Company Quick10K Filing
Quick10K
Mondelez
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$51.35 1,441 $73,970
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-15 Shareholder Vote
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-02-19 Regulation FD, Exhibits
8-K 2019-02-11 Other Events, Exhibits
8-K 2019-01-30 Earnings, Exhibits
8-K 2018-10-23 Earnings, Officers, Exhibits
8-K 2018-10-16 Regulation FD, Exhibits
8-K 2018-09-06 Exit Costs, Regulation FD, Exhibits
8-K 2018-08-13 Officers, Exhibits
8-K 2018-08-01 Officers, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-07-09 Enter Agreement, Leave Agreement, Exhibits
8-K 2018-06-14 Officers, Exhibits
8-K 2018-05-16 Shareholder Vote
8-K 2018-05-07 Leave Agreement, Other Events, Exhibits
8-K 2018-05-01 Earnings, Exhibits
8-K 2018-04-30 Officers, Exhibits
8-K 2018-04-16 Other Events, Exhibits
8-K 2018-04-13 Regulation FD, Exhibits
8-K 2018-04-02 Enter Agreement, Off-BS Arrangement, Other Events, Exhibits
8-K 2018-03-07 Other Events, Exhibits
8-K 2018-03-05 Other Events, Exhibits
8-K 2018-03-01 Regulation FD, Exhibits
8-K 2018-02-28 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-02-20 Regulation FD, Exhibits
8-K 2018-02-08 Officers, Exhibits
8-K 2018-01-31 Earnings, Other Events, Exhibits
8-K 2018-01-29 Other Events
SWK Stanley Black & Decker 21,600
EIX Edison 19,500
HUBS Hubspot 7,660
RPD Rapid7 2,550
IIVI II-VI 2,370
DS Drive Shack 359
ESSA Essa Bancorp 180
FRAN Francesca's Holdings 22
AEY Addvantage Technologies Group 13
AOIX American Oil & Gas 0
MDLZ 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Note 1. Basis of Presentation
Note 2. Divestitures and Acquisitions
Note 3. Inventories
Note 4. Property, Plant and Equipment
Note 5. Leases
Note 6. Goodwill and Intangible Assets
Note 7. Equity Method Investments
Note 8. Restructuring Program
Note 9. Debt and Borrowing Arrangements
Note 10. Financial Instruments
Note 11. Benefit Plans
Note 12. Stock Plans
Note 13. Commitments and Contingencies
Note 14. Reclassifications From Accumulated Other Comprehensive Income
Note 15. Income Taxes
Note 16. Earnings per Share
Note 17. Segment Reporting
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity and Use of Proceeds.
Item 6. Exhibits.
EX-10.3 a33119ex103.htm
EX-10.4 a33119ex104.htm
EX-10.5 a33119ex105.htm
EX-10.6 a33119ex106.htm
EX-31.1 a33119ex311.htm
EX-31.2 a33119ex312.htm
EX-32.1 a33119ex321.htm

Mondelez Earnings 2019-03-31

MDLZ 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                to                
Commission file number 1-16483
mdlzlogoa03.jpg
Mondelēz International, Inc.
(Exact name of registrant as specified in its charter)
Virginia
 
52-2284372
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
Three Parkway North,
Deerfield, Illinois
 
60015
(Address of principal executive offices)
 
(Zip Code)
(Registrant’s telephone number, including area code) (847) 943-4000
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
 
 
Accelerated filer   ¨
Non-accelerated filer  ¨
 
 
 
Smaller reporting company   ¨
 
 
Emerging growth company   ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨ No  x

At April 26, 2019, there were 1,440,435,771 shares of the registrant’s Class A Common Stock outstanding.
 



Table of Contents

Mondelēz International, Inc.
Table of Contents
 
 
 
Page No.
PART I - 
FINANCIAL INFORMATION
 
 
 
 
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II -
OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 

In this report, for all periods presented, “we,” “us,” “our,” “the Company” and “Mondelēz International” refer to Mondelēz International, Inc. and subsidiaries. References to “Common Stock” refer to our Class A Common Stock.




Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements
Mondelēz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions of U.S. dollars, except per share data)
(Unaudited)
 
For the Three Months Ended
March 31,
 
2019
 
2018
Net revenues
$
6,538

 
$
6,765

Cost of sales
3,945

 
3,916

Gross profit
2,593

 
2,849

Selling, general and administrative expenses
1,493

 
1,527

Asset impairment and exit costs
20

 
54

Amortization of intangibles
44

 
44

Operating income
1,036

 
1,224

Benefit plan non-service income
(17
)
 
(13
)
Interest and other expense, net
80

 
80

Earnings before income taxes
973

 
1,157

Provision for income taxes
(189
)
 
(337
)
Gain on equity method investment transaction
23

 

Equity method investment net earnings
113

 
232

Net earnings
920

 
1,052

Noncontrolling interest earnings
(6
)
 
(6
)
Net earnings attributable to Mondelēz International
$
914

 
$
1,046

Per share data:
 
 
 
Basic earnings per share attributable to Mondelēz International
$
0.63

 
$
0.70

Diluted earnings per share attributable to Mondelēz International
$
0.63

 
$
0.70


See accompanying notes to the condensed consolidated financial statements.


1


Table of Contents

Mondelēz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Earnings
(in millions of U.S. dollars)
(Unaudited)
 
For the Three Months Ended
March 31,
 
2019
 
2018
Net earnings
$
920

 
$
1,052

Other comprehensive earnings/(losses), net of tax:
 
 
 
Currency translation adjustment
190

 
210

Pension and other benefit plans
10

 
(6
)
Derivative cash flow hedges
(69
)
 
(46
)
Total other comprehensive earnings/(losses)
131

 
158

Comprehensive earnings/(losses)
1,051

 
1,210

less: Comprehensive earnings/(losses) attributable to
   noncontrolling interests
5

 
21

Comprehensive earnings/(losses) attributable to Mondelēz International
$
1,046

 
$
1,189


See accompanying notes to the condensed consolidated financial statements.


2


Table of Contents

Mondelēz International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions of U.S. dollars, except share data)
(Unaudited)
 
March 31,
2019
 
December 31,
2018
ASSETS
 
 
 
Cash and cash equivalents
$
1,542

 
$
1,100

Trade receivables (net of allowances of $40 at March 31, 2019
 and $40 at December 31, 2018)
2,781

 
2,262

Other receivables (net of allowances of $46 at March 31, 2019
     and $47 at December 31, 2018)
755

 
744

Inventories, net
2,620

 
2,592

Other current assets
841

 
906

Total current assets
8,539

 
7,604

Property, plant and equipment, net
8,520

 
8,482

Operating lease right of use assets
636

 

Goodwill
20,686

 
20,725

Intangible assets, net
17,958

 
18,002

Prepaid pension assets
138

 
132

Deferred income taxes
270

 
255

Equity method investments
7,004

 
7,123

Other assets
411

 
406

TOTAL ASSETS
$
64,162

 
$
62,729

LIABILITIES
 
 
 
Short-term borrowings
$
4,065

 
$
3,192

Current portion of long-term debt
2,918

 
2,648

Accounts payable
5,566

 
5,794

Accrued marketing
1,876

 
1,756

Accrued employment costs
568

 
701

Other current liabilities
2,728

 
2,646

Total current liabilities
17,721

 
16,737

Long-term debt
12,437

 
12,532

Long-term operating lease liabilities
470

 

Deferred income taxes
3,546

 
3,552

Accrued pension costs
1,124

 
1,221

Accrued postretirement health care costs
354

 
351

Other liabilities
2,601

 
2,623

TOTAL LIABILITIES
38,253

 
37,016

Commitments and Contingencies (Note 13)

 

EQUITY
 
 
 
Common Stock, no par value (5,000,000,000 shares authorized and
  1,996,537,778 shares issued at March 31, 2019 and December 31, 2018)

 

Additional paid-in capital
31,933

 
31,961

Retained earnings
24,954

 
24,491

Accumulated other comprehensive losses
(10,498
)
 
(10,630
)
Treasury stock, at cost (552,670,831 shares at March 31, 2019 and
   545,537,923 shares at December 31, 2018)
(20,561
)
 
(20,185
)
Total Mondelēz International Shareholders’ Equity
25,828

 
25,637

Noncontrolling interest
81

 
76

TOTAL EQUITY
25,909

 
25,713

TOTAL LIABILITIES AND EQUITY
$
64,162

 
$
62,729

See accompanying notes to the condensed consolidated financial statements.

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Mondelēz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Equity
(in millions of U.S. dollars, except per share data)
(Unaudited)
 
Mondelēz International Shareholders’ Equity
 
 
 
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Earnings/
(Losses)
 
Treasury
Stock
 
Non-controlling
Interest
 
Total
Equity
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at January 1, 2019
$

 
$
31,961

 
$
24,491

 
$
(10,630
)
 
$
(20,185
)
 
$
76

 
$
25,713

Comprehensive earnings/(losses):
 
 
 
 
 
 
 
 
 
 
 
 
 
Net earnings

 

 
914

 

 

 
6

 
920

Other comprehensive earnings/(losses), net of income taxes

 

 

 
132

 

 
(1
)
 
131

Exercise of stock options and issuance of other stock awards

 
(28
)
 
(76
)
 

 
289

 

 
185

Common Stock repurchased

 

 

 

 
(665
)
 

 
(665
)
Cash dividends declared ($0.26 per share)

 

 
(375
)
 

 

 

 
(375
)
Balances at March 31, 2019
$

 
$
31,933

 
$
24,954

 
$
(10,498
)
 
$
(20,561
)
 
$
81

 
$
25,909

Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at January 1, 2018
$

 
$
31,915

 
$
22,631

 
$
(9,997
)
 
$
(18,555
)
 
$
80

 
$
26,074

Comprehensive earnings/(losses):
 
 
 
 
 
 
 
 
 
 
 
 
 
Net earnings

 

 
1,046

 

 

 
6

 
1,052

Other comprehensive earnings/(losses), net of income taxes

 

 

 
143

 

 
15

 
158

Exercise of stock options and issuance of other stock awards

 
(39
)
 
(51
)
 

 
174

 

 
84

Common Stock repurchased

 

 

 

 
(500
)
 

 
(500
)
Cash dividends declared ($0.22 per share)

 

 
(327
)
 

 

 

 
(327
)
Dividends paid on noncontrolling interest and other activities

 

 
6

 

 

 
(3
)
 
3

Balances at March 31, 2018
$

 
$
31,876

 
$
23,305

 
$
(9,854
)
 
$
(18,881
)
 
$
98

 
$
26,544



See accompanying notes to the condensed consolidated financial statements.

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Mondelēz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions of U.S. dollars)
(Unaudited)
 
For the Three Months Ended
March 31,
 
2019
 
2018
CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES
 
 
 
Net earnings
$
920

 
$
1,052

Adjustments to reconcile net earnings to operating cash flows:
 
 
 
Depreciation and amortization
258

 
207

Stock-based compensation expense
32

 
28

U.S. tax reform transition tax

 
94

Deferred income tax provision
2

 
77

Asset impairments and accelerated depreciation
5

 
28

Gain on equity method investment transaction
(23
)
 

Equity method investment net earnings
(113
)
 
(232
)
Distributions from equity method investments
160

 
143

Other non-cash items, net
16

 
(14
)
Change in assets and liabilities, net of acquisitions and divestitures:
 
 
 
Receivables, net
(570
)
 
(413
)
Inventories, net
(36
)
 
(38
)
Accounts payable
(139
)
 
(144
)
Other current assets
47

 
46

Other current liabilities
(45
)
 
(317
)
Change in pension and postretirement assets and liabilities, net
(49
)
 
(110
)
Net cash provided by operating activities
465

 
407

CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES
 
 
 
Capital expenditures
(265
)
 
(284
)
Proceeds from sale of property, plant and equipment and other
42

 
10

Net cash used in investing activities
(223
)
 
(274
)
CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES
 
 
 
Issuances of commercial paper, maturities greater than 90 days
610

 
686

Repayments of commercial paper, maturities greater than 90 days
(1,549
)
 
(433
)
Net issuances of other short-term borrowings
1,815

 
1,016

Long-term debt proceeds
597

 
463

Long-term debt repaid
(403
)
 
(738
)
Repurchase of Common Stock
(646
)
 
(527
)
Dividends paid
(380
)
 
(330
)
Other
157

 
92

Net cash provided by financing activities
201

 
229

Effect of exchange rate changes on cash and cash equivalents
(1
)
 
7

Cash and cash equivalents:
 
 
 
Increase
442

 
369

Balance at beginning of period
1,100

 
761

Balance at end of period
$
1,542

 
$
1,130


See accompanying notes to the condensed consolidated financial statements.

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Mondelēz International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation

Our interim condensed consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted. It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of our results of operations, financial position and cash flows. Results of operations for any interim period are not necessarily indicative of future or annual results. For a complete set of consolidated financial statements and related notes, refer to our Annual Report on Form 10-K for the year ended December 31, 2018.

Principles of Consolidation:
The condensed consolidated financial statements include Mondelēz International, Inc. as well as our wholly owned and majority owned subsidiaries, except our Venezuelan subsidiaries that were deconsolidated in 2015. All intercompany transactions are eliminated. The noncontrolling interest represents the noncontrolling investors' interests in the results of subsidiaries that we control and consolidate. We account for investments over which we exercise significant influence under the equity method of accounting. Investments over which we do not have significant influence or control are not material and are carried at cost as there is no readily determinable fair value for the equity interests.

Currency Translation and Highly Inflationary Accounting:
We translate the results of operations of our subsidiaries from multiple currencies using average exchange rates during each period and translate balance sheet accounts using exchange rates at the end of each period. We record currency translation adjustments as a component of equity (except for highly inflationary currencies) and realized exchange gains and losses on transactions in earnings.

Highly inflationary accounting is triggered when a country’s three-year cumulative inflation rate exceeds 100%. It requires the remeasurement of financial statements of subsidiaries in the country from the functional currency of the subsidiary to our U.S. dollar reporting currency, with currency remeasurement gains or losses recorded in earnings. As discussed below, beginning on July 1, 2018, we began to apply highly inflationary accounting for our operations in Argentina.

Argentina. During the second quarter of 2018, primarily based on published estimates that indicated that Argentina's three-year cumulative inflation rate exceeded 100%, we concluded that Argentina became a highly inflationary economy for accounting purposes. As of July 1, 2018, we began to apply highly inflationary accounting for our Argentinian subsidiaries and changed their functional currency from the Argentinian peso to the U.S. dollar. On July 1, 2018, both monetary and non-monetary assets and liabilities denominated in Argentinian pesos were remeasured into U.S. dollars using the exchange rate as of the balance sheet date, with remeasurement and other transaction gains and losses recorded in net earnings. As of March 31, 2019, our Argentinian operations had $2 million of Argentinian peso denominated net monetary assets. Our Argentinian operations contributed $100 million, or 1.5%, of consolidated net revenues in the three months ended March 31, 2019. During the three months ended March 31, 2019, we recorded a $2 million remeasurement loss within selling, general and administrative expenses related to the revaluation of the Argentinian peso denominated net monetary assets during the quarter.

Brexit. In the three months ended March 31, 2019, we generated 9.3% of our consolidated net revenues in the United Kingdom. We continue to monitor the U.K. planned exit from the European Union ("Brexit"), the deadline for which has been extended through October 31, 2019. We continue to take protective measures in response to the potential impacts on our results of operations and financial condition. Following the Brexit vote in June 2016, there was significant volatility in the global stock markets and currency exchange rates. The value of the British pound sterling relative to the U.S. dollar declined significantly and negatively affected our translated results reported in U.S. dollars. If the ultimate terms of the United Kingdom’s separation from the European Union negatively impact the U.K. economy or result in disruptions to sales or our supply chain, the impact to our results of operations and financial condition could be material. We are taking measures to increase our resources in customer service & logistics together with increasing our inventory levels of imported raw materials, packaging and finished goods in the United Kingdom to help us manage through the Brexit transition and the inherent risks.


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Other Countries. Since we sell our products in over 150 countries and have operations in over 80 countries, we monitor economic and currency-related risks and seek to take protective measures in response to these exposures. Some of the countries in which we do business have recently experienced periods of significant economic uncertainty and exchange rate volatility, including Brazil, China, Mexico, Russia, Ukraine, Turkey, Egypt, Nigeria, South Africa and Pakistan. We continue to monitor operations, currencies and net monetary exposures in these countries. At this time, we do not anticipate that these countries are at risk of becoming highly inflationary countries.

Transfers of Financial Assets:
We account for transfers of financial assets, such as uncommitted revolving non-recourse accounts receivable factoring arrangements, when we have surrendered control over the related assets. Determining whether control has transferred requires an evaluation of relevant legal considerations, an assessment of the nature and extent of our continuing involvement with the assets transferred and any other relevant considerations. We use receivable factoring arrangements periodically when circumstances are favorable to manage liquidity. We have non-recourse factoring arrangements in which we sell eligible trade receivables primarily to banks in exchange for cash. We may then continue to collect the receivables sold, acting solely as a collecting agent on behalf of the banks. The outstanding principal amount of receivables under these arrangements amounted to $808 million as of March 31, 2019 and $819 million as of December 31, 2018. The incremental cost of factoring receivables under this arrangement was not material for all periods presented. The proceeds from the sales of receivables are included in cash from operating activities in the condensed consolidated statements of cash flows.

Leases:
We determine whether a contract is or contains a lease at contract inception. On January 1, 2019, we began to record operating leases on our condensed consolidated balance sheet. We elected not to recognize right-of-use ("ROU") assets and lease liabilities for short-term operating leases with terms of 12 months or less. As of March 31, 2019, long-term operating lease ROU assets and long-term operating lease liabilities were presented separately and operating lease liabilities payable in the next twelve months were recorded in other current liabilities. Finance lease ROU assets continue to be presented in property, plant and equipment and the related finance lease liabilities continue to be presented in the current portion of long-term debt and long-term debt.

Lease ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets are recognized at commencement date at the value of the lease liability, adjusted for any prepayments, lease incentives received and initial direct costs incurred. Lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. The non-recurring fair value measurement is classified as Level 3 as no fair value inputs are observable. As the rate implicit in the lease is not readily determinable in most of our leases, we use our country-specific incremental borrowing rate based on the lease term using information available at commencement date in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Many of our leases contain non-lease components (e.g. product costs, common-area or other maintenance costs) that relate to the lease components of the agreement. Non-lease components and the lease components to which they relate are accounted for as a single lease component as we have elected to combine lease and non-lease components for all classes of underlying assets.

Amortization of ROU lease assets is calculated on a straight-line basis over the lease term with the expense recorded in cost of sales or selling, general and administrative expenses depending on the nature of the leased item. Interest expense is recorded over the lease term and is recorded in interest expense (based on a front-loaded interest expense pattern) for finance leases and is recorded in cost of sales or selling, general and administrative expenses (on a straight-line basis) for operating leases. All operating lease cash payments and interest on finance leases are recorded within cash flows from operating activities and all finance lease principal payments are recorded within cash flows from financing activities in the condensed consolidated statements of cash flows.

New Accounting Pronouncements:
In October 2018, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update ("ASU") that permits the use of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") Rate as a U.S. benchmark interest rate for hedge accounting purposes. We adopted the new standard on January 1, 2019 and there was no material impact to our consolidated financial statements upon adoption.

In August 2018, the FASB issued an ASU that aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs for

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internal-use software. This ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. We are currently assessing the impact on our consolidated financial statements.

In August 2018, the FASB issued an ASU that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The new standard may impact our disclosures and is not expected to have an impact on our consolidated financial statements.

In August 2018, the FASB issued an ASU that modifies the disclosure requirements on fair value measurements. The ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The new standard may impact our disclosures and is not expected to have an impact on our consolidated financial statements.

In June 2018, the FASB issued an ASU that requires entities to record share-based payment transactions for acquiring goods and services from non-employees at fair value as of adoption date. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We adopted the standard as of January 1, 2019 and there was no material impact to our consolidated financial statements upon adoption.

In February 2018, the FASB issued an ASU that permits entities to elect a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 enactment of U.S. tax reform legislation. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We did not elect to reclassify these stranded tax effects from U.S. tax reform when we adopted this ASU in the first quarter of 2019. As such, this ASU did not have a material impact on our consolidated financial statements. Our policy is to release stranded tax effects from accumulated other comprehensive income under the portfolio method rather than on an individual item by item basis.

In August 2017, the FASB issued an ASU to better align hedge accounting with an entity’s risk management activities and improve disclosures surrounding hedging. For cash flow and net investment hedges as of the adoption date, the ASU requires a modified retrospective transition approach. Presentation and disclosure requirements related to this ASU are required prospectively. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We early adopted the standard as of January 1, 2018 and there was no material impact to our consolidated financial statements upon adoption. Refer to Note 10, Financial Instruments, for additional information.

In July 2017, the FASB issued an ASU on financial instruments that allows for the exclusion of a down round feature when evaluating whether or not the instrument or embedded feature requires derivative classification. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We adopted the standard as of January 1, 2019 and there was no material impact to our consolidated financial statements upon adoption.

In June 2016, the FASB issued an ASU on the measurement of credit losses on financial instruments. This ASU requires entities to measure the impairment of certain financial instruments, including trade receivables, based on expected losses rather than incurred losses. This ASU is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for financial statement periods beginning after December 15, 2018. We are currently assessing the guidance. This ASU is not expected to have a material impact on our consolidated financial statements.

In February 2016, the FASB issued an ASU on lease accounting to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU revises existing U.S. GAAP and outlines a new model for lessors and lessees to use in accounting for lease contracts. The guidance requires lessees to recognize a ROU asset and a lease liability on the balance sheet for all leases, with the exception of short-term leases. In the statement of earnings, lessees will classify leases as either operating or financing. In July 2018, the FASB issued an ASU that allows for an alternative transition approach, which does not require adjustments to comparative prior-period amounts. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We adopted the new standard on January 1, 2019. We elected to apply the package of practical expedients that allowed us not to reassess the lease classification and initial direct costs for expired or existing leases or whether expired or existing contracts contain leases. We elected not to separate non-lease components from lease components and to account for both as a single lease component by class of the underlying asset.

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The impact of adopting the standard included the initial recognition as of January 1, 2019, of $710 million of lease related assets and $730 million of lease related liabilities on our condensed consolidated balance sheet. The transition method we elected for adoption requires a cumulative effect adjustment to retained earnings as of January 1, 2019, which was not material.

Reclassifications:
Certain amounts previously reported have been reclassified to conform to current-year presentation. During the third quarter of 2018, in connection with the Keurig Dr Pepper Inc. transaction, we changed our accounting principle to reflect our share of Keurig Green Mountain Inc.’s historical results and Keurig Dr Pepper Inc.'s ongoing results on a one-quarter lag basis while we continue to record dividends when cash is received. This change was applied retrospectively to all periods presented. Refer to Note 7, Equity Method Investments, for more information.

Note 2. Divestitures and Acquisitions

On June 7, 2018, we acquired a U.S. premium biscuit company, Tate’s Bake Shop, within our North America segment for $528 million cash paid, net of cash received, and extended our premium biscuit offerings. We expect to finalize the purchase price paid and related purchase price allocation once working capital and other adjustments are finalized. We accounted for the transaction as a business combination. As of March 31, 2019, we recorded a preliminary purchase price allocation of $45 million to definite-lived intangible assets, $205 million to indefinite-lived intangible assets, $298 million to goodwill, $16 million to property, plant and equipment, $5 million to inventory, $9 million to accounts receivable, $6 million to current liabilities and $44 million to deferred tax liabilities. The acquisition added incremental net revenues of $20 million and incremental operating income of $2 million in the first quarter of 2019.

Note 3. Inventories

Inventories consisted of the following:
 
As of March 31,
2019
 
As of December 31,
2018
 
(in millions)
Raw materials
$
716

 
$
726

Finished product
2,025

 
1,987

 
2,741

 
2,713

Inventory reserves
(121
)
 
(121
)
Inventories, net
$
2,620

 
$
2,592



Note 4. Property, Plant and Equipment

Property, plant and equipment consisted of the following:
 
As of March 31,
2019
 
As of December 31,
2018
 
(in millions)
Land and land improvements
$
423

 
$
424

Buildings and building improvements
3,006

 
2,984

Machinery and equipment
11,083

 
10,943

Construction in progress
863

 
894

 
15,375

 
15,245

Accumulated depreciation
(6,855
)
 
(6,763
)
Property, plant and equipment, net
$
8,520

 
$
8,482



For the three months ended March 31, 2019, capital expenditures of $265 million excluded $218 million of accrued capital expenditures remaining unpaid at March 31, 2019 and included payment for a portion of the $331 million of capital expenditures that were accrued and unpaid at December 31, 2018. For the three months ended March 31,

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2018, capital expenditures of $284 million excluded $252 million of accrued capital expenditures remaining unpaid at March 31, 2018 and included payment for a portion of the $357 million of capital expenditures that were accrued and unpaid at December 31, 2017.

In connection with our restructuring program, we recorded non-cash property, plant and equipment write-downs (including accelerated depreciation and asset impairments) in the condensed consolidated statements of earnings within asset impairment and exit costs and within the segment results as follows (refer to Note 8, Restructuring Program).
 
For the Three Months Ended
March 31,
 
2019
 
2018
 
(in millions)
Latin America
$

 
$
8

AMEA
1

 
4

Europe
1

 
5

North America
3

 
6

Non-cash property, plant and equipment write-downs
$
5

 
$
23



Note 5. Leases

We have operating and finance leases for manufacturing and distribution facilities, vehicles, equipment and office space. Our leases have remaining lease terms of 1 to 9 years, some of which include options to extend the leases for up to 6 years. We assume the majority of our termination options will not be exercised when determining the lease term of our leases. We do not include significant restrictions or covenants in our lease agreements, and residual value guarantees are generally not included within our operating leases, with the exception of some fleet leases. Some of our leasing arrangements require variable payments that are dependent on usage or output or may vary for other reasons, such as product costs, insurance and tax payments. These variable payment leases are not included in our recorded lease assets and liabilities and are expensed as incurred. Certain leases are tied to a variable index or rate and are included in our lease assets and liabilities based on the indices or rates as of lease commencement.

The components of lease costs were as follows:
 
For the Three Months Ended
March 31, 2019
 
(in millions)
Operating lease cost
$
59

 
 
Finance lease cost:
 
Amortization of right-of-use assets
4

Interest on lease liabilities
1

 
 
Short-term lease cost
9

Variable lease cost
100

Sublease income
(1
)
 
 
Total lease cost
$
172



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Supplemental cash flow information related to leases was as follows:
 
For the Three Months Ended
March 31, 2019
 
(in millions)
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
(72
)
Operating cash flows from finance leases

Financing cash flows from finance leases
(3
)
 
 
Right-of-use assets obtained in exchange for lease obligations:
 
Operating leases
$
26

Finance leases
7



Supplemental balance sheet information related to leases was as follows:
 
As of March 31, 2019
 
(in millions)
Operating Leases:
 
Operating lease right-of-use assets, net of amortization
$
636

 
 
Other current liabilities
$
179

Operating lease liabilities
470

Total operating lease liabilities
$
649

 
 
Finance Leases:
 
Finance leases, net of amortization (within property, plant & equipment)
$
53

 
 
Other current liabilities
$
18

Other long-term liabilities
37

Total finance lease liabilities
$
55

 
 
Weighted Average Remaining Lease Term
 
Operating leases
5.4 years

Finance leases
2.9 years

 
 
Weighted Average Discount Rate
 
Operating leases
3.6%
Finance leases
5.2%




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Future lease payments under non-cancelable leases under prior lease accounting rules (ASC 840) and under the new lease accounting rules (ASC 842) that went into effect on January 1, 2019 were as follows:
 
As of March 31, 2019
 
As of December 31,
2018
 
ASC 842
 
ASC 840
 
Operating Leases
 
Finance Leases
 
Operating Leases
 
(in millions)
Year Ending December 31:
 
 
 
 
 
2019 (excluding the three months ended March 31, 2019)
$
159

 
$
16

 
 
2019
 
 
 
 
$
208

2020
179

 
21

 
165

2021
125

 
14

 
114

2022
88

 
5

 
79

2023
65

 
2

 
57

Thereafter
118

 

 
157

Total future undiscounted lease payments
$
734

 
$
58

 
$
780

Less imputed interest
(85
)
 
(3
)
 
 
Total reported lease liability
$
649

 
$
55

 
 


In 2020, we expect to record a $44 million operating lease liability for a 15 year lease that has not yet commenced.

Note 6. Goodwill and Intangible Assets

Goodwill by segment was:
 
As of March 31,
2019
 
As of December 31,
2018
 
(in millions)
Latin America
$
822

 
$
823

AMEA
3,237

 
3,210

Europe
7,440

 
7,519

North America
9,187

 
9,173

Goodwill
$
20,686

 
$
20,725



Intangible assets consisted of the following:
 
As of March 31,
2019
 
As of December 31,
2018
 
(in millions)
Non-amortizable intangible assets
$
17,200

 
$
17,201

Amortizable intangible assets
2,330

 
2,328

 
19,530

 
19,529

Accumulated amortization
(1,572
)
 
(1,527
)
Intangible assets, net
$
17,958

 
$
18,002



Non-amortizable intangible assets consist principally of brand names purchased through our acquisitions of Nabisco Holdings Corp., the Spanish and Portuguese operations of United Biscuits, the global LU biscuit business of Groupe Danone S.A. and Cadbury Limited. Amortizable intangible assets consist primarily of trademarks, customer-related intangibles, process technology, licenses and non-compete agreements.

Amortization expense for intangible assets was $44 million for the three months ended March 31, 2019 and $44 million for the three months ended March 31, 2018. For the next five years, we currently estimate annual

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amortization expense of approximately $175 million for the next two years and approximately $85 million in years three to five (reflecting March 31, 2019 exchange rates).

Changes in goodwill and intangible assets consisted of:
 
Goodwill
 
Intangible
Assets, at cost
 
(in millions)
Balance at January 1, 2018
$
20,725

 
$
19,529

Currency
(39
)
 
1

Balance at March 31, 2019
$
20,686

 
$
19,530



During our 2018 annual testing of non-amortizable intangible assets, we recorded $68 million of impairment charges in the third quarter of 2018 related to five trademarks. We recorded charges related to gum, chocolate, biscuits and candy trademarks of $45 million in Europe, $14 million in North America and $9 million in AMEA. We also identified seven brands, including the five impaired trademarks, with $537 million of aggregate book value as of March 31, 2019, that each had a fair value in excess of book value of 10% or less. We believe our current plans for each of these brands will allow them to continue to not be impaired, but if the product line expectations are not met or specific valuation factors outside of our control, such as discount rates, change significantly, then a brand or brands could become impaired in the future.

Note 7. Equity Method Investments

Our investments accounted for under the equity method of accounting totaled $7,004 million as of March 31, 2019 and $7,123 million as of December 31, 2018. Our largest investments are in Jacobs Douwe Egberts (“JDE”) and Keurig Dr Pepper Inc. (NYSE: "KDP”).

JDE:
As of March 31, 2019, we held a 26.5% voting interest, a 26.4% ownership interest and a 26.2% profit and dividend sharing interest in JDE. We recorded JDE equity earnings of $50 million in the first quarter of 2019 and $46 million in the first quarter of 2018. We also recorded $73 million of cash dividends received during the first quarter of 2019 and $73 million of cash dividends received during the first quarter of 2018.

Keurig Dr Pepper Transaction:
On July 9, 2018, Keurig Green Mountain, Inc. ("Keurig") closed on its definitive merger agreement with Dr Pepper Snapple Group, Inc., and formed Keurig Dr Pepper Inc. (NYSE: "KDP"), a publicly traded company. Following the close of the transaction, our 24.2% investment in Keurig together with our shareholder loan receivable became a 13.8% investment in KDP. During 2018, we recorded a pre-tax gain of $778 million reported as a gain on equity method transaction and $192 million of deferred tax expense reported in the provision for income taxes (or $586 million after-tax gain) related to the change in our ownership interest.

We hold two director positions on the KDP board as well as additional governance rights. As we continue to have significant influence, we continue to account for our investment in KDP under the equity method, resulting in recognizing our share of their earnings within our earnings and our share of their dividends within our cash flows.

In connection with this transaction, we changed our accounting principle to reflect our share of Keurig's historical and KDP's ongoing earnings on a one-quarter lag basis while we continue to record dividends when cash is received. We determined a lag was preferable as it enables us to continue to report our quarterly and annual results on a timely basis and to record our share of KDP’s ongoing results once KDP has publicly reported its results. This change in accounting principle was applied retrospectively to all periods. While our operating income did not change, equity method investment net earnings, net earnings and earnings per share have been adjusted to reflect the lag across all reported periods.


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The following tables show the primary line items on the condensed consolidated statements of earnings and comprehensive earnings that changed as a result of the lag. The condensed consolidated statements of cash flow and equity were also updated to reflect these changes.
 
For the Three Months Ended
March 31, 2018
 
As Reported
 
As Adjusted
 
(in millions)
Statements of Earnings
 
 
 
Provision for income taxes
$
(307
)
 
$
(337
)
Equity method investment net earnings
94

 
232

Net earnings
944

 
1,052

Net earnings attributable to
   Mondelēz International
938

 
1,046

Earnings per share attributable to
   Mondelēz International:
 
 
 
Basic EPS
$
0.63

 
$
0.70

Diluted EPS
$
0.62

 
$
0.70

 
 
 
 
Statements of Other Comprehensive Earnings
 
 
 
Currency translation adjustment
$
207

 
$
210

Total other comprehensive earnings/(losses)
155

 
158

Comprehensive earnings attributable to
   Mondelēz International
1,078

 
1,189



As of March 31, 2019, we held a 13.6% ownership interest in KDP. Our ownership interest in KDP may change over time due to stock-based compensation arrangements and other transactions by KDP. During the first quarter, we recognized a $23 million pre-tax gain related to the impact of a KDP acquisition that decreased our ownership interest from 13.8% to 13.6%. As of March 31, 2019, based on KDP's closing stock price, the fair value of our ownership interest in KDP was $5.4 billion, which exceeded the carrying value of our KDP investment.

We recorded equity earnings and cash dividends of $37 million and $29 million in the first three months of 2019 and equity earnings, shareholder loan interest and cash dividends of $154 million, $6 million and $3 million in the first three months of 2018.

Note 8. Restructuring Program

On May 6, 2014, our Board of Directors approved a $3.5 billion 2014-2018 restructuring program and up to $2.2 billion of capital expenditures. On August 31, 2016, our Board of Directors approved a $600 million reallocation between restructuring program cash costs and capital expenditures so the $5.7 billion program consisted of approximately $4.1 billion of restructuring program charges ($3.1 billion cash costs and $1.0 billion non-cash costs) and up to $1.6 billion of capital expenditures. On September 6, 2018, our Board of Directors approved an extension of the restructuring program through 2022, an increase of $1.3 billion in the program charges and an increase of $700 million in capital expenditures. The total $7.7 billion program now consists of $5.4 billion of program charges ($4.1 billion of cash costs and $1.3 billion of non-cash costs) and total capital expenditures of $2.3 billion to be incurred over the life of the program. The current restructuring program, as increased and extended by these actions, is now called the Simplify to Grow Program.

The primary objective of the Simplify to Grow Program is to reduce our operating cost structure in both our supply chain and overhead costs. The program covers severance as well as asset disposals and other manufacturing and procurement-related one-time costs. Since inception, we have incurred total restructuring and related implementation charges of $4.0 billion related to the Simplify to Grow Program. We expect to incur the program charges by year-end 2022.


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Restructuring Costs:
The Simplify to Grow Program liability activity for the three months ended March 31, 2019 was:
 
Severance
and related
costs
 
Asset
Write-downs
 
Total
 
(in millions)
Liability balance, January 1, 2019
$
373

 
$

 
$
373

Charges
15

 
5

 
20

Cash spent
(53
)
 

 
(53
)
Non-cash settlements/adjustments (1)
(24
)
 
(5
)
 
(29
)
Currency
(4
)
 

 
(4
)
Liability balance, March 31, 2019
$
307

 
$

 
$
307



(1)
We adopted the new ASU on lease accounting as of January 1, 2019. The ASU revises the accounting for onerous leases such that any onerous lease liability should be netted with the right of use asset. Therefore, we reclassified $23 million onerous lease liability as of March 31, 2019 from accrued liabilities and other accrued liabilities to operating lease right of use assets.

We recorded restructuring charges of $20 million in the first quarter of 2019 and $52 million in the first quarter of 2018 within asset impairment and exit costs. We spent $53 million in the first quarter of 2019 and $79 million in the first quarter of 2018 in cash severance and related costs. We also recognized non-cash asset write-downs (including accelerated depreciation and asset impairments) and other non-cash adjustments (including a one-time transfer of onerous lease liabilities to operating lease ROU assets) totaling $29 million in the first quarter of 2019 and $25 million in the first quarter of 2018. At March 31, 2019, $261 million of our net restructuring liability was recorded within other current liabilities and $46 million was recorded within other long-term liabilities.

Implementation Costs:
Implementation costs are directly attributable to restructuring activities; however, they do not qualify for special accounting treatment as exit or disposal activities. We believe the disclosure of implementation costs provides readers of our financial statements with more information on the total costs of our Simplify to Grow Program. Implementation costs primarily relate to reorganizing our operations and facilities in connection with our supply chain reinvention program and other identified productivity and cost saving initiatives. The costs include incremental expenses related to the closure of facilities, costs to terminate certain contracts and the simplification of our information systems. Within our continuing results of operations, we recorded implementation costs of $50 million in the first quarter of 2019 and $62 million in the first quarter of 2018. We recorded these costs within cost of sales and general corporate expense within selling, general and administrative expenses.


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Restructuring and Implementation Costs:
During the three months ended March 31, 2019 and March 31, 2018, and since inception of the Simplify to Grow Program, we recorded the following restructuring and implementation costs within segment operating income and earnings before income taxes:
 
Latin
America
 
AMEA
 
Europe
 
North
America (1)
 
Corporate (2)
 
Total
 
(in millions)
For the Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
Restructuring Costs
$

 
$
6

 
$