filings.toolsItem 1. Financial Statements
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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, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net revenues | $ | 9,166 | $ | 7,764 | |||||||||||||||||||
| Cost of sales | 5,720 | 4,781 | |||||||||||||||||||||
| Gross profit | 3,446 | 2,983 | |||||||||||||||||||||
| Selling, general and administrative expenses | 1,855 | 1,693 | |||||||||||||||||||||
| Asset impairment and exit costs | 47 | 164 | |||||||||||||||||||||
| Amortization of intangible assets | 39 | 32 | |||||||||||||||||||||
| Operating income | 1,505 | 1,094 | |||||||||||||||||||||
| Benefit plan non-service income | (19) | (33) | |||||||||||||||||||||
| Interest and other expense, net | 95 | 168 | |||||||||||||||||||||
| Gain on marketable securities | (796) | — | |||||||||||||||||||||
| Earnings before income taxes | 2,225 | 959 | |||||||||||||||||||||
| Income tax provision | (658) | (210) | |||||||||||||||||||||
| Gain/(loss) on equity method investment transactions | 487 | (5) | |||||||||||||||||||||
| Equity method investment net earnings | 35 | 117 | |||||||||||||||||||||
| Net earnings | 2,089 | 861 | |||||||||||||||||||||
| Noncontrolling interest earnings | (8) | (6) | |||||||||||||||||||||
| Net earnings attributable to Mondelēz International | $ | 2,081 | $ | 855 | |||||||||||||||||||
| Per share data: | |||||||||||||||||||||||
| Basic earnings per share attributable to Mondelēz International | $ | 1.52 | $ | 0.62 | |||||||||||||||||||
| Diluted earnings per share attributable to Mondelēz International | $ | 1.52 | $ | 0.61 |
See accompanying notes to the condensed consolidated financial statements.
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, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Net earnings | $ | 2,089 | $ | 861 | |||||||||||||||||||
| Other comprehensive earnings/(losses), net of tax: | |||||||||||||||||||||||
| Currency translation adjustment | 151 | 50 | |||||||||||||||||||||
| Pension and other benefit plans | (6) | 93 | |||||||||||||||||||||
| Derivative cash flow hedges | (10) | 52 | |||||||||||||||||||||
| Total other comprehensive earnings/(losses) | 135 | 195 | |||||||||||||||||||||
| Comprehensive earnings/(losses) | 2,224 | 1,056 | |||||||||||||||||||||
| less: Comprehensive earnings/(losses) attributable to noncontrolling interests | 10 | 2 | |||||||||||||||||||||
| Comprehensive earnings/(losses) attributable to Mondelēz International | $ | 2,214 | $ | 1,054 |
See accompanying notes to the condensed consolidated financial statements.
Mondelēz International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions of U.S. dollars, except share data)
(Unaudited)
| March 31, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | 1,917 | $ | 1,923 | |||||||
| Trade receivables (net of allowances of $60 at March 31, 2023 and $45 at December 31, 2022) | 3,502 | 3,088 | |||||||||
| Other receivables (net of allowances of $65 at March 31, 2023 and $59 at December 31, 2022) | 810 | 819 | |||||||||
| Inventories, net | 3,627 | 3,381 | |||||||||
| Other current assets | 2,815 | 880 | |||||||||
| Total current assets | 12,671 | 10,091 | |||||||||
| Property, plant and equipment, net | 9,131 | 9,020 | |||||||||
| Operating lease right of use assets | 657 | 660 | |||||||||
| Goodwill | 23,604 | 23,450 | |||||||||
| Intangible assets, net | 19,810 | 19,710 | |||||||||
| Prepaid pension assets | 1,065 | 1,016 | |||||||||
| Deferred income taxes | 451 | 473 | |||||||||
| Equity method investments | 3,397 | 4,879 | |||||||||
| Other assets | 2,000 | 1,862 | |||||||||
| TOTAL ASSETS | $ | 72,786 | $ | 71,161 | |||||||
| LIABILITIES | |||||||||||
| Short-term borrowings | $ | 2,461 | $ | 2,299 | |||||||
| Current portion of long-term debt | 1,185 | 383 | |||||||||
| Accounts payable | 7,885 | 7,562 | |||||||||
| Accrued marketing | 2,668 | 2,370 | |||||||||
| Accrued employment costs | 785 | 949 | |||||||||
| Other current liabilities | 3,547 | 3,168 | |||||||||
| Total current liabilities | 18,531 | 16,731 | |||||||||
| Long-term debt | 18,556 | 20,251 | |||||||||
| Long-term operating lease liabilities | 508 | 514 | |||||||||
| Deferred income taxes | 3,648 | 3,437 | |||||||||
| Accrued pension costs | 387 | 403 | |||||||||
| Accrued postretirement health care costs | 214 | 217 | |||||||||
| Other liabilities | 2,668 | 2,688 | |||||||||
| TOTAL LIABILITIES | 44,512 | 44,241 | |||||||||
| Commitments and Contingencies (Note 12) | |||||||||||
| EQUITY | |||||||||||
| Common Stock, no par value (5,000,000,000 shares authorized and 1,996,537,778 shares issued at March 31, 2023 and December 31, 2022) | — | — | |||||||||
| Additional paid-in capital | 32,112 | 32,143 | |||||||||
| Retained earnings | 33,040 | 31,481 | |||||||||
| Accumulated other comprehensive losses | (10,814) | (10,947) | |||||||||
| Treasury stock, at cost (634,260,938 shares at March 31, 2023 and 630,646,687 shares at December 31, 2022) | (26,110) | (25,794) | |||||||||
| Total Mondelēz International Shareholders’ Equity | 28,228 | 26,883 | |||||||||
| Noncontrolling interest | 46 | 37 | |||||||||
| TOTAL EQUITY | 28,274 | 26,920 | |||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 72,786 | $ | 71,161 |
See accompanying notes to the condensed consolidated financial statements.
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, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Balances at January 1, 2023 | $ | — | $ | 32,143 | $ | 31,481 | $ | (10,947) | $ | (25,794) | $ | 37 | $ | 26,920 | |||||||||||||||||||||||||||
| Comprehensive earnings/(losses): | |||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | 2,081 | — | — | 8 | 2,089 | ||||||||||||||||||||||||||||||||||
| Other comprehensive earnings/(losses), net of income taxes | — | — | — | 133 | 2 | 135 | |||||||||||||||||||||||||||||||||||
| Exercise of stock options and issuance of other stock awards | — | (31) | (8) | — | 93 | — | 54 | ||||||||||||||||||||||||||||||||||
| Common Stock repurchased | — | — | — | — | (409) | — | (409) | ||||||||||||||||||||||||||||||||||
| Cash dividends declared ($0.390 per share) | — | — | (528) | — | — | — | (528) | ||||||||||||||||||||||||||||||||||
| Dividends paid on noncontrolling interest and other activities | — | — | 14 | — | — | (1) | 13 | ||||||||||||||||||||||||||||||||||
| Balances at March 31, 2023 | $ | — | $ | 32,112 | $ | 33,040 | $ | (10,814) | $ | (26,110) | $ | 46 | $ | 28,274 | |||||||||||||||||||||||||||
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Balances at January 1, 2022 | $ | — | $ | 32,097 | $ | 30,806 | $ | (10,624) | $ | (24,010) | $ | 54 | $ | 28,323 | |||||||||||||||||||||||||||
| Comprehensive earnings/(losses): | |||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | 855 | — | — | 6 | 861 | ||||||||||||||||||||||||||||||||||
| Other comprehensive earnings/(losses), net of income taxes | — | — | — | 199 | — | (4) | 195 | ||||||||||||||||||||||||||||||||||
| Exercise of stock options and issuance of other stock awards | — | (44) | (11) | — | 115 | — | 60 | ||||||||||||||||||||||||||||||||||
| Common Stock repurchased | — | — | — | — | (735) | — | (735) | ||||||||||||||||||||||||||||||||||
| Cash dividends declared ($0.315 per share) | — | — | (487) | — | — | — | (487) | ||||||||||||||||||||||||||||||||||
| Dividends paid on noncontrolling interest and other activities | — | — | — | — | — | (1) | (1) | ||||||||||||||||||||||||||||||||||
| Balances at March 31, 2022 | $ | — | $ | 32,053 | $ | 31,163 | $ | (10,425) | $ | (24,630) | $ | 55 | $ | 28,216 | |||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
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, | |||||||||||
| 2023 | 2022 | ||||||||||
| CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES | |||||||||||
| Net earnings | $ | 2,089 | $ | 861 | |||||||
| Adjustments to reconcile net earnings to operating cash flows: | |||||||||||
| Depreciation and amortization | 303 | 275 | |||||||||
| Stock-based compensation expense | 38 | 24 | |||||||||
| Deferred income tax provision/(benefit) | 199 | (70) | |||||||||
| Asset impairments and accelerated depreciation | 18 | 155 | |||||||||
| Loss on early extinguishment of debt | — | 38 | |||||||||
| (Gain)/loss on equity method investment transactions | (487) | 5 | |||||||||
| Equity method investment net earnings | (35) | (117) | |||||||||
| Distributions from equity method investments | 102 | 107 | |||||||||
| Unrealized gain on derivative contracts | (67) | (13) | |||||||||
| Unrealized gain on marketable securities | (787) | — | |||||||||
| Non-cash items, net | 25 | — | |||||||||
| Change in assets and liabilities, net of acquisitions and divestitures: | |||||||||||
| Receivables, net | (590) | (517) | |||||||||
| Inventories, net | (232) | (81) | |||||||||
| Accounts payable | 216 | 397 | |||||||||
| Other current assets | (137) | (104) | |||||||||
| Other current liabilities | 517 | 230 | |||||||||
| Change in pension and postretirement assets and liabilities, net | (49) | (59) | |||||||||
| Net cash provided by operating activities | 1,123 | 1,131 | |||||||||
| CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES | |||||||||||
| Capital expenditures | (223) | (167) | |||||||||
| Acquisitions, net of cash received | 1 | (1,418) | |||||||||
| Proceeds from divestitures including equity method investments | 1,034 | 66 | |||||||||
| (Payments)/proceeds from investments and derivative settlements | (176) | 78 | |||||||||
| Net cash provided by/(used in) investing activities | 636 | (1,441) | |||||||||
| CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES | |||||||||||
| Net issuances/(repayments) of short-term borrowings | 156 | 217 | |||||||||
| Long-term debt proceeds | — | 1,991 | |||||||||
| Long-term debt repayments | (1,036) | (2,306) | |||||||||
| Repurchases of Common Stock | (399) | (751) | |||||||||
| Dividends paid | (529) | (491) | |||||||||
| Other | 51 | 60 | |||||||||
| Net cash used in financing activities | (1,757) | (1,280) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (11) | (10) | |||||||||
| Cash, cash equivalents and restricted cash: | |||||||||||
| (Decrease)/Increase | (9) | (1,600) | |||||||||
| Balance at beginning of period | 1,948 | 3,553 | |||||||||
| Balance at end of period | $ | 1,939 | $ | 1,953 |
See accompanying notes to the condensed consolidated financial statements.
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, 2022.
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 with readily determinable fair values for which we do not have the ability to exercise significant influence are measured at fair value.
War in Ukraine
In February 2022, Russia began a military invasion of Ukraine and we closed our operations and facilities in Ukraine. In March 2022, our two Ukrainian manufacturing facilities in Trostyanets and Vyshhorod were significantly damaged. During the first quarter of 2022, we evaluated and impaired these and other related assets. We recorded $143 million of total expenses ($145 million after-tax) incurred as a direct result of the war. We reversed $22 million during the remainder of 2022 and $3 million during the first quarter of 2023 of previously recorded charges primarily as a result of higher than expected collection of trade receivables and inventory recoveries. We continue to make targeted repairs on both our plants and have partially reopened and restarted limited production in both plants. We also continue to support our Ukraine employees, including paying salaries to those not yet able to return to work until full production returns. We continue to consolidate both our Ukrainian and Russian subsidiaries and continue to evaluate our ability to control our operating activities and businesses on an ongoing basis. We base our estimates on historical experience, expectations of future impacts and other assumptions that we believe are reasonable. Given the uncertainty of the ongoing effects of the war in Ukraine, and its impact on the global economic environment, our estimates could be significantly different than future performance.
Highly Inflationary Accounting
Within our consolidated entities, Argentina and Türkiye (Turkey) are accounted for as highly inflationary economies. Argentina and Türkiye represent 1.5% and 1.0% of our consolidated net revenues with remeasurement losses of $11 million and $1 million for the period ended March 31, 2023, respectively.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less. We also have restricted cash within other current assets of $22 million as of March 31, 2023 and $25 million as of December 31, 2022. Total cash, cash equivalents and restricted cash was $1,939 million as of March 31, 2023 and $1,948 million as of December 31, 2022.
Allowances for Credit Losses
Changes in allowances for credit losses consisted of:
| Allowance for Trade Receivables | Allowance for Other Current Receivables | Allowance for Long-Term Receivables | |||||||||||||||
| (in millions) | |||||||||||||||||
| Balance at January 1, 2023 | $ | (45) | $ | (59) | $ | (14) | |||||||||||
| Current period provision for expected credit losses | (16) | (5) | — | ||||||||||||||
| Write-offs charged against the allowance | 2 | — | — | ||||||||||||||
| Currency | (1) | (1) | — | ||||||||||||||
| Balance at March 31, 2023 | $ | (60) | $ | (65) | $ | (14) |
Transfers of Financial Assets
The outstanding principal amount of receivables under our uncommitted revolving non-recourse accounts receivable factoring arrangements amounted to $858 million as of March 31, 2023 and $516 million as of December 31, 2022. 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.
Non-Cash Lease Transactions
We recorded $39 million in operating lease and $27 million in finance lease right-of-use assets obtained in exchange for lease obligations during the three months ended March 31, 2023 and $95 million in operating lease and $56 million in finance lease right-of-use assets obtained in exchange for lease obligations during the three months ended March 31, 2022.
Supply Chain Financing
As part of our continued efforts to improve our working capital efficiency, we have worked with our suppliers over the past several years to optimize our terms and conditions, which include the extension of payment terms. Our current payment terms with a majority of our suppliers are from 30 to 180 days, which we deem to be commercially reasonable. We also facilitate voluntary supply chain financing (“SCF”) programs through several participating financial institutions. Under these programs, our suppliers, at their sole discretion, determine invoices that they want to sell to participating financial institutions. Our suppliers’ voluntary inclusion of invoices in SCF programs has no bearing on our payment terms or amounts due. Our responsibility is limited to making payments based upon the agreed-upon contractual terms. No guarantees are provided by the Company or any of our subsidiaries under the SCF programs and we have no economic interest in the suppliers’ decision to participate in the SCF programs. Amounts due to our suppliers that elected to participate in the SCF program are included in accounts payable in our consolidated balance sheet. We have been informed by the participating financial institutions that as of March 31, 2023 and December 31, 2022, $2.5 billion and $2.4 billion, respectively, of our outstanding accounts payable related to suppliers that participate in the SCF programs.
New Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) which requires companies to recognize and measure customer contract assets and contract liabilities acquired in a business combination as if the acquiring company originated the related revenue contracts. Prior to adopting this ASU, acquired contract assets and liabilities were measured at fair value. This ASU is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. We adopted this standard in the first quarter of 2023 and it did not have an impact on our consolidated financial statements.
In September 2022, the FASB issued an ASU which enhances the transparency of supplier finance programs by requiring additional disclosure about the key terms of these programs and a roll-forward of the related obligations to understand the effects of these programs on working capital, liquidity and cash flows. The ASU is effective for fiscal years beginning after December 15, 2022, except for the roll-forward requirement, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We adopted, with the exception of the roll-forward requirement, this standard in the first quarter of 2023 and it did not have a material impact on our consolidated financial statements and related disclosures.
Note 2. Acquisitions and Divestitures
Acquisitions
Ricolino
On November 1, 2022, we acquired 100% of the equity of Grupo Bimbo's confectionery business, Ricolino, located primarily in Mexico. The acquisition of Ricolino builds on our continued prioritization of fast-growing snacking segments in key geographies. The cash consideration paid for Ricolino totaled $26 billion Mexican pesos ($1.3 billion), net of cash received.
We are working to complete the valuation of assets acquired and liabilities assumed and have recorded a preliminary purchase price allocation of:
| (in millions) | |||||
| Cash | $ | 22 | |||
| Receivables | 86 | ||||
| Inventory | 70 | ||||
| Other current assets | 3 | ||||
| Property, plant and equipment | 144 | ||||
| Operating leases right of use assets | 17 | ||||
| Definite-life intangible assets | 218 | ||||
| Indefinite-life intangible assets | 339 | ||||
| Goodwill | 714 | ||||
| Assets acquired | $ | 1,613 | |||
| Current liabilities | 177 | ||||
| Deferred tax liability | 77 | ||||
| Operating lease liabilities | 17 | ||||
| Other liabilities | 12 | ||||
| Total purchase price | $ | 1,330 | |||
| Less: cash received | (22) | ||||
| Net Cash Paid | $ | 1,308 |
Within identifiable intangible assets, we allocated $339 million to trade names, which have an indefinite life. The fair value for the Ricolino, Dulces Vero, LaCorona and Coronado trade names were determined using the Relief from Royalty method, a form of the income approach, at the acquisition date. The fair value measurement of indefinite-life intangible assets are based on significant unobservable inputs, and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include estimates of future sales, discount and royalty rates.
Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired and arises principally as a result of expansion opportunities and synergies across both new and legacy product categories in Mexico. None of the goodwill recognized is expected to be deductible for income tax purposes. All of the goodwill was assigned to the Latin American operating segment.
Ricolino added incremental net revenues of $171 million and operating income of $9 million during the three months ended March 31, 2023. We incurred acquisition integration costs of $6 million during the three months ended March 31, 2023.
Clif Bar
On August 1, 2022, we acquired 100% of the equity of Clif Bar & Company (“Clif Bar”), a leading U.S. maker of nutritious energy bars with organic ingredients. The acquisition expands our global snack bar business and complements our refrigerated snacking and performance nutrition bar portfolios. The total cash payment of $2.9 billion includes purchase price consideration of $2.6 billion, net of cash received, and one-time compensation expense of $0.3 billion related to the buyout of the non-vested employee stock ownership plan ("ESOP") shares. This compensation expense is considered an acquisition-related cost. The acquisition of Clif Bar includes a contingent consideration arrangement that may require us to pay additional consideration to the sellers for achieving certain revenue and earnings targets in 2025 and 2026 that exceed our base financial projections for the business
implied in the upfront purchase price. The possible payments range from zero to a maximum total of $2.4 billion, with higher payouts requiring the achievement of targets that generate rates of returns in excess of the base financial projections. The estimated fair value of the contingent consideration obligation at the acquisition date was $440 million determined using a Monte Carlo simulation. Significant assumptions used in assessing the fair value of the liability include financial projections for net revenue, gross profit, and earnings before interest, tax, depreciation and amortization ("EBITDA"), as well as discount and volatility rates.
We are working to complete the valuation of assets acquired and liabilities assumed and have recorded a preliminary purchase price allocation of:
| (in millions) | |||||
| Cash | $ | 99 | |||
| Receivables | 76 | ||||
| Inventory | 124 | ||||
| Other current assets | 9 | ||||
| Property, plant and equipment | 186 | ||||
| Operating leases right of use assets | 22 | ||||
| Deferred tax assets | 92 | ||||
| Definite-life intangible assets | 200 | ||||
| Indefinite-life intangible assets | 1,450 | ||||
| Goodwill | 1,020 | ||||
| Other assets | 11 | ||||
| Assets acquired | $ | 3,289 | |||
| Current liabilities | 159 | ||||
| Contingent consideration | 440 | ||||
| Other liabilities | 15 | ||||
| Total purchase price | $ | 2,675 | |||
| Less: cash received | (99) | ||||
| Net Cash Paid | $ | 2,576 |
Within identifiable intangible assets, we allocated $1,450 million to trade names, which have an indefinite life. The fair value for the Clif and Luna trade names, were determined using the Relief from Royalty method, a form of the income approach, at the acquisition date. The fair value measurement of intangible assets are based on significant unobservable inputs, and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include forecasted future revenue, discount and royalty rates. We expect to generate a meaningful cash tax benefit over time from the amortization of acquisition-related intangibles.
Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired and arises principally as a result of expansion opportunities and synergies across the U.S. and other key markets. All of the goodwill was assigned to the North America operating segment. Tax deductible goodwill is expected to be $1.4 billion and will be amortized.
Clif Bar added incremental net revenues of $218 million and operating income of $35 million during the three months ended March 31, 2023. We incurred acquisition integration costs of $39 million during the three months ended March 31, 2023. These acquisition integration costs include an increase to the contingent consideration liability due to changes to underlying assumptions. Refer to Note 9, Financial Instruments for additional information.
Chipita
On January 3, 2022, we acquired 100% of the equity of Chipita Global S.A. (“Chipita”), a leading croissants and baked snacks company in the Central and Eastern European markets. The acquisition of Chipita offers a strategic complement to our existing portfolio and advances our strategy to become the global leader in broader snacking. The cash consideration paid for Chipita totaled €1.2 billion ($1.4 billion), net of cash received, plus the assumption of Chipita’s debt of €0.5 billion ($0.4 billion) for a total purchase price of €1.7 billion ($1.8 billion).
We have recorded a purchase price allocation of net tangible and intangible assets acquired and liabilities assumed as follows:
| (in millions) | ||||||||
| Cash | $ | 52 | ||||||
| Receivables | 102 | |||||||
| Inventory | 60 | |||||||
| Other current assets | 3 | |||||||
| Property, plant and equipment | 379 | |||||||
| Finance leases right of use assets | 8 | |||||||
| Definite-life intangible assets | 48 | |||||||
| Indefinite-life intangible assets | 686 | |||||||
| Goodwill | 795 | |||||||
| Other assets | 77 | |||||||
| Assets acquired | $ | 2,210 | ||||||
| Current liabilities | 133 | |||||||
| Deferred tax liability | 158 | |||||||
| Finance lease liabilities | 8 | |||||||
| Other liabilities | 21 | |||||||
| Total purchase price | $ | 1,890 | ||||||
| Less: long-term debt | (436) | |||||||
| Less: cash received | (52) | |||||||
| Net Cash Paid | $ | 1,402 |
Within identifiable intangible assets, we allocated $686 million to trade names, which have an indefinite life. The fair value for the 7 Days trade name, which is the primary asset acquired, was determined using the multi-period excess earnings method under the income approach at the acquisition date. The fair value measurements of intangible assets are based on significant unobservable inputs, and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include forecasted future cash flows and discount rates.
Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired and arises principally as a result of expansion opportunities and synergies across both new and legacy product categories. None of the goodwill recognized is expected to be deductible for income tax purposes. All of the goodwill was assigned to the Europe operating segment.
We incurred acquisition integration costs of $6 million during the three months ended March 31, 2023. We incurred acquisition-related costs of $21 million and acquisition integration costs of $35 million during the three months ended March 31, 2022.
Divestitures
Developed Market Gum - Held for Sale
On December 16, 2022, Mondelēz entered into an agreement to sell its developed market gum business in North America and Europe for $1.4 billion. It is expected to close in Q4 2023, subject to relevant antitrust approvals and closing conditions. In connection with these agreements, we concluded that the disposal group met the held for sale criteria as of December 31, 2022. The disposal group is included as part of the North America and Europe operating segments.
We incurred divestiture-related costs of $30 million during the three months ended March 31, 2023.
Total assets and liabilities held for sale are comprised of the following:
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Inventories, net | $ | 90 | $ | 79 | |||||||
| Current assets held for sale (1) | $ | 90 | $ | 79 | |||||||
| Property, plant and equipment, net | 161 | 159 | |||||||||
| Goodwill | 292 | 292 | |||||||||
| Intangible assets, net | 677 | 671 | |||||||||
| Noncurrent assets held for sale (2) | $ | 1,130 | $ | 1,122 | |||||||
| Accrued employment costs | 6 | 4 | |||||||||
| Current liabilities held for sale (3) | $ | 6 | $ | 4 | |||||||
| Deferred income taxes | 13 | 15 | |||||||||
| Noncurrent liabilities held for sale (4) | $ | 13 | $ | 15 |
(1)Reported in Other current assets on the condensed consolidated balance sheets.
(2)Reported in Other assets on the condensed consolidated balance sheets.
(3)Reported in Other current liabilities on the condensed consolidated balance sheets.
(4)Reported in Other liabilities on the condensed consolidated balance sheets.
Note 3. Inventories
Inventories consisted of the following:
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Raw materials | $ | 1,096 | $ | 1,031 | |||||||
| Finished product | 2,680 | 2,501 | |||||||||
| 3,776 | 3,532 | ||||||||||
| Inventory reserves | (149) | (151) | |||||||||
| Inventories, net | $ | 3,627 | $ | 3,381 |
Note 4. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Land and land improvements | $ | 378 | $ | 378 | |||||||
| Buildings and building improvements | 3,319 | 3,250 | |||||||||
| Machinery and equipment | 12,050 | 11,724 | |||||||||
| Construction in progress | 825 | 879 | |||||||||
| 16,572 | 16,231 | ||||||||||
| Accumulated depreciation | (7,441) | (7,211) | |||||||||
| Property, plant and equipment, net | $ | 9,131 | $ | 9,020 |
For the three months ended March 31, 2023, capital expenditures of $223 million excluded $290 million of accrued capital expenditures remaining unpaid at March 31, 2023 and included payment for a portion of the $324 million of capital expenditures that were accrued and unpaid at December 31, 2022. For the three months ended March 31, 2022, capital expenditures of $167 million excluded $244 million of accrued capital expenditures remaining unpaid at March 31, 2022 and included payment for a portion of the $249 million of capital expenditures that were accrued and unpaid at December 31, 2021.
Note 5. Goodwill and Intangible Assets
Goodwill
Changes in goodwill consisted of:
| Latin America | AMEA | Europe | North America | Total | |||||||||||||||||||||||||
| January 1, 2022 | $ | 674 | $ | 3,365 | $ | 7,830 | $ | 10,109 | $ | 21,978 | |||||||||||||||||||
| Currency | 41 | (233) | (550) | (15) | (757) | ||||||||||||||||||||||||
| Acquisitions (1) | 714 | — | 795 | 1,020 | 2,529 | ||||||||||||||||||||||||
| Held for Sale (1) | — | — | (66) | (226) | (292) | ||||||||||||||||||||||||
| Divestitures | (8) | — | — | — | (8) | ||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 1,421 | $ | 3,132 | $ | 8,009 | $ | 10,888 | $ | 23,450 | |||||||||||||||||||
| Currency | 95 | (18) | 73 | 4 | 154 | ||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | 1,516 | $ | 3,114 | $ | 8,082 | $ | 10,892 | $ | 23,604 |
(1)Refer to Note 2, Acquisitions and Divestitures for more information.
Intangible Assets
Intangible assets consisted of the following:
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||||||
| Gross carrying amount | Accumulated amortization | Net carrying amount | Gross carrying amount | Accumulated amortization | Net carrying amount | ||||||||||||||||||||||||||||||
| Definite-life intangible assets | $ | 3,389 | $ | (2,110) | $ | 1,279 | $ | 3,354 | $ | (2,057) | $ | 1,297 | |||||||||||||||||||||||
| Indefinite-life intangible assets (1) | 18,531 | — | 18,531 | 18,413 | — | 18,413 | |||||||||||||||||||||||||||||
| Total | $ | 21,920 | $ | (2,110) | $ | 19,810 | $ | 21,767 | $ | (2,057) | $ | 19,710 |
(1)In 2022, we recorded $101 million of intangible asset impairment charges related to two biscuit brands in AMEA segment, of which $78 million was recorded in the first quarter and $23 million was recorded in the third quarter.
Indefinite-life intangible assets consist principally of brand names purchased through our acquisitions of Nabisco Holdings Corp., the global LU biscuit business of Groupe Danone S.A., Cadbury Limited and Clif Bar. Definite-life intangible assets consist primarily of trademarks, customer-related intangibles, process technology, licenses and non-compete agreements.
Amortization expense for intangible assets was $39 million for the three months ended March 31, 2023 and $32 million for the three months ended March 31, 2022. For the next five years, we currently estimate annual amortization expense of approximately $150 million in 2023-2025, approximately $95 million in 2026 and approximately $90 million in 2027 (reflecting March 31, 2023 exchange rates).
Impairment Assessment
We test our reporting units and brands for impairment annually as of July 1, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit or brand is less than its carrying amount.During the first quarter of 2023, we evaluated our goodwill impairment and intangible asset impairment risk through an assessment of potential triggering events. We considered qualitative and quantitative information in our assessment. We concluded there were no impairment indicators.
During our 2022 annual indefinite-life intangible asset testing, we identified eight brands that each had a fair value in excess of book value of 10% or less. The aggregate book value of the eight brands was $1.6 billion as of March 31, 2023. We believe our current plans for each of these brands will allow them to not be impaired, but if the brand earnings 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 6. Investments
Marketable Securities
On March 2, 2023, we sold approximately 30 million shares of Keurig Dr Pepper Inc. (Nasdaq: "KDP"), which reduced our ownership interest by 2.1%, from 5.3% to 3.2% of the total outstanding shares. We received approximately $1.0 billion in proceeds and recorded a pre-tax gain of $493 million (or $366 million after tax) on this sale during the first quarter of 2023. This reduction in ownership, to below 5% of the outstanding shares of KDP, resulted in a change of accounting for our KDP investment, from equity method investment accounting to accounting for equity interests with readily determinable fair values ("marketable securities") as we no longer have significant influence over KDP. These marketable securities are measured at fair value based on quoted prices in active markets for identical assets (Level 1). On March 2, 2023, the date we changed from equity method accounting to marketable securities accounting for this investment, we recorded unrealized gains for marketable securities of $755 million (or $562 million after tax). We recorded an additional unrealized gain of $32 million (or $24 million after tax) during the first quarter, for a total unrealized gain of $787 million (or $586 million after tax) during the first quarter of 2023. We reported marketable securities of $1.6 billion as of March 31, 2023 in other current assets in the Company's Condensed Consolidated Balance Sheet.
Equity Method Investments
Our equity method investments include, but are not limited to, our ownership interests in JDE Peet's (Euronext Amsterdam: "JDEP"), Dong Suh Foods Corporation and Dong Suh Oil & Fats Co. Ltd. Our ownership interests may change over time due to investee stock-based compensation arrangements, share issuances or other equity-related transactions. As of March 31, 2023, we owned 19.7%, 50.0% and 49.0%, respectively, of these companies' outstanding shares. We continue to have board representation with two directors on the JDEP's Board of Directors and have retained certain additional governance rights. As we continue to have significant influence, we continue to account for our investment in JDEP under the equity method.
Our investments accounted for under the equity method of accounting totaled $3.4 billion as of March 31, 2023 and $4.9 billion as of December 31, 2022. The investment balance as of December 31, 2022 is inclusive of our investment in KDP. We recorded equity earnings of $35 million and cash dividends of $102 million in the first quarter of 2023 and equity earnings of $117 million and cash dividends of $107 million in the first quarter of 2022.
Based on the quoted closing prices as of March 31, 2023, the fair value of our publicly-traded investment in JDEP was $2.8 billion, and there was no other than temporary impairment identified.
In 2021, we issued €300 million exchangeable bonds, which are redeemable at maturity in September 2024 at their principal amount in cash or, at our option, through the delivery of an equivalent number of JDE Peet’s ordinary shares based on an initial exchange price of €35.40 and, as the case may be, an additional amount in cash. If all bonds were redeemed in exchange for JDE Peet's shares, this would represent approximately 8.5 million shares or approximately 9% of our equity interest in JDE Peet's as of March 31, 2023. Refer to Note 9, Financial Instruments, for further details on this transaction.
On March 30, 2023, we issued options to sell shares of JDEP in tranches equivalent to approximately 7.7 million shares. These options are exercisable at their maturities which are between July 3, 2023 and September 29, 2023, with strike prices ranging from €26.10 to €28.71 per share. In addition, on April 3, 2023, we sold approximately 7.7 million shares of JDEP and received cash proceeds of €199 million. This reduced our ownership interest by 1.6%, from 19.7% to 18.1% of the total outstanding shares. If all options issued on March 30, 2023 are exercised, our ownership interest will be reduced by an additional 1.6%. As we continue to have significant influence, we will continue to account for our investment in JDEP under the equity method.
Note 7. Restructuring Program
On May 6, 2014, our Board of Directors approved a $3.5 billion 2014-2018 restructuring program and up to $2.2 billion of capital expenditures. On August 31, 2016, our Board of Directors approved a $600 million reallocation between restructuring program cash costs and capital expenditures so the $5.7 billion program consisted of approximately $4.1 billion of restructuring program 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. On October 21, 2021, our Board of Directors approved an extension of the restructuring program through 2023. 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 implementation charges of $5.2 billion related to the Simplify to Grow Program. We expect to incur the remainder of the program charges by year-end 2023.
Restructuring Costs
The Simplify to Grow Program liability activity for the three months ended March 31, 2023 was:
| Severance and related costs | Asset Write-downs and Other (1) | Total | |||||||||||||||
| (in millions) | |||||||||||||||||
| Liability balance, January 1, 2023 | $ | 164 | $ | — | $ | 164 | |||||||||||
| Charges (2) | 29 | 1 | 30 | ||||||||||||||
| Cash spent (3) | (18) | — | (18) | ||||||||||||||
| Non-cash settlements/adjustments (4) | — | (1) | (1) | ||||||||||||||
| Currency | 2 | — | 2 | ||||||||||||||
| Liability balance, March 31, 2023 (5) | $ | 177 | $ | — | $ | 177 |
(1)Includes gains as a result of assets sold which are included in the restructuring program.
(2)We recorded restructuring charges of $30 million in the first quarter of 2023 and $11 million in the first quarter of 2022 within asset impairment and exit costs and benefit plan non-service income.
(3)We spent $18 million in the first quarter of 2023 and $17 million in the first quarter of 2022 in cash severance and related costs.
(4)We recognized non-cash asset write-downs (including accelerated depreciation and asset impairments), and other non-cash adjustments, including any gains on sale of restructuring program assets, which totaled a charge of $1 million in the first quarter of 2023 and a charge of $2 million in the first quarter of 2022.
(5)At March 31, 2023, $135 million of our net restructuring liability was recorded within other current liabilities and $42 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 $5 million in
the first quarter of 2023 and $20 million in the first quarter of 2022. We recorded these costs within cost of sales and general corporate expense within selling, general and administrative expenses.
Restructuring and Implementation Costs
During the three months ended March 31, 2023 and March 31, 2022, 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 | Corporate | Total | ||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||||||
| Restructuring Costs | $ | — | $ | 1 | $ | 30 | $ | (1) | $ | — | $ | 30 | |||||||||||||||||||||||
| Implementation Costs | — | — | — | — | 5 | 5 | |||||||||||||||||||||||||||||
| Total | $ | — | $ | 1 | $ | 30 | $ | (1) | $ | 5 | $ | 35 | |||||||||||||||||||||||
| For the Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||||||||
| Restructuring Costs | $ | (1) | $ | 2 | $ | 2 | $ | 8 | $ | — | $ | 11 | |||||||||||||||||||||||
| Implementation Costs | 1 | 1 | 5 | 7 | 6 | 20 | |||||||||||||||||||||||||||||
| Total | $ | — | $ | 3 | $ | 7 | $ | 15 | $ | 6 | $ | 31 | |||||||||||||||||||||||
| Total Project (Inception to Date) | |||||||||||||||||||||||||||||||||||
| Restructuring Costs | $ | 548 | $ | 555 | $ | 1,193 | $ | 656 | $ | 150 | $ | 3,102 | |||||||||||||||||||||||
| Implementation Costs | 303 | 245 | 569 | 590 | 373 | 2,080 | |||||||||||||||||||||||||||||
| Total | $ | 851 | $ | 800 | $ | 1,762 | $ | 1,246 | $ | 523 | $ | 5,182 | |||||||||||||||||||||||
Note 8. Debt and Borrowing Arrangements
Short-Term Borrowings
Our short-term borrowings and related weighted-average interest rates consisted of:
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||
| Amount Outstanding | Weighted- Average Rate | Amount Outstanding | Weighted- Average Rate | ||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Commercial paper | $ | 2,350 | 4.8 | % | $ | 2,209 | 4.7 | % | |||||||||||||||
| Bank loans | 111 | 9.5 | % | 90 | 9.1 | % | |||||||||||||||||
| Total short-term borrowings | $ | 2,461 | $ | 2,299 |
Our uncommitted credit lines and committed credit lines available as of March 31, 2023 and December 31, 2022 include:
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||
| Facility Amount | Borrowed Amount | Facility Amount | Borrowed Amount | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Uncommitted credit facilities | $ | 1,306 | $ | 111 | $ | 1,335 | $ | 90 | |||||||||||||||
| Credit facility expiry (1): | |||||||||||||||||||||||
| February 22, 2023 | — | — | 2,500 | — | |||||||||||||||||||
| March 11, 2023 | — | — | 2,000 | — | |||||||||||||||||||
| February 21, 2024 | 1,500 | — | — | — | |||||||||||||||||||
| July 29, 2025 (2) | 2,000 | 1,000 | 2,000 | 2,000 | |||||||||||||||||||
| February 23, 2027 | 4,500 | — | 4,500 | — |
(1)We maintain a multi-year senior unsecured revolving credit facility for general corporate purposes, including working capital needs, and to support our commercial paper program. The revolving credit agreement includes a covenant that we maintain a minimum shareholders' equity of at least $25.0 billion, excluding accumulated other comprehensive earnings/(losses), the cumulative effects of any changes in accounting principles and earnings/(losses) recognized in connection with the ongoing application of any mark-to-market accounting for pensions and other retirement plans. At March 31, 2023, we complied with this covenant as our shareholders' equity, as defined by the covenant, was $39.0 billion. The revolving credit facility also contains customary representations, covenants and events of default. There are no credit rating triggers, provisions or other financial covenants that could require us to post collateral as security.
(2)On March 31, 2022, we entered into a supplemental term loan credit facility that can be utilized for general corporate purposes, including acquisitions. Under this agreement, we may draw up to a total of $2.0 billion in term loans from the facility. On July 29, 2022, we drew down $2.0 billion in term loans, due July 29, 2025, bearing interest at a variable annual rate based on SOFR plus an applicable margin. On March 3, 2023, we repaid $1.0 billion in term loans. Subsequently on April 3, 2023, we repaid $0.3 billion.
On April 6, 2023, we entered into an additional revolving credit agreement that can be utilized for general corporate purposes and to support our commercial paper program. Under this agreement, we may draw up to a total of $2.0 billion from the facility. This agreement will terminate on December 29, 2023.
Long-Term Debt
As of March 31, 2023, the Company reclassified the net carrying value of debt of $800 million due within one year from long-term debt to current portion of long-term debt.
Fair Value of Our Debt
The fair value of our short-term borrowings reflects current market interest rates and approximates the amounts we have recorded on our consolidated balance sheets. The fair value of our term loans was determined using quoted prices for similar instruments in markets that are not active (Level 2 valuation data) and approximates the amounts we have recorded on our consolidated balance sheets. The fair value of our long-term debt was determined using quoted prices in active markets (Level 1 valuation data) for the publicly traded debt obligations.
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Fair Value | $ | 19,782 | $ | 20,217 | |||||||
| Carrying Value | $ | 22,202 | $ | 22,933 |
Interest and Other Expense, net
Interest and other expense, net consisted of:
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Interest expense, debt | $ | 153 | $ | 91 | |||||||||||||||||||
| Loss on debt extinguishment and related expenses | — | 129 | |||||||||||||||||||||
| Other (income), net | (58) | (52) | |||||||||||||||||||||
| Interest and other expense, net | $ | 95 | $ | 168 |
Other income, net includes amounts excluded from hedge effectiveness related to our net investment hedge derivative contracts. Refer to Note 9, Financial Instruments.
Note 9. Financial Instruments
Fair Value of Derivative Instruments
Derivative instruments were recorded at fair value in the condensed consolidated balance sheets as follows:
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||
| Asset Derivatives | Liability Derivatives | Asset Derivatives | Liability Derivatives | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Derivatives designated as accounting hedges: | |||||||||||||||||||||||
| Interest rate contracts | $ | 123 | 39 | $ | 132 | 35 | |||||||||||||||||
| Net investment hedge derivative contracts (1) | 225 | 242 | 265 | 241 | |||||||||||||||||||
| $ | 348 | $ | 281 | $ | 397 | $ | 276 | ||||||||||||||||
| Derivatives not designated as accounting hedges: | |||||||||||||||||||||||
| Currency exchange contracts | $ | 213 | $ | 126 | $ | 185 | $ | 103 | |||||||||||||||
| Commodity contracts | 346 | 332 | 200 | 247 | |||||||||||||||||||
| Interest rate contracts | 6 | 2 | 8 | — | |||||||||||||||||||
| Equity method investment contracts (2) | — | 1 | — | 3 | |||||||||||||||||||
| $ | 565 | $ | 461 | $ | 393 | $ | 353 | ||||||||||||||||
| Total fair value | $ | 913 | $ | 742 | $ | 790 | $ | 629 |
(1)Net investment hedge derivative contracts consist of cross-currency interest rate swaps, forward contracts and options. We also designate some of our non-U.S. dollar denominated debt to hedge a portion of our net investments in our non-U.S. operations. This debt is not reflected in the table above, but is included in long-term debt discussed in Note 8, Debt and Borrowing Arrangements. Both net investment hedge derivative contracts and non-U.S. dollar denominated debt acting as net investment hedges are also disclosed in the Derivative Volume table and the Hedges of Net Investments in International Operations section appearing later in this footnote.
(2)Equity method investment contracts consist of two types of derivatives: (a) options to sell shares of JDEP in tranches equivalent to approximately 7.7 million shares that are exercisable at maturity over the third quarter of 2023 with strike prices ranging between €26.10 and €28.71 per share and (b) the bifurcated embedded derivative option that was a component of the September 20, 2021 €300 million exchangeable bonds issuance. Refer to Note 8, Debt and Borrowing Arrangements.
We record derivative assets and liabilities on a gross basis on our condensed consolidated balance sheets. The fair value of our asset derivatives is recorded within other current assets and other assets and the fair value of our liability derivatives is recorded within other current liabilities and other liabilities.
The fair values (asset/(liability)) of our derivative instruments were determined using:
| As of March 31, 2023 | |||||||||||||||||||||||
| Total Fair Value of Net Asset/(Liability) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Currency exchange contracts | $ | 87 | $ | — | $ | 87 | $ | — | |||||||||||||||
| Commodity contracts | 14 | (17) | 31 | — | |||||||||||||||||||
| Interest rate contracts | 88 | — | 88 | — | |||||||||||||||||||
| Net investment hedge contracts | (17) | — | (17) | — | |||||||||||||||||||
| Equity method investment contracts | (1) | — | (1) | — | |||||||||||||||||||
| Total derivatives | $ | 171 | $ | (17) | $ | 188 | $ | — |
| As of December 31, 2022 | |||||||||||||||||||||||
| Total Fair Value of Net Asset/(Liability) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Currency exchange contracts | $ | 82 | $ | — | $ | 82 | $ | — | |||||||||||||||
| Commodity contracts | (47) | (35) | (12) | — | |||||||||||||||||||
| Interest rate contracts | 105 | — | 105 | — | |||||||||||||||||||
| Net investment hedge contracts | 24 | — | 24 | — | |||||||||||||||||||
| Equity method investment contracts | (3) | — | (3) | — | |||||||||||||||||||
| Total derivatives | $ | 161 | $ | (35) | $ | 196 | $ | — |
Level 1 financial assets and liabilities consist of exchange-traded commodity futures and listed options. The fair value of these instruments is determined based on quoted market prices on commodity exchanges.
Level 2 financial assets and liabilities consist primarily of over-the-counter (“OTC”) currency exchange forwards, options and swaps; commodity forwards and options; net investment hedge contracts; and interest rate swaps. Our currency exchange contracts are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Commodity derivatives are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount or based on pricing models that rely on market observable inputs such as commodity prices. Our bifurcated exchange options are valued, as derivative instrument liabilities, using the Black-Scholes option pricing model. This model requires assumptions related to the market price of the underlying note and associated credit spread combined with the share of price, expected dividend yield, and expected volatility of the JDE Peet’s shares over the life of the option. Our calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the observable market interest rate curve. Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including counterparty credit risk. Our OTC derivative transactions are governed by International Swap Dealers Association agreements and other standard industry contracts. Under these agreements, we do not post nor require collateral from our counterparties. The majority of our derivative contracts do not have a legal right of set-off. We manage the credit risk in connection with these and all our derivatives by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure with each counterparty and monitoring the financial condition of our counterparties.
Derivative Volume
The notional values of our hedging instruments were:
| Notional Amount | |||||||||||
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||
| (in millions) | |||||||||||
| Currency exchange contracts: | |||||||||||
| Intercompany loans and forecasted interest payments | $ | 2,504 | $ | 2,085 | |||||||
| Forecasted transactions | 7,032 | 5,470 | |||||||||
| Commodity contracts | 11,802 | 12,131 | |||||||||
| Interest rate contracts | 4,304 | 4,147 | |||||||||
| Net investment hedges: | |||||||||||
| Net investment hedge derivative contracts | 7,589 | 7,319 | |||||||||
| Non-U.S. dollar debt designated as net investment hedges | |||||||||||
| Euro notes | 3,453 | 3,410 | |||||||||
| Swiss franc notes | 645 | 638 | |||||||||
| Canadian dollar notes | 444 | 443 |
Cash Flow Hedges
Cash flow hedge activity, net of taxes, is recorded within accumulated other comprehensive earnings/(losses). Refer to Note 13, Reclassifications from Accumulated Other Comprehensive Income for further information on current period activity.
Based on current market conditions, we would expect to transfer losses of $8 million (net of taxes) for interest rate cash flow hedges to earnings during the next 12 months.
Cash Flow Hedge Coverage
As of March 31, 2023, our longest dated cash flow hedges were interest rate swaps that hedge forecasted interest rate payments over the next 3 years, 5 months.
Hedges of Net Investments in International Operations
Net investment hedge ("NIH") derivative contracts
We enter into cross-currency interest rate swaps, forwards and options to hedge certain investments in our non-U.S. operations against movements in exchange rates. The aggregate notional value as of March 31, 2023 was $7.6 billion.
Net investment hedge derivative contract impacts on other comprehensive earnings and net earnings were:
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| After-tax (loss)/gain on NIH contracts(1) | $ | (5) | $ | 41 |
(1)Amounts recorded for unsettled and settled NIH derivative contracts are recorded in the cumulative translation adjustment within other comprehensive earnings. The cash flows from the settled contracts are reported within other investing activities in the condensed consolidated statement of cash flows.
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Amounts excluded from the assessment of hedge effectiveness(1) | $ | 36 | $ | 22 |
(1)We elected to record changes in the fair value of amounts excluded from the assessment of effectiveness in net earnings within interest and other expense, net.
Non-U.S. dollar debt designated as net investment hedges
After-tax gains/(losses) related to hedges of net investments in international operations were recorded within the cumulative translation adjustment section of other comprehensive income and were:
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Euro notes | $ | (33) | $ | 74 | |||||||||||||||||||
| British pound sterling notes | — | 8 | |||||||||||||||||||||
| Swiss franc notes | (5) | 6 | |||||||||||||||||||||
| Canadian notes | (1) | (4) |
Economic Hedges
Pre-tax gains/(losses) recorded in net earnings for economic hedges were:
| For the Three Months Ended March 31, | Location of Gain/(Loss) Recognized in Earnings | ||||||||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Currency exchange contracts: | |||||||||||||||||||||||||||||
| Intercompany loans and forecasted interest payments | $ | 22 | $ | (11) | Interest and other expense, net | ||||||||||||||||||||||||
| Forecasted transactions | 2 | (7) | Cost of sales | ||||||||||||||||||||||||||
| Forecasted transactions | 5 | 21 | Interest and other expense, net | ||||||||||||||||||||||||||
| Forecasted transactions | (5) | 2 | Selling, general and administrative expenses | ||||||||||||||||||||||||||
| Commodity contracts | (2) | 237 | Cost of sales | ||||||||||||||||||||||||||
| Equity method investment contracts | 2 | — | Gain on equity method investment transactions | ||||||||||||||||||||||||||
| Total | $ | 24 | $ | 242 |
Fair Value of Contingent Consideration
The following is a summary of our contingent consideration liability activity:
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Liability at beginning of period | $ | 642 | $ | 159 | |||||||||||||||||||
| Changes in fair value | 17 | 6 | |||||||||||||||||||||
| Liability at end of period | $ | 659 | $ | 165 |
Contingent consideration was recorded at fair value in the condensed consolidated balance sheets as follows:
| As of March 31, 2023 | |||||||||||||||||||||||
| Total Fair Value of Liability | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Clif Bar (1) | $ | 465 | $ | — | $ | — | $ | 465 | |||||||||||||||
| Other (2) | 194 | — | — | 194 | |||||||||||||||||||
| Total contingent consideration | $ | 659 | $ | — | $ | — | $ | 659 |
| As of December 31, 2022 | |||||||||||||||||||||||
| Total Fair Value of Liability | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Clif Bar (1) | $ | 452 | $ | — | $ | — | $ | 452 | |||||||||||||||
| Other (2) | 190 | — | — | 190 | |||||||||||||||||||
| Total contingent consideration | $ | 642 | $ | — | $ | — | $ | 642 |
(1)In connection with the Clif Bar acquisition, we entered into a contingent consideration arrangement that may require us to pay additional consideration to the sellers for achieving certain net revenue, gross profit and EBITDA targets in 2025 and 2026 that exceed our base financial projections for the business implied in the upfront purchase price. The other contingent consideration liabilities are recorded at fair value within long term liabilities. The estimated fair value of the contingent consideration obligation at the acquisition date was determined using a Monte Carlo simulation and recorded in other liabilities. Significant assumptions used in assessing the fair value of the liability include financial projections for net revenue, gross profit, and EBITDA, as well as discount and volatility rates. Fair value adjustments are primarily recorded in selling, general and administrative expenses in the condensed consolidated statement of earnings. Refer to Note 2, Acquisitions and Divestitures for additional information.
(2)The other contingent consideration liabilities are recorded at fair value, with $113 million and $102 million classified as other current liabilities and $81 million and $88 million classified as long term liabilities at March 31, 2023 and December 31, 2022. The fair value of this contingent consideration was determined using a Monte Carlo valuation model based on Level 3 inputs, including management's latest estimate of forecasted future results. Other key assumptions included discount rate and volatility. Fair value adjustments are recorded in selling, general and administrative expenses in the condensed consolidated statement of earnings. Refer to Note 2, Acquisitions and Divestitures for additional information.
Note 10. Benefit Plans
Pension Plans
Components of Net Periodic Pension Cost
Net periodic pension cost/(benefit) consisted of the following:
| U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||
| For the Three Months Ended March 31, | For the Three Months Ended March 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Service cost | $ | 1 | $ | 1 | $ | 14 | $ | 39 | |||||||||||||||
| Interest cost | 15 | 11 | 76 | 41 | |||||||||||||||||||
| Expected return on plan assets | (25) | (18) | (102) | (93) | |||||||||||||||||||
| Amortization: | |||||||||||||||||||||||
| Net loss from experience differences | — | 3 | 11 | 19 | |||||||||||||||||||
| Prior service cost/(benefit) | 1 | — | — | (1) | |||||||||||||||||||
| Settlement losses and other expenses | 5 | 3 | — | — | |||||||||||||||||||
| Net periodic pension (benefit)/cost | $ | (3) | $ | — | $ | (1) | $ | 5 | |||||||||||||||
Employer Contributions
During the three months ended March 31, 2023, we contributed $2 million to our U.S. pension plans and $37 million to our non-U.S. pension plans. We make contributions to our pension plans in accordance with local funding arrangements and statutory minimum funding requirements. Discretionary contributions are made to the extent that they are tax deductible and do not generate an excise tax liability.
As of March 31, 2023, we plan to make further contributions of approximately $4 million to our U.S. plans and $82 million to our non-U.S. plans for the remainder of 2023. Our actual contributions may be different due to many factors, including changes in tax and other benefit laws, significant differences between expected and actual pension asset performance or interest rates.
Multiemployer Pension Plans
On July 11, 2019, we received an undiscounted withdrawal liability assessment from the Bakery and Confectionery Union and Industry International Pension Fund totaling $526 million requiring pro-rata monthly payments over 20 years. We began making monthly payments during the third quarter of 2019. In connection with the discounted long-term liability, we recorded accreted interest of $3 million in the three months ended March 31, 2023 and March 31, 2022, within interest and other expense, net. As of March 31, 2023, the remaining discounted withdrawal liability was $340 million, with $15 million recorded in other current liabilities and $325 million recorded in long-term other liabilities.
Postretirement and Postemployment Benefit Plans
The net periodic postretirement cost was zero for the three months ended March 31, 2023 and $3 million for the three months ended March 31, 2022. The net periodic postemployment cost was $1 million for the three months ended March 31, 2023 and $1 million for the three months ended March 31, 2022.
Note 11. Stock Plans
Stock Options
Stock option activity is reflected below:
| Shares Subject to Option | Weighted- Average Exercise or Grant Price Per Share | Average Remaining Contractual Term | Aggregate Intrinsic Value | ||||||||||||||||||||
| Balance at January 1, 2023 | 20,490,250 | $46.31 | 5 years | $ | 417 | million | |||||||||||||||||
| Annual grant to eligible employees | 2,452,110 | 65.36 | |||||||||||||||||||||
| Additional options issued | 3,310 | 66.25 | |||||||||||||||||||||
| Total options granted | 2,455,420 | 65.36 | |||||||||||||||||||||
| Options exercised (1) | (1,453,616) | 34.75 | $ | 46 | million | ||||||||||||||||||
| Options canceled | (109,897) | 48.36 | |||||||||||||||||||||
| Balance at March 31, 2023 | 21,382,157 | 49.27 | 6 years | $ | 437 | million |
(1)Cash received from options exercised was $49 million in the three months ended March 31, 2023. The actual tax benefit realized and recorded in the provision for income taxes for the tax deductions from the option exercises totaled $8 million in the three months ended March 31, 2023.
Performance Share Units and Other Stock-Based Awards
Our performance share unit (PSU), deferred stock unit (DSU) and other stock-based activity is reflected below:
| Number of Shares | Grant Date | Weighted-Average Fair Value Per Share (4) | Weighted-Average Aggregate Fair Value (3) | ||||||||||||||||||||
| Balance at January 1, 2023 | 4,451,674 | $60.12 | |||||||||||||||||||||
| Annual grant to eligible employees: | Mar 2, 2023 | ||||||||||||||||||||||
| Performance share units | 895,410 | 68.59 | |||||||||||||||||||||
| Deferred stock units | 578,570 | 65.36 | |||||||||||||||||||||
| Additional shares granted (1) | 675,395 | Various | 65.13 | ||||||||||||||||||||
| Total shares granted | 2,149,375 | 66.63 | $ | 143 | million | ||||||||||||||||||
| Vested (2) (3) | (1,598,781) | 63.07 | $ | 101 | million | ||||||||||||||||||
| Forfeited (2) | (91,430) | 60.77 | |||||||||||||||||||||
| Balance at March 31, 2023 | 4,910,838 | 61.99 |
(1)Includes PSUs and DSUs.
(2)Includes PSUs, DSUs and other stock-based awards.
(3)The actual tax benefit realized and recorded in the provision for income taxes for the tax deductions from the shares vested totaled $2 million in the three months ended March 31, 2023.
(4)The grant date fair value of PSUs is determined based on the Monte Carlo simulation model for the market-based total shareholder return component and the closing market price of the Company’s stock on the grant date for performance-based components. The Monte Carlo simulation model incorporates the probability of achieving the total shareholder return market condition. Compensation expense is recognized using the grant date fair values regardless of whether the market condition is achieved, so long as the requisite service has been provided.
Share Repurchase Program
Between 2013 and 2020, our Board of Directors authorized the repurchase of a total of $23.7 billion of our Common Stock and extended the program through December 31, 2023. Prior to January 1, 2023, we had repurchased approximately $22.0 billion of Common Stock pursuant to this authorization. Our Board of Directors approved a new program authorizing the repurchase of up to $6.0 billion of our Common Stock through December 31, 2025. This authorization, effective January 1, 2023, replaces our current share repurchase program. Repurchases under the program are determined by management and are wholly discretionary.
During the three months ended March 31, 2023, we repurchased approximately 6.2 million shares of Common Stock at an average cost of $65.93 per share, or an aggregate cost of approximately $407 million, all of which was paid during the period except for approximately $8 million settled in April 2023. All share repurchases were funded
through available cash and commercial paper issuances. As of March 31, 2023, we have approximately $5.6 billion in remaining share repurchase capacity.
Note 12. Commitments and Contingencies
Legal Proceedings
We routinely are involved in various pending or threatened legal proceedings, claims, disputes, regulatory matters and governmental inquiries, inspections or investigations arising in the ordinary course of or incidental to our business, including those noted below in this section. We record provisions in the consolidated financial statements for pending legal matters when we determine that an unfavorable outcome is probable, and the amount of the loss can be reasonably estimated. For matters we have not provided for that are reasonably possible to result in an unfavorable outcome, management is unable to estimate the possible loss or range of loss or such amounts have been determined to be immaterial. At present we believe that the ultimate outcome of these legal proceedings and regulatory and governmental matters, individually and in the aggregate, will not materially harm our financial position, results of operations or cash flows. However, legal proceedings and regulatory and governmental matters are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Unfavorable resolutions could involve substantial fines, civil or criminal penalties, and other expenditures. In addition, in matters for which conduct remedies are sought, unfavorable resolutions could include an injunction or other order prohibiting us from selling one or more products at all or in particular ways, precluding particular business practices or requiring other equitable remedies. An unfavorable outcome might result in a material adverse impact on our business, results of operations or financial position.
On April 1, 2015, the U.S. Commodity Futures Trading Commission ("CFTC") filed a complaint against Kraft Foods Group and Mondelēz Global LLC (“Mondelēz Global”) in the U.S. District Court for the Northern District of Illinois (the "District Court"), Eastern Division (the “CFTC action”) following its investigation of activities related to the trading of December 2011 wheat futures contracts that occurred prior to the spin-off of Kraft Foods Group. The complaint alleged that Kraft Foods Group and Mondelēz Global (1) manipulated or attempted to manipulate the wheat markets during the fall of 2011; (2) violated position limit levels for wheat futures; and (3) engaged in non-competitive trades by trading both sides of exchange-for-physical Chicago Board of Trade wheat contracts. The CFTC sought civil monetary penalties of either triple the monetary gain for each violation of the Commodity Exchange Act (the “Act”) or $1 million for each violation of Section 6(c)(1), 6(c)(3) or 9(a)(2) of the Act and $140,000 for each additional violation of the Act, plus post-judgment interest; an order of permanent injunction prohibiting Kraft Foods Group and Mondelēz Global from violating specified provisions of the Act; disgorgement of profits; and costs and fees. On May 13, 2022, the District Court approved a settlement agreement between the CFTC and Mondelēz Global. The terms of the settlement, which are available in the District Court’s docket, had an immaterial impact on our financial position, results of operations and cash flows and did not include an admission by Mondelēz Global. Several class action complaints also were filed against Kraft Foods Group and Mondelēz Global in the District Court by investors in wheat futures and options on behalf of themselves and others similarly situated. The complaints make similar allegations as those made in the CFTC action, and the plaintiffs are seeking monetary damages, interest and unjust enrichment; costs and fees; and injunctive, declaratory and other unspecified relief. In June 2015, these suits were consolidated in the United States District Court for the Northern District of Illinois as case number 15-cv-2937, Harry Ploss et al. v. Kraft Foods Group, Inc. and Mondelēz Global LLC. On January 3, 2020, the District Court granted plaintiffs' request to certify a class. It is not possible to predict the outcome of these matters; however, based on our Separation and Distribution Agreement with Kraft Foods Group dated as of September 27, 2012, we expect to bear any monetary penalties or other payments in connection with the class action. Although the CFTC action and the class action complaints involve the same alleged conduct, the resolution of the CFTC matter may not be dispositive as to the outcome of the class action.
As previously disclosed, in November 2019, the European Commission informed us that it initiated an investigation into our alleged infringement of European Union competition law through certain practices allegedly restricting cross-border trade within the European Economic Area. On January 28, 2021, the European Commission announced it had taken the next procedural step in its investigation and opened formal proceedings. We have been cooperating with the investigation and discussions with the European Commission are progressing in an effort to reach a negotiated, proportionate resolution in this matter. As of March 31, 2023 and December 31, 2022, we have accrued (in accordance with U.S. GAAP) a liability of €300 million ($325 million as of March 31, 2023) within other current liabilities in the consolidated balance sheet as an estimate of the possible cost to resolve this matter. It is not possible to predict if our ongoing discussions will result in a negotiated resolution, or result in a negotiated resolution in a higher amount, or when we will have clarity on the ultimate outcome of these discussions. If our discussions do not result in a negotiated resolution, we expect that the European Commission will pursue
proceedings against the Company, including the imposition of a fine, and we would defend against any allegations made in such proceedings. There is a possibility that the final liability could be materially higher than the amount accrued. However, due to the inherent uncertainty of the discussions and possible outcomes, any possible loss or range of loss different from the amount accrued is not reasonably estimable at this time.
Third-Party Guarantees
We enter into third-party guarantees primarily to cover long-term obligations of our vendors. As part of these transactions, we guarantee that third parties will make contractual payments or achieve performance measures. At March 31, 2023, we had no material third-party guarantees recorded on our condensed consolidated balance sheet.
Tax Matters
We are a party to various tax matter proceedings incidental to our business. These proceedings are subject to inherent uncertainties, and unfavorable outcomes could subject us to additional tax liabilities and could materially adversely impact our business, results of operations or financial position.
Note 13. Reclassifications from Accumulated Other Comprehensive Income
The following table summarizes the changes in accumulated balances of each component of accumulated other comprehensive earnings/(losses) attributable to Mondelēz International. Amounts reclassified from accumulated other comprehensive earnings/(losses) to net earnings (net of tax) were net gains of $30 million in the first quarter of 2023 and $42 million in the first quarter of 2022.
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Currency Translation Adjustments: | |||||||||||||||||||||||
| Balance at beginning of period | $ | (9,808) | $ | (9,097) | |||||||||||||||||||
| Currency translation adjustments | 173 | 6 | |||||||||||||||||||||
| Tax (expense)/benefit | (22) | 44 | |||||||||||||||||||||
| Other comprehensive earnings/(losses) | 151 | 50 | |||||||||||||||||||||
| Less: other comprehensive (earnings)/loss attributable to noncontrolling interests | (2) | 4 | |||||||||||||||||||||
| Balance at end of period | (9,659) | (9,043) | |||||||||||||||||||||
| Pension and Other Benefit Plans: | |||||||||||||||||||||||
| Balance at beginning of period | $ | (1,105) | $ | (1,379) | |||||||||||||||||||
| Net actuarial gain/(loss) arising during period | 2 | 44 | |||||||||||||||||||||
| Tax (expense)/benefit on net actuarial gain/(loss) | — | — | |||||||||||||||||||||
| Losses/(gains) reclassified into net earnings: | |||||||||||||||||||||||
| Amortization of experience losses and prior service costs (1) | 8 | 20 | |||||||||||||||||||||
| Settlement losses and other expenses (1) | 5 | 3 | |||||||||||||||||||||
| Tax expense/(benefit) on reclassifications (3) | (3) | (6) | |||||||||||||||||||||
| Currency impact | (18) | 32 | |||||||||||||||||||||
| Other comprehensive earnings/(losses) | (6) | 93 | |||||||||||||||||||||
| Balance at end of period | (1,111) | (1,286) | |||||||||||||||||||||
| Derivative Cash Flow Hedges: | |||||||||||||||||||||||
| Balance at beginning of period | $ | (34) | $ | (148) | |||||||||||||||||||
| Net derivative gains/(losses) | (28) | 26 | |||||||||||||||||||||
| Tax (expense)/benefit on net derivative gain/(loss) | (3) | (1) | |||||||||||||||||||||
| Losses/(gains) reclassified into net earnings: | |||||||||||||||||||||||
| Interest rate contracts (2) | 18 | 48 | |||||||||||||||||||||
| Tax expense/(benefit) on reclassifications (3) | 2 | (23) | |||||||||||||||||||||
| Currency impact | 1 | 2 | |||||||||||||||||||||
| Other comprehensive earnings/(losses) | (10) | 52 | |||||||||||||||||||||
| Balance at end of period | (44) | (96) | |||||||||||||||||||||
| Accumulated other comprehensive income attributable to Mondelēz International: | |||||||||||||||||||||||
| Balance at beginning of period | $ | (10,947) | $ | (10,624) | |||||||||||||||||||
| Total other comprehensive earnings/(losses) | 135 | 195 | |||||||||||||||||||||
| Less: other comprehensive (earnings)/loss attributable to noncontrolling interests | (2) | 4 | |||||||||||||||||||||
| Other comprehensive earnings/(losses) attributable to Mondelēz International | 133 | 199 | |||||||||||||||||||||
| Balance at end of period | $ | (10,814) | $ | (10,425) |
(1)These reclassified losses are included in net periodic benefit costs disclosed in Note 10, Benefit Plans.
(2)These reclassified gains or losses are recorded within interest and other expense, net.
(3)Taxes reclassified to earnings are recorded within the provision for income taxes.
Note 14. Income Taxes
As of the first quarter of 2023, our estimated annual effective tax rate, which excludes discrete tax impacts, was 24.3%. This rate reflected the impact of unfavorable foreign provisions under U.S. tax laws partially offset by favorable impacts from the mix of pre-tax income in various non-U.S. jurisdictions. Our 2023 first quarter effective tax rate of 29.6% was high due to a $127 million net tax expense incurred in connection with the KDP share sale (the earnings are reported separately on our statement of earnings and thus not included in earnings before income taxes). Associated with the KDP share sale, we also recorded a $201 million net tax expense related to the change of accounting for our KDP investment from equity method investment accounting to accounting for equity interests with readily determinable fair values. Excluding these tax impacts as well as the associated pre-tax impacts, our effective tax rate for the three months ended March 31, 2023 of 23.0% was favorably impacted by discrete net tax benefits of $20 million, primarily driven by a $30 million net benefit from the release of liabilities for uncertain tax positions due to expirations of statutes of limitations and audit settlements in several jurisdictions.
As of the first quarter of 2022, our estimated annual effective tax rate, which excluded discrete tax impacts, was 24.8%. This rate reflected the impact of unfavorable foreign provisions under U.S. tax laws and our tax related to earnings from equity method investments (the earnings are reported separately on our statement of earnings and thus not included in earnings before income taxes), partially offset by favorable impacts from the mix of pre-tax income in various non-U.S. jurisdictions. The estimated annual effective tax rate also considers the impact of the establishment of a valuation allowance related to a deferred tax asset arising from the anticipated 2022 Ukraine loss. Our effective tax rate for the three months ended March 31, 2022 of 21.9% was favorably impacted by discrete net tax benefits of $62 million, primarily driven by the Chipita acquisition, which resulted in the release of a portion of the valuation allowance recorded against the deferred tax asset for the step-up of intangible assets in Switzerland.
Note 15. Earnings per Share
Basic and diluted earnings per share (“EPS”) were calculated as follows:
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions, except per share data) | |||||||||||||||||||||||
| Net earnings | $ | 2,089 | $ | 861 | |||||||||||||||||||
| Noncontrolling interest earnings | (8) | (6) | |||||||||||||||||||||
| Net earnings attributable to Mondelēz International | $ | 2,081 | $ | 855 | |||||||||||||||||||
| Weighted-average shares for basic EPS | 1,366 | 1,389 | |||||||||||||||||||||
| Plus incremental shares from assumed conversions of stock options and long-term incentive plan shares | 7 | 9 | |||||||||||||||||||||
| Weighted-average shares for diluted EPS | 1,373 | 1,398 | |||||||||||||||||||||
| Basic earnings per share attributable to Mondelēz International | $ | 1.52 | $ | 0.62 | |||||||||||||||||||
| Diluted earnings per share attributable to Mondelēz International | $ | 1.52 | $ | 0.61 |
We exclude antidilutive Mondelēz International stock options and long-term incentive plan shares from our calculation of weighted-average shares for diluted EPS, which are 2.2 million in the first quarter of 2023 and 2.1 million in the first quarter of 2022.
Note 16. Segment Reporting
We manufacture and market primarily snack food products, including chocolate, biscuits and baked snacks, as well as gum & candy, cheese & grocery and powdered beverages.
We manage our global business and report operating results through geographic units. We manage our operations by region to leverage regional operating scale, manage different and changing business environments more effectively and pursue growth opportunities as they arise across our key markets. Our regional management teams have responsibility for the business, product categories and financial results in the regions.
Our operations and management structure are organized into four operating segments:
-
Latin America
-
AMEA
-
Europe
-
North America
We use segment operating income to evaluate segment performance and allocate resources. We believe it is appropriate to disclose this measure to help investors analyze segment performance and trends. Segment operating income excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), general corporate expenses (which are a component of selling, general and administrative expenses), amortization of intangibles, gains and losses on divestitures and acquisition-related costs (which are a component of selling, general and administrative expenses) in all periods presented. We exclude these items from segment operating income in order to provide better transparency of our segment operating results. Furthermore, we centrally manage benefit plan non-service income and interest and other expense, net. Accordingly, we do not present these items by segment because they are excluded from the segment profitability measure that management reviews.
Our segment net revenues and earnings were:
| For the Three Months Ended March 31, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net revenues: | |||||||||||||||||||||||
| Latin America | $ | 1,211 | $ | 826 | |||||||||||||||||||
| AMEA | 1,939 | 1,867 | |||||||||||||||||||||
| Europe | 3,307 | 2,935 | |||||||||||||||||||||
| North America | 2,709 | 2,136 | |||||||||||||||||||||
| Net revenues | $ | 9,166 | $ | 7,764 | |||||||||||||||||||
| Earnings before income taxes: | |||||||||||||||||||||||
| Operating income: | |||||||||||||||||||||||
| Latin America | $ | 139 | $ | 103 | |||||||||||||||||||
| AMEA | 360 | 272 | |||||||||||||||||||||
| Europe | 507 | 377 | |||||||||||||||||||||
| North America | 566 | 418 | |||||||||||||||||||||
| Unrealized gains/(losses) on hedging activities (mark-to-market impacts) | 49 | 27 | |||||||||||||||||||||
| General corporate expenses | (77) | (50) | |||||||||||||||||||||
| Amortization of intangible assets | (39) | (32) | |||||||||||||||||||||
| Acquisition-related costs | — | (21) | |||||||||||||||||||||
| Operating income | 1,505 | 1,094 | |||||||||||||||||||||
| Benefit plan non-service income | 19 | 33 | |||||||||||||||||||||
| Interest and other expense, net | (95) | (168) | |||||||||||||||||||||
| Gain on marketable securities | 796 | — | |||||||||||||||||||||
| Earnings before income taxes | $ | 2,225 | $ | 959 |
Items impacting our segment operating results are discussed in Note 1, Basis of Presentation, Note 2, Acquisitions and Divestitures, Note 3, Inventories, Note 4, Property, Plant and Equipment, Note 5, Goodwill and Intangible Assets, and Note 7, Restructuring Program. Also see Note 8, Debt and Borrowing Arrangements, and Note 9, Financial Instruments, for more information on our interest and other expense, net for each period.
Net revenues by product category were:
| For the Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||
| Latin America | AMEA | Europe | North America | Total | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Biscuits & Baked Snacks | $ | 276 | $ | 669 | $ | 1,062 | $ | 2,313 | $ | 4,320 | |||||||||||||||||||
| Chocolate | 368 | 747 | 1,670 | 84 | 2,869 | ||||||||||||||||||||||||
| Gum & Candy | 348 | 206 | 233 | 312 | 1,099 | ||||||||||||||||||||||||
| Beverages | 111 | 208 | 33 | — | 352 | ||||||||||||||||||||||||
| Cheese & Grocery | 108 | 109 | 309 | — | 526 | ||||||||||||||||||||||||
| Total net revenues | $ | 1,211 | $ | 1,939 | $ | 3,307 | $ | 2,709 | $ | 9,166 | |||||||||||||||||||
| For the Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||
| Latin America | AMEA | Europe | North America | Total | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Biscuits & Baked Snacks | $ | 224 | $ | 657 | $ | 951 | $ | 1,799 | $ | 3,631 | |||||||||||||||||||
| Chocolate | 248 | 706 | 1,512 | 77 | 2,543 | ||||||||||||||||||||||||
| Gum & Candy | 172 | 203 | 152 | 260 | 787 | ||||||||||||||||||||||||
| Beverages | 102 | 197 | 32 | — | 331 | ||||||||||||||||||||||||
| Cheese & Grocery | 80 | 104 | 288 | — | 472 | ||||||||||||||||||||||||
| Total net revenues | $ | 826 | $ | 1,867 | $ | 2,935 | $ | 2,136 | $ | 7,764 | |||||||||||||||||||
Previous: Cover and table of contents · Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.