 benefit plans pension plans obligations funded status projected benefit obligations plan assets funded status pension plans december 31 2010 2009 certain us nonus plans underfunded accumulated benefit obligations excess plan assets plans projected benefit obligations accumulated benefit obligations fair value plan assets december 31 2010 2009 used following weightedaverage assumptions determine benefit obligations pension plans december 31 yearend discount rates us canadian plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates nonus plans canadian plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class components net pension cost net pension cost consisted following years ended december 31 2010 2009 2008 significant portion 2010 increase nonus net periodic pension cost related cadbury acquisition following costs included within expenses severance payments related cost savings initiatives restructuring program retired employees elected lumpsum payments resulted settlement losses us plans 118 million 2010 107 million 2009 74 million 2008 addition incurred 5 million curtailment charge 2010 related divestiture frozen pizza business nonus plant closures early retirement benefits resulted curtailment settlement losses 11 million 2010 8 million 2009 16 million 2008 us plans determine expected return plan assets component net periodic benefit cost using calculated market return value recognizes cost four year period nonus plans utilize similar approach varying cost recognition periods plans others determine expected return plan assets based asset fair values measurement date december 31 2010 combined us nonus pension plans expected amortize accumulated comprehensive earnings losses net periodic pension cost 2011 • estimated 318 million net loss experience differences • estimated 7 million prior service cost used following weightedaverage assumptions determine net pension cost years ended december 31 excluded plan assets 155 million december 31 2010 172 million december 31 2009 tables related certain insurance contracts reported contract value accordance authoritative guidance us nonus equity securities government bonds primarily classified level one valued using quoted prices active markets corporate bonds fixed income securities primarily classified level two valued using independent observable market inputs matrix pricing yield curves indices pooled funds including assets real estate pooled funds primarily classified level two valued using net asset values participation units held common collective trusts reported managers trusts supported unit prices actual purchase sale transactions level three assets valued using unobservable inputs reflect plans’ assumptions market participants would use pricing assets based best information available fair value estimates calculated general partners limited partnership private equity investments using market approach estimate fair value private investments market approach utilizes prices relevant information generated market transactions type security degree liquidity restrictions disposition latest round financing data company financial statements relevant valuation multiples discounted cash flow analyses fair value estimates calculated real estate investments investment managers using present value future cash flows expected received investments based valuation methodologies appraisals local market conditions current projected operating performance fair value estimates calculated investments hedge fundoffunds investment managers using net asset value per share investment reported money managers underlying funds fair value estimates calculated insurance contracts based future stream benefit payments discounted using prevailing interest rates based valuation date rollforward level 3 assets year ended december 31 2010 investment strategy based expectation equity securities outperform fixedincome securities long term accordingly approximately 70 us plan assets equity securities approximately 30 fixedincome securities strategy uses indexed us equity securities actively managed indexed international equity securities actively managed indexed us international investment grade fixedincome securities constitute 90 fixedincome securities lesser allocations high yield fixedincome securities asset balance nonus plans december 31 2010 primarily related 374 million hedge funds private equity investments 150 million cash accounts held across various investment managers plans outside us investment strategy subject local regulations asset liability profiles plans individual country specific circumstances result level equity exposure typically less us plans aggregate asset allocation targets nonus plans broadly characterized mix 41 equity securities 46 fixedincome securities 13 real estate attempt maintain target asset allocation rebalancing asset classes make contributions monthly benefit payments employer contributions 2010 contributed 85 million us pension plans 303 million nonus pension plans addition employees contributed 23 million nonus plans make contributions us nonus pension plans primarily extent tax deductible generate excise tax liability based current tax law plan make contributions approximately 540 million us plans approximately 400 million nonus plans 2011 total 2011 pension contributions approximately 510 million voluntary however actual contributions may different due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates future benefit payments estimated future benefit payments pension plans december 31 2010 current portion accrued postretirement health care costs 217 million december 31 2010 216 million december 31 2009 included accrued liabilities used following weightedaverage assumptions determine postretirement benefit obligations december 31 future benefit payments estimated future benefit payments postretirement health care plans december 31 2010 net postemployment costs exclude severance costs related cost savings initiatives 25 million 2010 125 million 2009 december 31 2010 estimated net gain postemployment benefit plans expected amortize accumulated comprehensive earnings losses net postemployment costs 2011 insignificant note 12 financial instruments fair value derivative instruments fair values derivative instruments recorded consolidated balance sheet december 31 2010 2009 level 2 financial assets liabilities consist commodity forwards foreign exchange forwards currency swaps options interest rate swaps commodity derivatives valued using income approach based observable market commodity index prices less contract rate multiplied notional amount foreign currency contracts valued using income approach based observable market forward rates less contract rate multiplied notional amount calculation fair value interest rate swaps derived discounted cash flow analysis based terms contract observable market interest rate curve calculation fair value financial instruments takes consideration risk nonperformance including counterparty credit risk cash flow hedges cash flow hedges affected accumulated comprehensive earnings losses net income taxes follows record gain loss reclassified accumulated comprehensive earnings losses earnings ii gain loss ineffectiveness iii gain loss amount excluded effectiveness testing • cost sales commodity contracts • cost sales selling general administrative expenses foreign exchange contracts related forecasted transactions depending type transaction • interest expense net interest rate contracts foreign exchange contracts related intercompany loans expected transfer unrealized gains 52 million net taxes commodity cash flow hedges unrealized gains 16 million net taxes foreign currency cash flow hedges unrealized losses 1 million net taxes interest rate cash flow hedges earnings next 12 months hedge coverage december 31 2010 hedged forecasted transactions following durations • commodity transactions periods exceeding next 17 months • interest rate transactions periods exceeding next 32 years 4 months • foreign currency transactions periods exceeding next 13 months fair value hedges effect fair value hedges years ended december 31 2010 2009 hedging losses related cadbury acquisition economically offset foreign exchange movement net gains 240 million pound sterling cash cadbury bridge facility payable balances associated acquisition commodity contracts designated hedging instruments impact earnings insignificant 2008 foreign exchange contracts designated hedging instruments recognized net losses 50 million 2008 majority losses attributable hedges intercompany loans economically offset foreign currency gains intercompany receivable volume december 31 2010 2009 following notional amounts outstanding hedges note 13 commitments contingencies legal proceedings routinely involved legal proceedings claims governmental inspections investigations arising ordinary course business february 1 2011 received subpoena sec subpoena issued connection investigation foreign corrupt practices act primarily relates cadbury facility india acquired cadbury acquisition primarily requests information regarding dealings indian governmental agencies officials obtain approvals related operation facility cooperating us government investigation matters cannot predict certainty results legal matters currently involved expect ultimate costs resolve matters material effect financial results 2010 recorded insignificant amount legal charges 2009 recorded 50 million charges legal matters related certain european operations thirdparty guarantees thirdparty guarantees primarily covering longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2010 carrying amount thirdparty guarantees consolidated balance sheet maximum potential payment guarantees 26 million substantially guarantees expire various times 2018 leases rental expenses 514 million 2010 505 million 2009 505 million 2008 december 31 2010 minimum rental commitments noncancelable operating leases effect yearend millions note 14 income taxes earnings continuing operations income taxes provision income taxes consisted following years ended december 31 2010 2009 2008 2010 earnings gain discontinued operations sale frozen pizza business included tax expense 12 billion additionally 2008 earnings gain discontinued operations splitoff post cereals business included net tax benefit 104 million january 1 2010 unrecognized tax benefits 829 million recognized benefits net impact income tax provision would 661 million unrecognized tax benefits 1281 million december 31 2010 recognized benefits net impact income tax provision would 1062 million amount unrecognized tax benefits could decrease approximately 50 million next 12 months due potential resolution certain foreign us federal state examinations furthermore recorded 357 million unrecognized tax benefits 47 million accrued interest penalties part purchase price allocations cadbury include accrued interest penalties related uncertain tax positions tax provision accrued interest penalties 210 million january 1 2010 246 million december 31 2010 provision income taxes included 3 million net benefit interest penalties reversals exceeded expense accruals year due resolution federal tax audit settlements various foreign state tax authorities expiration statutes limitations various jurisdictions also paid interest penalties 11 million 2010 changes unrecognized tax benefits years ended december 31 2010 2009 2008 millions 2010 effective tax rate included net tax benefits 123 million primarily due favorable resolution federal tax audit resolution several items international operations partially offset 137 million writeoff deferred tax assets result us health care legislation enacted march 2010 2009 effective tax rate included net tax benefits 225 million primarily due agreement reached irs specific matters related years 2000 2003 settlements various foreign state tax authorities expiration statutes limitations various jurisdictions divestiture balance bar operations us 2008 effective tax rate included net tax benefits 222 million discrete tax events total net tax benefits approximately 50 million related fourth quarter corrections state federal foreign tax liabilities third quarter reconciliation inventory deferred tax items resulted writedown net deferred tax liabilities remaining net tax benefits primarily related resolution various tax audits expiration statutes limitations various jurisdictions discrete tax benefits included impact divestitures nordic baltic snacks operation several operations spain tax benefit impairment charges taken 2008 addition 2008 tax rate benefited foreign earnings taxed us federal statutory tax rate expected tax benefit 2008 restructuring expenses benefits partially offset state tax expense certain foreign costs tax effects temporary differences gave rise deferred income tax assets liabilities consisted following december 31 2010 2009 exclude antidilutive kraft foods stock options calculation weightedaverage shares diluted eps excluded 285 million antidilutive options year ended december 31 2010 230 million antidilutive options year ended december 31 2009 113 million antidilutive options year ended december 31 2008 note 16 segment reporting manufacture market packaged food products including snacks beverages cheese convenient meals various packaged grocery products manage report operating results three geographic units kraft foods north america kraft foods europe kraft foods developing markets manage operations kraft foods north america kraft foods europe product category manage operations kraft foods developing markets location reportable segments us beverages us cheese us convenient meals us grocery us snacks canada na foodservice kraft foods europe kraft foods developing markets results operations cadbury acquisition reflected within us snacks canada na foodservice kraft foods europe kraft foods developing markets segments management uses segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales certain components us pension plan cost component cost sales selling general administrative expenses general corporate expenses component selling general administrative expenses amortization intangibles periods presented exclude certain components us pension plan cost segment operating income centrally manage pension plan funding decisions determination discount rate expected rate return plan assets actuarial assumptions therefore allocate service cost component us pension plan expense segment operating income exclude unrealized gains losses hedging activities segment operating income order provide better transparency segment operating results realized gains losses hedging activities recorded within segment operating results furthermore centrally manage interest expense net accordingly present items segment excluded segment profitability measure management reviews use accounting policies segments described note 1 summary significant accounting policies segment data total assets depreciation expense capital expenditures segment net revenues consumer sector reflects kraft macaroni cheese dinners convenient meals sector separates canada na foodservice kraft foods europe kraft foods developing markets sector components basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may equal total year note 18 subsequent events evaluated subsequent events included accounting disclosure requirements related subsequent events financial statements item 9item 8 financial statements supplementary data report management internal control financial reporting management responsible establishing maintaining adequate internal control financial reporting defined rules 13a15f 15d15f securities exchange act 1934 amended internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance accounting principles generally accepted united states america internal control financial reporting includes written policies procedures • pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets • provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance accounting principles generally accepted united states america • provide reasonable assurance receipts expenditures made accordance management director authorization • provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect consolidated financial statements internal control financial reporting includes controls monitoring internal auditing practices actions taken correct deficiencies identified inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness internal control financial reporting december 31 2011 management based assessment criteria effective internal control financial reporting described internal controlintegrated framework issued committee sponsoring organizations treadway commission “coso” management’s assessment included evaluation design internal control financial reporting testing operational effectiveness internal control financial reporting management reviewed results assessment audit committee board directors based assessment management determined december 31 2011 maintained effective internal control financial reporting pricewaterhousecoopers llp independent registered public accounting firm audited reported consolidated financial statements included report audited internal control financial reporting december 31 2011 february 27 2012 report independent registered public accounting firm board directors shareholders kraft foods inc opinion accompanying consolidated balance sheets related consolidated statements earnings comprehensive earnings equity cash flows present fairly material respects financial position kraft foods inc subsidiaries december 31 2011 2010 results operations cash flows three years period ended december 31 2011 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2011 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying report management internal control financial reporting responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 1 consolidated financial statements company changed reporting date remove twoweek reporting lag certain company’s locations outside united states company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp chicago illinois february 27 2012 kraft foods inc subsidiaries consolidated statements earnings years ended december 31 millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements comprehensive earnings years ended december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries consolidated balance sheets december 31 millions dollars except share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements equity millions dollars except per share data see notes consolidated financial statements kraft foods inc subsidiaries consolidated statements cash flows years ended december 31 millions dollars see notes consolidated financial statements kraft foods inc subsidiaries notes consolidated financial statements note 1 summary significant accounting policies description business kraft foods inc incorporated 2000 commonwealth virginia kraft foods inc subsidiaries collectively “kraft foods” “we” “us” “our” sells packaged food beverage products consumers approximately 170 countries principles consolidation consolidated financial statements include kraft foods well wholly owned majority owned subsidiaries majority operating subsidiaries report results last saturday year portion international operating subsidiaries report results last calendar day last saturday year significant number operating subsidiaries report results last saturday year day fell december 31 results included extra week “53rd week” operating results prior two years 52weeks 2011 changed consolidation date certain operations kraft foods europe segment latin america central eastern europe middle east africa “ceema” regions within kraft foods developing markets segment previously operations primarily reported results two weeks prior end period kraft foods europe segment reports results last saturday period operations latin america certain operations ceema report results last calendar day period last saturday period changes 53rd week 2011 resulted favorable impact net revenues approximately 920 million favorable impact approximately 150 million operating income 2011 2010 changed consolidation date certain european biscuits operations included within kraft foods europe segment certain operations asia pacific latin america within kraft foods developing markets segment previously operations primarily reported periodend results one month two weeks prior end period kraft foods europe moved reporting operations two weeks prior end period asia pacific latin america moved reporting operations last day period changes resulted favorable impact net revenues approximately 200 million insignificant impact operating income 2010 believe changes preferable improve business planning financial reporting better matching close dates operating subsidiaries within kraft foods europe segment kraft foods developing markets segment bringing reporting date closer periodend date effect priorperiod results material revised priorperiod results account investments exercise significant influence 2050 ownership interest equity method accounting use cost method accounting investments ownership interest less 20 exercise significant influence noncontrolling interest subsidiaries consists equity interest noncontrolling investors consolidated subsidiaries kraft foods intercompany transactions eliminated use estimates prepare consolidated financial statements accordance accounting principles generally accepted united states america “us gaap” require us make estimates assumptions affect number amounts consolidated financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions valuation assumptions goodwill intangible assets useful lives longlived assets marketing program accruals insurance selfinsurance reserves income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year material effect consolidated financial statements foreign currencies translate results operations foreign subsidiaries using average exchange rates period whereas balance sheet accounts translated using exchange rates end period record currency translation adjustments component equity transaction gains losses recorded earnings significant periods presented highly inflationary accounting fourth quarter 2009 venezuelan economy classified highly inflationary us gaap effective january 1 2010 began accounting venezuelan subsidiaries highly inflationary accounting rules principally means transactions recorded us dollars use official venezuelan bolivar exchange rate governmentregulated transaction system foreign currency denominated securities “sitme” rate translate venezuelan operations us dollars based nature operations individual subsidiary recorded approximately 10 million favorable foreign currency impacts relating highly inflationary accounting venezuela 2011 approximately 115 million unfavorable foreign currency impacts 2010 loss included onetime impact 34 million translate cash previously recorded secondary market exchange rate cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less inventories stated lower cost market value inventories using average cost method also record inventory allowances overstocked obsolete inventories due ingredient packaging changes longlived assets property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years review longlived assets including amortizable intangible assets impairment conditions exist indicate carrying amount assets may fully recoverable perform undiscounted operating cash flow analyses determine impairment exists testing impairment assets held use group assets liabilities lowest level cash flows separately identifiable impairment determined exist loss calculated based estimated fair value impairment losses assets disposed based estimated proceeds received less costs disposal software costs capitalize certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment amortized straightline basis estimated useful lives software exceed seven years goodwill intangible assets test goodwill nonamortizable intangible assets impairment least annually october 1 assess goodwill impairment risk first performing qualitative review entityspecific industry market general economic factors reporting unit significant potential goodwill impairment risk exists specific reporting unit apply twostep quantitative test first step compares reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using 20year projection discounted cash flows incorporates planned growth rates marketbased discount rates estimates residual value reporting units within kraft foods north america kraft foods europe geographic units used marketbased weightedaverage cost capital 68 discount projected cash flows operations reporting units within kraft foods developing markets geographic unit used riskrated discount rate 98 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value second step applied measure difference carrying value implied fair value goodwill carrying value goodwill exceeds implied fair value goodwill considered impaired reduced implied fair value test nonamortizable intangible assets impairment comparing fair value intangible asset carrying value fair value nonamortizable intangible assets determined using planned growth rates marketbased discount rates estimates royalty rates carrying value exceeds fair value intangible asset considered impaired reduced fair value record intangible asset impairment charges within asset impairment exit costs definitelived intangible assets amortized estimated useful lives evaluated impairment longlived assets insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits liabilities associated risks estimated considering historical claims experience actuarial assumptions revenue recognition recognize revenues title risk loss pass customers generally occurs upon shipment delivery goods revenues recorded net consumer incentives trade promotions include shipping handling charges billed customers shipping handling costs classified part cost sales provision product returns allowances bad debts also recorded reductions revenues within period revenue recognized marketing research development promote products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives expense advertising costs either period advertising first takes place incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred advertising expense 2396 million 2011 2270 million 2010 1581 million 2009 expense costs incurred product research development research development expense 702 million 2011 583 million 2010 466 million 2009 record marketing research development expenses within selling general administrative expenses environmental costs subject laws regulations relating protection environment accrue environmental remediation obligations undiscounted basis amounts probable reasonably estimated accruals adjusted new information develops circumstances change recoveries environmental remediation costs third parties recorded assets recovery costs deemed probable december 31 2011 subsidiaries involved 68 active actions us superfund legislation similar actions legislation related current operations certain former divested operations retain liability outside us subject applicable multinational national local environmental laws regulations countries business outside us specific programs across business units designed meet applicable environmental compliance requirements december 31 2011 accrued immaterial amount environmental remediation based information currently available believe ultimate resolution existing environmental remediation actions compliance general environmental laws regulations material effect financial results employee benefit plans provide range benefits employees retired employees include pension benefits postretirement health care benefits postemployment benefits consisting primarily severance provide pension coverage certain employees nonus subsidiaries separate plans local statutory requirements govern many plans salaried nonunion hourly employees hired us january 1 2009 discontinued benefits us pension plans replaced enhanced company contribution employee savings plan additionally freezing us pension plans current salaried nonunion hourly employees effective december 31 2019 pension accruals salaried nonunion employees currently earning pension benefits end december 31 2019 continuing pay service used calculate pension benefits december 31 2019 projected benefit obligation decreased 168 million 2009 incurred 5 million curtailment charge 2009 related freeze us canadian united kingdom subsidiaries provide health care benefits retired employees local government plans generally cover health care benefits retirees outside us canada united kingdom postemployment benefit plans cover salaried certain hourly employees cost plans charged expense working life covered employees financial instruments operate globally use variety risk management strategies financial instruments manage foreign currency exchange rate commodity price interest rate risks risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results one way actively hedging risks use derivative instruments derivatives recorded consolidated balance sheets fair value fluctuates based changing market conditions certain derivatives designated either cash flow fair value hedges qualify hedge accounting treatment others qualify marked market earnings cash flow hedges changes fair value deferred accumulated comprehensive earnings losses within equity underlying hedged items recognized net earnings accordingly record deferred cash flow hedge gains losses cost sales related inventory sold interest expense net related interest expense recorded hedges intercompany loans fair value hedges changes fair value recognized immediately net earnings consistent underlying hedged items connection interest rate swaps designated fair value hedges record gains losses interest rate swaps corresponding changes fair value hedged longterm debt directly within interest expense net cash flows derivative instruments also classified manner underlying hedged items consolidated statement cash flows additional information location derivative activity within operating results see note 12 financial instruments qualify hedge accounting specified level hedging effectiveness hedging instrument item hedged must achieved inception maintained throughout hedged period hedging ineffectiveness recognized net earnings change value hedge offset change value underlying hedged item formally document risk management objectives strategies undertaking various hedge transactions nature relationships hedging instruments hedged items method assessing hedge effectiveness additionally qualified hedges forecasted transactions specifically identify significant characteristics expected terms forecasted transactions becomes probable forecasted transaction occur hedge longer effective derivative gains losses would recognized earnings current period use financial instruments exposed credit risk counterparty might fail fulfill performance obligations terms agreement minimize credit risk entering transactions counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration greater one year governed international swaps derivatives association master agreement also exposed market risk value financial instruments might adversely affected change foreign currency exchange rates commodity prices interest rates manage market risk incorporating monitoring parameters within risk management strategy limit types derivative instruments derivative strategies use degree market risk hedge derivative instruments commodity cash flow hedges exposed price risk related forecasted purchases certain commodities primarily use raw materials enter commodity forward contracts primarily meat coffee dairy sugar cocoa wheat commodity forward contracts generally subject accounting requirements derivative instruments hedging activities normal purchases exception also use commodity futures options hedge price certain input costs including dairy coffee cocoa wheat corn products soybean oils meat products sugar natural gas heating oil derivative instruments highly effective qualify hedge accounting treatment also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes foreign currency cash flow hedges use various financial instruments mitigate exposure changes exchange rates thirdparty intercompany actual forecasted transactions instruments may include forward foreign exchange contracts forward futures contracts foreign currency swaps foreign currency options based size location businesses use instruments hedge exposure certain currencies including euro swiss franc pound sterling canadian dollar interest rate cash flow fair value hedges manage interest rate volatility modifying repricing maturity characteristics certain liabilities net interest margin material basis adversely affected movements interest rates result interest rate fluctuations hedged fixedrate liabilities appreciate depreciate market value expect effect unrealized appreciation depreciation substantially offset gains losses derivative instruments linked hedged liabilities use derivative instruments including interest rate swaps indices related pricing specific liabilities part interest rate risk management strategy matter policy use highly leveraged derivative instruments interest rate risk management use interest rate swaps economically convert portion nonprepayable fixedrate debt variablerate debt interest rate swap contracts agree parties exchange specified intervals difference fixedrate floatingrate interest amounts calculated based agreedupon notional amount also use interest rate swaps hedge variability interest payment cash flows portion future debt obligations substantially derivative instruments highly effective qualify hedge accounting treatment hedges net investments foreign operations numerous investments foreign subsidiaries net assets subsidiaries exposed volatility foreign currency exchange rates use foreigncurrencydenominated debt hedge net investment foreign operations adverse movements exchange rates designated euro pound sterling denominated borrowings net investment hedge portion overall european operations gains losses net investment designated european operations economically offset losses gains euro pound sterling denominated borrowings change debt’s fair value recorded currency translation adjustment component accumulated comprehensive earnings losses income taxes recognize tax benefits financial statements uncertain tax positions likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized new accounting pronouncements september 2011 financial accounting standards board “fasb” issued amendment related multiemployer pension plans amendment increases quantitative qualitative disclosures employer’s participation individually significant multiemployer plans offer pension postretirement benefits guidance effective fiscal years ended december 15 2011 adopted guidance modified disclosures surrounding participation multiemployer plans note 11 benefit plans september 2011 fasb issued amendment simplify entities test goodwill impairment entity option first assess qualitative factors determine whether “more likely not” goodwill may impaired assessing totality events circumstances goodwill impairment determined likely performing quantitative twostep impairment test would required new guidance also modifies goodwill evaluation year make consistent new annual qualitative approach adopted guidance effective october 1 2011 incorporated guidance annual goodwill impairment test june 2011 fasb issued amendment related statements comprehensive income amendment requires entity present total comprehensive income components net income components comprehensive income either single continuous statement comprehensive income two separate consecutive statements amended guidance eliminates option present components comprehensive income part statement changes stockholders’ equity adopted guidance effective october 1 2011 present components comprehensive income separate statement may 2011 fasb issued amendment revise certain fair value measurement disclosure requirements amendment establishes common requirements measuring fair value disclosing information fair value measurements accordance us gaap international financial reporting standards changes effective january 1 2012 prospective basis early adoption permitted expect adoption standard material effect financial results june 2009 new guidance issued consolidation variable interest entities adopted guidance effective january 1 2010 guidance increases likelihood enterprise classified variable interest entity adoption guidance material impact financial results subsequent events evaluated subsequent events included accounting disclosure requirements related subsequent events consolidated financial statements reclassifications certain amounts previously reported reclassified conform currentyear presentation note 2 proposed spinoff transaction august 4 2011 announced board directors intends create two independent public companies global snacks business “global snacks business” ii north american grocery business “north american grocery business” global snacks business consist current kraft foods europe developing markets segments well north american snack confectionery businesses north american grocery business primarily consist current us beverages cheese convenient meals grocery segments groceryrelated categories canada na foodservice segment well planters corn nuts brands businesses expect create companies us taxfree spinoff north american grocery business shareholders transaction subject number conditions including receipt regulatory approvals favorable ruling internal revenue service ensure us taxfree status spinoff execution intercompany agreements diligence appropriate final approval board directors current target complete spinoff yearend 2012 cannot assure spinoff completed anticipated timeline terms spinoff change note 3 acquisitions divestitures cadbury acquisition related divestitures january 19 2010 announced terms final offer outstanding ordinary share cadbury limited formerly cadbury plc “cadbury” including ordinary share represented american depositary share “cadbury ads” cadbury board directors recommended cadbury shareholders accept terms final offer february 2 2010 conditions offer satisfied validly waived initial offer period expired subsequent offer period immediately began point received acceptances 7173 outstanding cadbury ordinary shares including represented cadbury adss “cadbury shares” june 1 2010 owned 100 outstanding cadbury shares believe combination kraft foods cadbury create global snacks powerhouse unrivaled portfolio brands people love terms final offer subsequent offer agreed pay cadbury shareholders 500 pence cash 01874 shares kraft foods common stock per cadbury ordinary share validly tendered 2000 pence cash 07496 shares kraft foods common stock per cadbury ads validly tendered valued cadbury 185 billion approximately £116 billion based average price 2836 share kraft foods common stock february 2 2010 exchange rate 1595 per £100 february 2 2010 acquired 7173 cadbury shares 131 billion value attributed noncontrolling interests 54 billion february 2 2010 june 1 2010 acquired remaining 2827 cadbury shares 54 billion 38 million gain noncontrolling interest acquired recorded within additional paid capital part cadbury acquisition incurred expensed transaction related fees 218 million 2010 40 million 2009 recorded expenses within selling general administrative expenses also incurred acquisition financing fees 96 million 2010 recorded expenses within interest expense net secure eu regulatory approval acquisition required divest certain cadbury confectionery operations poland romania 2010 completed sale assets businesses generated 342 million sale proceeds impacts divestitures primarily reflected adjustments cadbury purchase price allocations cadbury contributed net revenues 9143 million net earnings 530 million february 2 2010 december 31 2010 following unaudited pro forma summary presents kraft foods’ consolidated information cadbury acquired january 1 2009 amounts calculated conversion us gaap applying accounting policies adjusting cadbury’s results reflect additional depreciation amortization would charged assuming fair value adjustments property plant equipment intangible assets applied january 1 2009 together consequential tax effects adjustments also reflect additional interest expense incurred debt finance purchase divestitures certain cadbury confectionery operations poland romania february 2 2010 cadbury acquisition valued 18547 million 17503 million net cash equivalents part acquisition acquired following assets assumed following liabilities millions 1 gross amount acquired receivables 1474 million 141 million reserved uncollectable 2 goodwill deductible statutory tax purposes attributable cadbury’s workforce significant synergies expect acquisition 3 acquired 103 billion indefinitely lived intangible assets primarily trademarks 26 billion amortizable intangible assets primarily customer relationships technology customer relationships amortized approximately 13 years technology amortized approximately 12 years 4 within current liabilities reserve exposures related taxes approximately 70 million established within developing markets segment cumulative exposure approximately 150 million december 31 2010 pizza divestiture march 1 2010 completed sale assets north american frozen pizza business “frozen pizza” nestlé usa inc “nestlé” 37 billion frozen pizza business component us convenient meals canada north america foodservice segments sale included digiorno tombstone jack’s brands us delissio brand canada california pizza kitchen trademark license also included two wisconsin manufacturing facilities medford little chute leases pizza depots delivery trucks approximately 3600 employees transferred business nestlé accordingly results frozen pizza business reflected discontinued operations consolidated statement earnings periods presented pursuant frozen pizza business transition services agreement agreed provide certain sales comanufacturing distribution information technology accounting finance services nestlé two years december 31 2011 service agreements substantially complete summary results operations frozen pizza business march 1 2010 follows earnings income taxes presented exclude associated allocated overheads 25 million 2010 108 million 2009 2010 gain discontinued operations sale frozen pizza business included tax expense 12 billion following assets frozen pizza business included frozen pizza divestiture millions divestitures 2009 received 41 million net proceeds recorded pretax losses 6 million divestitures balance bar operations us juice operation brazil plant spain recorded aftertax gains 58 million divestitures primarily due differing book tax bases balance bar operations aggregate operating results divestitures discussed divestiture frozen pizza business material financial statements periods presented refer note 16 segment reporting details gains losses divestitures segment note 4 inventories december 31 2011 2010 note 5 property plant equipment property plant equipment december 31 2011 2010 asset impairments record asset impairments 2011 2010 recorded asset impairment 12 million biscuit plant related property plant equipment france 2009 recorded 9 million asset impairment charge write investment norway charges recorded within asset impairment exit costs note 6 goodwill intangible assets december 31 2011 2010 goodwill reportable segment intangible assets december 31 2011 2010 nonamortizable intangible assets consist principally brand names purchased acquisitions nabisco holdings corp spanish portuguese operations united biscuits global lu biscuit business groupe danone sa cadbury amortizable intangible assets consist primarily trademark licenses customerrelated intangibles process technology license agreements noncompete agreements december 31 2011 weightedaverage life amortizable intangible assets 132 years changes goodwill intangible assets consisted 2011 except changes due foreign currency translation significant changes goodwill intangible assets 2010 significant changes • acquisitionswe increased goodwill 9530 million intangible assets 12907 million related allocations purchase price cadbury acquisition recorded 2177 million acquired goodwill us snacks segment 937 million canada na foodservice segment 2671 million kraft foods europe segment 3745 million kraft foods developing markets segment • divestitureswe reduced goodwill 475 million due frozen pizza business divestiture • asset impairmentsduring 2010 review goodwill nonamortizable intangible assets recorded 13 million charge impairment intangible assets netherlands 30 million charge impairment intangible assets china charges recorded within asset impairment exit costs 2011 impairments goodwill nonamortizable intangible assets 2010 also noted goodwill impairment disclosed five reporting units sensitive nearterm changes discounted cash flow assumptions 2011 noted one reporting unit us salty snacks continues sensitive primarily ongoing significant input cost pressure us salty snacks 1170 million goodwill december 31 2011 excess fair value carrying value net assets improved 12 2010 19 2011 reporting unit passed first step impairment test substantial margin operating income decline significantly future would adversely affect estimated fair value reporting unit input costs continue rise expect take pricing actions done 2011 however unsuccessful efforts would decrease profitability negatively affect estimated fair value us salty snacks reporting unit could lead potential impairment future amortization expense intangible assets 225 million 2011 211 million 2010 26 million 2009 currently estimate amortization expense next five years approximately 215 million note 7 integration program cost savings initiatives integration program combination cadbury continues potential meaningful synergies costs savings expect recognize approximately 800 million cost savings end third year following completion acquisition original estimate 750 million additionally expect create revenue synergies investments distribution marketing product development order achieve cost savings synergies expect incur total integration charges approximately 15 billion first three years following acquisition combine integrate two businesses “integration program” integration program costs include costs associated combining operations cadbury’s separate costs related acquisition incurred charges integration program 521 million 2011 657 million 2010 recorded charges primarily operations part selling general administrative expenses within kraft foods europe kraft foods developing markets segments well general corporate expenses since inception integration program incurred approximately 12 billion 15 billion expected charges changes integration program liability consisted cost savings initiatives cost savings initiatives generally include exit disposal project costs consisted following specific initiatives • 2011 recorded 64 million charge primarily within segment operating income kraft foods europe related severance benefits provided terminated employees charges connection kraft foods europe reorganization also reversed 37 million cost savings initiative program costs across segments except kraft foods europe • 2010 recorded 170 million primarily within segment operating income kraft foods europe canada na foodservice connection kraft foods europe reorganization • 2009 recorded 318 million primarily severance benefits provided terminated employees associated benefit plan costs related activities recorded operations primarily within segment operating income kraft foods europe remainder spread across segments within integration program cost savings initiatives include certain costs along exit disposal costs directly attributable activities qualify treatment exit disposal costs us gaap costs commonly refer project costs implementation costs generally include integration reorganization operations facilities discontinuance certain product lines incremental expenses related closure facilities believe disclosure charges within operating income provides greater transparency impact programs initiatives operating results note 8 debt borrowing arrangements shortterm borrowings december 31 2011 2010 shortterm borrowings related weightedaverage interest rates consisted fair values shortterm borrowings december 31 2011 2010 based upon current market interest rates approximate amounts disclosed borrowing arrangements april 1 2011 entered agreement 45 billion fouryear senior unsecured revolving credit facility expires april 2015 agreement replaced former revolving credit agreement terminated upon signing new agreement intend use revolving credit facility general corporate purposes including working capital purposes support commercial paper issuances december 31 2011 amounts drawn facility revolving credit agreement requires us maintain minimum total shareholders’ equity excluding accumulated comprehensive earnings losses least 286 billion december 31 2011 total shareholders’ equity excluding accumulated comprehensive earnings losses 419 billion expect continue meet covenant revolving credit agreement also contains customary representations covenants events default however revolving credit facility financial covenants credit rating triggers provisions could require us post collateral security addition international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 23 billion december 31 2011 24 billion december 31 2010 borrowings lines amounted 182 million december 31 2011 267 million december 31 2010 part cadbury acquisition november 9 2009 entered agreement 364day senior unsecured bridge facility “cadbury bridge facility” first quarter 2010 borrowed £807 million cadbury bridge facility repaid 1205 million time repayment proceeds divestiture frozen pizza business upon repayment cadbury bridge facility terminated longterm debt december 31 2011 2010 longterm debt consisted interest rates december 31 2011 december 31 2011 aggregate maturities longterm debt millions january 10 2012 issued 800 million floating rate notes maturing 2013 bear interest rate equal threemonth london interbank offered rate “libor” plus 0875 received net proceeds 7988 million issuance notes special mandatory redemption upon public announcement record date proposed spinoff north american grocery business shareholders required issue notice redemption notes redemption price equal 100 aggregate principal amount notes plus accrued unpaid interest day prior redemption date november 1 2011 repaid 11 billion longterm debt cash operations shortterm borrowings december 29 2010 repurchased 900 million principal amount 5625 notes due 2011 600 million principal amount 625 notes due 2012 validly tendered pursuant cash tender offers initiated november 2010 paid 1596 million aggregate consideration including accrued unpaid interest accepted notes december 2010 december 20 2010 repaid £77 million approximately 119 million longterm debt august 11 2010 repaid 500 million longterm debt funded repayments cash operations shortterm borrowings february 8 2010 issued 95 billion senior unsecured notes weightedaverage effective rate 5364 used net proceeds 9379 million finance cadbury acquisition general corporate purposes general terms 95 billion notes • 375 billion total principal notes due february 10 2020 fixed annual interest rate 5375 interest payable semiannually beginning august 10 2010 • 300 billion total principal notes due february 9 2040 fixed annual interest rate 6500 interest payable semiannually beginning august 9 2010 • 175 billion total principal notes due february 9 2016 fixed annual interest rate 4125 interest payable semiannually beginning august 9 2010 • 100 billion total principal notes due may 8 2013 fixed annual interest rate 2625 interest payable semiannually beginning november 8 2010 addition notes include covenants restrict ability incur debt secured liens certain threshold also must offer purchase notes price equal 101 aggregate principal amount plus accrued unpaid interest date repurchase following occur “change control” triggering event ii downgrade notes investment grade rating moody’s investors service inc standard poor’s ratings services fitch inc within specified period expect continue comply longterm debt covenants february 2 2010 part cadbury acquisition acquired 2437 million longterm debt terms debt including us dollar par amounts february 2 2010 • £77 million approximately 123 million total principal notes due december 20 2010 fixed annual interest rate 4875 • c150 million approximately 140 million canadian bank loan agreement expiring august 30 2012 variable interest rate interest rate december 31 2011 1507 • 10 billion total principal notes due october 1 2013 fixed annual interest rate 5125 • £300 million approximately 499 million total principal notes due december 11 2014 fixed annual interest rate 5375 • £350 million approximately 626 million total principal notes due july 18 2018 fixed annual interest rate 7250 fair value aggregate fair value total debt 31113 million compared carrying value 26931 million december 31 2011 31459 million compared carrying value 28724 million december 31 2010 fair value debt determined using level 1 quoted prices active markets identical liabilities interest expense net interest expense net consisted 2011 expense includes loss 157 million related several interest rate swaps settled 2011 2010 acquisitionrelated financing fees include hedging foreign currency impacts associated cadbury acquisition fees associated cadbury bridge facility note 9 capital stock articles incorporation authorize 50 billion shares class common stock 500 million shares preferred stock 2010 combined class b common stock authorizations accordingly single class common stock authorized shares class common stock issued treasury outstanding december 31 2011 115094789 shares class common stock reserved stock options stock awards preferred shares class b common shares issued outstanding december 31 2011 2010 2009 2010 issued 262 million shares class common stock part cadbury acquisition issued stock total fair value 7457 million based average high low market prices dates issuance note 10 stock plans align annual longterm incentive compensation programs shareholder returns amended restated 2005 performance incentive plan “2005 plan” may grant eligible employees awards stock options stock appreciation rights restricted stock restricted deferred stock units awards based common stock well performancebased annual longterm incentive awards authorized issue maximum 1680 million shares common stock 2005 plan addition kraft foods restated 2006 stock compensation plan nonemployee directors “2006 directors plan” amended 2011 annual meeting shareholders may 2011 may grant 1000000 shares common stock members board directors fulltime employees december 31 2011 56752061 shares available granted 2005 plan 789603 shares available granted 2006 directors plan restricted deferred shares available grant 2005 plan december 31 2011 19886997 stock awards issued employees treasury stock specific policy repurchase common stock mitigate dilutive impact options however historically made adequate discretionary purchases based cash availability market trends factors satisfy stock option exercise activity stock options stock options granted exercise price equal market value underlying stock grant date generally become exercisable three annual installments beginning first anniversary grant date maximum term ten years account employee stock options fair value method accounting using modified blackscholes methodology measure stock option expense date grant fair value stock options date grant amortized expense vesting period recorded compensation expense related stock options 49 million 2011 46 million 2010 31 million 2009 deferred tax benefit recorded related compensation expense 15 million 2011 15 million 2010 11 million 2009 unamortized compensation expense related stock options 67 million december 31 2011 expected recognized weightedaverage period two years weightedaverage blackscholes fair value assumptions follows riskfree interest rate represents constant maturity us government treasuries rate remaining term equal expected life options expected life period employees expected hold options volatility reflects historical movements stock price period commensurate expected life options dividend yield estimated expected life options based stated dividend policy stock option activity year ended december 31 2011 february 2011 part annual equity program granted 158 million stock options eligible employees exercise price 3183 aggregate granted 163 million stock options 2011 weightedaverage exercise price 3181 february 2010 part annual equity program granted 150 million stock options eligible employees exercise price 2915 aggregate granted 181 million stock options 2010 weightedaverage exercise price 2924 including options issued cadbury employees annual equity program february 2009 part annual equity program granted 163 million stock options eligible employees exercise price 2364 total intrinsic value options exercised 98 million 2011 92 million 2010 72 million 2009 cash received options exercised 486 million 2011 134 million 2010 79 million 2009 actual tax benefit realized tax deductions option exercises totaled 40 million 2011 60 million 2010 52 million 2009 restricted deferred stock may grant shares restricted deferred stock eligible employees giving instances rights shareholders except may sell assign pledge otherwise encumber shares restricted deferred stock subject forfeiture certain employment conditions met restricted deferred stock generally vest third anniversary grant date shares granted connection longterm incentive plan vest based varying performance market service conditions unvested shares voting rights pay dividends fair value restricted deferred shares date grant amortized earnings restriction period recorded compensation expense related restricted deferred stock 132 million 2011 128 million 2010 133 million 2009 deferred tax benefit recorded related compensation expense 41 million 2011 39 million 2010 44 million 2009 unamortized compensation expense related restricted deferred stock 164 million december 31 2011 expected recognized weightedaverage period two years restricted deferred stock activity year ended december 31 2011 january 2011 granted 15 million shares stock connection longterm incentive plan market value per share 3162 date grant february 2011 part annual equity program issued 26 million shares restricted deferred stock eligible employees market value per restricted deferred share 3183 date grant aggregate issued 51 million restricted deferred shares 2011 including issued part longterm incentive plan weightedaverage market value per share 3197 january 2010 granted 17 million shares stock connection longterm incentive plan market value per share 2733 date grant february 2010 part annual equity program issued 25 million shares restricted deferred stock eligible employees market value per restricted deferred share 2915 date grant aggregate issued 58 million restricted deferred shares 2010 including issued part longterm incentive plan weightedaverage market value per share 2882 january 2009 granted 15 million shares stock connection longterm incentive plan market value per share 2700 date grant february 2009 part annual equity program issued 41 million shares restricted deferred stock eligible employees market value per restricted deferred share 2364 date grant aggregate issued 58 million restricted deferred shares 2009 including issued part longterm incentive plan weightedaverage market value per share 2468 weightedaverage grant date fair value restricted deferred stock granted 162 million 3197 per restricted deferred share 2011 167 million 2882 per restricted deferred share 2010 143 million 2468 per restricted deferred share 2009 vesting date fair value restricted deferred stock 135 million 2011 117 million 2010 153 million 2009 note 11 benefit plans pension plans obligations funded status projected benefit obligations plan assets funded status pension plans december 31 2011 2010 projected benefit obligation decreased 23 million due divestiture frozen pizza business effect certain us pension plans accumulated benefit obligation represents benefits earned measurement date 6971 million december 31 2011 6208 million december 31 2010 us pension plans accumulated benefit obligation nonus pension plans 9207 million december 31 2011 8549 million december 31 2010 combined us nonus pension plans resulted net pension liability 3624 million december 31 2011 2345 million december 31 2010 recognized amounts consolidated balance sheets december 31 2011 2010 follows certain us nonus plans underfunded accumulated benefit obligations excess plan assets plans projected benefit obligations accumulated benefit obligations fair value plan assets december 31 2011 2010 used following weightedaverage assumptions determine benefit obligations pension plans december 31 yearend discount rates us canadian plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates nonus plans canadian plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class components net pension cost net pension cost consisted following years ended december 31 2011 2010 2009 significant portion 2010 increase nonus net periodic pension cost related cadbury acquisition following costs included within expenses severance payments related cost savings initiatives restructuring program retired employees elected lumpsum payments resulted settlement losses us plans 105 million 2011 118 million 2010 107 million 2009 addition incurred 5 million curtailment charge 2010 related divestiture frozen pizza business nonus plant closures early retirement benefits resulted curtailment settlement losses 8 million 2011 11 million 2010 8 million 2009 addition 2011 incurred 6 million special termination benefit costs nonus plans related cadbury integration us plans determine expected return plan assets component net periodic benefit cost using calculated market return value recognizes cost four year period nonus plans utilize similar approach varying cost recognition periods plans others determine expected return plan assets based asset fair values measurement date december 31 2011 combined us nonus pension plans expected amortize accumulated comprehensive earnings losses net periodic pension cost 2012 • estimated 475 million net loss experience differences • estimated 9 million prior service cost used following weightedaverage assumptions determine net pension cost years ended december 31 plan assets fair value pension plan assets december 31 2011 determined using following fair value measurements fair value pension plan assets december 31 2010 determined using following fair value measurements excluded plan assets 152 million december 31 2011 155 million december 31 2010 tables related certain insurance contracts reported contract value accordance authoritative guidance fair value measurements • level 1 includes primarily us nonus equity securities government bonds valued using quoted prices active markets • level 2 includes primarily pooled funds including assets real estate pooled funds valued using net asset values participation units held common collective trusts reported managers trusts supported unit prices actual purchase sale transactions level 2 plan assets also primarily include corporate bonds fixedincome securities valued using independent observable market inputs matrix pricing yield curves indices • level 3 includes investments valued using unobservable inputs reflect plans’ assumptions market participants would use pricing assets based best information available • fair value estimates pooled funds calculated investment advisor reliable quotations pricing services readily available certain underlying securities estimated value based either cost last sale price securities valued fashion • fair value estimates limited partnership private equity investments calculated general partners using market approach estimate fair value private investments market approach utilizes prices relevant information generated market transactions type security degree liquidity restrictions disposition latest round financing data company financial statements relevant valuation multiples discounted cash flow analyses • fair value estimates real estate investments calculated investment managers using present value future cash flows expected received investments based valuation methodologies appraisals local market conditions current projected operating performance • fair value estimates investments hedge fundoffunds calculated investment managers using net asset value per share investment reported money managers underlying funds • fair value estimates insurance contracts calculated based future stream benefit payments discounted using prevailing interest rates based valuation date changes level 3 plan assets recorded comprehensive earnings losses year ended december 31 2011 included increases level 3 pension plan investments december 31 2010 primarily due net realized unrealized gains partially offset net purchases issuances settlements changes level 3 assets recorded comprehensive earnings losses year ended december 31 2010 included increases level 3 pension plan investments 2010 due cadbury acquisition types investments acquired plans percentage fair value pension plan assets december 31 2011 2010 investment strategy based expectation equity securities outperform fixedincome securities long term due nature timing expected pension liabilities approximately 70 us plan assets equity securities approximately 30 fixedincome securities strategy uses indexed us equity securities actively managed indexed international equity securities actively managed indexed us investment grade fixedincome securities constitute 95 fixedincome securities lesser allocations high yield fixedincome securities plans outside us investment strategy subject local regulations asset liability profiles plans individual country specific circumstances result level equity exposure typically less us plans aggregate asset allocation targets nonus plans broadly characterized mix 40 equity securities 46 fixedincome securities 14 real estate asset balance nonus plans december 31 2011 primarily related 387 million hedge funds private equity investments 119 million cash accounts held across various investment managers attempt maintain target asset allocation rebalancing asset classes make contributions monthly benefit payments employer contributions 2011 contributed 538 million us pension plans 361 million nonus pension plans addition employees contributed 26 million nonus plans 2011 pension contributions approximately 495 million voluntary make contributions us nonus pension plans primarily extent tax deductible generate excise tax liability us qualified pension plans 2012 currently required make nominal cash contribution us pension plans pension protection act 2006 based current tax law estimate 2012 pension contributions would approximately 55 million us plans approximately 425 million nonus plans total 2012 pension contributions none expected voluntary actual contributions may different due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates factors future benefit payments estimated future benefit payments pension plans december 31 2011 multiemployer pension plans made contributions multiemployer pension plans 32 million 2011 30 million 2010 29 million 2009 plans provide pension benefits retirees certain collective bargaining agreements following individually significant multiemployer plan participate december 31 2011 1 represents pension protection act zone status bakery confectionery union industry international pension fund december 31 2010 information 2011 pension protection act zone status available time filing contributions exceeded 5 total contributions bakery confectionery union industry international pension fund “fund” fiscal years 2011 2010 2009 contributions fund 24 million 2011 24 million 2010 23 million 2009 expect contributions fund approximately 25 million next five years january 11 2012 hostess brands significant contributor fund announced filed voluntary petitions reorganization chapter 11 us bankruptcy code also stated plan modify labor agreements order emerge chapter 11 new cost structure yet clear impact actions amount fund withdrawal liability effect bankruptcy future contributions withdrawal liability yet known cannot reasonably estimated december 31 2011 contributions multiemployer pension plans individually significant 8 million 2011 6 million 2010 6 million 2009 costs sponsor contribute employee savings plans cover eligible salaried nonunion union employees contributions costs determined matching employee contributions defined plans amounts charged expense defined contribution plans totaled 114 million 2011 104 million 2010 94 million 2009 postretirement benefit plans obligations postretirement health care plans funded changes amount accrued benefit obligation december 31 2011 2010 current portion accrued postretirement benefit obligation 215 million december 31 2011 217 million december 31 2010 included accrued liabilities used following weightedaverage assumptions determine postretirement benefit obligations december 31 yearend discount rates us canadian plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates nonus plans canadian plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear expected health care cost trend rate based historical costs assumed health care cost trend rates significant impact amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects december 31 2011 components net postretirement health care costs net postretirement health care costs consisted following years ended december 31 2011 2010 2009 december 31 2011 expected amortize accumulated comprehensive earnings losses net postretirement health care costs 2012 • estimated 77 million net loss experience differences • estimated 32 million prior service credit used following weightedaverage assumptions determine net postretirement cost years ended december 31 future benefit payments estimated future benefit payments postretirement health care plans december 31 2011 costs made contributions multiemployer medical plans totaling 36 million 2011 35 million 2010 35 million 2009 plans provide medical benefits active employees retirees certain collective bargaining agreements postemployment benefit plans obligations postemployment plans primarily funded changes amount accrued benefit obligation december 31 2011 2010 2011 recorded canadian postemployment plan partially funded net liability balance approximately 29 million liability recorded accrued benefit obligation determined using weightedaverage discount rate 52 2011 63 2010 assumed ultimate annual turnover rate 05 2011 2010 assumed compensation cost increases 40 2011 2010 assumed benefits defined respective plans postemployment costs arising actions offer employees benefits excess specified respective plans charged expense incurred components net postemployment costs net postemployment costs consisted following years ended december 31 2011 2010 2009 postemployment costs primarily relate establishment partially funded canadian postemployment plan december 31 2011 estimated net gain postemployment benefit plans expected amortize accumulated comprehensive earnings losses net postemployment costs 2012 insignificant note 12 financial instruments fair value derivative instruments fair values derivative instruments recorded consolidated balance sheet december 31 2011 2010 include fair value asset derivatives within current assets fair value liability derivatives within current liabilities fair values derivative instruments december 31 2011 determined using fair values derivative instruments december 31 2010 determined using level 2 financial assets liabilities consist commodity forwards options foreign exchange forwards currency swaps options interest rate swaps commodity derivatives valued using income approach based observable market commodity index prices less contract rate multiplied notional amount based pricing models rely market observable inputs commodity prices foreign currency contracts valued using income approach based observable market forward rates less contract rate multiplied notional amount calculation fair value interest rate swaps derived discounted cash flow analysis based terms contract observable market interest rate curve calculation fair value financial instruments takes consideration risk nonperformance including counterparty credit risk derivative volume net notional values derivative instruments december 31 2011 2010 cash flow hedges cash flow hedge activity net income taxes within accumulated comprehensive earnings losses included gains losses recognized comprehensive income loss gains losses reclassified accumulated comprehensive earnings losses earnings gains losses ineffectiveness recognized earnings gains losses amount excluded effectiveness testing recognized earnings 2011 recognized loss 157 million related several interest rate swaps settled november 2011 recognized loss earnings timing related forecasted debt changed record gain loss reclassified accumulated comprehensive earnings losses earnings ii gain loss ineffectiveness iii gain loss amount excluded effectiveness testing • cost sales commodity contracts • cost sales selling general administrative expenses foreign exchange contracts related forecasted transactions depending type transaction • interest expense net interest rate contracts foreign exchange contracts related intercompany loans expect transfer unrealized losses 19 million net taxes commodity cash flow hedges unrealized gains 68 million net taxes foreign currency cash flow hedges unrealized losses 10 million net taxes interest rate cash flow hedges earnings next 12 months december 31 2011 hedged forecasted transactions following durations • commodity transactions periods exceeding next 17 months • interest rate transactions periods exceeding next 31 years 4 months • foreign currency transactions periods exceeding next 12 months fair value hedges following gains losses due changes fair value interest rate swaps related hedged longterm debt recorded interest expense net economic hedges gains losses recorded earnings economic hedges designated hedging instruments included 2010 cadbury acquisition related hedging losses economically offset 240 million foreign exchange net gains cash denominated pound sterling cadbury bridge facility payable balances associated acquisition hedges net investments foreign operations gains losses related hedges net investments foreign operations included note 13 commitments contingencies legal proceedings routinely involved legal proceedings claims governmental inspections investigations “legal matters” arising ordinary course business competition authorities certain member states european union ongoing investigations possible anticompetitive activity fast moving consumer goods “fmcg” sector includes products chocolate coffee october 18 2011 german federal cartel office “fco” issued press release stating discontinued proceedings wholly owned subsidiary kraft foods deutschland gmbh “kfd” based settlement agreed kfd fco following fco’s finding illegal price agreements regarding instant cappuccino fco also imposed fine former kfd employee due kfd’s cooperation fco matter fine resolve matter reduced eur 22 million approximately 3 million october 18 2011 compliant ethical corporate culture includes adhering laws industry regulations jurisdictions business integral success accordingly acquired cadbury february 2010 began reviewing adjusting needed cadbury’s operations light us international standards well kraft foods’ policies practices initially focused high priority areas food safety foreign corrupt practices act “fcpa” antitrust based upon cadbury’s preacquisition policies compliance programs postacquisition reviews preliminary findings indicated cadbury’s overall state compliance sound nonetheless reviews determined certain jurisdictions including india appeared facts circumstances warranting investigation continuing investigations certain jurisdictions including india continue cooperate governmental authorities march 1 2011 starbucks coffee company “starbucks” without authorization contend violation breach agreements starbucks took control starbucks packaged coffee business “starbucks cpg business” grocery stores channels alleging breached supply license agreement dispute pending arbitration chicago illinois seeking appropriate remedies including limited payment fair market value supply license agreement plus premium agreement specifies starbucks counterclaimed unspecified damages arbitration proceeding set begin july 11 2012 expected conclude july 31 2012 results starbucks cpg business included primarily us beverage canada na foodservice segments march 1 2011 previously disclosed february 1 2011 received subpoena sec connection investigation fcpa primarily related cadbury facility india acquired cadbury acquisition subpoena primarily requests information regarding dealings indian governmental agencies officials obtain approvals related operation facility cooperating us government investigation matters cannot predict certainty results legal matters currently involved expect ultimate costs resolve legal matters material effect financial results thirdparty guarantees thirdparty guarantees primarily covering longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2011 carrying amount thirdparty guarantees consolidated balance sheet maximum potential payment guarantees 22 million substantially guarantees expire various times 2018 leases rental expenses 452 million 2011 514 million 2010 505 million 2009 december 31 2011 minimum rental commitments noncancelable operating leases effect yearend millions note 14 income taxes earnings continuing operations income taxes provision income taxes consisted following years ended december 31 2011 2010 2009 also recognized tax expense 12 billion related 2010 earnings gain discontinued operations sale frozen pizza business january 1 2011 unrecognized tax benefits 1281 million recognized benefits net impact income tax provision would 1062 million unrecognized tax benefits 1538 million december 31 2011 recognized benefits net impact income tax provision would 1317 million amount unrecognized tax benefits could decrease approximately 160200 million next 12 months due audit settlements expiration statutes limitations various jurisdictions include accrued interest penalties related uncertain tax positions tax provision accrued interest penalties 246 million january 1 2011 286 million december 31 2011 provision income taxes included 53 million interest penalties paid interest penalties 5 million 2011 changes unrecognized tax benefits years ended december 31 2011 2010 2009 regularly examined federal various state foreign tax authorities us federal statute limitations remains open year 2004 onward irs currently examining 2004 2006 tax returns expect examination close 2012 income tax filings also currently examination tax authorities various us state foreign jurisdictions us state foreign jurisdictions statutes limitations generally ranging three five years however statutes often extended mutual agreement tax authorities years still open examination foreign tax authorities major jurisdictions include earliest open tax year parentheses germany 1999 brazil 2005 canada 2003 france 2006 united kingdom 2006 australia 2008 russia 2004 india 2003 december 31 2011 applicable us federal income taxes foreign withholding taxes provided approximately 102 billion accumulated earnings foreign subsidiaries expected permanently reinvested impractical us determine amount unrecognized deferred tax liabilities permanently reinvested earnings effective income tax rate pretax earnings differed us federal statutory rate following reasons years ended december 31 2011 2010 2009 2011 effective tax rate favorably impacted net tax benefits 199 million discrete onetime events primarily revaluation uk deferred tax assets liabilities resulting tax legislation enacted 2011 reduced uk corporate income tax rates reversal valuation allowances certain foreign deferred tax assets expected realized net favorable impact various us federal us state foreign tax audit developments year 2011 effective tax rate also reflects increased tax benefits operations outside united states generally taxed lower rates us statutory rate 35 percent mix pretax income various foreign jurisdictions significant impact effective tax rate fourth quarter full year tax rate benefited lower projected taxes earnings outside us fourth quarter also favorable due trueup prior quarter estimates lower actual tax expense reported operations 2010 effective tax rate included net tax benefits 123 million primarily due favorable resolution federal tax audit resolution several items international operations partially offset 137 million writeoff deferred tax assets result us health care legislation enacted march 2010 2009 effective tax rate included net tax benefits 225 million primarily due agreement reached irs specific matters related years 2000 2003 settlements various foreign state tax authorities expiration statutes limitations various jurisdictions divestiture balance bar operations us tax effects temporary differences gave rise deferred income tax assets liabilities consisted following december 31 2011 2010 significant allowances reside within operating subsidiaries mexico ireland china us japan note 15 earnings per share basic diluted eps continuing discontinued operations calculated using following exclude antidilutive kraft foods stock options calculation weightedaverage shares diluted eps excluded 92 million antidilutive options year ended december 31 2011 285 million antidilutive options year ended december 31 2010 230 million antidilutive options year ended december 31 2009 note 16 segment reporting manufacture market packaged food products including snacks beverages cheese convenient meals various packaged grocery products manage report operating results three geographic units kraft foods north america kraft foods europe kraft foods developing markets manage operations kraft foods north america kraft foods europe product category manage operations kraft foods developing markets location reportable segments us beverages us cheese us convenient meals us grocery us snacks canada na foodservice kraft foods europe kraft foods developing markets results operations cadbury acquisition including integration program acquisitionrelated costs reflected within us snacks canada na foodservice kraft foods europe kraft foods developing markets segments management uses segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales certain components us pension plan cost component cost sales selling general administrative expenses general corporate expenses component selling general administrative expenses amortization intangibles periods presented exclude unrealized gains losses hedging activities segment operating income order provide better transparency segment operating results realized gains losses hedging activities recorded within segment operating results exclude certain components us pension plan cost segment operating income centrally manage pension plan funding decisions determination discount rate expected rate return plan assets actuarial assumptions therefore allocate service cost component us pension plan expense segment operating income furthermore centrally manage interest expense net accordingly present items segment excluded segment profitability measure management reviews use accounting policies segments described note 1 summary significant accounting policies segment results largest customer walmart stores inc affiliates accounted approximately 12 consolidated net revenues 2011 13 2010 16 2009 net revenues occurred primarily kraft foods north america segments march 1 2011 starbucks without authorization contend violation breach agreements starbucks took control starbucks cpg business grocery stores channels alleging breached supply license agreement dispute pending arbitration chicago illinois seeking appropriate remedies including limited payment fair market value supply license agreement plus premium agreement specifies starbucks counterclaimed unspecified damages arbitration proceeding set begin july 11 2012 expected conclude july 31 2012 results starbucks cpg business included primarily us beverage canada na foodservice segments march 1 2011 recorded 64 million charge kraft foods europe related severance benefits provided terminated employees charges connection kraft foods europe reorganization also reversed 37 million cost savings initiative program costs across segments except kraft foods europe 2010 recorded 170 million primarily within segment operating income kraft foods europe canada na foodservice connection kraft foods europe reorganization 2009 recorded 318 million primarily severance benefits provided terminated employees associated benefit plan costs related activities recorded operations primarily within segment operating income kraft foods europe remainder spread across segments 2011 unfavorable 100 million net change unrealized gains losses hedging activities primarily resulted higher commodity hedge losses partially offset gains currency forward contracts 2010 favorable 67 million net change unrealized gains losses hedging activities primarily resulted gains associated commodity hedge contracts 2009 favorable 203 million net change unrealized gains losses hedging activities primarily resulted 2008 unrealized losses energy derivatives becoming realized 2009 therefore included segment operating income 2011 decrease general corporate expenses due primarily cadbury acquisitionrelated transaction fees prior year lower integration program costs 2010 increase general corporate expenses primarily due acquisitionrelated transaction fees integration program costs impact cadbury’s corporate charges incurred acquisitionrelated transaction fees 218 million 2010 40 million 2009 recorded charges operations part general corporate expenses 2009 general corporate expenses included 50 million charges legal matters related certain european operations gains losses divestitures net impacted segment operating income follows total assets depreciation expense capital expenditures segment 1 unallocated assets consist primarily cash equivalents deferred income taxes centrally held property plant equipment prepaid pension assets derivative financial instrument balances net revenues consumer sector reflects kraft macaroni cheese dinners convenient meals sector separates canada na foodservice kraft foods europe kraft foods developing markets sector components 1 within sector revenues disclosures reclassified certain net revenues conform current year presentation geographic data net revenues longlived assets total assets note 17 quarterly financial data unaudited fourth quarter 2011 benefited lower projected taxes earnings outside us 85 million trueup prior quarter estimates lower actual tax expense reported operations basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may equal total year 2011 recorded following pretax charges gains earnings continuing operations 2010 recorded following pretax charges gains earnings continuing operations item 9item 8 financial statements supplementary data report management internal control financial reporting management responsible establishing maintaining adequate internal control financial reporting defined rules 13a15f 15d15f securities exchange act 1934 amended internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance accounting principles generally accepted united states america internal control financial reporting includes written policies procedures • pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets • provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance accounting principles generally accepted united states america • provide reasonable assurance receipts expenditures made accordance management director authorization • provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition assets could material effect consolidated financial statements internal control financial reporting includes controls monitoring internal auditing practices actions taken correct deficiencies identified inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate management assessed effectiveness internal control financial reporting december 31 2012 management based assessment criteria effective internal control financial reporting described internal control integrated framework issued committee sponsoring organizations treadway commission “coso” management’s assessment included evaluation design internal control financial reporting testing operational effectiveness internal control financial reporting management reviewed results assessment audit committee board directors based assessment management determined december 31 2012 maintained effective internal control financial reporting pricewaterhousecoopers llp independent registered public accounting firm audited reported consolidated financial statements included report audited internal control financial reporting december 31 2012 february 25 2013 report independent registered public accounting firm board directors shareholders mondelēz international inc opinion accompanying consolidated balance sheets related consolidated statements earnings comprehensive earnings equity cash flows present fairly material respects financial position mondelēz international inc subsidiaries december 31 2012 2011 results operations cash flows three years period ended december 31 2012 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying report management internal control financial reporting responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 1 consolidated financial statements 2011 company changed reporting date remove twoweek reporting lag certain company’s locations outside united states company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp chicago illinois february 25 2013 mondelēz international inc subsidiaries consolidated statements earnings years ended december 31 millions us dollars except per share data see notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements comprehensive earnings years ended december 31 millions us dollars see notes consolidated financial statements mondelēz international inc subsidiaries consolidated balance sheets december 31 millions us dollars except share data see notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements equity millions us dollars except per share data see notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements cash flows years ended december 31 millions us dollars see notes consolidated financial statements mondelēz international inc subsidiaries notes consolidated financial statements note 1 summary significant accounting policies description business mondelēz international inc formerly kraft foods inc incorporated 2000 commonwealth virginia mondelēz international inc subsidiaries collectively “mondelēz international” “we” “us” “our” sells food beverage products consumers approximately 165 countries october 1 2012 “distribution date” completed spinoff former north american grocery business kraft foods group inc “kraft foods group” distributing 100 outstanding shares common stock kraft foods group holders common stock “spinoff” along food beverage categories also retained global snacks business “global snacks business” see note 2 divestitures acquisitions information spinoff changes presentation divested kraft foods group presented discontinued operation consolidated statements earnings periods presented kraft foods group balance sheet comprehensive earnings cash flows included within consolidated balance sheet consolidated statements equity comprehensive earnings cash flows october 1 2012 results discontinued operations discussed detail note 2 divestitures acquisitions principles consolidation consolidated financial statements include mondelēz international well wholly owned majority owned subsidiaries majority operating subsidiaries report results last saturday year portion international operating subsidiaries report results last calendar day period 2011 last saturday year fell december 31 2011 results included one week operating results “53rd week” 2012 2010 52 weeks 2011 changed consolidation date certain operations europe segment latin america central eastern europe “cee” middle east africa “mea” regions within developing markets segment previously operations primarily reported results two weeks prior end period subsequent 2011 changes europe segment reports results last saturday period certain operations within developing markets segment report results last calendar day period last saturday period changes 53rd week 2011 resulted favorable impact net revenues 679 million favorable impact 93 million operating income 2011 2010 changed consolidation date certain european biscuits operations included within europe segment certain operations asia pacific latin america within developing markets segment previously operations primarily reported periodend results one month two weeks prior end period europe moved reporting operations two weeks prior end period asia pacific latin america moved reporting operations last day period changes resulted favorable impact net revenues 193 million favorable impact 23 million operating income 2010 believe changes preferable improve business planning financial reporting better matching close dates operating subsidiaries within europe developing markets segments bringing reporting dates closer periodend date effect priorperiod results material revised priorperiod results account investments exercise significant influence 2050 ownership interest equity method accounting use cost method accounting investments ownership interest less 20 exercise significant influence noncontrolling interest subsidiaries consists equity interest noncontrolling investors consolidated subsidiaries mondelēz international intercompany transactions eliminated use estimates prepare consolidated financial statements accordance accounting principles generally accepted united states america “us gaap” require us make estimates assumptions affect number amounts consolidated financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions valuation assumptions goodwill intangible assets useful lives longlived assets marketing program accruals insurance selfinsurance reserves income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year material effect consolidated financial statements foreign currencies translate results operations foreign subsidiaries using average exchange rates period whereas balance sheet accounts translated using exchange rates end period record currency translation adjustments component equity transaction gains losses recorded earnings significant periods presented highly inflationary accounting february 8 2013 venezuelan government announced devaluation official venezuelan bolivar exchange rate 430 bolivars 630 bolivars us dollar elimination secondtier governmentregulated sitme exchange rate previously applied value certain types transactions impact announced changes resulted onetime 30 million unfavorable foreign currency impact record within latin america operating segment first quarter 2013 began accounting results venezuelan subsidiaries us dollars january 1 2010 prescribed us gaap highly inflationary economies use official venezuelan bolivar exchange rate translate results venezuelan operations us dollars 2012 2011 recorded immaterial foreign currency impacts connection highly inflationary accounting venezuela 2010 recorded 115 million unfavorable foreign currency impacts including onetime 34 million charge upon adopting highly inflationary accounting venezuela cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less inventories stated lower cost market value inventories using average cost method also record inventory allowances overstocked obsolete inventories due ingredient packaging changes longlived assets property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years review longlived assets including amortizable intangible assets impairment conditions exist indicate carrying amount assets may fully recoverable perform undiscounted operating cash flow analyses determine impairment exists testing impairment assets held use group assets liabilities lowest level cash flows separately identifiable impairment determined exist loss calculated based estimated fair value impairment losses assets disposed based estimated proceeds received less costs disposal software costs capitalize certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment amortized straightline basis estimated useful lives software exceed seven years goodwill nonamortizable intangible assets test goodwill nonamortizable intangible assets impairment least annually october 1 assess goodwill impairment risk first performing qualitative review entityspecific industry market general economic factors reporting unit significant potential goodwill impairment risk exists specific reporting unit apply twostep quantitative test first step compares reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using 20year projection discounted cash flows incorporates planned growth rates marketbased discount rates estimates residual value reporting units within north america europe geographic units used marketbased weightedaverage cost capital 63 discount projected cash flows operations reporting units within developing markets geographic unit used riskrated discount rate 93 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value second step applied measure difference carrying value implied fair value goodwill carrying value goodwill exceeds implied fair value goodwill considered impaired reduced implied fair value test nonamortizable intangible assets impairment first performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible asset significant potential impairment risk exists specific nonamortizable intangible asset quantitatively test impairment comparing fair value intangible asset carrying value fair value nonamortizable intangible assets determined using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds fair value intangible asset considered impaired reduced estimated fair value record intangible asset impairment charges within asset impairment exit costs definitelived intangible assets amortized estimated useful lives evaluated impairment longlived assets insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits estimate liabilities associated risks evaluating making judgments historical claims experience actuarial assumptions estimated impact future results revenue recognition recognize revenues title risk loss pass customers generally occurs upon shipment delivery goods revenues recorded net consumer incentives trade promotions include shipping handling charges billed customers shipping handling costs classified part cost sales provision product returns allowances bad debts also recorded reductions revenues within period revenue recognized marketing research development promote products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives expense advertising costs either period advertising first takes place incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred advertising expense 1815 million 2012 1860 million 2011 1729 million 2010 expense product research development costs incurred research development expense 462 million 2012 511 million 2011 404 million 2010 record marketing research development expenses within selling general administrative expenses environmental costs throughout countries business subject local national multinational environmental laws regulations relating protection environment programs across business units designed meet applicable environmental compliance requirements united states laws regulations include clean air act clean water act resource conservation recovery act comprehensive environmental response compensation liability act “cercla” cercla imposes joint severable liability potentially responsible party december 31 2012 subsidiaries involved one active proceeding us state equivalent cercla related current operations december 31 2011 subsidiaries involved 68 active actions except one active proceeding retained remaining active actions relate retained divested kraft foods group business december 31 2012 accrued immaterial amount environmental remediation based information currently available believe ultimate resolution existing environmental remediation actions compliance general environmental laws regulations material effect financial results employee benefit plans provide range benefits current retired employees depending upon jurisdictions tenure presence union job level factors include pension benefits postretirement health care benefits postemployment benefits consisting primarily severance provide pension coverage certain employees nonus subsidiaries separate plans local statutory requirements govern many plans salaried nonunion hourly employees hired us january 1 2009 discontinued benefits us pension plans replaced enhanced company contribution employee savings plan additionally freezing us pension plans current salaried nonunion hourly employees effective december 31 2019 pension accruals salaried nonunion employees currently earning pension benefits end december 31 2019 continuing pay service used calculate pension benefits december 31 2019 us canadian united kingdom subsidiaries provide health care benefits retired employees local government plans generally cover health care benefits retirees outside us canada united kingdom postemployment benefit plans cover salaried certain hourly employees cost plans charged expense working life covered employees financial instruments use certain financial instruments manage foreign currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principal objective risk management strategies reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices interest rates principally use derivative instruments use combination primarily foreign currency forward contracts futures options swaps commodity forward contracts futures options interest rate swaps manage exposure cash flow variability protect value existing foreign currency assets liabilities protect value debt see note 9 financial instruments consolidated financial statements information types derivative instruments use record derivative financial instruments fair value consolidated balance sheets within current assets current liabilities due relatively shortterm duration cash flows derivative instruments classified consolidated statements cash flows based nature derivative instrument changes fair value derivative designated cash flow hedge extent hedge effective recorded accumulated comprehensive earnings losses reclassified earnings hedged item affects earnings changes fair value economic hedges ineffective portion hedges recognized current period earnings changes fair value derivative designated fair value hedge along changes fair value related hedged asset liability recorded earnings period use foreign currency denominated debt hedge portion net investment foreign operations adverse movements exchange rates changes value debt recorded within currency translation adjustment accumulated comprehensive earnings losses order qualify hedge accounting specified level hedging effectiveness derivative instrument item hedged must exist inception throughout hedged period must also formally document nature relationship derivative hedged item well risk management objectives strategies undertaking hedge transaction method assessing hedge effectiveness additionally hedge forecasted transaction significant characteristics expected term forecasted transaction must specifically identified must probable forecasted transaction occur longer probable hedged forecasted transaction occur would recognize gain loss related derivative earnings use derivatives exposed credit market risks credit risk exists counterparty derivative contract might fail fulfill performance obligations contract minimize credit risk entering transactions counterparties high quality investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration one year longer governed international swaps derivatives association master agreement market risk exists value derivative financial instrument might adversely affected changes market conditions foreign currency exchange rates commodity prices interest rates manage market risk limiting types derivative instruments derivative strategies use degree market risk plan hedge use derivative instruments commodity cash flow hedges exposed price risk related forecasted purchases certain commodities primarily use raw materials enter commodity forward contracts primarily wheat soybean vegetable oils sugar sweeteners cocoa commodity forward contracts generally subject accounting requirements derivative instruments hedging activities normal purchases exception also use commodity futures options hedge price certain input costs including wheat soybean vegetable oils sugar sweeteners cocoa derivative instruments highly effective qualify hedge accounting treatment also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes foreign currency cash flow hedges use various financial instruments mitigate exposure changes exchange rates thirdparty intercompany actual forecasted transactions instruments may include foreign exchange forward contracts futures options swaps based size location businesses use instruments hedge exposure certain currencies including euro pound sterling canadian dollar interest rate cash flow fair value hedges manage interest rate volatility modifying pricing maturity characteristics certain liabilities net impact interest expense material basis adversely affected movements interest rates result interest rate fluctuations hedged fixedrate liabilities appreciate depreciate market value expect effect unrealized appreciation depreciation substantially offset gains losses derivative instruments linked hedged liabilities use derivative instruments including interest rate swaps indices related pricing specific liabilities part interest rate risk management strategy matter policy use highly leveraged derivative instruments interest rate risk management use interest rate swaps economically convert portion fixedrate debt variablerate debt interest rate swap contracts agree parties exchange specified intervals difference fixedrate floatingrate interest amounts calculated based agreedupon notional amount also use interest rate swaps hedge variability interest payment cash flows portion future debt obligations substantially derivative instruments highly effective qualify hedge accounting treatment hedges net investments foreign operations numerous investments foreign subsidiaries net assets subsidiaries exposed volatility foreign currency exchange rates use foreign currency denominated debt hedge net investment foreign operations adverse movements exchange rates designated euro pound sterling denominated borrowings net investment hedge portion overall european operations gains losses net investment designated european operations economically offset losses gains euro pound sterling denominated borrowings change debt’s value recorded currency translation adjustment component accumulated comprehensive earnings losses income taxes recognize tax benefits financial statements uncertain tax positions assessed likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized new accounting pronouncements february 2013 financial accounting standards board “fasb” issued accounting standards update clarifying report effect significant reclassifications accumulated comprehensive income “aoci” component respective line items statement earnings affected guidance effective fiscal interim reporting periods beginning december 15 2012 plan adopt guidance first quarter 2013 anticipate adoption materially change presentation consolidated financial statements july 2012 fasb issued accounting standards update simplifies indefinitelived intangible asset impairment testing companies option first assess qualitative factors determine whether “more likely not” indefinitelived intangible asset may impaired assessing totality events circumstances impairment determined likely performing quantitative twostep impairment test would required amendment effective annual tests performed fiscal years beginning september 15 2012 early adoption permitted adopted guidance quarter ended december 31 2012 ahead annual intangible asset impairment testing new guidance impact financial results simplified indefinitelived intangible asset testing perform annual basis reclassifications certain amounts previously reported reclassified conform currentyear presentation subsequent events evaluated subsequent events included accounting disclosure requirements related subsequent events consolidated financial statements note 2 divestitures acquisitions spinoff kraft foods group october 1 2012 “distribution date” completed spinoff north american grocery business kraft foods group inc “kraft foods group” shareholders “spinoff” along food beverage categories also retained global snacks business “global snacks business” october 1 2012 shareholders record close business september 19 2012 “the record date” received one share kraft foods group common stock every three shares common stock held record date distribution structured tax free us shareholders us federal income tax purposes kraft foods group independent public company trading nasdaq global select market symbol “krft” spinoff beneficially shares kraft foods group common stock divested kraft foods group presented discontinued operation consolidated statements earnings periods presented kraft foods group balance sheet comprehensive earnings cash flows included within consolidated balance sheet consolidated statements equity comprehensive earnings cash flows october 1 2012 summary results operations kraft foods group october 1 2012 follows 1 march 1 2010 kraft foods group completed sale assets north american frozen pizza business nestlē usa inc earnings march 1 2010 gain included discontinued operations kraft foods group year ended december 31 2010 results kraft foods group discontinued operation exclude certain corporate business unit costs allocated kraft foods group historically expected continue mondelēz international spinoff costs include primarily corporate overheads information systems sales force support pretax basis date spinoff costs 150 million nine months ended october 1 2012 236 million year ended december 31 2011 209 million year ended december 31 2010 interest expense relating debt kraft foods group incurred assumed october 1 2012 included results discontinued operations periods presented follows october 1 2012 divested following assets liabilities net 4358 million 4111 million net cash retained kraft foods group distribution date millions additionally 4308 million accumulated comprehensive losses primarily related pension benefit plan net liabilities transferred kraft foods group 89 million unearned compensation recorded within additional paid capital distributed kraft foods group total recorded distribution 8755 million shareholders connection spinoff kraft foods group order implement spinoff entered certain agreements kraft foods group effect legal structural separation govern relationship us allocate various assets liabilities obligations us including among things employee benefits intellectual property taxrelated assets liabilities see note 14 income taxes additional information addition executing spinoff manner provided agreements november 2012 pursuant aqreements paid kraft foods group 163 million related targeted cash flows together 247 million cash divested distribution date totaling 410 million cash transferred kraft foods group connection spinoff facilitate management including final payment resolution certain obligations kraft foods group retained certain north american net trade payables receivables also retained approximately 140 million workers’ compensation liabilities claims incurred kraft foods group employees prior spinoff november 2012 paid kraft foods group 95 million cash settle net trade payables receivables also reflected table december 31 2012 also 55 million receivable kraft foods group related cash settlement stock awards held respective employees time spinoff described note 11 stock plans consolidated financial statements spinoff costs historical results include onetime spinoff transaction transition financing related costs “spinoff costs” incurred date recorded spinoff costs 1053 million 2012 46 million spinoff costs 2011 expect reflect onetime spinoff costs within reported results incurred following spinoff costs within pretax earnings cadbury acquisition related divestitures january 19 2010 announced terms final offer outstanding ordinary share cadbury limited formerly cadbury plc “cadbury” including ordinary share represented american depositary share “cadbury ads” cadbury board directors recommended cadbury shareholders accept terms final offer february 2 2010 conditions offer satisfied validly waived initial offer period expired subsequent offer period immediately began point received acceptances 7173 outstanding cadbury ordinary shares including represented cadbury adss “cadbury shares” june 1 2010 owned 100 outstanding cadbury shares cadbury acquisition valued 185 billion approximately £116 billion based average price 2836 share kraft foods inc common stock february 2 2010 exchange rate 1595 per £100 february 2 2010 acquired 7173 cadbury shares 131 billion value attributed noncontrolling interests 54 billion february 2 2010 june 1 2010 acquired remaining 2827 cadbury shares 54 billion recorded 38 million gain noncontrolling interests acquired within additional paid capital part cadbury acquisition incurred expensed transactionrelated fees 218 million 2010 40 million 2009 recorded expenses within selling general administrative expenses also incurred acquisition financing fees 96 million 2010 recorded expenses within interest expense net condition granting approval acquisition eu required divest certain cadbury confectionery operations poland romania 2010 completed sale assets businesses generated 342 million sale proceeds impact divestitures reflected adjustments within cadbury final purchase accounting 2010 cadbury contributed net revenues 9143 million net earnings 530 million february 2 2010 december 31 2010 following unaudited pro forma summary presents consolidated results continuing operations cadbury acquired january 1 2010 amounts calculated conversion us gaap applying accounting policies adjusting cadbury’s results reflect additional depreciation amortization would charged assuming fair value adjustments property plant equipment intangible assets applied january 1 2010 together consequential tax effects adjustments also reflect additional interest expense incurred debt finance purchase divestitures certain cadbury confectionery operations poland romania february 2 2010 cadbury acquisition valued 18547 million 17503 million net cash equivalents part acquisition acquired following assets assumed following liabilities millions 1 gross amount acquired receivables 1474 million 141 million reserved uncollectable 2 goodwill deductible statutory tax purposes attributable cadbury’s workforce significant synergies expect acquisition 3 acquired 103 billion indefinitelived intangible assets primarily trademarks 26 billion amortizable intangible assets primarily customer relationships technology customer relationships amortized approximately 13 years technology amortized approximately 12 years 4 within current liabilities reserve exposures related taxes approximately 70 million established within developing markets segment cumulative exposure approximately 150 million december 31 2010 divestitures 2012 received 200 million proceeds recorded pretax gains 107 million primarily related divestitures dinners sauces grocery business germany belgium canned meat business italy 2011 significant divestitures 2010 discussed divested businesses poland romania connection acquisition cadbury aggregate operating results divestitures discussed material financial statements periods presented note 3 inventories december 31 2012 2011 note 4 property plant equipment property plant equipment december 31 2012 2011 october 1 2012 4211 million property plant equipment divested spinoff kraft foods group additionally first quarter 2012 sold manufacturing facility located russia 72 million proceeds disposing 17 million primarily buildings building improvements resulted recording pretax gain 55 million within developing markets segment asset impairments 2012 recorded impairment charges 18 million related primarily machinery equipment 20122014 restructuring program described note 6 20122014 restructuring program record asset impairments 2011 2010 recorded asset impairment 12 million biscuit plant related property plant equipment france charges recorded within asset impairment exit costs note 5 goodwill intangible assets december 31 2012 2011 goodwill reportable segment intangible assets december 31 2012 2011 nonamortizable intangible assets consist principally brand names purchased acquisitions nabisco holdings corp spanish portuguese operations united biscuits global lu biscuit business groupe danone sa cadbury amortizable intangible assets consist primarily trademarks customerrelated intangibles process technology license agreements noncompete agreements december 31 2012 weightedaverage life amortizable intangible assets 132 years amortization expense intangible assets 217 million 2012 225 million 2011 210 million 2010 currently estimate amortization expense next five years approximately 218 million changes goodwill intangible assets consisted changes goodwill intangible assets 2012 • divestituresin 2012 reduced goodwill 11911 million reduced intangible assets 2666 million due divestiture kraft foods group also reduced goodwill 21 million primarily related divestitures germany belgium italy • asset impairmentswe recorded 52 million charges related trademark japanese chewing gum product within developing markets segment significantly lower revenue fair value intangible asset determined relief royalty valuation models cash flows trademark assuming royalties received licensing arrangement charge calculated excess carrying value intangible asset estimated fair value recorded within asset impairment exit costs • acquisitionswe increased intangible assets 14 million related acquisition license pakistan acquisition trademark europe 2011 except changes due foreign currency translation significant changes goodwill intangible assets 2012 2011 2010 impairments goodwill connection 2012 annual impairment testing noted two reporting units sensitive nearterm changes discounted cash flow assumptions us confections 2177 million goodwill december 31 2012 fair value excess carrying value net assets 9 europe biscuits 2569 million goodwill december 31 2012 fair value excess carrying value net assets 16 reporting units passed first step impairment test segment operating income another valuation assumption either reporting unit deteriorate significantly future could adversely affect estimated fair value unsuccessful plans increase profitability businesses estimated fair values could fall lead potential goodwill impairment future note 6 20122014 restructuring program march 14 2012 board directors approved 11 billion restructuring related implementation costs “20122014 restructuring program” reflecting primarily severance asset disposals manufacturingrelated onetime costs primary objective restructuring implementation activities ensure kraft foods group mondelēz international set operate efficiently execute respective business strategies upon separation future october 23 2012 board directors approved 400 million additional restructuring related implementation programs totaling 15 billion expected 20122014 restructuring program costs 15 billion anticipated 20122014 restructuring program costs kraft foods group expects incur approximately 575 million retain approximately 925 million 20122014 restructuring program restructuring costs within continuing results operations date recorded restructuring charges 102 million 2012 within asset impairment exit costs spent 33 million 2012 cash severance related costs also recognized noncash pension plan settlement losses see note 10 benefit plans noncash asset writedowns including accelerated depreciation asset impairments totaling 33 million 2012 december 31 2012 net restructuring liability 36 million recorded within current liabilities implementation costs implementation costs directly attributable restructuring activities however qualify special accounting treatment exit disposal activities believe disclosure implementation costs provides readers financial statements greater transparency total costs 20122014 restructuring program within continuing results operations date recorded implementation costs 8 million 2012 within cost sales selling general administrative expense north america segment costs primarily include costs integrate reorganize operations facilities discontinuance certain product lines incremental expenses related closure facilities replicating information systems infrastructure reorganizing costs related sales function restructuring implementation costs segment 2012 recorded restructuring implementation costs within consolidated segment operating income follows note 7 integration program cost savings initiatives integration program result combination cadbury 2010 launched integration program realize expected annual cost savings approximately 750 million end 2013 revenue synergies investments distribution marketing product development order achieve cost savings synergies integrate two businesses expect incur total integration charges approximately 15 billion end 2013 “integration program” integration program costs include costs associated combining cadbury operations within global snacks business separate costs related acquisition since inception integration program incurred approximately 13 billion estimated 15 billion total integration charges 2012 met exceeded annual cost savings target 750 million achieved approximately 800 million annual costs savings one year ahead schedule changes integration program liability millions recorded integration program charges 185 million 2012 521 million 2011 646 million 2010 2012 reversed 45 million integration program charges previously accrued 2010 primarily related planned announced position eliminations occur within europe segment recorded charges operations part selling general administrative expenses primarily within europe developing markets segments well within general corporate expenses cost savings initiatives cost savings initiatives generally include exit disposal project costs outside integration program 20122014 restructuring program consist following specific initiatives • 2012 recorded 21 million charge primarily within segment operating income europe related severance benefits provided terminated employees charges connection reorganization within europe developing markets segment “europe reorganization” • 2011 recorded 61 million charge primarily within segment operating income europe related severance benefits provided terminated employees charges connection europe reorganization also reversed approximately 15 million cost savings initiative program costs across north america developing markets segments • 2010 recorded 117 million primarily within segment operating income europe connection europe reorganization note 8 debt borrowing arrangements shortterm borrowings december 31 2012 2011 shortterm borrowings related weightedaverage interest rates consisted borrowing arrangements maintain revolving credit facility historically used general corporate purposes including working capital purposes support commercial paper issuances 45 billion fouryear senior unsecured revolving credit facility expires april 2015 december 31 2012 amounts drawn facility revolving credit agreement requires us maintain minimum shareholders’ equity excluding accumulated comprehensive earnings losses least 286 billion december 31 2012 shareholders’ equity excluding accumulated comprehensive earnings losses 348 billion expect continue meet covenant revolving credit agreement also contains customary representations covenants events default however revolving credit facility financial covenants credit rating triggers provisions could require us post collateral security addition international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 24 billion december 31 2012 23 billion december 31 2011 borrowings lines amounted 274 million december 31 2012 182 million december 31 2011 longterm debt december 31 2012 2011 longterm debt consisted interest rates december 31 2012 december 31 2012 aggregate maturities debt based stated contractual maturities years ended millions october 2 2012 150 million canadian dollar variable rate loan matured loan accrued interest date repaid cash operations october 1 2012 approximately 10 billion debt balance sheet september 30 2012 transferred retained kraft foods group described debt primarily included 60 billion senior unsecured notes issued june 4 2012 36 billion debt exchanged july 18 2012 400 million migrated october 1 2012 see note 2 divestitures acquisitions additional information regarding spinoff liabilities transferred divestiture kraft foods group october 1 2012 connection spinoff related debt capitalization plan 400 million 755 senior unsecured note retained kraft foods group cash generated transaction july 18 2012 completed debt exchange 36 billion debt held thirdparty note holders exchanged notes issued kraft foods group order migrate debt kraft foods group connection spinoff capitalization plan cash generated exchange incurred onetime financing costs 18 million recorded interest expense result exchange retired following debt • 596 million 6125 notes due february 2018 • 439 million 6125 notes due august 2018 • 900 million 5375 notes due february 2020 • 233 million 6875 notes due january 2039 • 290 million 6875 notes due february 2038 • 185 million 7000 notes due august 2037 • 170 million 6500 notes due november 2031 • 787 million 6500 notes due 2040 june 4 2012 kraft foods group issued 60 billion senior unsecured notes distributed 59 billion net proceeds us connection spinoff capitalization plan used proceeds pay 36 billion outstanding commercial paper borrowings expect use remaining cash proceeds pay additional debt time general corporate purposes debt approximately 260 million related deferred financing costs retained kraft foods group spinoff june 1 2012 900 million 625 notes matured notes accrued interest date repaid using primarily commercial paper borrowings subsequently repaid 59 billion net proceeds received kraft foods group 60 billion notes issuance june 4 2012 march 20 2012 20 billion 575 bonds matured bonds accrued interest date repaid using proceeds issuance commercial paper subsequently repaid june 2012 discussed january 10 2012 issued 800 million floating rate notes bear interest rate equal threemonth london interbank offered rate “libor” plus 0875 received net proceeds 7988 million issuance notes set mature july 10 2013 subject mandatory redemption tied public announcement record date spinoff announcing record date september 24 2012 notes redeemed redemption price equal 100 aggregate principal amount notes 800 million plus accrued interest 2 million cash hand november 1 2011 11 billion 5625 notes matured notes accrued interest date repaid cash operations fair value fair value shortterm borrowings december 31 2012 december 31 2011 reflects current market interest rates approximates amounts recorded consolidated balance sheet fair value longterm debt determined using quoted prices active markets publicly traded debt obligations level 1 valuation data december 31 2012 aggregate fair value total debt 22946 million carrying value 19425 million december 31 2011 aggregate fair value total debt 31113 million carrying value 26931 million interest expense net interest expense net within results continuing operations consisted except onetime spinoff related financing fees interest expense associated debt incurred migrated kraft foods group connection spinoff reflected within earnings discontinued operations net income taxes 2012 spinoff related financing fees include loss 556 million related several interest rate swap settlements 2011 expense includes loss 157 million related several interest rate swaps settled 2011 2010 acquisitionrelated financing fees include hedging foreign currency impacts associated cadbury acquisition fees associated cadbury bridge facility note 9 financial instruments fair value derivative instruments derivative instruments recorded fair value consolidated balance sheets december 31 2012 2011 follows 2012 2011 derivatives designated hedging instruments include cash flow fair value hedges derivatives designated include economic hedges nonus debt designated hedge net investments foreign operations reflected table included longterm debt summarized note 8 debt borrowing arrangements fair value asset derivatives recorded within current assets fair value liability derivatives recorded within current liabilities decrease derivatives recorded assets liabilities december 31 2012 primarily related divestiture kraft foods group spinoff financing plans fair value asset liability derivative instruments december 31 2012 determined using fair value asset liability derivative instruments december 31 2011 determined using level 2 financial assets liabilities consist commodity forwards options foreign exchange forwards options currency swaps interest rate swaps commodity derivatives valued using income approach based observable market commodity index prices less contract rate multiplied notional amount based pricing models rely market observable inputs commodity prices foreign currency contracts valued using income approach based observable market forward rates less contract rate multiplied notional amount calculation fair value interest rate swaps derived discounted cash flow analysis based terms contract observable market interest rate curve calculation fair value financial instruments takes consideration risk nonperformance including counterparty credit risk derivative volume net notional values derivative instruments december 31 2012 2011 cash flow hedges cash flow hedge activity net taxes within accumulated comprehensive earnings losses included aftertax gains losses reclassified accumulated comprehensive earnings losses net earnings continuing operations aftertax gains losses recognized comprehensive earnings losses continuing operations pretax gains losses ineffectiveness recognized net earnings continuing operations pretax gains losses amounts excluded effectiveness testing recognized net earnings continuing operations 2012 recognized loss 556 million interest expenses net related certain forwardstarting interest rate swaps planned timing related forecasted debt changed connection spinoff plans related debt capitalization plans 2011 recognized loss 157 million related several interest rate swaps settled november 2011 recognized loss earnings timing related forecasted debt changed record pretax gains losses reclassified accumulated comprehensive earnings losses earnings ii gains losses ineffectiveness iii gains losses amounts excluded effectiveness testing • cost sales commodity contracts • cost sales foreign exchange contracts related forecasted transactions • interest expense net interest rate contracts foreign exchange contracts related intercompany loans expect transfer unrealized losses 28 million net taxes commodity cash flow hedges unrealized losses 9 million net taxes foreign currency cash flow hedges unrealized losses 1 million net taxes interest rate cash flow hedges earnings next 12 months december 31 2012 hedged transactions forecasted impact cash flows following periods • commodity transactions periods exceeding next 12 months • interest rate transactions periods exceeding next 34 years 2 months • foreign currency transactions periods exceeding next 11 months fair value hedges pretax gains losses continuing operations due changes fair value interest rate swaps related hedged longterm debt recorded interest expense net economic hedges pretax gains losses recorded net earnings continuing operations economic hedges designated hedging instruments 1 2010 cadbury acquisition related hedging losses economically offset 240 million foreign exchange net gains cash denominated pound sterling cadbury bridge facility payable balances associated acquisition hedges net investments foreign operations aftertax gains losses continuing operations related hedges net investments foreign operations form euro pound sterlingdenominated debt note 10 benefit plans prior spinoff certain active retired employees kraft foods group certain retired employees participated north american benefit plans following spinoff benefits provided directly kraft foods group related plan obligations plan assets extent benefit plans previously funded transferred kraft foods group october 1 2012 established new plans transfer benefits kraft foods group reduced benefit plan liabilities 12218 million pension assets 6550 million deferred tax assets 2146 million accumulated comprehensive losses 3810 million pension plans october 1 2012 connection spinoff reduced benefit obligation 8594 million fair value pension assets 6550 million longterm deferred tax assets 727 million accumulated comprehensive losses 2917 million obligations funded status projected benefit obligations plan assets funded status pension plans december 31 2012 2011 accumulated benefit obligation represents benefits earned measurement date 1218 million december 31 2012 6971 million december 31 2011 us pension plans accumulated benefit obligation nonus pension plans 9453 million december 31 2012 9207 million december 31 2011 combined us nonus pension plans resulted net pension liability 2891 million december 31 2012 3624 million december 31 2011 recognized amounts consolidated balance sheets december 31 2012 2011 follows certain us nonus plans underfunded accumulated benefit obligations excess plan assets plans projected benefit obligations accumulated benefit obligations fair value plan assets december 31 2012 2011 used following weightedaverage assumptions determine benefit obligations pension plans december 31 yearend discount rates us canadian plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates nonus plans canadian plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class components net pension cost net pension cost consisted following years ended december 31 2012 2011 2010 following costs included within expenses employees elected lumpsum payments connection 20122014 restructuring program cost saving initiatives retired employees elected lumpsum payments resulted settlement losses us plans 113 million 2012 105 million 2011 118 million 2010 nonus plant closures early retirement benefits resulted curtailment settlement losses 9 million 2012 8 million 2011 11 million 2010 addition 2012 incurred 13 million special termination benefit costs nonus plans 2011 incurred 6 million special termination benefit costs nonus plans related cadbury integration us plans determine expected return plan assets component net periodic benefit cost using calculated market return value recognizes cost four year period nonus plans utilize similar approach varying cost recognition periods plans others determine expected return plan assets based asset fair values measurement date december 31 2012 combined us nonus pension plans expected amortize accumulated comprehensive earnings losses net periodic pension cost 2013 • estimated 191 million net loss experience differences • estimated 4 million prior service cost used following weightedaverage assumptions determine net pension cost years ended december 31 plan assets fair value pension plan assets december 31 2012 determined using following fair value measurements fair value pension plan assets december 31 2011 determined using following fair value measurements excluded plan assets 79 million december 31 2012 152 million december 31 2011 tables related certain insurance contracts reported contract value accordance authoritative guidance fair value measurements • level 1 includes primarily us nonus equity securities government bonds valued using quoted prices active markets • level 2 includes primarily pooled funds including assets real estate pooled funds valued using net asset values participation units held common collective trusts reported managers trusts supported unit prices actual purchase sale transactions level 2 plan assets also include corporate bonds fixedincome securities valued using independent observable market inputs matrix pricing yield curves indices • level 3 includes investments valued using unobservable inputs reflect plans’ assumptions market participants would use pricing assets based best information available • fair value estimates pooled funds calculated investment advisor reliable quotations pricing services readily available certain underlying securities estimated value based either cost last sale price securities valued fashion • fair value estimates limited partnership private equity investments calculated general partners using market approach estimate fair value private investments market approach utilizes prices relevant information generated market transactions type security degree liquidity restrictions disposition latest round financing data company financial statements relevant valuation multiples discounted cash flow analyses • fair value estimates real estate investments calculated investment managers using present value future cash flows expected received investments based valuation methodologies appraisals local market conditions current projected operating performance • fair value estimates investments hedge fundoffunds calculated investment managers using net asset value per share investment reported money managers underlying funds • fair value estimates insurance contracts calculated based future stream benefit payments discounted using prevailing interest rates based valuation date changes level 3 assets recorded comprehensive earnings losses year ended december 31 2012 included increases level 3 pension plan investments 2012 due net realized gains recorded investments partially offset net transfers primarily related assets divested spinoff kraft foods group changes level 3 plan assets recorded comprehensive earnings losses year ended december 31 2011 included increases level 3 pension plan investments 2011 primarily due net realized unrealized gains partially offset net purchases issuances settlements percentage fair value pension plan assets december 31 2012 2011 investment strategy based expectation equity securities outperform fixedincome securities long term attempt maintain target asset allocation rebalancing asset classes make contributions monthly benefit payments due nature timing expected pension liabilities approximately 60 us plan assets equity securities approximately 40 fixedincome securities strategy uses indexed us equity securities actively managed indexed international equity securities actively managed us investment grade fixedincome securities constitute 95 fixedincome securities lesser allocations high yield fixedincome securities plans outside us investment strategy subject local regulations asset liability profiles plans individual country specific circumstances result level equity exposure typically less us plans aggregate asset allocation targets nonus plans broadly characterized mix approximately 40 equity securities approximately 50 fixedincome securities approximately 10 real estate asset balance nonus plans december 31 2012 primarily related 262 million hedge funds 211 million private equity investments employer contributions 2012 contributed 349 million us pension plans including 202 million related kraft foods group us pension plans 329 million nonus pension plans including 42 million related kraft foods group nonus pension plans addition employees contributed 24 million nonus plans 2012 pension contributions 315 million voluntary including 185 million related kraft foods group pension plans make contributions us nonus pension plans primarily extent tax deductible generate excise tax liability 2013 estimate pension contributions 8 million us plans 309 million nonus plans based current tax laws currently required make nominal cash contribution us qualified pension plans pension protection act 2006 total 2013 pension contributions none expected voluntary actual contributions may different due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates factors future benefit payments estimated future benefit payments pension plans december 31 2012 millions multiemployer pension plans made contributions multiemployer pension plans 30 million 2012 32 million 2011 30 million 2010 plans provide pension benefits retirees certain collective bargaining agreements following individually significant multiemployer plan participate december 31 2012 contributions exceeded 5 total contributions bakery confectionery union industry international pension fund “fund” fiscal years 2012 2011 2010 contributions fund 25 million 2012 24 million 2011 24 million 2010 expect contributions fund approximately 27 million next five years january 11 2012 hostess brands significant contributor fund announced filed voluntary petitions reorganization chapter 11 us bankruptcy code november 21 2012 hostess received court approval dissolve company full effect hostess’ bankruptcy reorganization fund known bankruptcy proceedings concluded costs withdrawal liability fund might increase fund’s actuarial valuation completed zone status changed “red” 2012 result certification charged 10 surcharge contribution rates expected future contributions include surcharge fund adopted rehabilitation plan november 7 2012 requires contribution increases reduction benefit provisions contributions multiemployer pension plans individually significant 5 million 2012 8 million 2011 6 million 2010 contributions include contributions related kraft foods group employees participated multiemployer pension plans october 1 2012 2 million 2012 5 million 2011 3 million 2010 costs sponsor contribute employee savings plans cover eligible salaried nonunion union employees contributions costs determined matching employee contributions defined plans amounts charged expense continuing operations defined contribution plans totaled 74 million 2012 62 million 2011 56 million 2010 postretirement benefit plans october 1 2012 connection divestiture kraft foods group reduced benefit obligation 3561 million longterm deferred tax assets 1382 million accumulated comprehensive losses 877 million obligations postretirement health care plans funded changes amount accrued benefit obligation december 31 2012 2011 current portion accrued postretirement benefit obligation 8 million december 31 2012 215 million december 31 2011 included accrued liabilities used following weightedaverage assumptions determine postretirement benefit obligations december 31 yearend discount rates us canadian plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates nonus plans canadian plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear expected health care cost trend rate based historical costs assumed health care cost trend rates significant impact amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects december 31 2012 components net postretirement health care costs net postretirement health care costs consisted following years ended december 31 2012 2011 2010 1 2012 recorded 23 million unfunded us postretirement plan obligation related longterm disability benefits december 31 2012 expected amortize accumulated comprehensive earnings losses pretax net postretirement health care costs 2013 • estimated 12 million net loss experience differences • estimated 11 million prior service credit used following weightedaverage assumptions determine net postretirement cost years ended december 31 future benefit payments estimated future benefit payments postretirement health care plans december 31 2012 costs made contributions multiemployer medical plans totaling 31 million 2012 36 million 2011 35 million 2010 contributions include contributions related kraft foods group employees participated multiemployer medical plans october 1 2012 13 million 2012 20 million 2011 18 million 2010 plans provide medical benefits active employees retirees certain collective bargaining agreements postemployment benefit plans october 1 2012 connection divestiture kraft foods group reduced benefit obligation 63 million longterm deferred tax assets 37 million accumulated comprehensive losses 16 million obligations postemployment plans primarily funded changes amount accrued benefit obligation december 31 2012 2011 recorded canadian postemployment plan partially funded net liability balance approximately 29 million accrued benefit obligation determined using weightedaverage discount rate 40 2012 52 2011 assumed ultimate annual turnover rate 05 2012 2011 assumed compensation cost increases 40 2012 2011 assumed benefits defined respective plans postemployment costs arising actions offer employees benefits excess specified respective plans charged expense incurred components net postemployment costs net postemployment costs consisted following years ended december 31 2012 2011 2010 postemployment costs 2011 primarily relate establishment partially funded canadian postemployment plan december 31 2012 estimated net gain postemployment benefit plans expected amortize accumulated comprehensive earnings losses net postemployment costs 2013 insignificant note 11 stock plans align annual longterm incentive compensation programs shareholder returns amended restated 2005 performance incentive plan “2005 plan” may grant eligible employees awards stock options stock appreciation rights restricted stock restricted deferred stock units awards based common stock well performancebased annual longterm incentive awards authorized issue maximum 1680 million shares common stock 2005 plan addition amended restated 2006 stock compensation plan nonemployee directors “2006 directors plan” may grant 10 million shares common stock members board directors fulltime employees december 31 2012 413 million shares available granted 2005 plan 07 million shares available granted 2006 directors plan connection spinoff divestiture kraft foods group provisions existing plans employee stock option restricted deferred stock awards adjusted preserve fair value awards immediately spinoff record incremental compensation expense related conversion awards restricted deferred stock continues vest original vesting period generally three years grant date stock awards held october 1 2012 modified follows • stock options holders kraft foods inc stock option awards received stock options purchase number shares common stock adjusted exercise price one new kraft foods group stock option every three stock options held preserve fair value overall awards granted • restricted deferred stock holders kraft foods inc restricted deferred stock awards received one share kraft foods group restricted deferred shares every three restricted deferred shares held record date • longterm incentive plan kraft foods inc awards held kraft foods group employees converted kraft foods group awards held employees retained underlying performance conditions consistent original performance targets adjusted reflect standalone business net cash settlement awards kraft foods group employees received determined follows • stock options extent employees received kraft foods group stock options plan reimburse kraft foods group cash fair value stock options received extent kraft foods group employees held stock options kraft foods group plans reimburse us cash fair value stock options • restricted deferred stock extent employees received kraft foods group restricted deferred stock plan reimburse kraft foods group fair value shares received less value projected forfeitures extent kraft foods group employees held restricted deferred stock kraft foods group plans reimburse us cash fair value restricted deferred stock less value projected forfeitures cash settlements resulted recording receivable 55 million due kraft foods group december 31 2012 payment subject completion final reviews administrative procedures stock options stock options granted exercise price equal market value underlying stock grant date generally become exercisable three annual installments beginning first anniversary grant date maximum term ten years account employee stock options fair value method accounting using modified blackscholes methodology measure stock option expense date grant fair value stock options date grant amortized expense vesting period recorded compensation expense related stock options held employees 39 million 2012 35 million 2011 33 million 2010 results continuing operations deferred tax benefit recorded related compensation expense 11 million 2012 10 million 2011 10 million 2010 unamortized compensation expense related employee stock options 43 million december 31 2012 expected recognized weightedaverage period 2 years weightedaverage blackscholes fair value assumptions riskfree interest rate represents constant maturity us government treasuries rate remaining term equal expected life options expected life period employees expected hold options volatility reflects historical movements stock price period commensurate expected life options 2012 dividend yield reflects dividend yield place time historical grants reflect lower dividend yield mondelēz international grants made following spinoff kraft foods group stock option activity year ended december 31 2012 reflected result spinoff impact number common shares underlying stock options stock options granted prior spinoff weightedaverage exercise prices table reflect historical exercise prices adjustment made october 1 2012 convert exercise prices exercisable stock options outstanding due spinoff 1 due restrictions stemming local laws taxes regulatory matters certain employees previously held stock options may longer hold stock options kraft foods group stock option awards converted equivalent amount additional mondelēz international stock options order preserve fair value overall stock option awards granted february 2012 part annual equity program granted 128 million stock options eligible employees exercise price 3800 grant date 2012 issued 07 million additional stock options weightedaverage exercise price 3760 per share aggregate granted 135 million stock options 2012 weightedaverage exercise price 3797 february 2011 part annual equity program granted 158 million stock options eligible employees exercise price 3183 grant date 2011 issued 05 million additional stock options weightedaverage exercise price 3122 per share aggregate granted 163 million stock options 2011 weightedaverage exercise price 3181 february 2010 part annual equity program granted 150 million stock options eligible employees exercise price 2915 grant date 2010 issued 31 million additional stock options weightedaverage exercise price 2973 per share aggregate granted 181 million stock options 2010 weightedaverage exercise price 2924 including options issued cadbury employees annual equity program total intrinsic value options exercised 93 million 2012 98 million 2011 92 million 2010 cash received options exercised 205 million 2012 486 million 2011 134 million 2010 actual tax benefit realized tax deductions option exercises totaled 21 million 2012 40 million 2011 60 million 2010 restricted deferred stock may grant shares restricted deferred stock eligible employees giving instances rights shareholders except may sell assign pledge otherwise encumber shares restricted deferred stock subject forfeiture certain employment conditions met restricted deferred shares generally vest third anniversary grant date shares granted connection longterm incentive plan vest based varying performance market service conditions unvested shares voting rights pay dividends fair value restricted deferred shares date grant amortized earnings restriction period recorded compensation expense related restricted deferred stock 90 million 2012 95 million 2011 93 million 2010 results continuing operations deferred tax benefit recorded related compensation expense 27 million 2012 28 million 2011 28 million 2010 unamortized compensation expense related restricted deferred stock 115 million december 31 2012 expected recognized weightedaverage period 2 years restricted deferred stock activity year ended december 31 2012 reflected result spinoff impact number shares granted grant price information restricted deferred stock awarded prior record date reflects historical market prices adjusted reflect spinoff 1 due restrictions stemming local laws taxes regulatory matters certain employees previously held restricted deferred shares may longer hold stock awards kraft foods group stock awards converted equivalent amount additional mondelēz international stock awards order preserve fair value overall stock award granted january 2012 granted 13 million shares stock connection longterm incentive plan market value per share 3763 date grant february 2012 part annual equity program issued 22 million shares restricted deferred stock eligible employees market value per restricted deferred share 3800 date grant 2012 issued 15 million additional restricted deferred shares weightedaverage market value per share 2918 primarily connection 2009 longterm incentive plan performance based awards special equity award ceo aggregate issued 50 million restricted deferred shares 2012 including issued part longterm incentive plan weightedaverage market value per share 3525 january 2011 granted 15 million shares stock connection longterm incentive plan market value per share 3162 date grant february 2011 part annual equity program issued 26 million shares restricted deferred stock eligible employees market value per restricted deferred share 3183 date grant 2011 issued 10 million additional restricted deferred shares weightedaverage market value per share 3302 aggregate issued 51 million restricted deferred shares 2011 including issued part longterm incentive plan weightedaverage market value per share 3197 january 2010 granted 17 million shares stock connection longterm incentive plan market value per share 2733 date grant february 2010 part annual equity program issued 25 million shares restricted deferred stock eligible employees market value per restricted deferred share 2915 date grant 2010 issued 16 million additional restricted deferred shares weightedaverage market value per share 2940 including shares issued cadbury employees annual equity program aggregate issued 58 million restricted deferred shares 2010 including issued part longterm incentive plan weightedaverage market value per share 2882 weightedaverage grant date fair value restricted deferred stock granted 175 million 3525 per restricted deferred share 2012 162 million 3197 per restricted deferred share 2011 167 million 2882 per restricted deferred share 2010 vesting date fair value restricted deferred stock 189 million 2012 135 million 2011 117 million 2010 note 12 commitments contingencies legal proceedings routinely involved legal proceedings claims governmental inspections investigations “legal matters” arising ordinary course business competition authorities certain member states european union ongoing investigations possible anticompetitive activity fast moving consumer goods “fmcg” sector includes products chocolate coffee january 31 2012 german federal cartel office “fco” issued press release stating discontinued proceedings wholly owned subsidiary kraft foods deutschland gmbh “kfd” based settlement agreed kfd fco following fco’s finding exchange competitively sensitive information fco also imposed fines former kfd employee well several producers confectionery due kfd’s cooperation fco matter fine resolve matter kfd reduced 217 million compliant ethical corporate culture includes adhering laws industry regulations jurisdictions business integral success accordingly acquired cadbury february 2010 began reviewing adjusting needed cadbury’s operations light us international standards well kraft foods’ policies practices initially focused high priority areas food safety foreign corrupt practices act “fcpa” antitrust based upon cadbury’s preacquisition policies compliance programs postacquisition reviews preliminary findings indicated cadbury’s overall state compliance sound nonetheless reviews determined certain jurisdictions including india appeared facts circumstances warranting investigation continuing investigations certain jurisdictions including india continue cooperate governmental authorities previously disclosed february 1 2011 received subpoena sec connection investigation fcpa primarily related facility india acquired cadbury acquisition subpoena primarily requests information regarding dealings indian governmental agencies officials obtain approvals related operation facility cooperating us indian governments investigations matters previously disclosed march 1 2011 starbucks coffee company “starbucks” took control starbucks packaged coffee business “starbucks cpg business” grocery stores channels starbucks without authorization contend violation breach license supply agreement starbucks related starbucks cpg business dispute arbitration chicago illinois seeking appropriate remedies including payment fair market value supply license agreement plus premium agreement specifies prejudgment interest new york law attorney’s fees starbucks counterclaimed damages testimony posthearing briefing arbitration proceeding completed await arbitrator’s decision kraft foods group remains named party proceeding separation distribution agreement kraft foods group us kraft foods group direct recovery awarded arbitration proceeding us reimburse kraft foods group costs expenses incurs connection arbitration cannot predict certainty results legal matters currently involved expect ultimate costs resolve legal matters individually aggregate material effect financial results thirdparty guarantees enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2012 material thirdparty guarantees recorded consolidated balance sheet december 31 2012 three indirect wholly owned subsidiaries joint several guarantors 10 billion indebtedness issued unrelated third party cadbury schweppes us finance llc maturing october 1 2013 following spinoff one guarantors indebtedness became indirect wholly owned subsidiary kraft foods group agreed indemnify kraft foods group pursuant separation distribution agreement event subsidiary called upon satisfy obligation guarantee leases rental expenses recorded continuing operations 341 million 2012 283 million 2011 330 million 2010 december 31 2012 minimum rental commitments noncancelable operating leases effect yearend millions note 13 capital stock october 1 2012 spun kraft foods group became independent publicly traded company effect spinoff shareholders record september 19 2012 received one share kraft foods group every three shares mondelēz international spinoff effect number shares mondelēz international common stock treasury outstanding described note 2 divestitures acquisitions book value per common share outstanding decreased distributed 44 billion net assets related divestiture kraft foods group shareholders amended restated articles incorporation authorize 50 billion shares class common stock 500 million shares preferred stock preferred shares issued outstanding december 31 2012 2011 2010 shares class common stock issued treasury outstanding 2010 issued 2615 million shares class common stock part cadbury acquisition issued stock total fair value 7457 million based average high low market prices dates issuance see note 2 divestitures acquisitions additional information stock plan awards employees nonemployee directors issued treasury shares december 31 2012 1031 million shares class common stock held treasury reserved stock options stock awards specific policy repurchase common stock mitigate dilutive impact options however historically made adequate discretionary purchases based cash availability market trends factors satisfy stock option exercise activity note 14 income taxes earnings losses continuing operations income taxes provision income taxes consisted following years ended december 31 2012 2011 2010 changes unrecognized tax benefits years ended december 31 2012 2011 2010 tax sharing indemnity agreements us kraft foods group kraft foods group generally assumes liability us state income taxes canadian federal provincial income taxes generally assume responsibility us federal income taxes substantially foreign income taxes excluding canadian income taxes tax periods prior spinoff addition transferred kraft foods group deferred tax assets liabilities distribution date see note 2 divestitures acquisitions january 1 2012 unrecognized tax benefits 1538 million recognized benefits net impact income tax provision would 1317 million unrecognized tax benefits 1183 million december 31 2012 recognized benefits net impact income tax provision would 1105 million within next 12 months unrecognized tax benefits could increase approximately 40 million due unfavorable audit developments decrease 6080 million due audit settlements expiration statutes limitations various jurisdictions include accrued interest penalties related uncertain tax positions tax provision accrued interest penalties 286 million january 1 2012 203 million december 31 2012 provision income taxes included 33 million interest penalties paid interest penalties 61 million 2012 regularly examined federal various state foreign tax authorities currently various income tax examinations irs years 2006 2009 income tax filings also currently examination tax authorities various us state foreign jurisdictions however tax sharing indemnity agreements us kraft foods group kraft foods group generally liable state income tax filings prior spinoff us state foreign jurisdictions statutes limitations generally ranging three five years however statutes often extended mutual agreement tax authorities years still open examination foreign tax authorities major jurisdictions include earliest open tax year parentheses germany 2005 brazil 2007 france 2009 united kingdom 2004 australia 2008 russia 2010 india 2003 december 31 2012 applicable us federal income taxes foreign withholding taxes provided approximately 108 billion accumulated earnings foreign subsidiaries expected permanently reinvested impractical us determine amount unrecognized deferred tax liabilities permanently reinvested earnings effective income tax rate pretax earnings differed us federal statutory rate following reasons years ended december 31 2012 2011 2010 2012 effective tax rate favorably impacted mix pretax income various foreign jurisdictions net tax benefits 101 million discrete onetime events primarily related revaluation uk deferred tax assets liabilities resulting tax legislation enacted 2012 reduced uk corporate income tax rates net favorable tax audit settlements partially offset nondeductible expenses 2011 effective tax rate favorably impacted mix pretax income various foreign jurisdictions net tax benefits 226 million discrete onetime events primarily revaluation uk deferred tax assets liabilities resulting tax legislation enacted 2011 reduced uk corporate income tax rates reversal valuation allowances certain foreign deferred tax assets expected realized net favorable impact various us federal foreign tax audit developments year 2010 effective tax rate favorably impacted mix pretax income various foreign jurisdictions net tax benefits 165 million discrete onetime events primarily favorable resolution us federal foreign tax audits revaluation uk deferred tax assets liabilities resulting tax legislation enacted 2010 reduced uk corporate income tax rates partially offset writeoff deferred tax assets result us health care legislation enacted march 2010 tax effects temporary differences gave rise deferred income tax assets liabilities consisted following december 31 2012 2011 significant allowances reside within operating subsidiaries mexico ireland uk us note 15 earnings per share basic diluted eps continuing discontinued operations calculated using following exclude antidilutive mondelēz international stock options calculation weightedaverage shares diluted eps excluded 73 million antidilutive options year ended december 31 2012 92 million antidilutive options year ended december 31 2011 285 million antidilutive options year ended december 31 2010 note 16 segment reporting manufacture market primarily snack food beverage products including biscuits cookies crackers salted snacks chocolate gum candy coffee powdered beverages various cheese grocery products manage global business report operating results three geographic units developing markets europe north america connection divestiture kraft foods group divested longer report following segments within results continuing operations us beverages us cheese us convenient meals us grocery remaining businesses within north america predominantly snacks businesses segment results annual report form 10k reflect changes periods presented beginning 2013 segment structure change december 2012 announced reorganization business reporting structure following spinoff effective january 1 2013 operations management segments reorganized five operating segments asia pacific eastern europe middle east africa “eemea” europe latin america north america accordingly begin report new segment structure first quarter 2013 reflect change historical periods present use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales certain components us pension plan cost component cost sales selling general administrative expenses general corporate expenses component selling general administrative expenses amortization intangibles gains losses divestitures acquisitionrelated costs component selling general administrative expenses periods presented exclude unrealized gains losses hedging activities segment operating income order provide better transparency segment operating results realized gains losses hedging activities recorded within segment operating results exclude certain components us pension plan cost segment operating income centrally manage pension plan funding decisions determination discount rate expected rate return plan assets actuarial assumptions therefore allocate service cost component us pension plan expense segment operating income furthermore centrally manage interest expense net accordingly present items segment excluded segment profitability measure management reviews use accounting policies segments described note 1 summary significant accounting policies segment net revenues earnings percentage net revenues continuing operations five largest customers accounted 156 net revenues 2012 compared 155 2011 151 2010 also ten largest customers accounted 241 net revenues 2012 compared 227 2011 232 2010 single customer accounted 10 net revenues continuing operations february 8 2013 venezuelan government announced devaluation official venezuelan bolivar exchange rate 430 bolivars 630 bolivars us dollar elimination secondtier governmentregulated sitme exchange rate previously applied value certain types transactions impact announced changes resulted onetime 30 million unfavorable foreign currency impact record within latin america operating segment first quarter 2013 began accounting results venezuelan subsidiaries us dollars january 1 2010 prescribed us gaap highly inflationary economies use official venezuelan bolivar exchange rate translate results venezuelan operations us dollars 2012 2011 recorded immaterial foreign currency impacts connection highly inflationary accounting venezuela 2010 recorded 115 million unfavorable foreign currency impacts including onetime 34 million charge upon adopting highly inflationary accounting venezuela 2012 divested property developing markets subsidiary located russia 72 million net proceeds recorded 55 million pretax gain within selling general administrative expenses 2012 net changes unrealized gains losses hedging activities favorable primarily related gains foreign currency contracts commodity hedging activity 1 million 2011 net changes unrealized gains losses hedging activities unfavorable primarily related losses foreign currency contracts commodity hedging activity 36 million 2010 net changes unrealized gains losses hedging activities favorable primarily related gains foreign currency contracts commodity hedging activity 38 million connection 20122014 restructuring program 2012 recorded restructuring charges 102 million operations part asset impairment exit costs recorded implementation costs 8 million operations part cost sales selling general administrative expenses charges recorded primarily within north america segment 2012 recorded 44 million benefit within europe segment related reversal reserves carried cadbury acquisition 2010 required recorded integration program charges 185 million 2012 521 million 2011 646 million 2010 2012 reversed 45 million integration program charges previously accrued 2010 primarily related planned announced position eliminations occur within europe segment recorded charges integration program operations part selling general administrative expenses primarily within europe developing markets segments well within general corporate expenses 2012 increase general corporate expenses due primarily 407 million spinoff costs recorded within general corporate expenses partially offset lower integration program costs 2011 decrease general corporate expenses due primarily lower integration program costs 2011 2010 general corporate expenses included 155 million integration program costs well addition cadbury’s corporate charges 2012 received 200 million proceeds recorded pretax gains 107 million primarily related divestitures germany belgium italy 2011 significant divestitures 2010 divested businesses poland romania connection acquisition cadbury reflected impacts divestitures adjustments within cadbury final purchase accounting 2010 acquired cadbury incurred 218 million acquisitionrelated costs recorded within selling general administrative expenses 2012 increase interest expense net due primarily 609 million spinoff costs recorded within interest expense partially offset 2011 loss 157 million related several interest rate swaps settled 2011 well lower longterm debt interest expense 2011 decrease interest expense net due primarily 251 million acquisitionrelated financing fees recorded 2010 partially offset loss 157 million related several interest rate swaps settled 2011 total assets depreciation expense capital expenditures segment 1 unallocated assets consist primarily cash equivalents deferred income taxes centrally held property plant equipment prepaid pension assets derivative financial instrument balances net revenues consumer sector geographic data net revenues longlived assets individual country within exceeded 10 net revenues longlived assets periods presented note 17 quarterly financial data unaudited kraft foods group divested quarter ended december 31 2012 results operations presented discontinued operations periods presented 1 first three quarters 2012 fourth quarter 2012 market pricehigh table reflect historical stock prices adjusted reflect kraft foods group spinoff 1 market prices table reflect historical stock prices adjusted reflect kraft foods group spinoff fourth quarter 2011 benefited lower projected taxes earnings outside us 85 million trueup prior quarter estimates lower actual tax expense reported operations basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may equal total year 2012 recorded following pretax charges gains earnings continuing operations 2011 recorded following pretax charges gains earnings continuing operations item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders mondelēz international inc opinion accompanying consolidated balance sheets related consolidated statements earnings comprehensive earnings equity cash flows present fairly material respects financial position mondelēz international inc subsidiaries december 31 2013 2012 results operations cash flows three years period ended december 31 2013 conformity accounting principles generally accepted united states america also opinion company maintain material respects effective internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission coso material weakness internal control financial reporting related monitoring oversight controls completeness accuracy presentation company’s accounting income taxes existed date material weakness deficiency combination deficiencies internal control financial reporting reasonable possibility material misstatement annual interim financial statements prevented detected timely basis material weakness referred described report management internal control financial reporting appearing item 9a considered material weakness determining nature timing extent audit tests applied audit 2013 consolidated financial statements opinion regarding effectiveness company’s internal control financial reporting affect opinion consolidated financial statements company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report referred responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 1 consolidated financial statements 2011 company changed reporting date remove twoweek reporting lag certain company’s locations outside united states company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp chicago illinois march 3 2014 mondelēz international inc subsidiaries consolidated statements earnings years ended december 31 millions us dollars except per share data see notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements comprehensive earnings years ended december 31 millions us dollars see notes consolidated financial statements mondelēz international inc subsidiaries consolidated balance sheets december 31 millions us dollars except share data see notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements equity millions us dollars except per share data see notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements cash flows years ended december 31 millions us dollars see notes consolidated financial statements mondelēz international inc subsidiaries notes consolidated financial statements note 1 summary significant accounting policies description business mondelēz international inc formerly kraft foods inc incorporated 2000 commonwealth virginia mondelēz international inc subsidiaries collectively “mondelēz international” “we” “us” “our” sells food beverage products consumers approximately 165 countries discontinued operation october 1 2012 completed spinoff former north american grocery business kraft foods group inc “kraft foods group” distributing 100 outstanding shares common stock kraft foods group holders common stock “spinoff” retained global snacks business along food beverage categories divested kraft foods group business presented discontinued operation consolidated statements earnings periods presented kraft foods group comprehensive earnings changes equity cash flows included within consolidated statements comprehensive earnings equity cash flows october 1 2012 see note 2 divestitures acquisition additional information segment reorganization effective january 1 2013 reorganized operations management five reportable operating segments • latin america formerly developing markets segment • asia pacific formerly developing markets segment • eastern europe middle east africa “eemea” formerly developing markets segment • europe includes certain european operations previously managed within eemea segment • north america changed flattened operating structure reflect greater concentration operations highgrowth emerging markets enhance collaboration across regions expedite decision making drive greater efficiencies fuel growth coincident change segment structure segment operating income north america region also changed include us pension plan expenses portion previously excluded segment operating results evaluated management costs centrally managed presented segment results reflecting changes periods presented principles consolidation consolidated financial statements include mondelēz international well wholly owned majority owned subsidiaries account investments exercise significant influence 2050 ownership interest equity method accounting use cost method accounting investments ownership interest less 20 exercise significant influence noncontrolling interest subsidiaries consists equity interest noncontrolling investors consolidated subsidiaries mondelēz international intercompany transactions eliminated accounting calendar changes 2013 majority operating subsidiaries report results last calendar day period connection moving common consolidation date first quarter 2013 changed consolidation date europe segment last saturday period last calendar day period change consolidation date europe segment favorable impact 37 million net revenues 6 million operating income 2013 time primarily north american operating subsidiaries continue report results last saturday period prior changes 2012 2011 majority operating subsidiaries reported results last saturday year 2011 last saturday year also fell december 31 2011 results included one week operating results “53rd week” 2013 2012 52 weeks 2011 also changed consolidation dates certain operations europe latin america eemea segments previously operations primarily reported results two weeks prior end period subsequent 2011 changes majority europe segment reported results last saturday period certain operations within latin america eemea segments began report results last calendar day period last saturday period changes 53rd week 2011 resulted favorable impact net revenues 679 million favorable impact 93 million operating income 2011 believe changes preferable improve business planning financial reporting better matching close dates operating subsidiaries bringing reporting dates closer periodend date effect priorperiod results material revised priorperiod results revision financial statements finalizing 2013 results identified certain outofperiod noncash income taxrelated errors prior interim annual periods errors material previously reported financial results however revised first third quarter 2013 prioryear financial statements consolidated financial statements accompanying notes reflect items appropriate periods net effect revision lower tax expense years prior 2013 impact revision 2013 results third quarter 59 million reduction net earnings related current prioryear corrections impact revision fiscal years prior 2013 increase cumulative net earnings 94 million evaluated cumulative impact errors prior periods guidance accounting standards codification “asc” 25010 accounting changes error corrections guidance securities exchange commission “sec” staff accounting bulletin “sab” 99 materiality also evaluated impact correcting errors adjustment financial statements guidance asc 25010 relating sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements concluded errors material individually aggregate prior reporting periods therefore amendments previously filed reports required plan revise quarterly results 2013 file subsequent reports form 10q revised quarterly financial data years ended december 31 2013 december 31 2012 presented note 18 quarterly financial data unaudited effects prior period corrections annual consolidated financial statements detailed periods prior january 1 2011 consolidated statements equity reflect 28 million cumulative correction retained earnings january 1 2011 consolidated statement earnings consolidated statement comprehensive earnings consolidated balance sheet consolidated statements cash flows use estimates prepare consolidated financial statements accordance accounting principles generally accepted united states america “us gaap” require us make estimates assumptions affect number amounts consolidated financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions valuation assumptions goodwill intangible assets useful lives longlived assets marketing program accruals insurance selfinsurance reserves income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year material effect consolidated financial statements foreign currency including highly inflationary accounting translate results operations foreign subsidiaries using average exchange rates period whereas balance sheet accounts translated using exchange rates end period record currency translation adjustments component equity realized exchange gains losses transactions recorded earnings prescribed us gaap highly inflationary economies began accounting results venezuelan subsidiaries us dollars january 1 2010 use official venezuelan bolivar exchange rate translate results venezuelan operations us dollars 2012 2011 recorded immaterial foreign currency impacts related highly inflationary accounting venezuela february 8 2013 venezuelan government announced devaluation official venezuelan bolivar exchange rate 430 bolivars 630 bolivars us dollar elimination secondtier governmentregulated sitme exchange rate previously applied value certain types transactions connection announced changes recorded 54 million unfavorable foreign currency charge related devaluation net monetary assets venezuela charge recorded selling general administrative expenses within latin america segment also incurred net unfavorable devaluationrelated foreign currency impacts within pretax earnings 67 million year ended december 31 2013 related translating earnings venezuelan subsidiary us dollar new exchange rate march 19 2013 venezuelan government announced new auctionbased currency transaction program referred sicad allows entities specific sectors bid us dollars used specified import transactions minimum exchange rate offered sicad 630 bolivars us dollar week ended december 30 2013 published sicad rate offered 1130 bolivars us dollar date availability us dollars either exchange rate continues limited january 24 2014 venezuelan government announced expansion sicad auction program prospective dividends royalties new profit margin controls venezuelan subsidiaries declare dividends pay royalties future based availability us dollars exchanged sicad program realized exchange losses payments made us dollars would recognized earnings profit level controls continue evaluate announced measures look protect net revenues profitability light current difficult macroeconomic environment venezuela continue monitor actively manage investment exposures venezuela 2013 net revenues venezuela approximately 800 million december 31 2013 net monetary assets denominated venezuelan bolivar 257 million us dollars applying official exchange rate official exchange rate devalue currently less favorable sicad exchange rate extended apply greater portion net monetary assets venezuela could recognize material devaluation charge earnings time occurred continue monitor currency developments venezuela take protective measures currency devaluation converting monetary assets nonmonetary assets use business january 23 2014 central bank argentina adjusted currency policy removed currency stabilization measures allowed argentine peso exchange rate float relative us dollar value argentine peso relative us dollar fell 15 day volatility exchange rate likely time based current state argentine currency rules regulations business environment remains challenging however expect existing controls restrictions material adverse effect business financial condition results operations 2013 net revenues argentina approximately 800 million continue monitor developments argentina explore additional measures protect operations net monetary position cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less inventories stated lower cost market value inventories using average cost method also record inventory allowances overstocked obsolete inventories due ingredient packaging changes longlived assets property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years review longlived assets including amortizable intangible assets impairment conditions exist indicate carrying amount assets may fully recoverable perform undiscounted operating cash flow analyses determine impairment exists testing impairment assets held use group assets liabilities lowest level cash flows separately identifiable impairment determined exist loss calculated based estimated fair value impairment losses assets disposed based estimated proceeds received less costs disposal software costs capitalize certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment amortized straightline basis estimated useful lives software exceed seven years goodwill nonamortizable intangible assets test goodwill nonamortizable intangible assets impairment least annually october 1 assess goodwill impairment risk first performing qualitative review entityspecific industry market general economic factors reporting unit significant potential goodwill impairment risk exists specific reporting unit apply twostep quantitative test first step compares reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using 20year projection discounted cash flows incorporates planned growth rates marketbased discount rates estimates residual value reporting units within north america europe geographic units used marketbased weightedaverage cost capital 66 discount projected cash flows operations latin america asia pacific eemea reporting units used riskrated discount rate 96 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value second step applied measure difference carrying value implied fair value goodwill carrying value goodwill exceeds implied fair value goodwill considered impaired reduced implied fair value test nonamortizable intangible assets impairment first performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible asset significant potential impairment risk exists specific nonamortizable intangible asset quantitatively test impairment comparing fair value intangible asset carrying value fair value nonamortizable intangible assets determined using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds fair value intangible asset considered impaired reduced estimated fair value record intangible asset impairment charges within asset impairment exit costs definitelived intangible assets amortized estimated useful lives evaluated impairment longlived assets insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits estimate liabilities associated risks evaluating making judgments historical claims experience actuarial assumptions estimated impact future results revenue recognition recognize revenues title risk loss pass customers generally occurs upon shipment delivery goods revenues recorded net consumer incentives trade promotions include shipping handling charges billed customers shipping handling costs classified part cost sales provision product returns allowances bad debts also recorded reductions revenues within period revenue recognized marketing research development promote products advertising consumer incentives trade promotions programs include limited discounts coupons rebates instore display incentives volumebased incentives expense advertising costs either period advertising first takes place incurred consumer incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising consumer incentive expenses charged operations percentage volume based estimated volume related expense full year defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred advertising expense 1721 million 2013 1815 million 2012 1860 million 2011 expense product research development costs incurred research development expense 471 million 2013 462 million 2012 511 million 2011 record marketing research development expenses within selling general administrative expenses environmental costs throughout countries business subject local national multinational environmental laws regulations relating protection environment programs across business units designed meet applicable environmental compliance requirements united states laws regulations include clean air act clean water act resource conservation recovery act comprehensive environmental response compensation liability act “cercla” cercla imposes joint severable liability potentially responsible party december 31 2013 2012 subsidiaries involved one active proceeding us state equivalent cercla related current operations december 31 2013 2012 accrued immaterial amount environmental remediation based information currently available believe ultimate resolution existing environmental remediation compliance environmental laws regulations material effect financial results employee benefit plans provide range benefits current retired employees depending upon jurisdictions tenure presence union job level factors include pension benefits postretirement health care benefits postemployment benefits consisting primarily severance provide pension coverage certain employees nonus subsidiaries separate plans local statutory requirements govern many plans salaried nonunion hourly employees hired us january 1 2009 discontinued benefits us pension plans replaced enhanced company contribution employee savings plan additionally freezing us pension plans current salaried nonunion hourly employees effective december 31 2019 pension accruals salaried nonunion employees currently earning pension benefits end december 31 2019 continuing pay service used calculate pension benefits december 31 2019 us canadian uk subsidiaries provide health care benefits retired employees local government plans generally cover health care benefits retirees outside us canada united kingdom postemployment benefit plans cover salaried certain hourly employees cost plans charged expense working life covered employees financial instruments use certain financial instruments manage foreign currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principal objective risk management strategies reduce significant unanticipated earnings fluctuations may arise volatility foreign currency exchange rates commodity prices interest rates principally use derivative instruments use combination primarily foreign currency forward contracts futures options swaps commodity forward contracts futures options interest rate swaps manage exposure cash flow variability protect value existing foreign currency assets liabilities protect value debt see note 9 financial instruments consolidated financial statements information types derivative instruments use record derivative financial instruments fair value consolidated balance sheets within current assets current liabilities due relatively shortterm duration cash flows derivative instruments classified consolidated statements cash flows based nature derivative instrument changes fair value derivative designated cash flow hedge extent hedge effective recorded accumulated comprehensive earnings losses reclassified earnings hedged item affects earnings changes fair value economic hedges ineffective portion hedges recognized current period earnings changes fair value derivative designated fair value hedge along changes fair value related hedged asset liability recorded earnings period use foreign currency denominated debt hedge portion net investment foreign operations adverse movements exchange rates changes value debt recorded within currency translation adjustment accumulated comprehensive earnings losses order qualify hedge accounting specified level hedging effectiveness derivative instrument item hedged must exist inception throughout hedged period must also formally document nature relationship derivative hedged item well risk management objectives strategies undertaking hedge transaction method assessing hedge effectiveness additionally hedge forecasted transaction significant characteristics expected term forecasted transaction must specifically identified must probable forecasted transaction occur longer probable hedged forecasted transaction occur would recognize gain loss related derivative earnings use derivatives exposed credit market risks credit risk exists counterparty derivative contract might fail fulfill performance obligations contract minimize credit risk entering transactions counterparties high quality investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration one year longer governed international swaps derivatives association master agreement market risk exists value derivative financial instrument might adversely affected changes market conditions foreign currency exchange rates commodity prices interest rates manage market risk limiting types derivative instruments derivative strategies use degree market risk plan hedge use derivative instruments commodity cash flow hedges exposed price risk related forecasted purchases certain commodities primarily use raw materials enter commodity forward contracts primarily wheat soybean vegetable oils sugar sweeteners cocoa commodity forward contracts generally subject accounting requirements derivative instruments hedging activities normal purchases exception also use commodity futures options hedge price certain input costs including wheat soybean vegetable oils sugar sweeteners cocoa derivative instruments highly effective qualify hedge accounting treatment also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes foreign currency cash flow hedges use various financial instruments mitigate exposure changes exchange rates thirdparty intercompany actual forecasted transactions instruments may include foreign exchange forward contracts futures options swaps based size location businesses use instruments hedge exposure certain currencies including euro pound sterling canadian dollar interest rate cash flow fair value hedges manage interest rate volatility modifying pricing maturity characteristics certain liabilities net impact expense material basis adversely affected movements interest rates result interest rate fluctuations hedged fixedrate liabilities appreciate depreciate market value expect effect unrealized appreciation depreciation substantially offset gains losses derivative instruments linked hedged liabilities use derivative instruments including interest rate swaps indices related pricing specific liabilities part interest rate risk management strategy matter policy use highly leveraged derivative instruments interest rate risk management use interest rate swaps economically convert portion fixedrate debt variablerate debt interest rate swap contracts agree parties exchange specified intervals difference fixedrate floatingrate interest amounts calculated based agreedupon notional amount also use interest rate swaps hedge variability interest payment cash flows portion future debt obligations substantially derivative instruments highly effective qualify hedge accounting treatment hedges net investments foreign operations numerous investments foreign subsidiaries net assets subsidiaries exposed volatility foreign currency exchange rates use foreign currency denominated debt hedge net investment foreign operations adverse movements exchange rates designated euro pound sterling denominated borrowings net investment hedge portion overall european operations gains losses net investment designated european operations economically offset losses gains euro pound sterling denominated borrowings change debt’s value recorded currency translation adjustment component accumulated comprehensive earnings losses income taxes recognize tax benefits financial statements uncertain tax positions assessed likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized new accounting pronouncements july 2013 financial accounting standards board “fasb” issued accounting standards update requires companies present unrecognized tax benefit reduction deferred tax asset right offset exists update effective fiscal years beginning december 15 2013 currently comply prescribed accounting presentation adopting new guidance impact presentation financial statements july 2013 fasb issued accounting standards update permits inclusion fed funds effective swap rate us benchmark interest rate hedge accounting purposes addition interest rates direct treasury obligations us government london interbank offered rate “libor” guidance effective new redesignated hedging relationships enter july 17 2013 adoption guidance impact financial statements allow us use another us benchmark interest rate derivative transactions designate hedges accounting purposes future march 2013 fasb issued accounting standards update parent company’s accounting cumulative translation adjustment “cta” upon derecognition certain subsidiaries groups assets within foreign entity investment foreign entity adopted new requirement january 1 2014 application standard primarily expected impact net gain loss recognized divestitures foreign subsidiaries january 1 2014 february 2013 fasb issued accounting standards update clarifying entities required measure obligations resulting joint several liability arrangements adopted new standard january 1 2014 effect consolidated financial results material arrangements fall within scope standard time february 2013 fasb issued accounting standards update clarifying reporting significant reclassifications components accumulated comprehensive income “aoci” related impacts primarily statement earnings guidance effective fiscal interim reporting periods beginning december 15 2012 adopted guidance effective january 1 2013 disclose reclassifications accumulated comprehensive income impact condensed consolidated financial statements note 14 reclassifications accumulated comprehensive income reclassifications condensed consolidated cash flow statements reflect commercial paper original maturities greater 90 days gross basis periods also reclassified 2012 prior period segment information reflect business segment reorganization discussed note 1 summary significant accounting policies note 17 segment reporting subsequent events evaluated subsequent events included accounting disclosure requirements related material subsequent events consolidated financial statements related notes see notes 1 summary significant accounting policies 8 debt borrowing arrangements note 2 divestitures acquisition spinoff kraft foods group october 1 2012 “distribution date” completed spinoff north american grocery business kraft foods group inc “kraft foods group” shareholders “spinoff” along food beverage categories also retained global snacks business october 1 2012 shareholders record close business september 19 2012 “the record date” received one share kraft foods group common stock every three shares common stock held record date distribution structured tax free us shareholders us federal income tax purposes kraft foods group became independent public company october 1 2012 following spinoff beneficially shares kraft foods group common stock divested kraft foods group business presented discontinued operation consolidated statements earnings periods presented kraft foods group comprehensive earnings changes equity cash flows included within consolidated statements comprehensive earnings equity cash flows october 1 2012 summary results related discontinued operation kraft foods group within historical results presented results kraft foods group discontinued operation exclude certain corporate business unit costs historically allocated kraft foods group continued mondelēz international spinoff costs include primarily corporate overheads information systems sales force support pretax basis date spinoff costs 150 million nine months ended october 1 2012 236 million year ended december 31 2011 interest expense relating debt kraft foods group incurred assumed october 1 2012 included results discontinued operations periods presented follows october 1 2012 divested following assets liabilities net 4358 million 4111 million net cash retained kraft foods group distribution date millions additionally 4308 million accumulated comprehensive losses primarily related pension benefit plan net liabilities transferred kraft foods group 89 million unearned compensation recorded within additional paid capital distributed kraft foods group total recorded distribution 8755 million shareholders connection spinoff kraft foods group order implement spinoff entered certain agreements kraft foods group effect legal structural separation govern relationship us allocate various assets liabilities obligations us including among things employee benefits intellectual property taxrelated assets liabilities see note 15 income taxes additional information current deferred tax assets liabilities transferred retained spinoff addition executing spinoff manner provided agreements november 2012 pursuant agreements paid kraft foods group 163 million related targeted cash flows together 247 million cash divested distribution date totaling 410 million cash transferred kraft foods group connection spinoff facilitate management including final payment resolution certain obligations kraft foods group retained certain north american net trade payables receivables also retained approximately 140 million workers’ compensation liabilities claims incurred kraft foods group employees prior spinoff november 2012 paid kraft foods group 95 million cash settle net trade payables receivables also reflected table march 2013 collected 55 million kraft foods group related cash settlement stock awards held respective employees time spinoff described note 11 stock plans spinoff costs historical results include onetime spinoff transaction transition financing related costs “spinoff costs” incurred date recorded spinoff costs 62 million 2013 1053 million 2012 46 million 2011 expect reflect onetime spinoff costs within reported results incurred following spinoff costs within pretax earnings expect incur approximately 30 million remaining spinoff costs 2014 related primarily customer service logistics information systems processes well legal costs associated revising intellectual property longterm agreements resolution starbucks arbitration previously disclosed march 1 2011 starbucks coffee company “starbucks” took control starbucks packaged coffee business “starbucks cpg business” grocery stores channels starbucks without authorization contended violation breach license supply agreement starbucks related starbucks cpg business following initial decision november 2013 december 13 2013 independent arbitrator dispute starbucks issued decision final award kraft foods global inc kraft foods group named party proceeding proven entitled recover starbucks must pay 2764 million total cash compensation starbucks’ unilateral termination agreement award included compensation 135 determined fair market value agreement improper termination well prejudgment interest 521 million kraft foods group’s attorney’s fees parties agreed would equal 15 million starbucks paid amount owed pursuant ruling separation distribution agreement kraft foods group us kraft foods group directed recovery awarded arbitration proceeding us dispute arose within kraft foods group discontinued operation directed mondelēz international connection spinoff recapitalization plans accordingly pretax gain resolution starbucks arbitration 25 billion 16 billion net tax recorded earnings discontinued operations fourth quarter 2013 acquisition divestitures sales property february 22 2013 acquired remaining interest biscuit operation morocco whollyowned subsidiary within eemea segment paid net cash consideration 119 million consisting 155 million purchase price net cash acquired 36 million prior acquisition interest operation accounted equity method result obtaining controlling interest consolidated operation recorded fair value acquired assets including identifiable intangible assets 48 million liabilities assumed goodwill 209 million also recorded pretax gain 22 million related remeasurement previouslyheld equity interest operation fair value accordance us gaap acquisition costs 7 million included within selling general administrative expenses interest expense net year ended december 31 2013 operating results acquisition material condensed consolidated financial statements periods presented 2013 completed several divestitures primarily eemea europe segments generated cash proceeds 60 million pretax gains 8 million divestitures included salty snacks business turkey confectionery business south africa chocolate business spain 2012 completed several divestitures within europe segment generated cash proceeds 200 million pretax gains 107 million divestitures primarily included dinners sauces grocery business germany belgium canned meat business italy aggregate operating results 2013 2012 divestitures material financial statements periods presented 2013 sold properties italy united kingdom norway within europe segment india within asia pacific segment europe property sales generated 29 million pretax net gains 37 million cash proceeds also 52 million receivable related united kingdom property sale india property sale generated 39 million pretax gain 53 million cash proceeds gains recorded within selling general administrative expenses cash proceeds recorded cash flows investing activities year ended december 31 2013 2012 also sold property russia turkey within eemea segment russia property sale generated 55 million pretax gain 72 million cash proceeds turkey property sale generated 22 million pretax gain 29 million cash proceeds gains recorded within selling general administrative expenses cash proceeds recorded cash flows investing activities year ended december 31 2012 note 3 inventories december 31 2013 2012 note 4 property plant equipment property plant equipment december 31 2013 2012 connection 20122014 restructuring program recorded noncash asset writedowns including accelerated depreciation asset impairments 91 million 2013 18 million 2012 charges recorded consolidated statements earnings within asset impairment exit costs described note 6 20122014 restructuring program note 5 goodwill intangible assets december 31 2013 2012 goodwill reportable segment revised reflect new segment structure intangible assets december 31 2013 2012 nonamortizable intangible assets consist principally brand names purchased acquisitions nabisco holdings corp spanish portuguese operations united biscuits global lu biscuit business groupe danone sa cadbury limited amortizable intangible assets consist primarily trademarks customerrelated intangibles process technology licenses noncompete agreements december 31 2013 weightedaverage life amortizable intangible assets 133 years amortization expense intangible assets 217 million 2013 217 million 2012 225 million 2011 currently estimate amortization expense next five years approximately 217 million changes goodwill intangible assets consisted changes goodwill intangible assets • divestitures 2013 reduced goodwill 13 million intangible assets 7 million due divestitures chocolate business spain salty snacks business turkey confectionery business south africa 2012 reduced goodwill 11911 million intangible assets 2666 million due divestiture kraft foods group 2012 also reduced goodwill 21 million intangible assets 3 million primarily related divestitures germany belgium italy • asset impairments 2013 record goodwill intangible asset impairment charges 2012 recorded 52 million charges related trademark japanese chewing gum product within asia pacific segment significantly lower revenue fair value intangible asset determined relief royalty valuation models cash flows trademark assuming royalties received licensing arrangement charges calculated excess carrying value intangible asset estimated fair value recorded within asset impairment exit costs • acquisitions 2013 increased goodwill 209 million intangible assets 48 million due acquisition remaining interest biscuit operation morocco 2012 increased intangible assets 14 million related acquisition license pakistan acquisition trademark europe 2013 2012 2011 impairments goodwill connection 2013 annual impairment testing noted one reporting unit sensitive nearterm changes discounted cash flow assumptions us confections 2177 million goodwill december 31 2013 fair value excess carrying value net assets 12 reporting unit passed first step impairment test segment operating income another valuation assumption deteriorate significantly future could adversely affect estimated fair value reporting unit unsuccessful plans increase profitability business estimated fair value could decline lead potential goodwill impairment future 2013 2011 reviews nonamortizable intangible assets impairments identified 2013 impairment testing noted 7 brands 511 million aggregate book value december 31 2013 fair value excess book value 10 less intangible assets passed annual impairment testing though believe current plans brands allow continue impaired expectations met specific valuation factors outside control discount rates change significantly brand brands might become impaired future 2012 recorded 52 million charges related trademark japanese chewing gum product within asia pacific segment note 6 20122014 restructuring program 2012 board directors approved 15 billion restructuring related implementation costs “20122014 restructuring program” reflecting primarily severance asset disposals manufacturingrelated onetime costs primary objective restructuring implementation activities ensure mondelēz international kraft foods group set operate efficiently execute respective business strategies upon separation future 15 billion anticipated 20122014 restructuring program costs retained approximately 925 million kraft foods group retained balance program since inception incurred 440 million estimated 925 million total 20122014 restructuring program charges restructuring costs recorded restructuring charges 267 million 2013 102 million 2012 within asset impairment exit costs activity 20122014 restructuring program liability years ended december 31 2012 december 31 2013 spent 108 million 2013 33 million 2012 cash severance related costs also recognized noncash pension plan settlement losses see note 10 benefit plans noncash asset writedowns including accelerated depreciation asset impairments totaling 127 million 2013 33 million 2012 december 31 2013 net restructuring liability 68 million recorded within current liabilities third quarter reevaluated restructuring project driven changes size scope timing began recording prospectively part overall 20122014 restructuring program first two quarters 2013 14 million expenses related project recorded normal operating expenses classified selling general administrative expenses within latin america segment implementation costs implementation costs directly attributable restructuring activities however qualify accounting treatment exit disposal activities believe disclosure implementation costs provides readers financial statements greater transparency total costs 20122014 restructuring program within continuing results operations recorded implementation costs 63 million 2013 8 million 2012 recorded costs within cost sales selling general administrative expenses within europe north america eemea segments costs primarily include costs reorganize operations facilities discontinuance certain product lines incremental expenses related closure facilities replicating information systems infrastructure reorganizing costs related sales function restructuring implementation costs segment 2013 2012 recorded restructuring implementation costs within operating income follows note 7 integration program cost savings initiatives cadbury integration program result combination cadbury limited formerly cadbury plc “cadbury” 2010 launched integration program “integration program” realize expected annual cost savings approximately 750 million end 2013 revenue synergies investments distribution marketing product development achieved cost savings approximately 800 million one year ahead schedule achieved planned revenue synergies december 31 2013 achieve expected annual cost savings synergies integrate two businesses incurred total integration charges approximately 15 billion end 2013 completed integration program changes integration program liability recorded integration program charges 216 million 2013 185 million 2012 521 million 2011 december 31 2013 101 million net integration program liability recorded within current liabilities 44 million primarily related leased facilities longer use recorded within longterm liabilities 2012 refined estimate 2010 integration program charges 45 million primarily related planned announced position eliminations occur upon concluding majority local workers council negotiations april 2012 recorded charges integration program operations part selling general administrative expenses primarily within europe asia pacific latin america eemea segments well within general corporate expenses integration costs connection acquisition biscuit operation morocco february 2013 recorded integration charges 4 million 2013 recorded charges selling general administrative expenses within eemea segment see note 2 divestitures acquisition information acquisition cost savings initiatives cost savings initiatives generally include exit disposal project costs outside cadbury integration program integration program costs 20122014 restructuring program consist following specific initiatives • 2013 recorded 20 million charge primarily within segment operating income latin america related severance benefits provided terminated employees onetime charges within segment operating income north america related supply chain reinvention team expenses • 2012 recorded 21 million charge primarily within segment operating income europe related severance benefits provided terminated employees charges connection reorganization within europe eemea segments “europe reorganization” • 2011 recorded 61 million charge primarily within segment operating income europe related severance benefits provided terminated employees charges connection europe reorganization also reversed approximately 15 million cost savings initiative program costs across north america europe eemea segments note 8 debt borrowing arrangements shortterm borrowings december 31 2013 2012 shortterm borrowings related weightedaverage interest rates consisted commercial paper issuances generally maturities ranging 1 125 days december 31 2013 commercial paper issued outstanding 2 87 days remaining maturity bank loans include borrowings primarily uncommitted credit lines maintained international subsidiaries meet shortterm working capital needs borrowing arrangements october 11 2013 entered revolving credit agreement 45 billion fiveyear senior unsecured revolving credit facility agreement replaced former revolving credit agreement terminated upon signing new agreement revolving credit agreement includes covenant maintain minimum shareholders’ equity least 246 billion excluding accumulated comprehensive earnings losses cumulative effects changes accounting principles december 31 2013 met covenant minimum shareholders’ equity 353 billion revolving credit agreement also contains customary representations covenants events default however credit rating triggers provisions financial covenants could require us post collateral security intend use revolving credit facility general corporate purposes including working capital purposes support commercial paper program december 31 2013 amounts drawn facility international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 24 billion december 31 2013 2012 borrowings lines amounted 226 million december 31 2013 274 million december 31 2012 longterm debt december 31 2013 2012 longterm debt consisted interest rates december 31 2013 december 31 2013 aggregate maturities debt based stated contractual maturities millions february 6 2014 completed cash tender offer retired 156 billion longterm us dollar debt consisting • 393 million 7000 notes due august 2037 • 382 million 6875 notes due february 2038 • 250 million 6875 notes due january 2039 • 535 million 6500 notes due february 2040 financed repurchase notes including payment accrued interest costs incurred net proceeds received 30 billion notes issuance january 16 2014 connection retiring debt first quarter 2014 recorded 492 million loss extinguishment debt within interest expense related amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing costs earnings time debt extinguishment also recognized 25 million interest expense related interest rate cash flow hedges deferred accumulated comprehensive losses recognized earnings life debt upon extinguishing debt deferred cash flow hedge amounts recorded earnings january 16 2014 issued 30 billion us dollar notes consisting • 400 million floating rate notes bear interest rate equal threemonth libor plus 052 mature february 1 2019 • 850 million 2250 fixed rate notes mature february 1 2019 • 1750 million 4000 fixed rate notes mature february 1 2024 received net proceeds 2982 million used part fund february 2014 tender offer general corporate purposes recorded approximately 18 million discounts deferred financing costs amortized interest expense life notes december 18 2013 completed cash tender offer retired 34 billion longterm us dollar debt consisting • 910 million 6500 notes due august 2017 • 729 million 6125 notes due february 2018 • 334 million 6125 notes due august 2018 • 1467 million 5375 notes due february 2020 financed repurchase notes including payment accrued interest costs net proceeds received 24 billion notes issuance december 11 2013 cash hand commercial paper issuances recorded 608 million loss extinguishment debt within interest expense related amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing costs earnings time debt extinguishment loss extinguishment included longterm debt repayments 2013 consolidated statement cash flows also recognized 4 million interest expense related interest rate cash flow hedges deferred accumulated comprehensive losses recognized earnings life debt upon extinguishing debt deferred cash flow hedge amounts recorded earnings december 11 2013 issued 24 billion euro notes approximately 33 billion us dollars december 31 2013 consisting • 400 million 550 million floating rate notes bear interest rate equal threemonth euribor plus 050 mature june 11 2015 • 750 million 1031 million 1125 fixed rate notes mature january 26 2017 • 1250 million 1718 million 2375 fixed rate notes mature january 26 2021 received net proceeds 2381 million 3239 million us dollars december 11 2013 used partially fund december 2013 tender offer also recorded approximately 27 million discounts deferred financing costs amortized interest expense life notes october 1 2013 1 billion 5125 us dollar notes 800 million 5250 us dollar notes matured notes accrued interest date paid cash hand issuance commercial paper may 8 2013 1 billion 2625 us dollar notes matured notes accrued interest date paid cash hand issuance commercial paper february 11 2013 750 million 600 us dollar notes matured notes accrued interest date paid cash hand october 2 2012 150 million canadian dollar variable rate loan matured loan accrued interest date repaid cash operations october 1 2012 approximately 10 billion us dollar debt balance sheet september 30 2012 transferred retained kraft foods group described debt primarily included 60 billion senior unsecured notes issued june 4 2012 36 billion debt exchanged july 18 2012 400 million migrated october 1 2012 see note 2 divestitures acquisition additional information regarding spinoff liabilities transferred divestiture kraft foods group october 1 2012 connection spinoff related debt capitalization plan 400 million 755 senior unsecured us dollar note retained kraft foods group cash generated transaction july 18 2012 completed debt exchange 36 billion us dollar debt held thirdparty note holders exchanged notes issued kraft foods group order migrate debt kraft foods group connection spinoff capitalization plan cash generated exchange incurred onetime financing costs 18 million recorded interest expense result exchange retired following debt • 596 million 6125 notes due february 2018 • 439 million 6125 notes due august 2018 • 900 million 5375 notes due february 2020 • 233 million 6875 notes due january 2039 • 290 million 6875 notes due february 2038 • 185 million 7000 notes due august 2037 • 170 million 6500 notes due november 2031 • 787 million 6500 notes due 2040 june 4 2012 kraft foods group issued 60 billion senior unsecured us dollar notes distributed 59 billion net proceeds us connection spinoff capitalization plan used proceeds pay 36 billion outstanding commercial paper borrowings expect use remaining cash proceeds pay additional debt time general corporate purposes debt approximately 260 million related deferred financing costs retained kraft foods group spinoff june 1 2012 900 million 625 us dollar notes matured notes accrued interest date repaid using primarily commercial paper borrowings subsequently repaid 59 billion net proceeds received kraft foods group 60 billion notes issuance june 4 2012 march 20 2012 20 billion 575 euro bonds matured bonds accrued interest date repaid using proceeds issuance commercial paper subsequently repaid june 2012 discussed january 10 2012 issued 800 million floating rate us dollar notes bear interest rate equal threemonth libor plus 0875 received net proceeds 7988 million issuance notes set mature july 10 2013 subject mandatory redemption tied public announcement record date spinoff announcing record date september 24 2012 notes redeemed redemption price equal 100 aggregate principal amount notes 800 million plus accrued interest 2 million cash hand fair value fair value shortterm borrowings december 31 2013 2012 reflects current market interest rates approximates amounts recorded consolidated balance sheet fair value longterm debt determined using quoted prices active markets level 1 valuation data publicly traded debt obligations december 31 2013 aggregate fair value total debt 18835 million carrying value 17121 million december 31 2012 aggregate fair value total debt 22946 million carrying value 19425 million interest expense net interest expense net within results continuing operations consisted 2012 spinoff related financing fees include loss 556 million related several interest rate swap settlements 2011 expense includes loss 157 million related several interest rate swaps settled 2011 note 9 financial instruments fair value derivative instruments derivative instruments recorded fair value consolidated balance sheets december 31 2013 2012 follows 2013 2012 derivatives designated hedging instruments include cash flow fair value hedges derivatives designated include economic hedges nonus debt designated hedge net investments foreign operations reflected table included longterm debt summarized note 8 debt borrowing arrangements record derivative assets liabilities gross basis condensed consolidated balance sheet fair value asset derivatives recorded within current assets fair value liability derivatives recorded within current liabilities fair value asset liability derivative instruments december 31 2013 determined using fair value asset liability derivative instruments december 31 2012 determined using level 1 financial assets liabilities consist exchangetraded commodity futures listed options fair value instruments determined based quoted market prices commodity exchanges exchangetraded derivatives generally subject master netting arrangements permit net settlement transactions counterparty certain criteria met event default also required maintain cash margin accounts connection funding settlement open positions margin requirements generally fluctuate daily based market conditions recorded margin deposits related exchangetraded derivatives 22 million december 31 2013 107 million december 31 2012 within current assets based net asset liability positions individual counterparties event default immediate net settlement open positions december 31 2013 counterparties would owe us total 7 million december 31 2012 net derivative liabilities fully offset either derivative assets margin accounts held counterparties level 2 financial assets liabilities consist primarily overthecounter “otc” foreign exchange forwards options swaps commodity forwards options interest rate swaps foreign currency contracts valued using income approach based observable market forward rates less contract rate multiplied notional amount commodity derivatives valued using income approach based observable market commodity index prices less contract rate multiplied notional amount based pricing models rely market observable inputs commodity prices calculation fair value interest rate swaps derived discounted cash flow analysis based terms contract observable market interest rate curve calculation fair value financial instruments takes consideration risk nonperformance including counterparty credit risk otc derivative transactions governed international swap dealers association “isda” agreements standard industry contracts agreements post require collateral counterparties substantially commodity otc derivatives legal right setoff connection otc derivatives could netsettled event default assuming parties fail comply terms agreements derivatives net liability position would owe 47 million december 31 2013 88 million december 31 2012 derivatives net asset position counterparties would owe us total 349 million december 31 2013 114 million december 31 2012 manage credit risk connection derivatives entering transactions counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties derivative volume net notional values derivative instruments december 31 2013 2012 cash flow hedges cash flow hedge activity net taxes within accumulated comprehensive earnings losses included aftertax gains losses reclassified accumulated comprehensive earnings losses net earnings continuing operations aftertax gains losses recognized comprehensive earnings losses continuing operations pretax gains losses ineffectiveness recognized net earnings continuing operations pretax gains losses amounts excluded effectiveness testing recognized net earnings continuing operations 2012 recognized pretax loss 556 million interest expenses net related certain forwardstarting interest rate swaps planned timing related forecasted debt changed connection spinoff plans related debt capitalization plans 2011 recognized loss 157 million related several interest rate swaps settled november 2011 recognized loss earnings timing related forecasted debt changed record pretax gains losses reclassified accumulated comprehensive earnings losses earnings ii gains losses ineffectiveness iii gains losses amounts excluded effectiveness testing • cost sales commodity contracts • cost sales foreign exchange contracts related forecasted transactions • interest expense net interest rate contracts foreign exchange contracts related intercompany loans expect transfer unrealized losses 2 million net taxes commodity cash flow hedges unrealized losses 6 million net taxes foreign currency cash flow hedges unrealized losses 1 million net taxes interest rate cash flow hedges earnings next 12 months december 31 2013 hedged transactions forecasted impact cash flows following periods • commodity transactions periods exceeding next 12 months • interest rate transactions periods exceeding next 32 years 2 months • foreign currency transactions periods exceeding next 12 months fair value hedges pretax gains losses continuing operations due changes fair value interest rate swaps related hedged longterm debt recorded interest expense net economic hedges pretax gains losses recorded net earnings continuing operations economic hedges designated hedging instruments hedges net investments foreign operations aftertax gains losses continuing operations related hedges net investments foreign operations form euro pound sterlingdenominated debt note 10 benefit plans pension plans obligations funded status projected benefit obligations plan assets funded status pension plans december 31 2013 2012 accumulated benefit obligation represents benefits earned measurement date 1133 million december 31 2013 1218 million december 31 2012 us pension plans accumulated benefit obligation nonus pension plans 9605 million december 31 2013 9453 million december 31 2012 combined us nonus pension plans resulted net pension liability 1946 million december 31 2013 2891 million december 31 2012 recognized amounts consolidated balance sheets december 31 2013 2012 follows certain us nonus plans underfunded accumulated benefit obligations excess plan assets plans projected benefit obligations accumulated benefit obligations fair value plan assets december 31 2013 2012 used following weightedaverage assumptions determine benefit obligations pension plans december 31 yearend discount rates us canadian eurozone uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class components net pension cost net pension cost consisted following years ended december 31 2013 2012 2011 following costs included within expenses employees elected lumpsum payments connection 20122014 restructuring program cost saving initiatives retired employees elected lumpsum payments resulted net settlement losses us plans 1 million 2013 113 million 2012 105 million 2011 2012 2011 includes amounts related discontinued operation kraft foods group nonus plant closures early retirement benefits resulted curtailment settlement losses 2 million 2013 9 million 2012 8 million 2011 addition 2013 incurred 1 million special termination benefit costs nonus plans related 20122014 restructuring program incurred special termination benefit costs 13 million 2012 6 million 2011 nonus plans related cadbury integration us plans determine expected return plan assets component net periodic benefit cost using calculated market return value recognizes cost four year period nonus plans utilize similar approach varying cost recognition periods plans others determine expected return plan assets based asset fair values measurement date december 31 2013 combined us nonus pension plans expected amortize accumulated comprehensive earnings losses net periodic pension cost 2014 • estimated 135 million net loss experience differences • estimated 3 million prior service cost used following weightedaverage assumptions determine net pension cost years ended december 31 plan assets fair value pension plan assets december 31 2013 determined using following fair value measurements fair value pension plan assets december 31 2012 determined using following fair value measurements excluded plan assets 81 million december 31 2013 79 million december 31 2012 tables related certain insurance contracts reported contract value accordance authoritative guidance fair value measurements • level 1 includes primarily us nonus equity securities government bonds valued using quoted prices active markets • level 2 includes primarily pooled funds including assets real estate pooled funds valued using net asset values participation units held common collective trusts reported managers trusts supported unit prices actual purchase sale transactions level 2 plan assets also include corporate bonds fixedincome securities valued using independent observable market inputs matrix pricing yield curves indices • level 3 includes investments valued using unobservable inputs reflect plans’ assumptions market participants would use pricing assets based best information available • fair value estimates pooled funds calculated investment advisor reliable quotations pricing services readily available certain underlying securities estimated value based either cost last sale price securities valued fashion • fair value estimates private equity investments calculated general partners using market approach estimate fair value private investments market approach utilizes prices relevant information generated market transactions type security degree liquidity restrictions disposition latest round financing data company financial statements relevant valuation multiples discounted cash flow analyses • fair value estimates real estate investments calculated investment managers using present value future cash flows expected received investments based valuation methodologies appraisals local market conditions current projected operating performance • fair value estimates investments hedge fundoffunds calculated investment managers using net asset value per share investment reported money managers underlying funds • fair value estimates certain fixedincome securities insurance contracts calculated based future stream benefit payments discounted using prevailing interest rates based valuation date changes level 3 plan assets recorded comprehensive earnings losses year ended december 31 2013 included increases level 3 pension plan investments 2013 primarily due net purchases hedge funds changes level 3 plan assets recorded comprehensive earnings losses year ended december 31 2012 included increases level 3 pension plan investments 2012 due net realized gains recorded investments partially offset net transfers primarily related assets divested spinoff kraft foods group percentage fair value pension plan assets december 31 2013 2012 us investment strategy based expectation equity securities outperform fixedincome securities long term attempt maintain target asset allocation rebalancing asset classes make contributions monthly benefit payments due nature timing expected pension liabilities target allocation approximately 60 plan assets equity securities approximately 40 fixedincome securities strategy uses indexed us equity securities actively managed indexed international equity securities actively managed us investment grade fixedincome securities constitute 95 fixedincome securities lesser allocations high yield fixedincome securities december 31 2013 higher allocation fixed income due voluntary 163 million contribution made december 27 2013 temporarily invested shortterm fixed income investment yearend first quarter 2014 strategically reduced risk level investment portfolio relative liabilities plans lowering target allocation equity securities 50 increasing fixedincome allocation target 50 plans outside us investment strategy subject local regulations asset liability profiles plans individual country specific circumstances result level equity exposure typically less us plans aggregate asset allocation targets nonus plans broadly characterized mix approximately 35 equity securities approximately 50 fixedincome securities approximately 15 alternative securities investment strategy largest nonus plan comprises 49 nonus pension assets designed balance risk return diversifying across wide range returnseeking liability matching assets invested range active passive mandates target allocation approximately 20 equity securities 16 credit 10 private markets 16 diversifying assets 38 liability matching assets strategy uses actively managed indexed global developed emerging market equities actively managed global investment grade alternative credit global private equity real estate diversifying assets including hedge funds liability matching assets including buyin annuity policy 2013 level diversification strategically increased reducing plan’s equity exposure approximately 10 investing majority proceeds hedge funds diversifying assets shown increase net purchases level 3 assets december 31 2013 employer contributions 2013 contributed 178 million us pension plans 330 million nonus pension plans addition employees contributed 20 million nonus plans 2013 pension contributions 163 million voluntary make contributions us nonus pension plans primarily extent tax deductible generate excise tax liability 2014 estimate pension contributions 10 million us plans 309 million nonus plans based current tax laws total 2014 pension contributions none expected voluntary actual contributions may different due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates factors future benefit payments estimated future benefit payments pension plans december 31 2013 millions multiemployer pension plans made contributions multiemployer pension plans 32 million 2013 30 million 2012 32 million 2011 plans provide pension benefits retirees certain collective bargaining agreements following individually significant multiemployer plan participate december 31 2013 contributions exceeded 5 total contributions bakery confectionery union industry international pension fund “fund” fiscal years 2013 2012 2011 contributions fund 26 million 2013 25 million 2012 24 million 2011 contribution fund based contribution rates collective bargaining agreements number eligible employees fund surcharges expect contribution next two years approximately 30 million fund’s actuarial valuation completed zone status changed “red” 2012 result certification charged 10 surcharge contribution rates expected future contributions include surcharge fund adopted rehabilitation plan november 7 2012 requires contribution increases reduction benefit provisions contributions multiemployer pension plans individually significant 6 million 2013 5 million 2012 8 million 2011 contributions include contributions related kraft foods group employees participated multiemployer pension plans october 1 2012 2 million 2012 5 million 2011 costs sponsor contribute employee savings plans cover eligible salaried nonunion union employees contributions costs determined matching employee contributions defined plans amounts charged expense continuing operations defined contribution plans totaled 66 million 2013 74 million 2012 62 million 2011 postretirement benefit plans obligations postretirement health care plans funded changes amount accrued benefit obligation december 31 2013 2012 current portion accrued postretirement benefit obligation 9 million december 31 2013 8 million december 31 2012 included accrued liabilities used following weightedaverage assumptions determine postretirement benefit obligations december 31 yearend discount rates us canadian uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear expected health care cost trend rate based historical costs assumed health care cost trend rates significant impact amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects december 31 2013 components net postretirement health care costs net postretirement health care costs consisted following years ended december 31 2013 2012 2011 1 2012 recorded 23 million unfunded us postretirement plan obligation related longterm disability benefits december 31 2013 expected amortize accumulated comprehensive earnings losses pretax net postretirement health care costs 2014 • estimated 6 million net loss experience differences • estimated 10 million prior service credit used following weightedaverage assumptions determine net postretirement cost years ended december 31 future benefit payments estimated future benefit payments postretirement health care plans december 31 2013 millions costs made contributions multiemployer medical plans totaling 18 million 2013 31 million 2012 36 million 2011 contributions include contributions related kraft foods group employees participated multiemployer medical plans october 1 2012 13 million 2012 20 million 2011 plans provide medical benefits active employees retirees certain collective bargaining agreements postemployment benefit plans obligations postemployment plans primarily funded changes amount accrued benefit obligation december 31 2013 2012 accrued benefit obligation determined using weightedaverage discount rate 62 2013 40 2012 assumed weightedaverage ultimate annual turnover rate 03 2013 05 2012 assumed compensation cost increases 40 2013 2012 assumed benefits defined respective plans postemployment costs arising actions offer employees benefits excess specified respective plans charged expense incurred components net postemployment costs net postemployment costs consisted following years ended december 31 2013 2012 2011 postemployment costs 2011 primarily relate establishment partially funded canadian postemployment plan december 31 2013 estimated net loss postemployment benefit plans expected amortize accumulated comprehensive earnings losses net postemployment costs 2014 insignificant note 11 stock plans amended restated 2005 performance incentive plan “2005 plan” may grant eligible employees awards stock options stock appreciation rights restricted stock restricted deferred stock units awards based common stock well performancebased annual longterm incentive awards authorized issue maximum 1680 million shares common stock 2005 plan addition amended restated 2006 stock compensation plan nonemployee directors “2006 directors plan” may grant 10 million shares common stock members board directors fulltime employees december 31 2013 269 million shares available granted 2005 plan 07 million shares available granted 2006 directors plan connection spinoff divestiture kraft foods group provisions existing plans employee stock option restricted deferred stock awards adjusted preserve fair value awards immediately spinoff record incremental compensation expense related conversion awards connection stock awards held respective employees time spinoff collected 55 million cash net settlement awards kraft foods group march 2013 stock options stock options granted exercise price equal market value underlying stock grant date generally become exercisable three annual installments beginning first anniversary grant date maximum term ten years account employee stock options fair value method accounting using modified blackscholes methodology measure stock option expense date grant fair value stock options date grant amortized expense vesting period recorded compensation expense related stock options held employees 39 million 2013 39 million 2012 35 million 2011 results continuing operations deferred tax benefit recorded related compensation expense 11 million 2013 11 million 2012 10 million 2011 unamortized compensation expense related employee stock options 53 million december 31 2013 expected recognized weightedaverage period 2 years weightedaverage blackscholes fair value assumptions riskfree interest rate represents constant maturity us government treasuries rate remaining term equal expected life options expected life period employees expected hold options volatility reflects historical movements stock price period commensurate expected life options dividend yield reflects dividend yield place time historical grants reflects lower expected dividend yield mondelēz international grants made following spinoff kraft foods group stock option activity year ended december 31 2013 reflected february 2013 part annual equity program granted 116 million stock options eligible employees exercise price 2705 per share grant date 2013 issued 08 million additional stock options weightedaverage exercise price 2969 per share aggregate granted 124 million stock options 2013 weightedaverage exercise price 2721 per share february 2012 part annual equity program granted 128 million stock options eligible employees exercise price 3800 per share grant date 2012 issued 07 million additional stock options weightedaverage exercise price 3760 per share aggregate granted 135 million stock options 2012 weightedaverage exercise price 3797 per share february 2011 part annual equity program granted 158 million stock options eligible employees exercise price 3183 per share grant date 2011 issued 05 million additional stock options weightedaverage exercise price 3122 per share aggregate granted 163 million stock options 2011 weightedaverage exercise price 3181 per share total intrinsic value options exercised 79 million 2013 93 million 2012 98 million 2011 cash received options exercised 139 million 2013 205 million 2012 486 million 2011 actual tax benefit realized tax deductions option exercises totaled 14 million 2013 21 million 2012 40 million 2011 restricted deferred stock may grant shares restricted deferred stock eligible employees giving instances rights shareholders except may sell assign pledge otherwise encumber shares restricted deferred stock subject forfeiture certain employment conditions met restricted deferred shares generally vest third anniversary grant date shares granted connection longterm incentive plan vest based varying performance market service conditions unvested shares voting rights pay dividends fair value restricted deferred shares date grant amortized earnings restriction period recorded compensation expense related restricted deferred stock 94 million 2013 90 million 2012 95 million 2011 results continuing operations deferred tax benefit recorded related compensation expense 28 million 2013 27 million 2012 28 million 2011 unamortized compensation expense related restricted deferred stock 125 million december 31 2013 expected recognized weightedaverage period 2 years restricted deferred stock activity year ended december 31 2013 reflected january 2013 granted 15 million shares stock connection longterm incentive plan market value per share 2624 date grant february 2013 part annual equity program issued 23 million shares restricted deferred stock eligible employees market value per restricted deferred share 2705 date grant 2013 issued 14 million additional restricted deferred shares weightedaverage market value per share 2247 included 14 million additional shares issued 08 million shares awards related longterm incentive plan awards granted 2010 issued vested first quarter 2013 2010 longterm incentive plan awards weightedaverage market value 1797 per share based stock price grant date 2010 adjusted reflect spinoff related splitting equity awards aggregate issued 52 million restricted deferred shares 2013 including issued part longterm incentive plan weightedaverage market value 2563 per share january 2012 granted 13 million shares stock connection longterm incentive plan market value per share 3763 date grant february 2012 part annual equity program issued 22 million shares restricted deferred stock eligible employees market value per restricted deferred share 3800 date grant 2012 issued 15 million additional restricted deferred shares weightedaverage market value per share 2918 primarily connection 2009 longterm incentive plan performance based awards special equity award ceo aggregate issued 50 million restricted deferred shares 2012 including issued part longterm incentive plan weightedaverage market value 3525 per share january 2011 granted 15 million shares stock connection longterm incentive plan market value per share 3162 date grant february 2011 part annual equity program issued 26 million shares restricted deferred stock eligible employees market value per restricted deferred share 3183 date grant 2011 issued 10 million additional restricted deferred shares weightedaverage market value per share 3302 aggregate issued 51 million restricted deferred shares 2011 including issued part longterm incentive plan weightedaverage market value 3197 per share weightedaverage grant date fair value restricted deferred stock granted 134 million 2563 per restricted deferred share 2013 175 million 3525 per restricted deferred share 2012 162 million 3197 per restricted deferred share 2011 vesting date fair value restricted deferred stock 145 million 2013 189 million 2012 135 million 2011 note 12 commitments contingencies legal proceedings routinely involved legal proceedings claims governmental inspections investigations “legal matters” arising ordinary course business compliant ethical corporate culture includes adhering laws industry regulations jurisdictions business integral success accordingly acquired cadbury february 2010 began reviewing adjusting needed cadbury’s operations light applicable standards well policies practices initially focused high priority areas food safety foreign corrupt practices act “fcpa” antitrust based upon cadbury’s preacquisition policies compliance programs postacquisition reviews preliminary findings indicated cadbury’s overall state compliance sound nonetheless reviews determined certain jurisdictions including india appeared facts circumstances warranting investigation continuing investigations certain jurisdictions including india continue cooperate governmental authorities previously disclosed february 1 2011 received subpoena sec connection investigation fcpa primarily related facility india acquired cadbury acquisition subpoena primarily requests information regarding dealings indian governmental agencies officials obtain approvals related operation facility continuing cooperate us indian governments investigations matters including preliminary meetings us government discuss potential conclusion investigation february 28 2013 cadbury india limited subsidiary mondelēz international parties received show cause notice indian department central excise authority notice calls upon parties demonstrate authority collect approximately 46 million unpaid excise tax well approximately 46 million penalties interest related production indian facility believe decision claim excise tax benefit valid contesting show cause notice administrative judicial process previously disclosed march 1 2011 starbucks took control starbucks cpg business grocery stores channels starbucks without authorization contended violation breach license supply agreement starbucks related starbucks cpg business following initial decision november 2013 december 13 2013 independent arbitrator dispute starbucks issued decision final award kraft foods global inc kraft foods group named party proceeding proven entitled recover starbucks must pay 2764 million total cash compensation starbucks’ unilateral termination agreement award included compensation 135 determined fair market value agreement improper termination well prejudgment interest 521 million kraft foods group’s attorney’s fees parties agreed would equal 15 million starbucks paid amount owed pursuant ruling separation distribution agreement kraft foods group us kraft foods group directed recovery awarded arbitration proceeding us cannot predict certainty results legal matters currently involved expect ultimate costs resolve legal matters individually aggregate material effect financial results thirdparty guarantees enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2013 material thirdparty guarantees recorded consolidated balance sheet part 2010 cadbury acquisition became responsible party tax matters cadbury schweppes plc dr pepper snapple group inc “dpsg” tax sharing indemnification agreement dated may 1 2008 “tax indemnity” certain 2007 2008 transactions relating demerger cadbury’s americas beverage business us federal tax audit dpsg 20062008 tax years concluded irs august 2013 result recorded favorable impact 336 million selling general administrative expenses 49 million interest expense net total pretax impact 385 million 363 million net tax 2013 due reversal accrued liability excess amount paid dpsg tax indemnity leases rental expenses recorded continuing operations 386 million 2013 341 million 2012 283 million 2011 december 31 2013 minimum rental commitments noncancelable operating leases effect yearend millions note 13 capital stock amended restated articles incorporation authorize 50 billion shares class common stock 500 million shares preferred stock preferred shares issued outstanding december 31 2013 2012 2011 shares class common stock issued treasury outstanding stock plan awards employees nonemployee directors issued treasury shares december 31 2013 913 million shares class common stock held treasury reserved stock options stock awards stock repurchase program 2013 board directors authorized repurchase 77 billion common stock march 12 2013 board directors authorized repurchase lesser 40 million shares 12 billion common stock march 12 2016 august 6 2013 audit committee authorization board directors increased repurchase program capacity 60 billion common stock repurchases extended expiration date december 31 2016 december 3 2013 board directors increased repurchase program capacity 17 billion 77 billion repurchases program determined management wholly discretionary 2013 repurchased 828 million shares common stock average cost 3309 per share aggregate cost 27 billion share repurchases include 15 billion shares repurchased accelerated share repurchase “asr” program initiated december 3 2013 december 3 2013 paid 17 billion received initial delivery 448 million shares common stock valued 15 billion increased treasury stock 15 billion remaining 02 billion recorded additional paid capital final share repurchases settled end second quarter 2014 total aggregate number shares repurchased asr program determined based volumeweighted average price common stock purchase period less fixed per share discount share repurchases 2013 funded available cash including cash resolution starbucks arbitration commercial paper repurchased shares held treasury december 31 2013 50 billion remaining share repurchase capacity note 14 reclassifications accumulated comprehensive income components accumulated comprehensive earnings losses attributable mondelēz international amounts reclassified accumulated comprehensive earnings losses 2013 locations condensed consolidated financial statements follows 1 items included components net periodic benefit costs disclosed note 10 benefit plans note 15 income taxes see note 1 summary significant accounting policies information related revision income taxes years presented earnings losses continuing operations income taxes provision income taxes consisted following years ended december 31 2013 2012 2011 see note 2 divestitures acquisition information taxes presented part discontinued operations related resolution starbucks arbitration spinoff kraft foods group effective income tax rate pretax earnings differed us federal statutory rate following reasons years ended december 31 2013 2012 2011 2013 effective tax rate 25 favorably impacted mix pretax income various foreign jurisdictions net tax benefits discrete onetime events nontaxable portion cadbury acquisition related indemnification resolution partially offset unfavorable tax law change 299 million discrete onetime events primarily related favorable tax audit settlements expirations statutes limitations several jurisdictions net reduction uk deferred tax liabilities resulting tax legislation enacted 2013 reduced uk corporate income tax rates 2012 revised effective tax rate 95 favorably impacted mix pretax income various foreign jurisdictions net tax benefits discrete onetime tax events partially offset nondeductible expenses 140 million discrete onetime events primarily related net reduction uk deferred tax liabilities resulting tax legislation enacted 2012 reduced uk corporate income tax rates net favorable tax audit settlements 2011 revised effective tax rate 62 favorably impacted mix pretax income various foreign jurisdictions net tax benefits 253 million discrete onetime events primarily net reduction uk deferred tax liabilities resulting tax legislation enacted 2011 reduced uk corporate income tax rates net favorable impact tax audit developments year reversal valuation allowances certain foreign deferred tax assets expected realized adjustments taxes payable result tax return filings tax effects temporary differences gave rise deferred income tax assets liabilities consisted following december 31 2013 2012 significant valuation allowances reside within operating subsidiaries mexico ireland various jurisdictions december 31 2013 applicable us federal income taxes foreign withholding taxes provided approximately 124 billion accumulated earnings foreign subsidiaries expected indefinitely reinvested impractical us determine amount unrecognized deferred tax liabilities indefinitely reinvested earnings future tax law changes needs foreign subsidiaries could require us recognize deferred tax liabilities portion accumulated earnings previously expected indefinitely reinvested changes unrecognized tax benefits years ended december 31 2013 2012 2011 january 1 2013 unrecognized tax benefits 1164 million recognized benefits net impact income tax provision would 1096 million unrecognized tax benefits 1189 million december 31 2013 recognized benefits net impact income tax provision would 1110 million within next 12 months unrecognized tax benefits could increase approximately 50 million due unfavorable audit developments decrease approximately 350 million due audit settlements expiration statutes limitations various jurisdictions include accrued interest penalties related uncertain tax positions tax provision accrued interest penalties 230 million january 1 2013 228 million december 31 2013 provision income taxes included 6 million interest penalties paid interest penalties 1 million 2013 tax sharing indemnity agreements us kraft foods group kraft foods group generally assumes liability us state income taxes canadian federal provincial income taxes generally assume responsibility us federal income taxes substantially foreign income taxes excluding canadian income taxes tax periods prior spinoff addition transferred kraft foods group deferred tax assets liabilities distribution date see note 2 divestitures acquisition regularly examined federal various state foreign tax authorities currently various income tax examinations irs years 2007 2009 income tax filings also currently examination tax authorities various us state foreign jurisdictions us state foreign jurisdictions statutes limitations generally ranging three five years however statutes often extended mutual agreement tax authorities years still open examination foreign tax authorities major jurisdictions include earliest open tax year parentheses germany 2005 brazil 2008 france 2010 united kingdom 2007 australia 2009 russia 2011 india 2003 note 16 earnings per share basic diluted eps continuing discontinued operations calculated using following exclude antidilutive mondelēz international stock options calculation weightedaverage shares diluted eps excluded 70 million antidilutive options year ended december 31 2013 73 million antidilutive options year ended december 31 2012 92 million antidilutive options year ended december 31 2011 also evaluated asr agreement potential dilutive effects shares remaining received upon final asr settlement determined additional shares would antidilutive therefore included eps calculation year ended december 31 2013 note 17 segment reporting manufacture market primarily snack food beverage products including biscuits cookies crackers salted snacks chocolate gum candy coffee powdered beverages various cheese grocery products manage global business report operating results geographic units effective january 1 2013 reorganized operations management five reportable operating segments • latin america • asia pacific • eemea • europe • north america changed flattened operating structure reflect greater concentration operations highgrowth emerging markets enhance collaboration across regions expedite decision making drive greater efficiencies fuel growth presented segment results reflecting changes periods presented manage operations within latin america asia pacific eemea location europe north america product category use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends coincident change reportable segment structure segment operating income north america region also changed include us pension plan expenses portion previously excluded segment operating results evaluated management costs centrally managed segment operating income excludes unrealized gains losses hedging activities component cost sales general corporate expenses component selling general administrative expenses amortization intangibles benefit cadbury acquisitionrelated indemnification resolution component selling general administrative expenses gains losses divestitures acquisitions acquisitionrelated costs component selling general administrative expenses periods presented exclude unrealized gains losses hedging activities general corporate expenses amortization intangibles benefit cadbury acquisitionrelated indemnification resolution gains losses divestitures acquisitions acquisitionrelated costs segment operating income order provide better transparency segment operating results furthermore centrally manage interest expense net accordingly present items segment excluded segment profitability measure management reviews use accounting policies segments described note 1 summary significant accounting policies segment net revenues earnings single customer accounted 10 net revenues continuing operations 2013 five largest customers accounted 150 ten largest customers accounted 216 net revenues continuing operations 2013 items impacting segment operating results discussed note 1 summary significant accounting policies including venezuelan currency devaluation note 2 divestitures acquisition note 5 goodwill intangible assets note 6 20122014 restructuring program note 7 integration program cost saving initiatives total assets depreciation expense capital expenditures segment 1 unallocated assets consist primarily cash equivalents deferred income taxes centrally held property plant equipment prepaid pension assets derivative financial instrument balances net revenues consumer sector geographic data net revenues longlived assets individual country within exceeded 10 net revenues longlived assets periods presented note 18 quarterly financial data unaudited summarized operating results quarter detailed see note 1 summary significant accounting policies additional information revision previously reported financial information 1 third quarter 2013 recorded 385 million pretax gain 363 million net tax due resolution cadbury acquisitionrelated indemnification see note 12 commitments contingencies additional information fourth quarter 2013 recorded 608 million pretax loss 386 million net tax connection extinguishing debt december 18 2013 tender offer 25 billion pretax gain 16 billion net tax resolution starbucks arbitration see note 8 debt borrowing arrangements note 2 divestitures acquisition additional information 1 market prices table reflect historical stock prices adjusted reflect kraft foods group spinoff october 1 2012 basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may equal total year 2013 recorded following pretax charges gains earnings continuing operations 2012 recorded following pretax charges gains earnings continuing operations item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders mondelēz international inc opinion accompanying consolidated balance sheets related consolidated statements earnings comprehensive earnings equity cash flows present fairly material respects financial position mondelēz international inc subsidiaries december 31 2014 2013 results operations cash flows three years period ended december 31 2014 conformity accounting principles generally accepted united states america also opinion company maintain material respects effective internal control financial reporting december 31 2014 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso material weakness internal control financial reporting related ineffective monitoring oversight controls income tax accounting existed date material weakness deficiency combination deficiencies internal control financial reporting reasonable possibility material misstatement annual interim financial statements prevented detected timely basis material weakness referred described report management internal control financial reporting appearing item 9a considered material weakness determining nature timing extent audit tests applied audit 2014 consolidated financial statements opinion regarding effectiveness company’s internal control financial reporting affect opinion consolidated financial statements company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report referred responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp chicago illinois february 20 2015 mondelēz international inc subsidiaries consolidated statements earnings years ended december 31 millions us dollars except per share data see notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements comprehensive earnings years ended december 31 millions us dollars see notes consolidated financial statements mondelēz international inc subsidiaries consolidated balance sheets december 31 millions us dollars except share data see notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements equity millions us dollars except per share data see notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements cash flows years ended december 31 millions us dollars see notes consolidated financial statements mondelēz international inc subsidiaries notes consolidated financial statements note 1 summary significant accounting policies description business mondelēz international inc formerly kraft foods inc incorporated 2000 commonwealth virginia mondelēz international inc subsidiaries collectively “mondelēz international” “we” “us” “our” sells food beverage products consumers approximately 165 countries discontinued operation october 1 2012 “distribution date” completed spinoff former north american grocery business kraft foods group inc “kraft foods group” distributing 100 outstanding shares common stock kraft foods group holders common stock “spinoff” retained global snacks business along food beverage categories divested kraft foods group business presented discontinued operation consolidated statements earnings periods presented kraft foods group comprehensive earnings changes equity cash flows included within consolidated statements comprehensive earnings equity cash flows october 1 2012 see note 2 divestitures acquisitions additional information principles consolidation consolidated financial statements include mondelēz international inc well wholly owned majority owned subsidiaries account investments exercise significant influence 2050 ownership interest equity method accounting use cost method accounting investments ownership interest less 20 exercise significant influence noncontrolling interest represents noncontrolling investors’ interests results subsidiaries control consolidate intercompany transactions eliminated accounting calendar change connection moving toward common consolidation date across company first quarter 2013 changed consolidation date europe segment predominantly last saturday period last calendar day period change favorable impact 37 million net revenues 6 million operating income 2013 time majority operating subsidiaries report results last calendar day period except north america segment north america segment reported results last saturday period beginning first quarter 2015 reports results last calendar day period believe changes common consolidation date preferable improve business planning financial reporting better matching close dates operating subsidiaries bringing reporting dates closer periodend date effect priorperiod results material revised priorperiod results use estimates prepare consolidated financial statements accordance accounting principles generally accepted united states america “us gaap” require us make estimates assumptions affect number amounts consolidated financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions valuation assumptions goodwill intangible assets useful lives longlived assets restructuring program liabilities marketing program accruals insurance selfinsurance reserves income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year material effect consolidated financial statements currency translation highly inflationary accounting translate results operations subsidiaries multiple currencies using average exchange rates period translate balance sheet accounts using exchange rates end period record currency translation adjustments component equity realized exchange gains losses transactions earnings venezuela prescribed us gaap highly inflationary economies accounting results venezuelan subsidiaries using us dollar functional currency since january 1 2010 february 8 2013 venezuelan government announced devaluation official venezuelan bolivar exchange rate 430 bolivars 630 bolivars us dollar elimination secondtier governmentregulated sitme exchange rate previously applied value certain types transactions connection announced changes recorded 54 million currency remeasurement loss related devaluation net monetary assets venezuela within selling general administrative expenses latin america segment three months ended march 31 2013 january 24 2014 venezuelan government announced expansion auctionbased currency transaction program referred sicad new profit margin controls application sicad rate extended include foreign investments significant operating activities including contracts leasing services use exploitation patents trademarks payments royalties contracts technology import technical assistance december 31 2014 sicad exchange rate food segment auctions participate 1150 bolivars us dollar additionally march 24 2014 venezuelan government launched new marketbased currency exchange market sicad ii sicad ii may used voluntarily exchange bolivars us dollars december 31 2014 sicad ii exchange rate 4999 bolivars us dollar venezuelan operations produce wide range biscuit cheese grocery confectionery beverage products based currency exchange developments year reviewed domestic international sourcing goods services exchange rates believe applicable evaluated level primarily raw material imports believe would continue sourced exchange us dollars converted official 630 exchange rate remaining imported goods services would primarily valued sicad exchange rate imports currently qualify either official rate sicad rate may sourced sicad ii rate believe sicad rate appropriate rate use representative various exchange rates us dollars currently available entire venezuelan business net monetary assets liabilities qualify settlement official exchange rate operations utilized sicad ii auction processes addition significant uncertainty ability secure approval transactions limited availability us dollars offered official rate believe economically representative use sicad rate official rate value net monetary assets translate future operating results march 31 2014 began apply sicad exchange rate remeasure bolivardenominated net monetary assets began translating venezuelan operating results new rate second quarter 2014 march 31 2014 recognized 142 million currency remeasurement loss within selling general administrative expenses latin america segment result revaluing bolivardenominated net monetary assets official exchange rate 630 bolivars us dollar thenprevailing sicad exchange rate 1070 bolivars us dollar december 31 2014 sicad exchange rate food segment auctions participate 1150 bolivars us dollar december 31 2014 recognized 25 million additional remeasurement charges related primarily changes sicad rate following table sets forth net revenues venezuelan operations year ended december 31 2014 measured 630 official rate first quarter sicad rate subsequent march 31 2014 remeasurement cash net monetary assets net assets venezuelan subsidiaries december 31 2014 translated sicad last exchange rate food segment auctions participate 1150 bolivars us dollar recently february 10 2015 venezuelan government announced changes currency exchange structure retaining 630 official rate food essentials sicad offered rate based recently cleared auction transactions specific sectors economy sicad ii exchange rate expected replaced new marketbased simadi rate continue monitor developments related currency structure time continue expect use sicad rate remeasure net monetary assets venezuela change sicad rate 1150 last sicad auction rate realized 2014 1200 opening sicad rate announced february 10 2015 would result approximately 10 million remeasurement loss based net monetary assets venezuela december 31 2014 depending sicad auctions occur march 31 2015 however amount remeasurement loss recorded first quarter 2015 could change unlike official rate fixed 630 bolivars us dollar sicad rate expected vary time threetier currency exchange rates application rates business change may recognize additional currency losses gains could significant light ongoing difficult macroeconomic environment venezuela continue monitor actively manage investment exposures venezuela plan continue business country long successfully continue operate local business strive locally source produce significant amount products sell venezuela taken protective measures currency devaluation converting monetary assets nonmonetary assets use business however suitable protective measures become less available expensive may offset currency devaluation could occur argentina january 23 2014 central bank argentina adjusted currency policy removed currency stabilization measures allowed argentine peso exchange rate float relative us dollar day value argentine peso relative us dollar fell 15 december 31 2013 december 31 2014 value peso declined 31 july 2014 argentina technical default debt government blocked making payments restructured debt certain creditors participate debt restructuring 2001 based current state argentine economy restricted liquidity access capital currency rules regulations business operating environment remains challenging volatility declines exchange rate expected continue monitor actively manage investment exposures argentina continue refining product portfolio improve product offerings mix profitability also continue implement additional cost initiatives protect business currency declines economic controls business restrictions could adverse impact ongoing results operations argentinian operations contributed approximately 693 million 20 consolidated net revenues year ended december 31 2014 december 31 2014 net monetary liabilities argentina operations material could change time argentina designated highlyinflationary economy accounting purposes continue record currency translation adjustments within equity realized exchange gains losses transactions earnings russia fourth quarter 2014 value russian ruble relative us dollar declined 50 volatility currency expected russia continues key market us continue take actions protect nearterm operating results financial condition cash flow operations russia contributed approximately 1114 million 33 consolidated net revenues year ended december 31 2014 december 31 2014 net monetary assets russia operations material could change time russia designated highlyinflationary economy accounting purposes continue record currency translation adjustments within equity realized exchange gains losses transactions earnings ukraine february 5 2015 national bank ukraine changed currency policy eliminating daily auctions effectively supported exchange rate allowed ukrainian hryvnya exchange rate float relative us dollar value ukrainian hryvnya relative us dollar declined 61 beginning year february 11 2015 volatility currency expected ukraine important emerging market continue take actions protect nearterm operating results cash flow financial condition ukrainian operations contributed approximately 294 million 09 consolidated net revenues year ended december 31 2014 december 31 2014 net monetary assets ukrainian operations material could change time ukraine designated highlyinflationary economy accounting purposes continue record currency translation adjustments within equity realized exchange gains losses transactions earnings cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less inventories value inventory using average cost method also record inventory allowances overstock obsolete inventories due ingredient packaging changes longlived assets property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years review longlived assets including amortizable intangible assets realizability ongoing basis changes depreciation generally accelerated depreciation determined recorded estimates remaining useful lives residual values longterm assets change also review impairment conditions exist indicate carrying amount assets may fully recoverable circumstances perform undiscounted operating cash flow analyses determine impairment exists testing asset impairment group assets liabilities lowest level cash flows separately identifiable impairment loss calculated excess asset’s carrying value estimated fair value fair value estimated based undiscounted cash flows asset group remaining useful life based expected cash proceeds asset less costs disposal significant impairment losses would recorded within asset impairment exit costs consolidated statements earnings software costs capitalize certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment amortized straightline basis estimated useful lives software exceed seven years goodwill nonamortizable intangible assets test goodwill nonamortizable intangible assets impairment annual basis october 1 assess goodwill impairment risk throughout year performing qualitative review entityspecific industry market general economic factors affecting reporting units goodwill annually may perform qualitative testing elect quantitative testing instead depending prior test results current year developments current risk evaluations practical considerations event significant potential goodwill impairment risk exists specific reporting unit apply twostep quantitative test first step compares reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using discounted cash flow method incorporates planned growth rates marketbased discount rates estimates residual value year reporting units europe north america segments used marketbased weightedaverage cost capital 69 discount projected cash flows operations latin america asia pacific eemea reporting units used riskrated discount rate 99 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value apply second step measure difference carrying value implied fair value goodwill carrying value goodwill exceeds implied fair value goodwill impaired carrying value reduced implied fair value goodwill test nonamortizable intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible assets significant potential impairment risk exists specific asset quantitatively test impairment comparing estimated fair value carrying value determine estimated fair value using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds fair value consider asset impaired reduce carrying value estimated fair value amortize definitelived intangible assets estimated useful lives evaluate impairment longlived assets insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits estimate liabilities associated risks undiscounted basis evaluating making judgments historical claims experience actuarial assumptions estimated impact future results revenue recognition recognize revenues title risk loss pass customers generally occurs upon shipment delivery goods revenues recorded net sales incentives trade promotions include shipping handling charges billed customers shipping handling costs classified part cost sales provisions product returns trade allowances also recorded reductions revenues within period revenue recognized marketing research development promote products advertising marketing sales incentives trade promotions programs include limited cooperative advertising instore displays consumer promotions new product introduction fees discounts coupons rebates volumebased incentives expense advertising costs either period advertising first takes place incurred sales incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising expenses sales incentives charged operations percentage volume based estimated volume estimated program spending defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred advertising expense 1552 million 2014 1721 million 2013 1815 million 2012 manage advertising consumer promotions marketing programs combined basis advertising consumer promotion costs lower 2014 due primarily savings consolidating media providers reductions nonworking media costs efficiencies gained shifting spending lowercost digital media outlets currency increased spending global power brands maintained working media spending 2013 advertising consumer promotion costs higher 2012 expense product research development costs incurred research development expense 455 million 2014 471 million 2013 462 million 2012 record marketing research development expenses within selling general administrative expenses employee benefit plans provide range benefits current retired employees include pension benefits postretirement health care benefits postemployment benefits depending upon jurisdiction tenure job level factors local statutory requirements govern many benefit plans provide around world local government plans generally cover health care benefits retirees outside united states canada united kingdom us canadian uk subsidiaries provide health care benefits retired employees postemployment benefit plans provide primarily severance benefits eligible salaried certain hourly employees cost plans recognized earnings primarily working life covered employee financial instruments use financial instruments manage currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principal objective risk management strategies reduce significant unanticipated earnings fluctuations may arise volatility currency exchange rates commodity prices interest rates principally use derivative instruments use combination primarily currency forward contracts futures options swaps commodity forward contracts futures options interest rate swaps manage exposure cash flow variability protect value existing currency assets liabilities protect value debt see note 9 financial instruments consolidated financial statements information types derivative instruments use record derivative financial instruments gross basis fair value consolidated balance sheets within current assets current liabilities due relatively shortterm duration cash flows derivative instruments classified consolidated statements cash flows based nature derivative instrument changes fair value derivative designated cash flow hedge extent hedge effective recorded accumulated comprehensive earnings losses reclassified earnings hedged item affects earnings changes fair value economic hedges ineffective portion hedges recognized current period earnings changes fair value derivative designated fair value hedge along changes fair value related hedged asset liability recorded earnings period use nonus dollar denominated debt hedge portion net investment nonus operations adverse movements exchange rates currency movements related debt net investment related deferred taxes recorded within currency translation adjustment accumulated comprehensive earnings losses order qualify hedge accounting specified level hedging effectiveness derivative instrument item hedged must exist inception throughout hedged period must also formally document nature relationship derivative hedged item well risk management objectives strategies undertaking hedge transaction method assessing hedge effectiveness additionally hedge forecasted transaction significant characteristics expected term forecasted transaction must specifically identified must probable forecasted transaction occur longer probable hedged forecasted transaction occur would recognize gain loss related derivative earnings use derivatives exposed credit market risks credit risk exists counterparty derivative contract might fail fulfill performance obligations contract minimize credit risk entering transactions counterparties high quality investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration one year longer governed international swaps derivatives association master agreement market risk exists value derivative financial instrument might adversely affected changes market conditions commodity prices currency exchange rates interest rates manage derivative market risk limiting types derivative instruments derivative strategies use degree market risk plan hedge use derivative instruments commodity cash flow hedges exposed price risk related forecasted purchases certain commodities primarily use raw materials enter commodity forward contracts primarily cocoa wheat coffee soybean vegetable oils sugar sweeteners commodity forward contracts generally subject accounting requirements derivative instruments hedging activities normal purchases exception also use commodity futures options hedge price certain input costs including energy costs coffee sugar sweeteners wheat soybean vegetable oils cocoa dairy derivative instruments highly effective qualify hedge accounting treatment also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes currency exchange cash flow hedges use various financial instruments mitigate exposure changes exchange rates thirdparty intercompany actual forecasted transactions instruments may include currency exchange forward contracts futures options swaps based size location businesses use instruments hedge exposure certain currencies including euro pound sterling canadian dollar interest rate cash flow fair value hedges manage interest rate volatility modifying pricing maturity characteristics certain liabilities net impact expense material basis adversely affected movements interest rates result interest rate fluctuations hedged fixedrate liabilities appreciate depreciate market value expect effect unrealized appreciation depreciation substantially offset gains losses derivative instruments linked hedged liabilities use derivative instruments including interest rate swaps indices related pricing specific liabilities part interest rate risk management strategy matter policy use highly leveraged derivative instruments interest rate risk management use interest rate swaps economically convert portion fixedrate debt variablerate debt interest rate swap contracts agree parties exchange specified intervals difference fixedrate floatingrate interest amounts calculated based agreedupon notional amount also use interest rate swaps hedge variability interest payment cash flows portion future debt obligations substantially derivative instruments highly effective qualify hedge accounting treatment hedges net investments nonus operations numerous investments outside united states net assets subsidiaries exposed changes volatility currency exchange rates use local currency denominated debt hedge nonus net investments adverse movements exchange rates designated euro pound sterling denominated borrowings net investment hedge portion overall european operations gains losses net investment designated european operations economically offset losses gains euro pound sterling denominated borrowings change debt’s value net deferred taxes recorded currency translation adjustment component accumulated comprehensive earnings losses income taxes recognize tax benefits financial statements uncertain tax positions assessed likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized new accounting pronouncements november 2014 financial accounting standards board “fasb” issued accounting standards update “asu” clarify current guidance interpreted evaluating economic characteristics risks host contract hybrid financial instrument issued form share asu emphasizes entity consider relevant terms features including embedded derivative feature evaluated bifurcation evaluating nature host contract asu effective annual reporting periods beginning december 15 2015 early adoption permitted adopt new standard january 1 2016 standard expected material impact consolidated financial statements june 2014 fasb issued asu clarify accounting certain stockbased compensation grants performance target achieved requisite service period completed new guidance entities required treat performance targets affect vesting could achieved requisite service period performance condition performance targets reflected estimating grantdate fair value grants compensation cost recognized period becomes probable performance target achieved represent compensation cost attributable periods requisite service already rendered performance target becomes probable achieved end requisite service period remaining unrecognized compensation cost recognized prospectively remaining requisite service period asu effective annual reporting periods beginning december 15 2015 early adoption permitted adopt new standard january 1 2016 standard expected material impact consolidated financial statements may 2014 fasb issued asu revenue recognition contracts customers new asu outlines new single comprehensive model companies use accounting revenue core principle entity recognize revenue depict transfer promised goods services customer amount reflects consideration entity expects entitled receive exchange goods services asu also requires additional disclosure nature amount timing uncertainty revenue cash flows customer contracts including significant judgments made recognizing revenue guidance effective annual reporting periods beginning december 15 2016 early adoption prohibited asu may applied retrospectively historical periods presented cumulativeeffect adjustment date adoption plan adopt new standard january 1 2017 effective date currently assessing impact new standard consolidated financial statements april 2014 fasb issued asu reporting discontinued operations guidance changed definition discontinued operation include dispositions represent strategic shift major effect operations financial results strategic shifts may include disposal operations major geographical area major line business major investment accounted equity method major parts entity disposals qualify additional disclosures including cash flow balance sheet information discontinued operation required guidance effective fiscal years interim reporting periods beginning december 15 2014 early adoption permitted apply provisions prospective divestitures beginning 2015 refer note 2 divestitures acquisitionsplanned coffee business transactions plans report 2015 planned coffee business transactions reclassifications certain amounts previously reported reclassified conform currentyear presentation december 31 2014 elected net certain regional banking activity legal right offset reflected change prior periods presented consolidated statements cash flows prioryear cash debt weightedaverage interest rates debt 2014 realigned products across product categories result reclassified prior year product category revenues note 17 segment reporting consistent basis adjusted presentation certain commodity contracts economic hedge table remove impact intercompany sales related forward contracts taken physical delivery reflected change prior periods presented note 9 financial instrumentseconomic hedges consistent basis also provided greater detail prioryear receivables deferred taxes consistent current year presentation note 2 divestitures acquisitions planned coffee business transactions may 7 2014 announced entered agreement combine wholly owned coffee portfolio outside france de master blenders 1753 bv “demb” conjunction transaction acorn holdings bv “ahbv” owner demb also made binding offer receive coffee business france parties also invited partners certain joint ventures join new company upon completion proposed transactions expect receive cash approximately 4 billion 49 percent equity interest new company called jacobs douwe egberts “jde” ahbv hold majority share proposed combined company majority seats board chaired current demb chairman bart becht certain minority rights ahbv owned investor group led jab holding company sà rl contributed coffee businesses joint venture expect record interest joint venture equity method investment consolidated balance sheet include share earnings prospectively within continuing results operations also anticipate recording gain divested assets coffee business portfolio time expect coffee business divestiture qualify discontinued operations presentation represent strategic change business expected major effect results operations retain approximate 49 interest combined joint venture demb business transactions remain subject regulatory approvals completion employee information consultation requirements continue expect transactions completed 2015 subject closing conditions including regulatory approvals december 2014 european commission announced intention evaluate proposed transaction eu antitrust regulations order make final determination merger clearance currently expect second half 2015 demb also continue undertake consultations works councils employee representatives required connection transactions connection expected receipt approximately 4 billion upon closing entered currency exchange forward contracts second quarter 2014 lock expected us dollar value approximately 5 billion december 31 2014 forward contracts recorded derivative assets within current assets december 31 2014 recognized 628 million unrealized gains related hedges within interest expense net february 11 2015 monetized forward contracts recorded additional realized gain 311 million first quarter 2015 total realized gain 939 million also entered new currency exchange forward contracts continue lock expected us dollar value approximately 5 billion transactions based changes eurous dollar exchange rate actual closing date planned jde coffee transactions settlement dates hedges may put place actual amount us dollars receive could change addition hedges also incurred incremental expenses related readying coffee businesses planned transactions totaled 77 million december 31 2014 recorded within selling general administrative expenses europe eemea segments within general corporate expenses spinoff kraft foods group distribution date completed spinoff kraft foods group shareholders record close business september 19 2012 “the record date” received one share kraft foods group common stock every three shares common stock held record date distribution structured tax free us shareholders us federal income tax purposes following spinoff kraft foods group independent public company beneficially shares kraft foods group common stock divested kraft foods group business presented discontinued operation consolidated statements earnings 2012 spinoff occurred noted 2013 due resolution starbucks arbitration gain recognized related kraft foods group business kraft foods group comprehensive earnings changes equity cash flows included within consolidated statements comprehensive earnings equity cash flows october 1 2012 summary results related discontinued operation kraft foods group within historical results presented results kraft foods group discontinued operation exclude certain corporate business unit costs historically allocated kraft foods group continued mondelēz international spinoff costs include primarily corporate overheads information systems sales force support pretax basis date spinoff costs 150 million nine months ended october 1 2012 interest expense relating debt kraft foods group incurred assumed distribution date included results discontinued operations periods presented follows distribution date divested net assets totaling 4358 million 4111 million net cash retained kraft foods group additionally distributed kraft foods group 4308 million accumulated comprehensive losses primarily related pension benefit plan net liabilities transferred kraft foods group 89 million unearned compensation recorded within additional paid capital total recorded distribution 8755 million retained earnings connection spinoff order implement spinoff entered certain agreements kraft foods group effect legal structural separation govern relationship us allocate various assets liabilities obligations us including among things employee benefits intellectual property taxrelated assets liabilities see note 15 income taxes additional information current deferred tax assets liabilities transferred retained spinoff addition executing spinoff manner provided agreements november 2012 pursuant agreements paid kraft foods group 163 million related targeted cash flows together 247 million cash divested distribution date total 410 million cash transferred kraft foods group connection spinoff facilitate management including final payment resolution certain obligations kraft foods group retained certain north american net trade payables receivables also retained approximately 140 million workers’ compensation liabilities claims incurred kraft foods group employees prior spinoff november 2012 paid kraft foods group 95 million cash settle net trade payables receivables march 2013 collected 55 million kraft foods group related cash settlement stock awards held respective employees time spinoff described note 12 stock plans 2014 concluded spinoff transition plans historically incurred spinoff transaction transition financing related costs “spinoff costs” within operating results recorded spinoff costs 35 million 2014 62 million 2013 1053 million 2012 pretax earnings follows end 2014 incurred total spinoff costs approximately 12 billion expect incur additional spinoff costs resolution starbucks arbitration december 13 2013 independent arbitrator dispute starbucks coffee company “starbucks” issued decision final award kraft foods global inc kraft foods group named party proceeding proven entitled recover starbucks required pay 2764 million total cash compensation starbucks’ unilateral termination starbucks packaged coffee business license supply agreement award included compensation 135 determined fair market value agreement improper termination well prejudgment interest 521 million kraft foods group’s attorney’s fees parties agreed would equal 15 million starbucks paid amount owed pursuant ruling separation distribution agreement kraft foods group us kraft foods group directed recovery awarded arbitration proceeding us dispute arose within kraft foods group discontinued operation directed mondelēz international connection spinoff recapitalization plans accordingly pretax gain resolution starbucks arbitration 25 billion 16 billion net tax recorded earnings discontinued operations fourth quarter 2013 acquisitions divestitures sales property november 11 2014 announced pending acquisition biscuit operation vietnam biscuit operation become subsidiary within asia pacific segment total consideration paid expected 12656 billion vietnamese dong 600 million us dollars december 31 2014 expect close initial phase transaction mid 2015 regulatory matters resolved deposited 46 million escrow upon signing purchase agreement november 10 2014 expect pay approximately 9935 billion vietnamese dong 471 million us dollars december 31 2014 deposit additional 991 billion vietnamese dong 47 million us dollars december 31 2014 escrow upon completing initial phase transaction mid 2015 expect fund current borrowing capacity balance paid upon satisfaction final conditions including resolution warranty claims purchase price adjustments legal expenses related planned acquisition 2 million 2014 recorded within selling general administrative expenses february 22 2013 acquired remaining interest biscuit operation morocco whollyowned subsidiary within eemea segment paid net cash consideration 119 million consisting 155 million purchase price net cash acquired 36 million prior acquisition interest operation accounted equity method result obtaining controlling interest consolidated operation upon finalizing valuation acquired net assets december 31 2013 recorded fair value acquired assets including identifiable intangible assets 48 million liabilities assumed goodwill 209 million three months ended march 31 2013 also recorded pretax gain 22 million related remeasurement previouslyheld equity interest operation fair value accordance us gaap acquisition costs 7 million interest expense net selling general administrative expenses recorded integration charges 4 million 2014 4 million 2013 within cost sales selling general administrative expenses 2013 completed several divestitures primarily eemea europe segments generated cash proceeds 60 million pretax gains 8 million divestitures included salty snacks business turkey confectionery business south africa chocolate business spain 2012 completed several divestitures within europe segment generated cash proceeds 200 million pretax gains 107 million divestitures primarily included dinners sauces grocery business germany belgium canned meat business italy aggregate operating results 2013 2012 divestitures material financial statements periods presented 2013 sold properties india within asia pacific segment italy united kingdom norway within europe segment india property sale generated 39 million pretax gain 53 million cash proceeds europe property sales generated 29 million pretax net gains 37 million cash proceeds also 43 million receivable related united kingdom property sale gains recorded within selling general administrative expenses cash proceeds recorded cash flows investing activities year ended december 31 2013 2012 also sold property russia turkey within eemea segment russia property sale generated 55 million pretax gain 72 million cash proceeds turkey property sale generated 22 million pretax gain 29 million cash proceeds gains recorded within selling general administrative expenses cash proceeds recorded cash flows investing activities year ended december 31 2012 note 3 inventories consisted following note 4 property plant equipment property plant equipment consisted following connection 20122014 restructuring program 20142018 restructuring program see note 6 restructuring programs recorded noncash asset writedowns including accelerated depreciation asset impairments 173 million 2014 89 million 2013 charges recorded consolidated statements earnings within asset impairment exit costs follows arose restructuring activities described note 6 restructuring programs note 5 goodwill intangible assets goodwill reportable segment intangible assets consisted following nonamortizable intangible assets consist principally brand names purchased acquisitions nabisco holdings corp spanish portuguese operations united biscuits global lu biscuit business groupe danone sa cadbury limited amortizable intangible assets consist primarily trademarks customerrelated intangibles process technology licenses noncompete agreements december 31 2014 weightedaverage life amortizable intangible assets 135 years amortization expense intangible assets 206 million 2014 217 million 2013 217 million 2012 currently estimate annual amortization expense next five years approximately 200 million changes goodwill intangible assets consisted changes goodwill intangible assets • divestitures 2013 reduced goodwill 13 million intangible assets 7 million due divestitures chocolate business spain salty snacks business turkey confectionery business south africa • acquisitions 2013 increased goodwill 209 million intangible assets 48 million due acquisition remaining interest biscuit operation morocco • asset impairments 2014 recorded 57 million charges related two trademarks described january 1 2014 organizational change occurred within north america region country product category structure regional product category structure result north america region two instead four reporting units reporting units reorganized goodwill allocated new reporting unit structure based relative fair values related business units 2014 2013 2012 impairments goodwill connection 2014 annual impairment testing reporting units sufficient fair value excess carrying value reporting units passed annual impairment testing expectations met specific valuation factors outside control discount rates change significantly estimated fair values reporting unit reporting units might decline lead goodwill impairment future 2014 review nonamortizable intangible assets recorded 57 million impairment charges related two trademarks cases impairments arose due lower expected product growth decisions made fourth quarter redirect support products regional brands recorded 48 million charge related biscuit trademark asia pacific segment 9 million charge related candy trademark europe segment impairment charges calculated excess carrying value estimated fair value intangible assets global basis recorded within asset impairment exit costs primarily use relief royalty valuation method utilizes estimates future sales growth rates royalty rates discount rates determining brand’s global fair value 2014 intangible asset impairment review also noted three brands 341 million aggregate book value december 31 2014 fair value excess book value 10 less intangible assets passed annual impairment testing believe current plans brands allow continue impaired expectations met specific valuation factors outside control discount rates change significantly brand brands could become impaired future note 6 restructuring programs 20142018 restructuring program may 6 2014 board directors approved 35 billion restructuring program comprised approximately 25 billion cash costs 1 billion noncash costs “20142018 restructuring program” 22 billion capital expenditures primary objective 20142018 restructuring program reduce operating cost structure supply chain overhead costs program intended primarily cover severance well asset disposals manufacturingrelated onetime costs expect incur majority program’s charges 2015 2016 complete program yearend 2018 restructuring costs recorded restructuring charges 274 million 2014 within asset impairment exit costs activity 20142018 restructuring program liability year ended december 31 2014 spent 17 million 2014 cash severance related costs also recognized noncash pension plan settlement losses see note 10 benefit plans details noncash asset writedowns including accelerated depreciation asset impairments noncash adjustments totaling 28 million 2014 december 31 2014 209 million net restructuring liability recorded within current liabilities 15 million recorded within longterm liabilities implementation costs implementation costs directly attributable restructuring activities however qualify special accounting treatment exit disposal activities believe disclosure implementation costs provides readers financial statements information total costs 20142018 restructuring program implementation costs primarily relate reorganizing operations facilities connection supply chain reinvention program identified productivity cost saving initiatives costs include incremental expenses related closure facilities costs terminate certain contracts simplification information systems within continuing results operations recorded implementation costs 107 million 2014 recorded costs within cost sales general corporate expense within selling general administrative expenses restructuring implementation costs operating income 2014 recorded restructuring implementation costs related 20142018 restructuring program within operating income follows 1 includes adjustment rounding 20122014 restructuring program 2012 board directors approved 15 billion restructuring related implementation costs “20122014 restructuring program” reflecting primarily severance asset disposals manufacturingrelated onetime costs primary objective 20122014 restructuring program ensure mondelēz international kraft foods group set operate efficiently execute respective business strategies upon separation future 15 billion 20122014 restructuring program costs retained approximately 925 million kraft foods group retained balance program end 2014 incurred total restructuring related implementation charges 899 million expect incur additional charges 20122014 restructuring program restructuring costs recorded restructuring charges 360 million 2014 267 million 2013 102 million 2012 within asset impairment exit costs 2014 also recorded outofperiod accruals 73 million severance 52 million related 2014 21 million related 2013 connection change timing accruals ongoing negotiations workers’ councils labor unions activity 20122014 restructuring program liability years ended december 31 2014 2013 spent 130 million 2014 108 million 2013 33 million 2012 cash severance related costs also recognized noncash pension plan settlement losses see note 10 benefit plans noncash asset writedowns including accelerated depreciation asset impairments noncash adjustments totaling 161million 2014 127 million 2013 33 million 2012 december 31 2014 98 million net restructuring liability recorded within current liabilities 30 million recorded within longterm liabilities implementation costs implementation costs related 20122014 restructuring program primarily relate activities connection spinoff reorganizing operations facilities discontinuance certain product lines incremental expenses related closure facilities replicating information systems infrastructure reorganizing sales function recorded costs within cost sales selling general administrative expenses primarily within europe north america segments restructuring implementation costs operating income 2014 2013 2012 recorded restructuring implementation costs related 20122014 restructuring program within operating income follows 1 includes adjustment rounding note 7 integration program cost savings initiatives cadbury integration program result combination cadbury limited formerly cadbury plc “cadbury” 2010 launched integration program “integration program” combine cadbury operations realize expected annual cost savings approximately 750 million end 2013 revenue synergies investments distribution marketing product development achieved cost savings approximately 800 million 2012 year ahead schedule achieved planned revenue synergies 2013 end 2013 incurred total integration charges approximately 15 billion completed incurring planned charges integration program recorded reversals integration program charges 8 million 2014 related accruals longer required recorded integration program charges 216 million 2013 185 million 2012 cost sales selling general administrative expenses within europe asia pacific latin america eemea segments changes remaining integration program liability 2014 2013 december 31 2014 25 million net integration program liability recorded within current liabilities 33 million primarily related leased facilities longer use recorded within longterm liabilities integration costs connection acquisition biscuit operation morocco february 2013 recorded integration charges 4 million 2014 4 million 2013 recorded charges cost sales selling general administrative expenses within eemea segment see note 2 divestitures acquisitions information acquisition cost savings initiatives cost savings initiatives generally include exit disposal project costs outside restructuring programs cadbury integration program integration program costs consist following specific initiatives • 2013 recorded 20 million charge primarily within segment operating income latin america related severance benefits provided terminated employees onetime charges within segment operating income north america related supply chain reinvention team expenses • 2012 recorded 21 million charge primarily within segment operating income europe related severance benefits provided terminated employees charges connection reorganization europe eemea segments note 8 debt borrowing arrangements shortterm borrowings shortterm borrowings related weightedaverage interest rates consisted december 31 2014 commercial paper issued outstanding 2 86 days remaining maturity bank loans include borrowings primarily uncommitted credit lines maintained international subsidiaries meet shortterm working capital needs borrowing arrangements maintain revolving credit facility general corporate purposes including working capital purposes support commercial paper program 45 billion fiveyear senior unsecured revolving credit facility expires october 11 2018 revolving credit agreement includes covenant maintain minimum shareholders’ equity least 246 billion excluding accumulated comprehensive earnings losses cumulative effects changes accounting principles december 31 2014 met covenant shareholders’ equity defined covenant 351 billion revolving credit facility agreement also contains customary representations covenants events default credit rating triggers provisions financial covenants could require us post collateral security december 31 2014 amounts drawn facility international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 21 billion december 31 2014 24 billion december 31 2013 borrowings lines amounted 204 million december 31 2014 184 million december 31 2013 longterm debt longterm debt consisted interest rates december 31 2014 december 31 2014 aggregate maturities debt based stated contractual maturities millions december 11 2014 £300 million 5375 british pound sterling bonds matured bonds accrued interest date paid cash hand issuance commercial paper february 19 2014 500 million 675 us dollar notes matured notes accrued interest date paid cash hand issuance commercial paper february 6 2014 completed cash tender offer retired 156 billion longterm us dollar debt consisting • 393 million 7000 notes due august 2037 • 382 million 6875 notes due february 2038 • 250 million 6875 notes due january 2039 • 535 million 6500 notes due february 2040 financed repurchase notes including payment accrued interest costs incurred net proceeds received 30 billion notes issuance january 16 2014 connection retiring debt first six months 2014 recorded 493 million loss extinguishment debt within interest expense related amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing costs earnings time debt extinguishment loss extinguishment included longterm debt repayments 2014 consolidated statement cash flows also recognized 2 million interest expense related interest rate cash flow hedges deferred accumulated comprehensive losses recognized earnings life debt upon extinguishing debt deferred cash flow hedge amounts recorded earnings january 16 2014 issued 30 billion us dollar notes consisting • 400 million floating rate notes bear interest threemonth libor plus 052 mature february 1 2019 • 850 million 2250 fixed rate notes mature february 1 2019 • 1750 million 4000 fixed rate notes mature february 1 2024 received net proceeds 2982 million used fund february 2014 tender offer pay commercial paper borrowings general corporate purposes recorded approximately 18 million discounts deferred financing costs amortized interest expense life notes december 18 2013 completed cash tender offer retired 34 billion longterm us dollar debt consisting • 910 million 6500 notes due august 2017 • 729 million 6125 notes due february 2018 • 334 million 6125 notes due august 2018 • 1467 million 5375 notes due february 2020 financed repurchase notes including payment accrued interest costs net proceeds received 24 billion notes issuance december 11 2013 cash hand commercial paper issuances recorded 608 million loss extinguishment debt within interest expense related amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing costs earnings time debt extinguishment loss extinguishment included longterm debt repayments 2013 consolidated statement cash flows also recognized 4 million interest expense related interest rate cash flow hedges deferred accumulated comprehensive losses recognized earnings life debt upon extinguishing debt deferred cash flow hedge amounts recorded earnings december 11 2013 issued 24 billion euro notes approximately 33 billion us dollars december 31 2013 consisting • 400 million 550 million floating rate notes bear interest threemonth euribor plus 050 mature june 11 2015 • 750 million 1031 million 1125 fixed rate notes mature january 26 2017 • 1250 million 1718 million 2375 fixed rate notes mature january 26 2021 received net proceeds 2381 million 3239 million us dollars december 11 2013 used partially fund december 2013 tender offer also recorded approximately 27 million discounts deferred financing costs amortized interest expense life notes october 1 2013 1 billion 5125 us dollar notes 800 million 5250 us dollar notes matured notes accrued interest date paid cash hand issuance commercial paper may 8 2013 1 billion 2625 us dollar notes matured notes accrued interest date paid cash hand issuance commercial paper february 11 2013 750 million 600 us dollar notes matured notes accrued interest date paid cash hand weightedaverage interest rate total debt 43 december 31 2014 48 december 31 2013 fair value debt fair value shortterm borrowings december 31 2014 2013 reflects current market interest rates approximates amounts recorded consolidated balance sheet fair value longterm debt determined using quoted prices active markets level 1 valuation data publicly traded debt obligations december 31 2014 aggregate fair value total debt 18463 million carrying value 16700 million december 31 2013 aggregate fair value total debt 18807 million carrying value 17079 million interest expense net interest expense net within results continuing operations consisted see note 2 divestitures acquisitions note 9 financial instruments information currency exchange forward contracts associated planned coffee business transactions see note 11 commitments contingencies information benefit resolution cadbury acquisitionrelated indemnification see note 9 financial instruments spinoff related financing fees 556 million related several interest rate swap settlements 2012 note 9 financial instruments fair value derivative instruments derivative instruments recorded fair value consolidated balance sheets follows 2014 2013 derivatives designated accounting hedges include cash flow fair value hedges derivatives designated accounting hedges include economic hedges nonus debt designated hedge net investments nonus operations reflected table included longterm debt summarized note 8 debt borrowing arrangements record derivative assets liabilities gross basis consolidated balance sheet fair value asset derivatives recorded within current assets fair value liability derivatives recorded within current liabilities fair values asset liability derivative instruments determined using level 1 financial assets liabilities consist exchangetraded commodity futures listed options fair value instruments determined based quoted market prices commodity exchanges exchangetraded derivatives generally subject master netting arrangements permit net settlement transactions counterparty certain criteria met event default also required maintain cash margin accounts connection funding settlement open positions margin requirements generally fluctuate daily based market conditions recorded margin deposits related exchangetraded derivatives 84 million december 31 2014 21 million december 31 2013 within current assets based net asset liability positions individual counterparties event default immediate net settlement open positions derivatives net liability position would owe 3 million december 31 2014 derivatives net asset position counterparties would owe us total 38 million december 31 2014 17 million december 31 2013 level 2 financial assets liabilities consist primarily overthecounter “otc” currency exchange forwards options swaps commodity forwards options interest rate swaps currency exchange contracts valued using income approach based observable market forward rates less contract rate multiplied notional amount commodity derivatives valued using income approach based observable market commodity index prices less contract rate multiplied notional amount based pricing models rely market observable inputs commodity prices calculation fair value interest rate swaps derived discounted cash flow analysis based terms contract observable market interest rate curve calculation fair value financial instruments takes consideration risk nonperformance including counterparty credit risk otc derivative transactions governed international swap dealers association agreements standard industry contracts agreements post require collateral counterparties majority commodity currency exchange otc derivatives legal right setoff connection otc derivatives could netsettled event default assuming parties fail comply terms agreements derivatives net liability position would owe 156 million december 31 2014 40 million december 31 2013 derivatives net asset position counterparties would owe us total 72 million december 31 2014 275 million december 31 2013 manage credit risk connection derivatives entering transactions counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties derivative volume net notional values derivative instruments cash flow hedges cash flow hedge activity net taxes within accumulated comprehensive earnings losses included aftertax gains losses reclassified accumulated comprehensive earnings losses net earnings aftertax gains losses recognized comprehensive earnings losses pretax gains losses ineffectiveness recognized net earnings continuing operations pretax gains losses amounts excluded effectiveness testing recognized net earnings continuing operations included pretax loss 556 million recognized 2012 within interest expense net related certain forwardstarting interest rate swaps planned timing related forecasted debt changed connection spinoff plans related debt capitalization plans record pretax aftertax gains losses reclassified accumulated comprehensive earnings losses earnings ii gains losses ineffectiveness iii gains losses amounts excluded effectiveness testing • cost sales commodity contracts • cost sales currency exchange contracts related forecasted transactions • interest expense net interest rate contracts currency exchange contracts related intercompany loans based current market conditions would expect transfer unrealized losses 20 million net taxes commodity cash flow hedges unrealized gains 53 million net taxes currency cash flow hedges unrealized losses 1 million net taxes interest rate cash flow hedges earnings next 12 months hedge coverage december 31 2014 hedged transactions forecasted impact cash flows following periods • commodity transactions periods exceeding next 15 months • interest rate transactions periods exceeding next 31 years 2 months • currency exchange transactions periods exceeding next 4 years 10 months fair value hedges pretax gains losses due changes fair value interest rate swaps related hedged longterm debt recorded interest expense net fair value hedge ineffectiveness amounts excluded effectiveness testing material periods presented economic hedges pretax gains losses recorded net earnings economic hedges connection planned coffee business transactions entered euro us dollar currency exchange forward contracts hedge expected cash receipt 4 billion upon closing forward contracts relate pending business divestiture unrealized gains losses derivative recorded earnings recorded 628 million unrealized gain year ended december 31 2014 within interest expense net connection forward contracts us dollar strengthened relative euro see note 2 divestitures acquisitionsplanned coffee business transactions additional information monetization currency exchange forward contracts first quarter 2015 hedges net investments international operations aftertax gains losses related hedges net investments international operations form euro pound sterlingdenominated debt note 10 benefit plans pension plans obligations funded status projected benefit obligations plan assets funded status pension plans accumulated benefit obligation represents benefits earned measurement date 1474 million december 31 2014 1133 million december 31 2013 us pension plans accumulated benefit obligation nonus pension plans 10462 million december 31 2014 9605 million december 31 2013 salaried nonunion hourly employees hired january 1 2009 discontinued benefits us pension plans replaced enhanced company contribution employee defined contribution plan effective december 31 2019 benefit accruals cease us nonunion pension plan nonunion employees participating plan december 31 2019 calculate pension benefit obligation based pay service date longer accrue new benefits combined us nonus pension plans resulted net pension liability 2882 million december 31 2014 1946 million december 31 2013 recognized amounts consolidated balance sheets follows certain us nonus plans underfunded accumulated benefit obligations excess plan assets plans projected benefit obligations accumulated benefit obligations fair value plan assets used following weightedaverage assumptions determine benefit obligations pension plans yearend discount rates us canadian eurozone uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class components net pension cost net pension cost consisted following costs included within expenses employees elected lumpsum payments connection 20122014 restructuring program cost saving initiatives retired employees elected lumpsum payments resulted net settlement losses us plans 28 million 2014 1 million 2013 113 million 2012 includes amounts related discontinued operation kraft foods group curtailment settlement losses nonus plans 2014 included 12 million related employees affected 20142018 restructuring program retired employees elected lumpsum payments nonus plant closures early retirement benefits resulted curtailment settlement losses 2 million 2013 9 million 2012 addition incurred special termination benefit costs 2 million 2014 1 million 2013 nonus plans related 20122014 restructuring program incurred special termination benefit costs 13 million 2012 nonus plans related cadbury integration us plans determine expected return plan assets component net periodic benefit cost using calculated market return value recognizes cost four year period nonus plans utilize similar approach varying cost recognition periods plans others determine expected return plan assets based asset fair values measurement date december 31 2014 combined us nonus pension plans expected amortize accumulated comprehensive earnings losses net periodic pension cost 2015 • estimated 224 million net loss experience differences • less 1 million estimated prior service cost used following weightedaverage assumptions determine net pension cost plan assets fair value pension plan assets determined using following fair value measurements excluded plan assets 74 million december 31 2014 81 million december 31 2013 tables related certain insurance contracts reported contract value accordance authoritative guidance fair value measurements • level 1 includes primarily us nonus equity securities government bonds valued using quoted prices active markets • level 2 includes primarily pooled funds including assets real estate pooled funds valued using net asset values participation units held common collective trusts reported managers trusts supported unit prices actual purchase sale transactions level 2 plan assets also include corporate bonds fixedincome securities valued using independent observable market inputs matrix pricing yield curves indices • level 3 includes investments valued using unobservable inputs reflect plans’ assumptions market participants would use pricing assets based best information available • fair value estimates pooled funds calculated investment advisor reliable quotations pricing services readily available certain underlying securities estimated value based either cost last sale price securities valued fashion • fair value estimates private equity investments calculated general partners using market approach estimate fair value private investments market approach utilizes prices relevant information generated market transactions type security degree liquidity restrictions disposition latest round financing data company financial statements relevant valuation multiples discounted cash flow analyses • fair value estimates real estate investments calculated investment managers using present value future cash flows expected received investments based valuation methodologies appraisals local market conditions current projected operating performance • fair value estimates investments hedge fundoffunds calculated investment managers using net asset value per share investment reported money managers underlying funds • fair value estimates certain fixedincome securities insurance contracts calculated based future stream benefit payments discounted using prevailing interest rates based valuation date changes level 3 plan assets recorded comprehensive earnings losses included increases level 3 pension plan investments 2014 primarily due unrealized gains across level 3 asset categories net transfers pooled fundsfixed income securities offset effects currency increases level 3 pension plan investments 2013 primarily due net purchases hedge funds percentage fair value pension plan assets us plans investment strategy based expectation equity securities outperform fixedincome securities long term attempt maintain target asset allocation rebalancing asset classes make contributions monthly benefit payments due nature timing expected pension liabilities first quarter 2014 strategically reduced risk level investment portfolio relative liabilities plans lowering target allocation equity securities including investments real estate 50 increasing fixedincome allocation target 50 historically targeted allocation approximately 60 plan assets equity securities approximately 40 fixedincome securities strategy uses indexed us equity securities actively managed indexed international equity securities actively managed us investment grade fixedincome securities constitute 95 fixedincome securities lesser allocations high yield fixedincome securities december 31 2013 higher allocation fixed income due voluntary 163 million contribution made december 27 2013 temporarily invested shortterm fixed income investment yearend nonus plans investment strategy subject local regulations asset liability profiles plans individual country specific circumstances result level equity exposure typically less us plans aggregate asset allocation targets nonus plans broadly characterized mix approximately 35 equity securities including investments real estate approximately 50 fixedincome securities approximately 15 alternative securities investment strategy largest nonus plan comprises 50 nonus pension assets designed balance risk return diversifying across wide range returnseeking liability matching assets invested range active passive mandates target allocation approximately 15 equity securities 18 credit 13 private markets 16 diversifying assets 38 liability matching assets strategy uses actively managed indexed global developed emerging market equities actively managed global investment grade alternative credit global private equity real estate diversifying assets including hedge funds liability matching assets including buyin annuity policy 2013 level diversification strategically increased reducing plan’s equity exposure approximately 10 investing majority proceeds hedge funds diversifying assets employer contributions 2014 contributed 11 million us pension plans 334 million nonus pension plans addition employees contributed 19 million nonus plans make contributions us nonus pension plans primarily extent tax deductible generate excise tax liability 2015 estimate pension contributions 210 million us plans 319 million nonus plans based current tax laws total 2015 pension contributions 200 million expected voluntary actual contributions may different due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates factors future benefit payments estimated future benefit payments pension plans december 31 2014 millions multiemployer pension plans made contributions multiemployer pension plans 32 million 2014 32 million 2013 30 million 2012 plans provide pension benefits retirees certain collective bargaining agreements following individually significant multiemployer plan participate december 31 2014 contributions exceeded 5 total contributions bakery confectionery union industry international pension fund “fund” fiscal years 2014 2013 2012 contributions fund 25 million 2014 26 million 2013 25 million 2012 contribution fund based contribution rates collective bargaining agreements number eligible employees fund surcharges expect contribution next year approximately 30 million current collective bargaining arrangements fund’s actuarial valuation completed zone status changed “red” 2012 result certification charged 10 surcharge contribution rates expected future contributions include surcharge fund adopted rehabilitation plan november 7 2012 requires contribution increases reduction benefit provisions contributions multiemployer pension plans individually significant 7 million 2014 6 million 2013 5 million 2012 contributions include contributions related kraft foods group employees participated multiemployer pension plans october 1 2012 2 million 2012 costs sponsor contribute employee defined contribution plans cover eligible salaried nonunion union employees contributions costs determined matching employee contributions defined plans amounts charged expense continuing operations defined contribution plans totaled 46 million 2014 66 million 2013 74 million 2012 postretirement benefit plans obligations postretirement health care plans funded changes amount accrued benefit obligation current portion accrued postretirement benefit obligation 11 million december 31 2014 9 million december 31 2013 included accrued liabilities used following weightedaverage assumptions determine postretirement benefit obligations yearend discount rates us canadian uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear expected health care cost trend rate based historical costs assumed health care cost trend rates significant impact amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects components net postretirement health care costs net postretirement health care costs consisted following 1 2012 recorded 23 million unfunded us postretirement plan obligation related longterm disability benefits december 31 2014 expected amortize accumulated comprehensive earnings losses pretax net postretirement health care costs 2015 • estimated 13 million net loss experience differences • estimated 7 million prior service credit used following weightedaverage assumptions determine net postretirement cost future benefit payments estimated future benefit payments postretirement health care plans december 31 2014 millions costs made contributions multiemployer medical plans totaling 18 million 2014 18 million 2013 31 million 2012 contributions include contributions related kraft foods group employees participated multiemployer medical plans october 1 2012 13 million 2012 plans provide medical benefits active employees retirees certain collective bargaining agreements postemployment benefit plans obligations postemployment plans primarily funded changes amount accrued benefit obligation december 31 2014 2013 accrued benefit obligation determined using weightedaverage discount rate 56 2014 62 2013 assumed weightedaverage ultimate annual turnover rate 03 2014 2013 assumed compensation cost increases 40 2014 2013 assumed benefits defined respective plans postemployment costs arising actions offer employees benefits excess specified respective plans charged expense incurred components net postemployment costs net postemployment costs consisted following december 31 2014 estimated net gain postemployment benefit plans expected amortize accumulated comprehensive earnings losses net postemployment costs 2015 insignificant note 11 commitments contingencies legal proceedings routinely involved legal proceedings claims governmental inspections investigations “legal matters” arising ordinary course business compliant ethical corporate culture includes adhering laws industry regulations jurisdictions business integral success accordingly acquired cadbury february 2010 began reviewing adjusting needed cadbury’s operations light applicable standards well policies practices initially focused high priority areas food safety foreign corrupt practices act “fcpa” antitrust based upon cadbury’s preacquisition policies compliance programs postacquisition reviews preliminary findings indicated cadbury’s overall state compliance sound nonetheless reviews determined certain jurisdictions including india appeared facts circumstances warranting investigation continuing investigations certain jurisdictions including india continue cooperate governmental authorities previously disclosed february 1 2011 received subpoena sec connection investigation fcpa primarily related facility india acquired cadbury acquisition subpoena primarily requests information regarding dealings indian governmental agencies officials obtain approvals related operation facility continuing cooperate us indian governments investigations matters including ongoing meetings us government discuss potential conclusion us government investigation february 28 2013 cadbury india limited known mondelez india foods limited subsidiary mondelēz international parties received show cause notice indian department central excise authority “excise authority” notice calls upon parties demonstrate excise authority collect 25 billion indian rupee approximately 40 million us dollars december 31 2014 unpaid excise tax well 25 billion indian rupee approximately 40 million us dollars december 31 2014 penalties interest related production indian facility subsequently excise authority issued another show cause notice dated march 3 2014 issue covering period february december 2013 thereby adding 12 billion indian rupee approximately 19 million us dollars december 31 2014 unpaid excise taxes well 12 billion indian rupee approximately 19 million us dollars december 31 2014 penalties interest amount claimed excise authority latest notice includes accruing claim excise finished products leave facility ongoing basis believe decision claim excise tax benefit valid contesting show cause notice administrative judicial process april 2013 staff commodity futures trading commission “cftc” advised us kraft foods group investigating activities related trading december 2011 wheat futures contracts occurred prior spinoff kraft foods group cooperating staff investigation october 2014 staff advised us cftc intends commence formal action us kraft foods group continue try resolve matter prior formal action taken possible predict outcome matter however based separation distribution agreement kraft foods group dated september 27 2012 expect predominantly bear monetary penalties payments cftc may impose cannot predict certainty results legal matters currently involved expect ultimate costs resolve legal matters individually aggregate material effect financial results thirdparty guarantees enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2014 material thirdparty guarantees recorded consolidated balance sheet part 2010 cadbury acquisition became responsible party tax matters cadbury schweppes plc dr pepper snapple group inc “dpsg” tax sharing indemnification agreement dated may 1 2008 “tax indemnity” certain 2007 2008 transactions relating demerger cadbury’s americas beverage business us federal tax audit dpsg 20062008 tax years concluded irs august 2013 result recorded favorable impact 336 million selling general administrative expenses 49 million interest expense net total pretax impact 385 million 363 million net tax three months ended september 30 2013 due reversal accrued liability excess amount paid dpsg tax indemnity third quarter 2013 leases rental expenses recorded continuing operations 399 million 2014 386 million 2013 341 million 2012 december 31 2014 minimum rental commitments noncancelable operating leases effect yearend millions note 12 stock plans may 21 2014 shareholders approved amended restated 2005 performance incentive plan “2005 plan” amended plan make grants nonemployee directors 2005 plan longer make grants amended restated 2006 stock compensation plan nonemployee directors “2006 directors plan” also increased number shares available issuance 2005 plan 757 million includes shares remaining available issuance 2006 directors plan march 14 2014 2005 plan authorized issue maximum 2437 million shares common stock may make grants 2005 plan may 21 2024 december 31 2014 906 million shares available granted 2005 plan connection spinoff divestiture kraft foods group provisions existing plans employee stock option restricted deferred stock awards adjusted preserve fair value awards immediately spinoff record incremental compensation expense related conversion awards connection stock awards held respective employees time spinoff collected 55 million cash net settlement awards kraft foods group march 2013 stock options stock options including stock appreciation rights granted exercise price equal market value underlying stock grant date generally become exercisable three annual installments beginning first anniversary grant date maximum term ten years account employee stock options fair value method accounting using blackscholes methodology measure stock option expense date grant fair value stock options date grant amortized expense vesting period recorded compensation expense related stock options held employees 47 million 2014 39 million 2013 39 million 2012 results continuing operations deferred tax benefit recorded related compensation expense 12 million 2014 11 million 2013 11 million 2012 unamortized compensation expense related employee stock options 67 million december 31 2014 expected recognized weightedaverage period 2 years weightedaverage blackscholes fair value assumptions riskfree interest rate represents constant maturity us government treasuries rate remaining term equal expected life options expected life period employees expected hold options volatility reflects historical movements stock price period commensurate expected life options dividend yield reflects dividend yield place time historical grants reflects lower expected dividend yield mondelēz international grants made following spinoff kraft foods group stock option activity reflected 1 cash received options exercised 168 million 2014 139 million 2013 205 million 2012 actual tax benefit realized tax deductions option exercises totaled 29 million 2014 14 million 2013 21 million 2012 2 2012 result spinoff existing employee stock option awards converted equivalent amount additional mondelēz international stock options order preserve fair value overall stock option awards granted restricted stock deferred stock units may grant shares restricted stock deferred stock units eligible employees giving instances rights shareholders except may sell assign pledge otherwise encumber shares deferred stock units voting rights vested shares restricted stock deferred stock units subject forfeiture certain employment conditions met restricted stock deferred stock units generally vest third anniversary grant date performance share units granted connection longterm incentive plan “ltip” vest based varying performance market service conditions unvested share units voting rights pay dividends dividend equivalents accumulated vesting period paid share units vest fair value restricted stock deferred stock units date grant amortized earnings restriction period recorded compensation expense related restricted stock deferred stock units 94 million 2014 94 million 2013 90 million 2012 results continuing operations deferred tax benefit recorded related compensation expense 26 million 2014 28 million 2013 27 million 2012 unamortized compensation expense related restricted stock deferred stock units 128 million december 31 2014 expected recognized weightedaverage period 2 years restricted deferred stock activity reflected 1 2012 result spinoff existing employee stock awards converted equivalent amount additional mondelēz international stock awards order preserve fair value overall stock award granted note 13 capital stock amended restated articles incorporation authorize 50 billion shares class common stock “common stock” 500 million shares preferred stock preferred shares issued outstanding december 31 2014 2013 2012 shares common stock issued treasury outstanding stock plan awards employees nonemployee directors issued treasury shares december 31 2014 1548 million shares common stock held treasury reserved stock options stock awards share repurchase program 2013 board directors authorized repurchase 77 billion common stock december 31 2016 repurchases program determined management wholly discretionary 2014 repurchased 519 million shares common stock average cost 3643 per share aggregate cost 19 billion 17 billion paid 2014 02 billion prepaid december 2013 inception accelerated share repurchase program share repurchases funded available cash commercial paper issuances 2013 repurchased 828 million shares common stock average cost 3309 per share aggregate cost 27 billion december 31 2014 31 billion remaining share repurchase capacity december 2013 initiated accelerated share repurchase “asr” program december 3 2013 paid 17 billion received initial delivery 448 million shares common stock valued 15 billion increased treasury stock 15 billion remaining 02 billion recorded additional paid capital may 2014 asr program concluded received additional 51 million shares valued 02 billion total 499 million shares average repurchase price 3410 per share life asr program final settlement based volumeweighted average price common stock purchase period less fixed per share discount upon conclusion asr program receipt remaining repurchased shares 02 billion recorded additional paid capital reclassified treasury stock note 14 reclassifications accumulated comprehensive earnings losses components accumulated comprehensive earnings losses attributable mondelēz international 2014 2013 1 consolidated statement comprehensive earnings year ended december 31 2014 includes 33 million currency translation adjustment attributable noncontrolling interests amounts reclassified accumulated comprehensive earnings losses locations consolidated financial statements follows 1 items included components net periodic benefit costs disclosed note 10 benefit plans note 15 income taxes earnings losses continuing operations income taxes provision income taxes consisted following see note 2 divestitures acquisitions information taxes presented part discontinued operations related resolution starbucks arbitration spinoff kraft foods group 2014 recorded outofperiod adjustments 31 million net expense immaterial impact annual provision income taxes addition fourth quarter 2014 recorded tax benefit 43 million associated lapse statute limitations related third quarter 2014 outofperiod adjustments material consolidated financial statements prior period effective income tax rate pretax earnings differed us federal statutory rate following reasons 2014 effective tax rate 138 favorably impacted mix pretax income various nonus tax jurisdictions net tax benefits 206 million discrete onetime events discrete net tax benefits primarily related favorable tax audit settlements expirations statues limitations several jurisdictions 2013 effective tax rate 25 favorably impacted mix pretax income various nonus tax jurisdictions net tax benefits discrete onetime events nontaxable portion cadbury acquisition related indemnification resolution partially offset unfavorable tax law change 299 million discrete onetime events primarily related favorable tax audit settlements expirations statutes limitations several jurisdictions net reduction uk deferred tax liabilities resulting tax legislation enacted 2013 reduced uk corporate income tax rates 2012 revised effective tax rate 95 favorably impacted mix pretax income various nonus tax jurisdictions net tax benefits discrete onetime tax events partially offset nondeductible expenses 140 million discrete onetime events primarily related net reduction uk deferred tax liabilities resulting tax legislation enacted 2012 reduced uk corporate income tax rates net favorable tax audit settlements tax effects temporary differences gave rise deferred income tax assets liabilities consisted following december 31 2014 company pretax loss carryforwards 3432 million 1430 million expire various dates 2015 2033 remaining 2002 million carried forward indefinitely significant valuation allowances reside within operating subsidiaries mexico ireland various jurisdictions december 31 2014 applicable us federal income taxes foreign withholding taxes provided approximately 132 billion accumulated earnings nonus subsidiaries expected indefinitely reinvested impractical us determine amount unrecognized deferred tax liabilities indefinitely reinvested earnings future tax law changes needs nonus subsidiaries could require us recognize deferred tax liabilities portion accumulated earnings previously expected indefinitely reinvested changes unrecognized tax benefits january 1 2014 unrecognized tax benefits 1189 million recognized benefits net impact income tax provision would 1110 million unrecognized tax benefits 852 million december 31 2014 recognized benefits net impact income tax provision would 744 million within next 12 months unrecognized tax benefits could increase approximately 60 million due unfavorable audit developments decrease approximately 145 million due audit settlements expiration statutes limitations various jurisdictions include accrued interest penalties related uncertain tax positions tax provision accrued interest penalties 228 million january 1 2014 184 million december 31 2014 provision income taxes included 2 million interest penalties tax sharing indemnity agreements us kraft foods group kraft foods group generally assumes liability us state income taxes canadian federal provincial income taxes generally assume responsibility us federal income taxes substantially nonus income taxes excluding canadian income taxes tax periods prior spinoff addition transferred kraft foods group deferred tax assets liabilities distribution date see note 2 divestitures acquisitions income tax filings regularly examined federal state nonus tax authorities 20102012 us federal income tax filings currently examination irs us state nonus jurisdictions statutes limitations generally ranging three five years however statutes often extended mutual agreement tax authorities years still open examination nonus tax authorities major jurisdictions include earliest open tax year parentheses brazil 2009 france 2010 germany 2005 india 2003 italy 2009 united kingdom 2012 russia 2011 note 16 earnings per share basic diluted earnings per share “eps” continuing discontinued operations calculated using following exclude antidilutive mondelēz international stock options calculation weightedaverage shares diluted eps excluded 86 million antidilutive stock options year ended december 31 2014 70 million antidilutive stock options year ended december 31 2013 73 million antidilutive stock options year ended december 31 2012 note 17 segment reporting manufacture market primarily snack food beverage products including biscuits cookies crackers salted snacks chocolate gum candy coffee powdered beverages various cheese grocery products manage global business report operating results geographic units operations management structure organized five reportable operating segments • latin america • asia pacific • eemea • europe • north america manage operations region leverage regional operating scale manage different changing business environments effectively local level pursue growth opportunities arise key markets beginning 2015 within region also manage product category change affect operating reportable segments historical periods within consolidated financial statements managed operations within latin america asia pacific eemea location within europe north america product category use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales general corporate expenses component selling general administrative expenses amortization intangibles benefit cadbury acquisitionrelated indemnification resolution component selling general administrative expenses gains losses divestitures acquisitions acquisitionrelated costs component selling general administrative expenses periods presented exclude items segment operating income order provide better transparency segment operating results furthermore centrally manage interest expense net accordingly present items segment excluded segment profitability measure management reviews segment net revenues earnings single customer accounted 10 net revenues continuing operations 2014 five largest customers accounted 157 ten largest customers accounted 237 net revenues continuing operations 2014 items impacting segment operating results discussed note 1 summary significant accounting policies including venezuelan currency devaluation note 2 divestitures acquisitions note 5 goodwill intangible assets note 6 restructuring programs note 7 integration program cost saving initiatives also see note 8 debt borrowing arrangements note 9 financial instruments information interest expense net period total assets depreciation expense capital expenditures segment 1 unallocated assets consist primarily cash equivalents deferred income taxes centrally held property plant equipment prepaid pension assets derivative financial instrument balances 2014 realigned products across product categories reclassified 2013 2012 product category net revenues consistent basis net revenues product category geographic data net revenues longlived assets excluding deferred tax goodwill intangible assets individual country within exceeded 10 net revenues longlived assets periods presented note 18 quarterly financial data unaudited summarized operating results quarter detailed 1 fourth quarter 2014 recorded tax benefit 43 million associated lapse statute limitations related third quarter 2014 1 third quarter 2013 recorded 385 million pretax gain 363 million net tax due resolution cadbury acquisitionrelated indemnification see note 11 commitments contingencies additional information fourth quarter 2013 recorded 608 million pretax loss 386 million net tax connection extinguishing debt december 18 2013 tender offer 25 billion pretax gain 16 billion net tax resolution starbucks arbitration see note 8 debt borrowing arrangements note 2 divestitures acquisitions additional information basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may equal total year 2014 2013 recorded following pretax charges gains earnings continuing operations item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders mondelēz international inc opinion accompanying consolidated balance sheets related consolidated statements earnings comprehensive earnings equity cash flows present fairly material respects financial position mondelēz international inc subsidiaries december 31 2016 2015 results operations cash flows three years period ended december 31 2016 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2016 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included report management internal control financial reporting appearing item 9a responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp chicago illinois february 24 2017 mondelēz international inc subsidiaries consolidated statements earnings years ended december 31 millions us dollars except per share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements comprehensive earnings years ended december 31 millions us dollars see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated balance sheets december 31 millions us dollars except share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements equity millions us dollars except per share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements cash flows years ended december 31 millions us dollars see accompanying notes consolidated financial statements mondelēz international inc subsidiaries notes consolidated financial statements note 1 summary significant accounting policies description business mondelēz international inc incorporated 2000 commonwealth virginia mondelēz international inc subsidiaries collectively “mondelēz international” “we” “us” “our” sells food beverage products consumers approximately 165 countries principles consolidation consolidated financial statements include mondelēz international inc well wholly owned majority owned subsidiaries periods presented december 31 2015 operating results venezuelan subsidiaries included consolidated financial statements close fourth quarter 2015 deconsolidated venezuelan operations consolidated financial statements recognized loss deconsolidation see currency translation highly inflationary accounting venezuela information account investments exercise significant influence 2050 ownership interest equity method accounting july 2 2015 contributed global coffee businesses new company jacobs douwe egberts “jde” hold equity interest collectively “jde coffee business transactions” historically coffee businesses income equity method investments recorded within operating income businesses part base business retain ongoing interest coffee equity method investments including jde keurig green mountain inc “keurig” dongsuh foods corporation “dsf” significant influence equity method investments control operations directly third quarter 2015 began recognize equity method investment earnings consisting primarily investments coffee businesses outside operating income segment income periods prior third quarter 2015 historical coffee business equity method investment earnings included within operating income segment income six months ended december 31 2015 aftertax equity method investment net earnings less 1 million combined basis thus shown consolidated statement earnings period please see note 2 divestitures acquisitions jde coffee business transactions keurig transaction note 16 segment reporting information transactions use cost method accounting investments ownership interest less 20 exercise significant influence noncontrolling interest represents noncontrolling investors’ interests results subsidiaries control consolidate intercompany transactions eliminated use estimates prepare consolidated financial statements accordance accounting principles generally accepted united states america “us gaap” require us make estimates assumptions affect number amounts consolidated financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions valuation assumptions goodwill intangible assets useful lives longlived assets restructuring program liabilities marketing program accruals insurance selfinsurance reserves income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year material effect consolidated financial statements segment change october 1 2016 integrated eastern europe middle east africa “eemea” operating segment europe asia pacific operating segments leverage optimize operating scale built within europe asia pacific regions russia ukraine turkey belarus georgia kazakhstan combined within europe region remaining middle east african countries combined within asia pacific region form new asia middle east africa “amea” operating segment reflected segment change occurred periods presented october 1 2016 operations management structure organized four reportable operating segments • latin america • amea • europe • north america see note 16 segment reporting additional information segments currency translation highly inflationary accounting translate results operations subsidiaries multiple currencies using average exchange rates period translate balance sheet accounts using exchange rates end period record currency translation adjustments component equity except highly inflationary currencies realized exchange gains losses transactions earnings 2016 none consolidated subsidiaries subject highly inflationary accounting united kingdom june 23 2016 united kingdom “uk” voted referendum exit european union vote commonly referred “brexit” referendum nonbinding exit european union immediate united kingdom invokes eu article 50 twoyear window united kingdom european commission negotiate future terms imports exports taxes employment immigration areas brexit caused volatility global stock markets currency exchange rates affecting markets operate implications brexit could adversely affect demand products financial results operations relationships customers suppliers employees short longterm june 24 2016 value british pound sterling relative us dollar fell 9 since date value british pound sterling relative us dollar declined additional 11 december 31 2016 volatility exchange rate expected transition period business operating environment remains uncertain continue monitor investments currency exposures abroad united kingdom highlyinflationary economy record currency translation adjustments within equity realized exchange gains losses transactions earnings experience significant business disruptions uk businesses immediately following referendum devaluation british pound sterling 2016 adversely affected translated results reported us dollars natural hedge form pound sterlingdenominated debt acts net investment hedge moving counter adverse pound sterling currency translation impacts british pound sterling currency transaction risks largely mitigated due global chocolate businesses buying cocoa british pound sterling uk operations contributed 22 billion 86 consolidated net revenues year ended december 31 2016 venezuela january 1 2010 december 31 2015 accounted results venezuelan subsidiaries using us dollar functional currency prescribed us gaap highly inflationary economies effective close 2015 fiscal year concluded longer met accounting criteria consolidation venezuelan subsidiaries due loss control venezuelan operations otherthantemporary lack currency exchangeability fourth quarter 2015 representatives venezuelan government arbitrarily imposed pricing restrictions local operations resulted inability recover operating costs immediately began appeal process venezuelan authorities demonstrate pricing line regulatory requirements january 2016 local officials communicated pricing restrictions lifted however legally required administrative order issued uncertain would issued legal regulatory environment also became unreliable complying venezuelan law governing pricing profitability controls followed legal process appeal process available us outlined law additionally increasingly facing issues procuring raw materials packaging taken together actions economic environment venezuela progressively limited access dollars import goods use available currency mechanisms impaired ability operate control venezuelan businesses result factors concluded longer met criteria consolidation venezuelan subsidiaries close 2015 fiscal year deconsolidated changed cost method accounting venezuelan operations recorded 778 million pretax loss december 31 2015 reduced value cost method investment venezuela venezuelan receivables held subsidiaries realizable fair value resulting full impairment recorded loss also included historical cumulative translation adjustments related venezuelan operations previously recorded accumulated comprehensive losses within equity fair value investments venezuelan subsidiaries estimated based discounted cash flow projections current expected operating losses foreseeable future ability operate business sustainable basis fair value estimate included us dollar exchange discount rate assumptions reflect inflation economic uncertainty venezuela 2015 prior periods presented operating results venezuela operations included consolidated statements earnings time recognized number currencyrelated remeasurement losses resulting devaluations venezuela bolivar exchange rates historically used source us dollars purchases imported raw materials packaging goods services following table sets forth history remeasurement losses deconsolidation loss historical operating results financial position venezuelan subsidiaries periods presented 1 represents financial position venezuelan subsidiaries prior accounting change december 31 2015 beginning 2016 longer include net revenues earnings net assets venezuelan subsidiaries within consolidated financial statements cost method accounting earnings recognized extent cash received given current ongoing difficult economic regulatory business environment venezuela continues significant uncertainty related operations venezuela expect conditions continue foreseeable future monitor extent ability control venezuelan operations liquidity availability us dollars different rates current situation venezuela may change time lead consolidation future date argentina december 16 2015 new argentinean government fiscal authority announced lifting strict currency controls reduced restrictions exports imports next day value argentinean peso relative us dollar fell 36 2016 value argentinean peso relative us dollar declined additional 23 volatility exchange rate expected business operating environment remains challenging continue monitor actively manage investment exposures argentina continue executing hedging programs refining product portfolio improve product offerings mix profitability also continue implement additional cost reduction initiatives optimize streamline manufacturing facilities commercial operations protect business together pricing strategy offset inflationary pressures currency declines could adverse impact ongoing results operations believe actions government reduce economic controls business restrictions provide favorable opportunities argentinean subsidiaries argentinean operations contributed 583 million 22 consolidated net revenues year ended december 31 2016 december 31 2016 net monetary liabilities argentina operations material argentina designated highlyinflationary economy accounting purposes record currency translation adjustments within equity realized exchange gains losses transactions earnings countries since operations 80 countries sell approximately 165 countries monitor economic currencyrelated risks seek take protective measures response exposures countries business recently experienced periods significant economic uncertainty include brazil china mexico russia turkey egypt nigeria ukraine south africa either currency devaluation volatility exchange rates continue monitor operations currencies net monetary exposures countries time anticipate risk operating results changing highly inflationary accounting countries cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less transfers financial assets account transfers financial assets uncommitted revolving nonrecourse accounts receivable factoring arrangements surrendered control related assets determining whether control transferred requires evaluation relevant legal considerations assessment nature extent continuing involvement assets transferred relevant considerations use receivable factoring arrangements periodically circumstances favorable manage liquidity factoring arrangement major global bank maximum combined capacity 802 million program may sell eligible shortterm trade receivables bank exchange cash continue collect receivables sold acting solely collecting agent behalf bank also enter arrangements customers achieve earlier collection receivables total incremental cost factoring receivables regions 9 million 2016 7 million 2015 7 million 2014 recorded net revenue outstanding principal amount receivables arrangements amounted 745 million december 31 2016 666 million december 31 2015 421 million december 31 2014 accounting calendar change connection moving toward common consolidation date across company first quarter 2015 changed consolidation date north america segment last saturday period last calendar day period change favorable impact 76 million net revenues 36 million operating income 2015 result change operating subsidiaries reports results last calendar day period effect priorperiod results material revised priorperiod results inventories value inventory using average cost method also record inventory allowances overstock obsolete inventories due ingredient packaging changes longlived assets property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years review longlived assets including amortizable intangible assets realizability ongoing basis changes depreciation generally accelerated depreciation determined recorded estimates remaining useful lives residual values longterm assets change also review impairment conditions exist indicate carrying amount assets may fully recoverable circumstances perform undiscounted operating cash flow analyses determine impairment exists testing asset impairment group assets liabilities lowest level cash flows separately identifiable impairment loss calculated excess asset’s carrying value estimated fair value fair value estimated based discounted cash flows asset group remaining useful life based expected cash proceeds asset less costs disposal significant impairment losses would recorded within asset impairment exit costs consolidated statements earnings software costs capitalize certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment amortized straightline basis estimated useful lives software exceed seven years goodwill nonamortizable intangible assets test goodwill nonamortizable intangible assets impairment annual basis october 1 assess goodwill impairment risk throughout year performing qualitative review entityspecific industry market general economic factors affecting goodwill reporting units review operating segment reporting unit structure goodwill testing annually significant changes organization occur annually may perform qualitative testing depending factors prioryear test results current year developments current risk evaluations practical considerations may elect quantitative testing instead event significant potential goodwill impairment risk exists specific reporting unit apply twostep quantitative test first step compares reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using discounted cash flow method incorporates planned growth rates marketbased discount rates estimates residual value year europe north america reporting units used marketbased weightedaverage cost capital 67 discount projected cash flows operations latin america amea reporting units used riskrated discount rate 97 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value would apply second step measure difference carrying value implied fair value goodwill carrying value goodwill exceeds implied fair value goodwill impaired carrying value reduced implied fair value goodwill annually assess nonamortizable intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible assets significant potential impairment risk exists specific asset quantitatively test impairment comparing estimated fair value carrying value determine estimated fair value using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds fair value consider asset impaired reduce carrying value estimated fair value amortize definitelived intangible assets estimated useful lives evaluate impairment longlived assets insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits estimate liabilities associated risks undiscounted basis evaluating making judgments historical claims experience actuarial assumptions estimated impact future results revenue recognition recognize revenues title risk loss pass customers generally occurs upon delivery shipment goods revenues recorded net sales incentives trade promotions include shipping handling charges billed customers shipping handling costs classified part cost sales provisions product returns trade allowances also recorded reductions revenues within period revenue recognized marketing research development promote products advertising marketing sales incentives trade promotions programs include limited cooperative advertising instore displays consumer promotions new product introduction fees discounts coupons rebates volumebased incentives expense advertising costs either period advertising first takes place incurred sales incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising expenses sales incentives charged operations percentage volume based estimated volume estimated program spending defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred advertising expense 1396 million 2016 1542 million 2015 1552 million 2014 advertising declined 2016 due primarily deconsolidation historical global coffee business due currency changes expense product research development costs incurred research development expense 376 million 2016 409 million 2015 455 million 2014 total research development expense lower 2016 2015 primarily due deconsolidation global coffee business july 2015 currency cost optimization initiatives record marketing research development expenses within selling general administrative expenses employee benefit plans provide range benefits current retired employees include pension benefits postretirement health care benefits postemployment benefits depending upon jurisdiction tenure job level factors local statutory requirements govern many benefit plans provide around world local government plans generally cover health care benefits retirees outside united states canada united kingdom us canadian uk subsidiaries provide health care benefits retired employees postemployment benefit plans provide primarily severance benefits eligible salaried certain hourly employees cost plans recognized earnings primarily working life covered employee financial instruments use financial instruments manage currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principal objective risk management strategies reduce significant unanticipated earnings fluctuations may arise volatility currency exchange rates commodity prices interest rates principally use derivative instruments use combination primarily currency forward contracts futures options swaps commodity forward contracts futures options interest rate swaps manage exposure cash flow variability protect value existing currency assets liabilities protect value debt see note 8 financial instruments information types derivative instruments use record derivative financial instruments gross basis fair value consolidated balance sheets within current assets current liabilities due relatively shortterm duration cash flows derivative instruments classified consolidated statements cash flows based nature derivative instrument changes fair value derivative designated cash flow hedge extent hedge effective recorded accumulated comprehensive earnings losses reclassified earnings hedged item affects earnings changes fair value economic hedges ineffective portion hedges recognized current period earnings changes fair value derivative designated fair value hedge along changes fair value related hedged asset liability recorded earnings period use nonus dollar denominated debt hedge portion net investment nonus operations adverse movements exchange rates currency movements related debt net investment related deferred taxes recorded within currency translation adjustment accumulated comprehensive earnings losses order qualify hedge accounting specified level hedging effectiveness derivative instrument item hedged must exist inception throughout hedged period must also formally document nature relationship derivative hedged item well risk management objectives strategies undertaking hedge transaction method assessing hedge effectiveness additionally hedge forecasted transaction significant characteristics expected term forecasted transaction must specifically identified must probable forecasted transaction occur longer probable hedged forecasted transaction occur would recognize gain loss related derivative earnings use derivatives exposed credit market risks credit risk exists counterparty derivative contract might fail fulfill performance obligations contract reduce credit risk entering transactions counterparties high quality investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration one year longer governed international swaps derivatives association master agreement market risk exists value derivative financial instrument might adversely affected changes market conditions commodity prices currency exchange rates interest rates manage derivative market risk limiting types derivative instruments derivative strategies use degree market risk plan hedge use derivative instruments commodity cash flow hedges exposed price risk related forecasted purchases certain commodities primarily use raw materials enter commodity forward contracts primarily wheat sugar sweeteners soybean vegetable oils cocoa commodity forward contracts generally subject accounting requirements derivative instruments hedging activities normal purchases exception also use commodity futures options hedge price certain input costs including cocoa energy costs sugar sweeteners wheat packaging dairy corn soybean vegetable oils derivative instruments highly effective qualify hedge accounting treatment also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes currency exchange cash flow hedges use various financial instruments mitigate exposure changes exchange rates thirdparty intercompany current forecasted transactions instruments may include currency exchange forward contracts futures options swaps based size location businesses use instruments hedge exposure certain currencies including euro pound sterling swiss franc canadian dollar mexican peso interest rate cash flow fair value hedges manage interest rate volatility modifying pricing maturity characteristics certain liabilities net impact expense material basis adversely affected movements interest rates result interest rate fluctuations hedged fixedrate liabilities appreciate depreciate market value expect effect unrealized appreciation depreciation substantially offset gains losses derivative instruments linked hedged liabilities use derivative instruments including interest rate swaps indices related pricing specific liabilities part interest rate risk management strategy matter policy use highly leveraged derivative instruments interest rate risk management use interest rate swaps economically convert portion fixedrate debt variablerate debt interest rate swap contracts agree parties exchange specified intervals difference fixedrate floatingrate interest amounts calculated based agreedupon notional amount also use interest rate swaps hedge variability interest payment cash flows portion future debt obligations recently october 2016 executed crosscurrency interest rate swaps use hedge interest payment cash flows newly issued debt denominated different currency functional currency borrowing entity substantially derivative instruments highly effective qualify hedge accounting treatment hedges net investments nonus operations numerous investments outside united states net assets subsidiaries exposed changes volatility currency exchange rates use local currency denominated debt hedge nonus net investments adverse movements exchange rates designated euro pound sterling swiss franc denominated borrowings net investment hedge portion overall european operations gains losses net investment designated european operations economically offset losses gains euro pound sterling swiss franc denominated borrowings change debt’s value net deferred taxes recorded currency translation adjustment component accumulated comprehensive earnings losses income taxes provision income taxes includes amounts payable refundable current year effect deferred tax impacts uncertain tax positions recognize deferred tax assets liabilities expected future tax consequences temporary differences financial statement tax basis assets liabilities operating loss carryforwards tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply years differences expected reverse realization certain deferred tax assets dependent generating sufficient taxable income appropriate jurisdiction prior expiration carryforward periods deferred tax assets reduced valuation allowance likely portion deferred tax assets realized assessing need valuation allowance consider carryback potential future reversals existing taxable temporary differences including liabilities unrecognized tax benefits future taxable income tax planning strategies recognize tax benefits financial statements uncertain tax positions likely tax position sustained taxing authorities based technical merits position amount recognize measured largest amount benefit greater 50 percent likely realized upon settlement future changes judgment related expected resolution uncertain tax positions could affect income period change occurs new accounting pronouncements january 2017 financial accounting standards board “fasb” issued accounting standards update “asu” clarifies definition business objective adding guidance assist companies evaluating whether transactions accounted acquisitions disposals assets businesses definition business may affect many areas accounting including acquisitions disposals goodwill consolidation asu applied prospective basis effective fiscal years beginning december 15 2017 early adoption permitted currently assessing asu potential prospective impact consolidated financial statements november 2016 fasb issued asu requires change restricted cash equivalents included changes cash equivalents statement cash flows asu effective fiscal years beginning december 15 2017 early adoption permitted anticipate adopting standard time cash flow statement classification changes described go effect january 1 2018 currently assessing impact consolidated financial statements october 2016 fasb issued asu amend consolidation guidance treatment indirect interests held related parties common control amendments single decision maker required include interests proportionate basis consistent indirect interests held related parties asu effective fiscal years beginning december 15 2016 early adoption permitted adopted new standard december 31 2016 material impact consolidated financial statements october 2016 fasb issued asu requires recognition tax consequences intercompany asset transfers inventory transfer occurs removes exception postpone recognition asset sold outside party asu effective fiscal years beginning december 15 2017 early adoption permitted anticipate adopting january 1 2018 expect asu material impact consolidated financial statements august 2016 fasb issued asu provide guidance eight specific cash flow classification issues reduce diversity practice cash receipts cash payments presented classified statement cash flows asu effective fiscal years beginning december 15 2017 early adoption permitted anticipate adopting standard january 1 2018 currently assessing impact consolidated statements cash flows march 2016 fasb issued asu simplify accounting stockbased compensation asu addresses several areas accounting sharebased payment transactions including income tax consequences classification awards either equity liabilities cash flow statement presentation asu effective fiscal years beginning december 15 2016 early adoption permitted adopt standard january 1 2017 following adoption prospective basis anticipate greater volatility consolidated statements earnings record certain stockbased compensation tax impacts earnings within provision income taxes former guidance periods prior january 1 2017 tax impacts recorded directly equity within additional paidin capital march 2016 fasb issued asu simplifies transition accounting increases investments require change cost basis equity method accounting us gaap currently requires impact changes accounting method retroactively applied prior periods investment held new standard adjustments investor’s basis investment recorded date investment becomes qualified equity method accounting equity method accounting applied prospectively date asu effective fiscal years beginning december 15 2016 early adoption permitted early adopted standard december 31 2016 impact consolidated financial statements march 2016 fasb issued asu clarifies whether contingent put call options meet “clearly closely related” criteria connection accounting embedded derivatives us gaap requires embedded derivatives separated host contract accounted separately derivatives certain criteria met criteria include determining economic characteristics risks embedded derivatives “clearly closely related” host contract asu effective fiscal years beginning december 15 2016 early adoption permitted adopted new standard december 31 2016 material impact consolidated financial statements march 2016 fasb issued asu applies contract novation new counterparty derivative designated accounting hedge asu clarifies change counterparty require dedesignation hedging relationship provided hedge accounting criteria continue met asu effective fiscal years beginning december 15 2016 early adoption permitted adopted new standard december 31 2016 material impact consolidated financial statements february 2016 fasb issued asu lease accounting asu revises existing us gaap outlines new model lessors lessees use accounting lease contracts guidance requires lessees recognize rightofuse asset lease liability balance sheet leases exception shortterm leases consolidated statement earnings lessees classify leases either operating resulting straightline expense financing resulting frontloaded expense pattern asu effective fiscal years beginning december 15 2018 early adoption permitted anticipate adopting new standard january 1 2019 made progress due diligence continue assess impact new standard across operations consolidated financial statements january 2016 fasb issued asu provides updated guidance recognition measurement presentation disclosure financial assets liabilities standard requires equity investments accounted equity method accounting result consolidation investee measured fair value changes fair value recognized net income standard also impacts financial liabilities fair value option presentation disclosure requirements financial instruments asu effective fiscal years beginning december 15 2017 asu expected significant impact consolidated financial statements may 2014 fasb issued asu revenue recognition contracts customers asu outlines new single comprehensive model companies use accounting revenue core principle entity recognize revenue depict transfer control promised goods services customer amount reflects consideration entity expects entitled receive exchange goods services asu also requires additional disclosure nature amount timing uncertainty revenue cash flows customer contracts including significant judgments made recognizing revenue 2016 fasb issued several asus clarified principal versus agent gross versus net revenue presentation considerations confirmed certain prepaid storedvalue products accounted new revenue recognition asu us gaap clarified guidance identifying performance obligations within contract accounting licenses fasb also issued two asus providing technical corrections narrow scope exceptions practical expedients clarify improve implementation new revenue recognition guidance revenue guidance effective annual reporting periods beginning december 15 2017 early adoption permitted original effective date annual reporting periods beginning december 15 2016 asu may applied retrospectively historical periods presented cumulativeeffect adjustment date adoption plan adopt new standard january 1 2018 full retrospective basis continue make significant progress quantifying impact asu consolidated financial statements planning final process policy disclosure changes go effect january 1 2018 time expect material impact adopting new revenue standards reclassifications certain amounts previously reported reclassified conform currentyear presentation see segment change notes 5 goodwill intangible assets 6 restructuring programs 16 segment reporting information changes priorperiod segment goodwill segment earnings segment net asset reclassifications made connection segment change went effect october 1 2016 also reclassified certain amounts previously reported within consolidated statements comprehensive earnings note 13 reclassifications accumulated comprehensive income consistent currentyear presentation note 2 divestitures acquisitions jde coffee business transactions july 2 2015 completed transactions combine wholly owned coffee businesses de master blenders 1753 bv “demb” create new company jde following exchange portion investment jde interest keurig march 2016 held 265 equity interest jde see discussion keurig transaction remaining 735 equity interest jde held subsidiary acorn holdings bv “ahbv” owner demb prior july 2 2015 following transactions discussed jde stockbased compensation arrangements december 31 2016 hold 264 equity interest jde consideration received jde coffee business transactions completed july 2 2015 consisted 38 billion cash 42 billion july 2 2015 435 equity interest jde prior decrease ownership due keurig transaction compensation arrangements discussed 794 million receivables related sales price adjustments tax formation cost payments third quarter 2015 also recorded 283 million cash receivables jde related reimbursement costs incurred separating coffee businesses cash equity consideration received closing reflects retaining interest koreabased joint venture dsf second quarter 2015 also completed sale interest japanese coffee joint venture ajinomoto general foods inc “agf” lieu contributing interest agf joint venture jde contributed net cash proceeds sale part overall jde coffee business transactions see divestitures acquisitions discussion agf divestiture july 5 2016 received expected cash payment 275 million jde settle receivable related tax formation costs part initial sales price connection contribution global coffee businesses jde july 2 2015 recorded final pretax gain 68 billion 66 billion aftertax 2015 final adjustments described previously reported deconsolidated net assets totaling 29 billion reduced accumulated comprehensive losses transfer coffee businessrelated pension obligations 90 million also recorded approximately 10 billion pretax net gains related hedging expected cash proceeds transactions described fourth quarter 2015 jde concluded negotiations sales price adjustment completed valuation investment jde primarily due negotiated resolution sales price adjustment fourth quarter 2015 recorded 313 million reduction pretax gain coffee transaction reducing 71 billion estimated gain third quarter 2015 68 billion final gain 2015 part sales price negotiations retained right collect future cash payments certain estimated pension liabilities realized agreed amount future may recognize additional income related negotiated term future final value 435 investment jde july 2 2015 41 billion 45 billion july 2 2015 fair value jde investment determined using incomebased marketbased valuation techniques discounted cash flow analysis reflected growth discount tax rates assumptions reflecting underlying combined businesses countries combined coffee businesses operate fair value jde investment also included fair values carte noire merrild businesses jde agreed divest comply conditioned approval european commission related jde coffee business transactions end first quarter 2016 businesses sold jde july 2 2015 fair values businesses recorded jde pending sales values record gain loss sales businesses share jde’s earnings 2014 2015 connection expected receipt cash euros time closing entered number consecutive currency exchange forward contracts lock equivalent expected value us dollars date jde coffee business transactions first announced may 2014 cumulatively realized aggregate net gains received cash approximately 10 billion hedging contracts increased cash received connection jde coffee business transactions 42 billion cash consideration received 52 billion connection currency contracts transfer sale proceeds subsidiaries deconsolidated net assets shares recognized net gain 436 million 2015 628 million 2014 within interest expense net also incurred incremental expenses related readying global coffee businesses transactions totaled 278 million year ended december 31 2015 77 million year ended december 31 2014 total expenses 123 million recorded within asset impairment exit costs 2015 remainder recorded within selling general administrative expenses primarily europe segment well within general corporate expenses jde capital increase december 18 2015 ahbv agreed provide jde additional capital pay debt lenders pro rata share capital increase 499 million 544 million december 18 2015 made return pro rata number additional shares jde ownership jde change following capital increase fund share capital increase contributed 460 million 501 million jde receivables made 39 million 43 million cash payment jde stockbased compensation arrangements june 30 2016 entered agreements ahbv affiliates establish new stockbased compensation arrangement tied issuance jde equity compensation awards jde employees arrangement replaced temporary equity compensation program tied issuance ahbv equity compensation jde employees new class c e jde shares authorized issued investments made vested stockbased compensation awards granted jde employees arrangements dilution jde shares limited 2 upon execution agreements creation class c e jde shares percentage total jde issued shares class b shares decreased 265 264 ahbv’s class shares decreased 735 7322 class c e shares held ahbv affiliates jde employee awards vest comprised 038 jde’s shares additional class c shares available issued planned longterm incentive plan “jde ltip” awards vest generally next five years jde class c shares issued connection vested jde ltip awards class b relative ownership interests decrease based estimated achievement forfeiture assumptions expect jde ownership interest decrease 2627 following vesting stock awards new employee stock investments december 31 2016 ownership interest jde 264 jde tax matter resolution july 19 2016 supreme court spain reached final resolution challenged jde tax position held predecessor demb company resulted unfavorable tax expense 114 million result share jde’s equity earnings third quarter 2016 negatively affected 30 million 34 million keurig transaction march 3 2016 subsidiary ahbv completed 139 billion acquisition outstanding common stock keurig merger transaction march 7 2016 exchanged subsidiary ahbv portion equity interest jde carrying value 17 billion approximately 20 billion march 7 2016 interest keurig fair value 20 billion based merger consideration per share keurig recorded difference fair value keurig basis jde shares 43 million gain equity method investment exchange march 2016 immediately following exchange ownership interest jde 265 interest keurig 242 ahbv hold investments keurig combination equity interests shareholder loan prorata ownership initial 20 billion investment keurig includes 16 billion keurig equity interest 04 billion shareholder loan receivable reported combined basis within equity method investments consolidated balance sheet december 31 2016 shareholder loan 55 interest rate payable end sevenyear term february 27 2023 within equity method investment net earnings recorded equity earnings 77 million interest income shareholder loan 20 million 2016 additionally received 14 million interest payments shareholder loan 4 million dividends investment keurig year ended december 31 2016 continue account investments jde keurig equity method recognize share earnings within equity method investment earnings share dividends within cash flows december 31 2016 keurig reflected preliminary acquisition purchase price allocation related remeasurement updates recorded fourth quarter 2016 results anticipate purchase price allocation work finalized first quarter 2017 coffee business equity earnings reflected results historical coffee businesses equity earnings jde keurig dsf results continuing operations coffee category continues significant part net earnings business strategy going forward historically coffee businesses income equity method investments recorded within operating income businesses part base business retain ongoing interest coffee equity method investments including jde keurig dsf significant influence equity method investments control operations directly third quarter 2015 began recognize equity method investment earnings consisting primarily investments coffee businesses outside operating income periods prior third quarter 2015 historical coffee business equity method investment earnings included within operating income 301 million equity method investment net earnings 2016 contribution jde 100 million keurig 97 million since march 7 2016 dsf 75 million equity investments 29 million 2015 jde incurred 58 million loss fully offset earnings 38 million dsf 21 million equity method investments within operating income first half 2015 296 million aftertax 342 million pretax earnings related legacy coffee business 40 million dsf 16 million equity method investments 2014 572 million 646 million pretax earnings related legacy coffee business 83 million dsf 30 million equity method investments summary financial information equity method investments summarized financial information jde keurig dsf equity method investments reflected 1 includes approximately 325 million basis differences us gaap accounting basis equity method investments us gaap accounting basis investees’ equity 2 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting jde earnings began record earnings equity method investments aftertax equity method investment earnings outside operating income six months ended december 31 2015 aftertax equity method investment net earnings less 1 million combined basis earnings equity method investments recorded within segment operating income 56 million six months ended july 2 2015 113 million year ended december 31 2014 see note 1 summary significant accounting policies principles consolidation additional information spinoff kraft foods group october 1 2012 divested kraft foods group grocery business spinoff “spinoff” 2014 concluded spinoffrelated transition plans recorded final spinoff transaction transition financing related costs “spinoff costs” 35 million 2014 pretax earnings within selling general administrative expenses divestitures acquisitions january 18 2017 reached agreement sell grocery business australia new zealand bega cheese limited approximately 460 million australian dollars 346 million january 18 2017 december 31 2016 asset group sold consisted approximately 25 million current assets approximately 125 million noncurrent assets based december 31 2016 australiantous dollar exchange rate expect transaction close 2017 march 31 2016 received binding offer totaling 176 million 185 million december 31 2016 sale several manufacturing facilities france sale license several local confectionery brands taking account agreed upon sales price adjustments related cash employeerelated liabilities working capital transferred closing currently estimate sales price 225 million 237 million december 31 2016 based net book values december 31 2016 final sales price subject change working capital account balances may change time closing transactions subject eu local regulatory approvals completion employee consultation requirements additional steps prepare assets transfer fourth quarter received works council approval buyer obtained antitrust clearance markets required december 31 2016 held sale assets liabilities consisted 125 million current assets 174 million noncurrent assets 33 million current liabilities 29 million noncurrent liabilities based december 31 2016 eurotous dollar exchange rate march 31 2016 recorded 14 million impairment charge gum candy trademark portion carrying value would recoverable based future cash flows expected planned license agreement buyer may 2016 recorded additional 5 million impairment charge another candy trademark reduce overall net assets estimated net sales proceeds transaction costs additionally 2016 incurred accrued 86 million incremental expenses ready business sale transactions expected close 2017 recorded costs within cost sales selling general administrative expenses europe segment year ended december 31 2016 also completed following sale transactions • december 31 2016 completed sale chocolate factory belgium connection transaction recorded pretax loss 65 million 68 million december 31 2016 within asset impairment exit costs europe segment loss includes fixed asset impairment charge 30 million 31 million december 31 2016 loss disposal 22 million 23 million december 31 2016 incremental expenses incurred accrued 13 million 14 million december 31 2016 related selling factory • december 1 2016 completed sale confectionery business costa rica represented local brand sales price 28 million recorded pretax gain 9 million within gains divestiture within latin america segment divested approximately 11 million property plant equipment 4 million goodwill 2 million inventory connection transaction incurred 2 million transaction costs accrued expenses • august 26 2016 recorded 7 million gain sale usowned biscuit trademark gain recorded within selling general administrative expenses 2016 • may 2 2016 completed sale certain local biscuit brands finland part strategic decisions exit select small local brands shift investment towards power brands sales price 14 million 16 million may 2 2016 recorded pretax gain 6 million 5 million aftertax within selling general administrative expenses europe segment year ended december 31 2016 divested 8 million indefinitelived intangible assets less 1 million assets received cash proceeds 12 million 14 million may 2 2016 upon closing another 2 million 2 million october 31 2016 consideration following completion postclosing requirements additional 2 million consideration increased pretax gain 8 million 6 million aftertax december 31 2016 november 2 2016 purchased burton’s biscuit company certain intangibles include license manufacture market sell cadburybranded biscuits additional key markets around world including united kingdom france ireland north america saudi arabia transaction accounted business combination total cash paid acquired assets £199 million 246 million december 31 2016 working complete valuation work recorded preliminary purchase price allocation 72 million definitelife intangible assets 156 million goodwill 14 million property plant equipment 4 million inventory december 31 2016 third quarter 2016 completed acquisition vietnamese biscuit operation within amea segment july 15 2015 acquired 80 interest biscuit operation august 22 2016 acquired remaining 20 interest total cash paid biscuit operation intellectual property noncompete consulting agreements less purchase price adjustments 12404 billion vietnamese dong 569 million using applicable exchange rates july 15 2015 november 27 2015 august 22 2016 august 22 2016 connection acquiring remaining 20 interest biscuit operation released escrowed funds 70 million retained agreed 20 million related two outstanding acquisitionrelated matters expected resolved 2017 december 31 2016 released additional 5 million escrowed funds holding 15 million outstanding acquisition matters resolved august 22 2016 also made final payment 759 billion vietnamese dong 35 million august 22 2016 noncompete consulting agreements noncompete consulting agreements recorded prepaid contracts within current noncurrent assets amortized net earnings term agreements third quarter 2016 also finalized valuation purchase price allocation acquired net assets business included 10 million inventory 49 million property plant equipment 86 million intangible assets 385 million goodwill 31 million net liabilities periods following initial july 15 2015 first closing date allocation net asset fair values immaterial impact operating results acquisition added incremental net revenues 71 million 2016 121 million 2015 added incremental operating income 5 million 2016 21 million 2015 within selling general administrative expenses recorded integration costs 7 million 2016 9 million 2015 acquisition costs 7 million 2015 2 million 2014 april 23 2015 completed divestiture 50 equity interest agf japanese coffee joint venture joint venture partner generated cash proceeds 27 billion japanese yen 225 million april 23 2015 pretax gain 13 million aftertax loss 9 million second quarter 2015 upon closing divested 99 million investment joint venture 65 million goodwill 41 million accumulated comprehensive losses also incurred approximately 7 million transaction costs 2015 february 16 2015 acquired us snack food company enjoy life foods within north america segment paid cash settled debt totaling 81 million connection acquisition upon finalizing valuation acquired net assets second quarter 2015 recorded 81 million purchase price allocation 58 million identifiable intangible assets 20 million goodwill 3 million net assets acquisitionrelated costs operating results acquisition material consolidated financial statements years ended december 31 2016 2015 sales property november 9 2016 completed sale manufacturing plant russia recorded total expenses 12 million including related fixed asset impairment charge 4 million within asset impairments exit costs sale land buildings equipment generated cash proceeds 6 million 2016 also sold property within north america segment centrally held corporate assets third quarter sold property north america generated cash proceeds 10 million pretax gain 6 million sold corporate aircraft hangar generated cash proceeds 3 million pretax gain 1 million second quarter also sold separate property north america generated cash proceeds 40 million pretax gain 33 million sold corporate aircraft generated cash proceeds 20 million pretax gain 6 million gains recorded within selling general administrative expenses cash proceeds recorded cash flows investing activities year ended december 31 2016 note 3 inventories consisted following note 4 property plant equipment property plant equipment consisted following capital expenditures 12 billion year ended december 31 2016 exclude 343 million accrued capital expenditures remaining unpaid december 31 2016 include payment 322 million capital expenditures accrued unpaid december 31 2015 connection restructuring program recorded noncash asset writedowns including accelerated depreciation asset impairments 301 million 2016 264 million 2015 173 million 2014 see note 6 restructuring programs charges recorded consolidated statements earnings within asset impairment exit costs following segment results follows note 5 goodwill intangible assets goodwill segment reflects latest segment structure periods presented intangible assets consisted following nonamortizable intangible assets consist principally brand names purchased acquisitions nabisco holdings corp spanish portuguese operations united biscuits global lu biscuit business groupe danone sa cadbury limited amortizable intangible assets consist primarily trademarks customerrelated intangibles process technology licenses noncompete agreements december 31 2016 weightedaverage life amortizable intangible assets 135 years amortization expense intangible assets 176 million 2016 181 million 2015 206 million 2014 currently estimate annual amortization expense next five years approximately 171 million estimated using december 31 2016 exchange rates changes goodwill intangible assets consisted changes goodwill intangibles • coffee business transactions divestitures december 1 2016 divested 4 million goodwill related sale confectionery business costa rica may 2 2016 sold 8 million nonamortizable intangible assets finland july 2 2015 deconsolidated 1664 million goodwill less 1 million intangible assets connection coffee business transactions april 23 2015 completed divestiture 50 equity interest agf resulted divesting 65 million goodwill see note 2 divestitures acquisitions additional information transactions • acquisitions november 2 2016 purchased burton’s biscuit company certain intangibles include license manufacture market sell cadburybranded biscuits additional key markets result acquisition recorded preliminary purchase price allocation 156 million goodwill 72 million amortizable intangible assets connection completion vietnam biscuit operation 2016 finalized purchase price allocation consideration paid net assets acquired recorded 25 million amortizable intangible assets 61 million nonamortizable intangible assets related acquired trademarks customerrelated intangible assets preliminary goodwill balance recorded third quarter 2015 subsequently adjusted 76 million 385 million first nine months 2016 reflect finalized intangible asset fair valuations february 16 2015 also acquired enjoy life foods recorded 20 million goodwill 58 million identifiable intangible assets see note 2 divestitures acquisitions divestitures acquisitions additional information • asset impairments recorded 137 million intangible asset impairments 2016 83 million 2015 57 million 2014 charges related annual testing nonamortizable intangible assets described additionally 2016 20 million impairments recorded europe segment related planned sale confectionery business france see note 2 divestitures acquisitions divestitures acquisitions additional information 2016 also recorded 19 million charges europe north america amea segments resulting discontinuation four biscuit products one candy product additionally 2015 connection deconsolidation venezuelan operations december 31 2015 recorded 12 million impairment charges within loss deconsolidation venezuela related biscuit trademark 2016 2015 2014 impairments goodwill connection 2016 annual impairment testing reporting units sufficient fair value excess carrying value reporting units passed annual impairment testing planned business performance expectations met specific valuation factors outside control discount rates change significantly estimated fair values reporting unit reporting units might decline lead goodwill impairment future 2016 annual testing nonamortizable intangible assets recorded 98 million impairment charges related five trademarks impairments arose due lower expected product growth part driven decisions redirect support trademarks regional global brands well slowdowns local economies recorded charges related biscuits candy gum trademarks 41 million amea 32 million north america 22 million europe 3 million latin america impairment charges calculated excess carrying value estimated fair value intangible assets global basis recorded within asset impairment exit costs primarily use relief royalty valuation method utilizes estimates future sales growth rates royalty rates discount rates determining brand’s global fair value 2016 intangible asset impairment review noted nine brands including five impaired trademarks 630 million aggregate book value december 31 2016 fair value excess book value 10 less four intangible assets passed annual impairment testing believe current plans brands allow continue impaired product line expectations met specific valuation factors outside control discount rates change significantly brand brands could become impaired future 2015 recorded 44 million charge related candy biscuit trademarks amea segment 22 million europe 5 million latin america 2014 recorded 48 million charge related biscuit trademark amea segment 9 million charge related candy trademark europe segment note 6 restructuring programs may 6 2014 board directors approved 35 billion restructuring program comprised approximately 25 billion cash costs 1 billion noncash costs “20142018 restructuring program” 22 billion capital expenditures august 31 2016 board directors approved reallocation within 57 billion total cost programs 600 million previously approved capital expenditures spent restructuring program cash costs change total 57 billion cost programs change total 47 billion cash outlays 57 billion total cost programs comprised approximately 41 billion restructuring program costs 31 billion cash costs 1 billion noncash costs 16 billion capital expenditures primary objective 20142018 restructuring program reduce operating cost structure supply chain overhead costs program intended primarily cover severance well asset disposals manufacturingrelated onetime costs since inception incurred total restructuring related implementation charges 25 billion related 20142018 restructuring program incurred majority program’s charges 2016 expect complete program yearend 2018 restructuring costs recorded restructuring charges 714 million 2016 711 million 2015 274 million 2014 within asset impairment exit costs 20142018 restructuring program liability activity years ended december 31 2016 2015 spent 315 million 2016 243 million 2015 cash severance related costs also recognized noncash pension settlement losses see note 9 benefit plans noncash asset writedowns including accelerated depreciation asset impairments noncash adjustments totaling 321 million 2016 273 million 2015 december 31 2016 379 million net restructuring liability recorded within current liabilities 85 million recorded within longterm liabilities implementation costs implementation costs directly attributable restructuring activities however qualify special accounting treatment exit disposal activities believe disclosure implementation costs provides readers financial statements information total costs 20142018 restructuring program implementation costs primarily relate reorganizing operations facilities connection supply chain reinvention program identified productivity cost saving initiatives costs include incremental expenses related closure facilities costs terminate certain contracts simplification information systems within continuing results operations recorded implementation costs 372 million 2016 291 million 2015 107 million 2014 recorded costs within cost sales general corporate expense within selling general administrative expenses restructuring implementation costs operating income 2016 2015 2014 recorded restructuring implementation costs related 20142018 restructuring program within operating income segment revised reflect new segment structure follows 1 2016 north america region implementation costs included incremental costs incurred related renegotiating collective bargaining agreements expired end february 2016 eight us facilities related executing business continuity plans north america business 2 includes adjustment rounding 3 includes charges recorded since program inception may 6 2014 december 31 2016 20122014 restructuring program october 1 2012 completed spinoff north american grocery business kraft foods group shareholders prior transaction 2012 board directors approved 15 billion restructuring related implementation costs “20122014 restructuring program” reflecting primarily severance asset disposals manufacturingrelated onetime costs primary objective 20122014 restructuring program ensure mondelēz international kraft foods group set operate efficiently execute respective business strategies upon separation future 15 billion 20122014 restructuring program costs retained approximately 925 million kraft foods group retained balance program end 2014 incurred total restructuring related implementation charges 899 million completed incurring planned charges 20122014 restructuring program restructuring costs recorded reversals restructuring charges 4 million 2015 related accruals longer required recorded restructuring charges 360 million 2014 within asset impairment exit costs 2014 recorded outofperiod accruals 73 million severance 52 million related 2014 21 million related 2013 connection change timing accruals ongoing negotiations workers’ councils labor unions 20122014 restructuring program liability activity years ended december 31 2016 2015 spent 21 million 2016 66 million 2015 cash severance related costs also recognized noncash pension plan settlement losses see note 9 benefit plans noncash adjustments totaling 6 million 2016 4 million 2015 december 31 2016 18 million net restructuring liability recorded within current liabilities less 1 million recorded within longterm liabilities implementation costs implementation costs related 20122014 restructuring program primarily relate activities connection kraft foods group spinoff reorganizing operations facilities discontinuance certain product lines incremental expenses related closure facilities replicating information systems infrastructure reorganizing sales function within continuing results operations recorded implementation costs 99 million 2014 recorded costs within cost sales selling general administrative expenses restructuring implementation costs operating income 2014 since inception 20122014 restructuring program recorded restructuring implementation costs within operating income segment revised reflect new segment structure follows 1 includes adjustment rounding 2 includes charges recorded since program inception 2012 conclusion december 31 2014 note 7 debt borrowing arrangements shortterm borrowings shortterm borrowings related weightedaverage interest rates consisted december 31 2016 commercial paper issued outstanding 3 88 days remaining maturity bank loans include borrowings primarily uncommitted credit lines maintained international subsidiaries meet shortterm working capital needs borrowing arrangements maintain 45 billion multiyear senior unsecured revolving credit facility general corporate purposes including working capital needs support commercial paper program october 14 2016 revolving credit agreement scheduled expire october 11 2018 extended october 11 2021 revolving credit agreement includes covenant maintain minimum shareholders’ equity least 246 billion excluding accumulated comprehensive earnings losses cumulative effects changes accounting principles december 31 2016 complied covenant shareholders’ equity defined covenant 363 billion revolving credit facility agreement also contains customary representations covenants events default credit rating triggers provisions financial covenants could require us post collateral security december 31 2016 amounts drawn facility international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 18 billion december 31 2016 19 billion december 31 2015 borrowings lines amounted 160 million december 31 2016 236 million december 31 2015 longterm debt longterm debt consisted interest rates december 31 2016 deferred debt issuance costs 40 million december 31 2016 46 million december 31 2015 netted related debt table amounts reclassified longterm assets offset related debt fourth quarter 2015 except deferred financing costs related revolving credit facility remain longterm assets immaterial periods presented december 31 2016 aggregate maturities debt capital leases based stated contractual maturities excluding unamortized noncash bond premiums discounts bank fees marktomarket adjustments 69 million millions december 16 2016 redeemed 850 million 2250 fixed rate notes maturing february 1 2019 issued january 16 2014 notes redeemed redemption cost equal 866 million plus accrued unpaid interest 7 million connection redemption three months ended december 31 2016 recorded 19 million loss debt extinguishment within interest expense net october 31 2016 completed cash tender offer retired 318 billion us dollar euro british pound sterlingdenominated notes financed repurchase notes including payment accrued interest costs incurred net proceeds received october 28 2016 375 billion note issuance term loans described connection retiring debt three months ended december 31 2016 recorded 409 million loss debt extinguishment within interest expense related amount paid retire debt excess carrying value recognizing unamortized premiums deferred financing costs earnings time debt extinguishment cash costs related tendering debt included longterm debt repayments consolidated statement cash flows year ended december 31 2016 also recognized 1 million interest income related partial settlement fair value hedges due tender october 19 2016 mondelez international holdings netherlands bv “mihn” wholly owned subsidiary mondelēz international inc launched offering 375 billion notes guaranteed mondelēz international inc 175 billion 1625 notes 500 million floating rate notes mature october 28 2019 15 billion 20 notes mature october 28 2021 october 28 2016 received proceeds net discounts associated financing costs 373 billion proceeds notes issuance used general corporate purposes including grant loans make distributions mondelēz international inc subsidiaries fund october 2016 cash tender offer nearterm debt maturities recorded approximately 20 million deferred financing costs discounts amortized interest expense life notes entered crosscurrency swaps serving cash flow hedges us dollardenominated debt payments effectively paid euros life debt october 14 2016 mihn executed 15 billion bank term loan facility loan facility consists two 750 million loans one threeyear maturity fiveyear maturity term loans drawn time 60 days signing october 25 2016 gave notice intent fully draw loan fiveyear maturity funding occurred october 28 2016 proceeds 750 million term loan may used general corporate purposes including funding tender offer debt october 25 2016 also gave notice intent terminate 750 million loan threeyear maturity february 9 2016 1750 million 4125 us dollar notes matured notes accrued interest date paid net proceeds fr400 million swiss francdenominated notes issued january 26 2016 700 million eurodenominated notes issued january 21 2016 well cash hand issuance commercial paper refinanced 1150 million matured notes net proceeds longterm debt issued january 2016 reflected amount within longterm debt december 31 2015 january 26 2016 issued fr400 million swiss francdenominated notes 399 million us dollars locked forward currency contract january 12 2016 consisting • fr250 million 249 million 0080 fixed rate notes mature january 26 2018 • fr150 million 150 million 0650 fixed rate notes mature july 26 2022 received proceeds net premiums deferred financing costs 398 million used partially fund february 2016 note maturity general corporate purposes recorded approximately 1 million premiums deferred financing costs amortized interest expense life notes january 21 2016 issued 700 million eurodenominated 1625 notes 760 million us dollars locked forward currency contract january 13 2016 eurodenominated notes mature january 20 2023 received proceeds net discounts deferred financing costs 752 million used partially fund february 2016 note maturity general corporate purposes recorded approximately 8 million discounts deferred financing costs amortized interest expense life notes november 30 2015 completed cash tender offer retired £247 million british pound sterlingdenominated 7250 notes approximately 372 million us dollars november 30 2015 due july 2018 financed repurchase notes including payment accrued interest costs incurred net proceeds received £400 million british pound sterlingdenominated notes issuance november 25 2015 described connection retiring debt three months ended december 31 2015 recorded 40 million loss extinguishment debt within interest expense related amount paid retire debt excess carrying value recognizing unamortized premiums deferred financing costs earnings time debt extinguishment cash costs related tendering debt included longterm debt repayments consolidated statement cash flows year ended december 31 2015 november 25 2015 issued £400 million british pound sterlingdenominated 4500 notes 609 million us dollars locked forward currency contract november 19 2015 mature december 3 2035 received proceeds net discounts deferred financing costs 604 million used fund november 2015 cash tender offer general corporate purposes recorded approximately 5 million discounts deferred financing costs amortized interest expense life notes october 6 2015 issued fr400 million swiss francdenominated notes 410 million us dollars locked forward currency contract september 21 2015 consisting • fr135 million 138 million 0625 fixed rate notes mature october 6 2020 • fr265 million 272 million 1125 fixed rate notes mature december 21 2023 received proceeds net premiums deferred financing costs 410 million used general corporate purposes fund upcoming debt maturities recorded fr400 million swiss francdenominated notes less 1 million premiums deferred financing costs amortized interest expense life notes june 11 2015 400 million floating rate eurodenominated notes matured notes accrued interest date paid cash hand issuance commercial paper march 30 2015 issued fr675 million swiss francdenominated notes approximately 694 million us dollars march 31 2015 consisting • fr175 million 180 million 0000 fixed rate notes mature march 30 2017 • fr300 million 308 million 0625 fixed rate notes mature december 30 2021 • fr200 million 206 million 1125 fixed rate notes mature december 30 2025 received net proceeds 675 million used general corporate purposes recorded approximately 2 million premiums deferred financing costs amortized interest expense life notes march 20 2015 850 million 6250 eurodenominated notes matured notes accrued interest date paid issuance commercial paper cash hand march 20 2015 completed cash tender offer retired 25 billion longterm us dollar debt consisting • 102 million 6500 notes due august 2017 • 115 million 6125 notes due february 2018 • 80 million 6125 notes due august 2018 • 691 million 5375 notes due february 2020 • 201 million 6500 notes due november 2031 • 26 million 7000 notes due august 2037 • 71 million 6875 notes due february 2038 • 69 million 6875 notes due january 2039 • 1143 million 6500 notes due february 2040 financed repurchase notes including payment accrued interest costs incurred net proceeds received 28 billion notes issuance march 6 2015 described issuance commercial paper connection retiring debt first three months 2015 recorded 708 million loss extinguishment debt within interest expense related amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing costs earnings time debt extinguishment cash costs related tendering debt included longterm debt repayments consolidated statement cash flows year ended december 31 2015 also recognized 5 million charges within interest expense hedging instruments related retired debt upon extinguishing debt deferred cash flow hedge amounts recorded earnings march 6 2015 issued 20 billion eurodenominated notes £450 million british pound sterlingdenominated notes approximately 28 billion us dollars march 31 2015 consisting • 500 million 537 million 1000 fixed rate notes mature march 7 2022 • 750 million 805 million 1625 fixed rate notes mature march 8 2027 • 750 million 805 million 2375 fixed rate notes mature march 6 2035 • £450 million 667 million 3875 fixed rate notes mature march 6 2045 received net proceeds 2890 million used fund march 2015 tender offer general corporate purposes recorded approximately 29 million discounts deferred financing costs amortized interest expense life notes weightedaverage interest rate total debt 22 december 31 2016 37 december 31 2015 43 december 31 2014 fair value debt fair value shortterm borrowings december 31 2016 december 31 2015 reflects current market interest rates approximates amounts recorded consolidated balance sheet fair value longterm debt determined using quoted prices active markets level 1 valuation data publicly traded debt obligations december 31 2016 aggregate fair value total debt 17882 million carrying value 17199 million december 31 2015 aggregate fair value total debt 15908 million carrying value 15398 million interest expense net interest expense net within results continuing operations consisted see note 2 divestitures acquisitions note 8 financial instruments information currency exchange forward contracts associated jde coffee business transactions also see note 8 financial instruments information loss related us dollar interest rate swaps longer designated accounting cash flow hedges first quarters 2016 2015 note 8 financial instruments fair value derivative instruments derivative instruments recorded fair value consolidated balance sheets follows 2016 2015 derivatives designated accounting hedges include cash flow fair value hedges derivatives designated accounting hedges include economic hedges nonus dollar denominated debt designated hedge net investments nonus operations reflected table included longterm debt summarized note 7 debt borrowing arrangements record derivative assets liabilities gross basis consolidated balance sheet fair value asset derivatives recorded within current assets fair value liability derivatives recorded within current liabilities fair values asset liability derivative instruments determined using level 1 financial assets liabilities consist exchangetraded commodity futures listed options fair value instruments determined based quoted market prices commodity exchanges exchangetraded derivatives generally subject master netting arrangements permit net settlement transactions counterparty certain criteria met event default also required maintain cash margin accounts connection funding settlement open positions margin requirements generally fluctuate daily based market conditions recorded margin deposits related exchangetraded derivatives 133 million december 31 2016 margin deposits 22 million december 31 2015 within current assets based net asset liability positions individual counterparties event default immediate net settlement open positions derivatives net asset position counterparties would owe us total 48 million december 31 2016 52 million december 31 2015 derivatives net liability position would owe 2 million december 31 2016 december 31 2015 level 1 derivatives net liability position level 2 financial assets liabilities consist primarily overthecounter “otc” currency exchange forwards options swaps commodity forwards options interest rate swaps currency exchange contracts valued using income approach based observable market forward rates less contract rate multiplied notional amount commodity derivatives valued using income approach based observable market commodity index prices less contract rate multiplied notional amount based pricing models rely market observable inputs commodity prices calculation fair value interest rate swaps derived discounted cash flow analysis based terms contract observable market interest rate curve calculation fair value financial instruments takes consideration risk nonperformance including counterparty credit risk otc derivative transactions governed international swap dealers association agreements standard industry contracts agreements post require collateral counterparties majority commodity currency exchange otc derivatives legal right setoff connection otc derivatives could netsettled event default assuming parties fail comply terms agreements derivatives net liability position would owe 40 million december 31 2016 101 million december 31 2015 derivatives net asset position counterparties would owe us total 162 million december 31 2016 64 million december 31 2015 manage credit risk connection derivatives entering transactions counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties derivative volume net notional values derivative instruments cash flow hedges cash flow hedge activity net taxes within accumulated comprehensive earnings losses included aftertax gains losses reclassified accumulated comprehensive earnings losses net earnings aftertax gains losses recognized comprehensive earnings losses pretax gains losses ineffectiveness recognized net earnings continuing operations within interest expense net recorded pretax losses 97 million first quarter 2016 34 million first quarter 2015 related amounts excluded effectiveness testing amounts relate interest rate swaps longer designated cash flow hedges due changes financing plans due lower overall costs decision hedge greater portion net investments operations use currencies us dollar functional currencies changed plans issue us dollardenominated debt instead issued euro swiss francdenominated notes current year first quarter euro british pound sterling swiss francdenominated notes prioryear first quarter amounts excluded effectiveness testing material remainder 2016 2015 prior year periods record pretax aftertax gains losses reclassified accumulated comprehensive earnings losses earnings ii gains losses ineffectiveness iii gains losses amounts excluded effectiveness testing • cost sales commodity contracts • cost sales currency exchange contracts related forecasted transactions • interest expense net interest rate contracts currency exchange contracts related intercompany loans based current market conditions would expect transfer losses 31 million net taxes commodity cash flow hedges unrealized gains 10 million net taxes currency cash flow hedges unrealized losses 2 million net taxes interest rate cash flow hedges earnings next 12 months hedge coverage december 31 2016 hedged transactions forecasted impact cash flows following periods • commodity transactions periods exceeding next 12 months • interest rate transactions periods exceeding next 6 years 10 months • currency exchange transactions periods exceeding next 12 months fair value hedges pretax gains losses due changes fair value interest rate swaps related hedged longterm debt recorded interest expense net fair value hedge ineffectiveness amounts excluded effectiveness testing material periods presented economic hedges pretax gains losses recorded net earnings economic hedges connection coffee business transactions entered number consecutive euro us dollar currency exchange forward contracts 2015 2014 lock equivalent expected value us dollars marktomarket gains losses derivatives recorded earnings recorded net gains 436 million year ended december 31 2015 628 million year ended december 31 2014 within interest expense net connection forward contracts transferring proceeds subsidiaries coffee net assets shares deconsolidated currency hedge related gains losses recorded within interest expense net see note 2 divestitures acquisitions jde coffee business transactions additional information hedges net investments international operations aftertax gains losses related hedges net investments international operations form euro pound sterling swiss francdenominated debt note 9 benefit plans pension plans prior july 2 2015 closing coffee business transactions certain active employees transitioned jde participated nonus pension plans following transactions benefits began provided directly jde participants continuing jde assumed certain pension plan obligations received related plan assets 2015 reduced net benefit plan liabilities 131 million related deferred tax assets 24 million participants elected transfer jde plans retained plan obligations related plan assets obligations funded status projected benefit obligations plan assets funded status pension plans accumulated benefit obligation represents benefits earned measurement date 1540 million december 31 2016 1463 million december 31 2015 us pension plans accumulated benefit obligation nonus pension plans 9531 million december 31 2016 9267 million december 31 2015 salaried nonunion hourly employees hired january 1 2009 discontinued benefits us pension plans replaced enhanced company contribution employee defined contribution plan effective december 31 2019 benefit accruals cease us nonunion pension plan nonunion employees participating plan december 31 2019 calculate pension benefit obligation based pay service date longer accrue new benefits combined us nonus pension plans resulted net pension liability 1882 million december 31 2016 2145 million december 31 2015 recognized amounts consolidated balance sheets follows certain us nonus plans underfunded accumulated benefit obligations excess plan assets plans projected benefit obligations accumulated benefit obligations fair value plan assets used following weightedaverage assumptions determine benefit obligations pension plans yearend discount rates us canadian eurozone uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class end 2015 changed approach used measure service interest costs pension benefits 2015 measured service interest costs utilizing single weightedaverage discount rate derived yield curve used measure plan obligations 2016 measured service interest costs applying specific spot rates along yield curve plans’ liability cash flows believe new approach provided precise measurement service interest costs aligning timing plans’ liability cash flows corresponding spot rates yield curve impact change decrease net periodic pension cost approximately 64 million year ended december 31 2016 change affect measurement plan obligations accounted change accounting estimate accordingly accounted prospective basis components net periodic pension cost net periodic pension cost consisted following 1 year ended december 31 2015 amortization prior service cost includes 17 million pension curtailment losses related employees transitioned jde upon contribution global coffee business refer note 2 divestitures acquisitions jde coffee business transactions information 2 settlement losses include 15 million year ended december 31 2016 9 million year ended december 31 2015 pension settlement losses employees elected lumpsum payments connection 20142018 restructuring program retired employees elected lumpsum payments resulted net settlement losses 2016 15 million us plans 6 million nonus plans 2015 10 million us plans 2 million nonus plans employees elected lumpsum payments connection 20122014 restructuring program cost saving initiatives retired employees elected lumpsum payments resulted net settlement losses us plans 28 million 2014 addition incurred special termination benefit costs 2 million 2014 nonus plans related 20122014 restructuring program see note 6 restructuring programs information recorded additional 90 million pension settlement losses related coffee business transactions within gain coffee business transactions refer note 2 divestitures acquisitions jde coffee business transactions information us plans determine expected return plan assets component net periodic benefit cost using calculated market return value recognizes cost four year period nonus plans utilize similar approach varying cost recognition periods plans others determine expected return plan assets based asset fair values measurement date december 31 2016 combined us nonus pension plans expected amortize accumulated comprehensive earnings losses net periodic pension cost 2017 • estimated 202 million net loss experience differences • 1 million estimated prior service credit used following weightedaverage assumptions determine net periodic pension cost plan assets fair value pension plan assets determined using following fair value measurements excluded plan assets 62 million december 31 2016 66 million december 31 2015 tables related certain insurance contracts reported contract value accordance authoritative guidance fair value measurements • level 1 includes primarily us nonus equity securities government bonds valued using quoted prices active markets • level 2 includes primarily pooled funds including assets real estate pooled funds valued using net asset values participation units held common collective trusts reported managers trusts supported unit prices actual purchase sale transactions level 2 plan assets also include corporate bonds fixedincome securities valued using independent observable market inputs matrix pricing yield curves indices • level 3 includes investments valued using unobservable inputs reflect plans’ assumptions market participants would use pricing assets based best information available • fair value estimates pooled funds calculated investment advisor reliable quotations pricing services readily available certain underlying securities estimated value based either cost last sale price securities valued fashion • fair value estimates private equity investments calculated general partners using market approach estimate fair value private investments market approach utilizes prices relevant information generated market transactions type security degree liquidity restrictions disposition latest round financing data company financial statements relevant valuation multiples discounted cash flow analyses • fair value estimates real estate investments calculated investment managers using present value future cash flows expected received investments based valuation methodologies appraisals local market conditions current projected operating performance • fair value estimates investments hedge fundoffunds calculated investment managers using net asset value per share investment reported money managers underlying funds • fair value estimates certain fixedincome securities insurance contracts calculated based future stream benefit payments discounted using prevailing interest rates based valuation date • net asset value primarily includes real estate funds hedge funds private equity investments net asset values normally used changes level 3 plan assets recorded comprehensive earnings losses included decreases level 3 pension plan investments 2016 primarily due net settlements real estate funds effects currency decreases level 3 pension plan investments 2015 primarily due net settlements hedge funds effects currency percentage fair value pension plan assets us plans investment strategy reduce risk underfunded plans part appropriate asset allocation within plan assets attempt maintain target asset allocation rebalancing asset classes make contributions monthly benefit payments strategy involves using indexed us equity international equity securities actively managed us investment grade fixedincome securities constitute 95 fixedincome securities smaller allocations high yield fixedincome securities nonus plans investment strategy subject local regulations asset liability profiles plans individual country aggregate asset allocation targets nonus plans broadly characterized mix approximately 34 equity securities including investments real estate approximately 64 fixedincome securities approximately 2 alternative securities investment strategy largest nonus plan comprises 63 nonus pension assets designed balance risk return diversifying across wide range returnseeking liability matching assets invested range active passive mandates target allocation approximately 24 equity securities 21 credit 6 private markets 9 diversifying assets 40 liability matching assets strategy uses indexed global developed equities actively managed global investment grade alternative credit global private equity real estate diversifying assets including hedge funds liability matching assets including buyin annuity policy employer contributions 2016 contributed 378 million 350 million voluntarily contributed us pension plans 403 million 100 million nonrecurring contribution related merging legacy cadbury plans united kingdom nonus pension plans addition employees contributed 16 million nonus plans make contributions us nonus pension plans primarily extent tax deductible generate excise tax liability 2017 estimate pension contributions 13 million us plans 455 million nonus plans based current tax laws total 2017 pension contributions 250 million expected nonrecurring actual contributions may different due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates future benefit payments estimated future benefit payments pension plans december 31 2016 millions multiemployer pension plans accordance obligations collective bargaining agreements made contributions multiemployer pension plans 25 million 2016 31 million 2015 32 million 2014 risks participating multiemployer pension plans different single employer plans assets contributed multiemployer plan one employer may used provide benefits employees participating employers participating employer stops contributing plan unfunded obligations plan borne remaining participating employers company stops participating multiemployer pension plans company may required pay plans amount based allocable share unfunded vested benefits plans referred withdrawal liability individually significant multiemployer plan participate december 31 2016 bakery confectionery union industry international pension fund “fund” contributions fund exceeded 5 total contributions fund fiscal years 2016 2015 2014 contributions fund 21 million 2016 27 million 2015 25 million 2014 contributions multiemployer pension plans individually significant 4 million 2016 4 million 2015 7 million 2014 contributions based contribution rates collective bargaining agreements number eligible employees fund surcharges effective january 1 2012 fund’s zone status changed “red” result certification beginning july 2012 charged 10 surcharge contribution rates fund subsequently adopted rehabilitation plan november 7 2012 required contribution increases reductions benefit provisions although collective bargaining agreements fund expired 2016 obligated make contributions fund continue work union toward reaching agreement fund’s actuarial valuation last completed january 1 2016 august 28 2016 10 surcharge longer applicable required pay higher contributions fund’s rehabilitation plan costs sponsor contribute employee defined contribution plans cover eligible salaried nonunion union employees contributions costs determined matching employee contributions defined plans amounts charged expense continuing operations defined contribution plans totaled 44 million 2016 45 million 2015 46 million 2014 postretirement benefit plans obligations postretirement health care plans funded changes amount accrued benefit obligation 1 plan amendments included change eligibility requirements related medical life insurance benefits change benefits medicareeligible participants current portion accrued postretirement benefit obligation 12 million december 31 2016 11 million december 31 2015 included accrued liabilities used following weightedaverage assumptions determine postretirement benefit obligations yearend discount rates us canadian uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear expected health care cost trend rate based historical costs end 2015 changed approach used measure service interest costs postretirement benefits 2015 measured service interest costs utilizing single weightedaverage discount rate derived yield curve used measure plan obligations 2016 measured service interest costs applying specific spot rates along yield curve plans’ liability cash flows believe new approach provided precise measurement service interest costs aligning timing plans’ liability cash flows corresponding spot rates yield curve impact change decrease net periodic postretirement cost approximately 4 million year ended december 31 2016 change affect measurement plan obligations accounted change accounting estimate accordingly accounted prospective basis assumed health care cost trend rates significant impact amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects components net periodic postretirement health care costs net periodic postretirement health care costs consisted following 1 year ended december 31 2016 amortization prior service credit includes 9 million curtailment gain related change eligibility requirement december 31 2016 expected amortize accumulated comprehensive earnings losses pretax net periodic postretirement health care costs 2017 • estimated 15 million net loss experience differences • estimated 40 million prior service credit used following weightedaverage assumptions determine net periodic postretirement health care cost future benefit payments estimated future benefit payments postretirement health care plans december 31 2016 millions costs made contributions multiemployer medical plans totaling 19 million 2016 20 million 2015 18 million 2014 plans provide medical benefits active employees retirees certain collective bargaining agreements postemployment benefit plans obligations postemployment plans primarily funded changes amount accrued benefit obligation december 31 2016 2015 accrued benefit obligation determined using weightedaverage discount rate 62 2016 2015 assumed weightedaverage ultimate annual turnover rate 03 2016 2015 assumed compensation cost increases 40 2016 2015 assumed benefits defined respective plans postemployment costs arising actions offer employees benefits excess specified respective plans charged expense incurred components net periodic postemployment costs net periodic postemployment costs consisted following december 31 2016 estimated net gain postemployment benefit plans expected amortize accumulated comprehensive earnings losses net periodic postemployment costs 2017 approximately 4 million note 10 stock plans amended restated 2005 performance incentive plan “plan” authorized may 21 2024 issue maximum 2437 million shares common stock employees nonemployee directors december 31 2016 742 million shares available granted plan stock options stock options including stock appreciation rights granted exercise price equal market value underlying stock grant date generally become exercisable three annual installments beginning first anniversary grant date maximum term ten years account employee stock options fair value method accounting using blackscholes methodology measure stock option expense date grant fair value stock options date grant amortized expense vesting period recorded compensation expense related stock options held employees 57 million 2016 50 million 2015 47 million 2014 results continuing operations deferred tax benefit recorded related compensation expense 15 million 2016 13 million 2015 12 million 2014 unamortized compensation expense related employee stock options 52 million december 31 2016 expected recognized weightedaverage period 1 year weightedaverage blackscholes fair value assumptions riskfree interest rate represents constant maturity us government treasuries rate remaining term equal expected life options expected life period employees expected hold options volatility reflects historical movements stock price period commensurate expected life options dividend yield reflects dividend yield place time historical grants stock option activity reflected 1 cash received options exercised 221 million 2016 148 million 2015 168 million 2014 actual tax benefit realized tax deductions option exercises totaled 31 million 2016 58 million 2015 29 million 2014 2 prioryear aggregate intrinsic value revised deferred stock units performance share units restricted stock historically made grants deferred stock units performance share units restricted stock beginning 2016 grant deferred stock units performance share units longer grant restricted stock may grant shares deferred stock units eligible employees giving instances rights shareholders except may sell assign pledge otherwise encumber shares deferred stock units voting rights vested shares deferred stock units subject forfeiture certain employment conditions met deferred stock units generally vest third anniversary grant date performance share units granted 2005 plan vest based varying performance market service conditions unvested performance share units voting rights pay dividends dividend equivalents accumulated vesting period paid performance share units vest fair value deferred stock units performance share units restricted stock date grant amortized earnings restriction period recorded compensation expense related deferred stock units performance share units restricted stock 83 million 2016 86 million 2015 94 million 2014 results continuing operations deferred tax benefit recorded related compensation expense 22 million 2016 24 million 2015 26 million 2014 unamortized compensation expense related deferred stock units performance share units restricted stock 111 million december 31 2016 expected recognized weightedaverage period 2 years deferred stock unit performance share unit restricted stock activity reflected 1 includes performance share units deferred stock units restricted stock 2 includes performance share units deferred stock units restricted stock actual tax benefit realized tax deductions shares vested totaled 18 million 2016 18 million 2015 20 million 2014 note 11 capital stock amended restated articles incorporation authorize 50 billion shares class common stock “common stock” 500 million shares preferred stock preferred shares issued outstanding december 31 2016 2015 2014 shares common stock issued treasury outstanding stock plan awards employees nonemployee directors issued treasury shares december 31 2016 134 million shares common stock held treasury reserved stock options stock awards share repurchase program 2013 board directors authorized repurchase 77 billion common stock december 31 2016 july 29 2015 finance committee authorization delegated board directors approved increase 60 billion share repurchase program raising authorization 137 billion common stock repurchases extended program december 31 2018 repurchases program determined management wholly discretionary prior january 1 2016 repurchased 82 billion common stock pursuant authorization 2016 repurchased 620 million shares common stock average cost 4197 per share aggregate cost 26 billion paid 2016 share repurchases funded available cash commercial paper issuances 2015 repurchased 919 million shares common stock average cost 3943 per share aggregate cost 36 billion paid 2015 december 31 2016 28 billion remaining share repurchase capacity december 2013 initiated accelerated share repurchase “asr” program december 3 2013 paid 17 billion received initial delivery 448 million shares common stock valued 15 billion increased treasury stock 15 billion remaining 02 billion recorded additional paid capital may 2014 asr program concluded received additional 51 million shares valued 02 billion total 499 million shares average repurchase price 3410 per share life asr program final settlement based volumeweighted average price common stock purchase period less fixed per share discount upon conclusion asr program receipt remaining repurchased shares 02 billion recorded additional paid capital reclassified treasury stock note 12 commitments contingencies legal proceedings routinely involved legal proceedings claims governmental inspections investigations “legal matters” arising ordinary course business previously disclosed february 2011 received subpoena sec connection investigation foreign corrupt practices act “fcpa” primarily related facility india acquired cadbury acquisition subpoena primarily requested information regarding dealings indian governmental agencies officials obtain approvals related operation facility january 2017 reached agreement sec settle charges related internal controls booksandrecords provisions fcpa without admitting denying charges part settlement mondelēz international inc agreed pay civil penalty 13 million resolve investigation anticipate material adverse effect business financial condition result resolving matter february 2013 march 2014 cadbury india limited known mondelez india foods private limited subsidiary mondelēz international parties received show cause notices indian central excise authority “excise authority” calling upon parties demonstrate excise authority collect total 37 billion indian rupees 55 million december 31 2016 unpaid excise tax equivalent amount penalties well interest related production indian facility contested demands unpaid excise taxes penalties interest march 27 2015 several hearings commissioner excise authority issued order denying excise exemption claimed indian facility confirming excise authority’s demands total taxes penalties amount 58 billion indian rupees 86 million december 31 2016 appealed order addition excise authority issued additional show cause notices february 2015 december 2015 issue covering periods january october 2014 november 2014 september 2015 respectively notices added total 24 billion indian rupees 35 million december 31 2016 unpaid excise taxes well penalties determined amount equivalent claimed excise authority interest believe decision claim excise tax benefit valid continuing contest show cause notices administrative judicial process april 2013 staff us commodity futures trading commission “cftc” advised us kraft foods group investigating activities related trading december 2011 wheat futures contracts occurred prior spinoff kraft foods group cooperated staff investigation april 1 2015 cftc filed complaint kraft foods group mondelēz global llc “mondelēz global” us district court northern district illinois eastern division “cftc action” complaint alleges kraft foods group mondelēz global 1 manipulated attempted manipulate wheat markets fall 2011 2 violated position limit levels wheat futures 3 engaged noncompetitive trades trading sides exchangeforphysical chicago board trade wheat contracts cftc seeks civil monetary penalties either triple monetary gain violation commodity exchange act “act” 1 million violation section 6c1 6c3 9a2 act 140000 additional violation act plus postjudgment interest order permanent injunction prohibiting kraft foods group mondelēz global violating specified provisions act disgorgement profits costs fees december 2015 court denied mondelēz global kraft foods group’s motion dismiss cftc’s claims market manipulation attempted manipulation parties discovery additionally several class action complaints filed kraft foods group mondelēz global us district court northern district illinois investors wheat futures options behalf others similarly situated complaints make similar allegations made cftc action seek class action certification unspecified amount damages interest unjust enrichment costs fees injunctive declaratory unspecified relief june 2015 suits consolidated northern district illinois june 2016 court denied mondelēz global kraft foods group’s motion dismiss parties discovery possible predict outcome matters however based separation distribution agreement kraft foods group dated september 27 2012 expect predominantly bear monetary penalties payments connection cftc action cannot predict certainty results legal matters currently involved expect ultimate costs resolve legal matters individually aggregate material effect financial results thirdparty guarantees enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2016 material thirdparty guarantees recorded consolidated balance sheet leases rental expenses recorded continuing operations 317 million 2016 331 million 2015 399 million 2014 december 31 2016 minimum rental commitments noncancelable operating leases effect yearend millions note 13 reclassifications accumulated comprehensive income following table summarizes changes accumulated balances component accumulated comprehensive earnings losses attributable mondelēz international amounts reclassified accumulated comprehensive earnings losses net earnings net tax net losses 250 million 2016 350 million 2015 79 million 2014 1 reclassified gains losses included components net periodic benefit costs disclosed note 9 benefit plans settlement losses include transfer coffee businessrelated pension obligations amount 90 million 2015 2 taxes related reclassified gains losses recorded within provision income taxes 3 reclassified gains losses recorded within cost sales 4 reclassified gains losses recorded within interest expense net note 14 income taxes earnings losses continuing operations income taxes provision income taxes consisted recorded outofperiod adjustments 14 million net expense 2015 31 million net expense 2014 immaterial impact annual provision income taxes effective income tax rate pretax earnings differed us federal statutory rate following reasons 2016 effective tax rate 89 favorably impacted mix pretax income various nonus tax jurisdictions net tax benefits 161 million discrete onetime events discrete net tax benefits related favorable audit settlements statutes limitations various jurisdictions net reduction uk french deferred tax liabilities resulting tax legislation enacted 2016 reduced corporate income tax rates country 2015 effective tax rate 75 favorably impacted onetime third quarter sale coffee business resulted pretax gain 6809 million 184 million related tax expense well 27 million tax costs incurred remit proceeds lowertier foreign subsidiaries allow cash redeployed within retained foreign operations benefit third quarter transaction partially offset tax costs associated sale interest agf first half year impact deconsolidating venezuelan operations december 31 2015 excluding impacts transactions effective tax rate would 178 reflecting favorable impacts mix pretax income various nonus tax jurisdictions net tax benefits 119 million discrete onetime events remaining discrete onetime events primarily related favorable tax audit settlements expirations statutes limitations several jurisdictions net reduction uk deferred tax liabilities resulting tax legislation enacted 2015 reduced uk corporate income tax rate 2014 effective tax rate 138 favorably impacted mix pretax income various nonus tax jurisdictions net tax benefits 206 million discrete onetime events discrete net tax benefits primarily related favorable tax audit settlements expirations statues limitations several jurisdictions tax effects temporary differences gave rise deferred income tax assets liabilities consisted following december 31 2016 company pretax loss carryforwards 3517 million 1223 million expire various dates 2017 2036 remaining 2294 million carried forward indefinitely significant valuation allowances relate loss carryforwards mexico ireland currently expect generate gains proper character utilize carryforwards future december 31 2016 neither applicable us federal income taxes foreign withholding taxes provided approximately 198 billion accumulated earnings nonus subsidiaries expected indefinitely reinvested impracticable us determine amount unrecognized deferred tax liabilities indefinitely reinvested earnings future tax law changes needs nonus subsidiaries could require us recognize deferred tax liabilities portion accumulated earnings previously expected indefinitely reinvested changes unrecognized tax benefits january 1 2016 unrecognized tax benefits 756 million recognized benefits net impact income tax provision would 652 million unrecognized tax benefits 610 million december 31 2016 recognized benefits net impact income tax provision would 549 million within next 12 months unrecognized tax benefits could increase approximately 40 million due unfavorable audit developments decrease approximately 160 million due audit settlements expiration statutes limitations various jurisdictions include accrued interest penalties related uncertain tax positions tax provision accrued interest penalties 185 million january 1 2016 189 million december 31 2016 provision income taxes included 15 million interest penalties income tax filings regularly examined federal state nonus tax authorities examination irs 20132015 us federal income tax filings begin first quarter 2017 us state nonus jurisdictions statutes limitations generally ranging three five years however statutes often extended mutual agreement tax authorities years still open examination nonus tax authorities major jurisdictions include earliest open tax year parentheses brazil 2011 china 2007 france 2010 germany 2010 india 2005 italy 2011 united kingdom 2013 note 15 earnings per share basic diluted earnings per share “eps” calculated follows exclude antidilutive mondelēz international stock options calculation weightedaverage shares diluted eps excluded 78 million antidilutive stock options year ended december 31 2016 51 million antidilutive stock options year ended december 31 2015 86 million antidilutive stock options year ended december 31 2014 note 16 segment reporting manufacture market primarily snack food products including biscuits cookies crackers salted snacks chocolate gum candy various cheese grocery products well powdered beverage products manage global business report operating results geographic units operations management structure organized four reportable operating segments • latin america • amea • europe • north america october 1 2016 integrated eemea operating segment europe asia pacific operating segments leverage optimize operating scale built within europe asia pacific regions russia ukraine turkey belarus georgia kazakhstan combined within europe operating segment remaining middle east african countries combined within asia pacific region form amea regional operating segment reflected segment change occurred periods presented manage operations region leverage regional operating scale manage different changing business environments effectively pursue growth opportunities arise key markets regional management teams responsibility business product categories financial results regions historically recorded income equity method investments within operating income investments part base business beginning third quarter 2015 align accounting new coffee equity method investment jde began record earnings equity method investments equity method investment earnings outside segment operating income six months ended december 31 2015 aftertax equity method investment net earnings less 1 million combined basis earnings equity method investments july 2 2015 recorded within segment operating income 52 million amea 4 million north america year ended december 31 2014 earnings 104 million amea 9 million north america see note 1 summary significant accounting policies principles consolidation note 2 divestitures acquisitions additional information 2015 also began report stockbased compensation corporate employees within general corporate expenses reported within north america region reclassified 32 million corporate stockbased compensation expense 2015 north america segment general corporate expenses use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales general corporate expenses component selling general administrative expenses amortization intangibles gains losses divestitures acquisitions gain jde coffee business transactions loss deconsolidation venezuela acquisitionrelated costs component selling general administrative expenses periods presented exclude items segment operating income order provide better transparency segment operating results furthermore centrally manage interest expense net accordingly present items segment excluded segment profitability measure management reviews segment net revenues earnings revised reflect new segment structure 1 net revenues 1217 million 2015 760 million 2014 venezuelan subsidiaries included consolidated financial statements beginning 2016 account venezuelan subsidiaries using cost method accounting longer include net revenues venezuelan subsidiaries within consolidated financial statements refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information 2 july 2 2015 contributed global coffee businesses primarily europe amea segments net revenues global coffee business 1561 million europe 66 million amea year ended december 31 2015 refer note 2 divestitures acquisitions jde coffee business transactions information single customer accounted 10 net revenues continuing operations 2016 five largest customers accounted 166 ten largest customers accounted 229 net revenues continuing operations 2016 items impacting segment operating results discussed note 1 summary significant accounting policies including venezuela deconsolidation currency devaluation note 2 divestitures acquisitions note 5 goodwill intangible assets note 6 restructuring programs also see note 7 debt borrowing arrangements note 8 financial instruments information interest expense net period total assets depreciation expense capital expenditures segment revised reflect new segment structure 1 unallocated assets consist primarily cash equivalents deferred income taxes centrally held property plant equipment prepaid pension assets derivative financial instrument balances debt issuance costs related recognized debt liabilities 40 million december 31 2016 46 million december 31 2015 44 million december 31 2014 geographic data net revenues recognized countries products sold longlived assets excluding deferred tax goodwill intangible assets equity method investments individual country within exceeded 10 net revenues longlived assets periods presented net revenues product category revised reflect new segment structure 1 2015 2014 consolidated net revenues included venezuela net revenues 763 million biscuits 340 million cheese grocery 66 million gum candy 48 million beverages 2014 venezuela net revenues 422 million biscuits 216 million cheese grocery 91 million beverages 30 million gum candy following deconsolidation venezuela operations end 2015 2016 consolidated net revenues longer include net revenues venezuelan subsidiaries refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information 2 july 2 2015 contributed global coffee businesses primarily europe amea segment beverage categories net revenues global coffee business 1561 million europe 66 million amea year ended december 31 2015 refer note 2 divestitures acquisitions jde coffee business transactions information 3 2016 realigned products across product categories primarily within europe segment reclassified product category net revenues basis consistent 2016 presentation note 17 quarterly financial data unaudited summarized operating results quarter detailed 1 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting jde earnings began record earnings equity method investments aftertax equity method investment earnings outside operating income aftertax equity method investment net earnings six months ended december 31 2015 less 1 million line item shown consolidated statement earnings pretax earnings equity method investments recorded within segment operating income 56 million six months ended july 2 2015 see note 1 summary significant accounting policies principles consolidation additional information equity method investment net earnings lower third quarter 2016 due jde unfavorable tax expense disclosed note 2 divestitures acquisitions jde tax matter resolution 2 see following table significant items affected comparability earnings quarter 3 fourth quarter 2015 recorded net loss primarily due loss deconsolidation venezuela coffee business transaction final sales price adjustment accordance us gaap due net loss quarter diluted eps equal basic eps basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may equal total year 2016 2015 recorded following pretax charges gains earnings continuing operations items impacting operating results discussed note 1 summary significant accounting policies including venezuela deconsolidation currency devaluations note 2 divestitures acquisitions including jde coffee business transactions note 5 goodwill intangible assets note 6 restructuring programs note 7 debt borrowing arrangements item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders mondelēz international inc opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets mondelēz international inc subsidiaries december 31 2017 2016 related consolidated statements earnings comprehensive earnings equity cash flows three years period ended december 31 2017 including related notes financial statement schedule listed index appearing item 15a collectively referred “consolidated financial statements” also audited company’s internal control financial reporting december 31 2017 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2017 2016 results operations cash flows three years period ended december 31 2017 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2017 based criteria established internal controlintegrated framework 2013 issued coso basis opinions company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included report management internal control financial reporting appearing item 9a responsibility express opinions company’s consolidated financial statements company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states “pcaob” required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp chicago illinois february 9 2018 pricewaterhousecoopers llp served company’s auditor since 2001 mondelēz international inc subsidiaries consolidated statements earnings years ended december 31 millions us dollars except per share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements comprehensive earnings years ended december 31 millions us dollars see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated balance sheets december 31 millions us dollars except share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements equity millions us dollars except per share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements cash flows years ended december 31 millions us dollars see accompanying notes consolidated financial statements mondelēz international inc subsidiaries notes consolidated financial statements note 1 summary significant accounting policies description business mondelēz international inc incorporated 2000 commonwealth virginia mondelēz international inc subsidiaries collectively “mondelēz international” “we” “us” “our” sells food beverage products consumers approximately 160 countries principles consolidation consolidated financial statements include mondelēz international inc well wholly owned majority owned subsidiaries intercompany transactions eliminated noncontrolling interest represents noncontrolling investors’ interests results subsidiaries control consolidate december 31 2015 operating results venezuelan subsidiaries included consolidated financial statements close fourth quarter 2015 deconsolidated venezuelan operations consolidated financial statements recognized loss deconsolidation see currency translation highly inflationary accounting venezuela information account investments exercise significant influence equity method accounting july 2 2015 contributed global coffee businesses new company jacobs douwe egberts “jde” hold equity interest collectively “jde coffee business transactions” historically coffee businesses income equity method investments recorded within operating income businesses part base business retain ongoing interest coffee equity method investments including jde keurig green mountain inc “keurig” dongsuh foods corporation “dsf” significant influence equity method investments control operations directly third quarter 2015 began recognize equity method investment earnings consisting primarily investments coffee businesses outside operating income segment income periods prior third quarter 2015 historical coffee business equity method investment earnings included within operating income segment income six months ended december 31 2015 aftertax equity method investment net earnings less 1 million combined basis thus shown consolidated statement earnings period please see note 2 divestitures acquisitions jde coffee business transactions keurig transaction planned keurig dr pepper transaction note 16 segment reporting information transactions use cost method accounting investments exercise significant influence control cost method accounting earnings recognized extent cash received use estimates prepare consolidated financial statements accordance accounting principles generally accepted united states america “us gaap” require us make estimates assumptions affect number amounts consolidated financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions valuation assumptions goodwill intangible assets useful lives longlived assets restructuring program liabilities marketing program accruals insurance selfinsurance reserves income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year material effect consolidated financial statements segment change october 1 2016 integrated eastern europe middle east africa “eemea” operating segment europe asia pacific operating segments leverage optimize operating scale built within europe asia pacific regions russia ukraine turkey belarus georgia kazakhstan combined within europe region remaining middle east african countries combined within asia pacific region form new asia middle east africa “amea” operating segment reflected segment change occurred periods presented october 1 2016 operations management structure organized four reportable operating segments • latin america • amea • europe • north america see note 16 segment reporting additional information segments currency translation highly inflationary accounting translate results operations subsidiaries multiple currencies using average exchange rates period translate balance sheet accounts using exchange rates end period record currency translation adjustments component equity except highly inflationary currencies realized exchange gains losses transactions earnings highly inflationary accounting triggered country’s threeyear cumulative inflation rate exceeds 100 requires remeasurement financial statements subsidiaries country functional currency subsidiary us dollar reporting currency remeasurement gains losses recorded earnings 2017 none consolidated subsidiaries accounted highly inflationary economies argentina continue closely monitor inflation potential economy become highly inflationary accounting purposes december 31 2017 argentinian economy designated highly inflationary continued record currency translation adjustments within equity realized exchange gains losses transactions earnings argentinian operations contributed 601 million 23 consolidated net revenues 2017 net monetary liabilities argentinian operations december 31 2017 material ukraine based inflation data published national bank ukraine’s threeyear cumulative inflation rate dropped remained 100 end 2017 ukraine longer highly inflationary continue record currency translation adjustments within equity realized exchange gains losses transactions earnings ukrainian operations contributed 73 million 03 consolidated net revenues 2017 net monetary assets ukrainian operations december 31 2017 material venezuela january 1 2010 december 31 2015 accounted results venezuelan subsidiaries using us dollar functional currency prescribed us gaap highly inflationary economies effective close 2015 fiscal year concluded longer met accounting criteria consolidation venezuelan subsidiaries due loss control venezuelan operations otherthantemporary lack currency exchangeability economic regulatory environment venezuela progressively limited access dollars import goods use available currency mechanisms impaired ability operate control venezuelan businesses result factors concluded longer met criteria consolidation venezuelan subsidiaries close 2015 fiscal year deconsolidated changed cost method accounting venezuelan operations recorded 778 million pretax loss december 31 2015 reduced value cost method investment venezuela venezuelan receivables held subsidiaries realizable fair value resulting full impairment recorded loss also included historical cumulative translation adjustments related venezuelan operations previously recorded accumulated comprehensive losses within equity fair value investments venezuelan subsidiaries estimated based discounted cash flow projections current expected operating losses foreseeable future ability operate business sustainable basis fair value estimate included us dollar exchange discount rate assumptions reflected inflation economic uncertainty venezuela 2015 operating results venezuela operations included consolidated statements earnings time recognized number currencyrelated remeasurement losses resulting devaluations venezuela bolivar exchange rates historically used source us dollars purchases imported raw materials packaging goods services following table sets forth 2015 remeasurement losses deconsolidation loss historical operating results financial position venezuelan subsidiaries period presented 1 represents financial position venezuelan subsidiaries december 31 2015 prior deconsolidation beginning 2016 longer included net revenues earnings net assets venezuelan subsidiaries within consolidated financial statements cost method accounting earnings recognized extent cash received given current ongoing difficult economic regulatory business environment venezuela continues significant uncertainty related operations venezuela early 2018 profitability cash flows local operations significantly deteriorated following issuance new government price controls engaging authorities pricing restrictions however situation resolved could significantly impede ability continue operate venezuela countries since sell products approximately 160 countries operations 80 countries monitor economic currencyrelated risks seek take protective measures response exposures countries business recently experienced periods significant economic uncertainty exchange rate volatility including brazil china mexico russia united kingdom brexit turkey egypt nigeria south africa continue monitor operations currencies net monetary exposures countries time anticipate risk operating results changing highly inflationary accounting countries cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less transfers financial assets account transfers financial assets uncommitted revolving nonrecourse accounts receivable factoring arrangements surrendered control related assets determining whether control transferred requires evaluation relevant legal considerations assessment nature extent continuing involvement assets transferred relevant considerations use receivable factoring arrangements periodically circumstances favorable manage liquidity factoring arrangement major global bank maximum combined capacity 10 billion program may sell eligible shortterm trade receivables bank exchange cash continue collect receivables sold acting solely collecting agent behalf bank outstanding principal amount receivables arrangement amounted 804 million december 31 2017 644 million december 31 2016 570 million december 31 2015 incremental cost factoring receivables arrangement 6 million years presented proceeds sales receivables included cash operating activities consolidated statements cash flows accounting calendar change connection moving toward common consolidation date across company first quarter 2015 changed consolidation date north america segment last saturday period last calendar day period change favorable impact 76 million net revenues 36 million operating income 2015 result change operating subsidiaries reports results last calendar day period inventories value inventory using average cost method also record inventory allowances overstock obsolete inventories due ingredient packaging changes longlived assets property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years review longlived assets including amortizable intangible assets realizability ongoing basis changes depreciation generally accelerated depreciation determined recorded estimates remaining useful lives residual values longterm assets change also review impairment conditions exist indicate carrying amount assets may fully recoverable circumstances perform undiscounted operating cash flow analyses determine impairment exists testing asset impairment group assets liabilities lowest level cash flows separately identifiable impairment loss calculated excess asset’s carrying value estimated fair value fair value estimated based discounted cash flows asset group remaining useful life based expected cash proceeds asset less costs disposal significant impairment losses would recorded within asset impairment exit costs consolidated statements earnings software costs capitalize certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment amortized straightline basis estimated useful lives software exceed seven years goodwill nonamortizable intangible assets historically annually tested goodwill nonamortizable intangible assets impairment october 1 2017 voluntarily changed annual impairment assessment date october 1 july 1 believe measurement date represents change method applying accounting principle preferable better aligns strategic business planning process financial forecasts key components annual impairment tests change measurement date delay accelerate prevent impairment charge quarter evaluated goodwill intangible asset impairment risks recognized related impairments date change annual test date applied july 1 2017 assess goodwill impairment risk throughout year performing qualitative review entityspecific industry market general economic factors affecting goodwill reporting units review operating segment reporting unit structure goodwill testing annually significant changes organization occur annually may perform qualitative testing depending factors prioryear test results current year developments current risk evaluations practical considerations may elect quantitative testing instead quantitative testing compare reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using discounted cash flow method incorporates planned growth rates marketbased discount rates estimates residual value year europe north america reporting units used marketbased weightedaverage cost capital 72 discount projected cash flows operations latin america amea reporting units used riskrated discount rate 102 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value would recognize impairment charge amount carrying value exceeds reporting unit’s fair value annually assess nonamortizable intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible assets significant potential impairment risk exists specific asset quantitatively test impairment comparing estimated fair value carrying value determine estimated fair value using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds fair value consider asset impaired reduce carrying value estimated fair value amortize definitelived intangible assets estimated useful lives evaluate impairment longlived assets insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits estimate liabilities associated risks undiscounted basis evaluating making judgments historical claims experience actuarial assumptions estimated impact future results revenue recognition predominantly sell food beverage products across several product categories regions disclosed note 16 segment reporting recognize revenue control products transfers customers generally occurs upon delivery shipment products account product shipping handling insurance fulfillment activities revenues activities recorded within net revenue costs recorded within cost sales taxes collected behalf government authorities excluded net revenues small percentage net revenues relates licensing intellectual property predominantly brand trade names record revenues license term revenues recorded net trade sales incentives estimated product returns known expected pricing revenue adjustments trade discounts rebates returns estimated time sale base estimates principally historical utilization redemption rates estimates affect revenue trade incentives product returns monitored adjusted period incentives product returns realized key sales terms pricing quantities ordered established frequent basis customer arrangements related incentives one year shorter duration capitalize contract inception costs capitalize product fulfillment costs accordance us gaap inventory policies significant unbilled receivables end period deferred revenues material primarily include customer advance payments typically collected days product delivery time deferred revenues reclassified recorded net revenues generally receive noncash consideration sale goods grant payment financing terms greater one year marketing advertising research development promote products marketing advertising programs include limited cooperative advertising instore displays consumer marketing promotions interim reporting purposes advertising consumer promotion expenses charged operations percentage volume based estimated sales volume estimated program spending defer costs yearend consolidated balance sheet marketing advertising costs recorded expense year incurred advertising expense 1248 million 2017 1396 million 2016 1542 million 2015 expense product research development costs incurred research development expense 366 million 2017 376 million 2016 409 million 2015 record marketing advertising well research development expenses within selling general administrative expenses stockbased compensation stockbased compensation awarded employees nonemployee directors valued fair value grant date record stockbased compensation expense vesting period generally three years forfeitures estimated grant date stockbased compensation awards employee benefit plans provide range benefits current retired employees include pension benefits postretirement health care benefits postemployment benefits depending upon jurisdiction tenure job level factors local statutory requirements govern many benefit plans provide around world local government plans generally cover health care benefits retirees outside united states canada united kingdom us canadian uk subsidiaries provide health care benefits retired employees postemployment benefit plans provide primarily severance benefits eligible salaried certain hourly employees cost plans recognized earnings primarily working life covered employee financial instruments use financial instruments manage currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principal objective risk management strategies reduce significant unanticipated earnings fluctuations may arise volatility currency exchange rates commodity prices interest rates principally use derivative instruments use combination primarily currency forward contracts futures options swaps commodity forward contracts futures options interest rate swaps manage exposure cash flow variability protect value existing currency assets liabilities protect value debt see note 8 financial instruments information types derivative instruments use record derivative financial instruments gross basis fair value consolidated balance sheets within current assets current liabilities due relatively shortterm duration cash flows derivative instruments classified consolidated statements cash flows based nature derivative instrument changes fair value derivative designated cash flow hedge extent hedge effective recorded accumulated comprehensive earningslosses reclassified earnings hedged item affects earnings changes fair value economic hedges ineffective portion hedges recognized current period earnings changes fair value derivative designated fair value hedge along changes fair value related hedged asset liability recorded earnings period use nonus dollar denominated debt hedge portion net investment nonus operations adverse movements exchange rates currency movements related debt net investment related deferred taxes recorded within currency translation adjustment accumulated comprehensive earningslosses order qualify hedge accounting specified level hedging effectiveness derivative instrument item hedged must exist inception throughout hedged period must also formally document nature relationship derivative hedged item well risk management objectives strategies undertaking hedge transaction method assessing hedge effectiveness additionally hedge forecasted transaction significant characteristics expected term forecasted transaction must specifically identified must probable forecasted transaction occur longer probable hedged forecasted transaction occur would recognize gain loss related derivative earnings use derivatives exposed credit market risks credit risk exists counterparty derivative contract might fail fulfill performance obligations contract reduce credit risk entering transactions counterparties high quality investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration one year longer governed international swaps derivatives association master agreement market risk exists value derivative financial instrument might adversely affected changes market conditions commodity prices currency exchange rates interest rates manage derivative market risk limiting types derivative instruments derivative strategies use degree market risk plan hedge use derivative instruments commodity derivatives exposed price risk related forecasted purchases certain commodities primarily use raw materials enter commodity forward contracts primarily wheat sugar sweeteners soybean vegetable oils cocoa commodity forward contracts generally subject accounting requirements derivative instruments hedging activities normal purchases exception also use commodity futures options hedge price certain input costs including cocoa energy costs sugar sweeteners wheat packaging dairy corn soybean vegetable oils also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes third quarter 2016 discontinued designating commodity derivatives hedge accounting treatment unrealized gains losses marktomarket impacts realized gains losses recorded earnings currency exchange derivatives use various financial instruments mitigate exposure changes exchange rates thirdparty intercompany current forecasted transactions instruments may include currency exchange forward contracts futures options swaps based size location businesses use instruments hedge exposure certain currencies including euro pound sterling swiss franc canadian dollar mexican peso third quarter 2016 discontinued designating currency exchange derivatives hedge accounting treatment unrealized gains losses marktomarket impacts realized gains losses recorded earnings see note 8 financial instruments additional information interest rate cash flow fair value hedges manage interest rate volatility modifying pricing maturity characteristics certain liabilities net impact expense material basis adversely affected movements interest rates result interest rate fluctuations hedged fixedrate liabilities appreciate depreciate market value expect effect unrealized appreciation depreciation substantially offset gains losses derivative instruments linked hedged liabilities use derivative instruments including interest rate swaps indices related pricing specific liabilities part interest rate risk management strategy matter policy use highly leveraged derivative instruments interest rate risk management use interest rate swaps economically convert portion fixedrate debt variablerate debt interest rate swap contracts agree parties exchange specified intervals difference fixedrate floatingrate interest amounts calculated based agreedupon notional amount use interest rate swaps hedge variability interest payment cash flows portion future debt obligations also execute crosscurrency interest rate swaps hedge interest payments newly issued debt denominated different currency functional currency borrowing entity substantially derivative instruments highly effective qualify hedge accounting treatment hedges net investments nonus operations numerous investments outside united states net assets subsidiaries exposed changes volatility currency exchange rates use local currency denominated debt hedge nonus net investments adverse movements exchange rates designated euro pound sterling swiss franc denominated borrowings net investment hedge portion overall european operations gains losses net investment designated european operations economically offset losses gains euro pound sterling swiss franc denominated borrowings change debt’s value net deferred taxes recorded currency translation adjustment component accumulated comprehensive earningslosses income taxes provision income taxes includes amounts payable refundable current year effects deferred taxes impacts uncertain tax positions recognize deferred tax assets liabilities expected future tax consequences temporary differences financial statement tax basis assets liabilities operating loss carryforwards tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply years differences expected reverse realization certain deferred tax assets dependent generating sufficient taxable income appropriate jurisdiction prior expiration carryforward periods deferred tax assets reduced valuation allowance likely portion deferred tax assets realized assessing need valuation allowance consider carryback potential future reversals existing taxable temporary differences including liabilities unrecognized tax benefits future taxable income tax planning strategies recognize tax benefits financial statements uncertain tax positions likely tax position sustained based technical merits position amount recognize measured largest amount benefit greater 50 percent likely realized upon resolution future changes related expected resolution uncertain tax positions could affect tax expense period change occurs monitor changes tax laws reflect impacts tax law changes period enactment response united states tax reform legislation enacted december 22 2017 “us tax reform” us securities exchange commission “sec” issued guidance allows us record provisional amounts impacts us tax reform full accounting cannot completed file 2017 financial statements provisions tax law unable make reasonable estimate impact guidance allows us continue apply historical tax provisions computing income tax liability deferred tax assets liabilities december 31 2017 guidance also allows us finalize accounting us tax reform changes within one year december 22 2017 enactment date see note 14 income taxes additional information recorded impacts us tax reform new accounting pronouncements august 2017 financial accounting standards board “fasb” issued accounting standards update “asu” simplify application hedge accounting increase transparency hedge results updated standard changes companies assess effectiveness hedging relationships cash flow net investment hedges adoption date asu requires modified retrospective transition approach presentation disclosure requirements related asu required prospectively asu effective fiscal years beginning december 15 2018 early adoption permitted intend early adopt standard first quarter 2018 expect significant impact consolidated financial statements including cumulativeeffect adjustment required upon adoption may 2017 fasb issued asu clarify changes terms conditions sharebased payment award must accounted modifications asu applied prospectively awards modified adoption date asu effective fiscal years beginning december 15 2017 early adoption permitted adopt standard january 1 2018 expect material impact consolidated financial statements march 2017 fasb issued asu amend amortization period certain purchased callable debt securities held premium shortening period earliest call date instead maturity date standard impact securities held discount continues amortized maturity asu applied modified retrospective basis cumulativeeffect adjustment directly retained earnings beginning period adoption asu effective fiscal years beginning december 15 2018 early adoption permitted adopt standard january 1 2019 expect material impact consolidated financial statements march 2017 fasb issued asu improve presentation net periodic pension cost net periodic postretirement benefit cost standard requires employers disaggregate service cost component components net benefit cost disclose amount location net benefit cost recorded income statement capitalized assets standard applied retrospective basis change presentation income statement prospectively change presentation balance sheet asu effective fiscal years beginning december 15 2017 early adoption permitted adopt standard january 1 2018 reclassify net benefit costs service costs operating income impact net earnings information service cost components net periodic benefit cost pension postretirement benefit postemployment plans see note 9 benefit plans january 2017 fasb issued asu clarifies definition business objective adding guidance assist companies evaluating whether transactions accounted acquisitions disposals assets businesses definition business may affect many areas accounting including acquisitions disposals goodwill consolidation asu applied prospective basis effective fiscal years beginning december 15 2017 early adoption permitted adopt standard january 1 2018 expect material impact consolidated financial statements november 2016 fasb issued asu requires change restricted cash equivalents included changes cash equivalents statement cash flows asu effective fiscal years beginning december 15 2017 early adoption permitted adopt standard january 1 2018 expect material impact consolidated statements cash flows october 2016 fasb issued asu requires recognition tax consequences intercompany asset transfers inventory transfer occurs removes exception postpone recognition asset sold outside party standard applied modified retrospective basis cumulativeeffect adjustment directly retained earnings asu effective fiscal years beginning december 15 2017 early adoption permitted adopt standard january 1 2018 expect material impact consolidated financial statements august 2016 fasb issued asu provide guidance eight specific cash flow classification issues reduce diversity practice cash receipts cash payments presented classified statement cash flows asu effective fiscal years beginning december 15 2017 early adoption permitted adopt standard january 1 2018 expect material impact consolidated financial statements february 2016 fasb issued asu lease accounting asu revises existing us gaap outlines new model lessors lessees use accounting lease contracts guidance requires lessees recognize rightofuse asset lease liability balance sheet leases exception shortterm leases statement earnings lessees classify leases either operating resulting straightline expense financing resulting frontloaded expense pattern asu effective fiscal years beginning december 15 2018 early adoption permitted anticipate adopting new standard january 1 2019 continue make progress due diligence assess impact new standard across operations consolidated financial statements consist primarily recording lease assets liabilities balance sheet operating leases january 2016 fasb issued asu provides updated guidance recognition measurement presentation disclosure financial assets liabilities standard requires equity investments accounted equity method accounting result consolidation investee measured fair value changes fair value recognized net income standard also impacts financial liabilities fair value option presentation disclosure requirements financial instruments asu effective fiscal years beginning december 15 2017 adopt standard january 1 2018 expect material impact consolidated financial statements may 2014 fasb issued asu revenue recognition contracts customers asu outlines new single comprehensive model companies use accounting revenue core principle entity recognize revenue depict transfer control promised goods services customer amount reflects consideration entity expects entitled receive exchange goods services asu also requires additional disclosure nature amount timing uncertainty revenue cash flows customer contracts including significant judgments made recognizing revenue 2016 2017 fasb issued several asus clarified principal versus agent gross versus net revenue presentation considerations confirmed accounting certain prepaid storedvalue products clarified guidance identifying performance obligations within contract accounting licenses partial sales nonfinancial assets fasb also issued two asus providing technical corrections narrow scope exceptions practical expedients clarify improve implementation new revenue recognition guidance revenue guidance effective annual reporting periods beginning december 15 2017 early adoption permitted original effective date annual reporting periods beginning december 15 2016 asu may applied retrospectively historical periods presented cumulativeeffect adjustment date adoption adopted new standard january 1 2018 full retrospective basis material financial impact adopting new revenue standards note 2 divestitures acquisitions jde coffee business transactions july 2 2015 completed transactions combine wholly owned coffee businesses de master blenders 1753 bv “demb” create new company jde march 7 2016 held 435 interest jde following march 7 2016 exchange portion investment jde interest keurig held 265 equity interest jde see discussion keurig transaction remaining 735 equity interest jde held subsidiary acorn holdings bv “ahbv” owner demb prior july 2 2015 following transactions discussed jde stockbased compensation arrangements december 31 2017 hold 265 voting interest 264 ownership interest 262 profit dividend sharing interest jde recorded jde equity earnings 129 million 2017 100 million 2016 equity losses 58 million 2015 also recorded 49 million cash dividends received first quarter 2017 consideration received jde coffee business transactions completed july 2 2015 consisted 38 billion cash 42 billion july 2 2015 435 equity interest jde 794 million receivables related sales price adjustments tax formation cost payments third quarter 2015 also recorded 283 million cash receivables jde related reimbursement costs incurred separating coffee businesses cash equity consideration received closing reflects retaining interest koreabased joint venture dsf second quarter 2015 also completed sale interest japanese coffee joint venture ajinomoto general foods inc “agf” lieu contributing interest agf joint venture jde contributed net cash proceeds sale part overall jde coffee business transactions july 5 2016 received expected cash payment 275 million jde settle receivable related tax formation costs part initial sales price connection contribution global coffee businesses jde july 2 2015 recorded final pretax gain 68 billion 66 billion aftertax 2015 final adjustments described previously reported deconsolidated net assets totaling 29 billion reduced accumulated comprehensive losses transfer coffee businessrelated pension obligations 90 million also recorded approximately 10 billion pretax net gains related hedging expected cash proceeds transactions described fourth quarter 2015 jde concluded negotiations sales price adjustment completed valuation investment jde primarily due negotiated resolution sales price adjustment fourth quarter 2015 recorded 313 million reduction pretax gain coffee transaction reducing 71 billion estimated gain third quarter 2015 68 billion final gain 2015 part sales price negotiations retained right collect future cash payments certain estimated pension liabilities realized agreed amount future may recognize additional income related negotiated term future final value 435 investment jde july 2 2015 41 billion 45 billion july 2 2015 fair value jde investment determined using incomebased marketbased valuation techniques discounted cash flow analysis reflected growth discount tax rates assumptions reflecting underlying combined businesses countries combined coffee businesses operate fair value jde investment also included fair values carte noire merrild businesses jde agreed divest comply conditioned approval european commission related jde coffee business transactions end first quarter 2016 businesses sold jde july 2 2015 fair values businesses recorded jde pending sales values record gain loss sales businesses share jde’s earnings 2014 2015 connection expected receipt cash euros time closing entered number consecutive currency exchange forward contracts lock equivalent expected value us dollars date jde coffee business transactions first announced may 2014 cumulatively realized aggregate net gains received cash approximately 10 billion hedging contracts increased cash received connection jde coffee business transactions 42 billion cash consideration received 52 billion connection currency contracts transfer sale proceeds subsidiaries deconsolidated net assets shares recognized net gain 436 million 2015 within interest expense net also incurred incremental expenses related readying global coffee businesses transactions totaled 278 million year ended december 31 2015 total expenses 123 million recorded within asset impairment exit costs 2015 remainder recorded within selling general administrative expenses primarily europe segment well within general corporate expenses jde capital increase december 18 2015 ahbv agreed provide jde additional capital pay debt lenders pro rata share capital increase 499 million 544 million december 18 2015 made return pro rata number additional shares jde ownership jde change following capital increase fund share capital increase contributed 460 million 501 million jde receivables made 39 million 43 million cash payment jde stockbased compensation arrangements june 30 2016 entered agreements ahbv affiliates establish new stockbased compensation arrangement tied issuance jde equity compensation awards jde employees arrangement replaced temporary equity compensation program tied issuance ahbv equity compensation jde employees new class c e jde shares authorized issued investments made vested stockbased compensation awards granted jde employees arrangements share ownership dilution jde class c e shareholders limited 2 retained 265 voting rights slightly lower portion jde’s profits dividends shareholder ownership interest certain employee shareholders receive slightly larger share upon execution agreements creation class c e jde shares percentage total jde issued shares class b shares decreased 265 264 ahbv’s class shares decreased 735 7322 class c e shares held ahbv affiliates jde employee awards vest comprised 038 jde’s shares additional class c shares available issued planned longterm incentive plan “jde ltip” awards vest generally next five years jde class c shares issued connection vested jde ltip awards class b relative ownership interests decrease based estimated achievement forfeiture assumptions expect jde ownership interest decrease 2627 jde tax matter resolution july 19 2016 supreme court spain reached final resolution challenged jde tax position held predecessor demb company resulted unfavorable tax expense 114 million result share jde’s equity earnings third quarter 2016 negatively affected 30 million 34 million keurig transaction march 3 2016 subsidiary ahbv completed 139 billion acquisition outstanding common stock keurig merger transaction march 7 2016 exchanged subsidiary ahbv portion equity interest jde carrying value 17 billion approximately 20 billion march 7 2016 interest keurig fair value 20 billion based merger consideration per share keurig recorded difference fair value keurig basis jde shares 43 million gain equity method investment exchange march 2016 immediately following exchange ownership interest jde 265 interest keurig 242 ahbv hold investments keurig combination equity interests shareholder loan prorata ownership initial 20 billion investment keurig includes 16 billion keurig equity interest 04 billion shareholder loan receivable reported combined basis within equity method investments consolidated balance sheet december 31 2017 shareholder loan 55 interest rate payable end sevenyear term february 27 2023 recorded keurig equity earnings 208 million 2017 approximately 119 million relates provisional tax benefit keurig recorded result us tax reform 77 million 2016 recorded shareholder loan interest 24 million 2017 20 million 2016 additionally received shareholder loan interest payments 30 million 2017 14 million 2016 dividends 14 million 2017 4 million 2016 planned keurig dr pepper transaction january 29 2018 announced would exchange ownership interest keurig equity keurig dr pepper contingent upon successful completion planned merger keurig dr pepper snapple group inc following close merger mid2018 expect ownership keurig dr pepper 1314 expect account new investment equity method keurig resulting recognizing share earnings within earnings share dividends within cash flows right nominate two directors board keurig dr pepper certain governance rights keurig dr pepper following transaction summary financial information equity method investments summarized financial information jde keurig dsf equity method investments reflected 1 includes approximately 360 million basis differences us gaap accounting basis equity method investments us gaap accounting basis investees’ equity 2 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting jde earnings began record earnings equity method investments aftertax equity method investment earnings outside operating income six months ended december 31 2015 aftertax equity method investment net earnings less 1 million combined basis earnings equity method investments recorded within segment operating income 56 million six months ended july 2 2015 see note 1 summary significant accounting policies principles consolidation additional information divestitures acquisitions december 28 2017 completed sale confectionery business japan received cash proceeds ¥28 billion japanese yen 24 million december 28 2017 recorded immaterial pretax loss divestiture within amea segment october 2 2017 completed sale one equity method investments received cash proceeds 65 million recorded pretax gain 40 million within gain equity method investment transactions 15 million tax expense connection 2012 spinoff kraft foods group inc part kraft heinz company “khc” kraft foods group granted various licenses use certain trademarks connection particular product categories specified jurisdictions august 17 2017 entered two agreements khc terminate licenses certain khcowned brands used grocery business within europe region transfer khc inventory certain assets august 17 2017 first transaction closed received cash proceeds 9 million 11 million august 17 2017 october 23 2017 second transaction closed received cash proceeds 2 million 3 million october 23 2017 gain transactions combined immaterial july 4 2017 completed sale grocery business australia new zealand bega cheese limited 456 million australian dollars 347 million july 4 2017 divested 27 million current assets 135 million noncurrent assets 4 million current liabilities based july 4 2017 exchange rate recorded pretax gain 247 million australian dollars 187 million july 4 2017 sale also recorded divestiturerelated costs 2 million foreign currency hedge loss 3 million 2017 fourth quarter 2017 recorded 3 million inventoryrelated working capital adjustment increasing pretax gain 190 million 2017 april 28 2017 completed sale several manufacturing facilities france sale license several local confectionery brands received cash approximately 157 million 169 million april 28 2017 net cash divested businesses april 28 2017 divested 44 million current assets 155 million noncurrent assets 8 million current liabilities 22 million noncurrent liabilities based april 28 2017 exchange rate recorded 3 million loss sale divestiturerelated costs 27 million 2017 84 million 2016 divestiturerelated costs recorded within cost sales selling general administrative expenses primarily within europe segment prior periods recorded 5 million impairment charge may 2016 candy trademark reduce overall net assets estimated net sales proceeds transaction costs march 31 2016 recorded 14 million impairment charge another gum candy trademark portion carrying value would recoverable based future cash flows expected planned license agreement buyer year ended december 31 2016 also completed following sale transactions • december 31 2016 completed sale chocolate factory belgium connection transaction recorded pretax loss 65 million 68 million december 31 2016 within asset impairment exit costs europe segment loss includes fixed asset impairment charge 30 million 31 million december 31 2016 loss disposal 22 million 23 million december 31 2016 incremental expenses incurred accrued 13 million 14 million december 31 2016 related selling factory • december 1 2016 completed sale confectionery business costa rica represented local brand sales price 28 million recorded pretax gain 9 million within gains divestiture within latin america segment divested approximately 11 million property plant equipment 4 million goodwill 2 million inventory connection transaction incurred 2 million transaction costs accrued expenses • august 26 2016 recorded 7 million gain sale usowned biscuit trademark gain recorded within selling general administrative expenses 2016 • may 2 2016 completed sale certain local biscuit brands finland part strategic decisions exit select small local brands shift investment towards power brands sales price 14 million 16 million may 2 2016 recorded pretax gain 6 million 5 million tax within selling general administrative expenses europe segment year ended december 31 2016 divested 8 million indefinitelived intangible assets less 1 million assets received cash proceeds 12 million 14 million may 2 2016 upon closing another 2 million 2 million october 31 2016 consideration following completion postclosing requirements additional 2 million consideration increased pretax gain 8 million 6 million tax december 31 2016 november 2 2016 purchased burton’s biscuit company certain intangibles included license manufacture market sell cadburybranded biscuits additional key markets around world including united kingdom france ireland north america saudi arabia transaction accounted business combination total cash paid acquired assets £199 million 245 million november 2 2016 third quarter 2017 completed valuation work finalized purchase price allocation 66 million definitelived intangible assets 173 million goodwill 2 million property plant equipment 4 million inventory reflecting november 2 2016 exchange rate acquisition added incremental net revenues 59 million 2017 16 million 2016 added incremental operating income 8 million 2017 1 million 2016 third quarter 2016 completed acquisition vietnamese biscuit operation within amea segment july 15 2015 acquired 80 interest biscuit operation august 22 2016 acquired remaining 20 interest total cash paid biscuit operation intellectual property noncompete consulting agreements less purchase price adjustments 12404 billion vietnamese dong 569 million using applicable exchange rates july 15 2015 november 27 2015 august 22 2016 august 22 2016 connection acquiring remaining 20 interest biscuit operation escrowed funds 70 million released retained agreed 20 million related two outstanding acquisitionrelated matters subsequently released 5 million 2016 9 million 2017 sellers expect pay 4 million within five years remaining indemnified obligations resolved august 22 2016 also made final payment 759 billion vietnamese dong 35 million august 22 2016 noncompete consulting agreements noncompete consulting agreements recorded prepaid contracts within current noncurrent assets amortized net earnings term agreements third quarter 2016 also finalized valuation purchase price allocation acquired net assets business included 10 million inventory 49 million property plant equipment 86 million intangible assets 385 million goodwill 31 million net liabilities periods following initial july 15 2015 first closing date allocation net asset fair values immaterial impact operating results acquisition added incremental net revenues 71 million 2016 121 million 2015 added incremental operating income 5 million 2016 21 million 2015 within selling general administrative expenses recorded integration costs 7 million 2016 9 million 2015 acquisition costs 7 million 2015 sales property november 9 2016 completed sale manufacturing plant russia recorded total expenses 12 million including related fixed asset impairment charge 4 million within asset impairments exit costs sale land buildings equipment generated cash proceeds 6 million 2016 also sold property within north america segment centrally held corporate assets third quarter 2016 sold property north america generated cash proceeds 10 million pretax gain 6 million sold corporate aircraft hangar generated cash proceeds 3 million pretax gain 1 million second quarter 2016 also sold property within north america segment centrally held corporate assets north america sale generated cash proceeds 40 million pretax gain 33 million corporate aircraft sale generated cash proceeds 20 million pretax gain 6 million gains recorded within selling general administrative expenses cash proceeds recorded cash flows investing activities year ended december 31 2016 note 3 inventories consisted following note 4 property plant equipment property plant equipment consisted following capital expenditures presented statement cash flow 10 billion 12 billion 15 billion years ending december 31 2017 2016 2015 excluded 357 million 343 million 322 million accrued capital expenditures yet paid connection restructuring program recorded noncash property plant equipment writedowns including accelerated depreciation asset impairments 206 million 2017 301 million 2016 264 million 2015 see note 6 20142018 restructuring program charges related property plant equipment recorded consolidated statements earnings within asset impairment exit costs segment results follows note 5 goodwill intangible assets goodwill reportable operating segment intangible assets consisted following nonamortizable intangible assets consist principally brand names purchased acquisitions nabisco holdings corp spanish portuguese operations united biscuits global lu biscuit business groupe danone sa cadbury limited amortizable intangible assets consist primarily trademarks customerrelated intangibles process technology licenses noncompete agreements amortization expense intangible assets 178 million 2017 176 million 2016 181 million 2015 next five years estimate annual amortization expense approximately 175 million next three years approximately 85 million years four five reflecting december 31 2017 exchange rates changes goodwill intangible assets consisted changes goodwill intangibles • divestitures 2017 connection divestiture several manufacturing facilities primarily france divested 23 million goodwill 62 million amortizable nonamortizable intangible assets 2017 also completed sale grocery business australia new zealand divested 86 million related goodwill furthermore completed sale confectionery business japan divested 5 million goodwill 24 million definite lived intangible assets finally divested 14 million definite lived intangible asset part sale one equity method investments 2016 divested 4 million goodwill related sale confectionery business costa rica sold 8 million nonamortizable intangible assets finland see note 2 divestitures acquisitions additional information • acquisitions 2017 recorded 15 million adjustment goodwill 7 million adjustment indefinite lived assets connection finalizing valuation purchase price allocation burton’s biscuit company purchase completed fourth quarter 2016 connection completion purchase vietnam biscuit operation 2016 finalized purchase price allocation consideration paid net assets acquired recorded 25 million amortizable intangible assets 61 million nonamortizable intangible assets related acquired trademarks customerrelated intangible assets preliminary goodwill balance recorded 2015 subsequently adjusted 76 million 385 million 2016 reflect finalized intangible asset fair valuations see note 2 divestitures acquisitions additional information • asset impairments recorded 109 million intangible asset impairments 2017 137 million 2016 83 million 2015 charges related annual testing nonamortizable intangible assets 70 million 2017 98 million 2016 71 million 2015 2017 also recorded 38 million intangible asset impairment charge resulting category decline lower expected product growth related gum trademark north america segment 1 million intangible asset impairment charge related transaction 2016 also recorded 20 million impairment charges within europe segment related planned sale confectionery business france see note 2 divestitures acquisitions divestitures acquisitions additional information also recorded 19 million charges europe north america amea segments resulting discontinuation four biscuit products one candy product 2015 recorded 12 million impairment charges within loss deconsolidation venezuela related biscuit trademark historically annually tested goodwill nonamortizable intangible assets impairment october 1 year voluntarily changed annual impairment assessment date october 1 july 1 believe measurement date represents change method applying accounting principle preferable better aligns strategic business planning process financial forecasts key components annual impairment tests change measurement date delay accelerate prevent impairment charge quarter evaluated goodwill intangible asset impairment risks recognized related impairments date change annual test date applied july 1 2017 2016 2015 goodwill impairments reporting units sufficient fair value excess carrying value reporting units passed annual impairment testing planned business performance expectations met specific valuation factors outside control discount rates change significantly estimated fair values reporting unit reporting units might decline lead goodwill impairment future 2017 annual testing nonamortizable intangible assets recorded 70 million impairment charges third quarter related five trademarks also noted thirteen brands including five impaired trademarks 963 million aggregate book value december 31 2017 fair value excess book value 10 less believe current plans brands allow continue impaired product line expectations met specific valuation factors outside control discount rates change significantly brand brands could become impaired future note 6 20142018 restructuring program may 6 2014 board directors approved 35 billion restructuring program 22 billion capital expenditures august 31 2016 board directors approved 600 million reallocation restructuring program cash costs capital expenditures 57 billion program consists approximately 41 billion restructuring program costs 31 billion cash costs 1 billion noncash costs 16 billion capital expenditures primary objective 20142018 restructuring program reduce operating cost structure supply chain overhead costs program intended primarily cover severance well asset disposals manufacturingrelated onetime costs since inception incurred total restructuring related implementation charges 33 billion related 20142018 restructuring program expect incur full 41 billion program charges yearend 2018 restructuring costs recorded restructuring charges 535 million 2017 714 million 2016 711 million 2015 within asset impairment exit costs 20142018 restructuring program liability activity years ended december 31 2017 2016 spent 347 million 2017 315 million 2016 cash severance related costs also recognized noncash pension settlement losses see note 9 benefit plans noncash asset writedowns including accelerated depreciation asset impairments noncash adjustments totaling 215 million 2017 321 million 2016 december 31 2017 412 million net restructuring liability recorded within current liabilities 52 million recorded within longterm liabilities implementation costs implementation costs directly attributable restructuring activities however qualify special accounting treatment exit disposal activities believe disclosure implementation costs provides readers financial statements information total costs 20142018 restructuring program implementation costs primarily relate reorganizing operations facilities connection supply chain reinvention program identified productivity cost saving initiatives costs include incremental expenses related closure facilities costs terminate certain contracts simplification information systems within continuing results operations recorded implementation costs 257 million 2017 372 million 2016 291 million 2015 recorded costs within cost sales general corporate expense within selling general administrative expenses restructuring implementation costs operating income 2017 2016 2015 since inception 20142018 restructuring program recorded restructuring implementation costs within operating income segment revised reflect current segment structure follows 1 2017 2016 north america region implementation costs included incremental costs incurred related renegotiating collective bargaining agreements expired end february 2016 eight us facilities related executing business continuity plans north america business 2 includes adjustment rounding 3 includes charges recorded since program inception may 6 2014 december 31 2017 note 7 debt borrowing arrangements shortterm borrowings shortterm borrowings related weightedaverage interest rates consisted december 31 2017 commercial paper issued outstanding 2 75 days remaining maturity commercial paper borrowings increased since 2016 yearend primarily result issuances finance payment longterm debt maturities dividend payments share repurchases year bank loans include borrowings primarily uncommitted credit lines maintained international subsidiaries meet shortterm working capital needs collectively credit lines amounted 20 billion december 31 2017 18 billion december 31 2016 borrowings lines 107 million december 31 2017 160 million december 31 2016 borrowing arrangements march 1 2017 supplement commercial paper program entered 15 billion revolving credit agreement 364day senior unsecured credit facility scheduled expire february 28 2018 agreement includes terms conditions existing 45 billion multiyear credit facility discussed december 31 2017 amounts drawn facility also maintain 45 billion multiyear senior unsecured revolving credit facility general corporate purposes including working capital needs support commercial paper program october 14 2016 revolving credit agreement scheduled expire october 11 2018 extended october 11 2021 revolving credit agreement includes covenant maintain minimum shareholders’ equity least 246 billion excluding accumulated comprehensive earningslosses cumulative effects changes accounting principles december 31 2017 complied covenant shareholders’ equity defined covenant 361 billion revolving credit facility agreement also contains customary representations covenants events default credit rating triggers provisions financial covenants could require us post collateral security december 31 2017 amounts drawn facility longterm debt longterm debt consisted interest rates december 31 2017 deferred debt issuance costs 33 million december 31 2017 40 million december 31 2016 netted related debt table deferred financing costs related revolving credit facility classified longterm assets immaterial periods presented december 31 2017 aggregate maturities debt capital leases based stated contractual maturities excluding unamortized noncash bond premiums discounts bank fees marktomarket adjustments 64 million millions thereafter total 1163 2651 896 3373 754 5362 14199 april 12 2017 discharged 488 million 6500 us dollardenominated debt paid 504 million representing principal well past future interest accruals february 2017 august 2017 maturity date recorded 11 million loss debt extinguishment within interest expense 5 million reduction accrued interest march 30 2017 fr175 million approximately 175 million 0000 swiss francdenominated notes matured notes accrued interest date paid net proceeds fr350 million swiss francdenominated notes issued march 13 2017 march 13 2017 launched offering fr350 million swiss francdenominated notes 349 million us dollars march 31 2017 consisting • fr225 million 224 million 0050 fixed rate notes mature march 30 2020 • fr125 million 125 million 0617 fixed rate notes mature september 30 2024 march 30 2017 received net proceeds fr349 million 349 million used general corporate purposes january 26 2017 750 million approximately 801 million 1125 eurodenominated notes matured notes accrued interest date paid issuance commercial paper cash hand december 16 2016 redeemed 850 million 2250 fixed rate notes maturing february 1 2019 issued january 16 2014 notes redeemed redemption cost equal 866 million plus accrued unpaid interest 7 million connection redemption three months ended december 31 2016 recorded 19 million loss debt extinguishment within interest expense net october 31 2016 completed cash tender offer retired 318 billion us dollar euro british pound sterlingdenominated notes financed repurchase notes including payment accrued interest costs incurred net proceeds received october 28 2016 375 billion note issuance term loans described connection retiring debt three months ended december 31 2016 recorded 409 million loss debt extinguishment within interest expense related amount paid retire debt excess carrying value recognizing unamortized premiums deferred financing costs earnings time debt extinguishment cash costs related tendering debt included longterm debt repayments consolidated statement cash flows year ended december 31 2016 also recognized 1 million interest income related partial settlement fair value hedges due tender october 19 2016 mondelez international holdings netherlands bv “mihn” wholly owned subsidiary mondelēz international inc launched offering 375 billion notes guaranteed mondelēz international inc 175 billion 1625 notes 500 million floating rate notes mature october 28 2019 15 billion 20 notes mature october 28 2021 october 28 2016 received proceeds net discounts associated financing costs 373 billion proceeds notes issuance used general corporate purposes including grant loans make distributions mondelēz international inc subsidiaries fund october 2016 cash tender offer nearterm debt maturities recorded approximately 20 million deferred financing costs discounts amortized interest expense life notes entered crosscurrency swaps serving cash flow hedges us dollardenominated debt payments effectively paid euros life debt october 14 2016 mihn executed 15 billion bank term loan facility loan facility consists two 750 million loans one threeyear maturity fiveyear maturity term loans drawn time 60 days signing october 25 2016 gave notice intent fully draw loan fiveyear maturity funding occurred october 28 2016 proceeds 750 million term loan may used general corporate purposes including funding tender offer debt october 25 2016 also gave notice intent terminate 750 million loan threeyear maturity february 9 2016 1750 million 4125 us dollar notes matured notes accrued interest date paid net proceeds fr400 million swiss francdenominated notes issued january 26 2016 700 million eurodenominated notes issued january 21 2016 well cash hand issuance commercial paper refinanced 1150 million matured notes net proceeds longterm debt issued january 2016 reflected amount within longterm debt december 31 2015 january 26 2016 issued fr400 million swiss francdenominated notes 399 million us dollars locked forward currency contract january 12 2016 consisting • fr250 million 249 million 0080 fixed rate notes mature january 26 2018 • fr150 million 150 million 0650 fixed rate notes mature july 26 2022 received proceeds net premiums deferred financing costs 398 million used partially fund february 2016 note maturity general corporate purposes recorded approximately 1 million premiums deferred financing costs amortized interest expense life notes january 21 2016 issued 700 million eurodenominated 1625 notes 760 million us dollars locked forward currency contract january 13 2016 eurodenominated notes mature january 20 2023 received proceeds net discounts deferred financing costs 752 million used partially fund february 2016 note maturity general corporate purposes recorded approximately 8 million discounts deferred financing costs amortized interest expense life notes weightedaverage interest rate total debt 21 december 31 2017 22 december 31 2016 37 december 31 2015 fair value debt fair value shortterm borrowings december 31 2017 december 31 2016 reflects current market interest rates approximates amounts recorded consolidated balance sheets fair value longterm debt determined using quoted prices active markets level 1 valuation data publicly traded debt obligations december 31 2017 aggregate fair value total debt 18354 million carrying value 17652 million december 31 2016 aggregate fair value total debt 17882 million carrying value 17199 million interest expense net interest expense net within results continuing operations consisted see note 2 divestitures acquisitions note 8 financial instruments information currency exchange forward contracts associated jde coffee business transactions see note 8 financial instruments information loss related us dollar interest rate swaps longer designated accounting cash flow hedges 2016 2015 also see note 12 commitments contingencies information 59 million income recorded 2017 connection resolution brazilian indirect tax matter reversal related accrued interest note 8 financial instruments fair value derivative instruments derivative instruments recorded fair value consolidated balance sheets follows derivatives designated accounting hedges include cash flow fair value hedges derivatives designated accounting hedges include economic hedges nonus dollar denominated debt designated hedge net investments nonus operations reflected table included longterm debt summarized note 7 debt borrowing arrangements record derivative assets liabilities gross basis consolidated balance sheets fair value asset derivatives recorded within current assets fair value liability derivatives recorded within current liabilities fair values assetliability derivative instruments determined using level 1 financial assets liabilities consist exchangetraded commodity futures listed options fair value instruments determined based quoted market prices commodity exchanges exchangetraded derivatives generally subject master netting arrangements permit net settlement transactions counterparty certain criteria met event default also required maintain cash margin accounts connection funding settlement open positions margin requirements generally fluctuate daily based market conditions recorded margin deposits related exchangetraded derivatives 171 million december 31 2017 133 million december 31 2016 within current assets based net asset liability positions individual counterparties event default immediate net settlement open positions derivatives net asset position counterparties would owe us total 34 million december 31 2017 48 million december 31 2016 december 31 2017 level 1 derivatives net liability position december 31 2016 would owed 2 million derivatives net liability position level 2 financial assets liabilities consist primarily overthecounter “otc” currency exchange forwards options swaps commodity forwards options interest rate swaps currency exchange contracts valued using income approach based observable market forward rates less contract rate multiplied notional amount commodity derivatives valued using income approach based observable market commodity index prices less contract rate multiplied notional amount based pricing models rely market observable inputs commodity prices calculation fair value interest rate swaps derived discounted cash flow analysis based terms contract observable market interest rate curve calculation fair value financial instruments takes consideration risk nonperformance including counterparty credit risk otc derivative transactions governed international swap dealers association agreements standard industry contracts agreements post require collateral counterparties majority commodity currency exchange otc derivatives legal right setoff connection otc derivatives could netsettled event default assuming parties fail comply terms agreements level 2 derivatives net liability position would owe 523 million december 31 2017 40 million december 31 2016 level 2 derivatives net asset position counterparties would owe us total 26 million december 31 2017 162 million december 31 2016 manage credit risk connection derivatives entering transactions counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties derivative volume net notional values derivative instruments cash flow hedges cash flow hedge activity net taxes within accumulated comprehensive earningslosses included aftertax gainslosses reclassified accumulated comprehensive earningslosses net earnings aftertax gainslosses recognized comprehensive earningslosses cash flow hedge ineffectiveness material periods presented within interest expense net recorded pretax losses 97 million first quarter 2016 34 million first quarter 2015 related amounts excluded effectiveness testing amounts relate interest rate swaps longer designated cash flow hedges due changes financing plans due lower overall costs decision hedge greater portion net investments operations use currencies us dollar functional currencies changed plans issue us dollardenominated debt instead issued euro swiss francdenominated notes 2016 euro british pound sterling swiss francdenominated notes 2015 amounts excluded effectiveness testing material periods presented record pretax gains losses reclassified accumulated comprehensive earningslosses earnings ii gains losses ineffectiveness iii gains losses amounts excluded effectiveness testing • cost sales commodity contracts • cost sales currency exchange contracts related forecasted transactions • interest expense net interest rate contracts currency exchange contracts related intercompany loans based current market conditions would expect transfer unrealized losses 1 million net taxes interest rate cash flow hedges earnings next 12 months cash flow hedge coverage december 31 2017 longest dated cash flow hedges interest rate swaps hedge forecasted interest rate payments next 5 years 10 months fair value hedges pretax gainslosses due changes fair value interest rate swaps related hedged longterm debt recorded interest expense net fair value hedge ineffectiveness amounts excluded effectiveness testing material periods presented economic hedges pretax gainslosses recorded net earnings economic hedges connection coffee business transactions entered number consecutive euro us dollar currency exchange forward contracts 2015 lock equivalent expected value us dollars marktomarket gains losses derivatives recorded earnings recorded net gains 436 million year ended december 31 2015 within interest expense net connection forward contracts transferring proceeds subsidiaries coffee net assets shares deconsolidated currency hedge related gains losses recorded within interest expense net see note 2 divestitures acquisitions jde coffee business transactions additional information hedges net investments international operations aftertax gainslosses related hedges net investments international operations form euro pound sterling swiss francdenominated debt february 8 2018 entered crosscurrency interest rate swaps forwards aggregate notional value 32 billion hedge nonus net investments adverse movements exchange rates designated swaps forwards net investment hedges related operations europe amea regions note 9 benefit plans pension plans obligations funded status projected benefit obligations plan assets funded status pension plans accumulated benefit obligation represents benefits earned measurement date 1715 million december 31 2017 1540 million december 31 2016 us pension plans accumulated benefit obligation nonus pension plans 10610 million december 31 2017 9531 million december 31 2016 salaried nonunion hourly employees hired january 1 2009 us january 1 2011 canada earlier certain legacy cadbury employees longer eligible participate defined benefit pension plans employees given enhanced company contribution employee defined contribution plans salaried nonunion hourly employees currently participating defined benefit pension plans us canada benefit accruals cease december 31 2019 combined us nonus pension plans resulted net pension liability 1570 million december 31 2017 1882 million december 31 2016 recognized amounts consolidated balance sheets follows certain us nonus plans underfunded accumulated benefit obligations excess plan assets plans projected benefit obligations accumulated benefit obligations fair value plan assets used following weightedaverage assumptions determine benefit obligations pension plans yearend discount rates us canadian eurozone uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class end 2015 changed approach used measure service interest costs pension benefits 2015 measured service interest costs utilizing single weightedaverage discount rate derived yield curve used measure plan obligations 2016 measured service interest costs applying specific spot rates along yield curve plans’ liability cash flows believe new approach provided precise measurement service interest costs aligning timing plans’ liability cash flows corresponding spot rates yield curve impact change decrease net periodic pension cost approximately 64 million year ended december 31 2016 change affect measurement plan obligations accounted change accounting estimate accordingly accounted prospective basis components net periodic pension cost net periodic pension cost consisted following 1 year ended december 31 2015 amortization prior service cost includes 17 million pension curtailment losses related employees transitioned jde upon contribution global coffee business refer note 2 divestitures acquisitions jde coffee business transactions information 2 settlement losses include 11 million year ended december 31 2017 15 million year ended december 31 2016 9 million year ended december 31 2015 pension settlement losses employees elected lumpsum payments connection 20142018 restructuring program retired employees elected lumpsum payments resulted net settlement losses 21 million us plans 6 million nonus plans 2017 15 million us plans 6 million nonus plans 2016 10 million us plans 2 million nonus plans 2015 see note 6 20142018 restructuring program information us plans determine expected return plan assets component net periodic benefit cost using calculated market return value recognizes cost four year period nonus plans utilize similar approach varying cost recognition periods plans others determine expected return plan assets based asset fair values measurement date december 31 2017 combined us nonus pension plans expected amortize accumulated comprehensive earningslosses net periodic pension cost 2018 • estimated 209 million net loss experience differences • less 1 million estimated prior service credit used following weightedaverage assumptions determine net periodic pension cost plan assets fair value pension plan assets determined using following fair value measurements excluded plan assets 71 million december 31 2017 62 million december 31 2016 tables related certain insurance contracts reported contract value accordance authoritative guidance fair value measurements • level 1 includes primarily us nonus equity securities government bonds valued using quoted prices active markets • level 2 includes primarily pooled funds including assets real estate pooled funds valued using net asset values participation units held common collective trusts reported managers trusts supported unit prices actual purchase sale transactions level 2 plan assets also include corporate bonds fixedincome securities valued using independent observable market inputs matrix pricing yield curves indices • level 3 includes investments valued using unobservable inputs reflect plans’ assumptions market participants would use pricing assets based best information available • fair value estimates pooled funds calculated investment advisor reliable quotations pricing services readily available certain underlying securities estimated value based either cost last sale price securities valued fashion • fair value estimates private equity investments calculated general partners using market approach estimate fair value private investments market approach utilizes prices relevant information generated market transactions type security degree liquidity restrictions disposition latest round financing data company financial statements relevant valuation multiples discounted cash flow analyses • fair value estimates private debt placements calculated using standardized valuation methods including limited incomebased techniques discounted cash flow projections marketbased techniques utilizing public private transaction multiples comparables • fair value estimates real estate investments calculated investment managers using present value future cash flows expected received investments based valuation methodologies appraisals local market conditions current projected operating performance • fair value estimates certain fixedincome securities insurance contracts calculated based future stream benefit payments discounted using prevailing interest rates based valuation date • net asset value primarily includes equity funds fixed income funds real estate funds hedge funds private equity investments net asset values normally used changes level 3 plan assets recorded comprehensive earningslosses included increases level 3 pension plan investments 2017 primarily due net purchases corporate bonds fixed income securities includes private debt placements effects currency decreases level 3 pension plan investments 2016 primarily due net settlements real estate funds effects currency percentage fair value pension plan assets us plans investment strategy reduce risk underfunded plans part appropriate asset allocation within plan assets attempt maintain target asset allocation rebalancing asset classes make contributions monthly benefit payments strategy involves using indexed us equity international equity securities actively managed us investment grade fixedincome securities constitute 95 fixedincome securities smaller allocations high yield fixedincome securities nonus plans investment strategy subject local regulations assetliability profiles plans individual country aggregate asset allocation targets nonus plans broadly characterized mix approximately 32 equity securities including investments real estate approximately 66 fixedincome securities approximately 2 types securities investment strategy largest nonus plan comprises 63 nonus pension assets designed balance risk return diversifying across wide range returnseeking liability matching assets invested range active passive mandates target allocation approximately 23 equity securities 20 credit 57 liability matching assets strategy uses indexed global developed equities actively managed global investment grade alternative credit real estate liability matching assets including buyin annuity policy employer contributions 2017 contributed 23 million us pension plans 470 million nonus pension plans nonus amount included nonrecurring 250 million contribution made connection new funding agreement company plan united kingdom addition employees contributed 12 million nonus plans make contributions pension plans accordance local funding arrangements statutory minimum funding requirements discretionary contributions made extent tax deductible generate excise tax liability 2018 estimate pension contributions 39 million us plans 250 million nonus plans based current tax laws actual contributions may different due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates future benefit payments estimated future benefit payments pension plans december 31 2017 millions multiemployer pension plans accordance obligations collective bargaining agreements made contributions multiemployer pension plans 26 million 2017 25 million 2016 31 million 2015 risks participating multiemployer pension plans different single employer plans contributions made participating employer segregated used provide benefits participants related participating employer participating employer stops contributing plan unfunded vested obligations plan borne remaining participating employers individually significant multiemployer plan participate december 31 2017 bakery confectionery union industry international pension fund “fund” contributions fund exceeded 5 total contributions fund fiscal years 2017 2016 2015 contributions fund 22 million 2017 21 million 2016 27 million 2015 contributions multiemployer pension plans individually significant 4 million 2017 4 million 2016 4 million 2015 contributions based contribution rates collective bargaining agreements number eligible employees fund surcharges effective january 1 2012 fund’s zone status changed “red” result certification beginning july 2012 charged 10 surcharge contribution rates fund subsequently adopted rehabilitation plan november 7 2012 required contribution increases reductions benefit provisions august 28 2016 10 surcharge longer applicable required pay higher contributions fund’s rehabilitation plan although collective bargaining agreements fund expired 2016 continue renegotiate agreements continue make contributions fund costs sponsor contribute employee defined contribution plans cover eligible salaried nonunion union employees contributions costs determined matching employee contributions defined plans amounts charged expense continuing operations defined contribution plans totaled 43 million 2017 44 million 2016 45 million 2015 postretirement benefit plans obligations postretirement health care plans funded changes amount accrued benefit obligation 1 plan amendments 2016 included change eligibility requirements related medical life insurance benefits change benefits medicareeligible participants current portion accrued postretirement benefit obligation 16 million december 31 2017 12 million december 31 2016 included current liabilities used following weightedaverage assumptions determine postretirement benefit obligations yearend discount rates us canadian uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear expected health care cost trend rate based historical costs end 2015 changed approach used measure service interest costs postretirement benefits 2015 measured service interest costs utilizing single weightedaverage discount rate derived yield curve used measure plan obligations 2016 measured service interest costs applying specific spot rates along yield curve plans’ liability cash flows believe new approach provided precise measurement service interest costs aligning timing plans’ liability cash flows corresponding spot rates yield curve impact change decrease net periodic postretirement cost approximately 4 million year ended december 31 2016 change affect measurement plan obligations accounted change accounting estimate accordingly accounted prospective basis assumed health care cost trend rates significant impact amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects components net periodic postretirement health care costs net periodic postretirement health care costs consisted following 1 fourth quarter 2016 prior service credit included onetime 9 million curtailment gain related change eligibility requirement resulting ongoing amortization 10 million 2017 continue amortize prior service credit recorded 40 million full year basis december 31 2017 expected amortize accumulated comprehensive earningslosses pretax net periodic postretirement health care costs 2018 • estimated 18 million net loss experience differences • estimated 39 million prior service credit used following weightedaverage assumptions determine net periodic postretirement health care cost future benefit payments estimated future benefit payments postretirement health care plans december 31 2017 millions costs made contributions multiemployer medical plans totaling 18 million 2017 19 million 2016 20 million 2015 plans provide medical benefits active employees retirees certain collective bargaining agreements postemployment benefit plans obligations postemployment plans primarily funded changes amount accrued benefit obligation december 31 2017 2016 accrued benefit obligation determined using weightedaverage discount rate 65 2017 62 2016 assumed weightedaverage ultimate annual turnover rate 03 2017 2016 assumed compensation cost increases 40 2017 2016 assumed benefits defined respective plans postemployment costs arising actions offer employees benefits excess specified respective plans charged expense incurred components net periodic postemployment costs net periodic postemployment costs consisted following december 31 2017 estimated net gain postemployment benefit plans expected amortize accumulated comprehensive earningslosses net periodic postemployment costs 2018 approximately 3 million note 10 stock plans amended restated 2005 performance incentive plan “plan” authorized may 21 2024 issue maximum 2437 million shares common stock employees nonemployee directors december 31 2017 672 million shares available granted plan stock options stock options including stock appreciation rights granted exercise price equal market value underlying stock grant date generally become exercisable three annual installments beginning first anniversary grant date maximum term ten years account employee stock options fair value method accounting using blackscholes methodology measure stock option expense date grant fair value stock options date grant amortized expense vesting period recorded compensation expense related stock options held employees 50 million 2017 57 million 2016 50 million 2015 results continuing operations deferred tax benefit recorded related compensation expense 12 million 2017 15 million 2016 13 million 2015 unamortized compensation expense related employee stock options 44 million december 31 2017 expected recognized weightedaverage period 12 years weightedaverage blackscholes fair value assumptions riskfree interest rate represents constant maturity us government treasuries rate remaining term equal expected life options expected life period employees expected hold options volatility reflects historical movements stock price period commensurate expected life options dividend yield reflects dividend yield place time historical grants stock option activity reflected 1 cash received options exercised 257 million 2017 221 million 2016 148 million 2015 actual tax benefit realized tax deductions option exercises totaled 31 million 2017 31 million 2016 58 million 2015 deferred stock units performance share units restricted stock historically made grants deferred stock units performance share units restricted stock beginning 2016 grant deferred stock units performance share units longer grant restricted stock may grant shares deferred stock units eligible employees giving instances rights shareholders except may sell assign pledge otherwise encumber shares deferred stock units voting rights vested shares deferred stock units subject forfeiture certain employment conditions met deferred stock units generally vest third anniversary grant date performance share units granted 2005 plan vest based varying performance market service conditions unvested performance share units voting rights pay dividends dividend equivalents accumulated vesting period paid performance share units vest fair value deferred stock units performance share units restricted stock date grant amortized earnings vesting period fair value deferred stock units restricted stock measured market price common stock grant date performance share unit awards generally targets tied performance marketbased conditions market condition components market volatility factors taken consideration determining grant date fair value related compensation expense recognized regardless whether market condition satisfied provided requisite service provided performance condition components estimate probability performance conditions achieved quarter adjust compensation expenses accordingly grant date fair value performance share units determined based monte carlo simulation model marketbased total shareholder return component market price common stock grant date performancebased components number performance share units ultimately vest ranges 0200 percent number granted based achievement performance marketbased components recorded compensation expense related deferred stock units performance share units restricted stock 87 million 2017 83 million 2016 86 million 2015 results continuing operations deferred tax benefit recorded related compensation expense 23 million 2017 22 million 2016 24 million 2015 unamortized compensation expense related deferred stock units performance share units restricted stock 138 million december 31 2017 expected recognized weightedaverage period 18 years performance share unit deferred stock unit restricted stock activity reflected 1 includes performance share units deferred stock units restricted stock 2 includes performance share units deferred stock units restricted stock actual tax benefit realized tax deductions shares vested totaled 7 million 2017 18 million 2016 18 million 2015 3 includes performance share units deferred stock units 4 performance share units reflect grant date fair values prioryear weighted average fair value per share revised note 11 capital stock amended restated articles incorporation authorize 50 billion shares class common stock “common stock” 500 million shares preferred stock preferred shares issued outstanding december 31 2017 2016 2015 shares common stock issued treasury outstanding stock plan awards employees nonemployee directors issued treasury shares december 31 2017 123 million shares common stock held treasury reserved stock options stock awards share repurchase program 2013 2017 board directors authorized repurchase total 137 billion common stock december 31 2018 january 31 2018 finance committee authorization delegated board directors approved increase 60 billion share repurchase program raising authorization 197 billion common stock repurchases extended program december 31 2020 repurchases program determined management wholly discretionary prior january 1 2017 repurchased approximately 108 billion common stock pursuant authorization 2017 repurchased approximately 506 million shares common stock average cost 4351 per share aggregate cost approximately 22 billion paid period except approximately 28 million settled january 2018 share repurchases funded available cash commercial paper issuances december 31 2017 approximately 06 billion remaining share repurchase capacity january 31 2018 subsequent approximately 01 billion share repurchases january remaining share repurchase capacity 65 billion note 12 commitments contingencies legal proceedings subject legal proceedings claims governmental inspections investigations incidental business including specified february 2013 march 2014 cadbury india limited known mondelez india foods private limited subsidiary mondelēz international parties received show cause notices indian central excise authority “excise authority” calling upon parties demonstrate excise authority collect total 37 billion indian rupees 59 million december 31 2017 unpaid excise tax equivalent amount penalties well interest related production indian facility contested demands unpaid excise taxes penalties interest march 27 2015 several hearings commissioner excise authority issued order denying excise exemption claimed indian facility confirming excise authority’s demands total taxes penalties amount 58 billion indian rupees 91 million december 31 2017 appealed order addition excise authority issued additional show cause notices february 2015 december 2015 october 2017 issue covering periods january october 2014 november 2014 september 2015 october 2015 june 2017 respectively notices added total 49 billion indian rupees 77 million december 31 2017 unpaid excise taxes well penalties determined amount equivalent claimed excise authority plus interest implementation new goods services tax india july 2017 receive show cause notices additional amounts issue believe decision claim excise tax benefit valid continuing contest show cause notices administrative judicial process april 2013 staff us commodity futures trading commission “cftc” advised us kraft foods group investigating activities related trading december 2011 wheat futures contracts occurred prior spinoff kraft foods group cooperated staff investigation april 1 2015 cftc filed complaint kraft foods group mondelēz global llc “mondelēz global” us district court northern district illinois eastern division “cftc action” complaint alleges kraft foods group mondelēz global 1 manipulated attempted manipulate wheat markets fall 2011 2 violated position limit levels wheat futures 3 engaged noncompetitive trades trading sides exchangeforphysical chicago board trade wheat contracts cftc seeks civil monetary penalties either triple monetary gain violation commodity exchange act “act” 1 million violation section 6c1 6c3 9a2 act 140000 additional violation act plus postjudgment interest order permanent injunction prohibiting kraft foods group mondelēz global violating specified provisions act disgorgement profits costs fees december 2015 court denied mondelēz global kraft foods group’s motion dismiss cftc’s claims market manipulation attempted manipulation parties discovery additionally several class action complaints filed kraft foods group mondelēz global us district court northern district illinois investors wheat futures options behalf others similarly situated complaints make similar allegations made cftc action seek class action certification unspecified amount damages interest unjust enrichment costs fees injunctive declaratory unspecified relief june 2015 suits consolidated northern district illinois june 2016 court denied mondelēz global kraft foods group’s motion dismiss parties discovery possible predict outcome matters however based separation distribution agreement kraft foods group dated september 27 2012 expect bear monetary penalties payments connection cftc action party various legal proceedings incidental business including noted section present believe ultimate outcome proceedings individually aggregate materially harm financial position results operations cash flows however legal proceedings government investigations subject inherent uncertainties unfavorable rulings events could occur unfavorable resolutions could involve substantial monetary damages addition matters conduct remedies sought unfavorable resolutions could include injunction order prohibiting us selling one products particular ways precluding particular business practices requiring remedies unfavorable outcome might result material adverse impact business results operations financial position thirdparty guarantees enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2017 material thirdparty guarantees recorded consolidated balance sheet tax matters part 2010 cadbury acquisition became responsible party tax matters february 2 2006 dated deed tax covenant cadbury schweppes plc related entities “schweppes” black lion beverages related entities tax matters included ongoing transfer pricing case spanish tax authorities related schweppes businesses cadbury divested prior acquisition cadbury first quarter 2017 spanish supreme court decided case favor result final ruling first quarter 2017 recorded favorable earnings impact 46 million selling general administrative expenses 12 million interest expense net total pretax impact 58 million due noncash reversal cadburyrelated accrued liabilities related matter 2017 recorded additional income 4 million related bank guarantee releases within selling general administrative expenses interest expense net first quarter 2017 brazilian supreme court “court” ruled brazilian tax authorities leading case related computation certain indirect taxes court ruled indirect tax base include valueadded tax known “icms” removing icms tax base court effectively eliminated “tax” brazilian subsidiary received injunction making payments “tax” 2008 since time december 2016 accrued portion tax quarter event tax reaffirmed brazilian courts september 30 2017 based legal advice publication court’s decision related case determined likelihood increased tax base would reinstated assessed us remote accordingly reversed accrual 667 million brazilian reais 212 million september 30 2017 153 million recorded within selling general administrative expenses 59 million recorded within interest expense net brazilian tax authority seeking potential clarification adjustment terms enforcement court continue monitor developments matter currently expect material future impact financial statements leases rental expenses recorded continuing operations 284 million 2017 317 million 2016 331 million 2015 december 31 2017 minimum rental commitments noncancelable operating leases effect yearend millions note 13 reclassifications accumulated comprehensive income following table summarizes changes accumulated balances component accumulated comprehensive earningslosses attributable mondelēz international amounts reclassified accumulated comprehensive earningslosses net earnings net tax net losses 174 million 2017 250 million 2016 350 million 2015 1 reclassified losses included components net periodic benefit costs disclosed note 9 benefit plans settlement losses include transfer coffee businessrelated pension obligations amount 90 million 2015 2 taxes reclassified earnings recorded within provision income taxes 3 reclassified gains losses recorded within cost sales 4 reclassified losses recorded within interest expense net note 14 income taxes december 22 2017 new us tax reform legislation enacted included broad range complex provisions impacting taxation businesses certain impacts new legislation would generally require accounting completed period enactment however response complexities new legislation sec issued guidance provide companies relief specifically initial accounting items new legislation incomplete guidance allows us recognize provisional amounts reasonable estimates made continue apply prior tax law reasonable estimate impact cannot made sec provided oneyear window companies finalize accounting impacts new legislation anticipate finalizing accounting 2018 accounting new us tax legislation complete made reasonable estimates provisions recognized 59 million discrete net tax benefit 2017 financial statements net benefit primarily comprised 1311 million provisional deferred tax benefit revaluing net us deferred tax liabilities reflect new us corporate tax rate well additional 61 million provisional deferred tax benefit related changes indefinite reinvestment assertion partially offset 1317 million provisional charge estimated transition tax general transition tax result deemed repatriation imposed new legislation results taxation accumulated foreign earnings profits “ep” 155 rate liquid assets ie cash specified assets 8 remaining unremitted foreign ep net foreign tax credits time yet gathered prepared analyzed necessary information sufficient detail complete complex calculations necessary finalize amount transition tax believe provisional calculations result reasonable estimate transition tax related foreign tax credit included amounts yearend income tax provision believe likely realize benefit estimated excess foreign tax credit carryforward created deemed repatriation thus recognized full valuation allowance deferred tax asset complete analysis accumulated foreign ep related foreign taxes paid entity basis finalize amounts held cash specified assets update provisional estimate transition tax related foreign tax credit including excess credit carryforward corresponding valuation allowance estimate deferred tax benefit due revaluation net us deferred tax liabilities also provisional amount sec’s guidance due newly enacted us tax rate change timing differences estimated balances date enactment yearend result changes estimate deferred rate change estimates finalized filing 2017 income tax return result different federal income tax rates effect 2017 35 2018 21 since many yearend deferred tax balances include estimates events yet occurred payments expected made 2018 deductible 2017 tax return amounts cannot yet known finalize impact tax rate change result us tax reform changed indefinite reinvestment assertion companies owned directly us subsidiaries may need accrue deferred taxes year end calculated impact accrue deferred tax assets related two entities deferred tax benefits expected realized foreseeable future however necessary information gathered prepared analyzed make reasonable estimate impact remaining outside basis differences inherent rest foreign subsidiaries gather information necessary compute outside basis differences subsidiaries longer indefinitely reinvested record new deferred taxes reasonable estimates available estimate unremitted earnings december 31 2017 subsidiaries expect continue indefinitely reinvested approximately 2 billion impracticable us determine amount unrecognized deferred tax liabilities indefinitely reinvested earnings future tax law changes needs nonus subsidiaries could require us recognize deferred tax liabilities portion accumulated earnings previously expected indefinitely reinvested legislation also establishes new provisions affect 2018 results including limited reduction us corporate tax rate domestic operations creation new minimum tax called base erosion antiabuse tax beat new provision taxes us allocated expenses eg interest general administrative expenses well currently taxes certain income foreign operations global intangible lowtax income “gilti” general elimination us federal income taxes dividends foreign subsidiaries new limitation deductible interest expense repeal domestic manufacturing deduction limitations deductibility certain employee compensation new legislation generally eliminates us federal income tax dividends foreign subsidiaries going forward certain income earned certain subsidiaries must included currently us taxable income new gilti inclusion rules result us expense allocation rules complexity new gilti tax rules continuing evaluate provision legislation application us gaap us gaap allowed make accounting policy election either treat taxes due gilti currentperiod expense incurred factor amounts measurement deferred taxes selection accounting policy respect new gilti rules depend part analyzing global income determine whether expect future us inclusions taxable income related gilti impact expected yet computed reasonable estimate effect provision therefore made policy decision regarding whether record deferred taxes related gilti made adjustments related gilti tax yearend financial statements earningslosses continuing operations income taxes provision income taxes consisted recorded outofperiod adjustment 14 million net expense 2015 immaterial impact annual provision income taxes effective income tax rate pretax earnings differed us federal statutory rate following reasons 2017 effective tax rate 220 favorably impacted mix pretax income various nonus tax jurisdictions net tax benefits 117 million discrete onetime events partially offset increase domestic earnings compared prior year discrete net tax benefits included provisional net impact us tax reform discussed previously favorable audit settlements statutes limitations various jurisdictions net reduction french belgian deferred tax liabilities resulting tax legislation enacted 2017 reduced corporate income tax rates country partially offset addition valuation allowance one chinese entities 2016 effective tax rate 89 favorably impacted mix pretax income various nonus tax jurisdictions net tax benefits 161 million discrete onetime events discrete net tax benefits related favorable audit settlements statutes limitations various jurisdictions net reduction uk french deferred tax liabilities resulting tax legislation enacted 2016 reduced corporate income tax rates country 2015 effective tax rate 75 favorably impacted onetime third quarter sale coffee business resulted pretax gain 6809 million 184 million related tax expense well 27 million tax costs incurred remit proceeds lowertier foreign subsidiaries allow cash redeployed within retained foreign operations benefit third quarter transaction partially offset tax costs associated sale interest agf first half year impact deconsolidating venezuelan operations december 31 2015 excluding impacts transactions effective tax rate would 178 reflecting favorable impacts mix pretax income various nonus tax jurisdictions net tax benefits 119 million discrete onetime events remaining discrete onetime events primarily related favorable tax audit settlements expirations statutes limitations several jurisdictions net reduction uk deferred tax liabilities resulting tax legislation enacted 2015 reduced uk corporate income tax rate tax effects temporary differences gave rise deferred income tax assets liabilities consisted following significant valuation allowances us mexico china ireland us valuation allowance relates excess foreign tax credits generated deemed repatriation us tax reform valuation allowance china results change judgment realizability one chinese entity’s deferred tax assets mexico ireland valuation allowances relate loss carryforwards currently expect generate gains proper character utilize carryforwards future december 31 2017 company pretax loss carryforwards 4060 million 1105 million expire various dates 2018 2037 remaining 2955 million carried forward indefinitely changes unrecognized tax benefits january 1 2017 unrecognized tax benefits 610 million recognized benefits net impact income tax provision would 549 million unrecognized tax benefits 579 million december 31 2017 recognized benefits net impact income tax provision would 524 million within next 12 months unrecognized tax benefits could increase approximately 40 million due unfavorable audit developments decrease approximately 150 million due audit settlements expiration statutes limitations various jurisdictions include accrued interest penalties related uncertain tax positions tax provision accrued interest penalties 189 million january 1 2017 212 million december 31 2017 provision income taxes included 26 million interest penalties income tax filings regularly examined federal state nonus tax authorities 20132015 us federal income tax filings currently examination irs us state nonus jurisdictions statutes limitations generally ranging three five years however statutes often extended mutual agreement tax authorities years still open examination nonus tax authorities major jurisdictions include earliest open tax year parentheses brazil 2012 china 2007 france 2014 india 2005 italy 2012 united kingdom 2015 note 15 earnings per share basic diluted earnings per share “eps” calculated follows exclude antidilutive mondelēz international stock options calculation weightedaverage shares diluted eps excluded antidilutive stock options 85 million year ended december 31 2017 78 million year ended december 31 2016 51 million year ended december 31 2015 note 16 segment reporting manufacture market primarily snack food products including biscuits cookies crackers salted snacks chocolate gum candy various cheese grocery products well powdered beverage products manage global business report operating results geographic units operations management structure organized four reportable operating segments • latin america • amea • europe • north america october 1 2016 integrated eemea operating segment europe asia pacific operating segments leverage optimize operating scale built within europe asia pacific regions russia ukraine turkey belarus georgia kazakhstan combined within europe operating segment remaining middle east african countries combined within asia pacific region form amea operating segment reflected segment change occurred periods presented manage operations region leverage regional operating scale manage different changing business environments effectively pursue growth opportunities arise key markets regional management teams responsibility business product categories financial results regions historically recorded income equity method investments within operating income investments part base business beginning third quarter 2015 align accounting new coffee equity method investment jde began record earnings equity method investments equity method investment earnings outside segment operating income six months ended december 31 2015 aftertax equity method investment net earnings less 1 million combined basis earnings equity method investments july 2 2015 recorded within segment operating income 52 million amea 4 million north america see note 1 summary significant accounting policies principles consolidation note 2 divestitures acquisitions additional information 2015 also began report stockbased compensation corporate employees within general corporate expenses reported within north america region reclassified 32 million corporate stockbased compensation expense 2015 north america segment general corporate expenses use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales general corporate expenses component selling general administrative expenses amortization intangibles gains losses divestitures loss deconsolidation venezuela acquisitionrelated costs component selling general administrative expenses periods presented exclude items segment operating income order provide better transparency segment operating results furthermore centrally manage interest expense net accordingly present items segment excluded segment profitability measure management reviews segment net revenues earnings reflecting current segment structure periods presented 1 net revenues 1217 million 2015 venezuelan subsidiaries included consolidated financial statements beginning 2016 account venezuelan subsidiaries using cost method accounting longer include net revenues venezuelan subsidiaries within consolidated financial statements refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information 2 july 2 2015 contributed global coffee businesses primarily europe amea segments net revenues global coffee business 1561 million europe 66 million amea year ended december 31 2015 refer note 2 divestitures acquisitions jde coffee business transactions information single customer accounted 10 net revenues continuing operations 2017 five largest customers accounted 156 ten largest customers accounted 214 net revenues continuing operations 2017 items impacting segment operating results discussed note 1 summary significant accounting policies including venezuela deconsolidation currency devaluation note 2 divestitures acquisitions note 4 property plant equipment note 5 goodwill intangible assets note 6 20142018 restructuring program note 12 commitments contingencies also see note 7 debt borrowing arrangements note 8 financial instruments information interest expense net period total assets depreciation expense capital expenditures segment reflecting current segment structure periods presented 1 unallocated assets consist primarily cash equivalents deferred income taxes centrally held property plant equipment prepaid pension assets derivative financial instrument balances final adjustments jurisdictional netting deferred tax assets liabilities done consolidated level geographic data net revenues recognized countries products sold longlived assets excluding deferred tax goodwill intangible assets equity method investments individual country within exceeded 10 net revenues longlived assets periods presented net revenues product category reflecting current segment structure periods presented 1 2015 consolidated net revenues included venezuela net revenues 763 million biscuits 340 million cheese grocery 66 million gum candy 48 million beverages following deconsolidation venezuela operations end 2015 2016 2017 consolidated net revenues longer include net revenues venezuelan subsidiaries refer note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information 2 july 2 2015 contributed global coffee businesses primarily europe amea segment beverage categories net revenues global coffee business 1561 million europe 66 million amea year ended december 31 2015 refer note 2 divestitures acquisitions jde coffee business transactions information 3 2016 realigned products across product categories primarily within europe segment reclassified product category net revenues basis consistent 2016 presentation note 17 quarterly financial data unaudited summarized operating results quarter detailed 1 see following table significant items affected comparability earnings quarter basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may equal total year 2017 2016 recorded following pretax chargesgains earnings continuing operations items impacting operating results discussed note 1 summary significant accounting policies including venezuela deconsolidation currency devaluations note 2 divestitures acquisitions note 5 goodwill intangible assets note 6 20142018 restructuring program note 7 debt borrowing arrangements item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders mondelēz international inc opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets mondelēz international inc subsidiaries company december 31 2018 2017 related consolidated statements earnings comprehensive earnings equity cash flows three years period ended december 31 2018 including related notes financial statement schedule listed index appearing item 15a collectively referred “consolidated financial statements” also audited company’s internal control financial reporting december 31 2018 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2018 2017 results operations cash flows three years period ended december 31 2018 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2018 based criteria established internal controlintegrated framework 2013 issued coso change accounting principle discussed note 6 consolidated financial statements company changed manner accounts certain equity method investment 2018 basis opinions company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included report management internal control financial reporting appearing item 9a responsibility express opinions company’s consolidated financial statements company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states “pcaob” required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp chicago illinois february 8 2019 served company’s auditor since 2001 mondelēz international inc subsidiaries consolidated statements earnings years ended december 31 millions us dollars except per share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements comprehensive earnings years ended december 31 millions us dollars see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated balance sheets december 31 millions us dollars except share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements equity millions us dollars except per share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements cash flows years ended december 31 millions us dollars see accompanying notes consolidated financial statements mondelēz international inc subsidiaries notes consolidated financial statements note 1 summary significant accounting policies description business mondelēz international inc incorporated 2000 commonwealth virginia mondelēz international inc subsidiaries collectively “mondelēz international” “we” “us” “our” sells food beverage products consumers 150 countries principles consolidation consolidated financial statements include mondelēz international inc well wholly owned majority owned subsidiaries except venezuelan subsidiaries deconsolidated 2015 intercompany transactions eliminated noncontrolling interest represents noncontrolling investors’ interests results subsidiaries control consolidate account investments exercise significant influence equity method accounting investments significant influence control material carried cost readily determinable fair value equity interests cost method accounting earnings recognized extent cash received use estimates prepare consolidated financial statements accordance accounting principles generally accepted united states america “us gaap” require us make estimates assumptions affect number amounts consolidated financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions valuation assumptions goodwill intangible assets useful lives longlived assets restructuring program liabilities marketing program accruals insurance selfinsurance reserves income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year material effect consolidated financial statements segment change october 1 2016 integrated eastern europe middle east africa “eemea” operating segment europe asia pacific operating segments leverage optimize operating scale built within europe asia pacific regions russia ukraine turkey belarus georgia kazakhstan combined within europe region remaining middle east african countries combined within asia pacific region form new asia middle east africa “amea” operating segment reflected segment change occurred periods presented operations management structure organized four operating segments • latin america • amea • europe • north america see note 17 segment reporting additional information segments currency translation highly inflationary accounting translate results operations subsidiaries multiple currencies using average exchange rates period translate balance sheet accounts using exchange rates end period record currency translation adjustments component equity except highly inflationary currencies realized exchange gains losses transactions earnings highly inflationary accounting triggered country’s threeyear cumulative inflation rate exceeds 100 requires remeasurement financial statements subsidiaries country functional currency subsidiary us dollar reporting currency remeasurement gains losses recorded earnings discussed beginning july 1 2018 began apply highly inflationary accounting operations argentina second quarter 2018 primarily based published estimates indicated argentinas threeyear cumulative inflation rate exceeded 100 concluded argentina became highly inflationary economy accounting purposes july 1 2018 began apply highly inflationary accounting argentinean subsidiaries changed functional currency argentinean peso us dollar july 1 2018 monetary nonmonetary assets liabilities denominated argentinean pesos remeasured us dollars using exchange rate balance sheet date remeasurement transaction gains losses recorded net earnings december 31 2018 argentinean operations less 1 million argentinean peso denominated net monetary liabilities argentinean operations contributed 469 million 18 consolidated net revenues 2018 recorded 11 million remeasurement loss within selling general administrative expenses related devaluation argentinean peso denominated net monetary assets july 1 2018 december 31 2018 brexit 2018 generated 86 net revenues united kingdom continue monitor uk planned exit european union brexit take protective measures response potential impacts results operations financial condition following brexit vote june 2016 significant volatility global stock markets currency exchange rates value british pound sterling relative us dollar declined significantly negatively affected translated results reported us dollars ultimate terms united kingdom’s separation european union negatively impact uk economy result disruptions sales supply chain impact results operations financial condition could material taking measures increase resources customer service logistics together increasing inventory levels imported raw materials packaging finished goods united kingdom help us manage brexit transition inherent risks countries since sell products 150 countries operations 80 countries monitor economic currencyrelated risks seek take protective measures response exposures countries business recently experienced periods significant economic uncertainty exchange rate volatility including brazil china mexico russia ukraine turkey egypt nigeria south africa pakistan continue monitor operations currencies net monetary exposures countries time anticipate countries risk becoming highly inflationary economies cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less transfers financial assets account transfers financial assets uncommitted revolving nonrecourse accounts receivable factoring arrangements surrendered control related assets determining whether control transferred requires evaluation relevant legal considerations assessment nature extent continuing involvement assets transferred relevant considerations use receivable factoring arrangements periodically circumstances favorable manage liquidity nonrecourse factoring arrangements sell eligible trade receivables primarily banks exchange cash may continue collect receivables sold acting solely collecting agent behalf banks outstanding principal amount receivables arrangements amounted 819 million december 31 2018 843 million december 31 2017 677 million december 31 2016 incremental costs factoring receivables arrangement 10 million less years presented proceeds sales receivables included cash operating activities consolidated statements cash flows inventories value inventory using average cost method also record inventory allowances overstock obsolete inventories due ingredient packaging changes longlived assets property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years review longlived assets including amortizable intangible assets realizability ongoing basis changes depreciation generally accelerated depreciation determined recorded estimates remaining useful lives residual values longterm assets change also review impairment conditions exist indicate carrying amount assets may fully recoverable circumstances perform undiscounted operating cash flow analyses determine impairment exists testing asset impairment group assets liabilities lowest level cash flows separately identifiable impairment loss calculated excess asset’s carrying value estimated fair value fair value estimated based discounted cash flows asset group remaining useful life based expected cash proceeds asset less costs disposal significant impairment losses would recorded within asset impairment exit costs consolidated statements earnings software costs capitalize certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment amortized straightline basis estimated useful lives software exceed seven years goodwill nonamortizable intangible assets test goodwill nonamortizable intangible assets impairment annual basis july 1 assess goodwill impairment risk throughout year performing qualitative review entityspecific industry market general economic factors affecting goodwill reporting units review operating segment reporting unit structure goodwill testing annually significant changes organization occur annually may perform qualitative testing depending factors prioryear test results current year developments current risk evaluations practical considerations may elect quantitative testing instead quantitative testing compare reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using discounted cash flow method incorporates planned growth rates marketbased discount rates estimates residual value year europe north america reporting units used marketbased weightedaverage cost capital 73 discount projected cash flows operations latin america amea reporting units used riskrated discount rate 103 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value would recognize impairment charge amount carrying value exceeds reporting unit’s fair value annually assess nonamortizable intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible assets significant potential impairment risk exists specific asset quantitatively test impairment comparing estimated fair value carrying value determine estimated fair value using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds fair value consider asset impaired reduce carrying value estimated fair value amortize definitelived intangible assets estimated useful lives evaluate impairment longlived assets insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits estimate liabilities associated risks undiscounted basis evaluating making judgments historical claims experience actuarial assumptions estimated impact future results revenue recognition predominantly sell food beverage products across several product categories regions disclosed note 17 segment reporting recognize revenue control products transfers customers generally occurs upon delivery shipment products small percentage net revenues relates licensing intellectual property predominantly brand trade names record revenues earned within period license term account product shipping handling insurance fulfillment activities revenues activities recorded within net revenue costs recorded within cost sales taxes collected behalf government authorities excluded net revenues recorded net trade sales incentives estimated product returns known expected pricing revenue adjustments trade discounts rebates returns estimated time sale base estimates expected amounts principally historical utilization redemption rates estimates affect revenue trade incentives product returns monitored adjusted period incentives product returns realized key sales terms pricing quantities ordered established frequent basis customer arrangements related incentives one year shorter duration capitalize contract inception costs capitalize product fulfillment costs accordance us gaap inventory policies generally unbilled receivables end period deferred revenues material primarily include customer advance payments typically collected days product delivery time deferred revenues reclassified recorded net revenues generally receive noncash consideration sale goods grant payment financing terms greater one year marketing advertising research development promote products marketing advertising programs include limited cooperative advertising instore displays consumer marketing promotions interim reporting purposes advertising consumer promotion expenses charged operations percentage volume based estimated sales volume estimated program spending defer costs yearend consolidated balance sheet marketing advertising costs recorded expense year incurred advertising expense 1173 million 2018 1248 million 2017 1396 million 2016 expense product research development costs incurred research development expense 362 million 2018 366 million 2017 376 million 2016 record marketing advertising well research development expenses within selling general administrative expenses stockbased compensation stockbased compensation awarded employees nonemployee directors valued fair value grant date record stockbased compensation expense vesting period generally three years forfeitures estimated grant date stockbased compensation awards employee benefit plans provide range benefits current retired employees include pension benefits postretirement health care benefits postemployment benefits depending upon jurisdiction tenure job level factors local statutory requirements govern many benefit plans provide around world local government plans generally cover health care benefits retirees outside united states canada united kingdom us canadian uk subsidiaries provide health care benefits retired employees postemployment benefit plans provide primarily severance benefits eligible salaried certain hourly employees cost plans recognized earnings primarily working life covered employee financial instruments use financial instruments manage currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principal objective risk management strategies reduce significant unanticipated earnings fluctuations may arise volatility currency exchange rates commodity prices interest rates principally use derivative instruments use combination primarily currency forward contracts futures options swaps commodity forward contracts futures options interest rate swaps manage exposure cash flow variability protect value existing currency assets liabilities protect value debt see note 9 financial instruments information types derivative instruments use record derivative financial instruments gross basis fair value consolidated balance sheets within current assets current liabilities due relatively shortterm duration cash flows derivative instruments classified consolidated statements cash flows based nature derivative instrument changes fair value derivative designated cash flow hedge extent hedge effective recorded accumulated comprehensive earningslosses reclassified earnings hedged item affects earnings changes fair value economic hedges ineffective portion hedges recognized current period earnings changes fair value derivative designated fair value hedge along changes fair value related hedged asset liability recorded earnings period use nonus dollar denominated debt hedge portion net investment nonus operations adverse movements exchange rates currency movements related nonus debt net investments nonus operations well related deferred taxes recorded within currency translation adjustment accumulated comprehensive earningslosses order qualify hedge accounting specified level hedging effectiveness derivative instrument item hedged must exist inception throughout hedged period must also formally document nature relationship derivative hedged item well risk management objectives strategies undertaking hedge transaction method assessing hedge effectiveness additionally hedge forecasted transaction significant characteristics expected term forecasted transaction must specifically identified must probable forecasted transaction occur longer probable hedged forecasted transaction occur would recognize gain loss related derivative earnings use derivatives exposed credit market risks credit risk exists counterparty derivative contract might fail fulfill performance obligations contract reduce credit risk entering transactions counterparties high quality investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration one year longer governed international swaps derivatives association master agreement market risk exists value derivative financial instrument might adversely affected changes market conditions commodity prices currency exchange rates interest rates manage derivative market risk limiting types derivative instruments derivative strategies use degree market risk plan hedge use derivative instruments commodity derivatives exposed price risk related forecasted purchases certain commodities primarily use raw materials enter commodity forward contracts primarily wheat sugar sweeteners soybean vegetable oils cocoa commodity forward contracts generally subject accounting requirements derivative instruments hedging activities normal purchases exception also use commodity futures options hedge price certain input costs including cocoa energy costs sugar sweeteners wheat packaging dairy corn soybean vegetable oils also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes third quarter 2016 discontinued designating commodity derivatives hedge accounting treatment unrealized gains losses marktomarket impacts realized gains losses recorded earnings currency exchange derivatives use various financial instruments mitigate exposure changes exchange rates thirdparty intercompany current forecasted transactions instruments may include currency exchange forward contracts futures options swaps based size location businesses use instruments hedge exposure certain currencies including euro pound sterling swiss franc canadian dollar mexican peso third quarter 2016 discontinued designating currency exchange derivatives hedge accounting treatment unrealized gains losses marktomarket impacts realized gains losses recorded earnings see note 9 financial instruments additional information interest rate cash flow fair value hedges manage interest rate volatility modifying pricing maturity characteristics certain liabilities net impact expense material basis adversely affected movements interest rates result interest rate fluctuations hedged fixedrate liabilities appreciate depreciate market value expect effect unrealized appreciation depreciation substantially offset gains losses derivative instruments linked hedged liabilities use derivative instruments including interest rate swaps indices related pricing specific liabilities part interest rate risk management strategy matter policy use highly leveraged derivative instruments interest rate risk management use interest rate swaps economically convert portion fixedrate debt variablerate debt interest rate swap contracts agree parties exchange specified intervals difference fixedrate floatingrate interest amounts calculated based agreedupon notional amount use interest rate swaps hedge variability interest payment cash flows portion future debt obligations also execute crosscurrency interest rate swaps hedge interest payments newly issued debt denominated different currency functional currency borrowing entity substantially derivative instruments highly effective qualify hedge accounting treatment hedges net investments nonus operations numerous investments outside united states net assets subsidiaries exposed changes volatility currency exchange rates use local currency denominated debt hedge nonus net investments adverse movements exchange rates designated euro pound sterling swiss franc canadian dollardenominated borrowings net investment hedge portion overall international operations gains losses net investment designated international operations economically offset losses gains euro pound sterling swiss franc canadian dollardenominated borrowings change debt’s value net deferred taxes recorded currency translation adjustment component accumulated comprehensive earningslosses additionally beginning first quarter 2018 entered crosscurrency interest rate swaps forwards hedge certain investments nonus operations movements exchange rates aftertax gainloss net investment hedge contracts recorded cumulative translation adjustment section comprehensive income pretax impacts cash flows contracts reported investing activities consolidated statement cash flows income taxes provision income taxes includes amounts payable refundable current year effects deferred taxes impacts uncertain tax positions recognize deferred tax assets liabilities expected future tax consequences temporary differences financial statement tax basis assets liabilities operating loss carryforwards tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply years differences expected reverse realization certain deferred tax assets dependent generating sufficient taxable income appropriate jurisdiction prior expiration carryforward periods deferred tax assets reduced valuation allowance likely portion deferred tax assets realized assessing need valuation allowance consider carryback potential future reversals existing taxable temporary differences including liabilities unrecognized tax benefits future taxable income tax planning strategies recognize tax benefits financial statements uncertain tax positions likely tax position sustained based technical merits position amount recognize measured largest amount benefit greater 50 percent likely realized upon resolution future changes related expected resolution uncertain tax positions could affect tax expense period change occurs monitor changes tax laws reflect impacts tax law changes period enactment response united states tax reform legislation enacted december 22 2017 “us tax reform” us securities exchange commission “sec” issued guidance allowed us record provisional amounts impacts us tax reform full accounting could completed filed 2017 financial statements provisions tax law unable make reasonable estimate impact guidance allowed us continue apply historical tax provisions computing income tax liability deferred tax assets liabilities december 31 2017 guidance allowed us finalize accounting us tax reform changes within one year december 22 2017 enactment date finalized accounting new provisions based guidance issued included impacts 2018 consolidated financial statements see note 15 income taxes additional information impacts us tax reform new accounting pronouncements august 2018 financial accounting standards board fasb issued accounting standards update asu aligns requirements capitalizing implementation costs incurred hosting arrangement service contract requirements capitalizing implementation costs internaluse software asu effective fiscal years beginning december 15 2019 early adoption permitted currently assessing impact consolidated financial statements august 2018 fasb issued asu modifies disclosure requirements employers sponsor defined benefit pension postretirement plans asu effective fiscal years beginning december 15 2019 early adoption permitted new standard may impact disclosures expected impact consolidated financial statements august 2018 fasb issued asu modifies disclosure requirements fair value measurements asu effective fiscal years beginning december 15 2019 early adoption permitted new standard may impact disclosures expected impact consolidated financial statements june 2018 fasb issued asu requires entities record sharebased payment transactions acquiring goods services nonemployees fair value adoption date asu effective fiscal years beginning december 15 2018 early adoption permitted asu expected material impact consolidated financial statements february 2018 fasb issued asu permits entities elect reclassification accumulated comprehensive income retained earnings stranded tax effects resulting 2017 enactment us tax reform legislation asu effective fiscal years beginning december 15 2018 early adoption permitted expect elect reclassify stranded tax effects us tax reform adopt asu first quarter 2019 asu expected material impact consolidated financial statements august 2017 fasb issued asu better align hedge accounting entitys risk management activities improve disclosures surrounding hedging cash flow net investment hedges adoption date asu requires modified retrospective transition approach presentation disclosure requirements related asu required prospectively asu effective fiscal years beginning december 15 2018 early adoption permitted early adopted standard january 1 2018 material impact consolidated financial statements upon adoption refer note 9 financial instruments additional information june 2016 fasb issued asu measurement credit losses financial instruments asu requires entities measure impairment certain financial instruments including trade receivables based expected losses rather incurred losses asu effective fiscal years beginning december 15 2019 early adoption permitted financial statement periods beginning december 15 2018 currently assessing guidance asu expected material impact consolidated financial statements february 2016 fasb issued asu lease accounting increase transparency comparability among organizations requiring recognition right use rou assets lease liabilities balance sheet disclosing key information leasing arrangements asu revises existing us gaap outlines new model lessors lessees use accounting lease contracts guidance requires lessees recognize rightofuse asset lease liability balance sheet leases exception shortterm leases statement earnings lessees classify leases either operating resulting straightline expense financing resulting frontloaded expense pattern july 2018 fasb issued asu allows alternative transition approach require adjustments comparative priorperiod amounts asu effective fiscal years beginning december 15 2018 early adoption permitted adopted new standard january 1 2019 elected apply package practical expedients including reassessing whether expired existing contracts contained leases classification leases reassessing initial direct costs existing leases elected separate nonlease components lease components account single lease component class underlying asset significant impact adopting standard initial recognition operating lease rou assets lease liabilities balance sheet accounting finance leases ie capital leases remains substantially unchanged continue finalize implementation efforts currently estimate recording first quarter 2019 amount approximately 650 800 million longterm operating lease rou assets approximately 650 800 million operating lease liabilities approximately 240 290 million recorded current liabilities 410 510 million recorded longterm operating lease liabilities transition method elected adoption standard requires us make cumulative effect adjustment january 1 2019 believe amount material may 2014 fasb issued asu revenue recognition contracts customers asu outlines new single comprehensive model companies use accounting revenue core principle entity recognize revenue depict transfer control promised goods services customer amount reflects consideration entity expects entitled receive exchange goods services asu also requires additional disclosure nature amount timing uncertainty revenue cash flows customer contracts including significant judgments made recognizing revenue 2016 2017 fasb issued several asus clarified principal versus agent gross versus net revenue presentation considerations confirmed accounting certain prepaid storedvalue products clarified guidance identifying performance obligations within contract accounting licenses partial sales nonfinancial assets fasb also issued two asus providing technical corrections narrow scope exceptions practical expedients clarify improve implementation new revenue recognition guidance revenue guidance effective annual reporting periods beginning december 15 2017 adopted new standard january 1 2018 full retrospective basis material financial impact adopting new revenue standards historical periods presented also refer revenue recognition section note 17 segment reporting disaggregated revenue information reclassifications certain amounts previously reported reclassified conform currentyear presentation third quarter 2018 connection keurig dr pepper inc transaction changed accounting principle reflect share keurig green mountain inc’s historical results keurig dr pepper incs ongoing results onequarter lag basis continue record cash receipts dividends cash received change applied retrospectively periods presented refer note 6 equity method investments information additionally january 1 2018 adopted asu changed presentation net periodic pension postretirement costs consolidated statements earnings result adoption disaggregated components net periodic pension postretirement benefit costs moved components service costs new line item benefit plan nonservice income located operating income priorperiod cost sales selling general administrative expenses asset impairment exit costs well segment operating income results updated reflect reclassification components net periodic pension postretirement benefit costs summarized note 10 benefit plans note 2 divestitures acquisitions june 7 2018 acquired us premium biscuit company tate’s bake shop within north america segment 528 million cash paid net cash received extended premium biscuit offerings expect finalize purchase price paid related purchase price allocation working capital adjustments finalized accounted transaction business combination december 31 2018 recorded preliminary purchase price allocation 45 million definitelived intangible assets 205 million indefinitelived intangible assets 298 million goodwill 16 million property plant equipment 5 million inventory 9 million accounts receivable 6 million current liabilities 44 million deferred tax liabilities acquisition added incremental net revenues 52 million incremental operating income 7 million 2018 also recorded 13 million acquisitionrelated costs 2018 december 28 2017 completed sale confectionery business japan received cash proceeds ¥28 billion 24 million december 28 2017 recorded immaterial pretax loss divestiture within amea segment connection 2012 spinoff kraft foods group inc part kraft heinz company “khc” kraft foods group granted various licenses use certain trademarks connection particular product categories specified jurisdictions august 17 2017 entered two agreements khc terminate licenses certain khcowned brands used grocery business within europe region transfer khc inventory certain assets august 17 2017 first transaction closed received cash proceeds €9 million 11 million august 17 2017 october 23 2017 second transaction closed received cash proceeds €2 million 3 million october 23 2017 gain transactions combined immaterial july 4 2017 completed sale grocery business australia new zealand bega cheese limited 456 million australian dollars 347 million july 4 2017 divested 27 million current assets 135 million noncurrent assets 4 million current liabilities based july 4 2017 exchange rate recorded pretax gain 247 million australian dollars 187 million july 4 2017 sale also recorded divestiturerelated costs 2 million foreign currency hedge loss 3 million 2017 fourth quarter 2017 recorded 3 million inventoryrelated working capital adjustment increasing pretax gain 190 million 2017 april 28 2017 completed sale several manufacturing facilities france sale license several local confectionery brands received cash approximately €157 million 169 million april 28 2017 net cash divested businesses april 28 2017 divested 44 million current assets 155 million noncurrent assets 8 million current liabilities 22 million noncurrent liabilities based april 28 2017 exchange rate recorded 3 million loss sale divestiturerelated costs 27 million 2017 84 million 2016 divestiturerelated costs recorded within cost sales selling general administrative expenses primarily within europe segment prior periods recorded 5 million impairment charge may 2016 candy trademark reduce overall net assets estimated net sales proceeds transaction costs march 31 2016 recorded 14 million impairment charge another gum candy trademark portion carrying value would recoverable based future cash flows expected planned license agreement buyer year ended december 31 2016 also completed following sale transactions • december 31 2016 completed sale chocolate factory belgium connection transaction recorded pretax loss €65 million 68 million december 31 2016 within asset impairment exit costs europe segment loss includes fixed asset impairment charge €30 million 31 million december 31 2016 loss disposal €22 million 23 million december 31 2016 incremental expenses incurred accrued €13 million 14 million december 31 2016 related selling factory • december 1 2016 completed sale confectionery business costa rica represented local brand sales price 28 million recorded pretax gain 9 million within gains divestiture within latin america segment divested approximately 11 million property plant equipment 4 million goodwill 2 million inventory connection transaction incurred 2 million transaction costs accrued expenses • august 26 2016 recorded 7 million gain sale usowned biscuit trademark gain recorded within selling general administrative expenses 2016 • may 2 2016 completed sale certain local biscuit brands finland sales price €14 million 16 million may 2 2016 recorded pretax gain 6 million 5 million tax within selling general administrative expenses europe segment year ended december 31 2016 divested 8 million indefinitelived intangible assets less 1 million assets received cash proceeds €12 million 14 million may 2 2016 upon closing another €2 million 2 million october 31 2016 consideration following completion postclosing requirements additional 2 million consideration increased pretax gain 8 million 6 million tax december 31 2016 november 2 2016 purchased burton’s biscuit company certain intangibles included license manufacture market sell cadburybranded biscuits additional key markets around world including united kingdom france ireland north america saudi arabia transaction accounted business combination total cash paid acquired assets €199 million 245 million november 2 2016 third quarter 2017 completed valuation work finalized purchase price allocation 66 million definitelived intangible assets 173 million goodwill 2 million property plant equipment 4 million inventory reflecting november 2 2016 exchange rate acquisition added incremental net revenues 59 million 2017 16 million 2016 added incremental operating income 8 million 2017 1 million 2016 third quarter 2016 completed acquisition vietnamese biscuit operation within amea segment july 15 2015 acquired 80 interest biscuit operation august 22 2016 acquired remaining 20 interest total cash paid biscuit operation intellectual property noncompete consulting agreements less purchase price adjustments 12404 billion vietnamese dong 569 million using applicable exchange rates july 15 2015 november 27 2015 august 22 2016 august 22 2016 connection acquiring remaining 20 interest biscuit operation escrowed funds 70 million released retained agreed 20 million related two outstanding acquisitionrelated matters subsequently released 5 million 2016 9 million 2017 sellers expect pay 4 million within five years remaining indemnified obligations resolved august 22 2016 also made final payment 759 billion vietnamese dong 35 million august 22 2016 noncompete consulting agreements noncompete consulting agreements recorded prepaid contracts within current noncurrent assets amortized net earnings term agreements third quarter 2016 also finalized valuation purchase price allocation acquired net assets business included 10 million inventory 49 million property plant equipment 86 million intangible assets 385 million goodwill 31 million net liabilities periods following initial july 15 2015 first closing date allocation net asset fair values immaterial impact operating results acquisition added incremental net revenues 71 million 2016 added incremental operating income 5 million 2016 within selling general administrative expenses recorded integration costs 7 million 2016 also recorded acquisition integration costs 4 million 2018 3 million 2017 sales property november 9 2016 completed sale manufacturing plant russia recorded total expenses 12 million including related fixed asset impairment charge 4 million within asset impairments exit costs sale land buildings equipment generated cash proceeds 6 million 2016 also sold property within north america segment centrally held corporate assets third quarter 2016 sold property north america generated cash proceeds 10 million pretax gain 6 million sold corporate aircraft hangar generated cash proceeds 3 million pretax gain 1 million second quarter 2016 also sold property within north america segment centrally held corporate assets north america sale generated cash proceeds 40 million pretax gain 33 million corporate aircraft sale generated cash proceeds 20 million pretax gain 6 million gains recorded within selling general administrative expenses cash proceeds recorded cash flows investing activities year ended december 31 2016 note 3 inventories consisted following note 4 property plant equipment property plant equipment consisted following capital expenditures presented statement cash flow 11 billion 10 billion 12 billion years ending december 31 2018 2017 2016 excluded 331 million 357 million 343 million accrued capital expenditures yet paid connection restructuring program recorded noncash property plant equipment writedowns including accelerated depreciation asset impairments 59 million 2018 206 million 2017 301 million 2016 see note 7 restructuring program charges related property plant equipment recorded consolidated statements earnings within asset impairment exit costs segment results follows note 5 goodwill intangible assets goodwill operating segment intangible assets consisted following nonamortizable intangible assets consist principally brand names purchased acquisitions nabisco holdings corp spanish portuguese operations united biscuits global lu biscuit business groupe danone sa cadbury limited amortizable intangible assets consist primarily trademarks customerrelated intangibles process technology licenses noncompete agreements amortization expense intangible assets 176 million 2018 178 million 2017 176 million 2016 next five years estimate annual amortization expense approximately 170 million next two years approximately 85 million years three five reflecting december 31 2018 exchange rates changes goodwill intangible assets consisted changes goodwill intangibles • divestitures 2017 connection divestiture several manufacturing facilities primarily france divested 23 million goodwill 62 million amortizable nonamortizable intangible assets 2017 also completed sale grocery business australia new zealand divested 86 million related goodwill furthermore completed sale confectionery business japan divested 5 million goodwill 24 million definite lived intangible assets finally divested 14 million definite lived intangible asset part sale one equity method investments see note 2 divestitures acquisitions additional information • acquisitions connection acquisition tates bake shop second quarter 2018 recorded preliminary purchase price allocation 298 million goodwill 250 million intangible assets 2017 recorded 15 million adjustment goodwill 7 million adjustment indefinite lived assets connection finalizing valuation purchase price allocation burton’s biscuit company purchase completed fourth quarter 2016 see note 2 divestitures acquisitions additional information • asset impairments discussed recorded 68 million intangible asset impairments 2018 109 million 2017 2018 2017 2016 goodwill impairments reporting units sufficient fair value excess carrying value reporting units passed annual impairment testing planned business performance expectations met specific valuation factors outside control discount rates change significantly estimated fair values reporting unit reporting units might decline lead goodwill impairment future 2018 annual testing nonamortizable intangible assets recorded 68 million impairment charges third quarter related five trademarks recorded charges related gum chocolate biscuits candy trademarks 45 million europe 14 million north america 9 million amea also identified seven brands including five impaired trademarks 538 million aggregate book value december 31 2018 fair value excess book value 10 less believe current plans brands allow continue impaired product line expectations met specific valuation factors outside control discount rates change significantly brand brands could become impaired future 2017 recorded 109 million impairment charges 70 million related annual testing impairment charges candy gum trademarks 52 million amea 11 million europe 5 million latin america 2 million north america 2017 also recorded 38 million intangible asset impairment charge resulting category decline lower expected product growth related gum trademark north america segment 1 million intangible asset impairment charge related transaction 2016 recorded 137 million impairment charges 98 million related annual testing impairment charges related biscuits candy gum trademarks 41 million amea 32 million north america 22 million europe 3 million latin america 2016 also recorded 20 million impairments related planned sale confectionery business france also recorded 19 million charges europe north america amea segments resulting discontinuation four biscuit products one candy product note 6 equity method investments accounted equity method accounting totaled 7123 million december 31 2018 6193 million december 31 2017 years largest equity method investments jacobs douwe egberts “jde” keurig green mountain inc keurig prior july 9 2018 keurig dr pepper inc nyse kdp” subsequent july 9 2018 jde july 2 2015 completed transactions combine wholly owned coffee businesses de master blenders 1753 bv “demb” create new company jde march 7 2016 held 435 interest jde following march 7 2016 exchange portion investment jde interest keurig held 265 equity interest jde see keurig remaining 735 equity interest jde held subsidiary acorn holdings bv “ahbv” owner demb prior july 2 2015 december 31 2018 held 265 voting interest 264 ownership interest 263 profit dividend sharing interest jde recorded jde equity earnings 230 million includes deferred tax benefit dutch tax rate reduction 2018 129 million 2017 100 million 2016 also recorded 73 million cash dividends received 2018 49 million cash dividends received 2017 june 30 2016 entered agreements ahbv affiliates establish new stockbased compensation arrangement tied issuance jde equity compensation awards jde employees arrangement replaced temporary equity compensation program tied issuance ahbv equity compensation jde employees new class c e jde shares authorized issued investments made vested stockbased compensation awards granted jde employees arrangements share ownership dilution jde class c e shareholders limited 2 july 5 2016 received expected cash payment 275 million jde settle outstanding receivable related tax formation costs related formation jde july 19 2016 supreme court spain reached final resolution challenged jde tax position held predecessor demb company resulted unfavorable tax expense €114 million result share jde’s equity earnings third quarter 2016 negatively affected €30 million 34 million keurig march 3 2016 subsidiary ahbv completed 139 billion acquisition outstanding common stock keurig merger transaction march 7 2016 exchanged subsidiary ahbv portion equity interest jde carrying value €170 billion approximately 20 billion march 7 2016 interest keurig fair value 20 billion based merger consideration per share keurig recorded difference fair value keurig basis jde shares 43 million gain equity method investment exchange march 2016 immediately following exchange ownership interest jde 265 interest keurig 242 initial 20 billion investment keurig included 16 billion keurig equity interest 04 billion shareholder loan receivable reported combined basis within equity method investments prior keurig dr pepper transaction described shareholder loan 55 interest rate payable end sevenyear term february 27 2023 within equity method investment net earnings recorded shareholder loan interest income 12 million 2018 24 million 2017 20 million 2016 received shareholder loan interest payments 12 million 2018 30 million 2017 14 million 2016 dividends 34 million 2018 14 million 2017 4 million 2016 keurig dr pepper july 9 2018 keurig closed definitive merger agreement dr pepper snapple group inc formed kdp publicly traded company following close transaction 242 investment keurig together shareholder loan receivable became 138 investment kdp third quarter 2018 recorded preliminary pretax gain 757 million reported gain equity method transaction 184 million deferred tax expense reported provision income taxes 573 million aftertax gain related change ownership interest kdp finalized valuation transaction fourth quarter 2018 kdp finalized opening balance sheet increased pretax gain 21 million 13 million aftertax 778 million 586 million aftertax recording 8 million deferred tax expense related increase total deferred tax expense 192 million 2018 hold two director positions kdp board well additional governance rights continue significant influence continue account investment kdp equity method resulting recognizing share earnings within earnings share dividends within cash flows connection transaction changed accounting principle third quarter 2018 reflect share keurigs historical kdps ongoing earnings onequarter lag basis continue record dividends cash received determined lag preferable enables us continue report quarterly annual results timely basis record share kdp’s ongoing results kdp publicly reported results change accounting principle applied retrospectively periods operating income change equity method investment net earnings net earnings per share adjusted reflect lag across reported periods following tables show primary line items consolidated statements earnings comprehensive earnings consolidated balance sheet changed result lag consolidated statements cash flow equity also updated reflect changes december 31 2018 held 138 ownership interest kdp ownership interest kdp may change time due stockbased compensation arrangements transactions kdp december 31 2018 fair value ownership interest kdp approximately 49 billion based kdps closing stock price keurig kdp equity earnings adjusted onequarter lag basis totaled 213 million 2018 includes deferred tax benefit keurig recorded result us tax reform 92 million 2017 38 million 2016 equity method investment transactions october 2 2017 completed sale one equity method investments received cash proceeds 65 million recorded pretax gain 40 million within gain equity method investment transactions 15 million tax expense summary financial information equity method investments summarized financial information related equity method investments reflected tables reflect adjustments noted keurig kdp onequarter lag 1 includes basis difference approximately 340 million december 31 2018 360 million december 31 2017 us gaap accounting basis equity method investments us gaap accounting basis investees’ equity note 7 restructuring program may 6 2014 board directors approved 35 billion 20142018 restructuring program 22 billion capital expenditures august 31 2016 board directors approved 600 million reallocation restructuring program cash costs capital expenditures 57 billion program consisted approximately 41 billion restructuring program costs 31 billion cash costs 10 billion noncash costs 16 billion capital expenditures september 6 2018 board directors approved extension restructuring program 2022 increase 13 billion program charges increase 700 million capital expenditures total 77 billion program consists 54 billion program charges 41 billion cash costs 13 billion noncash costs total capital expenditures 23 billion incurred life program restructuring program increased extended actions called simplify grow program primary objective simplify grow program reduce operating cost structure supply chain overhead costs program covers severance well asset disposals manufacturing procurementrelated onetime costs since inception incurred total restructuring related implementation charges 39 billion related simplify grow program expect incur program charges yearend 2022 restructuring costs simplify grow program liability activity years ended december 31 2018 2017 recorded restructuring charges 316 million 2018 535 million 2017 714 million 2016 within asset impairment exit costs spent 310 million 2018 347 million 2017 cash severance related costs also recognized noncash pension settlement losses see note 10 benefit plans noncash asset writedowns including accelerated depreciation asset impairments noncash adjustments totaling 67 million 2018 215 million 2017 december 31 2018 307 million net restructuring liability recorded within current liabilities 66 million recorded within longterm liabilities implementation costs implementation costs directly attributable restructuring activities however qualify special accounting treatment exit disposal activities believe disclosure implementation costs provides readers financial statements information total costs simplify grow program implementation costs primarily relate reorganizing operations facilities connection supply chain reinvention program identified productivity cost saving initiatives costs include incremental expenses related closure facilities costs terminate certain contracts simplification information systems within continuing results operations recorded implementation costs 315 million 2018 257 million 2017 372 million 2016 recorded costs within cost sales general corporate expense within selling general administrative expenses restructuring implementation costs operating income 2018 2017 2016 since inception simplify grow program recorded following restructuring implementation costs within segment operating income earnings income taxes 1 20162018 north america region implementation costs included incremental costs incurred related renegotiating collective bargaining agreements expired february 2016 eight us facilities related executing business continuity plans north america business 2 first quarter 2018 connection adopting new pension cost classification accounting standard reclassified certain benefit plan component costs service costs operating income new line benefit plan nonservice income consolidated statements earnings recast historical operating income segment operating income restructuring implementation costs segment reflect reclassification impact earnings income taxes net earnings benefit plan nonservice income amounts longer recorded segment operating income included within corporate column table corporate column also includes minor adjustments rounding 3 includes charges recorded since program inception may 6 2014 december 31 2018 note 8 debt borrowing arrangements shortterm borrowings shortterm borrowings related weightedaverage interest rates consisted december 31 2018 commercial paper issued outstanding 2 109 days remaining maturity commercial paper borrowings decreased since 2017 yearend primarily result higher operating cash flows longterm debt issuances net repayments partially offset increased commercial paper borrowings share repurchases shareholder dividends bank loans include borrowings primarily uncommitted credit lines maintained international subsidiaries meet shortterm working capital needs collectively credit lines amounted 17 billion december 31 2018 20 billion december 31 2017 borrowings lines 138 million december 31 2018 107 million december 31 2017 borrowing arrangements april 2 2018 connection tender offer described entered 20 billion revolving credit agreement 364day senior unsecured credit facility scheduled expire april 1 2019 agreement includes terms conditions existing 45 billion multiyear credit facility discussed april 17 2018 borrowed 714 million facility fund debt tender described availability facility reduced match borrowed amount may 7 2018 repaid 714 million net proceeds received may 2018 25 billion longterm debt issuance terminated credit facility february 28 2018 supplement commercial paper program entered 15 billion revolving credit agreement 364day senior unsecured credit facility scheduled expire february 27 2019 agreement replaces previous credit agreement matured february 28 2018 includes terms conditions existing 45 billion multiyear credit facility discussed december 31 2018 amounts drawn facility also maintain 45 billion multiyear senior unsecured revolving credit facility general corporate purposes including working capital needs support commercial paper program october 14 2016 revolving credit agreement scheduled expire october 11 2018 extended october 11 2021 revolving credit agreement includes covenant maintain minimum shareholders’ equity least 246 billion excluding accumulated comprehensive earningslosses cumulative effects changes accounting principles december 31 2018 complied covenant shareholders’ equity defined covenant 363 billion revolving credit facility agreement also contains customary representations covenants events default credit rating triggers provisions financial covenants could require us post collateral security december 31 2018 amounts drawn facility longterm debt longterm debt consisted interest rates december 31 2018 deferred debt issuance costs 32 million december 31 2018 33 million december 31 2017 netted related debt table deferred financing costs related revolving credit facility classified longterm assets immaterial periods presented december 31 2018 aggregate maturities debt capital leases based stated contractual maturities excluding unamortized noncash bond premiums discounts bank fees marktomarket adjustments 70 million millions august 23 2018 280 million 6125 us dollar notes matured notes accrued interest date paid issuance commercial paper cash hand july 18 2018 £76 million 99 million 725 pound sterling notes matured notes accrued interest date paid issuance commercial paper cash hand may 3 2018 issued 25 billion us dollardenominated fixedrate notes consisting • 750 million 3000 notes mature may 2020 • 750 million 3625 notes mature may 2023 • 700 million 4125 notes mature may 2028 • 300 million 4625 notes mature may 2048 may 7 2018 received net proceeds 248 billion used repay amounts outstanding revolving credit agreement facility general corporate purposes including repayment outstanding commercial paper borrowings debt recorded approximately 22 million discounts deferred financing costs net various fees associated bond transaction underwriter fee reimbursement amortized interest expense life notes april 17 2018 completed cash tender offer retired 570 million longterm us dollar debt consisting • 241 million 6500 notes due february 2040 • 976 million 5375 notes due february 2020 • 758 million 6500 notes due november 2031 • 721 million 6875 notes due february 2038 • 426 million 6125 notes due august 2018 • 293 million 6875 notes due january 2039 • 117 million 7000 notes due august 2037 financed repurchase notes including payment accrued interest costs incurred 20 billion revolving credit agreement entered april 2 2018 recorded loss debt extinguishment 140 million within interest expense net related amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing cash costs earnings time debt extinguishment cash costs related tendering debt included longterm debt repayments consolidated statement cash flows twelve months ended december 31 2018 march 2 2018 launched offering c600 million 3250 canadiandollar denominated notes mature march 7 2025 march 7 2018 received c595 million 461 million proceeds net discounts underwriting fees used general corporate purposes recorded approximately 4 million discounts deferred financing costs amortized interest expense life notes february 1 2018 478 million 6125 us dollar notes matured notes accrued interest date paid issuance commercial paper cash hand january 26 2018 fr250 million 260 million 0080 swiss franc notes matured notes accrued interest date paid issuance commercial paper cash hand april 12 2017 discharged 488 million 6500 us dollardenominated debt paid 504 million representing principal well past future interest accruals february 2017 august 2017 maturity date recorded 11 million loss debt extinguishment within interest expense 5 million reduction accrued interest march 30 2017 fr175 million approximately 175 million 0000 swiss francdenominated notes matured notes accrued interest date paid net proceeds fr350 million swiss francdenominated notes issued march 13 2017 march 13 2017 launched offering fr349 million swiss francdenominated notes 349 million us dollars march 31 2017 consisting • fr225 million 224 million 0050 fixed rate notes mature march 30 2020 • fr125 million 125 million 0617 fixed rate notes mature september 30 2024 march 30 2017 received net proceeds fr349 million 349 million used general corporate purposes january 26 2017 €750 million approximately 801 million 1125 eurodenominated notes matured notes accrued interest date paid issuance commercial paper cash hand weightedaverage interest rate total debt 23 december 31 2018 21 december 31 2017 22 december 31 2016 fair value debt fair value shortterm borrowings december 31 2018 december 31 2017 reflects current market interest rates approximates amounts recorded consolidated balance sheets fair value longterm debt determined using quoted prices active markets level 1 valuation data publicly traded debt obligations december 31 2018 aggregate fair value total debt 18650 million carrying value 18372 million december 31 2017 aggregate fair value total debt 18354 million carrying value 17652 million interest expense net interest expense net within results continuing operations consisted see note 9 financial instruments information gainloss related us dollar interest rate swaps longer designated accounting cash flow hedges 2018 2016 information 120 million income recorded 2018 relating new net investment hedges amounts excluded hedge effectiveness see note 13 commitments contingencies information 59 million income recorded 2017 connection resolution brazilian indirect tax matter reversal related accrued interest note 9 financial instruments fair value derivative instruments derivative instruments recorded fair value consolidated balance sheets follows 1 net investment hedge contracts consist crosscurrency interest rate swaps forward contracts also designate nonus dollar denominated debt hedge portion net investments nonus operations debt reflected table included longterm debt discussed note 8 debt borrowing arrangements net investment hedge derivative contracts nonus dollar denominated debt acting net investment hedges also disclosed derivative volume table hedges net investments international operations section appearing later footnote derivatives designated accounting hedges included cash flow fair value net investment hedge derivative contracts economic hedges derivatives designated accounting hedges record derivative assets liabilities gross basis consolidated balance sheets fair value asset derivatives recorded within current assets fair value liability derivatives recorded within current liabilities fair values assetliability derivative instruments determined using level 1 financial assets liabilities consist exchangetraded commodity futures listed options fair value instruments determined based quoted market prices commodity exchanges level 2 financial assets liabilities consist primarily overthecounter “otc” currency exchange forwards options swaps commodity forwards options interest rate swaps currency exchange contracts valued using income approach based observable market forward rates less contract rate multiplied notional amount commodity derivatives valued using income approach based observable market commodity index prices less contract rate multiplied notional amount based pricing models rely market observable inputs commodity prices calculation fair value interest rate swaps derived discounted cash flow analysis based terms contract observable market interest rate curve calculation fair value financial instruments takes consideration risk nonperformance including counterparty credit risk otc derivative transactions governed international swap dealers association agreements standard industry contracts agreements post require collateral counterparties majority derivative contracts legal right setoff manage credit risk connection derivatives entering transactions counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties derivative volume net notional values derivative instruments cash flow hedges cash flow hedge activity net taxes within accumulated comprehensive earningslosses included aftertax gainslosses reclassified accumulated comprehensive earningslosses net earnings aftertax gainslosses recognized comprehensive earningslosses cash flow hedge ineffectiveness material periods presented recognized gain 10 million 2018 interest expense net related certain forwardstarting interest rate swaps planned timing related forecasted debt changed also recorded pretax losses 97 million within interest expense net first quarter 2016 related amounts excluded effectiveness testing amounts relate interest rate swaps longer designated cash flow hedges due changes financing plans due lower overall costs decision hedge greater portion net investments operations use currencies us dollar functional currencies changed plans issue us dollardenominated debt instead issued euro swiss francdenominated notes 2016 amounts excluded effectiveness testing material periods presented record pretax gains losses reclassified accumulated comprehensive earningslosses earnings ii gains losses ineffectiveness iii gains losses amounts excluded effectiveness testing • cost sales currency exchange contracts related forecasted transactions • cost sales commodity contracts • interest expense net interest rate contracts currency exchange contracts related intercompany loans based current market conditions would expect transfer unrealized losses 106 million net taxes interest rate cash flow hedges earnings next 12 months cash flow hedge coverage december 31 2018 longest dated cash flow hedges interest rate swaps hedge forecasted interest rate payments next 4 years 10 months fair value hedges pretax gainslosses due changes fair value interest rate swaps related hedged longterm debt recorded interest expense net carrying amount hedged fixed interest rate debt december 31 2017 801 million recorded current portion longterm debt matured third quarter 2018 fair value hedge ineffectiveness amounts excluded effectiveness testing material periods presented hedges net investments international operations net investment hedge derivative contracts beginning first quarter 2018 entered crosscurrency interest rate swaps forwards hedge certain investments nonus operations movements exchange rates aggregate notional value december 31 2018 67 billion aftertax unrealized gainloss net investment hedge contracts recorded cumulative translation adjustment section comprehensive income 207 million 2018 addition aftertax realized gain net investment hedge contracts settled 2018 recorded cumulative translation adjustment section comprehensive income 191 million aftertax gainslosses reclassified accumulated comprehensive earningslosses net earnings 2018 fourth quarter 2018 replaced six crosscurrency swaps new derivative contracts received 127 million cash also 2018 eight currency forward contracts matured received 152 million cash upon settlement cash received recorded within investing activities consolidated statement cash flows elected record changes fair value amounts excluded assessment effectiveness net earnings amounts excluded assessment hedge effectiveness 120 million 2018 recorded income interest expense net cash flows contracts reported investing activities consolidated statement cash flows nonus dollar debt designated net investment hedges aftertax gainslosses related hedges net investments international operations form euro british pound sterling swiss franc canadian dollardenominated debt recorded within cumulative translation adjustment section comprehensive income economic hedges pretax gainslosses recorded net earnings economic hedges note 10 benefit plans pension plans obligations funded status projected benefit obligations plan assets funded status pension plans accumulated benefit obligation represents benefits earned measurement date 1488 million december 31 2018 1715 million december 31 2017 us pension plans accumulated benefit obligation nonus pension plans 9374 million december 31 2018 10610 million december 31 2017 salaried nonunion hourly employees hired january 1 2009 us january 1 2011 canada earlier certain legacy cadbury employees longer eligible participate defined benefit pension plans employees given enhanced company contribution employee defined contribution plans salaried nonunion hourly employees currently participating defined benefit pension plans us canada benefit accruals cease december 31 2019 combined us nonus pension plans resulted net pension liability 1114 million december 31 2018 1570 million december 31 2017 recognized amounts consolidated balance sheets follows certain us nonus plans underfunded accumulated benefit obligations excess plan assets plans projected benefit obligations accumulated benefit obligations fair value plan assets used following weightedaverage assumptions determine benefit obligations pension plans yearend discount rates us canadian eurozone uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class periods presented measure service interest costs applying specific spot rates along yield curve used measure plan obligations plans’ liability cash flows believe approach provides precise measurement service interest costs aligning timing plans’ liability cash flows corresponding spot rates yield curve components net periodic pension cost net periodic pension cost consisted following 1 settlement losses include 5 million year ended december 31 2018 11 million year ended december 31 2017 15 million year ended december 31 2016 pension settlement losses employees elected lump sum payments connection simplify grow program retired employees elected lumpsum payments resulted net settlement losses 31 million us plans 4 million nonus plans 2018 21 million us plans 6 million nonus plans 2017 15 million us plans 6 million nonus plans 2016 see note 7 restructuring program information us plans determine expected return plan assets component net periodic benefit cost using calculated market return value recognizes cost four year period nonus plans utilize similar approach varying cost recognition periods plans others determine expected return plan assets based asset fair values measurement date december 31 2018 combined us nonus pension plans expected amortize accumulated comprehensive earningslosses net periodic pension cost 2019 • estimated 168 million net loss experience differences • estimated 6 million prior service credit used following weightedaverage assumptions determine net periodic pension cost plan assets fair value pension plan assets determined using following fair value measurements excluded plan assets 67 million december 31 2018 71 million december 31 2017 tables related certain insurance contracts reported contract value accordance authoritative guidance fair value measurements • level 1 includes primarily us nonus equity securities government bonds valued using quoted prices active markets • level 2 includes primarily pooled funds including assets real estate pooled funds valued using net asset values participation units held common collective trusts reported managers trusts supported unit prices actual purchase sale transactions level 2 plan assets also include corporate bonds fixedincome securities valued using independent observable market inputs matrix pricing yield curves indices • level 3 includes investments valued using unobservable inputs reflect plans’ assumptions market participants would use pricing assets based best information available • fair value estimates pooled funds calculated investment advisor reliable quotations pricing services readily available certain underlying securities estimated value based either cost last sale price securities valued fashion • fair value estimates private equity investments calculated general partners using market approach estimate fair value private investments market approach utilizes prices relevant information generated market transactions type security degree liquidity restrictions disposition latest round financing data company financial statements relevant valuation multiples discounted cash flow analyses • fair value estimates private debt placements calculated using standardized valuation methods including limited incomebased techniques discounted cash flow projections marketbased techniques utilizing public private transaction multiples comparables • fair value estimates real estate investments calculated investment managers using present value future cash flows expected received investments based valuation methodologies appraisals local market conditions current projected operating performance • fair value estimates certain fixedincome securities insurance contracts calculated based future stream benefit payments discounted using prevailing interest rates based valuation date • net asset value primarily includes equity funds fixed income funds real estate funds hedge funds private equity investments net asset values normally used changes level 3 plan assets recorded comprehensive earningslosses included increase level 3 pension plan investments 2018 2017 primarily due additional purchases corporate bond fixed income securities includes private debt placements percentage fair value pension plan assets us plans investment strategy reduce risk underfunded plans part appropriate asset allocation within plan assets attempt maintain target asset allocation rebalancing asset classes make contributions monthly benefit payments strategy involves using indexed us equity international equity securities actively managed us investment grade fixedincome securities constitute 95 fixedincome securities smaller allocations high yield fixedincome securities nonus plans investment strategy subject local regulations assetliability profiles plans individual country aggregate asset allocation targets nonus plans broadly characterized mix approximately 31 equity securities including investments real estate approximately 67 fixedincome securities approximately 2 types securities investment strategy largest nonus plan comprises 63 nonus pension assets designed balance risk return diversifying across wide range returnseeking liability matching assets invested range active passive mandates target allocation approximately 23 equity securities 20 credit 57 liability matching assets strategy uses indexed global developed equities actively managed global investment grade alternative credit real estate liability matching assets including buyin annuity policy employer contributions 2018 contributed 39 million us pension plans 310 million nonus pension plans addition employees contributed 13 million nonus plans make contributions pension plans accordance local funding arrangements statutory minimum funding requirements discretionary contributions made extent tax deductible generate excise tax liability 2019 estimate pension contributions 5 million us plans 232 million nonus plans based current tax laws actual contributions may different due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates future benefit payments estimated future benefit payments pension plans december 31 2018 millions multiemployer pension plans accordance obligations collective bargaining agreements made contributions multiemployer pension plans 17 million 2018 26 million 2017 25 million 2016 2017 2016 individually significant multiemployer plan contributed bakery confectionery union industry international pension fund “fund” obligation contribute fund arose respect 8 collective bargaining agreements covering employees represented bakery confectionery tobacco grain millers union collective bargaining agreements expired 2016 continued contribute fund 2018 contributions fund 12 million 2018 22 million 2017 21 million 2016 contributions multiemployer pension plans individually significant 5 million 2018 4 million 2017 4 million 2016 contributions based contribution rates collective bargaining agreements number eligible employees fund surcharges effective january 1 2012 fund’s zone status changed “red” result certification beginning july 2012 charged 5 surcharge contribution rates surcharge increased 10 contributions paid february 2013 forward august 28 2016 10 surcharge longer applicable required pay higher contributions fund’s rehabilitation plan default schedule continued contribute fund december 2018 fourth quarter 2018 executed complete withdrawal fund estimated withdrawal liability 573 million represents best estimate withdrawal liability absent assessment fund anticipate receiving assessment 2019 ultimate withdrawal liability may change currently estimated amount record future adjustments period liability confirmed new information becomes available expect pay liability period 20 years date assessment 2018 within north america segment recorded discounted liability related charge 423 million 316 million net tax determined net present value liability using riskfree interest rate recorded pretax noncash charges selling general administrative expense noncash items net consolidated statement cash flows liability longterm liabilities 2018 also recorded 6 million accreted interest related longterm liability within interest expense net costs sponsor contribute employee defined contribution plans cover eligible salaried nonunion union employees contributions costs determined matching employee contributions defined plans amounts charged expense continuing operations defined contribution plans totaled 57 million 2018 43 million 2017 44 million 2016 postretirement benefit plans obligations postretirement health care plans funded changes amount accrued benefit obligation current portion accrued postretirement benefit obligation 15 million december 31 2018 16 million december 31 2017 included current liabilities used following weightedaverage assumptions determine postretirement benefit obligations yearend discount rates us canadian uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear expected health care cost trend rate based historical costs periods presented measure service interest costs postretirement benefits applying specific spot rates along yield curve used measure plan obligations plans’ liability cash flows believe approach provides good measurement service interest costs aligning timing plans’ liability cash flows corresponding spot rates yield curve assumed health care cost trend rates significant impact amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects components net periodic postretirement health care costs net periodic postretirement health care costs consisted following 1 fourth quarter 2016 prior service credit included onetime 9 million curtailment gain related change eligibility requirement resulting ongoing amortization 10 million continued amortize prior service credit recorded 39 million 2018 40 million 2017 december 31 2018 expected amortize accumulated comprehensive earningslosses pretax net periodic postretirement health care costs 2019 • estimated 7 million net loss experience differences • estimated 39 million prior service credit used following weightedaverage assumptions determine net periodic postretirement health care cost future benefit payments estimated future benefit payments postretirement health care plans december 31 2018 millions costs made contributions multiemployer medical plans totaling 19 million 2018 18 million 2017 19 million 2016 plans provide medical benefits active employees retirees certain collective bargaining agreements postemployment benefit plans obligations postemployment plans primarily funded changes amount accrued benefit obligation december 31 2018 2017 accrued benefit obligation determined using weightedaverage discount rate 67 2018 65 2017 assumed weightedaverage ultimate annual turnover rate 03 2018 2017 assumed compensation cost increases 40 2018 2017 assumed benefits defined respective plans postemployment costs arising actions offer employees benefits excess specified respective plans charged expense incurred components net periodic postemployment costs net periodic postemployment costs consisted following december 31 2018 estimated net gain postemployment benefit plans expect amortize accumulated comprehensive earningslosses net periodic postemployment costs 2019 approximately 3 million note 11 stock plans amended restated 2005 performance incentive plan “plan” authorized may 21 2024 issue maximum 2437 million shares common stock employees nonemployee directors december 31 2018 611 million shares available granted plan stock options stock options including stock appreciation rights granted exercise price equal market value underlying stock grant date generally become exercisable three annual installments beginning first anniversary grant date maximum term ten years account employee stock options fair value method accounting using blackscholes methodology lattice model measure stock option expense date grant fair value stock options date grant amortized expense vesting period recorded compensation expense related stock options held employees 43 million 2018 50 million 2017 57 million 2016 results continuing operations deferred tax benefit recorded related compensation expense 7 million 2018 12 million 2017 15 million 2016 unamortized compensation expense related employee stock options 42 million december 31 2018 expected recognized weightedaverage period 13 years weightedaverage blackscholes lattice model fair value assumptions riskfree interest rate represents constant maturity us government treasuries rate remaining term equal expected life options expected life period employees expected hold options volatility reflects historical movements stock price period commensurate expected life options dividend yield reflects dividend yield place time historical grants stock option activity reflected 1 cash received options exercised 231 million 2018 257 million 2017 221 million 2016 actual tax benefit realized tax deductions option exercises totaled 21 million 2018 31 million 2017 31 million 2016 deferred stock units performance share units restricted stock historically made grants deferred stock units performance share units restricted stock beginning 2016 grant deferred stock units performance share units longer grant restricted stock may grant shares deferred stock units eligible employees giving instances rights shareholders except may sell assign pledge otherwise encumber shares deferred stock units voting rights vested shares deferred stock units subject forfeiture certain employment conditions met deferred stock units generally vest third anniversary grant date performance share units granted 2005 plan vest based varying performance market service conditions unvested performance share units voting rights pay dividends dividend equivalents accumulated vesting period paid performance share units vest fair value deferred stock units performance share units restricted stock date grant amortized earnings vesting period fair value deferred stock units restricted stock measured market price common stock grant date performance share unit awards generally targets tied performance marketbased conditions market condition components market volatility factors taken consideration determining grant date fair value related compensation expense recognized regardless whether market condition satisfied provided requisite service provided performance condition components estimate probability performance conditions achieved quarter adjust compensation expenses accordingly grant date fair value performance share units determined based monte carlo simulation model marketbased total shareholder return component market price common stock grant date performancebased components number performance share units ultimately vest ranges 0200 percent number granted based achievement performance marketbased components recorded compensation expense related deferred stock units performance share units restricted stock 85 million 2018 87 million 2017 83 million 2016 results continuing operations deferred tax benefit recorded related compensation expense 12 million 2018 23 million 2017 22 million 2016 unamortized compensation expense related deferred stock units performance share units restricted stock 113 million december 31 2018 expected recognized weightedaverage period 15 years performance share unit deferred stock unit restricted stock activity reflected 1 includes performance share units deferred stock units 2 includes performance share units deferred stock units restricted stock actual tax benefit realized tax deductions shares vested totaled 3 million 2018 7 million 2017 18 million 2016 3 grant date fair value performance share units determined based monte carlo simulation model marketbased total shareholder return component closing market price company’s stock grant date performancebased components monte carlo simulation model incorporates probability achieving total shareholder return market condition compensation expense recognized using grant date fair values regardless whether market condition achieved long requisite service provided note 12 capital stock amended restated articles incorporation authorize 50 billion shares class common stock “common stock” 500 million shares preferred stock preferred shares issued outstanding december 31 2018 2017 2016 shares common stock issued treasury outstanding stock plan awards employees nonemployee directors issued treasury shares december 31 2018 111 million shares common stock held treasury reserved stock options stock awards share repurchase program 2013 2017 board directors authorized repurchase total 137 billion common stock december 31 2018 january 31 2018 finance committee authorization delegated board directors approved increase 60 billion share repurchase program raising authorization 197 billion common stock repurchases extended program december 31 2020 repurchases program determined management wholly discretionary prior january 1 2018 repurchased approximately 130 billion common stock pursuant authorization 2018 repurchased approximately 473 million shares common stock average cost 4218 per share aggregate cost approximately 20 billion paid period share repurchases funded available cash commercial paper issuances december 31 2018 approximately 47 billion remaining share repurchase capacity note 13 commitments contingencies legal proceedings routinely involved legal proceedings claims governmental inspections investigations legal matters arising ordinary course business february 2013 march 2014 cadbury india limited known mondelez india foods private limited subsidiary mondelēz international parties received show cause notices indian central excise authority “excise authority” calling upon parties demonstrate excise authority collect total 37 billion indian rupees 54 million december 31 2018 unpaid excise tax equivalent amount penalties well interest related production indian facility contested demands unpaid excise taxes penalties interest march 27 2015 several hearings commissioner excise authority issued order denying excise exemption claimed indian facility confirming excise authority’s demands total taxes penalties amount 58 billion indian rupees 84 million december 31 2018 plus accrued interest appealed order addition excise authority issued additional show cause notices february 2015 december 2015 october 2017 issue covering periods january october 2014 november 2014 september 2015 october 2015 june 2017 respectively notices added total 49 billion indian rupees 70 million december 31 2018 allegedly unpaid excise taxes subject penalties equivalent amount plus accrued interest continue accrue matters resolved implementation new goods services tax india july 2017 receive show cause notices additional amounts issue believe decision claim excise tax benefit valid continuing contest show cause notices administrative judicial process part continuing appeals process may required deposit amount equivalent total demand unpaid excise taxes five show cause notices repaid proceedings conclude favor expect required make deposit 2020 april 1 2015 us commodity futures trading commission cftc filed complaint kraft foods group mondelēz global llc “mondelēz global” us district court northern district illinois eastern division “cftc action” following investigation activities related trading december 2011 wheat futures contracts occurred prior spinoff kraft foods group complaint alleges kraft foods group mondelēz global 1 manipulated attempted manipulate wheat markets fall 2011 2 violated position limit levels wheat futures 3 engaged noncompetitive trades trading sides exchangeforphysical chicago board trade wheat contracts cftc seeks civil monetary penalties either triple monetary gain violation commodity exchange act “act” 1 million violation section 6c1 6c3 9a2 act 140000 additional violation act plus postjudgment interest order permanent injunction prohibiting kraft foods group mondelēz global violating specified provisions act disgorgement profits costs fees awaiting outcome motion summary judgment motion denied case could proceed trial 2019 additionally several class action complaints filed kraft foods group mondelēz global us district court northern district illinois investors wheat futures options behalf others similarly situated complaints make similar allegations made cftc action seek class action certification unspecified amount damages interest unjust enrichment costs fees injunctive declaratory unspecified relief june 2015 suits consolidated northern district illinois contesting plaintiffs’ request class certification possible predict outcome matters however based separation distribution agreement kraft foods group dated september 27 2012 expect bear monetary penalties payments connection cftc action although cftc action class action complaints involve alleged conduct resolution decision respect one matters may dispositive outcome matter august 21 2018 virginia department environmental quality “vdeq” issued notice violation “nov” mondelēz global nov vdeq alleges richmond bakery one operating line proper minimum temperature pollution control equipment bakery failed provide certain observation training records vdeq indicated alleged violations may lead fine andor injunctive relief working vdeq reach resolution matter expect matter material effect financial results party various legal proceedings incidental business including noted section present believe ultimate outcome proceedings individually aggregate materially harm financial position results operations cash flows however legal proceedings government investigations subject inherent uncertainties unfavorable rulings events could occur unfavorable resolutions could involve substantial monetary damages addition matters conduct remedies sought unfavorable resolutions could include injunction order prohibiting us selling one products particular ways precluding particular business practices requiring remedies unfavorable outcome might result material adverse impact business results operations financial position thirdparty guarantees enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2018 material thirdparty guarantees recorded consolidated balance sheet tax matters party various tax matter proceedings incidental business proceedings subject inherent uncertainties unfavorable outcomes could subject us additional tax liabilities could materially adversely impact business results operations financial position tax indemnification matter related 2007 acquisition lu biscuit business closed quarter ended june 30 2018 closure impact net earnings however result 15 million tax benefit fully offset 11 million expense selling general administrative expenses 4 million expense interest expense net first quarter 2017 brazilian supreme court “court” ruled brazilian tax authorities leading case related computation certain indirect taxes court ruled indirect tax base include valueadded tax known “icms” removing icms tax base court effectively eliminated “tax” lower courts brazilian subsidiaries filed lawsuits recover amounts paid discontinue subsequent payments related “tax” brazilian subsidiaries received injunctions making payments “tax” 2008 since time december 2016 accrued portion tax quarter event tax reaffirmed brazilian courts september 30 2017 based legal advice publication court’s decision related case determined likelihood increased tax base would reinstated assessed us remote accordingly reversed accrual 667 million brazilian reais 212 million september 30 2017 153 million recorded within selling general administrative expenses 59 million recorded within interest expense net connection courts 2017 decision brazilian tax authority filed motion seeking clarification adjustment terms enforcement motion still decided continue monitor developments matter currently expect material future impact financial statements fourth quarter 2018 one lower court cases brazilian federal court appeals ruled favor brazilian tax authority allowing one brazil subsidiaries recover amounts previously paid result recorded net benefit selling general administrative expenses 26 million part 2010 cadbury acquisition became responsible party tax matters february 2 2006 dated deed tax covenant cadbury schweppes plc related entities “schweppes” black lion beverages related entities tax matters included ongoing transfer pricing case spanish tax authorities related schweppes businesses cadbury divested prior acquisition cadbury first quarter 2017 spanish supreme court decided case favor result final ruling first quarter 2017 recorded favorable earnings impact 46 million selling general administrative expenses 12 million interest expense net total pretax impact 58 million due noncash reversal cadburyrelated accrued liabilities related matter recorded total 4 million income third fourth quarters 2017 connection related bank guarantee releases leases rental expenses recorded continuing operations 260 million 2018 284 million 2017 317 million 2016 december 31 2018 minimum rental commitments noncancelable operating leases effect yearend millions note 14 reclassifications accumulated comprehensive income following table summarizes changes accumulated balances component accumulated comprehensive earningslosses attributable mondelēz international amounts reclassified accumulated comprehensive earningslosses net earnings net tax net losses 169 million 2018 174 million 2017 250 million 2016 1 taxes reclassified earnings recorded within provision income taxes 2 reclassified gains losses recorded within cost sales 3 reclassified losses recorded within interest expense net note 15 income taxes december 22 2017 new us tax reform legislation enacted included broad range complex provisions impacting taxation businesses certain impacts new legislation would generally required accounting completed incorporated 2017 yearend financial statements however response complexities new legislation sec issued guidance provide companies relief sec provided oneyear window companies finalize accounting impacts new legislation finalized accounting new provisions fourth quarter 2018 impact 2018 results finalizing accounting new provisions discrete net tax expense 19 million 19 million expense 2018 primarily comprised 60 million expense related finalizing changes indefinite reinvestment assertion partially offset 38 million decrease provisional transition tax recorded december 31 2017 general transition tax result deemed repatriation imposed new legislation results taxation accumulated foreign earnings profits “ep” 155 rate liquid assets ie cash specified assets 8 remaining unremitted foreign ep net foreign tax credits finalized accounting provision fourth quarter 2018 recognized 38 million decrease 1317 million provisional transition tax recorded december 31 2017 total transition net tax expense gross us tax reform transition tax liability payments 1279 million paid installments 2026 fourth quarter 2018 also finalized accounting deferred tax benefit resulting revaluation net us deferred tax liabilities 1311 million deferred tax benefit recorded 2017 yearend reduced 1295 million result change lag accounting keurig result us tax reform changed indefinite reinvestment assertion companies owned directly us subsidiaries 2017 year end accrued deferred tax assets related two entities deferred tax benefits expected realized 2018 year end finalized analysis related change indefinite reinvestment assertion recognized 60 million deferred tax expense capture foreign state tax impacts us gaap tax basis difference subsidiaries longer indefinitely reinvested legislation established various new provisions including new provision taxes us allocated expenses eg interest general administrative expenses well currently taxes certain income foreign operations global intangible lowtax income “gilti” december 31 2018 made policy decision elected treat taxes due gilti current period expense earningslosses continuing operations income taxes provision income taxes consisted effective income tax rate pretax earnings differed us federal statutory rate follows 1 tax cuts jobs act 2017 tcja established global intangible lowtax income gilti provision taxes us allocated expenses certain income foreign operations foreignderived intangible income fdii provision allows deduction certain types us taxable income resulting lower effective us tax rate income base erosion antiabuse tax beat new minimum tax based crossborder service payments us entities 2018 effective tax rate 272 unfavorably impacted net tax expenses 128 million discrete onetime events well unfavorable provisions within new us tax reform legislation partially offset favorable mix pretax income various nonus tax jurisdictions well reduction us federal tax rate discrete net tax expenses included 192 million deferred tax expense related 778 million gain kdp transaction reported gain equity method investment well 19 million expense final updates provisional impacts us tax reform reported 2017 yearend partially offset 81 million benefit favorable audit settlements statutes limitations various jurisdictions 2017 effective tax rate 213 favorably impacted mix pretax income various nonus tax jurisdictions net tax benefits 97 million discrete onetime events partially offset increase domestic earnings compared prior year discrete net tax benefits included provisional net impact us tax reform discussed previously favorable audit settlements statutes limitations various jurisdictions net reduction french belgian deferred tax liabilities resulting tax legislation enacted 2017 reduced corporate income tax rates country partially offset addition valuation allowance one chinese entities 2016 effective tax rate 78 favorably impacted mix pretax income various nonus tax jurisdictions net tax benefits 161 million discrete onetime events discrete net tax benefits related favorable audit settlements statutes limitations various jurisdictions net reduction uk french deferred tax liabilities resulting tax legislation enacted 2016 reduced corporate income tax rates country tax effects temporary differences gave rise deferred income tax assets liabilities consisted significant valuation allowances us china mexico us valuation allowance relates excess foreign tax credits generated deemed repatriation us tax reform valuation allowance china results change judgment 2017 realizability one chinese entity’s deferred tax assets mexico valuation allowance relates loss carryforwards currently expect generate gains proper character utilize carryforwards future december 31 2018 company pretax loss carryforwards 3744 million 1114 million expire various dates 2019 2038 remaining 2630 million carried forward indefinitely unremitted earnings december 31 2018 subsidiaries continue indefinitely reinvested approximately 17 billion currently recognized approximately 115 million deferred tax liabilities related unremitted earnings future tax law changes needs nonus subsidiaries could require us recognize deferred tax liabilities portion accumulated earnings currently indefinitely reinvested changes unrecognized tax benefits january 1 2018 unrecognized tax benefits 579 million recognized benefits net impact income tax provision would 524 million unrecognized tax benefits 516 million december 31 2018 recognized benefits net impact income tax provision would 463 million within next 12 months unrecognized tax benefits could increase approximately 40 million due unfavorable audit developments decrease approximately 151 million due audit settlements expiration statutes limitations various jurisdictions include accrued interest penalties related uncertain tax positions tax provision accrued interest penalties 212 million january 1 2018 180 million december 31 2018 provision income taxes included 9 million benefit interest penalties income tax filings regularly examined federal state nonus tax authorities us federal state nonus jurisdictions statutes limitations generally ranging three five years however statutes often extended mutual agreement tax authorities earliest year still open examination us federal state tax authorities 2013 years still open examination nonus tax authorities major jurisdictions include earliest open tax year parentheses brazil 2013 china 2008 france 2014 india 2005 switzerland 2014 united kingdom 2015 note 16 earnings per share basic diluted earnings per share “eps” calculated follows exclude antidilutive mondelēz international stock options calculation weightedaverage shares diluted eps excluded antidilutive stock options 116 million year ended december 31 2018 85 million year ended december 31 2017 78 million year ended december 31 2016 note 17 segment reporting manufacture market primarily snack food products including biscuits cookies crackers salted snacks chocolate gum candy various cheese grocery products well powdered beverage products manage global business report operating results geographic units manage operations region leverage regional operating scale manage different changing business environments effectively pursue growth opportunities arise key markets regional management teams responsibility business product categories financial results regions operations management structure organized four operating segments • latin america • amea • europe • north america october 1 2016 integrated eemea operating segment europe asia pacific operating segments leverage optimize operating scale built within europe asia pacific regions russia ukraine turkey belarus georgia kazakhstan combined within europe operating segment remaining middle east african countries combined within asia pacific region form amea operating segment reflected segment change occurred periods presented use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales general corporate expenses component selling general administrative expenses amortization intangibles net gain divestitures acquisitionrelated costs component selling general administrative expenses periods presented exclude items segment operating income order provide better transparency segment operating results furthermore centrally manage benefit plan nonservice income interest expense net accordingly present items segment excluded segment profitability measure management reviews segment net revenues earnings reflecting current segment structure periods presented 1 first quarter 2018 connection adopting new pension cost classification accounting standard reclassified certain benefit plan component costs service costs operating income new line item benefit plan nonservice income consolidated statements earnings recast historical operating income segment operating income reflect reclassification impact earnings income taxes net earnings single customer accounted 10 net revenues continuing operations 2018 five largest customers accounted 168 ten largest customers accounted 230 net revenues continuing operations 2018 items impacting segment operating results discussed note 1 summary significant accounting policies note 2 divestitures acquisitions note 4 property plant equipment note 5 goodwill intangible assets note 7 restructuring program note 13 commitments contingencies also see note 8 debt borrowing arrangements note 9 financial instruments information interest expense net period total assets depreciation expense capital expenditures segment reflecting current segment structure periods presented 1 segment assets reflect outstanding intercompany asset balances intercompany accounts eliminated segment level 2 unallocated assets consist primarily cash equivalents deferred income taxes centrally held property plant equipment prepaid pension assets derivative financial instrument balances final adjustments jurisdictional netting deferred tax assets liabilities done consolidated level geographic data net revenues recognized countries products sold longlived assets excluding deferred tax goodwill intangible assets equity method investments individual country within exceeded 10 net revenues longlived assets periods presented net revenues product category reflecting current segment structure periods presented 1 first quarter 2018 realigned products across product categories reclassified product category net revenues basis consistent 2018 presentation note 18 quarterly financial data unaudited summarized operating results quarter detailed 1 see following table significant items affected comparability earnings quarter basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may equal total year 2018 2017 recorded following pretax chargesbenefits earnings continuing operations items impacting operating results discussed note 1 summary significant accounting policies note 2 divestitures acquisitions note 5 goodwill intangible assets note 6 equity method investments note 7 restructuring program note 8 debt borrowing arrangements note 10 benefit plans note 13 commitments contingencies tax matters item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders mondelēz international inc opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets mondelēz international inc subsidiaries company december 31 2019 2018 related consolidated statements earnings comprehensive earnings equity cash flows three years period ended december 31 2019 including related notes financial statement schedule three years period ended december 31 2019 listed index appearing item 15a collectively referred “consolidated financial statements” also audited company’s internal control financial reporting december 31 2019 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2019 2018 results operations cash flows three years period ended december 31 2019 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2019 based criteria established internal controlintegrated framework 2013 issued coso change accounting principle discussed note 1 consolidated financial statements company changed manner accounts leases 2019 basis opinions company’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included report management internal control financial reporting appearing item 9a responsibility express opinions company’s consolidated financial statements company’s internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate critical audit matters critical audit matter communicated matter arising current period audit consolidated financial statements communicated required communicated audit committee relates accounts disclosures material consolidated financial statements ii involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates nonamortizable intangible assets impairment assessment described notes 1 6 consolidated financial statements company’s consolidated nonamortizable intangible assets balance 173 billion december 31 2019 impairment charge 57 million recorded year ended december 31 2019 annually management assesses nonamortizable intangible assets principally consist brand names impairment performing qualitative review assessing events circumstances could affect fair value carrying value nonamortizable intangible assets significant potential impairment risk exists specific asset management quantitatively tests asset impairment comparing estimated fair value carrying value management estimates fair value asset using several accepted valuation methods including relief royalty excess earnings excess margin utilize estimates future sales earnings growth rates royalty rates discount rates principal considerations determination performing procedures relating nonamortizable intangible assets impairment assessment critical audit matter significant judgment management developing fair value measurement nonamortizable intangible assets turn led high degree auditor judgment subjectivity effort performing procedures evaluate management’s fair value estimates significant assumptions including estimates future sales earnings growth rates royalty rates discount rates addition audit effort involved use professionals specialized skill knowledge assist performing procedures evaluating audit evidence obtained addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating nonamortizable intangible assets impairment assessment including controls determination fair values company’s nonamortizable intangible assets part annual impairment assessment procedures also included among others testing management’s process developing fair value estimate evaluating appropriateness valuation methods testing completeness accuracy underlying data used valuation methods evaluating significant assumptions used management including estimates future sales earnings growth rates royalty rates discount rates evaluating management’s assumptions related estimates future sales earnings growth rates involved evaluating whether assumptions used management reasonable considering current past performance nonamortizable intangible assets ii consistency external market industry data iii whether assumptions consistent evidence obtained areas audit professionals specialized skill knowledge used assist evaluation company’s valuation methods certain significant assumptions including royalty rates discount rates pricewaterhousecoopers llp chicago illinois february 7 2020 served company’s auditor since 2001 mondelēz international inc subsidiaries consolidated statements earnings years ended december 31 millions us dollars except per share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements comprehensive earnings years ended december 31 millions us dollars see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated balance sheets december 31 millions us dollars except share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements equity millions us dollars except per share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements cash flows years ended december 31 millions us dollars see accompanying notes consolidated financial statements mondelēz international inc subsidiaries notes consolidated financial statements note 1 summary significant accounting policies description business mondelēz international inc incorporated 2000 commonwealth virginia mondelēz international inc subsidiaries collectively “mondelēz international” “we” “us” “our” sells food beverage products consumers 150 countries principles consolidation consolidated financial statements include mondelēz international inc well wholly owned majority owned subsidiaries except venezuelan subsidiaries deconsolidated 2015 intercompany transactions eliminated noncontrolling interest represents noncontrolling investors’ interests results subsidiaries control consolidate account investments exercise significant influence equity method accounting investments significant influence control material carried cost readily determinable fair value equity interests cost method accounting earnings recognized extent cash received use estimates prepare consolidated financial statements accordance accounting principles generally accepted united states america “us gaap” require us make estimates assumptions affect number amounts consolidated financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions valuation assumptions goodwill intangible assets useful lives longlived assets restructuring program liabilities marketing program accruals insurance selfinsurance reserves income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year material effect consolidated financial statements operations management structure organized four operating segments • latin america • amea • europe • north america see note 18 segment reporting additional information segments currency translation highly inflationary accounting translate results operations subsidiaries multiple currencies using average exchange rates period translate balance sheet accounts using exchange rates end period record currency translation adjustments component equity except highly inflationary currencies realized exchange gains losses transactions earnings highly inflationary accounting triggered country’s threeyear cumulative inflation rate exceeds 100 requires remeasurement financial statements subsidiaries country functional currency subsidiary us dollar reporting currency remeasurement gains losses recorded earnings discussed beginning july 1 2018 began apply highly inflationary accounting operations argentina second quarter 2018 primarily based published estimates indicated argentinas threeyear cumulative inflation rate exceeded 100 concluded argentina became highly inflationary economy accounting purposes july 1 2018 began apply highly inflationary accounting argentinean subsidiaries changed functional currency argentinean peso us dollar july 1 2018 monetary nonmonetary assets liabilities denominated argentinean pesos remeasured us dollars using exchange rate balance sheet date remeasurement transaction gains losses recorded net earnings december 31 2019 argentinean operations less 1 million argentinean peso denominated net monetary liabilities argentinean operations contributed 382 million 15 consolidated net revenues 2019 recorded remeasurement gain 4 million 2019 remeasurement loss 11 million 2018 within selling general administrative expenses related revaluation argentinean peso denominated net monetary position periods brexit 2019 generated 86 net revenues united kingdom january 31 2020 united kingdom began withdrawal process european union european uk parliament approved withdrawal agreement transition period currently scheduled end december 31 2020 united kingdom effectively remain eu’s customs union single market trade deal european union negotiated deadline extending transition period ends june 30 2020 transition period extended december 31 2020 united kingdom either exit european union without trade deal begin new trade relationship european union transition period continue take protective measures response potential impacts results operations financial condition following brexit vote june 2016 significant volatility global stock markets currency exchange rates value british pound sterling relative us dollar declined significantly negatively affected translated results reported us dollars ultimate terms united kingdom’s separation european union negatively impact uk economy result disruptions sales supply chain impact results operations financial condition could material taken measures increase resources customer service logistics together increasing inventory levels imported raw materials packaging finished goods united kingdom help us manage brexit transition inherent risks countries since sell products 150 countries operations approximately 80 countries monitor economic currencyrelated risks seek take protective measures response exposures countries business recently experienced periods significant economic uncertainty exchange rate volatility including brazil china mexico russia ukraine turkey egypt nigeria south africa pakistan continue monitor operations currencies net monetary exposures countries time anticipate countries risk becoming highly inflationary economies cash equivalents restricted cash equivalents include demand deposits banks highly liquid investments original maturities three months less december 31 2019 also 37 million restricted cash recorded within current assets total cash equivalents restricted cash 1328 million december 31 2019 transfers financial assets account transfers financial assets uncommitted revolving nonrecourse accounts receivable factoring arrangements surrendered control related assets determining whether control transferred requires evaluation relevant legal considerations assessment nature extent continuing involvement assets transferred relevant considerations use receivable factoring arrangements periodically circumstances favorable manage liquidity nonrecourse factoring arrangements sell eligible trade receivables primarily banks exchange cash may continue collect receivables sold acting solely collecting agent behalf banks outstanding principal amount receivables arrangements amounted 760 million december 31 2019 819 million december 31 2018 843 million december 31 2017 incremental costs factoring receivables arrangement approximately 10 million less years presented proceeds sales receivables included cash operating activities consolidated statements cash flows inventories record inventory using average cost method record inventory allowances overstock obsolete inventory longlived assets property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years review longlived assets including amortizable intangible assets realizability ongoing basis changes depreciation generally accelerated depreciation determined recorded estimates remaining useful lives residual values longterm assets change also review impairment conditions exist indicate carrying amount assets may fully recoverable circumstances perform undiscounted operating cash flow analyses determine impairment exists testing asset impairment group assets liabilities lowest level cash flows separately identifiable impairment loss calculated excess asset’s carrying value estimated fair value fair value estimated based discounted cash flows asset group remaining useful life based expected cash proceeds asset less costs disposal significant impairment losses would recorded within asset impairment exit costs consolidated statements earnings leases determine whether contract contains lease contract inception january 1 2019 began record operating leases consolidated balance sheet elected recognize rightofuse rou assets lease liabilities shortterm operating leases terms 12 months less longterm operating lease rou assets longterm operating lease liabilities presented separately operating lease liabilities payable next twelve months recorded current liabilities finance lease rou assets continue presented property plant equipment related finance lease liabilities continue presented current portion longterm debt longterm debt lease rou assets represent right use underlying asset lease term lease liabilities represent obligation make lease payments arising lease rou assets recognized commencement date value lease liability adjusted prepayments lease incentives received initial direct costs incurred lease liabilities recognized commencement date based present value remaining lease payments lease term nonrecurring fair value measurement classified level 3 fair value inputs observable rate implicit lease readily determinable leases use countryspecific incremental borrowing rate based lease term using information available commencement date determining present value lease payments lease terms may include options extend terminate lease reasonably certain exercise option many leases contain nonlease components eg product costs commonarea maintenance costs relate lease components agreement nonlease components lease components relate accounted single lease component elected combine lease nonlease components classes underlying assets amortization rou lease assets calculated straightline basis lease term expense recorded cost sales selling general administrative expenses depending nature leased item interest expense recorded lease term recorded interest expense based frontloaded interest expense pattern finance leases recorded cost sales selling general administrative expenses straightline basis operating leases operating lease cash payments interest finance leases recorded within cash flows operating activities finance lease principal payments recorded within cash flows financing activities consolidated statements cash flows software costs capitalize certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment amortized straightline basis estimated useful lives software exceed seven years goodwill nonamortizable intangible assets test goodwill nonamortizable intangible assets impairment annual basis july 1 assess goodwill impairment risk throughout year performing qualitative review entityspecific industry market general economic factors affecting goodwill reporting units review operating segment reporting unit structure goodwill testing annually significant changes organization occur annually may perform qualitative testing depending factors prioryear test results current year developments current risk evaluations practical considerations may elect quantitative testing instead quantitative testing compare reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using discounted cash flow method incorporates planned growth rates marketbased discount rates estimates residual value year europe north america reporting units used marketbased weightedaverage cost capital 59 discount projected cash flows operations latin america amea reporting units used riskrated discount rate 89 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value would recognize impairment charge amount carrying value exceeds reporting unit’s fair value annually assess nonamortizable intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible assets significant potential impairment risk exists specific asset quantitatively test impairment comparing estimated fair value carrying value determine estimated fair value using estimates future sales earnings growth rates royalty rates discount rates carrying value asset exceeds fair value consider asset impaired reduce carrying value estimated fair value amortize definitelived intangible assets estimated useful lives evaluate impairment longlived assets insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits estimate liabilities associated risks undiscounted basis evaluating making judgments historical claims experience actuarial assumptions estimated impact future results revenue recognition predominantly sell food beverage products across several product categories regions disclosed note 18 segment reporting recognize revenue control products transfers customers generally occurs upon delivery shipment products small percentage net revenues relates licensing intellectual property predominantly brand trade names record revenues earned within period license term account product shipping handling insurance fulfillment activities revenues activities recorded within net revenue costs recorded within cost sales taxes collected behalf government authorities excluded net revenues recorded net trade sales incentives estimated product returns known expected pricing revenue adjustments trade discounts rebates returns estimated time sale base estimates expected amounts principally historical utilization redemption rates estimates affect revenue trade incentives product returns monitored adjusted period incentives product returns realized key sales terms pricing quantities ordered established frequent basis customer arrangements related incentives one year shorter duration capitalize contract inception costs capitalize product fulfillment costs accordance us gaap inventory policies generally unbilled receivables end period deferred revenues material primarily include customer advance payments typically collected days product delivery time deferred revenues reclassified recorded net revenues generally receive noncash consideration sale goods grant payment financing terms greater one year marketing advertising research development promote products marketing advertising programs include limited cooperative advertising instore displays consumer marketing promotions interim reporting purposes advertising consumer promotion marketing research expenses charged operations percentage volume based estimated sales volume estimated program spending defer costs yearend consolidated balance sheet marketing advertising costs recorded expense year incurred advertising expense 1208 million 2019 1173 million 2018 1248 million 2017 expense product research development costs incurred research development expense 351 million 2019 362 million 2018 366 million 2017 record marketing advertising well research development expenses within selling general administrative expenses stockbased compensation stockbased compensation awarded employees nonemployee directors valued fair value grant date record stockbased compensation expense vesting period generally three years forfeitures estimated grant date stockbased compensation awards employee benefit plans provide range benefits current retired employees including pension benefits defined contribution plan benefits postretirement health care benefits postemployment primarily severancerelated benefits depending upon local statutory requirements employee tenure service requirements well factors cost plans recognized earnings primarily working life covered employee financial instruments use financial instruments manage currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principal objective risk management strategies reduce significant unanticipated earnings fluctuations may arise volatility currency exchange rates commodity prices interest rates principally use derivative instruments use combination primarily currency forward contracts futures options swaps commodity forward contracts futures options interest rate swaps manage exposure cash flow variability protect value existing currency assets liabilities protect value debt see note 10 financial instruments information types derivative instruments use record derivative financial instruments gross basis fair value consolidated balance sheets within current assets current liabilities due relatively shortterm duration cash flows related settlement derivative instruments designated net investment hedges foreign operations classified consolidated statements cash flows within investing activities cash flows related derivative instruments designated economic hedges classified line item cash flows related hedged item generally within operating activities cash flows related settlement freestanding derivative instruments classified within investing activities changes fair value derivative designated cash flow hedge extent hedge effective recorded accumulated comprehensive earningslosses reclassified earnings hedged item affects earnings changes fair value economic hedges ineffective portion hedges recognized current period earnings changes fair value derivative designated fair value hedge along changes fair value related hedged asset liability recorded earnings period use nonus dollar denominated debt hedge portion net investment nonus operations adverse movements exchange rates currency movements related nonus debt net investments nonus operations well related deferred taxes recorded within currency translation adjustment accumulated comprehensive earningslosses order qualify hedge accounting specified level hedging effectiveness derivative instrument item hedged must exist inception throughout hedged period must also formally document nature relationship derivative hedged item well risk management objectives strategies undertaking hedge transaction method assessing hedge effectiveness additionally hedge forecasted transaction significant characteristics expected term forecasted transaction must specifically identified must probable forecasted transaction occur longer probable hedged forecasted transaction occur would recognize gain loss related derivative earnings use derivatives exposed credit market risks credit risk exists counterparty derivative contract might fail fulfill performance obligations contract reduce credit risk entering transactions counterparties high quality investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration one year longer governed international swaps derivatives association master agreement market risk exists value derivative financial instrument might adversely affected changes market conditions commodity prices currency exchange rates interest rates manage derivative market risk limiting types derivative instruments derivative strategies use degree market risk plan hedge use derivative instruments commodity derivatives exposed price risk related forecasted purchases certain commodities primarily use raw materials enter commodity forward contracts primarily wheat sugar sweeteners soybean vegetable oils cocoa commodity forward contracts generally subject accounting requirements derivative instruments hedging activities normal purchases exception also use commodity futures options hedge price certain input costs including cocoa energy costs sugar sweeteners wheat packaging dairy corn soybean vegetable oils also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes currency exchange derivatives use various financial instruments mitigate exposure changes exchange rates thirdparty intercompany current forecasted transactions instruments may include currency exchange forward contracts futures options swaps based size location businesses use instruments hedge exposure certain currencies including euro pound sterling swiss franc canadian dollar mexican peso unrealized gains losses marktomarket impacts realized gains losses recorded earnings see note 10 financial instruments additional information interest rate cash flow fair value hedges manage interest rate volatility modifying pricing maturity characteristics certain liabilities net impact expense material basis adversely affected movements interest rates result interest rate fluctuations hedged fixedrate liabilities appreciate depreciate market value expect effect unrealized appreciation depreciation substantially offset gains losses derivative instruments linked hedged liabilities use derivative instruments including interest rate swaps indices related pricing specific liabilities part interest rate risk management strategy matter policy use highly leveraged derivative instruments interest rate risk management use interest rate swaps economically convert portion fixedrate debt variablerate debt interest rate swap contracts agree parties exchange specified intervals difference fixedrate floatingrate interest amounts calculated based agreedupon notional amount use interest rate swaps hedge variability interest payment cash flows portion future debt obligations also execute crosscurrency interest rate swaps hedge interest payments newly issued debt denominated different currency functional currency borrowing entity substantially derivative instruments highly effective qualify hedge accounting treatment hedges net investments nonus operations numerous investments outside united states net assets subsidiaries exposed changes volatility currency exchange rates use local currency denominated debt hedge nonus net investments adverse movements exchange rates designated euro pound sterling swiss franc canadian dollardenominated borrowings net investment hedge portion overall international operations gains losses net investment designated international operations economically offset losses gains euro pound sterling swiss franc canadian dollardenominated borrowings change debt’s value net deferred taxes recorded currency translation adjustment component accumulated comprehensive earningslosses additionally beginning first quarter 2018 entered crosscurrency interest rate swaps forwards hedge certain investments nonus operations movements exchange rates aftertax gainloss net investment hedge contracts recorded cumulative translation adjustment section comprehensive income pretax impacts cash flows contracts reported investing activities consolidated statement cash flows income taxes provision income taxes includes amounts payable refundable current year effects deferred taxes impacts uncertain tax positions recognize deferred tax assets liabilities expected future tax consequences temporary differences financial statement tax basis assets liabilities operating loss carryforwards tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply years differences expected reverse realization certain deferred tax assets dependent generating sufficient taxable income appropriate jurisdiction prior expiration carryforward periods deferred tax assets reduced valuation allowance likely portion deferred tax assets realized assessing need valuation allowance consider carryback potential future reversals existing taxable temporary differences including liabilities unrecognized tax benefits future taxable income tax planning strategies recognize tax benefits financial statements uncertain tax positions likely tax position sustained based technical merits position amount recognize measured largest amount benefit greater 50 percent likely realized upon resolution future changes related expected resolution uncertain tax positions could affect tax expense period change occurs monitor changes tax laws reflect impacts tax law changes period enactment refinement tax law changes subsequent periods account new guidance period becomes known new accounting pronouncements december 2019 financial accounting standards board fasb issued accounting standards update asu removes certain exceptions accounting income taxes improves consistency application clarifies existing guidance asu effective fiscal years beginning december 15 2020 early adoption permitted expect asu material impact consolidated financial statements october 2018 fasb issued asu permits use secured overnight financing rate sofr overnight index swap ois rate us benchmark interest rate hedge accounting purposes adopted new standard january 1 2019 material impact consolidated financial statements upon adoption august 2018 fasb issued asu aligns requirements capitalizing implementation costs incurred hosting arrangement service contract requirements capitalizing implementation costs internaluse software asu effective fiscal years beginning december 15 2019 early adoption permitted adopt asu january 1 2020 expect asu material impact consolidated financial statements august 2018 fasb issued asu modifies disclosure requirements employers sponsor defined benefit pension postretirement plans asu effective fiscal years ending december 15 2020 early adoption permitted adopt asu december 31 2020 new standard impact yearend disclosures expected impact consolidated financial statements august 2018 fasb issued asu modifies disclosure requirements fair value measurements asu effective fiscal years beginning december 15 2019 early adoption permitted adopt asu january 1 2020 new standard impact disclosures expected impact consolidated financial statements june 2018 fasb issued asu requires entities record sharebased payment transactions acquiring goods services nonemployees fair value adoption date asu effective fiscal years beginning december 15 2018 early adoption permitted adopted standard january 1 2019 material impact consolidated financial statements upon adoption february 2018 fasb issued asu permits entities elect reclassification accumulated comprehensive income retained earnings stranded tax effects resulting 2017 enactment us tax reform legislation asu effective fiscal years beginning december 15 2018 early adoption permitted elect reclassify stranded tax effects us tax reform adopted asu first quarter 2019 asu material impact consolidated financial statements policy release stranded tax effects accumulated comprehensive income portfolio method rather individual item basis july 2017 fasb issued asu financial instruments allows exclusion round feature evaluating whether instrument embedded feature requires derivative classification asu effective fiscal years beginning december 15 2018 early adoption permitted adopted standard january 1 2019 material impact consolidated financial statements upon adoption june 2016 fasb issued asu measurement credit losses financial instruments asu requires entities measure impairment certain financial instruments including trade receivables based expected losses rather incurred losses asu effective fiscal years beginning december 15 2019 early adoption permitted financial statement periods beginning december 15 2018 adopt asu january 1 2020 expect asu material impact consolidated financial statements february 2016 fasb issued asu lease accounting increase transparency comparability among organizations requiring recognition right use rou assets lease liabilities balance sheet disclosing key information leasing arrangements asu revises existing us gaap outlines new model lessors lessees use accounting lease contracts guidance requires lessees recognize rou asset lease liability balance sheet leases exception shortterm leases statement earnings lessees classify leases either operating financing july 2018 fasb issued asu allows alternative transition approach require adjustments comparative priorperiod amounts asu effective fiscal years beginning december 15 2018 early adoption permitted adopted new standard january 1 2019 elected apply package practical expedients allowed us reassess lease classification initial direct costs expired existing leases whether expired existing contracts contain leases elected separate nonlease components lease components account single lease component class underlying asset impact adopting standard included initial recognition january 1 2019 710 million lease related assets 730 million lease related liabilities consolidated balance sheet transition method elected adoption cumulative effect adjustment retained earnings january 1 2019 material note 2 divestitures acquisitions july 16 2019 acquired majority interest us refrigerated nutrition bar company perfect snacks within north america segment 284 million cash paid net cash received expanded position broader snacking working complete valuation work recorded preliminary purchase price allocation 31 million definitelived intangible assets 107 million indefinitelived intangible assets 150 million goodwill 1 million property plant equipment 12 million inventory 8 million accounts receivable 13 million current liabilities 3 million deferred tax liabilities 9 million liabilities acquisition added incremental net revenues 53 million immaterial amount incremental operating income 2019 may 28 2019 completed sale cheese business middle east africa arla foods denmark 2019 received cash proceeds 161 million divested 19 million current assets 96 million noncurrent assets also paid 2 million transaction costs recorded net pretax gain 44 million sale june 7 2018 acquired us premium biscuit company tate’s bake shop within north america segment extended premium biscuit offering second quarter 2018 paid 528 million net cash received second quarter 2019 finalized purchase price 527 million purchase price allocation included 45 million definitelived intangible assets 205 million indefinitelived intangible assets 297 million goodwill 16 million property plant equipment 5 million inventory 9 million accounts receivable 7 million current liabilities 43 million deferred tax liabilities oneyear anniversary acquisition tates added incremental net revenues 35 million immaterial amount incremental operating income december 28 2017 completed sale confectionery business japan received cash proceeds ¥28 billion 24 million december 28 2017 recorded immaterial pretax loss divestiture within amea segment connection 2012 spinoff kraft foods group inc part kraft heinz company “khc” kraft foods group granted various licenses use certain trademarks connection particular product categories specified jurisdictions august 17 2017 entered two agreements khc terminate licenses certain khcowned brands used grocery business within europe region transfer khc inventory certain assets august 17 2017 first transaction closed received cash proceeds €9 million 11 million august 17 2017 october 23 2017 second transaction closed received cash proceeds €2 million 3 million october 23 2017 gain transactions combined immaterial july 4 2017 completed sale grocery business australia new zealand bega cheese limited 456 million australian dollars 347 million july 4 2017 divested 27 million current assets 135 million noncurrent assets 4 million current liabilities based july 4 2017 exchange rate recorded pretax gain 247 million australian dollars 187 million july 4 2017 sale also recorded divestiturerelated costs 2 million foreign currency hedge loss 3 million 2017 fourth quarter 2017 recorded 3 million inventoryrelated working capital adjustment increasing pretax gain 190 million 2017 april 28 2017 completed sale several manufacturing facilities france sale license several local confectionery brands received cash approximately €157 million 169 million april 28 2017 net cash divested businesses april 28 2017 divested 44 million current assets 155 million noncurrent assets 8 million current liabilities 22 million noncurrent liabilities based april 28 2017 exchange rate recorded 3 million loss sale divestiturerelated costs 27 million 2017 84 million 2016 divestiturerelated costs recorded within cost sales selling general administrative expenses primarily within europe segment prior periods recorded 5 million impairment charge may 2016 candy trademark reduce overall net assets estimated net sales proceeds transaction costs march 31 2016 recorded 14 million impairment charge another gum candy trademark portion carrying value would recoverable based future cash flows expected planned license agreement buyer note 3 inventories consisted following note 4 property plant equipment property plant equipment consisted following capital expenditures presented statement cash flow 09 billion 11 billion 10 billion years ending december 31 2019 2018 2017 excluded 334 million 331 million 357 million accrued capital expenditures yet paid connection restructuring program recorded noncash property plant equipment writedowns including accelerated depreciation asset impairments 50 million 2019 59 million 2018 206 million 2017 see note 8 restructuring program charges related property plant equipment recorded consolidated statements earnings within asset impairment exit costs segment results follows note 5 leases operating finance leases manufacturing distribution facilities vehicles equipment office space leases remaining lease terms 1 10 years include options extend leases 6 years assume majority termination options exercised determining lease term leases include significant restrictions covenants lease agreements residual value guarantees generally included within operating leases exception fleet leases leasing arrangements require variable payments dependent usage output may vary reasons product costs insurance tax payments variable payment leases included recorded lease assets liabilities expensed incurred certain leases tied variable index rate included lease assets liabilities based indices rates lease commencement components lease costs follows rent expenses prior lease accounting rules asc 840 recorded continuing operations 260 million 2018 284 million 2017 supplemental cash flow information related leases follows supplemental balance sheet information related leases follows 2020 expect record 45 million operating lease liability 15 year lease yet commenced future lease payments noncancelable leases new lease accounting rules asc 842 went effect january 1 2019 follows december 31 2018 minimum rental commitments noncancelable operating leases prior lease accounting rules asc 840 millions note 6 goodwill intangible assets goodwill operating segment intangible assets consisted following nonamortizable intangible assets consist principally brand names purchased acquisitions nabisco holdings corp spanish portuguese operations united biscuits global lu biscuit business groupe danone sa cadbury limited amortizable intangible assets consist primarily trademarks customerrelated intangibles process technology licenses noncompete agreements amortization expense intangible assets 174 million 2019 176 million 2018 178 million 2017 next five years estimate annual amortization expense approximately 175 million next year approximately 90 million year two approximately 85 million years three five reflecting december 31 2019 exchange rates changes goodwill intangible assets consisted changes goodwill intangibles • divestitures second quarter 2019 divested net assets cheese business middle east africa arla foods denmark resulting goodwill decrease 43 million see note 2 divestitures acquisitions additional information • acquisitions connection acquisition majority interest perfect snacks third quarter 2019 recorded preliminary purchase price allocation 150 million goodwill 138 million intangible assets second quarter 2019 also finalized purchase price allocation 2018 acquisition tates bake shop resulting 1 million adjustment goodwill 2018 recorded preliminary purchase price allocation 298 million goodwill 250 million intangible assets related acquisition tates bake shop second quarter 2018 see note 2 divestitures acquisitions additional information • asset impairments discussed recorded 57 million intangible asset impairments 2019 68 million 2018 2019 2018 2017 goodwill impairments reporting units sufficient fair value excess carrying value reporting units passed annual impairment testing planned business performance expectations met specific valuation factors outside control discount rates change significantly estimated fair values reporting unit reporting units might decline lead goodwill impairment future 2019 annual testing nonamortizable intangible assets recorded 57 million impairment charges third quarter related nine brands recorded charges related gum chocolate biscuits candy brands 39 million europe 15 million amea 3 million latin america also identified fourteen brands including nine impaired trademarks 635 million aggregate book value december 31 2019 fair value excess book value 10 less believe current plans brands allow impaired brand earnings expectations met specific valuation factors outside control discount rates change significantly brand brands could become impaired future 2018 recorded 68 million impairment charges gum chocolate biscuits candy brands 45 million europe 14 million north america 9 million amea 2017 recorded 109 million impairment charges 70 million related annual testing impairment charges candy gum brands 52 million amea 11 million europe 5 million latin america 2 million north america 2017 also recorded 38 million intangible asset impairment charge resulting category decline lower expected product growth related gum brand north america segment 1 million intangible asset impairment charge related transaction note 7 equity method investments accounted equity method accounting totaled 7212 million december 31 2019 7123 million december 31 2018 years largest equity method investments jacobs douwe egberts “jde” keurig green mountain inc keurig prior july 9 2018 keurig dr pepper inc nyse kdp” subsequent july 9 2018 jde december 31 2019 held 265 voting interest 264 ownership interest 263 profit dividend sharing interest jde recorded jde equity earnings 195 million 2019 230 million 2018 includes deferred tax benefit dutch tax rate reduction 129 million 2017 also recorded 73 million cash dividends received 2019 2018 49 million cash dividends received 2017 jde keurig exchange march 7 2016 exchanged portion jde equity interest new equity interest keurig result exchange recorded difference 20 billion fair value keurig basis exchanged jde shares gain 43 million second quarter 2019 determined adjustment accumulated comprehensive losses related jde investment required reduced previously reported gain 29 million recorded adjustment loss equity method transactions keurig dr pepper transaction july 9 2018 keurig closed definitive merger agreement dr pepper snapple group inc formed kdp publicly traded company following close transaction 242 investment keurig together shareholder loan receivable became 138 investment kdp 2018 recorded net pretax gain 778 million 586 million aftertax hold two director positions kdp board well additional governance rights continue significant influence continue account investment kdp equity method resulting recognizing share earnings within earnings share dividends within cash flows connection transaction changed accounting principle third quarter 2018 reflect share keurigs historical kdps ongoing earnings onequarter lag basis continue record dividends cash received determined lag preferable enables us continue report quarterly annual results timely basis record share kdp’s ongoing results kdp publicly reported results change retrospectively applied prior periods presented december 31 2019 held 136 ownership interest kdp valued approximately 55 billion based kdps closing stock price exceeded carrying value kdp investment kdp ownership interest could change time due stockbased compensation arrangements kdp transactions first quarter 2019 due impact kdp acquisition decreased ownership interest 138 136 recognized 23 million pretax gain keurig kdp equity earnings adjusted onequarter lag basis totaled 160 million 2019 213 million 2018 includes deferred tax benefit keurig recorded result us tax reform 92 million 2017 within equity method investment net earnings also recorded shareholder loan interest income 12 million 2018 24 million 2017 received shareholder loan interest payments 12 million 2018 30 million 2017 dividends 115 million 2019 34 million 2018 14 million 2017 equity method investment transactions october 2 2017 completed sale one equity method investments received cash proceeds 65 million recorded pretax gain 40 million within gain equity method investment transactions 15 million tax expense second quarter 2019 recorded additional pretax gain 4 million related sale release indemnityrelated funds previously held escrow released summary financial information equity method investments summarized financial information related equity method investments reflected 1 includes basis difference approximately 330 million december 31 2019 340 million december 31 2018 us gaap accounting basis equity method investments us gaap accounting basis investees’ equity note 8 restructuring program may 6 2014 board directors approved 35 billion 20142018 restructuring program 22 billion capital expenditures august 31 2016 board directors approved 600 million reallocation restructuring program cash costs capital expenditures 57 billion program consisted approximately 41 billion restructuring program costs 31 billion cash costs 10 billion noncash costs 16 billion capital expenditures september 6 2018 board directors approved extension restructuring program 2022 increase 13 billion program charges increase 700 million capital expenditures total 77 billion program consists 54 billion program charges 41 billion cash costs 13 billion noncash costs total capital expenditures 23 billion incurred life program current restructuring program increased extended actions called simplify grow program primary objective simplify grow program reduce operating cost structure supply chain overhead costs program covers severance well asset disposals manufacturing procurementrelated onetime costs since inception incurred total restructuring related implementation charges 43 billion related simplify grow program expect incur program charges yearend 2022 restructuring costs simplify grow program liability activity years ended december 31 2019 2018 1 includes settlement losses 5 million 2019 5 million 2018 recorded within benefit plan nonservice income consolidated statements earnings 2 adopted new lease accounting asu january 1 2019 asu requires recording onerous lease liabilities netted right use assets therefore first quarter 2019 reclassified onerous lease liabilities totaled 23 million march 31 2019 accrued liabilities accrued liabilities operating lease right use assets recorded restructuring charges 176 million 2019 316 million 2018 535 million 2017 within asset impairment exit costs benefit plan nonservice income spent 162 million 2019 310 million 2018 cash severance related costs also recognized noncash pension settlement losses see note 11 benefit plans noncash asset writedowns including accelerated depreciation asset impairments noncash adjustments including transfer onerous lease liabilities operating lease rou assets first quarter 2019 totaling 82 million 2019 67 million 2018 december 31 2019 275 million net restructuring liability recorded within current liabilities 26 million recorded within longterm liabilities implementation costs implementation costs directly attributable restructuring activities however qualify special accounting treatment exit disposal activities believe disclosure implementation costs provides readers financial statements information total costs simplify grow program implementation costs primarily relate reorganizing operations facilities connection supply chain reinvention program identified productivity cost saving initiatives costs include incremental expenses related closure facilities costs terminate certain contracts simplification information systems within continuing results operations recorded implementation costs 272 million 2019 315 million 2018 257 million 2017 recorded costs within cost sales general corporate expense within selling general administrative expenses restructuring implementation costs operating income 2019 2018 2017 since inception simplify grow program recorded following restructuring implementation costs within segment operating income earnings income taxes 1 20172019 north america region implementation costs included incremental costs incurred related renegotiating collective bargaining agreements expired february 2016 eight us facilities related executing business continuity plans north america business 2 benefit plan nonservice income amounts associated restructuring program activities longer recorded segment operating income included corporate column table periods presented corporate column also includes minor adjustments pension settlement losses rounding 3 includes charges recorded since program inception may 6 2014 december 31 2019 note 9 debt borrowing arrangements shortterm borrowings shortterm borrowings related weightedaverage interest rates consisted december 31 2019 commercial paper issued outstanding 2 52 days remaining maturity commercial paper borrowings decreased since 2018 yearend primarily result repayments operating cash flow proceeds longterm debt issuances net repayments partially offset increased borrowings shareholder dividends share repurchases international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 17 billion december 31 2019 december 31 2018 borrowings lines 57 million december 31 2019 138 million december 31 2018 borrowing arrangements september 13 2019 mondelez international holdings netherlands bv mihn wholly owned dutch subsidiary mondelēz international inc entered term loan agreement pursuant mihn may incur 500 million term loans threeyear term 500 million term loans fiveyear term proceeds term loan may used general corporate purposes including repayment debt october 25 2019 fully drew term loans received proceeds 10 billion also entered crosscurrency swaps serving cash flow hedges us dollardenominated debt payments effectively paid euros life debt february 27 2019 supplement commercial paper program entered 15 billion revolving credit agreement 364day senior unsecured credit facility scheduled expire february 26 2020 agreement replaces previous credit agreement matured february 27 2019 includes terms conditions existing 45 billion multiyear credit facility discussed december 31 2019 amounts drawn facility february 27 2019 entered 45 billion multiyear senior unsecured revolving credit facility general corporate purposes including working capital needs support commercial paper program agreement replaced 45 billion amended restated fiveyear revolving credit agreement dated october 14 2016 revolving credit agreement scheduled expire february 27 2024 revolving credit agreement includes covenant maintain minimum shareholders equity least 246 billion excluding accumulated comprehensive earningslosses cumulative effects changes accounting principles earningslosses recognized connection ongoing application marktomarket accounting pensions retirement plans december 31 2019 complied covenant shareholders equity defined covenant 375 billion revolving credit facility also contains customary representations covenants events default credit rating triggers provisions financial covenants could require us post collateral security december 31 2019 amounts drawn facility april 2 2018 connection tender offer described entered 20 billion revolving credit agreement 364day senior unsecured credit facility due expire april 1 2019 agreement included terms conditions existing 45 billion multiyear credit facility discussed april 17 2018 borrowed 714 million facility fund debt tender described availability facility reduced match borrowed amount may 7 2018 repaid 714 million net proceeds received may 2018 25 billion longterm debt issuance terminated credit facility longterm debt longterm debt consisted interest rates december 31 2019 deferred debt issuance costs 33 million december 31 2019 32 million december 31 2018 netted related debt table deferred financing costs related revolving credit facility classified longterm assets immaterial periods presented december 31 2019 aggregate maturities debt finance leases based stated contractual maturities excluding unamortized noncash bond premiums discounts bank fees marktomarket adjustments 76 million imputed interest finance leases 11 million millions october 28 2019 175 billion 1625 mihn notes 500 million floating rate mihn notes matured notes accrued interest date paid term loans drawn october 25 2019 us dollardenominated notes issued mihn september 19 2019 october 2 2019 mihn issued €500 million 0875 eurodenominated notes guaranteed mondelēz international inc mature october 1 2031 received €491 million 538 million proceeds net discounts associated financing costs 11 million amortized interest expense life loans proceeds earmarked general corporate purposes including repayment debt september 19 2019 mihn issued 10 billion us dollardenominated notes guaranteed mondelēz international inc consisting 500 million 2125 notes mature september 19 2022 500 million 225 notes mature september 19 2024 received 997 million proceeds net discounts associated financing costs proceeds earmarked general corporate purposes including repayment debt recorded approximately 4 million deferred financing costs discounts amortized interest expense life notes connection debt issuance entered crosscurrency swaps serving cash flow hedges us dollardenominated debt payments effectively paid euros life debt february 13 2019 issued 600 million 3625 us dollardenominated notes scheduled mature february 13 2026 received 595 million net proceeds used repay outstanding commercial paper borrowings debt recorded approximately 5 million discounts deferred financing costs amortized interest expense life notes february 1 2019 400 million us dollar variable rate notes matured notes accrued interest date paid issuance commercial paper cash hand august 23 2018 280 million 6125 us dollar notes matured notes accrued interest date paid issuance commercial paper cash hand july 18 2018 £76 million 99 million 725 pound sterling notes matured notes accrued interest date paid issuance commercial paper cash hand may 3 2018 issued 25 billion us dollardenominated fixedrate notes consisting • 750 million 3000 notes mature may 2020 • 750 million 3625 notes mature may 2023 • 700 million 4125 notes mature may 2028 • 300 million 4625 notes mature may 2048 may 7 2018 received net proceeds 248 billion used repay amounts outstanding revolving credit agreement facility general corporate purposes including repayment outstanding commercial paper borrowings debt recorded approximately 22 million discounts deferred financing costs net various fees associated bond transaction underwriter fee reimbursement amortized interest expense life notes april 17 2018 completed cash tender offer retired 570 million longterm us dollar debt consisting • 241 million 6500 notes due february 2040 • 976 million 5375 notes due february 2020 • 758 million 6500 notes due november 2031 • 721 million 6875 notes due february 2038 • 426 million 6125 notes due august 2018 • 293 million 6875 notes due january 2039 • 117 million 7000 notes due august 2037 financed repurchase notes including payment accrued interest costs incurred 20 billion revolving credit agreement entered april 2 2018 recorded loss debt extinguishment 140 million within interest expense net related amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing cash costs earnings time debt extinguishment cash costs related tendering debt included longterm debt repayments consolidated statement cash flows 2018 march 2 2018 launched offering c600 million 3250 canadiandollar denominated notes mature march 7 2025 march 7 2018 received c595 million 461 million proceeds net discounts underwriting fees used general corporate purposes recorded approximately 4 million discounts deferred financing costs amortized interest expense life notes february 1 2018 478 million 6125 us dollar notes matured notes accrued interest date paid issuance commercial paper cash hand january 26 2018 fr250 million 260 million 0080 swiss franc notes matured notes accrued interest date paid issuance commercial paper cash hand weightedaverage interest rate total debt 22 december 31 2019 23 december 31 2018 21 december 31 2017 fair value debt fair value shortterm borrowings december 31 2019 december 31 2018 reflects current market interest rates approximates amounts recorded consolidated balance sheets fair value longterm debt determined using quoted prices active markets level 1 valuation data publicly traded debt obligations december 31 2019 aggregate fair value total debt 19388 million carrying value 18426 million december 31 2018 aggregate fair value total debt 18650 million carrying value 18372 million interest expense net interest expense net within results continuing operations consisted see note 10 financial instruments information gainloss related us dollar interest rate swaps longer designated accounting cash flow hedges 2019 2018 information amounts income related net investment hedge derivative contracts amounts excluded hedge effectiveness 133 million 2019 120 million 2018 see note 14 commitments contingencies information 59 million income recorded 2017 connection resolution brazilian indirect tax matter reversal related accrued interest note 10 financial instruments fair value derivative instruments derivative instruments recorded fair value consolidated balance sheets follows 1 net investment hedge contracts consist crosscurrency interest rate swaps forward contracts also designate nonus dollar denominated debt hedge portion net investments nonus operations debt reflected table included longterm debt discussed note 9 debt borrowing arrangements net investment hedge derivative contracts nonus dollar denominated debt acting net investment hedges also disclosed derivative volume table hedges net investments international operations section appearing later footnote derivatives designated accounting hedges include cash flow net investment hedge derivative contracts currency exchange commodity derivative contracts economic hedges designated accounting hedges record derivative assets liabilities gross basis consolidated balance sheets fair value asset derivatives recorded within current assets fair value liability derivatives recorded within current liabilities fair values assetliability derivative instruments determined using level 1 financial assets liabilities consist exchangetraded commodity futures listed options fair value instruments determined based quoted market prices commodity exchanges level 2 financial assets liabilities consist primarily overthecounter “otc” currency exchange forwards options swaps commodity forwards options interest rate swaps currency exchange contracts valued using income approach based observable market forward rates less contract rate multiplied notional amount commodity derivatives valued using income approach based observable market commodity index prices less contract rate multiplied notional amount based pricing models rely market observable inputs commodity prices calculation fair value interest rate swaps derived discounted cash flow analysis based terms contract observable market interest rate curve calculation fair value financial instruments takes consideration risk nonperformance including counterparty credit risk otc derivative transactions governed international swap dealers association agreements standard industry contracts agreements post require collateral counterparties majority derivative contracts legal right setoff manage credit risk connection derivatives entering transactions counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties derivative volume gross notional values derivative instruments 1 fourth quarter 2019 changed report commodity contract notional values net gross basis line report instruments recast 2018 consistent current year presentation cash flow hedges cash flow hedge activity net taxes within accumulated comprehensive earningslosses included aftertax gainslosses reclassified accumulated comprehensive earningslosses net earnings within interest expense net recognized loss 111 million 2019 gain 10 million 2018 related certain forwardstarting interest rate swaps planned timing currency related forecasted debt changed second quarter 2019 also recognized loss 12 million related net loss equity method investment transactions noted note 7 equity method investments jde keurig exchange aftertax gainslosses recognized comprehensive earningslosses cash flow hedge ineffectiveness material periods presented record pretax gains losses reclassified accumulated comprehensive earningslosses earnings ii gains losses ineffectiveness iii gains losses amounts excluded effectiveness testing • cost sales currency exchange contracts related forecasted transactions • cost sales commodity contracts • interest expense net interest rate contracts currency exchange contracts related intercompany loans based current market conditions would expect transfer losses 15 million net taxes interest rate cash flow hedges earnings next 12 months cash flow hedge coverage december 31 2019 longest dated cash flow hedges interest rate swaps hedge forecasted interest rate payments next 4 years 9 months hedges net investments international operations net investment hedge nih derivative contracts enter crosscurrency interest rate swaps forwards hedge certain investments nonus operations movements exchange rates december 31 2019 aggregate notional value nih derivative contracts 69 billion impact comprehensive earnings net earnings years presented follows 1 amounts recorded unsettled settled nih derivative contracts recorded cumulative translation adjustment within comprehensive earnings cash flows settled contracts reported within investing activities consolidated statement cash flows 1 elected record changes fair value amounts excluded assessment effectiveness net earnings within interest expense net nonus dollar debt designated net investment hedges aftertax gainslosses related hedges net investments international operations form euro british pound sterling swiss franc canadian dollardenominated debt recorded within cumulative translation adjustment section comprehensive income economic hedges pretax gainslosses recorded net earnings economic hedges note 11 benefit plans pension plans obligations funded status projected benefit obligations plan assets funded status pension plans accumulated benefit obligation represents benefits earned measurement date us pension plans 1741 million december 31 2019 1488 million december 31 2018 accumulated benefit obligation nonus pension plans 10236 million december 31 2019 9374 million december 31 2018 salaried nonunion hourly employees hired january 1 2009 us january 1 2011 canada earlier certain legacy cadbury employees longer eligible participate defined benefit pension plans benefit accruals salaried nonunion hourly employee participants us canada defined benefit pension plans ceased december 31 2019 employees instead receive company contributions employee defined contribution plans combined us nonus pension plans resulted net pension liability 709 million december 31 2019 1114 million december 31 2018 recognized amounts consolidated balance sheets follows certain us nonus plans underfunded accumulated benefit obligations excess plan assets plans projected benefit obligations accumulated benefit obligations fair value plan assets used following weightedaverage assumptions determine benefit obligations pension plans yearend discount rates us canadian eurozone uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class periods presented measure service interest costs applying specific spot rates along yield curve used measure plan obligations plans’ liability cash flows believe approach provides precise measurement service interest costs aligning timing plans’ liability cash flows corresponding spot rates yield curve components net periodic pension cost net periodic pension cost consisted following 1 settlement losses 5 million 2019 5 million 2018 11 million 2017 incurred connection simplify grow program see note 8 restructuring program information net settlement losses 12 million us plans settlement gains 4 million nonus plans 2019 settlement losses 31 million us plans 4 million nonus plans 2018 21 million us plans 6 million nonus plans 2017 related lumpsum payment elections made retired employees us plans determine expected return plan assets component net periodic benefit cost using calculated market return value recognizes cost four year period nonus plans utilize similar approach varying cost recognition periods plans others determine expected return plan assets based asset fair values measurement date december 31 2019 combined us nonus pension plans expected amortize accumulated comprehensive earningslosses net periodic pension cost 2020 • estimated 133 million net loss experience differences • estimated 6 million prior service credit used following weightedaverage assumptions determine net periodic pension cost plan assets fair value pension plan assets determined using following fair value measurements excluded plan assets 67 million december 31 2019 december 31 2018 tables related certain insurance contracts reported contract value accordance authoritative guidance fair value measurements • level 1 includes primarily us nonus equity securities government bonds valued using quoted prices active markets • level 2 includes primarily pooled funds including assets real estate pooled funds valued using net asset values participation units held common collective trusts reported managers trusts supported unit prices actual purchase sale transactions level 2 plan assets also include corporate bonds fixedincome securities valued using independent observable market inputs matrix pricing yield curves indices • level 3 includes investments valued using unobservable inputs reflect plans’ assumptions market participants would use pricing assets based best information available • fair value estimates pooled funds calculated investment advisor reliable quotations pricing services readily available certain underlying securities estimated value based either cost last sale price securities valued fashion • fair value estimates private equity investments calculated general partners using market approach estimate fair value private investments market approach utilizes prices relevant information generated market transactions type security degree liquidity restrictions disposition latest round financing data company financial statements relevant valuation multiples discounted cash flow analyses • fair value estimates private debt placements calculated using standardized valuation methods including limited incomebased techniques discounted cash flow projections marketbased techniques utilizing public private transaction multiples comparables • fair value estimates real estate investments calculated investment managers using present value future cash flows expected received investments based valuation methodologies appraisals local market conditions current projected operating performance • fair value estimates fixedincome securities buyin annuity policies calculated replacement policy value basis discounting projected cash flows plan members using discount rate based riskfree rates adjustments estimated levels insurer pricing • net asset value primarily includes equity funds fixed income funds real estate funds hedge funds private equity investments net asset values normally used changes level 3 plan assets recorded comprehensive earningslosses included increase level 3 pension plan investments 2019 primarily due additional purchases buyin annuity fixed income securities increase 2018 primarily due additional purchases corporate bond fixed income securities includes private debt placements percentage fair value pension plan assets us plans investment strategy reduce risk underfunded plans part appropriate asset allocation within plan assets attempt maintain target asset allocation rebalancing asset classes make contributions monthly benefit payments strategy involves using indexed us equity international equity securities actively managed us investment grade fixedincome securities constitute 95 fixedincome securities smaller allocations high yield fixedincome securities nonus plans investment strategy subject local regulations assetliability profiles plans individual country aggregate asset allocation targets nonus plans broadly characterized mix approximately 25 equity securities 57 fixedincome securities 12 buyin annuity policies 6 real estate employer contributions 2019 contributed 8 million us pension plans 248 million nonus pension plans addition employees contributed 13 million nonus plans make contributions pension plans accordance local funding arrangements statutory minimum funding requirements discretionary contributions made extent tax deductible generate excise tax liability 2020 estimate pension contributions 16 million us plans 230 million nonus plans based current tax laws actual contributions may different due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates future benefit payments estimated future benefit payments pension plans december 31 2019 millions multiemployer pension plans accordance obligations collective bargaining agreements made contributions multiemployer pension plans 5 million 2019 17 million 2018 26 million 2017 individually significant multiemployer plan contributed bakery confectionery union industry international pension fund “fund” employer identification number 526118572 obligation contribute fund arose respect 8 collective bargaining agreements covering employees represented bakery confectionery tobacco grain millers union collective bargaining agreements expired 2016 continued contribute fund december 2018 contributions fund 12 million 2018 22 million 2017 contributions multiemployer pension plans individually significant 5 million 2019 5 million 2018 4 million 2017 contributions based contribution rates collective bargaining agreements number eligible employees fund surcharges 2018 executed complete withdrawal fund recorded 429 million estimated withdrawal liability july 11 2019 received undiscounted withdrawal liability assessment fund totaling 526 million requiring prorata monthly payments 20 years recorded 35 million final adjustment reduce withdrawal liability june 30 2019 began making monthly payments third quarter 2019 december 31 2019 remaining discounted withdrawal liability 391 million 14 million recorded current liabilities 377 million recorded longterm liabilities costs sponsor contribute employee defined contribution plans cover eligible salaried nonunion union employees contributions costs determined matching employee contributions defined plans amounts charged expense continuing operations defined contribution plans totaled 72 million 2019 57 million 2018 43 million 2017 postretirement benefit plans obligations postretirement health care plans funded changes amount accrued benefit obligation current portion accrued postretirement benefit obligation 16 million december 31 2019 15 million december 31 2018 included current liabilities used following weightedaverage assumptions determine postretirement benefit obligations yearend discount rates us canadian uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear expected health care cost trend rate based historical costs periods presented measure service interest costs postretirement benefits applying specific spot rates along yield curve used measure plan obligations plans’ liability cash flows believe approach provides good measurement service interest costs aligning timing plans’ liability cash flows corresponding spot rates yield curve assumed health care cost trend rates significant impact amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects components net periodic postretirement health care costs net periodic postretirement health care costs consisted following december 31 2019 expected amortize accumulated comprehensive earningslosses pretax net periodic postretirement health care costs 2020 • estimated 10 million net loss experience differences • estimated 30 million prior service credit used following weightedaverage assumptions determine net periodic postretirement health care cost future benefit payments estimated future benefit payments postretirement health care plans december 31 2019 millions costs made contributions multiemployer medical plans totaling 20 million 2019 19 million 2018 18 million 2017 plans provide medical benefits active employees retirees certain collective bargaining agreements postemployment benefit plans obligations postemployment plans funded changes amount accrued benefit obligation december 31 2019 2018 accrued benefit obligation determined using weightedaverage discount rate 53 2019 67 2018 assumed weightedaverage ultimate annual turnover rate 03 2019 2018 assumed compensation cost increases 40 2019 2018 assumed benefits defined respective plans postemployment costs arising actions offer employees benefits excess specified respective plans charged expense incurred components net periodic postemployment costs net periodic postemployment costs consisted following december 31 2019 estimated net gain postemployment benefit plans expect amortize accumulated comprehensive earningslosses net periodic postemployment costs 2020 approximately 4 million note 12 stock plans amended restated 2005 performance incentive plan “plan” authorized may 21 2024 issue maximum 2437 million shares common stock employees nonemployee directors december 31 2019 562 million shares available granted plan stock options stock options including stock appreciation rights granted exercise price equal market value underlying stock grant date generally become exercisable three annual installments beginning first anniversary grant date maximum term ten years account employee stock options fair value method accounting using blackscholes methodology lattice model measure stock option expense date grant fair value stock options date grant amortized expense vesting period recorded compensation expense related stock options held employees 38 million 2019 43 million 2018 50 million 2017 results continuing operations deferred tax benefit recorded related compensation expense 8 million 2019 7 million 2018 12 million 2017 unamortized compensation expense related employee stock options 35 million december 31 2019 expected recognized weightedaverage period 12 years weightedaverage blackscholes lattice model fair value assumptions riskfree interest rate represents constant maturity us government treasuries rate remaining term equal expected life options expected life period employees expected hold options volatility reflects historical movements stock price period commensurate expected life options dividend yield reflects dividend yield place time historical grants stock option activity reflected 1 cash received options exercised 369 million 2019 231 million 2018 257 million 2017 actual tax benefit realized recorded provision income taxes tax deductions option exercises totaled 40 million 2019 21 million 2018 31 million 2017 deferred stock units performance share units restricted stock historically made grants deferred stock units performance share units restricted stock beginning 2016 grant deferred stock units performance share units longer grant restricted stock deferred stock units granted eligible employees shareholder rights except may sell assign pledge otherwise encumber shares deferred stock units voting rights vested shares deferred stock units subject forfeiture certain employment conditions met deferred stock units generally vest third anniversary grant date performance share units granted 2005 plan vest based varying performance market service conditions unvested performance share units voting rights pay dividends dividend equivalents accumulated vesting period paid performance share units vest fair value deferred stock units performance share units restricted stock date grant amortized earnings vesting period fair value deferred stock units restricted stock measured market price common stock grant date performance share unit awards generally targets tied performance marketbased conditions market condition components market volatility factors taken consideration determining grant date fair value related compensation expense recognized regardless whether market condition satisfied provided requisite service provided performance condition components estimate probability performance conditions achieved quarter adjust compensation expenses accordingly grant date fair value performance share units determined based monte carlo simulation model marketbased total shareholder return component market price common stock grant date performancebased components number performance share units ultimately vest ranges 0200 percent number granted based achievement performance marketbased components recorded compensation expense related deferred stock units performance share units restricted stock 97 million 2019 85 million 2018 87 million 2017 results continuing operations deferred tax benefit recorded related compensation expense 16 million 2019 12 million 2018 23 million 2017 unamortized compensation expense related deferred stock units performance share units restricted stock 106 million december 31 2019 expected recognized weightedaverage period 15 years performance share unit deferred stock unit restricted stock activity reflected 1 includes performance share units deferred stock units 2 includes performance share units deferred stock units historically granted restricted stock 3 actual tax benefitexpense realized recorded provision income taxes tax deductions shares vested totaled 2 million 2019 3 million 2018 7 million 2017 4 grant date fair value performance share units determined based monte carlo simulation model marketbased total shareholder return component closing market price company’s stock grant date performancebased components monte carlo simulation model incorporates probability achieving total shareholder return market condition compensation expense recognized using grant date fair values regardless whether market condition achieved long requisite service provided note 13 capital stock amended restated articles incorporation authorize 50 billion shares class common stock “common stock” 500 million shares preferred stock preferred shares issued outstanding december 31 2019 2018 2017 shares common stock issued treasury outstanding stock plan awards employees nonemployee directors issued treasury shares december 31 2019 96 million shares common stock held treasury reserved stock options stock awards share repurchase program 2013 2017 board directors authorized repurchase total 137 billion common stock december 31 2018 january 31 2018 finance committee authorization delegated board directors approved increase 60 billion share repurchase program raising authorization 197 billion common stock repurchases extended program december 31 2020 repurchases program determined management wholly discretionary prior january 1 2019 repurchased approximately 150 billion common stock pursuant authorization 2019 repurchased approximately 309 million shares common stock average cost 4851 per share aggregate cost approximately 15 billion paid period except approximately 19 million settled january 2020 share repurchases funded available cash commercial paper issuances december 31 2019 approximately 32 billion remaining share repurchase capacity note 14 commitments contingencies legal proceedings routinely involved legal proceedings claims governmental inspections investigations legal matters arising ordinary course business february 2013 march 2014 cadbury india limited known mondelez india foods private limited subsidiary mondelēz international parties received show cause notices indian central excise authority “excise authority” calling upon parties demonstrate excise authority collect total 37 billion indian rupees 52 million december 31 2019 period 1 unpaid excise tax equivalent amount penalties well interest related production indian facility contested demands march 27 2015 commissioner excise authority commissioner issued order denying excise exemption claimed period 1 appealed order june 2015 excise authority issued additional show cause notices february 2015 december 2015 october 2017 issue covering additional periods june 2017 period 2 three notices added total 49 billion indian rupees 68 million december 31 2019 allegedly unpaid excise taxes subject penalties equivalent amount plus accrued interest contested demands may 25 2019 commissioner issued order denying excise exemption claimed period 2 appealed order august 2019 implementation goods services tax gst india july 2017 stopped receiving show cause notices additional amounts issue beginning fall 2019 government india made available amnesty resolve legacy tax issues following gst implementation amnesty upon payment 50 principal demand cases pending adjudication appeal june 30 2019 60 principal demand cases appeal filed june 30 2019 government would waive remainder principal demand well penalties imposed interest would also grant immunity prosecution although continue believe decision claim excise tax benefit valid december 2019 filed amnesty accrued total 46 billion indian rupees 65 million december 31 2019 selling general administrative expenses matter january 2020 made related payments amnesty matter resolved resolution material business financial condition april 1 2015 us commodity futures trading commission cftc filed complaint kraft foods group mondelēz global llc “mondelēz global” us district court northern district illinois district court eastern division “cftc action” following investigation activities related trading december 2011 wheat futures contracts occurred prior spinoff kraft foods group complaint alleges kraft foods group mondelēz global 1 manipulated attempted manipulate wheat markets fall 2011 2 violated position limit levels wheat futures 3 engaged noncompetitive trades trading sides exchangeforphysical chicago board trade wheat contracts cftc seeks civil monetary penalties either triple monetary gain violation commodity exchange act “act” 1 million violation section 6c1 6c3 9a2 act 140000 additional violation act plus postjudgment interest order permanent injunction prohibiting kraft foods group mondelēz global violating specified provisions act disgorgement profits costs fees august 15 2019 district court approved settlement agreement cftc mondelēz global terms settlement available district court’s docket immaterial impact financial position results operations cash flows october 23 2019 following ruling united states court appeals seventh circuit seventh circuit regarding mondelēz globals allegations cftc commissioners violated certain terms settlement agreement cftcs argument commissioners bound terms settlement agreement district court vacated settlement agreement reinstated pending motions district court previously mooted result settlement additionally several class action complaints filed kraft foods group mondelēz global district court investors wheat futures options behalf others similarly situated complaints make similar allegations made cftc action plaintiffs seeking class action certification monetary damages interest unjust enrichment costs fees injunctive declaratory unspecified relief june 2015 suits consolidated district court january 3 2020 district court granted plaintiffs request certify class january 17 2020 filed petition interlocutory appeal district courts class certification decision seventh circuit possible predict outcome matters however based separation distribution agreement kraft foods group dated september 27 2012 expect bear monetary penalties payments connection cftc action although cftc action class action complaints involve alleged conduct resolution decision respect one matters may dispositive outcome matter november 2019 european commission informed us initiated investigation alleged infringement european union competition law certain practices restricting crossborder trade within european economic area cooperating investigation fact investigation initiated mean european commission concluded infringement possible predict long investigation take ultimate outcome matter august 21 2018 virginia department environmental quality “vdeq” issued notice violation “nov” mondelēz global nov vdeq alleges richmond bakery one operating line proper minimum temperature pollution control equipment bakery failed provide certain observation training records vdeq indicated alleged violations may lead fine andor injunctive relief working vdeq reach resolution matter expect matter material effect financial results party various legal proceedings including disputes litigation regulatory matters incidental business including noted section record provisions consolidated financial statements pending litigation determine unfavorable outcome probable amount loss reasonably estimated matters reasonably possible result unfavorable outcome management unable estimate possible loss range loss amounts determined immaterial present believe ultimate outcome proceedings individually aggregate materially harm financial position results operations cash flows however legal proceedings government investigations subject inherent uncertainties unfavorable rulings events could occur unfavorable resolutions could involve substantial monetary damages addition matters conduct remedies sought unfavorable resolutions could include injunction order prohibiting us selling one products particular ways precluding particular business practices requiring remedies unfavorable outcome might result material adverse impact business results operations financial position thirdparty guarantees enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2019 material thirdparty guarantees recorded consolidated balance sheet tax matters party various tax matter proceedings incidental business proceedings subject inherent uncertainties unfavorable outcomes could subject us additional tax liabilities could materially adversely impact business results operations financial position fourth quarter 2019 resolved several indirect tax matters recorded 85 million net indirect tax expenses within selling general administrative expenses amounts primarily include matter resolved tax amnesty described “legal proceedings” tax indemnification matter related 2007 acquisition lu biscuit business closed quarter ended june 30 2018 closure impact net earnings however result 15 million tax benefit fully offset 11 million expense selling general administrative expenses 4 million expense interest expense net first quarter 2017 brazilian supreme court “court” ruled brazilian tax authorities leading case related computation certain indirect taxes court ruled indirect tax base include valueadded tax known “icms” removing icms tax base court effectively eliminated “tax” lower courts brazilian subsidiaries filed lawsuits recover amounts paid discontinue subsequent payments related “tax” brazilian subsidiaries received injunctions making payments “tax” 2008 since time december 2016 accrued portion tax quarter event tax reaffirmed brazilian courts september 30 2017 based legal advice publication court’s decision related case determined likelihood increased tax base would reinstated assessed us remote accordingly reversed accrual 667 million brazilian reais 212 million september 30 2017 153 million recorded within selling general administrative expenses 59 million recorded within interest expense net connection courts 2017 decision brazilian tax authority filed motion seeking clarification adjustment terms enforcement motion still decided continue monitor developments matter currently expect material future impact financial statements fourth quarter 2018 one lower court cases brazilian federal court appeals ruled favor brazilian tax authority allowing one brazil subsidiaries recover amounts previously paid result recorded net benefit selling general administrative expenses 26 million part 2010 cadbury acquisition became responsible party tax matters february 2 2006 dated deed tax covenant cadbury schweppes plc related entities “schweppes” black lion beverages related entities tax matters included ongoing transfer pricing case spanish tax authorities related schweppes businesses cadbury divested prior acquisition cadbury first quarter 2017 spanish supreme court decided case favor result final ruling first quarter 2017 recorded favorable earnings impact 46 million selling general administrative expenses 12 million interest expense net total pretax impact 58 million due noncash reversal cadburyrelated accrued liabilities related matter recorded total 4 million income third fourth quarters 2017 connection related bank guarantee releases note 15 reclassifications accumulated comprehensive income following table summarizes changes accumulated balances component accumulated comprehensive earningslosses attributable mondelēz international amounts reclassified accumulated comprehensive earningslosses net earnings net tax net losses 279 million 2019 169 million 2018 174 million 2017 1 reclassified losses included net periodic benefit costs disclosed note 11 benefit plans net loss equity method investment transactions 2 taxes reclassified earnings recorded within provision income taxes 3 reclassified gains losses recorded within cost sales 4 reclassified losses recorded within interest expense net loss equity method investment transactions note 16 income taxes august 6 2019 switzerland published changes federal tax law official federal collection laws september 27 2019 zurich canton published decision september 1 2019 zurich canton public vote regarding cantonal changes associated swiss federal tax law change intent tax law changes replace certain preferential tax regimes new set internationally accepted measures hereafter referred swiss tax reform based federalcantonal events position enactment swiss tax reform us gaap purposes met september 30 2019 recorded impacts third quarter 2019 net impact benefit 767 million consisted 769 million reduction deferred tax expense allowed stepup intangible assets tax purposes recorded net valuation allowance remeasurement deferred tax balances partially offset 2 million indirect tax impact selling general administrative expenses future rate impacts swiss tax reform law changes effective starting january 1 2020 continue monitor swiss tax reform additional interpretative guidance could result changes amounts recorded december 22 2017 new us tax reform legislation us tax reform enacted included broad range complex provisions impacting taxation businesses certain impacts new legislation would generally required accounting completed incorporated 2017 yearend financial statements however response complexities new legislation sec issued guidance provide companies relief sec provided oneyear window companies finalize accounting impacts new legislation finalized accounting new provisions fourth quarter 2018 us tax reform resulted total transition tax liability 1284 million 1279 million december 31 2018 5 million 2019 related updates based deemed repatriation accumulated foreign earnings profits paid installments 2026 related change indefinite reinvestment assertion companies owned directly us subsidiaries addition legislation reduced us federal tax rate 35 21 established various new provisions including new provision taxes us allocated expenses eg interest general administrative expenses well currently taxes certain income foreign operations global intangible lowtax income “gilti” earningslosses continuing operations income taxes provision income taxes consisted effective income tax rate pretax earnings differed us federal statutory rate follows 1 tax cuts jobs act 2017 tcja established global intangible lowtax income gilti provision taxes us allocated expenses certain income foreign operations foreignderived intangible income fdii provision allows deduction certain types us taxable income resulting lower effective us tax rate income base erosion antiabuse tax beat new minimum tax based crossborder service payments us entities 2019 effective tax rate 01 significantly impacted 769 million net deferred tax benefit related swiss tax reform third quarter 2019 excluding impact 2019 effective tax rate 224 reflects unfavorable provisions us tax reform taxes earnings equity method investments earnings reported separately consolidated statements earnings within earnings income taxes largely offset favorable impacts mix pretax income various nonus jurisdictions discrete net tax benefits 176 million discrete net tax benefits primarily driven 128 million net benefit release liabilities uncertain tax positions due expirations statutes limitations audit settlements several jurisdictions 2018 effective tax rate 272 unfavorably impacted net tax expenses 128 million discrete onetime events well unfavorable provisions within new us tax reform legislation taxes earnings equity method investments earnings reported separately consolidated statements earnings within earnings income taxes partially offset favorable mix pretax income various nonus tax jurisdictions well reduction us federal tax rate discrete net tax expenses included 192 million deferred tax expense related 778 million gain kdp transaction reported gain equity method investment well 19 million expense final updates provisional impacts us tax reform reported 2017 yearend partially offset 81 million benefit favorable audit settlements statutes limitations various jurisdictions 2017 effective tax rate 213 favorably impacted mix pretax income various nonus tax jurisdictions net tax benefits 97 million discrete onetime events partially offset domestic earnings taxed higher preus tax reform rate 35 well taxes earnings equity method investments earnings reported separately consolidated statements earnings within earnings income taxes discrete net tax benefits included provisional net impact us tax reform discussed previously favorable audit settlements statutes limitations various jurisdictions net reduction french belgian deferred tax liabilities resulting tax legislation enacted 2017 reduced corporate income tax rates country partially offset addition valuation allowance one chinese entities tax effects temporary differences gave rise deferred income tax assets liabilities consisted significant valuation allowances us switzerland china us valuation allowance relates excess foreign tax credits generated deemed repatriation us tax reform swiss valuation allowance brings allowed stepup intangible assets recorded swiss tax reform amount likely realized valuation allowance china relates characterspecific deferred tax assets one chinese entities december 31 2019 company pretax loss carryforwards 3491 million 691 million expire various dates 2020 2039 remaining 2800 million carried forward indefinitely unremitted earnings december 31 2019 subsidiaries continue indefinitely reinvested approximately 16 billion currently recognized approximately 75 million deferred tax liabilities related unremitted earnings future tax law changes needs nonus subsidiaries could require us recognize deferred tax liabilities portion accumulated earnings currently indefinitely reinvested changes unrecognized tax benefits january 1 2019 unrecognized tax benefits 516 million recognized benefits net impact income tax provision would 463 million unrecognized tax benefits 426 million december 31 2019 recognized benefits net impact income tax provision would 364 million within next 12 months unrecognized tax benefits could increase approximately 30 million due unfavorable audit developments decrease approximately 140 million due audit settlements expiration statutes limitations various jurisdictions include accrued interest penalties related uncertain tax positions tax provision accrued interest penalties 180 million january 1 2019 170 million december 31 2019 provision income taxes included 5 million benefit interest penalties income tax filings regularly examined federal state nonus tax authorities us federal state nonus jurisdictions statutes limitations generally ranging three five years however statutes often extended mutual agreement tax authorities earliest year still open examination us federal state tax authorities 2016 years still open examination nonus tax authorities major jurisdictions include earliest open tax year parentheses brazil 2014 china 2009 france 2015 india 2005 russia 2013 switzerland 2014 note 17 earnings per share basic diluted earnings per share “eps” calculated follows exclude antidilutive mondelēz international stock options calculation weightedaverage shares diluted eps excluded antidilutive stock options longterm incentive plan shares 52 million year ended december 31 2019 116 million year ended december 31 2018 85 million year ended december 31 2017 note 18 segment reporting manufacture market primarily snack food products including biscuits cookies crackers salted snacks chocolate gum candy various cheese grocery products well powdered beverage products manage global business report operating results geographic units manage operations region leverage regional operating scale manage different changing business environments effectively pursue growth opportunities arise across key markets regional management teams responsibility business product categories financial results regions operations management structure organized four operating segments • latin america • amea • europe • north america use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales general corporate expenses component selling general administrative expenses amortization intangibles gains losses divestitures acquisitionrelated costs component selling general administrative expenses periods presented exclude items segment operating income order provide better transparency segment operating results furthermore centrally manage benefit plan nonservice income interest expense net accordingly present items segment excluded segment profitability measure management reviews segment net revenues earnings reflecting current segment structure periods presented 1 first quarter 2018 connection adopting new pension cost classification accounting standard reclassified certain benefit plan component costs service costs operating income new line item benefit plan nonservice income consolidated statements earnings recast historical operating income segment operating income reflect reclassification impact earnings income taxes net earnings single customer accounted 10 net revenues continuing operations 2019 five largest customers accounted 170 ten largest customers accounted 232 net revenues continuing operations 2019 items impacting segment operating results discussed note 1 summary significant accounting policies note 2 divestitures acquisitions note 4 property plant equipment note 6 goodwill intangible assets note 8 restructuring program note 14 commitments contingencies also see note 9 debt borrowing arrangements note 10 financial instruments information interest expense net period total assets depreciation expense capital expenditures segment reflecting current segment structure periods presented 1 segment assets reflect outstanding intercompany asset balances intercompany accounts eliminated segment level 2 unallocated assets consist primarily cash equivalents deferred income taxes centrally held property plant equipment prepaid pension assets derivative financial instrument balances final adjustments jurisdictional netting deferred tax assets liabilities done consolidated level 1 includes depreciation expense related owned property plant equipment include amortization intangible assets leased assets refer consolidated statement cash flows 2019 total depreciation amortization expenses geographic data net revenues recognized countries products sold longlived assets excluding deferred tax goodwill intangible assets equity method investments individual country within exceeded 10 net revenues longlived assets periods presented net revenues product category reflecting current segment structure periods presented note 19 quarterly financial data unaudited summarized operating results quarter detailed 1 third quarter 2019 significantly impacted 769 million net deferred tax benefit related swiss tax reform refer note 16 income taxes information basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may equal total year 2019 2018 recorded following pretax chargesbenefits earnings continuing operations items impacting operating results discussed note 1 summary significant accounting policies note 2 divestitures acquisitions note 6 goodwill intangible assets note 7 equity method investments note 8 restructuring program note 9 debt borrowing arrangements note 10 financial instruments note 11 benefit plans note 14 commitments contingencies tax matters item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders mondelēz international inc opinion accompanying consolidated balance sheets related consolidated statements earnings comprehensive earnings equity cash flows present fairly material respects financial position mondelēz international inc subsidiaries december 31 2015 2014 results operations cash flows three years period ended december 31 2015 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2015 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission coso company’s management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included report management internal control financial reporting appearing item 9a responsibility express opinions financial statements company’s internal control financial reporting based integrated audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions discussed note 1 financial statements company changed manner classifies deferred income taxes 2015 company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp chicago illinois february 19 2016 mondelēz international inc subsidiaries consolidated statements earnings years ended december 31 millions us dollars except per share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements comprehensive earnings years ended december 31 millions us dollars see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated balance sheets december 31 millions us dollars except share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements equity millions us dollars except per share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements cash flows years ended december 31 millions us dollars see accompanying notes consolidated financial statements mondelēz international inc subsidiaries notes consolidated financial statements note 1 summary significant accounting policies description business mondelēz international inc formerly kraft foods inc incorporated 2000 commonwealth virginia mondelēz international inc subsidiaries collectively “mondelēz international” “we” “us” “our” sells food beverage products consumers 165 countries principles consolidation consolidated financial statements include mondelēz international inc well wholly owned majority owned subsidiaries periods presented december 31 2015 operating results venezuelan subsidiaries included consolidated financial statements close fourth quarter 2015 deconsolidated venezuelan operations consolidated financial statements recognized loss deconsolidation see currency translation highly inflationary accounting venezuela information account investments exercise significant influence 2050 ownership interest equity method accounting july 2 2015 contributed global coffee businesses new company jacobs douwe egberts “jde” hold 435 equity interest collectively “coffee business transactions” historically coffee businesses income primarily coffeerelated smaller equity method investments recorded within operating income businesses operated direct extensions base business following coffee business transactions retain ongoing interest coffee significant equity method investments significant influence jde equity method investments control operations directly beginning third quarter 2015 began recognize investment earnings aftertax equity method investment earnings outside operating income segment income six months ended december 31 2015 aftertax equity method investment net earnings less 1 million combined basis thus shown consolidated statement earnings period periods prior july 2 2015 closing coffee equity method investment earnings included within operating income segment income please see note 2 divestitures acquisitions coffee business transactions note 17 segment reporting information transactions use cost method accounting investments ownership interest less 20 exercise significant influence noncontrolling interest represents noncontrolling investors’ interests results subsidiaries control consolidate intercompany transactions eliminated discontinued operation october 1 2012 “distribution date” completed spinoff former north american grocery business kraft foods group inc “kraft foods group” part kraft heinz company distributing 100 outstanding shares common stock kraft foods group holders common stock “spinoff” retained global snacks business along food beverage categories divested kraft foods group business presented discontinued operation consolidated statements earnings 2013 see note 2 divestitures acquisitions additional information accounting calendar change connection moving toward common consolidation date across company first quarter 2015 changed consolidation date north america segment last saturday period last calendar day period change favorable impact 78 million net revenues 37 million operating income 2015 first quarter 2013 changed consolidation date europe segment predominantly last saturday period last calendar day period change favorable impact 37 million net revenues 6 million operating income 2013 result changes operating subsidiaries reports results last calendar day period believe change improve business planning financial reporting better matching close dates operating subsidiaries bringing reporting dates periodend date effect priorperiod results material revised priorperiod results use estimates prepare consolidated financial statements accordance accounting principles generally accepted united states america “us gaap” require us make estimates assumptions affect number amounts consolidated financial statements significant accounting policy elections estimates assumptions include among others pension benefit plan assumptions valuation assumptions goodwill intangible assets useful lives longlived assets restructuring program liabilities marketing program accruals insurance selfinsurance reserves income taxes base estimates historical experience assumptions believe reasonable actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year material effect consolidated financial statements currency translation highly inflationary accounting translate results operations subsidiaries multiple currencies using average exchange rates period translate balance sheet accounts using exchange rates end period record currency translation adjustments component equity except highly inflationary currencies venezuela realized exchange gains losses transactions earnings venezuela january 1 2010 december 31 2015 accounted results venezuelan subsidiaries using us dollar functional currency prescribed us gaap highly inflationary economies effective close 2015 fiscal year concluded longer met accounting criteria consolidation venezuela subsidiaries due loss control venezuelan operations otherthantemporary lack currency exchangeability fourth quarter 2015 representatives venezuelan government arbitrarily imposed pricing restrictions local operations resulted inability recover operating costs immediately began appeal process venezuelan authorities demonstrate pricing line regulatory requirements january 2016 local officials verbally lifted pricing restrictions however uncertain legally required administrative order issued legal regulatory environment become unreliable complying venezuelan law governing pricing profitability controls followed legal process appeal process available us outlined law additionally increasingly facing issues procuring raw materials packaging taken together actions economic environment venezuela progressively limited access dollars import goods use available currency mechanisms impaired ability operate control venezuelan businesses therefore concluded longer met criteria consolidation venezuelan subsidiaries close 2015 fiscal year deconsolidated changed cost method accounting venezuelan operations recorded 778 million pretax loss reduced value cost method investment venezuela venezuelan receivables held subsidiaries realizable fair value resulting full impairment recorded loss also included historical cumulative translation adjustments related venezuelan operations previously recorded accumulated comprehensive losses within equity fair value investments venezuelan subsidiaries estimated based discounted cash flow projections current expected operating losses foreseeable future ability operate business sustainable basis fair value estimate reflects us dollar exchange discount rate assumptions reflect inflation economic uncertainty venezuela beginning 2016 longer include net revenues earnings net assets venezuelan subsidiaries within consolidated financial statements cost method accounting recognize earnings extent cash received venezuelan subsidiaries given current ongoing difficult economic regulatory business environment venezuela continues significant uncertainty related operations venezuela expect conditions continue foreseeable future monitor extent ability control venezuelan operations liquidity availability us dollars different rates current situation venezuela may change time lead consolidation future date 2015 prior periods presented operating results venezuela operations included consolidated statements earnings time recognized number currencyrelated remeasurement losses resulting devaluations venezuela bolivar exchange rates historically used source us dollars purchases imported raw materials packaging goods services following table sets forth history remeasurement losses deconsolidation loss historical operating results financial position venezuelan subsidiaries periods presented 1 represents financial position venezuelan subsidiaries prior accounting change december 31 2015 argentina december 16 2015 new argentinean government fiscal authority announced lifting strict currency controls reduced restrictions exports imports next day value argentine peso relative us dollar fell 36 remained relatively stable level december 31 2015 volatility exchange rate expected business operating environment remains challenging continue monitor actively manage investment exposures argentina although ability effectively hedge currency fluctuations reduced presidential transition december hedging markets returned normal operating levels allowing us continue executing hedging programs continue refining product portfolio improve product offerings mix profitability also continue implement additional cost initiatives protect business currency declines could adverse impact ongoing results operations believe actions new government reduce economic controls business restrictions provide favorable opportunities argentinean subsidiaries argentinian operations contributed approximately 755 million 25 consolidated net revenues approximately 45 million 05 consolidated operating income year ended december 31 2015 december 31 2015 net monetary liabilities argentina operations material argentina designated highlyinflationary economy accounting purposes record currency translation adjustments within equity realized exchange gains losses transactions earnings countries since operations 80 countries sell 165 countries regularly monitor economic currencyrelated risks seek take protective measures response exposures countries business significant economic uncertainty recently include brazil china russia turkey ukraine either currency devaluation volatility continue monitor operations currencies net monetary exposures countries time material net monetary asset exposures risk operating results changing highly inflationary accounting countries cash equivalents cash equivalents include demand deposits banks highly liquid investments original maturities three months less transfers financial assets account transfers financial assets sales surrendered control related assets whether control relinquished requires among things evaluation relevant legal considerations assessment nature extent continuing involvement assets transferred use programs periodically circumstances favorable manage liquidity gains losses stemming transfers reported sales included offset net revenue consolidated statements earnings assets obtained liabilities incurred connection transfers reported sales initially recognized consolidated balance sheets fair value december 19 2013 europe december 22 2015 united states entered uncommitted revolving nonrecourse accounts receivable factoring arrangements major global bank facilities whose maximum combined capacity 820 million remain available unless terminated either party arrangements may sell eligible shortterm trade receivables bank exchange cash transfers reported sales trade receivables within consolidated financial statements continue service receivables sold acting solely collecting agent behalf bank recorded losses sales 3 million 2015 2 million 2014 outstanding principal amount receivables sold combined facilities amounted 570 million 2015 211 million 2014 inventories value inventory using average cost method also record inventory allowances overstock obsolete inventories due ingredient packaging changes longlived assets property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years review longlived assets including amortizable intangible assets realizability ongoing basis changes depreciation generally accelerated depreciation determined recorded estimates remaining useful lives residual values longterm assets change also review impairment conditions exist indicate carrying amount assets may fully recoverable circumstances perform undiscounted operating cash flow analyses determine impairment exists testing asset impairment group assets liabilities lowest level cash flows separately identifiable impairment loss calculated excess asset’s carrying value estimated fair value fair value estimated based undiscounted cash flows asset group remaining useful life based expected cash proceeds asset less costs disposal significant impairment losses would recorded within asset impairment exit costs consolidated statements earnings software costs capitalize certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment amortized straightline basis estimated useful lives software exceed seven years goodwill nonamortizable intangible assets test goodwill nonamortizable intangible assets impairment annual basis october 1 assess goodwill impairment risk throughout year performing qualitative review entityspecific industry market general economic factors affecting goodwill reporting units review operating segment reporting unit structure goodwill testing annually significant changes organization occur annually may perform qualitative testing elect quantitative testing instead depending prior test results current year developments current risk evaluations practical considerations event significant potential goodwill impairment risk exists specific reporting unit apply twostep quantitative test first step compares reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using discounted cash flow method incorporates planned growth rates marketbased discount rates estimates residual value year europe north america reporting units used marketbased weightedaverage cost capital 68 discount projected cash flows operations latin america asia pacific eemea reporting units used riskrated discount rate 98 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value would apply second step measure difference carrying value implied fair value goodwill carrying value goodwill exceeds implied fair value goodwill impaired carrying value reduced implied fair value goodwill annually assess nonamortizable intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelived intangible assets significant potential impairment risk exists specific asset quantitatively test impairment comparing estimated fair value carrying value determine estimated fair value using planned growth rates marketbased discount rates estimates royalty rates carrying value asset exceeds fair value consider asset impaired reduce carrying value estimated fair value amortize definitelived intangible assets estimated useful lives evaluate impairment longlived assets insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits estimate liabilities associated risks undiscounted basis evaluating making judgments historical claims experience actuarial assumptions estimated impact future results revenue recognition recognize revenues title risk loss pass customers generally occurs upon delivery shipment goods revenues recorded net sales incentives trade promotions include shipping handling charges billed customers shipping handling costs classified part cost sales provisions product returns trade allowances also recorded reductions revenues within period revenue recognized marketing research development promote products advertising marketing sales incentives trade promotions programs include limited cooperative advertising instore displays consumer promotions new product introduction fees discounts coupons rebates volumebased incentives expense advertising costs either period advertising first takes place incurred sales incentive trade promotion activities recorded reduction revenues based amounts estimated due customers consumers end period base estimates principally historical utilization redemption rates interim reporting purposes advertising expenses sales incentives charged operations percentage volume based estimated volume estimated program spending defer costs yearend consolidated balance sheet marketing costs recorded expense year incurred advertising expense 1542 million 2015 1552 million 2014 1721 million 2013 expense product research development costs incurred research development expense 409 million 2015 455 million 2014 471 million 2013 record marketing research development expenses within selling general administrative expenses employee benefit plans provide range benefits current retired employees include pension benefits postretirement health care benefits postemployment benefits depending upon jurisdiction tenure job level factors local statutory requirements govern many benefit plans provide around world local government plans generally cover health care benefits retirees outside united states canada united kingdom us canadian uk subsidiaries provide health care benefits retired employees postemployment benefit plans provide primarily severance benefits eligible salaried certain hourly employees cost plans recognized earnings primarily working life covered employee financial instruments use financial instruments manage currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principal objective risk management strategies reduce significant unanticipated earnings fluctuations may arise volatility currency exchange rates commodity prices interest rates principally use derivative instruments use combination primarily currency forward contracts futures options swaps commodity forward contracts futures options interest rate swaps manage exposure cash flow variability protect value existing currency assets liabilities protect value debt see note 9 financial instruments consolidated financial statements information types derivative instruments use record derivative financial instruments gross basis fair value consolidated balance sheets within current assets current liabilities due relatively shortterm duration cash flows derivative instruments classified consolidated statements cash flows based nature derivative instrument changes fair value derivative designated cash flow hedge extent hedge effective recorded accumulated comprehensive earnings losses reclassified earnings hedged item affects earnings changes fair value economic hedges ineffective portion hedges recognized current period earnings changes fair value derivative designated fair value hedge along changes fair value related hedged asset liability recorded earnings period use nonus dollar denominated debt hedge portion net investment nonus operations adverse movements exchange rates currency movements related debt net investment related deferred taxes recorded within currency translation adjustment accumulated comprehensive earnings losses order qualify hedge accounting specified level hedging effectiveness derivative instrument item hedged must exist inception throughout hedged period must also formally document nature relationship derivative hedged item well risk management objectives strategies undertaking hedge transaction method assessing hedge effectiveness additionally hedge forecasted transaction significant characteristics expected term forecasted transaction must specifically identified must probable forecasted transaction occur longer probable hedged forecasted transaction occur would recognize gain loss related derivative earnings use derivatives exposed credit market risks credit risk exists counterparty derivative contract might fail fulfill performance obligations contract reduce credit risk entering transactions counterparties high quality investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration one year longer governed international swaps derivatives association master agreement market risk exists value derivative financial instrument might adversely affected changes market conditions commodity prices currency exchange rates interest rates manage derivative market risk limiting types derivative instruments derivative strategies use degree market risk plan hedge use derivative instruments commodity cash flow hedges exposed price risk related forecasted purchases certain commodities primarily use raw materials enter commodity forward contracts primarily wheat sugar sweeteners soybean vegetable oils cocoa commodity forward contracts generally subject accounting requirements derivative instruments hedging activities normal purchases exception also use commodity futures options hedge price certain input costs including cocoa energy costs wheat sugar sweeteners soybean vegetable oils dairy derivative instruments highly effective qualify hedge accounting treatment also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes currency exchange cash flow hedges use various financial instruments mitigate exposure changes exchange rates thirdparty intercompany current forecasted transactions instruments may include currency exchange forward contracts futures options swaps based size location businesses use instruments hedge exposure certain currencies including euro pound sterling swiss franc canadian dollar interest rate cash flow fair value hedges manage interest rate volatility modifying pricing maturity characteristics certain liabilities net impact expense material basis adversely affected movements interest rates result interest rate fluctuations hedged fixedrate liabilities appreciate depreciate market value expect effect unrealized appreciation depreciation substantially offset gains losses derivative instruments linked hedged liabilities use derivative instruments including interest rate swaps indices related pricing specific liabilities part interest rate risk management strategy matter policy use highly leveraged derivative instruments interest rate risk management use interest rate swaps economically convert portion fixedrate debt variablerate debt interest rate swap contracts agree parties exchange specified intervals difference fixedrate floatingrate interest amounts calculated based agreedupon notional amount also use interest rate swaps hedge variability interest payment cash flows portion future debt obligations substantially derivative instruments highly effective qualify hedge accounting treatment hedges net investments nonus operations numerous investments outside united states net assets subsidiaries exposed changes volatility currency exchange rates use local currency denominated debt hedge nonus net investments adverse movements exchange rates designated euro pound sterling swiss franc denominated borrowings net investment hedge portion overall european operations gains losses net investment designated european operations economically offset losses gains euro pound sterling swiss franc denominated borrowings change debt’s value net deferred taxes recorded currency translation adjustment component accumulated comprehensive earnings losses income taxes recognize tax benefits financial statements uncertain tax positions assessed likely sustained upon audit amount recognize measured largest amount benefit greater 50 percent likely realized upon ultimate settlement recognize deferred tax assets deductible temporary differences operating loss carryforwards tax credit carryforwards deferred tax assets reduced valuation allowance likely portion deferred tax assets realized new accounting pronouncements january 2016 financial accounting standards board “fasb” issued accounting standards update “asu” provides updated guidance recognition measurement presentation disclosure financial assets liabilities asu effective fiscal years beginning december 15 2017 currently assessing impact across operations consolidated financial statements november 2015 fasb issued asu requires deferred tax liabilities assets classified noncurrent balance sheet new standard change current requirement offset deferred tax liabilities assets within taxpaying component entity asu effective fiscal years beginning december 15 2016 early adoption permitted also applied either prospectively retrospectively periods presented early adopted new standard december 31 2015 prospective basis classified deferred taxes noncurrent consolidated balance sheets december 31 2015 prior periods retrospectively adjusted september 2015 fasb issued asu eliminates requirement acquirer business combination account measurementperiod adjustments retrospectively new guidance measurementperiod adjustments accounted period entity determines amount adjustment asu effective fiscal years beginning december 15 2015 early adoption permitted applied prospectively open measurement periods effective date regardless acquisition date elected early adopt apply standard accounting acquisitions closed third quarter 2015 see note 2 divestitures acquisitions information july 2015 fasb issued asu simplifies guidance subsequent measurement inventory us gaap currently requires entity measure inventory lower cost market previously market could replacement cost net realizable value net realizable value less approximate normal profit margin new standard inventory valued lower cost net realizable value asu effective fiscal years beginning december 15 2016 early adoption permitted early adopted new standard january 1 2016 prospective basis adoption standard expected material impact consolidated financial statements may 2015 fasb issued asu applies reporting entities elect measure fair value investment using net asset value “nav” per share equivalent practical expedient asu removes requirement include investments measured using practical expedient within fair value hierarchy disclosures also practical expedient disclosures previously required eligible investments required investments practical expedient elected update effective fiscal years beginning december 15 2015 early adoption permitted measure certain defined benefit plan assets using nav practical expedient adopted new standard january 1 2016 new standard impact future pension disclosures expected otherwise impact consolidated financial statements april 2015 fasb issued asu provides guidance evaluating whether cloud computing arrangement includes software license software license component software licensing accounting applied otherwise service contract accounting applied asu effective fiscal years beginning december 15 2015 early adoption permitted adopted new standard january 1 2016 prospective basis standard expected material impact consolidated financial statements april 2015 fasb issued asu simplifies presentation debt issuance costs standard requires debt issuance costs related recognized debt obligation presented balance sheet direct deduction carrying amount related debt instead presented asset similar presentation debt discounts august 2015 fasb issued update clarifying lineofcredit arrangements entities may continue defer debt issuance costs asset asu represents change accounting principle requires retrospective application asu effective fiscal years beginning december 15 2015 early adoption permitted early adopted new standard december 31 2015 reclassified historical deferred debt issuance costs related debt lineofcredit arrangements longterm assets offset related debt obligations february 2015 fasb issued asu amends current consolidation guidance related evaluation whether certain legal entities consolidated standard modifies variable interest entity “vie” model voting interest model including analyses whether limited partnerships vies impact service fees related party interests determining entity vie reporting entity guidance effective fiscal years beginning december 15 2015 early adoption permitted adopted new standard january 1 2016 expect standard material impact consolidated financial statements may 2014 fasb issued asu revenue recognition contracts customers new asu outlines new single comprehensive model companies use accounting revenue core principle entity recognize revenue depict transfer promised goods services customer amount reflects consideration entity expects entitled receive exchange goods services asu also requires additional disclosure nature amount timing uncertainty revenue cash flows customer contracts including significant judgments made recognizing revenue may 2015 fasb proposed changes new guidance areas licenses identifying performance obligations august 2015 fasb issued asu defers effective date one year annual reporting periods beginning december 15 2017 early adoption permitted original effective date annual reporting periods beginning december 15 2016 asu may applied retrospectively historical periods presented cumulativeeffect adjustment date adoption made progress due diligence scoping reviews continue assess impact new standard across operations consolidated financial statements anticipate adopting new standard january 1 2018 reclassifications certain amounts previously reported reclassified conform currentyear presentation see reclassifications made related deferred debt issuance costs note 2 divestitures acquisitions coffee business transactions july 2 2015 completed transactions combine wholly owned coffee businesses including coffee portfolio france de master blenders 1753 bv “demb” create new company jacobs douwe egberts jde currently hold 435 equity interest jde acorn holdings bv “ahbv” owner demb holds remaining 565 equity interest connection contribution global coffee businesses jde recorded pretax gain 68 billion 66 billion taxes 2015 also recorded approximately 10 billion pretax net gains related hedging expected cash proceeds transactions described consideration received date consists 38 billion cash 42 billion us dollars july 2 2015 435 equity interest jde 794 million receivables related sales price adjustments tax formation cost payments third quarter 2015 also recorded 283 million cash receivables jde related reimbursement costs incurred separating coffee businesses cash equity consideration received closing reflects retained interest koreabased joint venture dongsuh foods corporation second quarter 2015 also completed sale interest japanese coffee joint venture ajinomoto general foods inc “agf” lieu contributing interest agf joint venture jde contributed net cash proceeds sale transaction change consideration received global coffee businesses please see discussion divestiture agf divestitures acquisitions sales property fourth quarter jde concluded negotiations sales price adjustment completed valuation investment jde primarily related negotiated resolution sales price adjustment fourth quarter recorded 313 million reduction pretax gain coffee transaction reducing 71 billion estimated gain third quarter 68 billion final gain 2015 part sales price negotiations retained right collect future cash payments certain estimated pension liabilities come agreed amount future may recognize additional income related negotiated term future final value investment jde july 2 2015 41 billion 45 billion fair value jde investment determined using incomebased marketbased valuation techniques discounted cash flow analysis reflected growth discount tax rates assumptions reflecting underlying combined businesses countries combined coffee businesses operate connection expected receipt cash euros time closing entered number consecutive currency exchange forward contracts 2014 2015 lock equivalent expected value us dollars date coffee business transactions first announced may 2014 cumulatively realized aggregate net gains received cash approximately 10 billion hedging contracts increased cash received connection coffee business transactions 42 billion cash consideration received 52 billion connection currency contracts transfer sale proceeds subsidiaries deconsolidated net assets shares recognized net gain 628 million 2014 net gain 436 million 2015 within interest expense net prior july 2 2015 closing received conditional approval coffee business combination european commission following antitrust evaluation european commission’s ruling conditioned upon jde’s divestiture majority eubased carte noire business demb’s merrild business primarily france denmark businesses transferred jde completing sales businesses line european commission agreements businesses recorded fair value july 2 2015 reflecting pending sale values record gain loss sale businesses share jde’s earnings historical consolidated results pretax earnings coffee businesses contributed jde included periods prior july 2 2015 closing date reflected periods presented also incurred incremental expenses related readying global coffee businesses transactions totaled 278 million year ended december 31 2015 77 million year ended december 31 2014 total expenses 123 million recorded within asset impairment exit costs 2015 remainder recorded within selling general administrative expenses primarily europe segment well within eastern europe middle east africa “eemea” segment general corporate expenses july 2 2015 deconsolidated following assets liabilities connection deconsolidation global coffee businesses millions amounts also include fourth quarter final settlement coffee businessrelated pension obligations described addition net assets deconsolidated also reduced accumulated comprehensive losses transfer coffee businessrelated pension obligations amount 90 million 2015 timing reductions third fourth quarters 2015 corresponded company discharged obligations plans result transaction snacks product categories consisting biscuits chocolate gum candy make majority business portfolio contributing approximately 85 2015 2014 net revenues excluding coffee net revenues retaining significant stake jde coffee category continue significant results reflected historical coffee results equity earnings jde results continuing operations reflecting fact results coffee category continue significant part net earnings business strategy going forward summary financial information equity method investments summarized financial information jde equity method investments reflected 1 includes 33 million amortization expense related basis difference us gaap accounting basis equity method investments us gaap accounting basis equity 2 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting jde earnings began record earnings equity method investments aftertax equity method investment earnings outside operating income six months ended december 31 2015 aftertax equity method investment net earnings less 1 million combined basis earnings equity method investments recorded within segment operating income 56 million six months ended july 2 2015 113 million year ended december 31 2014 107 million year ended december 31 2013 see note 1 summary significant accounting policies principles consolidation additional information additionally proportionate share jde’s equity method investments’ comprehensive losses 137 million 2015 28 million 2014 1 million 2013 recorded within consolidated statement comprehensive earnings jde capital increase december 18 2015 ahbv agreed provide jde additional capital pay debt lenders pro rata share capital increase 499 million 544 million us dollars december 18 2015 made return additional shares jde retained 435 interest jde following capital increase fund share capital increase contributed 460 million 501 million jde receivables made 39 million 43 million cash payment planned keurig transaction december 6 2015 agreed make investment keurig green mountain inc “keurig” contingent upon successful completion planned acquisition keurig jab holding co “jab” parent company ahbv following close jab’s planned acquisition keurig early 2016 intend exchange portion equity interest jde equity interest keurig following exchange shares expect ownership jde decrease approximately 265 interest keurig somewhat lower expect account investments equity method resulting recognizing share earnings within earnings share dividends within cash flows governance rights jde change significantly similar governance rights keurig following transaction investment keurig follow acquisition keurig jab expected completed end first quarter 2016 early second quarter exchange shares jde investment keurig conditioned upon actions jab keurig’s existing shareholders subject regulatory antitrust reviews reflected portion investment jde would exchanged keurig investment assets held sale december 31 2015 spinoff kraft foods group divested kraft foods group grocery business spinoff completed october 1 2012 2013 connection kraft foods group business received cash recorded income resolution legal matter described received cash retired receivable related spinoff stock award cash settlement kraft foods group also incurred spinoff transaction transition financing related costs “spinoff costs” end 2014 noted december 13 2013 independent arbitrator dispute starbucks coffee company “starbucks” issued decision final award kraft foods global inc became kraft foods group spinoff named party proceeding proven entitled recover starbucks required pay 2764 million total cash compensation starbucks’ unilateral termination starbucks packaged coffee business license supply agreement award included compensation 135 determined fair market value agreement improper termination well prejudgment interest 521 million kraft foods group’s attorney’s fees parties agreed would equal 15 million starbucks paid amount owed pursuant ruling separation distribution agreement kraft foods group us kraft foods group directed recovery awarded arbitration proceeding us connection spinoff recapitalization plans accordingly pretax gain resolution starbucks arbitration 25 billion 16 billion net tax recorded earnings discontinued operations fourth quarter 2013 march 2013 also collected 55 million kraft foods group related cash settlement stock awards held respective employees time spinoff described note 11 stock plans 2014 concluded spinoff transition plans recorded spinoff costs 35 million 2014 62 million 2013 pretax earnings within selling general administrative expenses end 2014 incurred total spinoff costs approximately 12 billion divestitures acquisitions sales property july 15 2015 acquired 80 interest biscuit operation vietnam subsidiary within asia pacific segment total cash paid date biscuit operation intellectual property noncompete consulting agreements less purchase price adjustments received 11645 billion vietnamese dong 534 million us dollars using applicable exchange rates july 15 november 27 made received expect make following cash payments connection acquisition • november 10 2014 deposited 46 million escrow upon signing purchase agreement • july 15 2015 made 9122 billion vietnamese dong 418 million us dollars july 15 2015 payment biscuit operation 44 million additional escrow deposit 759 billion vietnamese dong 35 million us dollars july 15 2015 partial payment noncompete continued consulting agreements • november 27 2015 received 197 billion vietnamese dong 9 million us dollars november 27 2015 purchase price adjustment related working capital adjustments closing • subject satisfaction final conditions including resolution warranty claims purchase price adjustments expect release previously escrowed funds 90 million remaining 20 interest biscuit operation make final payment 759 billion vietnamese dong 34 million us dollars using december 31 2015 exchange rate noncompete consulting agreements anticipate resolution conditions end third quarter 2016 process completing valuation work acquired net assets recorded preliminary allocation consideration paid including 10 million inventory 47 million property plant equipment 19 million net liabilities 461 million estimated goodwill recorded noncompete consulting agreements prepaid contracts within current noncurrent assets amortized net earnings remaining contract terms acquisition added 121 million incremental net revenues 21 million incremental operating income 2015 additionally recorded acquisition costs 7 million 2015 2 million 2014 integration costs 9 million year ended december 31 2015 within selling general administrative expenses april 23 2015 completed divestiture 50 equity interest agf japanese coffee joint venture joint venture partner generated cash proceeds 27 billion japanese yen 225 million us dollars april 23 2015 pretax gain 13 million aftertax loss 9 million upon closing divested 99 million investment joint venture 65 million goodwill 41 million accumulated comprehensive losses also incurred approximately 7 million transaction costs february 16 2015 acquired us snack food company enjoy life foods within north america segment paid cash settled debt totaling 81 million connection acquisition upon finalizing valuation acquired net assets second quarter recorded 81 million purchase price allocation 58 million identifiable intangible assets 20 million goodwill 3 million net assets acquisitionrelated costs operating results acquisition material consolidated financial statements year ended december 31 2015 february 22 2013 acquired remaining interest biscuit operation morocco whollyowned subsidiary within eemea segment paid net cash consideration 119 million consisting 155 million purchase price net cash acquired 36 million prior acquisition interest operation accounted equity method result obtaining controlling interest consolidated operation upon finalizing valuation acquired net assets fourth quarter 2013 recorded fair value acquired assets including identifiable intangible assets 48 million liabilities assumed goodwill 209 million quarter ended march 31 2013 also recorded pretax gain 22 million related remeasurement previouslyheld equity interest operation fair value accordance us gaap acquisition costs 7 million interest expense net selling general administrative expenses recorded integration charges 4 million 2014 4 million 2013 within cost sales selling general administrative expenses 2013 completed several divestitures primarily eemea europe segments generated cash proceeds 60 million pretax gains 8 million divestitures included salty snacks business turkey confectionery business south africa chocolate business spain aggregate operating results 2013 divestitures material financial statements periods presented 2013 sold properties india within asia pacific segment italy united kingdom norway within europe segment india property sale generated 39 million pretax gain 53 million cash proceeds europe property sales generated 29 million pretax net gains 37 million cash proceeds also 27 million receivable december 31 2015 related united kingdom property sale 2013 25 million received january 2016 approximately 2 million received within year gains recorded within selling general administrative expenses cash proceeds recorded cash flows investing activities year ended december 31 2013 note 3 inventories consisted following july 2 2015 deconsolidated 469 million net inventory coffee business transactions see note 2 divestitures acquisitions coffee business transactions additional information note 4 property plant equipment property plant equipment consisted following july 2 2015 deconsolidated 751 million net property plant equipment coffee business transactions see note 2 divestitures acquisitions coffee business transactions additional information capital expenditures 1514 million year ended december 31 2015 exclude 322 million accrued capital expenditures remaining unpaid december 31 2015 include payment 388 million capital expenditures accrued unpaid december 31 2014 connection restructuring programs recorded noncash asset writedowns including accelerated depreciation asset impairments 264 million 2015 173 million 2014 89 million 2013 see note 6 restructuring programs charges recorded consolidated statements earnings within asset impairment exit costs follows note 5 goodwill intangible assets goodwill reportable segment intangible assets consisted following nonamortizable intangible assets consist principally brand names purchased acquisitions nabisco holdings corp spanish portuguese operations united biscuits global lu biscuit business groupe danone sa cadbury limited amortizable intangible assets consist primarily trademarks customerrelated intangibles process technology licenses noncompete agreements december 31 2015 weightedaverage life amortizable intangible assets 136 years amortization expense intangible assets 181 million 2015 206 million 2014 217 million 2013 currently estimate annual amortization expense next five years approximately 180 million estimated using december 31 2015 exchange rates changes goodwill intangible assets consisted changes goodwill intangibles • coffee business transactions divestiture july 2 2015 deconsolidated 1664 million goodwill less 1 million intangible assets connection coffee business transactions april 23 2015 completed divestiture 50 equity interest agf resulted divesting 65 million goodwill • acquisitions july 15 2015 acquired 80 interest biscuit operation vietnam recorded preliminary allocation 461 million goodwill complete final valuation work acquisition february 16 2015 acquired enjoy life foods recorded 20 million goodwill 58 million identifiable intangible assets • asset impairments december 31 2015 connection deconsolidation venezuela recorded 12 million impairment charges described recorded 71 million charges related four trademarks 2015 57 million charges related two trademarks 2014 described 2015 2014 2013 impairments goodwill connection 2015 annual impairment testing reporting units sufficient fair value excess carrying value connection deconsolidation venezuelan operations december 31 2015 tested latin america reporting unit determined remaining businesses excluding venezuela sufficient fair value excess carrying value impairments goodwill reporting units passed annual impairment testing expectations met specific valuation factors outside control discount rates change significantly estimated fair values reporting unit reporting units might decline lead goodwill impairment future 2015 annual testing nonamortizable intangible assets recorded 71 million impairment charges related four trademarks impairments arose due lower expected product growth partly driven decisions made fourth quarter redirect support products regional global brands slowdowns local economies recorded charges related candy biscuit trademarks 44 million asia pacific 22 million europe 5 million latin america impairment charges calculated excess carrying value estimated fair value intangible assets global basis recorded within asset impairment exit costs primarily use relief royalty valuation method utilizes estimates future sales growth rates royalty rates discount rates determining brand’s global fair value 2015 intangible asset impairment review noted seven brands including four impaired trademarks 598 million aggregate book value december 31 2015 fair value excess book value 10 less intangible assets passed annual impairment testing believe current plans brands allow continue impaired expectations met specific valuation factors outside control discount rates change significantly brand brands could become impaired future 2014 recorded 48 million charge related biscuit trademark asia pacific segment 9 million charge related candy trademark europe segment additionally connection deconsolidation venezuelan operations december 31 2015 recorded 12 million impairment charges within loss deconsolidation venezuela related biscuit trademark note 6 restructuring programs 20142018 restructuring program may 6 2014 board directors approved 35 billion restructuring program comprised approximately 25 billion cash costs 1 billion noncash costs “20142018 restructuring program” 22 billion capital expenditures primary objective 20142018 restructuring program reduce operating cost structure supply chain overhead costs program intended primarily cover severance well asset disposals manufacturingrelated onetime costs since inception incurred total restructuring related implementation charges 14 billion related 20142018 restructuring program expect incur majority program’s remaining charges 2016 complete program yearend 2018 restructuring costs recorded restructuring charges 711 million 2015 274 million 2014 within asset impairment exit costs activity 20142018 restructuring program liability years ended december 31 2015 2014 spent 243 million 2015 17 million 2014 cash severance related costs also recognized noncash pension settlement losses see note 10 benefit plans noncash asset writedowns including accelerated depreciation asset impairments noncash adjustments totaling 273 million 2015 28 million 2014 december 31 2015 351 million net restructuring liability recorded within current liabilities 44 million recorded within longterm liabilities implementation costs implementation costs directly attributable restructuring activities however qualify special accounting treatment exit disposal activities believe disclosure implementation costs provides readers financial statements information total costs 20142018 restructuring program implementation costs primarily relate reorganizing operations facilities connection supply chain reinvention program identified productivity cost saving initiatives costs include incremental expenses related closure facilities costs terminate certain contracts simplification information systems within continuing results operations recorded implementation costs 291 million 2015 107 million 2014 recorded costs within cost sales general corporate expense within selling general administrative expenses restructuring implementation costs operating income 2015 2014 recorded restructuring implementation costs related 20142018 restructuring program within operating income follows 1 includes adjustment rounding 2 includes charges recorded since program inception may 6 2014 december 31 2015 20122014 restructuring program october 1 2012 completed spinoff north american grocery business kraft foods group shareholders prior transaction 2012 board directors approved 15 billion related restructuring implementation costs “20122014 restructuring program” reflecting primarily severance asset disposals manufacturingrelated onetime costs primary objective 20122014 restructuring program ensure mondelēz international kraft foods group set operate efficiently execute respective business strategies upon separation future 15 billion 20122014 restructuring program costs retained approximately 925 million kraft foods group retained balance program end 2014 incurred total restructuring related implementation charges 899 million completed incurring planned charges 20122014 restructuring program restructuring costs recorded reversals restructuring charges 4 million 2015 related accruals longer required recorded restructuring charges 360 million 2014 267 million 2013 within asset impairment exit costs 2014 also recorded outofperiod accruals 73 million severance 52 million related 2014 21 million related 2013 connection change timing accruals ongoing negotiations workers’ councils labor unions activity 20122014 restructuring program liability years ended december 31 2015 2014 spent 66 million 2015 130 million 2014 cash severance related costs also recognized noncash pension plan settlement losses see note 10 benefit plans noncash asset writedowns including accelerated depreciation asset impairments noncash adjustments totaling 4 million 2015 161 million 2014 december 31 2015 46 million net restructuring liability recorded within current liabilities 1 million recorded within longterm liabilities implementation costs implementation costs related 20122014 restructuring program primarily relate activities connection spinoff reorganizing operations facilities discontinuance certain product lines incremental expenses related closure facilities replicating information systems infrastructure reorganizing sales function within continuing results operations recorded implementation costs 99 million 2014 63 million 2013 recorded costs within cost sales selling general administrative expenses restructuring implementation costs operating income 2014 2013 since inception 20122014 restructuring program recorded restructuring implementation costs within operating income follows 1 includes adjustment rounding 2 includes charges recorded since program inception 2012 conclusion december 31 2014 note 7 integration program cost savings initiatives cadbury integration program result combination cadbury limited formerly cadbury plc “cadbury” 2010 launched integration program “integration program” combine cadbury operations realize expected annual cost savings approximately 750 million end 2013 revenue synergies investments distribution marketing product development achieved cost savings approximately 800 million 2012 year ahead schedule achieved planned revenue synergies 2013 end 2013 incurred total integration charges approximately 15 billion completed incurring planned charges integration program 2013 recorded integration program charges 216 million 2013 cost sales selling general administrative expenses within europe eemea asia pacific latin america segments recorded reversals integration program charges 8 million 2014 related accruals longer required changes integration program liability 2015 2014 december 31 2015 10 million net integration program liability recorded within current liabilities 26 million primarily related leased facilities longer use recorded within longterm liabilities integration costs connection acquisition biscuit operation vietnam july 2015 recorded integration charges 9 million 2015 asia pacific segment connection acquisition biscuit operation morocco february 2013 recorded integration charges 4 million 2014 4 million 2013 eemea segment recorded charges cost sales selling general administrative expenses see note 2 divestitures acquisitions information acquisition cost savings initiatives cost savings initiatives generally include exit disposal project costs outside restructuring programs cadbury integration program integration program costs 2013 recorded 20 million charge primarily within latin america related severance benefits provided terminated employees onetime charges within north america related supply chain reinvention team expenses note 8 debt borrowing arrangements shortterm borrowings shortterm borrowings related weightedaverage interest rates consisted bank loans include borrowings primarily uncommitted credit lines maintained international subsidiaries meet shortterm working capital needs borrowing arrangements maintain revolving credit facility general corporate purposes including working capital needs support commercial paper program 45 billion multiyear senior unsecured revolving credit facility expires october 11 2018 revolving credit agreement includes covenant maintain minimum shareholders’ equity least 246 billion excluding accumulated comprehensive earnings losses cumulative effects changes accounting principles december 31 2015 complied covenant shareholders’ equity defined covenant 380 billion revolving credit facility agreement also contains customary representations covenants events default credit rating triggers provisions financial covenants could require us post collateral security december 31 2015 amounts drawn facility international subsidiaries maintain primarily uncommitted credit lines meet shortterm working capital needs collectively credit lines amounted 19 billion december 31 2015 21 billion december 31 2014 borrowings lines amounted 236 million december 31 2015 204 million december 31 2014 longterm debt longterm debt consisted interest rates december 31 2015 deferred debt issuance costs 46 million december 31 2015 44 million december 31 2014 netted related debt table noted note 1 summary significant accounting policies new accounting pronouncements amounts reclassified longterm assets offset related debt fourth quarter 2015 december 31 2015 aggregate maturities debt capital leases based stated contractual maturities excluding unamortized noncash bond premiums discounts bank fees marktomarket adjustments 70 million millions february 9 2016 1750 million 4125 us dollar notes matured notes accrued interest date paid net proceeds fr400 million swiss francdenominated notes issuance january 26 2016 700 million eurodenominated notes issuance january 21 2016 well cash hand issuance commercial paper refinanced 1150 million matured notes longterm debt issued january 2016 reflected amount within longterm debt december 31 2015 january 26 2016 issued fr400 million swiss francdenominated notes 399 million us dollars locked forward currency contract january 12 2016 consisting • fr250 million 249 million 0080 fixed rate notes mature january 26 2018 • fr150 million 150 million 0650 fixed rate notes mature july 26 2022 received proceeds net premiums deferred financing costs 398 million used partially fund february 2016 note maturity general corporate purposes recorded approximately 1 million premiums deferred financing costs amortized interest expense life notes january 21 2016 issued 700 million eurodenominated 1625 notes 760 million us dollars locked forward currency contract january 13 2016 mature january 20 2023 received proceeds net discounts deferred financing costs 752 million used partially fund february 2016 note maturity general corporate purposes recorded approximately 8 million discounts deferred financing costs amortized interest expense life notes november 30 2015 completed cash tender offer retired £247 million british pound sterlingdenominated 7250 notes approximately 372 million us dollars november 30 2015 due july 2018 financed repurchase notes including payment accrued interest costs incurred net proceeds received £400 million british pound sterlingdenominated notes issuance november 25 2015 described connection retiring debt three months ended december 31 2015 recorded 40 million loss extinguishment debt within interest expense related amount paid retire debt excess carrying value recognizing unamortized premiums deferred financing costs earnings time debt extinguishment cash costs related tendering debt included longterm debt repayments consolidated statement cash flows year ended december 31 2015 november 25 2015 issued £400 million british pound sterlingdenominated 4500 notes 609 million us dollars locked forward currency contract november 19 2015 mature december 3 2035 received proceeds net discounts deferred financing costs 604 million used fund november 2015 cash tender offer general corporate purposes recorded approximately 5 million discounts deferred financing costs amortized interest expense life notes october 6 2015 issued fr400 million swiss francdenominated notes 410 million us dollars locked forward currency contract september 21 2015 consisting • fr135 million 138 million 0625 fixed rate notes mature october 6 2020 • fr265 million 272 million 1125 fixed rate notes mature december 21 2023 received proceeds net premiums deferred financing costs 410 million used general corporate purposes fund upcoming debt maturities recorded fr400 million swiss francdenominated notes less 1 million premiums deferred financing costs amortized interest expense life notes june 11 2015 400 million floating rate eurodenominated notes matured notes accrued interest date paid cash hand issuance commercial paper march 30 2015 issued fr675 million swiss francdenominated notes approximately 694 million us dollars march 31 2015 consisting • fr175 million 180 million 0000 fixed rate notes mature march 30 2017 • fr300 million 308 million 0625 fixed rate notes mature december 30 2021 • fr200 million 206 million 1125 fixed rate notes mature december 30 2025 received net proceeds 675 million used general corporate purposes recorded approximately 2 million premiums deferred financing costs amortized interest expense life notes march 20 2015 850 million 6250 eurodenominated notes matured notes accrued interest date paid issuance commercial paper cash hand march 20 2015 completed cash tender offer retired 25 billion longterm us dollar debt consisting • 102 million 6500 notes due august 2017 • 115 million 6125 notes due february 2018 • 80 million 6125 notes due august 2018 • 691 million 5375 notes due february 2020 • 201 million 6500 notes due november 2031 • 26 million 7000 notes due august 2037 • 71 million 6875 notes due february 2038 • 69 million 6875 notes due january 2039 • 1143 million 6500 notes due february 2040 financed repurchase notes including payment accrued interest costs incurred net proceeds received 28 billion notes issuance march 6 2015 described issuance commercial paper connection retiring debt first three months 2015 recorded 708 million loss extinguishment debt within interest expense related amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing costs earnings time debt extinguishment cash costs related tendering debt included longterm debt repayments consolidated statement cash flows year ended december 31 2015 also recognized 5 million charges within interest expense hedging instruments related retired debt upon extinguishing debt deferred cash flow hedge amounts recorded earnings march 6 2015 issued 20 billion eurodenominated notes £450 million british pound sterlingdenominated notes approximately 28 billion us dollars march 31 2015 consisting • 500 million 537 million 1000 fixed rate notes mature march 7 2022 • 750 million 805 million 1625 fixed rate notes mature march 8 2027 • 750 million 805 million 2375 fixed rate notes mature march 6 2035 • £450 million 667 million 3875 fixed rate notes mature march 6 2045 received net proceeds 2890 million used fund march 2015 tender offer general corporate purposes recorded approximately 29 million discounts deferred financing costs amortized interest expense life notes december 11 2014 £300 million 5375 british pound sterling bonds matured bonds accrued interest date paid cash hand issuance commercial paper february 19 2014 500 million 675 us dollar notes matured notes accrued interest date paid cash hand issuance commercial paper february 6 2014 completed cash tender offer retired 156 billion longterm us dollar debt consisting • 393 million 7000 notes due august 2037 • 382 million 6875 notes due february 2038 • 250 million 6875 notes due january 2039 • 535 million 6500 notes due february 2040 financed repurchase notes including payment accrued interest costs incurred net proceeds received 30 billion notes issuance january 16 2014 connection retiring debt first six months 2014 recorded 493 million loss extinguishment debt within interest expense related amount paid retire debt excess carrying value recognizing unamortized discounts deferred financing costs earnings time debt extinguishment cash costs related tending debt included longterm debt repayments 2014 consolidated statement cash flows also recognized 2 million interest expense related interest rate cash flow hedges deferred accumulated comprehensive losses recognized earnings life debt upon extinguishing debt deferred cash flow hedge amounts recorded earnings january 16 2014 issued 30 billion us dollar notes consisting • 400 million floating rate notes bear interest threemonth libor plus 052 mature february 1 2019 • 850 million 2250 fixed rate notes mature february 1 2019 • 1750 million 4000 fixed rate notes mature february 1 2024 received net proceeds 2982 million used fund february 2014 tender offer pay commercial paper borrowings general corporate purposes recorded approximately 18 million discounts deferred financing costs amortized interest expense life notes weightedaverage interest rate total debt 37 december 31 2015 43 december 31 2014 fair value debt fair value shortterm borrowings december 31 2015 2014 reflects current market interest rates approximates amounts recorded consolidated balance sheet fair value longterm debt determined using quoted prices active markets level 1 valuation data publicly traded debt obligations december 31 2015 aggregate fair value total debt 15908 million carrying value 15398 million december 31 2014 aggregate fair value total debt 18463 million carrying value 16656 million interest expense net interest expense net within results continuing operations consisted see note 2 divestitures acquisitions note 9 financial instruments information currency exchange forward contracts associated coffee business transactions also see note 9 financial instruments information loss related us dollar interest rate swaps longer designated accounting cash flow hedges first quarter 2015 first quarter 2016 see note 13 commitments contingencies information benefit resolution cadbury acquisitionrelated indemnification note 9 financial instruments fair value derivative instruments derivative instruments recorded fair value consolidated balance sheets follows 2015 2014 derivatives designated accounting hedges include cash flow fair value hedges derivatives designated accounting hedges include economic hedges nonus debt designated hedge net investments nonus operations reflected table included longterm debt summarized note 8 debt borrowing arrangements record derivative assets liabilities gross basis consolidated balance sheet fair value asset derivatives recorded within current assets fair value liability derivatives recorded within current liabilities fair values asset liability derivative instruments determined using level 1 financial assets liabilities consist exchangetraded commodity futures listed options fair value instruments determined based quoted market prices commodity exchanges exchangetraded derivatives generally subject master netting arrangements permit net settlement transactions counterparty certain criteria met event default also required maintain cash margin accounts connection funding settlement open positions margin requirements generally fluctuate daily based market conditions recorded margin deposits related exchangetraded derivatives 22 million december 31 2015 84 million december 31 2014 within current assets based net asset liability positions individual counterparties event default immediate net settlement open positions derivatives net liability position would owe 3 million december 31 2014 derivatives net asset position counterparties would owe us total 52 million december 31 2015 38 million december 31 2014 level 2 financial assets liabilities consist primarily overthecounter “otc” currency exchange forwards options swaps commodity forwards options interest rate swaps currency exchange contracts valued using income approach based observable market forward rates less contract rate multiplied notional amount commodity derivatives valued using income approach based observable market commodity index prices less contract rate multiplied notional amount based pricing models rely market observable inputs commodity prices calculation fair value interest rate swaps derived discounted cash flow analysis based terms contract observable market interest rate curve calculation fair value financial instruments takes consideration risk nonperformance including counterparty credit risk otc derivative transactions governed international swap dealers association agreements standard industry contracts agreements post require collateral counterparties majority commodity currency exchange otc derivatives legal right setoff connection otc derivatives could netsettled event default assuming parties fail comply terms agreements derivatives net liability position would owe 101 million december 31 2015 156 million december 31 2014 derivatives net asset position counterparties would owe us total 64 million december 31 2015 72 million december 31 2014 manage credit risk connection derivatives entering transactions counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties derivative volume net notional values derivative instruments cash flow hedges cash flow hedge activity net taxes within accumulated comprehensive earnings losses included aftertax gains losses reclassified accumulated comprehensive earnings losses net earnings aftertax gains losses recognized comprehensive earnings losses pretax gains losses ineffectiveness recognized net earnings continuing operations pretax gains losses amounts excluded effectiveness testing recognized net earnings continuing operations included pretax loss 34 million recognized first quarter 2015 within interest expense net related certain us dollar interest rate swaps longer designated accounting cash flow hedges due change financing hedging plans issue us dollar debt changed issued euro british pound sterling swiss francdenominated notes due lower overall cost decision hedge greater portion net investments operations use currencies functional currencies amounts excluded effectiveness testing material remainder 2015 prioryear periods january 2016 recorded pretax loss 97 million within interest expense net related certain us dollar interest rate swaps longer designated accounting cash flow hedges due change financing hedging plans first quarter 2016 plans issue us dollar debt changed issued euro swiss francdenominated notes due lower overall cost decision hedge greater portion net investments operations use currencies functional currencies record pretax aftertax gains losses reclassified accumulated comprehensive earnings losses earnings ii gains losses ineffectiveness iii gains losses amounts excluded effectiveness testing • cost sales commodity contracts • cost sales currency exchange contracts related forecasted transactions • interest expense net interest rate contracts currency exchange contracts related intercompany loans based current market conditions would expect transfer unrealized losses 17 million net taxes commodity cash flow hedges unrealized gains 8 million net taxes currency cash flow hedges unrealized losses 3 million net taxes interest rate cash flow hedges earnings next 12 months hedge coverage december 31 2015 hedged transactions forecasted impact cash flows following periods • commodity transactions periods exceeding next 12 months • interest rate transactions periods exceeding next 30 years 2 months • currency exchange transactions periods exceeding next 12 months fair value hedges pretax gains losses due changes fair value interest rate swaps related hedged longterm debt recorded interest expense net fair value hedge ineffectiveness amounts excluded effectiveness testing material periods presented economic hedges pretax gains losses recorded net earnings economic hedges connection coffee business transactions entered number consecutive euro us dollar currency exchange forward contracts 2014 2015 lock equivalent expected value us dollars marktomarket gains losses derivatives recorded earnings recorded net gains 436 million year ended december 31 2015 628 million year ended december 31 2014 within interest expense net connection forward contracts transferring proceeds subsidiaries coffee net assets shares deconsolidated currency hedge related gains losses recorded within interest expense net see note 2 divestitures acquisitions coffee business transactions additional information hedges net investments international operations aftertax gains losses related hedges net investments international operations form euro pound sterling swiss francdenominated debt note 10 benefit plans pension plans prior july 2 2015 closing coffee business transactions certain active employees transitioned jde participated nonus pension plans following transactions benefits began provided directly jde participants continuing jde assumed certain pension plan obligations received related plan assets december 31 2015 reduced net benefit plan liabilities 131 million related deferred tax assets 24 million refer note 2 divestitures acquisitions coffee business transactions information participants elected transfer jde plans retained plan obligations related plan assets obligations funded status projected benefit obligations plan assets funded status pension plans accumulated benefit obligation represents benefits earned measurement date 1463 million december 31 2015 1474 million december 31 2014 us pension plans accumulated benefit obligation nonus pension plans 9267 million december 31 2015 10462 million december 31 2014 salaried nonunion hourly employees hired january 1 2009 discontinued benefits us pension plans replaced enhanced company contribution employee defined contribution plan effective december 31 2019 benefit accruals cease us nonunion pension plan nonunion employees participating plan december 31 2019 calculate pension benefit obligation based pay service date longer accrue new benefits combined us nonus pension plans resulted net pension liability 2145 million december 31 2015 2882 million december 31 2014 recognized amounts consolidated balance sheets follows certain us nonus plans underfunded accumulated benefit obligations excess plan assets plans projected benefit obligations accumulated benefit obligations fair value plan assets used following weightedaverage assumptions determine benefit obligations pension plans yearend discount rates us canadian eurozone uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class end 2015 changed approach used measure service interest costs pension benefits 2015 measured service interest costs utilizing single weightedaverage discount rate derived yield curve used measure plan obligations 2016 elected measure service interest costs applying specific spot rates along yield curve plans’ liability cash flows believe new approach provides precise measurement service interest costs aligning timing plans’ liability cash flows corresponding spot rates yield curve change affect measurement plan obligations accounted change accounting estimate accordingly accounted prospective basis components net periodic pension cost net periodic pension cost consisted following 1 year ended december 31 2015 amortization prior service cost includes 17 million pension curtailment losses related employees transitioned jde upon contribution global coffee business refer note 2 divestitures acquisitions coffee business transactions information 2 settlement losses include 9 million year ended december 31 2015 12 million year ended december 31 2014 pension settlement losses employees elected lumpsum payments connection 20142018 restructuring program retired employees elected lumpsum payments resulted net settlement losses 2015 10 million us plans 2 million nonus plans employees elected lumpsum payments connection 20122014 restructuring program cost saving initiatives retired employees elected lumpsum payments resulted net settlement losses us plans 28 million 2014 1 million 2013 nonus plant closures early retirement benefits resulted curtailment settlement losses 2 million 2013 addition incurred special termination benefit costs 2 million 2014 1 million 2013 nonus plans related 20122014 restructuring program see note 6 restructuring programs information recorded additional 90 million pension settlement losses related coffee business transactions within gain coffee business transactions refer note 2 divestitures acquisitions coffee business transactions information us plans determine expected return plan assets component net periodic benefit cost using calculated market return value recognizes cost four year period nonus plans utilize similar approach varying cost recognition periods plans others determine expected return plan assets based asset fair values measurement date december 31 2015 combined us nonus pension plans expected amortize accumulated comprehensive earnings losses net periodic pension cost 2016 • estimated 166 million net loss experience differences • 1 million estimated prior service credit used following weightedaverage assumptions determine net periodic pension cost plan assets fair value pension plan assets determined using following fair value measurements excluded plan assets 66 million december 31 2015 74 million december 31 2014 tables related certain insurance contracts reported contract value accordance authoritative guidance fair value measurements • level 1 includes primarily us nonus equity securities government bonds valued using quoted prices active markets • level 2 includes primarily pooled funds including assets real estate pooled funds valued using net asset values participation units held common collective trusts reported managers trusts supported unit prices actual purchase sale transactions level 2 plan assets also include corporate bonds fixedincome securities valued using independent observable market inputs matrix pricing yield curves indices • level 3 includes investments valued using unobservable inputs reflect plans’ assumptions market participants would use pricing assets based best information available • fair value estimates pooled funds calculated investment advisor reliable quotations pricing services readily available certain underlying securities estimated value based either cost last sale price securities valued fashion • fair value estimates private equity investments calculated general partners using market approach estimate fair value private investments market approach utilizes prices relevant information generated market transactions type security degree liquidity restrictions disposition latest round financing data company financial statements relevant valuation multiples discounted cash flow analyses • fair value estimates real estate investments calculated investment managers using present value future cash flows expected received investments based valuation methodologies appraisals local market conditions current projected operating performance • fair value estimates investments hedge fundoffunds calculated investment managers using net asset value per share investment reported money managers underlying funds • fair value estimates certain fixedincome securities insurance contracts calculated based future stream benefit payments discounted using prevailing interest rates based valuation date changes level 3 plan assets recorded comprehensive earnings losses included decreases level 3 pension plan investments 2015 primarily due net settlements hedge funds effects currency increases level 3 pension plan investments 2014 primarily due unrealized net gains across level 3 asset categories net transfers pooled fundsfixed income securities offset effects currency percentage fair value pension plan assets us plans investment strategy reduce risk underfunded plans part appropriate asset allocation within plan assets attempt maintain target asset allocation rebalancing asset classes make contributions monthly benefit payments due nature timing expected pension liabilities first quarter 2015 strategically reduced risk level investment portfolio lowering target allocation equity securities including investments real estate 35 increasing fixedincome allocation target 65 strategy involves using indexed us equity international equity securities actively managed us investment grade fixedincome securities constitute 95 fixedincome securities smaller allocations high yield fixedincome securities nonus plans investment strategy subject local regulations asset liability profiles plans individual country aggregate asset allocation targets nonus plans broadly characterized mix approximately 37 equity securities including investments real estate approximately 50 fixedincome securities approximately 13 alternative securities investment strategy largest nonus plan comprises 51 nonus pension assets designed balance risk return diversifying across wide range returnseeking liability matching assets invested range active passive mandates target allocation approximately 15 equity securities 19 credit 12 private markets 17 diversifying assets 37 liability matching assets strategy uses indexed global developed equities actively managed global investment grade alternative credit global private equity real estate diversifying assets including hedge funds liability matching assets including buyin annuity policy employer contributions 2015 contributed 225 million us pension plans 302 million nonus pension plans addition employees contributed 16 million nonus plans make contributions us nonus pension plans primarily extent tax deductible generate excise tax liability 2016 estimate pension contributions 170 million us plans 279 million nonus plans based current tax laws total 2016 pension contributions 150 million expected voluntary actual contributions may different due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates factors future benefit payments estimated future benefit payments pension plans december 31 2015 millions multiemployer pension plans made contributions multiemployer pension plans 31 million 2015 32 million 2014 32 million 2013 plans provide pension benefits retirees certain collective bargaining agreements following individually significant multiemployer plan participate december 31 2015 contributions exceeded 5 total contributions bakery confectionery tobacco workers grain millers international pension fund “fund” fiscal years 2015 2014 2013 contributions fund 27 million 2015 25 million 2014 26 million 2013 contribution fund based contribution rates collective bargaining agreements number eligible employees fund surcharges collective bargaining agreements fund obligated make contributions fund expire 2016 current collective bargaining agreements obligate us contribute approximately 30 million pension fund annual basis including 2016 fund’s actuarial valuation completed zone status changed “red” 2012 result certification charged 10 surcharge contribution rates expected future contributions include surcharge fund adopted rehabilitation plan november 7 2012 requires contribution increases reduction benefit provisions contributions multiemployer pension plans individually significant 4 million 2015 7 million 2014 6 million 2013 costs sponsor contribute employee defined contribution plans cover eligible salaried nonunion union employees contributions costs determined matching employee contributions defined plans amounts charged expense continuing operations defined contribution plans totaled 45 million 2015 46 million 2014 66 million 2013 postretirement benefit plans obligations postretirement health care plans funded changes amount accrued benefit obligation current portion accrued postretirement benefit obligation 11 million december 31 2015 2014 included accrued liabilities used following weightedaverage assumptions determine postretirement benefit obligations yearend discount rates us canadian uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear expected health care cost trend rate based historical costs end 2015 changed approach used measure service interest costs postretirement benefits 2015 measured service interest costs utilizing single weightedaverage discount rate derived yield curve used measure plan obligations 2016 elected measure service interest costs applying specific spot rates along yield curve plans’ liability cash flows believe new approach provides precise measurement service interest costs aligning timing plans’ liability cash flows corresponding spot rates yield curve change affect measurement plan obligations accounted change accounting estimate accordingly accounted prospective basis assumed health care cost trend rates significant impact amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects components net periodic postretirement health care costs net periodic postretirement health care costs consisted following december 31 2015 expected amortize accumulated comprehensive earnings losses pretax net periodic postretirement health care costs 2016 • estimated 9 million net loss experience differences • estimated 7 million prior service credit used following weightedaverage assumptions determine net periodic postretirement health care cost future benefit payments estimated future benefit payments postretirement health care plans december 31 2015 millions costs made contributions multiemployer medical plans totaling 20 million 2015 18 million 2014 18 million 2013 plans provide medical benefits active employees retirees certain collective bargaining agreements postemployment benefit plans obligations postemployment plans primarily funded changes amount accrued benefit obligation december 31 2015 2014 accrued benefit obligation determined using weightedaverage discount rate 62 2015 56 2014 assumed weightedaverage ultimate annual turnover rate 03 2015 2014 assumed compensation cost increases 40 2015 2014 assumed benefits defined respective plans postemployment costs arising actions offer employees benefits excess specified respective plans charged expense incurred components net periodic postemployment costs net periodic postemployment costs consisted following december 31 2015 estimated net gain postemployment benefit plans expected amortize accumulated comprehensive earnings losses net periodic postemployment costs 2016 insignificant note 11 stock plans may 21 2014 shareholders approved amended restated 2005 performance incentive plan “2005 plan” amended plan make grants nonemployee directors 2005 plan longer make grants amended restated 2006 stock compensation plan nonemployee directors “2006 directors plan” also increased number shares available issuance 2005 plan 757 million includes shares remaining available issuance 2006 directors plan march 14 2014 2005 plan authorized issue maximum 2437 million shares common stock may make grants 2005 plan may 21 2024 december 31 2015 818 million shares available granted 2005 plan connection spinoff divestiture kraft foods group provisions existing plans employee stock option restricted stock deferred stock unit grants adjusted preserve fair value awards immediately spinoff record incremental compensation expense related conversion awards connection stock awards held respective employees time spinoff collected 55 million cash net settlement awards kraft foods group march 2013 stock options stock options including stock appreciation rights granted exercise price equal market value underlying stock grant date generally become exercisable three annual installments beginning first anniversary grant date maximum term ten years account employee stock options fair value method accounting using blackscholes methodology measure stock option expense date grant fair value stock options date grant amortized expense vesting period recorded compensation expense related stock options held employees 50 million 2015 47 million 2014 39 million 2013 results continuing operations deferred tax benefit recorded related compensation expense 13 million 2015 12 million 2014 11 million 2013 unamortized compensation expense related employee stock options 62 million december 31 2015 expected recognized weightedaverage period 1 year weightedaverage blackscholes fair value assumptions riskfree interest rate represents constant maturity us government treasuries rate remaining term equal expected life options expected life period employees expected hold options volatility reflects historical movements stock price period commensurate expected life options dividend yield reflects dividend yield place time historical grants stock option activity reflected 1 cash received options exercised 148 million 2015 168 million 2014 139 million 2013 actual tax benefit realized tax deductions option exercises totaled 58 million 2015 29 million 2014 14 million 2013 restricted stock deferred stock units performance share units may grant shares restricted stock deferred stock units eligible employees giving instances rights shareholders except may sell assign pledge otherwise encumber shares deferred stock units voting rights vested shares restricted stock deferred stock units subject forfeiture certain employment conditions met restricted stock deferred stock units generally vest third anniversary grant date beginning 2016 grant deferred stock units longer grant restricted stock performance share units granted 2005 plan vest based varying performance market service conditions unvested performance share units voting rights pay dividends dividend equivalents accumulated vesting period paid performance share units vest fair value restricted stock deferred stock units performance share units date grant amortized earnings restriction period recorded compensation expense related restricted stock deferred stock units performance share units 86 million 2015 94 million 2014 94 million 2013 results continuing operations deferred tax benefit recorded related compensation expense 24 million 2015 26 million 2014 28 million 2013 unamortized compensation expense related restricted stock deferred stock units performance share units 138 million december 31 2015 expected recognized weightedaverage period 2 years restricted stock deferred stock unit performance share unit activity reflected 1 includes performance share units restricted stock deferred stock units note 12 capital stock amended restated articles incorporation authorize 50 billion shares class common stock “common stock” 500 million shares preferred stock preferred shares issued outstanding december 31 2015 2014 2013 shares common stock issued treasury outstanding stock plan awards employees nonemployee directors issued treasury shares december 31 2015 146 million shares common stock held treasury reserved stock options stock awards share repurchase program 2013 board directors authorized repurchase 77 billion common stock december 31 2016 july 29 2015 finance committee authorization delegated board directors approved increase 60 billion share repurchase program raising authorization 137 billion common stock repurchases extended program december 31 2018 repurchases program determined management wholly discretionary 2015 repurchased 919 million shares common stock average cost 3943 per share aggregate cost 36 billion paid 2015 share repurchases funded available cash commercial paper issuances 2014 repurchased 519 million shares common stock average cost 3643 per share aggregate cost 19 billion december 31 2015 54 billion remaining share repurchase capacity december 2013 initiated accelerated share repurchase “asr” program december 3 2013 paid 17 billion received initial delivery 448 million shares common stock valued 15 billion increased treasury stock 15 billion remaining 02 billion recorded additional paid capital may 2014 asr program concluded received additional 51 million shares valued 02 billion total 499 million shares average repurchase price 3410 per share life asr program final settlement based volumeweighted average price common stock purchase period less fixed per share discount upon conclusion asr program receipt remaining repurchased shares 02 billion recorded additional paid capital reclassified treasury stock note 13 commitments contingencies legal proceedings routinely involved legal proceedings claims governmental inspections investigations “legal matters” arising ordinary course business compliant ethical corporate culture includes adhering laws industry regulations jurisdictions business integral success accordingly acquired cadbury february 2010 began reviewing adjusting needed cadbury’s operations light applicable standards well policies practices initially focused high priority areas food safety foreign corrupt practices act “fcpa” antitrust based upon cadbury’s preacquisition policies compliance programs postacquisition reviews preliminary findings indicated cadbury’s overall state compliance sound nonetheless reviews determined certain jurisdictions including india appeared facts circumstances warranting investigation continuing investigations certain jurisdictions including india continue cooperate governmental authorities previously disclosed february 1 2011 received subpoena sec connection investigation fcpa primarily related facility india acquired cadbury acquisition subpoena primarily requests information regarding dealings indian governmental agencies officials obtain approvals related operation facility continuing cooperate us indian governments investigations matters including ongoing meetings us government discuss potential conclusion us government investigation february 11 2016 received “wells” notice sec indicating staff made preliminary determination recommend sec file enforcement action us violations books records internal controls provisions exchange act connection investigation intend make submission staff sec response notice february 2013 march 2014 cadbury india limited known mondelez india foods private limited subsidiary mondelēz international parties received show cause notices indian central excise authority “excise authority” calling upon parties demonstrate excise authority collect total 37 billion indian rupees approximately 57 million us dollars december 31 2015 unpaid excise tax equivalent amount penalties well interest related production indian facility contested demands unpaid excise taxes penalties interest march 27 2015 several hearings commissioner excise authority issued order denying excise exemption claimed indian facility confirming excise authority’s demands total taxes penalties amount 58 billion indian rupees approximately 88 million us dollars december 31 2015 appealed order addition excise authority issued additional show cause notices february 6 2015 december 8 2015 issue covering periods january october 2014 november 2014 september 2015 respectively notices added total 24 billion indian rupees approximately 36 million us dollars december 31 2015 unpaid excise taxes well penalties determined amount equivalent claimed excise authority interest believe decision claim excise tax benefit valid continuing contest show cause notices administrative judicial process april 2013 staff us commodity futures trading commission “cftc” advised us kraft foods group investigating activities related trading december 2011 wheat futures contracts occurred prior spinoff kraft foods group cooperated staff investigation april 1 2015 cftc filed complaint kraft foods group mondelēz global llc “mondelēz global” us district court northern district illinois eastern division “cftc action” complaint alleges kraft foods group mondelēz global 1 manipulated attempted manipulate wheat markets fall 2011 2 violated position limit levels wheat futures 3 engaged noncompetitive trades trading sides exchangeforphysical chicago board trade wheat contracts cftc seeks civil monetary penalties either triple monetary gain violation commodity exchange act “act” 1 million violation section 6c1 6c3 9a2 act 140000 additional violation act plus postjudgment interest order permanent injunction prohibiting kraft foods group mondelēz global violating specified provisions act disgorgement profits costs fees december 2015 court denied mondelēz global kraft foods group’s motion dismiss cftc’s claims market manipulation attempted manipulation parties discovery additionally several class action complaints filed kraft foods group mondelēz global us district court northern district illinois investors wheat futures options behalf others similarly situated complaints make similar allegations made cftc action seek class action certification unspecified amount damages interest unjust enrichment costs fees injunctive declaratory unspecified relief june 2015 suits consolidated northern district illinois possible predict outcome matters however based separation distribution agreement kraft foods group dated september 27 2012 expect predominantly bear monetary penalties payments connection cftc action cannot predict certainty results legal matters currently involved expect ultimate costs resolve legal matters individually aggregate material effect financial results thirdparty guarantees enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2015 material thirdparty guarantees recorded consolidated balance sheet part 2010 cadbury acquisition became responsible party tax matters cadbury schweppes plc dr pepper snapple group inc “dpsg” tax sharing indemnification agreement dated may 1 2008 “tax indemnity” certain 2007 2008 transactions relating demerger cadbury’s americas beverage business us federal tax audit cadbury 20062008 tax years concluded irs august 2013 result recorded favorable impact 336 million selling general administrative expenses 49 million interest expense net total pretax impact 385 million 363 million net tax three months ended september 30 2013 due reversal accrued liability excess amount paid dpsg tax indemnity third quarter 2013 leases rental expenses recorded continuing operations 331 million 2015 399 million 2014 386 million 2013 december 31 2015 minimum rental commitments noncancelable operating leases effect yearend millions note 14 reclassifications accumulated comprehensive income components accumulated comprehensive earnings losses attributable mondelēz international 1 consolidated statement comprehensive earnings includes currency translation adjustment attributable noncontrolling interests 26 million year ended december 31 2015 33 million year ended december 31 2014 2 2015 translation adjustment 2759 million consolidated statement comprehensive earnings includes translation adjustments related pensions 146 million derivatives 503 million noncontrolling interests 26 million currency impacts 3382 million related translating international operations amounts reclassified accumulated comprehensive earnings losses locations consolidated financial statements follows 1 items included components net periodic benefit costs disclosed note 10 benefit plans 2 settlement losses include transfer coffee businessrelated pension obligations amount 90 million 2015 see note 2 divestitures acquisitions coffee business transactions additional information note 15 income taxes earnings losses continuing operations income taxes provision income taxes consisted following see note 2 divestitures acquisitions information taxes presented part kraft foods group discontinued operation related resolution starbucks arbitration recorded outofperiod adjustments 14 million net expense 2015 31 million net expense 2014 immaterial impact annual provision income taxes addition fourth quarter 2014 recorded tax benefit 43 million associated lapse statute limitations related third quarter 2014 outofperiod adjustments material consolidated financial statements prior period effective income tax rate pretax earnings differed us federal statutory rate following reasons 2015 effective tax rate 75 favorably impacted onetime third quarter sale coffee business resulted pretax gain 6809 million 184 million related tax expense well 27 million tax costs incurred remit proceeds lowertier foreign subsidiaries allow cash redeployed within retained foreign operations benefit third quarter transaction partially offset tax costs associated sale interest agf first half year impact deconsolidating venezuelan operations december 31 2015 excluding impacts transactions effective tax rate would 178 reflecting favorable impacts mix pretax income various nonus tax jurisdictions net tax benefits 119 million discrete onetime events remaining discrete onetime events primarily related favorable tax audit settlements expirations statutes limitations several jurisdictions net reduction uk deferred tax liabilities resulting tax legislation enacted 2015 reduced uk corporate income tax rate 2014 effective tax rate 138 favorably impacted mix pretax income various nonus tax jurisdictions net tax benefits 206 million discrete onetime events discrete net tax benefits primarily related favorable tax audit settlements expirations statues limitations several jurisdictions 2013 effective tax rate 25 favorably impacted mix pretax income various nonus tax jurisdictions net tax benefits discrete onetime events nontaxable portion cadbury acquisition related indemnification resolution partially offset unfavorable tax law change 299 million discrete onetime events primarily related favorable tax audit settlements expirations statutes limitations several jurisdictions net reduction uk deferred tax liabilities resulting tax legislation enacted 2013 reduced uk corporate income tax rate tax effects temporary differences gave rise deferred income tax assets liabilities consisted following december 31 2015 company pretax loss carryforwards 3393 million 1160 million expire various dates 2016 2029 remaining 2233 million carried forward indefinitely significant valuation allowances reside mexico ireland december 31 2015 neither applicable us federal income taxes foreign withholding taxes provided approximately 192 billion accumulated earnings nonus subsidiaries expected indefinitely reinvested impractical us determine amount unrecognized deferred tax liabilities indefinitely reinvested earnings future tax law changes needs nonus subsidiaries could require us recognize deferred tax liabilities portion accumulated earnings previously expected indefinitely reinvested changes unrecognized tax benefits january 1 2015 unrecognized tax benefits 852 million recognized benefits net impact income tax provision would 744 million unrecognized tax benefits 756 million december 31 2015 recognized benefits net impact income tax provision would 652 million within next 12 months unrecognized tax benefits could increase approximately 80 million due unfavorable audit developments decrease approximately 260 million due audit settlements expiration statutes limitations various jurisdictions include accrued interest penalties related uncertain tax positions tax provision accrued interest penalties 184 million january 1 2015 185 million december 31 2015 provision income taxes included 32 million interest penalties income tax filings regularly examined federal state nonus tax authorities 20102012 us federal income tax filings currently examination irs us state nonus jurisdictions statutes limitations generally ranging three five years however statutes often extended mutual agreement tax authorities years still open examination nonus tax authorities major jurisdictions include earliest open tax year parentheses brazil 2010 france 2010 germany 2005 india 2005 italy 2010 united kingdom 2013 note 16 earnings per share basic diluted earnings per share “eps” continuing discontinued operations calculated using following 1 earnings continuing operations year ended december 31 2015 includes pretax charge 778 million related deconsolidation venezuelan operations see note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela additional information exclude antidilutive mondelēz international stock options calculation weightedaverage shares diluted eps excluded 51 million antidilutive stock options year ended december 31 2015 86 million antidilutive stock options year ended december 31 2014 70 million antidilutive stock options year ended december 31 2013 note 17 segment reporting manufacture market primarily snack food products including biscuits cookies crackers salted snacks chocolate gum candy various cheese grocery products well powdered beverage products manage global business report operating results geographic units operations management structure organized five reportable operating segments • latin america • asia pacific • eemea • europe • north america manage operations region leverage regional operating scale manage different changing business environments effectively pursue growth opportunities arise key markets regional management teams responsibility business product categories financial results regions historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting new coffee equity method investment jde began record earnings equity method investments aftertax equity method investment earnings outside segment operating income six months ended december 31 2015 aftertax equity method investment net earnings less 1 million combined basis earnings equity method investments july 2 2015 recorded within segment operating income 49 million asia pacific 3 million eemea 4 million north america year ended december 31 2014 earnings 98 million asia pacific 6 million eemea 9 million north america year ended december 31 2013 earnings 99 million asia pacific 7 million eemea 1 million north america see note 1 summary significant accounting policies principles consolidation additional information also 2015 began report stockbased compensation corporate employees previously reported within north america region within general corporate expenses reclassified 32 million corporate stockbased compensation expense north america segment 2015 use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales general corporate expenses component selling general administrative expenses amortization intangibles benefit cadbury acquisitionrelated indemnification resolution component selling general administrative expenses gains losses divestitures acquisitions gain coffee business transactions loss deconsolidation venezuela acquisitionrelated costs component selling general administrative expenses periods presented exclude items segment operating income order provide better transparency segment operating results furthermore centrally manage interest expense net accordingly present items segment excluded segment profitability measure management reviews segment net revenues earnings 1 july 2 2015 contributed global coffee businesses primarily europe eemea asia pacific segments impact deconsolidating coffee businesses july 2 2015 1699 million europe 413 million eemea 32 million asia pacific 5 million latin america yearoveryear basis refer note 2 divestitures acquisitions coffee business transactions information single customer accounted 10 net revenues continuing operations 2015 five largest customers accounted 170 ten largest customers accounted 240 net revenues continuing operations 2015 items impacting segment operating results discussed note 1 summary significant accounting policies including venezuela deconsolidation currency devaluations note 2 divestitures acquisitions note 5 goodwill intangible assets note 6 restructuring programs note 7 integration program cost saving initiatives also see note 8 debt borrowing arrangements note 9 financial instruments information interest expense net period total assets depreciation expense capital expenditures segment 1 beginning third quarter 2015 earnings equity method investees reported outside segment operating income discussed note 1 summary significant accounting policies principles consolidation outside segment assets reclassified equity method investments december 31 2014 2013 basis consistent 2015 presentation 2 change total assets december 31 2015 reflects decrease 11 billion related loss deconsolidation venezuela see note 1 summary significant accounting policies currency translation highly inflationary accounting venezuela information 3 july 2 2015 deconsolidated global coffee businesses primarily europe eemea asia pacific segments see note 2 divestitures acquisitions coffee business transactions information 4 unallocated assets consist primarily cash equivalents deferred income taxes centrally held property plant equipment prepaid pension assets derivative financial instrument balances debt issuance costs related recognized debt liabilities 46 million december 31 2015 44 million december 31 2014 51 million december 31 2013 reclassified longterm assets deduction related debt obligations consolidated balance sheets geographic data net revenues longlived assets excluding deferred tax goodwill intangible assets equity method investments 1 longlived assets longer includes debt issuance costs related recognized debt liabilities 46 million december 31 2015 44 million december 31 2014 51 million december 31 2013 reclassified longterm assets deduction related debt obligations consolidated balance sheets individual country within exceeded 10 net revenues longlived assets periods presented net revenues product category 1 july 2 2015 contributed global coffee businesses primarily europe eemea asia pacific segment beverage categories decrease beverages net revenues 2015 compared 2014 primarily reflects coffee business transactions unfavorable currency remaining beverage business impact deconsolidating coffee businesses july 2 2015 1699 million europe 413 million eemea 32 million asia pacific 5 million latin america yearoveryear basis refer note 2 divestitures acquisitions coffee business transactions information 2 2014 realigned products across product categories reclassified product category net revenues basis consistent 2015 presentation note 18 quarterly financial data unaudited summarized operating results quarter detailed 1 historically recorded income equity method investments within operating income investments operated extensions base business beginning third quarter 2015 align accounting jde earnings began record earnings equity method investments aftertax equity method investment earnings outside operating income aftertax equity method investment net earnings six months ended december 31 2015 less 1 million line item shown consolidated statement earnings pretax earnings equity method investments recorded within segment operating income 56 million six months ended july 2 2015 see note 1 summary significant accounting policies principles consolidation additional information 2 see following table significant items affected comparability earnings quarter 3 fourth quarter 2015 recorded net loss primarily due loss deconsolidation venezuela coffee business transaction final sales price adjustment accordance us gaap due net loss quarter diluted eps equal basic eps 4 fourth quarter 2014 recorded tax benefit 43 million associated lapse statute limitations related third quarter 2014 basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may equal total year 2015 2014 recorded following pretax charges gains earnings continuing operations items impacting operating results discussed note 1 summary significant accounting policies including venezuela deconsolidation currency devaluations note 2 divestitures acquisitions including coffee business transactions note 5 goodwill intangible assets note 6 restructuring program note 8 debt borrowing arrangements item 9item 8 financial statements supplementary data report independent registered public accounting firm board directors shareholders mondelēz international inc opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets mondelēz international inc subsidiaries “company” december 31 2020 2019 related consolidated statements earnings comprehensive earnings equity cash flows three years period ended december 31 2020 including related notes financial statement schedule three years period ended december 31 2020 listed index appearing item 15a collectively referred “consolidated financial statements” also audited companys internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion consolidated financial statements referred present fairly material respects financial position company december 31 2020 2019 results operations cash flows three years period ended december 31 2020 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued coso changes accounting principles discussed note 1 consolidated financial statements company changed manner accounts certain equity method investment 2020 manner accounts leases 2019 basis opinions companys management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included report management internal control financial reporting appearing item 9a responsibility express opinions company’s consolidated financial statements companys internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits consolidated financial statements included performing procedures assess risks material misstatement consolidated financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures consolidated financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation consolidated financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions described report management internal control financial reporting appearing item 9a management excluded give go assessment internal control financial reporting december 31 2020 acquired company purchase business combination 2020 also excluded give go audit internal control financial reporting give go majorityowned subsidiary whose total assets total revenues excluded management’s assessment audit internal control financial reporting represent 04 1 respectively related consolidated financial statement amounts year ended december 31 2020 definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate critical audit matters critical audit matter communicated matter arising current period audit consolidated financial statements communicated required communicated audit committee relates accounts disclosures material consolidated financial statements ii involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates indefinitelife intangible assets impairment assessment described notes 1 6 consolidated financial statements company’s consolidated indefinitelife intangible asset balance 175 billion december 31 2020 least annually management assesses indefinitelife intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value indefinitelife intangible assets significant potential impairment risk exists specific asset management quantitatively tests asset impairment comparing estimated fair value carrying value management estimates fair value using several accepted valuation methods including relief royalty excess earnings excess margin utilize estimates future sales earnings growth rates royalty rates discount rates principal considerations determination performing procedures relating indefinitelife intangible asset impairment assessment critical audit matter significant judgment management developing fair value measurement indefinitelife intangible assets turn led high degree auditor judgment subjectivity effort performing procedures evaluate management’s fair value estimates significant assumptions related estimates future sales earnings growth rates royalty rates discount rates certain indefinitelife intangible assets addition audit effort involved use professionals specialized skill knowledge assist performing procedures evaluating audit evidence obtained addressing matter involved performing procedures evaluating audit evidence connection forming overall opinion consolidated financial statements procedures included testing effectiveness controls relating indefinitelife intangible asset impairment assessment including controls determination fair values certain company’s indefinitelife intangible assets part annual impairment assessment procedures also included among others testing management’s process developing fair value estimate evaluating appropriateness valuation methods testing completeness accuracy underlying data used valuation methods evaluating significant assumptions used management related estimates future sales earnings growth rates royalty rates discount rates evaluating management’s assumptions related estimates future sales earnings growth rates involved evaluating whether assumptions used management reasonable considering current past performance indefinitelife intangible assets ii consistency external market industry data iii whether assumptions consistent evidence obtained areas audit professionals specialized skill knowledge used assist evaluation company’s valuation methods royalty rates discount rates significant assumptions pricewaterhousecoopers llp chicago illinois february 5 2021 served company’s auditor since 2001 mondelēz international inc subsidiaries consolidated statements earnings years ended december 31 millions us dollars except per share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements comprehensive earnings years ended december 31 millions us dollars see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated balance sheets december 31 millions us dollars except share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements equity millions us dollars except per share data see accompanying notes consolidated financial statements mondelēz international inc subsidiaries consolidated statements cash flows years ended december 31 millions us dollars see accompanying notes consolidated financial statements mondelēz international inc subsidiaries notes consolidated financial statements note 1 summary significant accounting policies description business mondelēz international inc incorporated 2000 commonwealth virginia mondelēz international inc subsidiaries collectively “mondelēz international” “we” “us” “our” sells food beverage products consumers 150 countries principles consolidation consolidated financial statements include mondelēz international inc well wholly owned majority owned subsidiaries except venezuelan subsidiaries deconsolidated 2015 intercompany transactions eliminated noncontrolling interest represents noncontrolling investors’ interests results subsidiaries control consolidate account investments exercise significant influence equity method accounting investments significant influence control material readily determinable fair value equity interests investments carried cost changes investment recognized extent cash received use estimates prepare consolidated financial statements accordance accounting principles generally accepted united states america “us gaap” require us make estimates assumptions affect number amounts consolidated financial statements significant accounting policy elections estimates assumptions include among others valuation assumptions goodwill intangible assets useful lives longlived assets restructuring program liabilities marketing program accruals insurance selfinsurance reserves pension benefit plan assumptions income taxes base estimates historical experience expectations future impacts assumptions believe reasonable given uncertainty global economic environment impact covid19 estimates could significantly different future performance actual amounts differ estimates include revisions consolidated results operations period actual amounts become known historically aggregate differences estimates actual amounts year material effect consolidated financial statements operations management structure organized four operating segments •latin america •amea •europe •north america see note 18 segment reporting additional information segments currency translation highly inflationary accounting translate results operations subsidiaries multiple currencies using average exchange rates period translate balance sheet accounts using exchange rates end period record currency translation adjustments component equity except highly inflationary currencies realized exchange gains losses transactions earnings highly inflationary accounting triggered country’s threeyear cumulative inflation rate exceeds 100 requires remeasurement financial statements subsidiaries country functional currency subsidiary us dollar reporting currency remeasurement gains losses recorded earnings discussed beginning july 1 2018 began apply highly inflationary accounting operations argentina second quarter 2018 primarily based published estimates indicated argentinas threeyear cumulative inflation rate exceeded 100 concluded argentina became highly inflationary economy accounting purposes july 1 2018 began apply highly inflationary accounting argentinean subsidiaries changed functional currency argentinean peso us dollar july 1 2018 monetary nonmonetary assets liabilities denominated argentinean pesos remeasured us dollars using exchange rate balance sheet date remeasurement transaction gains losses recorded net earnings december 31 2020 argentinean operations 3 million argentinean peso denominated net monetary liabilities argentinean operations contributed 335 million 13 consolidated net revenues 2020 recorded remeasurement loss 9 million 2020 remeasurement gain 4 million 2019 remeasurement loss 11 million 2018 within selling general administrative expenses related revaluation argentinean peso denominated net monetary position periods brexit january 31 2020 united kingdom began withdrawal process european union eu uk parliament approved withdrawal agreement transition period scheduled end december 31 2020 uk effectively remained eu’s customs union single market new trade deal eu negotiated december 24 2020 sides reached agreement new trade arrangement became effective january 1 2021 main trade provisions include continuation tariffs quotas trade uk eu long meet prescribed trade terms also need meet product labeling standards uk eu already begun introduce changes gradually uk may also set trade policies countries united states australia new zealand currently free trade agreements eu crossborder trade uk eu subject new customs regulations documentation reviews taking protective measures limit disruptions supply chain sales limit potential negative impacts results operations financial condition cash flows continue increase resources customer service logistics well factories customs support teams adapting systems processes new increased customs transactions continue enhance resilience plans aid dealing anticipated border delays working address new regulatory requirements packaging changes also continue closely monitor manage inventory levels imported raw materials packaging finished goods uk disagreements trade terms supply chain distribution delays disruptions could negatively affect uk business 2020 generated 90 net revenues uk countries since sell products 150 countries operations approximately 80 countries monitor economic currencyrelated risks seek take protective measures response exposures countries business recently experienced periods significant economic uncertainty exchange rate volatility including brazil china mexico russia ukraine turkey egypt nigeria south africa pakistan continue monitor operations currencies net monetary exposures countries time anticipate countries risk becoming highly inflationary economies cash equivalents restricted cash equivalents include demand deposits banks highly liquid investments original maturities three months less also restricted cash within current assets 31 million december 31 2020 37 million december 31 2019 total cash equivalents restricted cash 3650 million december 31 2020 1328 million december 31 2019 allowances credit losses allowances credit losses recorded receivables developed country region level based historical collection experiences current economic condition specific customers forecasted economic condition countries using various factors bond default rates consumption indexes write receivables determined receivables longer collectible allowed local laws changes allowances credit losses consisted transfers financial assets account transfers financial assets uncommitted revolving nonrecourse accounts receivable factoring arrangements surrendered control related assets determining whether control transferred requires evaluation relevant legal considerations assessment nature extent continuing involvement assets transferred relevant considerations use receivable factoring arrangements periodically circumstances favorable manage liquidity nonrecourse factoring arrangements sell eligible trade receivables primarily banks exchange cash may continue collect receivables sold acting solely collecting agent behalf banks outstanding principal amount receivables arrangements amounted 760 million december 31 2020 760 million december 31 2019 819 million december 31 2018 incremental costs factoring receivables arrangements approximately 10 million years presented proceeds sales receivables included cash operating activities consolidated statements cash flows inventories record inventory using average cost method record inventory allowances overstock obsolete inventory longlived assets property plant equipment stated historical cost depreciated straightline method estimated useful lives assets machinery equipment depreciated periods ranging 3 20 years buildings building improvements periods 40 years review longlived assets including definitelife intangible assets realizability ongoing basis changes depreciation generally accelerated depreciation determined recorded estimates remaining useful lives residual values longterm assets change also review impairment conditions exist indicate carrying amount assets may fully recoverable circumstances perform undiscounted operating cash flow analyses determine impairment exists testing asset impairment group assets liabilities lowest level cash flows separately identifiable impairment loss calculated excess asset’s carrying value estimated fair value fair value estimated based discounted cash flows asset group remaining useful life based expected cash proceeds asset less costs disposal significant impairment losses would recorded within asset impairment exit costs consolidated statements earnings leases january 1 2019 adopted new lease accounting standard recorded 710 million lease related assets 730 million lease related liabilities consolidated balance sheet january 1 2019 transition method elected adoption included recording cumulative effect adjustment retained earnings january 1 2019 material determine whether contract contains lease contract inception policy recognize rightofuse rou assets lease liabilities shortterm operating leases terms 12 months less longterm operating lease rou assets longterm operating lease liabilities presented separately operating lease liabilities payable next twelve months recorded current liabilities finance lease rou assets presented property plant equipment related finance lease liabilities presented current portion longterm debt longterm debt lease rou assets represent right use underlying asset lease term lease liabilities represent obligation make lease payments arising lease rou assets recognized commencement date value lease liability adjusted prepayments lease incentives received initial direct costs incurred lease liabilities recognized commencement date based present value remaining lease payments lease term nonrecurring fair value measurement classified level 3 fair value inputs observable rate implicit lease readily determinable leases use countryspecific incremental borrowing rate based lease term using information available commencement date determining present value lease payments lease terms may include options extend terminate lease reasonably certain exercise option many leases contain nonlease components eg product costs commonarea maintenance costs relate lease components agreement nonlease components lease components relate accounted single lease component amortization rou lease assets calculated straightline basis lease term expense recorded cost sales selling general administrative expenses depending nature leased item interest expense recorded lease term recorded interest expense based frontloaded interest expense pattern finance leases recorded cost sales selling general administrative expenses straightline basis operating leases operating lease cash payments interest finance leases recorded within cash flows operating activities finance lease principal payments recorded within cash flows financing activities consolidated statements cash flows software costs capitalize certain computer software development costs incurred connection developing obtaining computer software internal use capitalized software costs included property plant equipment amortized straightline basis estimated useful lives software exceed seven years goodwill indefinitelife intangible assets test goodwill indefinitelife intangible assets impairment annual basis july 1 assess goodwill impairment risk throughout year performing qualitative review entityspecific industry market general economic factors affecting goodwill reporting units review operating segment reporting unit structure goodwill testing annually significant changes organization occur annually may perform qualitative testing depending factors prioryear test results current year developments current risk evaluations practical considerations may elect quantitative testing instead quantitative testing compare reporting unit’s estimated fair value carrying value estimate reporting unit’s fair value using discounted cash flow method incorporates planned growth rates marketbased discount rates estimates residual value 2020 performed quantitative annual test europe north america reporting units used marketbased weightedaverage cost capital 61 discount projected cash flows operations latin america amea reporting units used riskrated discount rate 91 estimating fair value individual reporting units requires us make assumptions estimates regarding future plans industry economic conditions actual results conditions may differ time carrying value reporting unit’s net assets exceeds fair value would recognize impairment charge amount carrying value exceeds reporting unit’s fair value annually assess indefinitelife intangible assets impairment performing qualitative review assessing events circumstances could affect fair value carrying value intangible assets significant potential impairment risk exists specific asset quantitatively test impairment comparing estimated fair value carrying value determine estimated fair value using estimates future sales earnings growth rates royalty rates discount rates carrying value asset exceeds fair value consider asset impaired reduce carrying value estimated fair value amortize definitelife intangible assets estimated useful lives evaluate impairment longlived assets insurance selfinsurance use combination insurance selfinsurance number risks including workers’ compensation general liability automobile liability product liability obligation employee healthcare benefits estimate liabilities associated risks undiscounted basis evaluating making judgments historical claims experience actuarial assumptions estimated impact future results revenue recognition predominantly sell food beverage products across several product categories regions disclosed note 18 segment reporting recognize revenue control products transfers customers generally occurs upon delivery shipment products small percentage net revenues relates licensing intellectual property predominantly brand trade names record revenues earned within period license term account product shipping handling insurance fulfillment activities revenues activities recorded within net revenue costs recorded within cost sales taxes collected behalf government authorities excluded net revenues recorded net trade sales incentives estimated product returns known expected pricing revenue adjustments trade discounts rebates returns estimated time sale base estimates expected amounts principally historical utilization redemption rates estimates affect revenue trade incentives product returns monitored adjusted period incentives product returns realized key sales terms pricing quantities ordered established frequent basis customer arrangements related incentives one year shorter duration capitalize contract inception costs capitalize product fulfillment costs accordance us gaap inventory policies generally unbilled receivables end period deferred revenues material primarily include customer advance payments typically collected days product delivery time deferred revenues reclassified recorded net revenues generally receive noncash consideration sale goods grant payment financing terms greater one year marketing advertising research development promote products marketing advertising programs include limited cooperative advertising instore displays consumer marketing promotions interim reporting purposes advertising consumer promotion marketing research expenses charged operations percentage volume based estimated sales volume estimated program spending defer costs yearend consolidated balance sheet marketing advertising costs recorded expense year incurred advertising expense 1376 million 2020 1208 million 2019 1173 million 2018 expense product research development costs incurred research development expense 332 million 2020 351 million 2019 362 million 2018 record marketing advertising well research development expenses within selling general administrative expenses stockbased compensation stockbased compensation awarded employees nonemployee directors valued fair value grant date record stockbased compensation expense vesting period generally three years forfeitures estimated grant date stockbased compensation awards employee benefit plans provide range benefits current retired employees including pension benefits defined contribution plan benefits postretirement health care benefits postemployment primarily severancerelated benefits depending upon local statutory requirements employee tenure service requirements well factors cost plans recognized earnings primarily working life covered employee financial instruments use financial instruments manage currency exchange rate commodity price interest rate risks monitor manage exposures part overall risk management program focuses unpredictability financial markets seeks reduce potentially adverse effects volatility markets may operating results principal objective risk management strategies reduce significant unanticipated earnings fluctuations may arise volatility currency exchange rates commodity prices interest rates principally use derivative instruments use combination primarily currency forward contracts futures options swaps commodity forward contracts futures options interest rate swaps manage exposure cash flow variability protect value existing currency assets liabilities protect value debt see note 10 financial instruments information types derivative instruments use record derivative financial instruments gross basis fair value consolidated balance sheets within current assets current liabilities due relatively shortterm duration cash flows related settlement derivative instruments designated net investment hedges foreign operations classified consolidated statements cash flows within investing activities cash flows related derivative instruments designated economic hedges classified line item cash flows related hedged item generally within operating activities cash flows related settlement freestanding derivative instruments classified within investing activities changes fair value derivative designated cash flow hedge extent hedge effective recorded accumulated comprehensive earningslosses reclassified earnings hedged item affects earnings changes fair value economic hedges ineffective portion hedges recognized current period earnings use nonus dollar denominated debt hedge portion net investment nonus operations adverse movements exchange rates currency movements related nonus debt net investments nonus operations well related deferred taxes recorded within currency translation adjustment accumulated comprehensive earningslosses order qualify hedge accounting specified level hedging effectiveness derivative instrument item hedged must exist inception throughout hedged period must also formally document nature relationship derivative hedged item well risk management objectives strategies undertaking hedge transaction method assessing hedge effectiveness additionally hedge forecasted transaction significant characteristics expected term forecasted transaction must specifically identified must probable forecasted transaction occur longer probable hedged forecasted transaction occur would recognize gain loss related derivative earnings use derivatives exposed credit market risks credit risk exists counterparty derivative contract might fail fulfill performance obligations contract reduce credit risk entering transactions counterparties high quality investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties also maintain policy requiring significant nonexchange traded derivative contracts duration one year longer governed international swaps derivatives association master agreement market risk exists value derivative financial instrument might adversely affected changes market conditions commodity prices currency exchange rates interest rates manage derivative market risk limiting types derivative instruments derivative strategies use degree market risk plan hedge use derivative instruments commodity derivatives exposed price risk related forecasted purchases certain commodities primarily use raw materials enter commodity forward contracts primarily wheat sugar sweeteners soybean vegetable oils cocoa commodity forward contracts generally subject accounting requirements derivative instruments hedging activities normal purchases exception also use commodity futures options hedge price certain input costs including cocoa energy costs sugar sweeteners wheat packaging dairy corn soybean vegetable oils also sell commodity futures unprice future purchase commitments occasionally use related futures crosshedge commodity exposure party leveraged derivatives policy use financial instruments speculative purposes currency exchange derivatives use various financial instruments mitigate exposure changes exchange rates thirdparty intercompany current forecasted transactions instruments may include currency exchange forward contracts futures options swaps based size location businesses use instruments hedge exposure certain currencies including euro pound sterling swiss franc canadian dollar mexican peso unrealized gains losses marktomarket impacts realized gains losses recorded earnings see note 10 financial instruments additional information interest rate cash flow fair value hedges manage interest rate volatility modifying pricing maturity characteristics certain liabilities net impact expense material basis adversely affected movements interest rates result interest rate fluctuations hedged fixedrate liabilities appreciate depreciate market value expect effect unrealized appreciation depreciation substantially offset gains losses derivative instruments linked hedged liabilities use derivative instruments including interest rate swaps indices related pricing specific liabilities part interest rate risk management strategy matter policy use highly leveraged derivative instruments interest rate risk management use interest rate swaps economically convert portion fixedrate debt variablerate debt interest rate swap contracts agree parties exchange specified intervals difference fixedrate floatingrate interest amounts calculated based agreedupon notional amount use interest rate swaps hedge variability interest payment cash flows portion future debt obligations also execute crosscurrency interest rate swaps hedge interest payments newly issued debt denominated different currency functional currency borrowing entity substantially derivative instruments highly effective qualify hedge accounting treatment hedges net investments nonus operations numerous investments outside united states net assets subsidiaries exposed changes volatility currency exchange rates use local currency denominated debt hedge nonus net investments adverse movements exchange rates designated euro pound sterling swiss franc canadian dollardenominated borrowings net investment hedge portion overall international operations gains losses net investment designated international operations economically offset losses gains euro pound sterling swiss franc canadian dollardenominated borrowings change debt’s value net deferred taxes recorded currency translation adjustment component accumulated comprehensive earningslosses use derivatives instruments crosscurrency interest rate swaps forwards hedge certain investments nonus operations movements exchange rates aftertax gainloss net investment hedge contracts recorded cumulative translation adjustment section comprehensive income pretax impacts cash flows contracts reported investing activities consolidated statement cash flows income taxes provision income taxes includes amounts payable refundable current year effects deferred taxes impacts uncertain tax positions recognize deferred tax assets liabilities expected future tax consequences temporary differences financial statement tax basis assets liabilities operating loss carryforwards tax credit carryforwards deferred tax assets liabilities measured using enacted tax rates expected apply years differences expected reverse realization certain deferred tax assets dependent generating sufficient taxable income appropriate jurisdiction prior expiration carryforward periods deferred tax assets reduced valuation allowance likely portion deferred tax assets realized assessing need valuation allowance consider carryback potential future reversals existing taxable temporary differences including liabilities unrecognized tax benefits future taxable income tax planning strategies recognize tax benefits financial statements uncertain tax positions likely tax position sustained based technical merits position amount recognize measured largest amount benefit greater 50 percent likely realized upon resolution future changes related expected resolution uncertain tax positions could affect tax expense period change occurs monitor changes tax laws reflect impacts tax law changes period enactment refinement tax law changes subsequent periods account new guidance period becomes known new accounting pronouncements december 2019 financial accounting standards board fasb issued accounting standards update asu removes certain exceptions accounting income taxes improves consistency application clarifies existing guidance asu effective fiscal years beginning december 15 2020 early adoption permitted expect asu material impact consolidated financial statements august 2018 fasb issued asu aligns requirements capitalizing implementation costs incurred hosting arrangement service contract requirements capitalizing implementation costs internaluse software asu effective fiscal years beginning december 15 2019 early adoption permitted january 1 2020 adopted standard prospective basis standard material impact consolidated financial statements august 2018 fasb issued asu modifies disclosure requirements employers sponsor defined benefit pension postretirement plans asu effective fiscal years ending december 15 2020 early adoption permitted adopted standard reflected changes within benefit plan disclosures standard impact consolidated financial statements august 2018 fasb issued asu modifies disclosure requirements fair value measurements asu effective fiscal years beginning december 15 2019 early adoption permitted adopted standard january 1 2020 material impact consolidated financial statements upon adoption june 2016 fasb issued asu measurement credit losses financial instruments asu requires entities measure impairment certain financial instruments including trade receivables based expected losses rather incurred losses asu effective fiscal years beginning december 15 2019 adopted standard january 1 2020 using modified retrospective basis material impact consolidated financial statements reclassifications certain amounts previously reported reclassified conform currentyear presentation second quarter 2020 connection jde peets defined transaction refer note 7 equity method investments changed accounting principle reflect share jacobs douwe egberts jde historical results jde peets ongoing results onequarter lag basis continue record dividends cash received change applied retrospectively periods presented note 2 acquisitions divestitures january 4 2021 acquired remaining 93 equity hu master holdings category leader premium chocolate united states closing cash consideration approximately 231 million potential contingent consideration payment based future performance acquired company april 1 2020 acquired majority interest give go north american leader fullyfinished sweet baked goods owner famous twobite® brand brownies createatreat® brand known cookie gingerbread house decorating kits acquisition give go provides access instore bakery channel expands position broader snacking purchase consideration give go totaled 1136 million net cash received working complete valuation recorded preliminary purchase price allocation net tangible intangible assets acquired liabilities assumed follows within definitelife intangible assets allocated 416 million customer relationships estimated useful life 17 years goodwill arises principally result expansion opportunities synergies across new legacy product categories none goodwill recognized expected deductible income tax purposes fair value customer relationships acquisition date determined using multiperiod excess earnings method income approach fair value measurements intangible assets based significant unobservable inputs thus represent level 3 inputs significant assumptions used assessing fair values intangible assets include discounted future cash flows customer attrition rates discount rates acquisition added incremental net revenues 390 million operating income 24 million 2020 incurred acquisitionrelated costs 15 million 2020 july 16 2019 acquired majority interest us refrigerated nutrition bar company perfect snacks within north america segment 284 million cash paid net cash received expanded position broader snacking first quarter 2020 finalized purchase price allocation 31 million definitelife intangible assets 107 million indefinitelife intangible assets 150 million goodwill 1 million property plant equipment 12 million inventory 8 million accounts receivable 13 million current liabilities 3 million deferred tax liabilities 9 million liabilities oneyear anniversary acquisition perfect snacks added incremental net revenues 55 million immaterial amount incremental operating income 2020 may 28 2019 completed sale cheese business middle east africa arla foods denmark 2019 received cash proceeds 161 million divested 19 million current assets 96 million noncurrent assets 2019 recorded net pretax gain 44 million sale divestiture resulted yearoveryear declines net revenues 55 million operating income 9 million 2020 incurred divestiturerelated costs 4 million 2020 6 million 2019 june 7 2018 acquired us premium biscuit company tate’s bake shop within north america segment extended premium biscuit offering second quarter 2018 paid 528 million net cash received second quarter 2019 finalized purchase price 527 million purchase price allocation included 45 million definitelife intangible assets 205 million indefinitelife intangible assets 297 million goodwill 16 million property plant equipment 5 million inventory 9 million accounts receivable 7 million current liabilities 43 million deferred tax liabilities oneyear anniversary acquisition tates added incremental net revenues 35 million immaterial amount incremental operating income 2019 note 3 inventories consisted following note 4 property plant equipment property plant equipment consisted following capital expenditures presented statement cash flow 09 billion 09 billion 11 billion years ending december 31 2020 2019 2018 excluded 275 million 334 million 331 million accrued capital expenditures yet paid connection restructuring program recorded noncash property plant equipment writedowns including accelerated depreciation asset impairments lossesgains disposal within asset impairment exit costs consolidated statements earnings within segment results follows refer note 8 restructuring program note 5 leases operating finance leases manufacturing distribution facilities vehicles equipment office space leases remaining lease terms 1 19 years include options extend leases 6 years assume majority termination options exercised determining lease term leases include significant restrictions covenants lease agreements residual value guarantees generally included within operating leases exception fleet leases leasing arrangements require variable payments dependent usage output may vary reasons product costs insurance tax payments variable payment leases included recorded lease assets liabilities expensed incurred certain leases tied variable index rate included lease assets liabilities based indices rates lease commencement components lease costs follows rent expenses prior lease accounting rules asc 840 recorded continuing operations 260 million 2018 supplemental cash flow information related leases follows supplemental balance sheet information related leases follows maturities lease liabilities follows note 6 goodwill intangible assets goodwill operating segment intangible assets consisted following indefinitelife intangible assets consist principally brand names purchased acquisitions nabisco holdings corp spanish portuguese operations united biscuits global lu biscuit business groupe danone sa cadbury limited definitelife intangible assets consist primarily trademarks customerrelated intangibles process technology licenses noncompete agreements amortization expense intangible assets 194 million 2020 174 million 2019 176 million 2018 next five years estimate annual amortization expense approximately 125 million next year approximately 115 million years two four approximately 100 million year five reflecting december 31 2020 exchange rates changes goodwill intangible assets consisted changes goodwill intangibles •divestitures second quarter 2019 divested net assets cheese business middle east africa arla foods denmark resulting goodwill decrease 43 million see note 2 acquisitions divestitures additional information •acquisitions connection acquisition majority interest give go second quarter 2020 recorded preliminary purchase price allocation 531 million goodwill 553 million intangible assets connection acquisition perfect snacks third quarter 2019 recorded purchase price allocation 150 million goodwill 138 million intangible assets 2019 also finalized purchase price allocation 2018 acquisition tate’s bake shop resulting 1 million adjustment goodwill see note 2 acquisitions divestitures additional information •asset impairments discussed recorded 144 million intangible asset impairments 2020 57 million 2019 2020 2019 2018 goodwill impairments reporting units sufficient fair value excess carrying value reporting units passed annual impairment testing planned business performance expectations met specific valuation factors outside control discount rates change significantly estimated fair values reporting unit reporting units might decline lead goodwill impairment future 2020 recorded 144 million intangible asset impairment charges related eight brands recorded charges related gum chocolate biscuits candy brands 83 million north america 53 million europe 5 million amea 3 million latin america also identified nine brands including eight impaired trademarks 753 million aggregate book value december 31 2020 fair value excess book value 10 less continue monitor brand performance particularly light significant uncertainty due covid19 pandemic related impacts business brand earnings expectations including timing expected recovery covid19 pandemic impacts met specific valuation factors outside control discount rates change significantly brand brands could become impaired future 2019 recorded 57 million impairment charges gum chocolate biscuits candy brands 39 million europe 15 million amea 3 million latin america 2018 recorded 68 million impairment charges gum chocolate biscuits candy brands 45 million europe 14 million north america 9 million amea note 7 equity method investments equity method investments consist investments entities maintain equity ownership interest apply equity method accounting due ability exert significant influence decisions relating operating financial affairs revenue expenses equity method investees consolidated financial statements rather proportionate share earnings investee reflected equity method investment net earnings carrying values equity method investments also impacted proportionate share items impacting investees accumulated comprehensive income losses items share investee dividends equity method investments include limited ownership interests jde peets euronext amsterdam jdep keurig dr pepper inc nasdaq kdp dong suh foods corporation dong suh oil fats co ltd december 31 2020 owned 229 84 500 490 respectively companies outstanding shares investments accounted equity method accounting totaled 6036 million december 31 2020 7178 million december 31 2019 recorded equity earnings cash dividends 421 million 246 million 2020 equity earnings cash dividends 501 million 250 million 2019 equity earnings cash dividends 484 million 180 million 2018 based quoted closing prices december 31 2020 combined fair value publiclytraded investments jdep kdp 89 billion investment fair value exceeded carrying value jde keurig exchange march 7 2016 exchanged portion 435 jde equity interest new equity interest keurig green mountain inc keurig following transaction jde equity interest became 265 new keurig equity interest 242 2016 recorded difference 20 billion fair value keurig basis exchanged jde shares gain 43 million 2019 determined adjustment accumulated comprehensive losses related jde investment required reduced previously reported gain 29 million recorded adjustment loss equity method transactions keurig dr pepper transactions july 9 2018 keurig closed definitive merger agreement dr pepper snapple group inc formed kdp publicly traded company following close transaction 242 investment keurig together shareholder loan receivable became 138 investment kdp 2018 recorded net pretax gain 778 million 586 million aftertax connection transaction changed accounting principle third quarter 2018 reflect share keurigs historical kdps ongoing earnings onequarter lag basis continue record dividends cash received determined lag preferable enables us continue report quarterly annual results timely basis record share kdp’s ongoing results kdp publicly reported results change retrospectively applied prior periods presented 2019 recognized pretax gain 23 million 18 million aftertax related impact kdp acquisition decreased ownership interest 138 136 march 4 2020 participated secondary offering kdp shares sold approximately 68 million shares reduced ownership interest 05 131 total outstanding shares received 185 million proceeds recorded pretax gain 71 million 54 million aftertax first quarter 2020 august 3 2020 sold approximately 141 million shares kdp reduced ownership interest 10 121 total outstanding shares received 414 million proceeds recorded pretax gain 181 million 139 million aftertax third quarter 2020 september 9 2020 sold approximately 125 million shares kdp reduced ownership interest 09 112 total outstanding shares received 363 million proceeds recorded pretax gain 154 million 119 million aftertax third quarter 2020 november 17 2020 participated secondary offering kdp shares sold approximately 400 million shares reduced ownership interest 28 84 total outstanding shares received 1132 million proceeds recorded pretax gain 459 million 350 million aftertax fourth quarter 2020 hold two director positions kdp board well additional governance rights continue significant influence continue account investment kdp equity method resulting recognizing share earnings within earnings share dividends within cash flows jde peet’s transaction may 2020 jde peet’s bv renamed jde peet’s nv immediately prior settlement defined “jde peet’s” consummated offering listing trading ordinary shares euronext amsterdam regulated market operated euronext amsterdam nv “admission” connection transaction jde peet’s selling shareholders including us agreed sell price €3150 per ordinary share total approximately 821 million ordinary shares including ordinary shares subject overallotment option ordinary shares listed first traded may 29 2020 payment delivery ordinary shares sold offering excluding ordinary shares subject overallotment option took place june 2 2020 “settlement” prior settlement exchanged 264 ownership interest jde 265 equity interest jde peet’s invest new capital connection transaction exchange accounted change interest transaction upon settlement sold approximately 97 million ordinary shares jde peet’s offering gross proceeds €304 million 343 million subsequently sold approximately 14 million additional shares received gross proceeds €46 million 51 million upon exercise overallotment option following settlement exercise overallotment option held 229 equity interest jde peet’s second quarter 2020 recorded preliminary gain 121 million net 33 million released accumulated comprehensive losses 48 million transaction costs third quarter 2020 increased preliminary gain 10 million 131 million case ownership interest jde significant influence respect jde peet’s continue account investment jde peet’s equity method resulting recognizing share jde peet’s earnings within earnings share jde peet’s dividends within cash flows second quarter 2020 connection transaction changed accounting principle reflect share jde’s historical jde peet’s ongoing earnings onequarter lag basis although continue record dividends cash received determined lag preferable enables us continue report quarterly annual results timely basis recording share jde peet’s ongoing results jde peet’s publicly reported results change accounting principle applied retrospectively periods following tables show primary line items consolidated statements earnings comprehensive earnings consolidated balance sheet changed result reporting lag jde peets consolidated statements cash flow equity also updated reflect changes summary financial information equity method investments summarized financial information related equity method investments reflected tables reflect adjustments noted jde jdep onequarter lag 1includes basis difference approximately 519 million december 31 2020 333 million december 31 2019 us gaap accounting basis equity method investments us gaap accounting basis investees’ equity note 8 restructuring program may 6 2014 board directors approved 35 billion 20142018 restructuring program 22 billion capital expenditures august 31 2016 board directors approved 600 million reallocation restructuring program cash costs capital expenditures 57 billion program consisted approximately 41 billion restructuring program costs 31 billion cash costs 10 billion noncash costs 16 billion capital expenditures september 6 2018 board directors approved extension restructuring program 2022 increase 13 billion program charges increase 700 million capital expenditures total 77 billion program consists 54 billion program charges 41 billion cash costs 13 billion noncash costs total capital expenditures 23 billion incurred life program current restructuring program increased extended actions called simplify grow program primary objective simplify grow program reduce operating cost structure supply chain overhead costs program covers severance well asset disposals manufacturing procurementrelated onetime costs since inception incurred total restructuring related implementation charges 47 billion related simplify grow program expect incur remainder program charges yearend 2022 restructuring costs simplify grow program liability activity years ended december 31 2020 2019 1 includes gains result assets sold included restructuring program •we recorded restructuring charges 156 million 2020 176 million 2019 316 million 2018 within asset impairment exit costs benefit plan nonservice income •we spent 169 million 2020 162 million 2019 cash severance related costs •in 2020 recognized gain sale assets included restructuring program partially offset noncash asset writedowns including accelerated depreciation asset impairments noncash pension settlement losses see note 11 benefit plans noncash adjustments totaling 6 million 2019 recognized noncash asset writedowns including accelerated depreciation asset impairments noncash pension settlement losses noncash adjustments totaling 82 million •at december 31 2020 260 million net restructuring liability recorded within current liabilities 44 million recorded within longterm liabilities implementation costs implementation costs directly attributable restructuring activities however qualify special accounting treatment exit disposal activities believe disclosure implementation costs provides readers financial statements information total costs simplify grow program implementation costs primarily relate reorganizing operations facilities connection supply chain reinvention program identified productivity cost saving initiatives costs include incremental expenses related closure facilities costs terminate certain contracts simplification information systems within continuing results operations recorded implementation costs 207 million 2020 272 million 2019 315 million 2018 recorded costs within cost sales general corporate expense within selling general administrative expenses restructuring implementation costs operating income 2020 2019 2018 since inception simplify grow program recorded following restructuring implementation costs within segment operating income earnings income taxes note 9 debt borrowing arrangements shortterm borrowings shortterm borrowings related weightedaverage interest rates consisted repaid outstanding commercial paper borrowings december 31 2020 using proceeds net issuances longterm debt proceeds sales kdp jdep shares operating cash flows uncommitted credit lines committed credit lines available december 31 2020 december 31 2019 include 1 maintain multiyear senior unsecured revolving credit facility general corporate purposes including working capital needs support commercial paper program revolving credit agreement includes covenant maintain minimum shareholders equity least 246 billion excluding accumulated comprehensive earningslosses cumulative effects changes accounting principles earningslosses recognized connection ongoing application marktomarket accounting pensions retirement plans december 31 2020 complied covenant shareholders equity defined covenant 383 billion revolving credit facility also contains customary representations covenants events default credit rating triggers provisions financial covenants could require us post collateral security longterm debt longterm debt consisted interest rates december 31 2020 deferred debt issuance costs 53 million december 31 2020 33 million december 31 2019 netted related debt table deferred financing costs related revolving credit facility classified longterm assets immaterial periods presented december 31 2020 aggregate maturities debt finance leases based stated contractual maturities excluding unamortized noncash bond premiums discounts bank fees marktomarket adjustments 94 million imputed interest finance leases 20 million millions tenders offers october 16 2020 completed tender offer cash redeemed 950 million long term us dollardenominated notes following amounts millions recorded loss debt extinguishment approximately 154 million within interest expense net primarily related amount paid excess carrying value debt recognizing unamortized discounts deferred financing unamortized forward starting swaps earnings time debt extinguishment cash payment related debt extinguishment classified cash outflows financing activities consolidated statement cash flows debt redemptions december 4 2020 completed early redemption us dollar denominated notes following amounts millions recorded extinguishment loss 31 million within interest expense net primarily related amount paid excess carrying value debt recognizing unamortized discounts deferred financing earnings time debt extinguishment cash payments related redemption classified cash outflows financing activities consolidated statement cash flows debt repayments subsequent 2020 repaid €679 million 2375 eurodenominated notes matured january 26 2021 2020 repaid following notes term loans millions 1 repaid 750 million term loan early proceeds issuance notes 2019 repaid following notes term loans millions debt issuances 2020 issued following notes 2019 issued following notes 1 represents gross proceeds issuance notes excluding debt issuance costs discounts premiums 2 represents issuance previously issued note forms single series note 3 notes issued mondelez international holdings netherlands bv “mihn” wholly owned dutch subsidiary mondelez international inc 4 connection debt issuance entered crosscurrency swaps serving cash flow hedges us dollardenominated debt payments effectively paid euros life debt 5 mihn entered term loan agreement amount presented amount issued term loan fair value debt fair value shortterm borrowings december 31 2020 december 31 2019 reflects current market interest rates approximates amounts recorded consolidated balance sheets fair value longterm debt determined using quoted prices active markets level 1 valuation data publicly traded debt obligations interest expense net interest expense net within results continuing operations consisted see note 10 financial instruments information gainloss related us dollar interest rate swaps longer designated accounting cash flow hedges information amounts income related net investment hedge derivative contracts amounts excluded hedge effectiveness 117 million 2020 133 million 2019 120 million 2018 note 10 financial instruments fair value derivative instruments derivative instruments recorded fair value consolidated balance sheets follows 1net investment hedge contracts consist crosscurrency interest rate swaps forward contracts also designate nonus dollar denominated debt hedge portion net investments nonus operations debt reflected table included longterm debt discussed note 9 debt borrowing arrangements net investment hedge derivative contracts nonus dollar denominated debt acting net investment hedges also disclosed derivative volume table hedges net investments international operations section appearing later footnote derivatives designated accounting hedges include cash flow net investment hedge derivative contracts currency exchange commodity derivative contracts economic hedges designated accounting hedges record derivative assets liabilities gross basis consolidated balance sheets fair value asset derivatives recorded within current assets fair value liability derivatives recorded within current liabilities fair values assetliability derivative instruments determined using level 1 financial assets liabilities consist exchangetraded commodity futures listed options fair value instruments determined based quoted market prices commodity exchanges level 2 financial assets liabilities consist primarily overthecounter “otc” currency exchange forwards options swaps commodity forwards options interest rate swaps currency exchange contracts valued using income approach based observable market forward rates less contract rate multiplied notional amount commodity derivatives valued using income approach based observable market commodity index prices less contract rate multiplied notional amount based pricing models rely market observable inputs commodity prices calculation fair value interest rate swaps derived discounted cash flow analysis based terms contract observable market interest rate curve calculation fair value financial instruments takes consideration risk nonperformance including counterparty credit risk otc derivative transactions governed international swap dealers association agreements standard industry contracts agreements post require collateral counterparties majority derivative contracts legal right setoff manage credit risk connection derivatives entering transactions counterparties investment grade credit ratings limiting amount exposure counterparty monitoring financial condition counterparties derivative volume gross notional values derivative instruments cash flow hedges cash flow hedge activity net taxes within accumulated comprehensive earningslosses included aftertax gainslosses reclassified accumulated comprehensive earningslosses net earnings within interest expense net recognized losses related forward starting interest rate swaps 79 million 103 million pretax 2020 loss 111 million 2019 gain 10 million 2018 due changes related forecasted debt second quarter 2019 also recognized loss 12 million related net loss equity method investment transactions noted note 7 equity method investments jde keurig exchange aftertax gainslosses recognized comprehensive earningslosses cash flow hedge ineffectiveness immaterial periods presented record pretax gains losses reclassified accumulated comprehensive earningslosses earnings ii gains losses ineffectiveness iii gains losses amounts excluded effectiveness testing interest expense net interest rate contracts based current market conditions would expect transfer losses 179 million net taxes interest rate cash flow hedges earnings next 12 months cash flow hedge coverage december 31 2020 longest dated cash flow hedges interest rate swaps hedge forecasted interest rate payments next 3 years 9 months hedges net investments international operations net investment hedge nih derivative contracts enter crosscurrency interest rate swaps forwards hedge certain investments nonus operations movements exchange rates december 31 2020 aggregate notional value nih derivative contracts 46 billion impact comprehensive earnings net earnings years presented follows 1amounts recorded unsettled settled nih derivative contracts recorded cumulative translation adjustment within comprehensive earnings cash flows settled contracts reported within investing activities consolidated statement cash flows 1we elected record changes fair value amounts excluded assessment effectiveness net earnings within interest expense net nonus dollar debt designated net investment hedges aftertax gainslosses related hedges net investments international operations form euro british pound sterling swiss franc canadian dollardenominated debt recorded within cumulative translation adjustment section comprehensive income economic hedges pretax gainslosses recorded net earnings economic hedges note 11 benefit plans pension plans obligations funded status projected benefit obligations plan assets funded status pension plans 1in 2020 reviewed impact market changes design features certain historical defined contribution plans review resulted additional plans accounted defined benefit pension plans resulted increases 133 million projected benefit obligation 125 million plan assets 2020 accumulated benefit obligation represents benefits earned measurement date us pension plans 1882 million december 31 2020 1741 million december 31 2019 accumulated benefit obligation nonus pension plans 11404 million december 31 2020 10236 million december 31 2019 actuarial gain loss pension plans 2020 2019 primarily related change discount rate used measure benefit obligations plans salaried nonunion hourly employees hired january 1 2009 us january 1 2011 canada earlier certain legacy cadbury employees longer eligible participate defined benefit pension plans benefit accruals salaried nonunion hourly employee participants us canada defined benefit pension plans ceased december 31 2019 employees instead receive company contributions employee defined contribution plans combined us nonus pension plans resulted net pension liability 614 million december 31 2020 709 million december 31 2019 recognized amounts consolidated balance sheets follows certain us nonus plans underfunded accumulated benefit obligations excess plan assets plans projected benefit obligations accumulated benefit obligations fair value plan assets used following weightedaverage assumptions determine benefit obligations pension plans yearend discount rates us canadian eurozone uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear determine expected rate return plan assets plan assets’ historical longterm investment performance current asset allocation estimates future longterm returns asset class periods presented measure service interest costs applying specific spot rates along yield curve used measure plan obligations plans’ liability cash flows believe approach provides precise measurement service interest costs aligning timing plans’ liability cash flows corresponding spot rates yield curve components net periodic pension cost net periodic pension cost consisted following 1settlement losses 3 million 2020 5 million 2019 5 million 2018 incurred connection simplify grow program see note 8 restructuring program information net settlement losses 13 million us plans settlement losses 6 million nonus plans 2020 settlement losses 12 million us plans settlement gains 4 million nonus plans 2019 settlement losses 31 million us plans 4 million nonus plans 2018 related lumpsum payment elections made retired employees us plans determine expected return plan assets component net periodic benefit cost using calculated market return value recognizes cost fouryear period nonus plans utilize similar approach varying cost recognition periods plans others determine expected return plan assets based asset fair values measurement date used following weightedaverage assumptions determine net periodic pension cost plan assets fair value pension plan assets determined using following fair value measurements excluded plan assets 129 million december 31 2020 67 million december 31 2019 tables related certain insurance contracts reported contract value accordance authoritative guidance fair value measurements •level 1 includes primarily us nonus equity securities government bonds valued using quoted prices active markets •level 2 includes primarily pooled funds including assets real estate pooled funds valued using net asset values participation units held common collective trusts reported managers trusts supported unit prices actual purchase sale transactions level 2 plan assets also include corporate bonds fixedincome securities valued using independent observable market inputs matrix pricing yield curves indices •level 3 includes investments valued using unobservable inputs reflect plans’ assumptions market participants would use pricing assets based best information available •fair value estimates pooled funds calculated investment advisor reliable quotations pricing services readily available certain underlying securities estimated value based either cost last sale price securities valued fashion •fair value estimates private equity investments calculated general partners using market approach estimate fair value private investments market approach utilizes prices relevant information generated market transactions type security degree liquidity restrictions disposition latest round financing data company financial statements relevant valuation multiples discounted cash flow analyses •fair value estimates private debt placements calculated using standardized valuation methods including limited incomebased techniques discounted cash flow projections marketbased techniques utilizing public private transaction multiples comparables •fair value estimates real estate investments calculated investment managers using present value future cash flows expected received investments based valuation methodologies appraisals local market conditions current projected operating performance •fair value estimates fixedincome securities buyin annuity policies calculated replacement policy value basis discounting projected cash flows plan members using discount rate based riskfree rates adjustments estimated levels insurer pricing •net asset value primarily includes equity funds fixed income funds real estate funds hedge funds private equity investments net asset values normally used changes level 3 plan assets recorded comprehensive earningslosses included decrease level 3 pension plan investments 2020 primarily due maturities corporate bond fixed income securities increase level 3 pension plan investments 2019 primarily due additional purchases buyin annuity fixed income securities percentage fair value pension plan assets us plans investment strategy reduce funded status risk part appropriate asset allocation within plan assets attempt maintain target asset allocation rebalancing asset classes make monthly benefit payments strategy involves using indexed us equity international equity securities actively managed us investment grade fixedincome securities constitute 95 fixedincome securities smaller allocations high yield fixedincome securities nonus plans investment strategy subject local regulations assetliability profiles plans individual country aggregate asset allocation targets nonus plans broadly characterized mix approximately 23 equity securities 60 fixedincome securities 12 buyin annuity policies 5 real estate employer contributions 2020 contributed 13 million us pension plans 194 million nonus pension plans addition employees contributed 14 million nonus plans make contributions pension plans accordance local funding arrangements statutory minimum funding requirements discretionary contributions made extent tax deductible generate excise tax liability 2021 estimate pension contributions 8 million us plans 228 million nonus plans based current tax laws actual contributions may different due many factors including changes tax benefit laws significant differences expected actual pension asset performance interest rates future benefit payments estimated future benefit payments pension plans december 31 2020 millions multiemployer pension plans accordance obligations collective bargaining agreements made contributions multiemployer pension plans continuing participation 5 million 2020 5 million 2019 17 million 2018 contributions based contribution rates collective bargaining agreements number eligible employees fund surcharges 2018 executed complete withdrawal bakery confectionery union industry international pension fund recorded 429 million estimated withdrawal liability july 11 2019 received undiscounted withdrawal liability assessment fund totaling 526 million requiring prorata monthly payments 20 years began making monthly payments third quarter 2019 within selling general administrative expenses recorded 35 million 26 million net tax adjustment related discounted withdrawal liability within interest expense net recorded accreted interest 11 million 2020 12 million 2019 6 million 2018 december 31 2020 remaining discounted withdrawal liability 375 million 14 million recorded current liabilities 361 million recorded longterm liabilities costs sponsor contribute employee defined contribution plans cover eligible salaried nonunion union employees contributions costs determined matching employee contributions defined plans amounts charged expense continuing operations defined contribution plans totaled 83 million 2020 72 million 2019 57 million 2018 postretirement benefit plans obligations postretirement health care plans funded changes amount accrued benefit obligation current portion accrued postretirement benefit obligation 16 million december 31 2020 16 million december 31 2019 included current liabilities actuarial gain postretirement plans 2020 driven gains related assumption changes partially offset losses related change discount rate used measure benefit obligations plans postretirement plans 2019 experienced actuarial loss related change discount rate used measure benefit obligations plans used following weightedaverage assumptions determine postretirement benefit obligations yearend discount rates us canadian uk plans developed model portfolio high quality fixedincome debt instruments durations match expected future cash flows benefit obligations yearend discount rates remaining nonus plans developed local bond indices match local benefit obligations closely possible changes discount rates primarily result changes bond yields yearoveryear expected health care cost trend rate based historical costs periods presented measure service interest costs postretirement benefits applying specific spot rates along yield curve used measure plan obligations plans’ liability cash flows believe approach provides good measurement service interest costs aligning timing plans’ liability cash flows corresponding spot rates yield curve components net periodic postretirement health care costs net periodic postretirement health care costs consisted following used following weightedaverage assumptions determine net periodic postretirement health care cost future benefit payments estimated future benefit payments postretirement health care plans december 31 2020 millions costs made contributions multiemployer medical plans totaling 20 million 2020 20 million 2019 19 million 2018 plans provide medical benefits active employees retirees certain collective bargaining agreements postemployment benefit plans obligations postemployment plans funded changes amount accrued benefit obligation december 31 2020 2019 accrued benefit obligation determined using weightedaverage discount rate 43 2020 53 2019 assumed weightedaverage ultimate annual turnover rate 03 2020 2019 assumed compensation cost increases 40 2020 2019 assumed benefits defined respective plans postemployment costs arising actions offer employees benefits excess specified respective plans charged expense incurred components net periodic postemployment costs net periodic postemployment costs consisted following december 31 2020 estimated net gain postemployment benefit plans expect amortize accumulated comprehensive earningslosses net periodic postemployment costs 2021 approximately 3 million note 12 stock plans amended restated 2005 performance incentive plan “plan” authorized may 21 2024 issue maximum 2437 million shares common stock employees nonemployee directors december 31 2020 532 million shares available granted plan stock options stock options including stock appreciation rights granted exercise price equal market value underlying stock grant date generally become exercisable three annual installments beginning first anniversary grant date maximum term ten years account employee stock options fair value method accounting using blackscholes methodology lattice model measure stock option expense date grant fair value stock options date grant amortized expense vesting period recorded compensation expense related stock options held employees 28 million 2020 38 million 2019 43 million 2018 results continuing operations deferred tax benefit recorded related compensation expense 5 million 2020 8 million 2019 7 million 2018 unamortized compensation expense related employee stock options 23 million december 31 2020 expected recognized weightedaverage period 14 years weightedaverage blackscholes lattice model fair value assumptions riskfree interest rate represents constant maturity us government treasuries rate remaining term equal expected life options expected life period employees expected hold options volatility reflects historical movements stock price period commensurate expected life options dividend yield reflects dividend yield place time historical grants stock option activity reflected 1cash received options exercised 236 million 2020 369 million 2019 231 million 2018 actual tax benefit realized recorded provision income taxes tax deductions option exercises totaled 27 million 2020 40 million 2019 21 million 2018 deferred stock units performance share units restricted stock historically made grants deferred stock units performance share units restricted stock beginning 2016 grant deferred stock units performance share units longer grant restricted stock deferred stock units granted eligible employees shareholder rights except may sell assign pledge otherwise encumber shares deferred stock units voting rights vested shares deferred stock units subject forfeiture certain employment conditions met deferred stock units generally vest third anniversary grant date performance share units granted 2005 plan vest based varying performance market service conditions unvested performance share units voting rights pay dividends dividend equivalents accumulated vesting period paid performance share units vest fair value deferred stock units performance share units restricted stock date grant amortized earnings vesting period fair value deferred stock units restricted stock measured market price common stock grant date performance share unit awards generally targets tied performance marketbased conditions market condition components market volatility factors taken consideration determining grant date fair value related compensation expense recognized regardless whether market condition satisfied provided requisite service provided performance condition components estimate probability performance conditions achieved quarter adjust compensation expenses accordingly grant date fair value performance share units determined based monte carlo simulation model marketbased total shareholder return component market price common stock grant date performancebased components number performance share units ultimately vest ranges 0200 percent number granted based achievement performance marketbased components recorded compensation expense related deferred stock units performance share units restricted stock 98 million 2020 97 million 2019 85 million 2018 results continuing operations deferred tax benefit recorded related compensation expense 15 million 2020 16 million 2019 12 million 2018 unamortized compensation expense related deferred stock units performance share units restricted stock 107 million december 31 2020 expected recognized weightedaverage period 17 years performance share unit deferred stock unit restricted stock activity reflected 1includes performance share units deferred stock units 2includes performance share units deferred stock units historically granted restricted stock 3the actual tax benefitexpense realized recorded provision income taxes tax deductions shares vested totaled 5 million 2020 2 million 2019 3 million 2018 4the grant date fair value performance share units determined based monte carlo simulation model marketbased total shareholder return component closing market price company’s stock grant date performancebased components monte carlo simulation model incorporates probability achieving total shareholder return market condition compensation expense recognized using grant date fair values regardless whether market condition achieved long requisite service provided note 13 capital stock amended restated articles incorporation authorize 50 billion shares class common stock “common stock” 500 million shares preferred stock preferred shares issued outstanding december 31 2020 2019 2018 shares common stock issued treasury outstanding stock plan awards employees nonemployee directors issued treasury shares december 31 2020 858 million shares common stock held treasury reserved stock options stock awards share repurchase program 2013 2017 board directors authorized repurchase total 137 billion common stock december 31 2018 january 31 2018 finance committee authorization delegated board directors approved increase 60 billion share repurchase program raising authorization 197 billion common stock repurchases extended program december 31 2020 december 2 2020 board directors approved increase 40 billion share repurchase program raising authorization 237 billion common stock repurchases extended program december 31 2023 repurchases program determined management wholly discretionary prior january 1 2020 repurchased approximately 165 billion common stock pursuant authorization 2020 repurchased approximately 251 million shares common stock average cost 5587 per share aggregate cost approximately 14 billion paid period except approximately 30 million settled january 2021 share repurchases funded available cash commercial paper issuances december 31 2020 approximately 58 billion remaining share repurchase capacity note 14 commitments contingencies legal proceedings routinely involved legal proceedings claims disputes regulatory matters governmental inspections investigations arising ordinary course incidental business including noted section record provisions consolidated financial statements pending litigation determine unfavorable outcome probable amount loss reasonably estimated matters provided reasonably possible result unfavorable outcome management unable estimate possible loss range loss amounts determined immaterial present believe ultimate outcome proceedings individually aggregate materially harm financial position results operations cash flows however legal proceedings government investigations subject inherent uncertainties unfavorable rulings events could occur unfavorable resolutions could involve substantial monetary damages addition matters conduct remedies sought unfavorable resolutions could include injunction order prohibiting us selling one products particular ways precluding particular business practices requiring remedies unfavorable outcome might result material adverse impact business results operations financial position april 1 2015 us commodity futures trading commission cftc filed complaint kraft foods group mondelēz global llc “mondelēz global” us district court northern district illinois district court eastern division “cftc action” following investigation activities related trading december 2011 wheat futures contracts occurred prior spinoff kraft foods group complaint alleges kraft foods group mondelēz global 1 manipulated attempted manipulate wheat markets fall 2011 2 violated position limit levels wheat futures 3 engaged noncompetitive trades trading sides exchangeforphysical chicago board trade wheat contracts cftc seeks civil monetary penalties either triple monetary gain violation commodity exchange act “act” 1 million violation section 6c1 6c3 9a2 act 140000 additional violation act plus postjudgment interest order permanent injunction prohibiting kraft foods group mondelēz global violating specified provisions act disgorgement profits costs fees august 15 2019 district court approved settlement agreement cftc mondelēz global terms settlement available district court’s docket immaterial impact financial position results operations cash flows october 23 2019 following ruling united states court appeals seventh circuit regarding mondelēz globals allegations cftc commissioners violated certain terms settlement agreement cftcs argument commissioners bound terms settlement agreement district court vacated settlement agreement reinstated pending motions district court previously mooted result settlement parties reached new agreement principle resolve cftc action submitted settlement district court approval district court cancelled scheduled conference june 4 2020 discuss proposed settlement agreement indicated would rule pending motions due course additionally several class action complaints filed kraft foods group mondelēz global district court investors wheat futures options behalf others similarly situated complaints make similar allegations made cftc action plaintiffs seeking class action certification monetary damages interest unjust enrichment costs fees injunctive declaratory unspecified relief june 2015 suits consolidated district court january 3 2020 district court granted plantiffs request certify class possible predict outcome matters however based separation distribution agreement kraft foods group dated september 27 2012 expect bear monetary penalties payments connection cftc action class action although cftc action class action complaints involve alleged conduct resolution decision respect one matters may dispositive outcome matter november 2019 european commission informed us initiated investigation alleged infringement european union competition law certain practices restricting crossborder trade within european economic area january 28 2021 european commission announced taken next procedural step investigation opened formal proceedings cooperating investigation expect engage european commission investigation proceeds possible predict long investigation take ultimate outcome matter thirdparty guarantees enter thirdparty guarantees primarily cover longterm obligations vendors part transactions guarantee third parties make contractual payments achieve performance measures december 31 2020 material thirdparty guarantees recorded consolidated balance sheet tax matters party various tax matter proceedings incidental business proceedings subject inherent uncertainties unfavorable outcomes could subject us additional tax liabilities could materially adversely impact business results operations financial position fourth quarter 2019 resolved several indirect tax matters recorded 85 million net indirect tax expenses within selling general administrative expenses tax indemnification matter related 2007 acquisition lu biscuit business closed quarter ended june 30 2018 closure impact net earnings however result 15 million tax benefit fully offset 11 million expense selling general administrative expenses 4 million expense interest expense net note 15 reclassifications accumulated comprehensive income following table summarizes changes accumulated balances component accumulated comprehensive earningslosses attributable mondelēz international amounts reclassified accumulated comprehensive earningslosses net earnings net tax net losses 285 million 2020 279 million 2019 169 million 2018 1includes equity method investment transactions recorded within gainloss equity method investment transactions 2these reclassified losses included net periodic benefit costs disclosed note 11 benefit plans 3taxes reclassified earnings recorded within provision income taxes 4these reclassified losses recorded within interest expense net note 16 income taxes august 6 2019 switzerland published changes federal tax law official federal collection laws september 27 2019 zurich canton published decision september 1 2019 zurich canton public vote regarding cantonal changes associated swiss federal tax law change intent tax law changes replace certain preferential tax regimes new set internationally accepted measures hereafter referred swiss tax reform based federalcantonal events position enactment swiss tax reform us gaap purposes met september 30 2019 recorded impacts third quarter 2019 net impact benefit 767 million consisted 769 million reduction deferred tax expense allowed stepup intangible assets tax purposes recorded net valuation allowance remeasurement deferred tax balances partially offset 2 million indirect tax impact selling general administrative expenses ongoing impacts swiss tax reform law changes became effective january 1 2020 continue monitor interpretative guidance swiss tax reform could result changes amounts recorded december 22 2017 us tax reform legislation us tax reform enacted included broad range complex provisions impacting taxation businesses finalized accounting new provisions fourth quarter 2018 us tax reform resulted total transition tax liability 13 billion based deemed repatriation accumulated foreign earnings profits paid installments 2026 earningslosses continuing operations income taxes provision income taxes consisted effective income tax rate pretax earnings differed us federal statutory rate follows 1the tax cuts jobs act 2017 tcja established global intangible lowtax income gilti provision taxes us allocated expenses certain income foreign operations foreignderived intangible income fdii provision allows deduction certain types us taxable income resulting lower effective us tax rate income base erosion antiabuse tax beat minimum tax based crossborder service payments us entities 2020 effective tax rate 362 high due 452 million net tax expense incurred connection jde peets transaction four kdp share sales occurred 2020 related gains reported gains equity method investments excluding impacts effective tax rate 228 reflects unfavorable provisions us tax reform taxes earnings equity method investments earnings reported separately consolidated statements earnings within earnings income taxes largely offset favorable impacts mix pretax income various nonus jurisdictions discrete net tax benefits 119 million discrete net benefits primarily driven 70 million net benefit release china valuation allowance 50 million net benefit release liabilities uncertain tax positions due expirations statutes limitations audit settlements several jurisdictions 2019 effective tax rate 01 significantly impacted 769 million net deferred tax benefit related swiss tax reform third quarter 2019 excluding impact 2019 effective tax rate 224 reflects unfavorable provisions us tax reform taxes earnings equity method investments earnings reported separately consolidated statements earnings within earnings income taxes largely offset favorable impacts mix pretax income various nonus jurisdictions discrete net tax benefits 176 million discrete net tax benefits primarily driven 128 million net benefit release liabilities uncertain tax positions due expirations statutes limitations audit settlements several jurisdictions 2018 effective tax rate 272 unfavorably impacted net tax expenses 128 million discrete onetime events well unfavorable provisions within us tax reform legislation taxes earnings equity method investments earnings reported separately consolidated statements earnings within earnings income taxes partially offset favorable mix pretax income various nonus tax jurisdictions discrete net tax expenses included 192 million deferred tax expense related 778 million gain kdp transaction reported gain equity method investment well 19 million expense final updates provisional impacts us tax reform reported 2017 yearend partially offset 81 million benefit favorable audit settlements statutes limitations various jurisdictions tax effects temporary differences gave rise deferred income tax assets liabilities consisted significant valuation allowances us switzerland us valuation allowance relates excess foreign tax credits generated deemed repatriation us tax reform swiss valuation allowance brings allowed stepup intangible assets recorded swiss tax reform amount likely realized december 31 2020 company pretax loss carryforwards 3293 million 332 million expire various dates 2021 2040 remaining 2961 million carried forward indefinitely unremitted earnings december 31 2020 subsidiaries continue indefinitely reinvested approximately 16 billion currently recognized approximately 73 million deferred tax liabilities related unremitted earnings future tax law changes needs nonus subsidiaries could require us recognize deferred tax liabilities portion accumulated earnings currently indefinitely reinvested changes unrecognized tax benefits january 1 2020 unrecognized tax benefits 426 million recognized benefits net impact income tax provision would 364 million unrecognized tax benefits 442 million december 31 2020 recognized benefits net impact income tax provision would 369 million within next 12 months unrecognized tax benefits could increase approximately 30 million due unfavorable audit developments decrease approximately 70 million due audit settlements expiration statutes limitations various jurisdictions include accrued interest penalties related uncertain tax positions tax provision accrued interest penalties 170 million january 1 2020 170 million december 31 2020 provision income taxes included 11 million expense interest penalties income tax filings regularly examined federal state nonus tax authorities us federal state nonus jurisdictions statutes limitations generally ranging three five years however statutes often extended mutual agreement tax authorities earliest year still open examination us federal state tax authorities 2016 years still open examination nonus tax authorities major jurisdictions include earliest open tax year parentheses china 2010 france 2015 india 2005 united kingdom 2015 switzerland 2014 note 17 earnings per share basic diluted earnings per share “eps” calculated follows exclude antidilutive mondelēz international stock options calculation weightedaverage shares diluted eps excluded antidilutive stock options longterm incentive plan shares 36 million year ended december 31 2020 52 million year ended december 31 2019 116 million year ended december 31 2018 note 18 segment reporting manufacture market primarily snack food products including biscuits cookies crackers salted snacks chocolate gum candy various cheese grocery products well powdered beverage products manage global business report operating results geographic units manage operations region leverage regional operating scale manage different changing business environments effectively pursue growth opportunities arise across key markets regional management teams responsibility business product categories financial results regions operations management structure organized four operating segments •latin america •amea •europe •north america use segment operating income evaluate segment performance allocate resources believe appropriate disclose measure help investors analyze segment performance trends segment operating income excludes unrealized gains losses hedging activities component cost sales general corporate expenses component selling general administrative expenses amortization intangible assets gains losses divestitures acquisitionrelated costs component selling general administrative expenses periods presented exclude items segment operating income order provide better transparency segment operating results furthermore centrally manage benefit plan nonservice income interest expense net accordingly present items segment excluded segment profitability measure management reviews segment net revenues earnings reflecting current segment structure periods presented single customer accounted 10 net revenues continuing operations 2020 five largest customers accounted 175 ten largest customers accounted 240 net revenues continuing operations 2020 items impacting segment operating results discussed note 1 summary significant accounting policies note 2 acquisitions divestitures note 4 property plant equipment note 6 goodwill intangible assets note 8 restructuring program note 14 commitments contingencies also see note 9 debt borrowing arrangements note 10 financial instruments information interest expense net period total assets depreciation expense capital expenditures segment reflecting current segment structure periods presented 1segment assets reflect outstanding intercompany asset balances intercompany accounts eliminated segment level 2unallocated assets consist primarily cash equivalents deferred income taxes centrally held property plant equipment prepaid pension assets derivative financial instrument balances final adjustments jurisdictional netting deferred tax assets liabilities done consolidated level 1includes depreciation expense related owned property plant equipment include amortization intangible assets leased assets refer consolidated statement cash flows 2020 total depreciation amortization expenses geographic data net revenues recognized countries products sold longlived assets excluding deferred taxes goodwill intangible assets equity method investments individual country within exceeded 10 net revenues longlived assets periods presented net revenues product category reflecting current segment structure periods presented note 19 quarterly financial data unaudited summarized operating results quarter detailed 1during second quarter 2020 changed reporting jde peets earnings quarter lag basis recast prior periods presented basis please see note 7 equity method investments information 2the third quarter 2019 significantly impacted 769 million net deferred tax benefit related swiss tax reform refer note 16 income taxes information basic diluted eps computed independently periods presented accordingly sum quarterly eps amounts may equal total year 2020 2019 recorded following pretax chargesbenefits earnings continuing operations items impacting operating results discussed note 1 summary significant accounting policies note 2 acquisitions divestitures note 6 goodwill intangible assets note 7 equity method investments note 8 restructuring program note 9 debt borrowing arrangements note 10 financial instruments note 11 benefit plans note 14 commitments contingencies tax matters item 9item 8 financial statements supplementary data information called item hereby incorporated reference 2001 annual report set forth caption quarterly financial data unaudited page 55 index consolidated financial statements schedules see item 14 made part hereof item 9 item 15 exhibits financial statement schedules reports form 8k signaturesitem 15 exhibits financial statement schedules reports form 8k aindex consolidated financial statements schedules listed omitted either schedules required applicable breports form 8k last quarter 2003 company furnished sec current report form 8k october 15 2003 covering item 7 financial statements exhibits item 12 results operations financial condition contained companys earnings release dated october 15 2003 subsequent december 31 2003 company furnished sec current report form 8k january 27 2004 covering item 7 financial statements exhibits item 12 results operations financial condition contained companys earnings release dated january 27 2004 ii filed current report form 8k january 28 2004 covering item 5 events item 7 financial statements exhibits contained companys consolidated financial statements year ended december 31 2003 cthe following exhibits filed part report exhibit nos 1041013 management contracts compensatory plans arrangements 31 articles incorporation registrant1 32 articles amendment articles incorporation registrant1 33 registrants amended restated bylaws 41 indenture registrant jpmorgan chase bank trustee dated october 17 20012 42 registrant agrees furnish copies instruments defining rights holders longterm debt registrant consolidated subsidiaries exceed 10 percent total assets registrant consolidated subsidiaries commission upon request 101 corporate agreement altria group inc registrant3 102 services agreement altria corporate services inc registrant including exhibits4 103 taxsharing agreement altria group inc registrant5 104 2001 kraft foods inc performance incentive plan3 105 2001 kraft foods inc compensation plan nonemployee directors amended6 106 form employment agreement entered altria group inc betsy holden roger k deromedi5 107 kraft foods inc supplemental benefits plan including first amendment adding supplement a5 108 kraft foods inc supplemental benefits plan ii5 109 form employee grantor trust enrollment agreement711 1010 altria group inc 1992 incentive compensation stock option plan811 1011 altria group inc 1997 performance incentive plan911 1012 altria group inc 2000 performance incentive plan1011 1013 2001 kraft foods inc compensation plan nonemployee directors deferred compensation12 1014 fiveyear revolving credit agreement dated july 24 20016 1015 364 day revolving credit agreement dated july 14 200313 1016 letter agreement betsy holden 1017 description agreement roger k deromedi statements computation ratios14 pages 2360 2003 annual report extent set forth items 1 57 7a 8 15 hereof exception aforementioned information incorporated reference annual report form 10k 2003 annual report deemed filed part report subsidiaries registrant consent pricewaterhousecoopers llp independent accountants powers attorney 311 certification registrants chief executive officer pursuant rule 13a14a15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 312 certification registrants chief financial officer pursuant rule 13a14a15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 321 certification registrants chief executive officer pursuant 18 usc 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification registrants chief financial officer pursuant 18 usc 1350 adopted pursuant section 906 sarbanesoxley act 2002 1incorporated reference registrants form s1 filed securities exchange commission march 16 2001 33357162 2incorporated reference registrants form s3 filed securities exchange commission august 16 2001 33367770 3incorporated reference registrants amendment 5 form s1 filed securities exchange commission june 8 2001 33357162 4incorporated reference registrants amendment 2 form s1 filed securities exchange commission may 11 2001 33357162 5incorporated reference registrants amendment 1 form s1 filed securities exchange commission may 2 2001 33357162 6incorporated reference registrants quarterly report form 10q quarter ended march 31 2003 7incorporated reference annual report form 10k altria group inc year ended december 31 1995 sec file 18940 8incorporated reference annual report form 10k altria group inc year ended december 31 1997 sec file 18940 9incorporated reference proxy statement altria group inc dated march 10 1997 sec file 18940 10incorporated reference proxy statement altria group inc dated march 10 2000 sec file 18940 11compensation plans maintained altria group inc subsidiaries officers registrant historically participated 12incorporated reference registrants annual report form 10k year ended december 31 2001 13incorporated reference registrants quarterly report form 10q quarter ended june 30 2003 14incorporated reference registrants current report form 8k filed securities exchange commission january 28 2004 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated signature title date roger k deromedi roger k deromedi director chief executive officer march 12 2004 james p dollive james p dollive executive vice president chief financial officer march 12 2004 john f mowrer iii john f mowrer iii senior vice president controller march 12 2004 louis c camilleri dinyar devitre w james farrell betsy holden john c pope mary l schapiro charles r wall deborah c wright directors james p dollive james p dollive attorneyinfact march 12 2004 report independent auditors financial statement schedule board directors shareholders kraft foods inc audits consolidated financial statements referred report dated january 23 2004 appearing 2003 annual report shareholders kraft foods inc report consolidated financial statements incorporated reference annual report form 10k also included audit financial statement schedule listed item 15a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois january 23 2004 s1 kraft foods inc subsidiaries valuation qualifying accounts years ended december 31 2003 2002 2001 millions notes aprimarily related divestitures acquisitions currency translation brepresents charges allowances created s2 part item 1 business item 2 properties item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity related stockholder matters item 6 selected financial data item 7 managements discussion analysis financial condition results operations item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data item 9 changes disagreements auditors accounting financial disclosure item 9a controls procedures part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management related stockholder matters item 13 certain relationships related transactions item 14 principal accounting fees services part iv item 15 exhibits financial statement schedules reports form 8k signaturesitem 15 exhibits financial statement schedules aindex consolidated financial statements schedules listed omitted either schedules required applicable bthe following exhibits filed part report exhibit nos 104 1013 1016 1017 1022 management contracts compensatory plans arrangements 31 articles incorporation registrant1 32 articles amendment articles incorporation registrant1 33 registrants amended restated bylaws 2 41 indenture registrant jpmorgan chase bank trustee dated october 17 20013 42 registrant agrees furnish copies instruments defining rights holders longterm debt registrant consolidated subsidiaries exceed 10 percent total assets registrant consolidated subsidiaries commission upon request 101 corporate agreement altria group inc registrant4 102 services agreement altria corporate services inc registrant including exhibits5 103 taxsharing agreement altria group inc registrant6 104 2001 kraft foods inc performance incentive plan4 105 2001 kraft foods inc compensation plan nonemployee directors amended7 106 form employment agreement entered altria group inc betsy holden roger k deromedi6 107 kraft foods inc supplemental benefits plan including first amendment adding supplement a6 108 kraft foods inc supplemental benefits plan ii6 109 form employee grantor trust enrollment agreement 812 1010 altria group inc 1992 incentive compensation stock option plan 912 1011 altria group inc 1997 performance incentive plan 1012 altria group inc 2000 performance incentive plan 1112 1013 2001 kraft foods inc compensation plan nonemployee directors deferred compensation13 1014 fiveyear revolving credit agreement dated july 24 20017 1015 364 day revolving credit agreement dated july 13 200414 1016 letter agreement betsy holden 15 1017 description agreement roger k deromedi 15 1018 preowned aircraft purchase sales agreements altria corporate services inc kraft foods aviation llc 16 1019 assignment consent among gulfstream aerospace corporation altria corporate services inc kraft foods aviation llc 17 1020 aircraft management agreement kraft foods global inc altria corporate services inc 18 1021 assignment consent assignment among gulfstream aerospace corporation altria corporate services inc kraft foods aviation llc 19 1022 form restricted stock agreement 20 statements computation ratios 21 subsidiaries registrant consent pricewaterhousecoopers llp independent registered public accounting firm powers attorney 311 certification registrants chief executive officer pursuant rule 13a14a15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 312 certification registrants chief financial officer pursuant rule 13a14a15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 321 certification registrants chief executive officer pursuant 18 usc 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification registrants chief financial officer pursuant 18 usc 1350 adopted pursuant section 906 sarbanesoxley act 2002 1incorporated reference registrants form s1 filed securities exchange commission march 16 2001 sec file 33357162 2incorporated reference registrants form 8k filed securities exchange commission december 8 2004 sec file 116483 3incorporated reference registrants form s3 filed securities exchange commission august 16 2001 sec file 33367770 4incorporated reference registrants amendment 5 form s1 filed securities exchange commission june 8 2001 sec file 33357162 5incorporated reference registrants amendment 2 form s1 filed securities exchange commission may 11 2001 sec file 33357162 6incorporated reference registrants amendment 1 form s1 filed securities exchange commission may 2 2001 sec file 33357162 7incorporated reference registrants quarterly report form 10q quarter ended march 31 2003 sec file 116483 8incorporated reference annual report form 10k altria group inc year ended december 31 1995 sec file 18940 9incorporated reference annual report form 10k altria group inc year ended december 31 1997 sec file 18940 10incorporated reference proxy statement altria group inc dated march 10 1997 sec file 18940 11incorporated reference proxy statement altria group inc dated march 10 2000 sec file 18940 12compensation plans maintained altria group inc subsidiaries officers registrant historically participated 13incorporated reference registrants annual report form 10k year ended december 31 2001 sec file 116483 14incorporated reference registrants quarterly report form 10q quarter ended june 30 2004 sec file 116483 15incorporated reference registrants annual report form 10k year ended december 31 2003 sec file 116483 16incorporated reference registrants form 8k filed securities exchange commission december 20 2004 sec file 116483 17incorporated reference registrants form 8k filed securities exchange commission december 22 2004 sec file 116483 18incorporated reference registrants form 8k filed securities exchange commission january 4 2005 sec file 116483 19incorporated reference registrants form 8k filed securities exchange commission january 26 2005 sec file 116483 20incorporated reference registrants form 8k filed securities exchange commission january 28 2005 sec file 116483 21incorporated reference registrants current report form 8k filed securities exchange commission february 2 2005 sec file 116483 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated signature title date roger k deromedi roger k deromedi director chief executive officer march 11 2005 james p dollive james p dollive executive vice president chief financial officer march 11 2005 david brearton david brearton senior vice president business process simplification corporate controller march 11 2005 jan bennink louis c camilleri dinyar devitre w james farrell betsy holden richard lerner john c pope mary l schapiro charles r wall deborah c wright directors james p dollive james p dollive attorneyinfact march 11 2005 report independent registered public accounting firm financial statement schedule board directors shareholders kraft foods inc audits consolidated financial statements managements assessment companys internal control financial reporting effectiveness companys internal control financial reporting referred report dated february 2 2005 appearing annual report form 10k also included audit financial statement schedule listed item 15a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois february 2 2005 s1 kraft foods inc subsidiaries valuation qualifying accounts years ended december 31 2004 2003 2002 millions notes aprimarily related divestitures acquisitions currency translation brepresents charges allowances created s2 part item 1 business item 2 properties item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity related stockholder matters issuer purchases equity securities item 6 selected financial data item 7 managements discussion analysis financial condition results operation item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures item 9b information part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management item 13 certain relationships related transactions item 14 principal accounting fees services part iv item 15 exhibits financial statement schedules signatures report independent registered public accounting firm financial statement schedule kraft foods inc subsidiaries valuation qualifying accounts years ended december 31 2004 2003 2002 millionsitem 15 exhibits financial statement schedules index consolidated financial statements schedules listed omitted either schedules required applicable bthe following exhibits filed part report exhibit nos 104 1013 1016 1017 1022 1023 1024 management contracts compensatory plans arrangements 31 articles incorporation registrant1 32 articles amendment articles incorporation registrant1 33 registrants amended restated bylaws2 41 indenture registrant jpmorgan chase bank trustee dated october 17 20013 42 registrant agrees furnish copies instruments defining rights holders longterm debt registrant consolidated subsidiaries exceed 10 percent total assets registrant consolidated subsidiaries commission upon request 101 corporate agreement altria group inc registrant4 102 services agreement altria corporate services inc registrant including exhibits5 103 taxsharing agreement altria group inc registrant6 104 2001 kraft foods inc performance incentive plan4 105 kraft foods inc 2005 performance incentive plan21 106 2001 kraft foods inc compensation plan nonemployee directors amended7 107 form employment agreement entered altria group inc roger k deromedi6 108 kraft foods inc supplemental benefits plan including first amendment adding supplement a6 109 kraft foods inc supplemental benefits plan ii6 1010 form employee grantor trust enrollment agreement812 1011 altria group inc 1992 incentive compensation stock option plan912 1012 altria group inc 1997 performance incentive plan1012 1013 altria group inc 2000 performance incentive plan1112 1014 2001 kraft foods inc compensation plan nonemployee directors deferred compensation13 1015 description agreement roger k deromedi14 1016 preowned aircraft purchase sales agreements altria corporate services inc kraft foods aviation llc15 1017 assignment consent among gulfstream aerospace corporation altria corporate services inc kraft foods aviation llc16 1018 aircraft management agreement kraft foods global inc altria corporate services inc17 1019 assignment consent assignment among gulfstream aerospace corporation altria corporate services inc kraft foods aviation llc18 1020 form restricted stock agreement19 1021 45 billion 5year revolving credit agreement dated april 15 200522 1022 purchase sale agreement kraft foods global inc altria corporate services inc23 1023 amended restated aircraft management agreement kraft foods global inc altria corporate services inc23 1024 environmental agreement kraft foods global inc altria corporate services inc23 statements computation ratios20 subsidiaries registrant consent pricewaterhousecoopers llp independent registered public accounting firm powers attorney 311 certification registrants chief executive officer pursuant rule 13a14a15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 312 certification registrants chief financial officer pursuant rule 13a14a15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 321 certification registrants chief executive officer pursuant 18 usc 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification registrants chief financial officer pursuant 18 usc 1350 adopted pursuant section 906 sarbanesoxley act 2002 1incorporated reference registrants form s1 filed securities exchange commission march 16 2001 sec file 33357162 2incorporated reference registrants form 8k filed securities exchange commission december 8 2004 sec file 116483 3incorporated reference registrants form s3 filed securities exchange commission august 16 2001 sec file 33367770 4incorporated reference registrants amendment 5 form s1 filed securities exchange commission june 8 2001 sec file 33357162 5incorporated reference registrants amendment 2 form s1 filed securities exchange commission may 11 2001 sec file 33357162 6incorporated reference registrants amendment 1 form s1 filed securities exchange commission may 2 2001 sec file 33357162 7incorporated reference registrants quarterly report form 10q quarter ended march 31 2003 sec file 116483 8incorporated reference annual report form 10k altria group inc year ended december 31 1995 sec file 18940 9incorporated reference annual report form 10k altria group inc year ended december 31 1997 sec file 18940 10incorporated reference proxy statement altria group inc dated march 10 1997 sec file 18940 11incorporated reference proxy statement altria group inc dated march 10 2000 sec file 18940 12compensation plans maintained altria group inc subsidiaries officers registrant historically participated 13incorporated reference registrants annual report form 10k year ended december 31 2001 sec file 116483 14incorporated reference registrants annual report form 10k year ended december 31 2003 sec file 116483 15incorporated reference registrants form 8k filed securities exchange commission december 20 2004 sec file 116483 16incorporated reference registrants form 8k filed securities exchange commission december 22 2004 sec file 116483 17incorporated reference registrants form 8k filed securities exchange commission january 4 2005 sec file 116483 18incorporated reference registrants form 8k filed securities exchange commission january 26 2005 sec file 116483 19incorporated reference registrants form 8k filed securities exchange commission january 28 2005 sec file 116483 20incorporated reference registrants current report form 8k filed securities exchange commission february 7 2006 sec file 116483 21incorporated reference registrants definitive proxy statement 2005 annual meeting stockholders filed commission march 4 2005 sec file 116483 22incorporated reference registrants current report form 8k filed securities exchange commission april 21 2005 sec file 116483 23incorporated reference registrants current report form 8k filed securities exchange commission december 19 2005 sec file 116483 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated signature title date roger k deromedi roger k deromedi director chief executive officer march 10 2006 james p dollive james p dollive executive vice president chief financial officer march 10 2006 david brearton david brearton senior vice president business process simplification corporate controller march 10 2006 jan bennink louis c camilleri dinyar devitre w james farrell richard lerner md john c pope mary l schapiro charles r wall deborah c wright directors james p dollive james p dollive attorneyinfact march 10 2006 report independent registered public accounting firm financial statement schedule board directors shareholders kraft foods inc audits consolidated financial statements managements assessment effectiveness internal control financial reporting effectiveness internal control financial reporting referred report dated february 7 2006 appearing annual report form 10k kraft foods inc also included audit financial statement schedule listed item 15a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois february 7 2006 s1 kraft foods inc subsidiaries valuation qualifying accounts years ended december 31 2005 2004 2003 millions notes aprimarily related divestitures acquisitions currency translation brepresents charges allowances created s2 part item 1 business item 1a risk factors item 1b unresolved staff comments item 2 properties item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity related stockholder matters issuer purchases equity securities item 6 selected financial data item 7 managements discussion analysis financial condition results operation item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures item 9b information part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management related stockholder matters item 13 certain relationships related transactions part iv item 15 exhibits financial statement schedules signatures report independent registered public accounting firm financial statement schedule kraft foods inc subsidiaries valuation qualifying accounts years ended december 31 2005 2004 2003 millionsitem 15 exhibits financial statement schedules index consolidated financial statements schedules listed omitted either schedules required applicable bthe following exhibits filed part report exhibit nos 104 1013 1016 1017 1022 1023 1024 management contracts compensatory plans arrangements 31 articles incorporation registrant1 32 articles amendment articles incorporation registrant1 33 registrants amended restated bylaws2 41 indenture registrant jpmorgan chase bank trustee dated october 17 20013 42 registrant agrees furnish copies instruments defining rights holders longterm debt registrant consolidated subsidiaries exceed 10 percent total assets registrant consolidated subsidiaries commission upon request 101 corporate agreement altria group inc registrant4 102 services agreement altria corporate services inc registrant including exhibits5 103 taxsharing agreement altria group inc registrant6 104 2001 kraft foods inc performance incentive plan4 105 kraft foods inc 2005 performance incentive plan19 106 2001 kraft foods inc compensation plan nonemployee directors amended7 107 kraft foods inc supplemental benefits plan including first amendment adding supplement a6 108 kraft foods inc supplemental benefits plan ii6 109 form employee grantor trust enrollment agreement812 1010 altria group inc 1992 incentive compensation stock option plan912 1011 altria group inc 1997 performance incentive plan1012 1012 altria group inc 2000 performance incentive plan1112 1013 2001 kraft foods inc compensation plan nonemployee directors deferred compensation13 1014 preowned aircraft purchase sales agreements altria corporate services inc kraft foods aviation llc14 1015 assignment consent among gulfstream aerospace corporation altria corporate services inc kraft foods aviation llc15 1016 assignment consent assignment among gulfstream aerospace corporation altria corporate services inc kraft foods aviation llc16 1017 form restricted stock agreement17 1018 45 billion 5year revolving credit agreement dated april 15 200520 1019 purchase sale agreement kraft foods global inc altria corporate services inc21 1020 environmental agreement kraft foods global inc altria corporate services inc21 1021 2006 stock compensation plan nonemployee directors22 1022 form restricted stock award letter23 1023 master professional services agreement kraft foods global inc electronic data systems services corporation dated april 27 200624 1024 purchase sale agreement altria corporate services inc kraft foods global inc25 1025 assignment assumption lease among altria corporate services inc kraft foods global inc 410 century associates lp25 1026 bill sale altria corporate services inc kraft foods global inc25 1027 offer employment letter kraft foods inc irene b rosenfeld entered june 24 200624 1028 agreement relating united biscuits southern europe dated july 8 200626 1029 separation agreement general release kraft foods inc roger k deromedi dated august 31 200627 1030 credit agreement relating eur 440000000 364day term loan facility among sheffield investments sl ubs limited citibank international plc dated august 25 200628 1031 guaranty kraft foods inc citibank international plc dated august 25 200628 1032 separation agreement general release kraft foods inc david johnson dated october 19 200629 1033 distribution agreement altria group inc kraft foods inc dated january 31 200730 1034 form restricted stock agreement31 statements computation ratios18 subsidiaries registrant consent pricewaterhousecoopers llp independent registered public accounting firm powers attorney 311 certification registrants chief executive officer pursuant rule 13a14a15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 312 certification registrants chief financial officer pursuant rule 13a14a15d14a securities exchange act 1934 amended adopted pursuant section 302 sarbanesoxley act 2002 321 certification registrants chief executive officer pursuant 18 usc 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification registrants chief financial officer pursuant 18 usc 1350 adopted pursuant section 906 sarbanesoxley act 2002 1incorporated reference registrants form s1 filed securities exchange commission march 16 2001 2incorporated reference registrants form 8k filed securities exchange commission december 8 2004 3incorporated reference registrants form s3 filed securities exchange commission august 16 2001 4incorporated reference registrants amendment 5 form s1 filed securities exchange commission june 8 2001 5incorporated reference registrants amendment 2 form s1 filed securities exchange commission may 11 2001 6incorporated reference registrants amendment 1 form s1 filed securities exchange commission may 2 2001 7incorporated reference registrants quarterly report form 10q quarter ended march 31 2003 8incorporated reference annual report form 10k altria group inc year ended december 31 1995 9incorporated reference annual report form 10k altria group inc year ended december 31 1997 10incorporated reference proxy statement altria group inc dated march 10 1997 11incorporated reference proxy statement altria group inc dated march 10 2000 12compensation plans maintained altria group inc subsidiaries officers registrant historically participated 13incorporated reference registrants annual report form 10k year ended december 31 2001 14incorporated reference registrants form 8k filed securities exchange commission december 20 2004 15incorporated reference registrants form 8k filed securities exchange commission december 22 2004 16incorporated reference registrants form 8k filed securities exchange commission january 26 2005 17incorporated reference registrants form 8k filed securities exchange commission january 28 2005 18incorporated reference registrants current report form 8k filed securities exchange commission february 7 2006 19incorporated reference registrants definitive proxy statement 2005 annual meeting stockholders filed commission march 4 2005 20incorporated reference registrants current report form 8k filed securities exchange commission april 21 2005 21incorporated reference registrants current report form 8k filed securities exchange commission december 19 2005 22incorporated reference exhibit e registrants definitive proxy statement dated march 10 2006 23incorporated reference registrants current report form 8k filed securities exchange commission april 26 2006 24incorporated reference registrants quarterly report form 10q quarter ended june 30 2006 25incorporated reference registrants current report form 8k filed securities exchange commission may 24 2006 26incorporated reference registrants current report form 8k filed securities exchange commission july 13 2006 27incorporated reference registrants current report form 8k filed securities exchange commission september 6 2006 28incorporated reference registrants current report form 8k filed securities exchange commission september 11 2006 29incorporated reference registrants current report form 8k filed securities exchange commission october 24 2006 30incorporated reference registrants current report form 8k filed securities exchange commission january 31 2007 31incorporated reference registrants current report form 8k filed securities exchange commission february 1 2007 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized kraft foods inc james p dollive james p dollive executive vice president chief financial officer date march 1 2007 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated signature title date irene b rosenfeld irene b rosenfeld director chief executive officer march 1 2007 james p dollive james p dollive executive vice president chief financial officer march 1 2007 pamela e king pamela e king senior vice president corporate controller march 1 2007 ajay banga jan bennink louis c camilleri dinyar devitre richard lerner md john c pope mary schapiro charles r wall deborah c wright directors james p dollive james p dollive attorneyinfact march 1 2007 report independent registered public accounting firm financial statement schedule board directors shareholders kraft foods inc audits consolidated financial statements managements assessment effectiveness internal control financial reporting effectiveness internal control financial reporting referred report dated february 5 2007 appearing annual report form 10k kraft foods inc also included audit financial statement schedule listed item 15a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois february 5 2007 s1 kraft foods inc subsidiaries valuation qualifying accounts years ended december 31 2006 2005 2004 millions notes aprimarily related divestitures acquisitions currency translation brepresents charges allowances created s2 part item 1 business distribution competition raw materials regulation acquisitions divestitures matters item 1a risk factors item 1b unresolved staff comments item 2 properties item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity related stockholder matters issuer purchases equity securities comparison fiveyear cumulative total return item 6 selected financial data item 7 managements discussion analysis financial condition results operation item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data report management internal control financial reporting report independent registered public accounting firm kraft foods inc subsidiaries consolidated balance sheets december 31 millions dollars kraft foods inc subsidiaries consolidated statements earnings years ended december 31 millions dollars except per share data kraft foods inc subsidiaries notes consolidated financial statements item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures item 9b information part iii item 10 directors executive officers corporate governance item 11 executive compensation item 12 security ownership certain beneficial owners management related stockholder matters item 13 certain relationships related transactions director independence item 14 principal accounting fees services part iv item 15 exhibits financial statement schedules signatures report independent registered public accounting firm financial statement schedule kraft foods inc subsidiaries valuation qualifying accounts years ended december 31 2006 2005 2004 millionsitem 15 exhibits financial statement schedules index consolidated financial statements schedules page consolidated statements earnings years ended december 31 2007 2006 2005 consolidated balance sheets december 31 2007 2006 consolidated statements shareholders’ equity years ended december 31 2007 2006 2005 consolidated statements cash flows years ended december 31 2007 2006 2005 notes consolidated financial statements report management internal control financial reporting report independent registered public accounting firm report independent registered public accounting firm financial statement schedule s1 financial statement schedule valuation qualifying accounts s2 schedules listed omitted either schedules required applicable b following exhibits filed part incorporated reference annual report pursuant request confidential treatment portions exhibit redacted publicly filed document furnished separately sec required rule 24b2 securities exchange act 1934 amended indicates management contract compensatory plan arrangement 1 incorporated reference registrant’s form 8k filed securities exchange commission november 20 2007 2 incorporated reference registrant’s quarterly report form 10q quarter ended september 30 2007 3 incorporated reference registrant’s form s1 filed securities exchange commission march 16 2001 4 incorporated reference registrant’s amendment 5 form s1 filed securities exchange commission june 8 2001 5 incorporated reference registrant’s form 8k filed securities exchange commission november 7 2007 6 incorporated reference registrant’s form 8k filed securities exchange commission april 21 2005 7 incorporated reference registrant’s quarterly report form 10q quarter ended june 30 2006 8 incorporated reference registrant’s form 8k filed securities exchange commission march 30 2007 9 incorporated reference registrant’s quarterly report form 10q quarter ended june 30 2007 10 incorporated reference registrant’s amendment 1 form s1 filed securities exchange commission may 2 2001 11 incorporated reference annual report form 10k altria group inc year ended december 31 1995 12 incorporated reference exhibit e registrant’s definitive proxy statement dated march 10 2006 13 incorporated reference registrant’s current report form 8ka filed securities exchange commission november 20 2007 signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized kraft foods inc timothy r mclevish timothy r mclevish executive vice president chief financial officer date february 25 2008 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated report independent registered public accounting firm financial statement schedule board directors shareholders kraft foods inc audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 22 2008 appearing annual report form 10k kraft foods inc also included audit financial statement schedule listed item 15a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois february 22 2008 s1 kraft foods inc subsidiaries valuation qualifying accounts years ended december 31 2007 2006 2005 millions notes primarily related divestitures acquisitions currency translation b represents charges allowances created s2item 15 exhibits financial statement schedules index consolidated financial statements schedules page consolidated statements earnings years ended december 31 2008 2007 2006 consolidated balance sheets december 31 2008 2007 consolidated statements shareholders’ equity years ended december 31 2008 2007 2006 consolidated statements cash flows years ended december 31 2008 2007 2006 notes consolidated financial statements report management internal control financial reporting report independent registered public accounting firm report independent registered public accounting firm financial statement schedule s1 financial statement schedulevaluation qualifying accounts s2 schedules listed omitted either schedules required applicable b following exhibits filed part incorporated reference annual report pursuant request confidential treatment portions exhibit redacted publicly filed document furnished separately sec required rule 24b2 securities exchange act 1934 amended indicates management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized kraft foods inc timothy r mclevish timothy r mclevish executive vice president chief financial officer date february 27 2009 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated report independent registered public accounting firm financial statement schedule board directors shareholders kraft foods inc audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 19 2009 appearing 2008 annual report form 10k kraft foods inc also included audit financial statement schedule listed item 15a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois february 19 2009 s1 kraft foods inc subsidiaries valuation qualifying accounts years ended december 31 2008 2007 millions notes primarily related divestitures acquisitions currency translation b represents charges allowances created s2item 15 exhibits financial statement schedules index consolidated financial statements schedules listed omitted either schedules required applicable b following exhibits filed part incorporated reference annual report pursuant request confidential treatment portions exhibit redacted publicly filed document furnished separately sec required rule 24b2 securities exchange act 1934 amended indicates management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized kraft foods inc timothy r mclevish timothy r mclevish executive vice president chief financial officer date february 25 2010 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated report independent registered public accounting firm financial statement schedule board directors shareholders kraft foods inc audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 16 2010 appearing 2009 annual report form 10k kraft foods inc also included audit financial statement schedule listed item 15a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois february 16 2010 s1 kraft foods inc subsidiaries valuation qualifying accounts years ended december 31 2009 2008 2007 millions notes primarily related divestitures acquisitions currency translation b represents charges allowances created s2item 15 exhibits financial statement schedules index consolidated financial statements schedules listed omitted either schedules required applicable b following exhibits filed part incorporated reference annual report pursuant request confidential treatment portions exhibit redacted publicly filed document furnished separately sec required rule 24b2 securities exchange act 1934 amended indicates management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized kraft foods inc timothy r mclevish timothy r mclevish executive vice president chief financial officer date february 28 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated report independent registered public accounting firm financial statement schedule board directors shareholders kraft foods inc audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 28 2011 appearing 2010 annual report form 10k kraft foods inc also included audit financial statement schedule listed item 15a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois february 28 2011 s1 kraft foods inc subsidiaries valuation qualifying accounts years ended december 31 2010 2009 2008 millions notes primarily related divestitures acquisitions currency translation b represents charges allowances created s2item 15 exhibits financial statement schedules index consolidated financial statements schedules listed omitted either schedules required applicable b following exhibits filed part incorporated reference annual report pursuant request confidential treatment portions exhibit redacted publicly filed document furnished separately sec required rule 24b2 securities exchange act 1934 amended data required item 601b11 regulation sk provided note 15 consolidated financial statements report indicates management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated report independent registered public accounting firm financial statement schedule board directors shareholders kraft foods inc audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 27 2012 appearing annual report form 10k kraft foods inc also included audit financial statement schedule listed item 15a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois february 27 2012 s1 kraft foods inc subsidiaries valuation qualifying accounts years ended december 31 2011 2010 2009 millions notes primarily related divestitures acquisitions currency translation b represents charges allowances created s2item 15 exhibits financial statement schedules index consolidated financial statements schedules listed omitted either schedules required applicable b following exhibits filed part incorporated reference annual report upon request mondelēz international inc agrees furnish us securities exchange commission supplemental basis copy omitted schedule exhibit agreement portions exhibit indicated asterisks omitted pursuant request confidential treatment separately filed securities exchange commission data required item 601b11 regulation sk provided note 15 consolidated financial statements report indicates management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized mondelēz international inc david brearton david brearton executive vice president chief financial officer date february 25 2013 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated report independent registered public accounting firm financial statement schedule board directors shareholders mondelēz international inc audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 25 2013 appearing annual report form 10k mondelēz international inc also included audit financial statement schedule listed item 15a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois february 25 2013 s1 mondelēz international inc subsidiaries valuation qualifying accounts years ended december 31 2012 2011 2010 millions notes primarily related divestitures acquisitions currency translation b represents charges allowances created s2item 15 exhibits financial statement schedules index consolidated financial statements schedules listed omitted either schedules required applicable b following exhibits filed part incorporated reference annual report upon request mondelēz international inc agrees furnish us securities exchange commission supplemental basis copy omitted schedule exhibit agreement data required item 601b11 regulation sk provided note 16 consolidated financial statements report indicates management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized mondelēz international inc david brearton david brearton executive vice president chief financial officer date march 3 2014 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities date indicated report independent registered public accounting firm financial statement schedule board directors shareholders mondelēz international inc audits consolidated financial statements effectiveness internal control financial reporting referred report dated march 3 2014 appearing annual report form 10k mondelēz international inc also included audit financial statement schedule listed item 15a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois march 3 2014 s1 mondelēz international inc subsidiaries valuation qualifying accounts years ended december 31 2013 2012 2011 millions notes primarily related divestitures acquisitions currency translation b represents charges allowances created s2item 15 exhibits financial statement schedules index consolidated financial statements schedules listed omitted either schedules required applicable b following exhibits filed part incorporated reference annual report upon request mondelēz international inc agrees furnish us securities exchange commission supplemental basis copy omitted schedule exhibit agreement portions exhibit indicated asterisks omitted pursuant request confidential treatment separately filed sec indicates management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized mondelēz international inc brian gladden brian gladden executive vice president chief financial officer date february 20 2015 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated report independent registered public accounting firm financial statement schedule board directors shareholders mondelēz international inc audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 20 2015 appearing annual report form 10k mondelēz international inc also included audit financial statement schedule listed item 15a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois february 20 2015 s1 mondelēz international inc subsidiaries valuation qualifying accounts years ended december 31 2014 2013 2012 millions notes primarily related divestitures acquisitions currency translation b represents charges allowances created s2item 15 exhibits financial statement schedules index consolidated financial statements schedules listed omitted either schedules required applicable b following exhibits filed part incorporated reference annual report upon request mondelēz international inc agrees furnish us securities exchange commission supplemental basis copy omitted schedule exhibit agreement portions exhibit indicated asterisks omitted pursuant request confidential treatment separately filed sec indicates management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized mondelēz international inc brian gladden brian gladden executive vice president chief financial officer date february 24 2017 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated report independent registered public accounting firm financial statement schedule board directors mondelēz international inc audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 24 2017 appearing annual report form 10k mondelēz international inc also included audit financial statement schedule listed item 15a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois february 24 2017 s1 mondelēz international inc subsidiaries valuation qualifying accounts years ended december 31 2016 2015 2014 millions notes primarily related divestitures acquisitions currency translation b represents charges allowances created s2item 15 exhibits financial statement schedules index consolidated financial statements schedules listed omitted either schedules required applicable b following exhibits filed part incorporated reference annual report upon request mondelēz international inc agrees furnish us securities exchange commission supplemental basis copy omitted schedule exhibit agreement portions exhibit indicated asterisks omitted pursuant request confidential treatment separately filed sec indicates management contract compensatory plan arrangement item 16 form 10k summary applicable signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized mondelēz international inc brian gladden brian gladden executive vice president chief financial officer date february 9 2018 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated mondelēz international inc subsidiaries valuation qualifying accounts years ended december 31 2017 2016 2015 millions notes primarily related divestitures acquisitions currency translation b represents charges allowances created s1item 15 exhibits financial statement schedules index consolidated financial statements schedules listed omitted either schedules required applicable b following exhibits filed part incorporated reference annual report upon request mondelēz international inc agrees furnish us securities exchange commission supplemental basis copy omitted schedule exhibit agreement portions exhibit indicated asterisks omitted pursuant request confidential treatment separately filed sec indicates management contract compensatory plan arrangement item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized mondelēz international inc luca zaramella luca zaramella executive vice president chief financial officer date february 8 2019 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated mondelēz international inc subsidiaries valuation qualifying accounts years ended december 31 2018 2017 2016 millions notes primarily related divestitures acquisitions currency translation b represents charges allowances created s1item 15 exhibits financial statement schedules index consolidated financial statements schedules listed omitted either schedules required applicable b following exhibits filed part incorporated reference annual report portions exhibit indicated asterisks omitted pursuant request confidential treatment separately filed sec indicates management contract compensatory plan arrangement item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized mondelēz international inc luca zaramella luca zaramella executive vice president chief financial officer duly authorized officer date february 7 2020 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated mondelēz international inc subsidiaries valuation qualifying accounts years ended december 31 2019 2018 2017 millions notes primarily related divestitures acquisitions currency translation b represents charges allowances created s1item 15 exhibits financial statement schedules index consolidated financial statements schedules listed omitted either schedules required applicable b following exhibits filed part incorporated reference annual report upon request mondelēz international inc agrees furnish us securities exchange commission supplemental basis copy omitted schedule exhibit agreement portions exhibit indicated asterisks omitted pursuant request confidential treatment separately filed sec indicates management contract compensatory plan arrangement signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized mondelēz international inc brian gladden brian gladden executive vice president chief financial officer date february 19 2016 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated report independent registered public accounting firm financial statement schedule board directors mondelēz international inc audits consolidated financial statements effectiveness internal control financial reporting referred report dated february 19 2016 appearing annual report form 10k mondelēz international inc also included audit financial statement schedule listed item 15a form 10k opinion financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements pricewaterhousecoopers llp chicago illinois february 19 2016 s1 mondelēz international inc subsidiaries valuation qualifying accounts years ended december 31 2015 2014 2013 millions notes primarily related divestitures acquisitions currency translation b represents charges allowances created s2item 15 exhibits financial statement schedules aindex consolidated financial statements schedules listed omitted either schedules required applicable bthe following exhibits filed part incorporated reference annual report portions exhibit indicated asterisks omitted pursuant request confidential treatment separately filed sec indicates management contract compensatory plan arrangement item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized mondelēz international inc luca zaramella luca zaramella executive vice president chief financial officer duly authorized officer date february 5 2021 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated mondelēz international inc subsidiaries valuation qualifying accounts years ended december 31 2020 2019 2018 millions notes aprimarily related divestitures acquisitions currency translation brepresents charges allowances created s1nan