UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended September 30, 2022
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (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)
Securities registered pursuant to Section 12(b) of the Act:
| Tile of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
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.
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 October 28, 2022, there were 1,365,618,508 shares of the registrant’s Class A Common Stock outstanding.
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.
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 September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net revenues | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Gross profit | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Asset impairment and exit costs | |||||||||||||||||||||||
| Gain on acquisition | ( | ||||||||||||||||||||||
| Amortization of intangible assets | |||||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Benefit plan non-service income | ( | ( | ( | ( | |||||||||||||||||||
| Interest and other expense, net | |||||||||||||||||||||||
| Earnings before income taxes | |||||||||||||||||||||||
| Income tax provision | ( | ( | ( | ( | |||||||||||||||||||
| (Loss)/gain on equity method investment transactions | ( | ( | |||||||||||||||||||||
| Equity method investment net earnings | |||||||||||||||||||||||
| Net earnings | |||||||||||||||||||||||
| Noncontrolling interest earnings | ( | ( | ( | ( | |||||||||||||||||||
| Net earnings attributable to Mondelēz International | $ | $ | $ | $ | |||||||||||||||||||
| Per share data: | |||||||||||||||||||||||
| Basic earnings per share attributable to Mondelēz International | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share attributable to Mondelēz International | $ | $ | $ | $ | |||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
1
Mondelēz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Earnings
(in millions of U.S. dollars)
(Unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive earnings/(losses), net of tax: | |||||||||||||||||||||||
| Currency translation adjustment | ( | ( | ( | ( | |||||||||||||||||||
| Pension and other benefit plans | |||||||||||||||||||||||
| Derivative cash flow hedges | ( | ||||||||||||||||||||||
| Total other comprehensive earnings/(losses) | ( | ( | ( | ( | |||||||||||||||||||
| Comprehensive earnings/(losses) | ( | ||||||||||||||||||||||
| less: Comprehensive earnings/(losses) attributable to noncontrolling interests | ( | ( | ( | ||||||||||||||||||||
Comprehensive earnings/(losses) attributable to Mondelēz International | $ | ( | $ | $ | $ | ||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
2
Mondelēz International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions of U.S. dollars, except share data)
(Unaudited)
| September 30, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Trade receivables (net of allowances of $ and $ | |||||||||||
Other receivables (net of allowances of $ and $ | |||||||||||
| Inventories, net | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Operating lease right of use assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Prepaid pension assets | |||||||||||
| Deferred income taxes | |||||||||||
| Equity method investments | |||||||||||
| Other assets | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES | |||||||||||
| Short-term borrowings | $ | $ | |||||||||
| Current portion of long-term debt | |||||||||||
| Accounts payable | |||||||||||
| Accrued marketing | |||||||||||
| Accrued employment costs | |||||||||||
| Other current liabilities | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt | |||||||||||
| Long-term operating lease liabilities | |||||||||||
| Deferred income taxes | |||||||||||
| Accrued pension costs | |||||||||||
| Accrued postretirement health care costs | |||||||||||
| Other liabilities | |||||||||||
| TOTAL LIABILITIES | |||||||||||
Commitments and Contingencies (Note 12) | |||||||||||
| EQUITY | |||||||||||
Common Stock, | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive losses | ( | ( | |||||||||
Treasury stock, at cost ( | ( | ( | |||||||||
| Total Mondelēz International Shareholders’ Equity | |||||||||||
| Noncontrolling interest | |||||||||||
| TOTAL EQUITY | |||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements.
3
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 September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Balances at July 1, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
Comprehensive earnings/(losses): | |||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Other comprehensive earnings/(losses), net of income taxes | — | — | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||
Exercise of stock options and issuance of other stock awards | — | ( | — | — | |||||||||||||||||||||||||||||||||||||
| Common Stock repurchased | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
Dividends paid on noncontrolling interest and other activities | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Balances at September 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Balances at January 1, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
Comprehensive earnings/(losses): | |||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Other comprehensive earnings/(losses), net of income taxes | — | — | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||
Exercise of stock options and issuance of other stock awards | — | ( | — | — | |||||||||||||||||||||||||||||||||||||
| Common Stock repurchased | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
Dividends paid on noncontrolling interest and other activities | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Balances at September 30, 2022 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Balances at July 1, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
Comprehensive earnings/(losses): | |||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Other comprehensive earnings/(losses), net of income taxes | — | — | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||
Exercise of stock options and issuance of other stock awards | — | ( | — | — | |||||||||||||||||||||||||||||||||||||
| Common Stock repurchased | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
Dividends paid on noncontrolling interest and other activities | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Balances at September 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||||||||
| Balances at January 1, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
Comprehensive earnings/(losses): | |||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Other comprehensive earnings/(losses), net of income taxes | — | — | — | ( | — | ( | ( | ||||||||||||||||||||||||||||||||||
Exercise of stock options and issuance of other stock awards | — | ( | ( | — | — | ||||||||||||||||||||||||||||||||||||
| Common Stock repurchased | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
Dividends paid on noncontrolling interest and other activities | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||
| Balances at September 30, 2021 | $ | $ | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
4
Mondelēz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions of U.S. dollars)
(Unaudited)
| For the Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES | |||||||||||
| Net earnings | $ | $ | |||||||||
| Adjustments to reconcile net earnings to operating cash flows: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation expense | |||||||||||
| Deferred income tax (benefit)/provision | |||||||||||
| Asset impairments and accelerated depreciation | |||||||||||
| Loss on early extinguishment of debt | |||||||||||
| Gain on acquisition | ( | ||||||||||
| Loss/(gain) on equity method investment transactions | ( | ||||||||||
| Equity method investment net earnings | ( | ( | |||||||||
| Distributions from equity method investments | |||||||||||
| Other non-cash items, net | ( | ||||||||||
| Change in assets and liabilities, net of acquisitions and divestitures: | |||||||||||
| Receivables, net | ( | ( | |||||||||
| Inventories, net | ( | ( | |||||||||
| Accounts payable | |||||||||||
| Other current assets | ( | ( | |||||||||
| Other current liabilities | ( | ||||||||||
| Change in pension and postretirement assets and liabilities, net | ( | ( | |||||||||
| Net cash provided by operating activities | |||||||||||
| CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Acquisitions, net of cash received | ( | ( | |||||||||
| Proceeds from divestitures including equity method investments | |||||||||||
| Proceeds from derivative settlements and other | |||||||||||
| Net cash (used in)/provided by investing activities | ( | ||||||||||
| CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES | |||||||||||
| Net issuances/(repayments) of short-term borrowings | |||||||||||
| Long-term debt proceeds | |||||||||||
| Long-term debt repayments | ( | ( | |||||||||
| Repurchases of Common Stock | ( | ( | |||||||||
| Dividends paid | ( | ( | |||||||||
| Other | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash: | |||||||||||
| (Decrease)/Increase | ( | ( | |||||||||
| Balance at beginning of period | |||||||||||
| Balance at end of period | $ | $ | |||||||||
See accompanying notes to the condensed consolidated financial statements.
5
Mondelēz International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
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 as there are no readily determinable fair values for the equity interests, these investments are carried at cost with changes in the investment recognized to the extent cash is received.
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, including $75 million recorded in asset impairment and exit costs, $44 million in cost of sales and $24 million in selling, general and administrative expenses. We recorded $75 million of property, plant and equipment impairments, $33 million of estimated inventory write-offs, $19 million of increased estimated allowances for trade receivables and $16 million in accrued expenses. During the second and third quarters of 2022, we reversed approximately $15 million and $7 million, respectively, of previously recorded charges primarily as a result of higher than expected collection of trade receivables and inventory recoveries. 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. In connection with these findings and impacts, we have made estimates and assumptions based on information available to us. 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.
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 currency 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. Local currency monetary assets and liabilities are remeasured into U.S. dollars using exchange rates as of the latest balance sheet date, with remeasurement gains and losses recognized in net earnings.
Türkiye. During the first quarter of 2022, primarily based on data published by the Türkiye Statistical Institute that indicated that Türkiye's three-year cumulative inflation rate exceeded 100%, we concluded that Türkiye became a highly inflationary economy for accounting purposes. As of April 1, 2022, we began to apply highly inflationary accounting for our subsidiaries operating in Türkiye and changed their functional currency from the Turkish lira to the U.S. dollar. Our operations in Türkiye contributed $52 million or 0.7 % of our condensed consolidated net revenues in the three months and $141 million or 0.6 % of our condensed consolidated net revenues in the nine
6
months ended September 30, 2022. As of September 30, 2022, our operations in Türkiye had $3 million of Turkish lira denominated net monetary liabilities. Within selling, general and administrative expenses, we recorded a remeasurement gain of $1
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 Argentinean subsidiaries and changed their functional currency from the Argentinean peso to the U.S. dollar. Our operations in Argentina contributed $139 million or 1.8 % of consolidated net revenues in the three months and $407 million or 1.8 % of our condensed consolidated net revenues in the nine months ended September 30, 2022. As of September 30, 2022, our Argentinean operations had $12 million of Argentinean peso denominated net monetary assets. Within selling, general and administrative expenses, we recorded a remeasurement loss of $12 million during the three months and $27 million during the nine months ended September 30, 2022 as well as a remeasurement loss of $2 million during the three months and $10 million during the nine months ended September 30, 2021 related to the revaluation of the Argentinean peso denominated net monetary position over these periods.
Other Countries. Since we sell our products in over 150 countries and have operations in approximately 80 countries, we monitor economic and currency-related risks and seek to take protective measures in response to potential exposures. We continue to monitor the developments in Ukraine and Russia and the COVID-19 global pandemic and related impacts to our business operations, currencies and net monetary exposures. Related to the war and pandemic, most countries in which we do business experienced periods of significant economic uncertainty, inflation and exchange rate volatility. At this time, within our consolidated entities, Argentina and Türkiye are highly inflationary economies as noted above, and we continue to monitor currency volatility and associated risks, such as increased risk of highly inflationary economies and related accounting.
Allowances for Credit Losses:
The allowances for credit losses are recorded against our receivables. They are developed at a country and region level based on historical collection experiences, current economic condition of specific customers and the forecasted economic condition of countries using various factors such as bond default rates and consumption indexes. We write off receivables once it is determined that the receivables are no longer collectible and as allowed by local laws.
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, 2022 | $ | ( | $ | ( | $ | ( | |||||||||||
| Current period provision for expected credit losses | ( | ( | ( | ||||||||||||||
| Write-offs charged against the allowance | |||||||||||||||||
| Currency | |||||||||||||||||
| Balance at September 30, 2022 | $ | ( | $ | ( | $ | ( | |||||||||||
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
7
Non-Cash Lease Transactions:
We recorded $206 million in operating lease and $135 million in finance lease right-of-use assets obtained in exchange for lease obligations during the nine months ended September 30, 2022 and $159 million in operating lease and $59 million in finance lease right-of-use assets obtained in exchange for lease obligations during the nine months ended September 30, 2021.
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 are evaluating the timing and effects of adopting this ASU and currently we do not expect this ASU to have a material impact on our consolidated financial statements.
In March 2020 and subsequently in January 2021, the FASB issued an ASU to provide optional accounting guidance for a limited period of time to ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions to existing accounting requirements for contract modifications and hedge accounting related to transitioning from discontinued reference rates, such as LIBOR, to alternative reference rates, if certain criteria are met. The new accounting requirements can be applied as of the beginning of the interim period including March 12, 2020, or any date thereafter, through December 31, 2022. We expect to adopt this standard in the fourth quarter of 2022. Based on our evaluation of our contracts to date, we do not expect this ASU to have a material 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 rollforward 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 rollforward requirement, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently assessing the impact on our consolidated financial statements and related disclosures.
Note 2. Acquisitions and Divestitures
On November 1, 2022, we acquired Grupo Bimbo's confectionery business, Ricolino, located primarily in Mexico. The cash consideration paid for Ricolino totaled $1.3 billion. During the nine months ended September 30, 2022, we incurred $1 million of acquisition-related costs. We also incurred during the three and nine months ended September 30, 2022, acquisition integration costs of $7
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.
8
We are working to complete the valuation and have recorded a preliminary purchase price allocation of:
| (in millions) | |||||
| Cash | $ | ||||
| Receivables | |||||
| Inventory | |||||
| Other current assets | |||||
| Property, plant and equipment | |||||
| Operating leases right of use assets | |||||
| Deferred tax assets | |||||
| Definite life intangible assets | |||||
| Indefinite life intangible assets | |||||
| Goodwill | |||||
| Other assets | |||||
| Assets acquired | $ | ||||
| Current liabilities | |||||
| Contingent consideration | |||||
| Other liabilities | |||||
| Total purchase price | |||||
| Less: cash received | ( | ||||
| Net Cash Paid | $ | ||||
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 segment. Tax deductible goodwill is expected to be $1.4 billion and will be amortized.
Clif Bar added incremental net revenues of $157 million and operating loss of $33 million during the three months ended September 30, 2022. The operating loss includes acquisition integration costs of $16 million and an inventory step-up charge of $20 million incurred during the three months ended September 30, 2022. We also incurred acquisition-related costs of $292 million during the three months and $296 million during the nine months ended September 30, 2022. These acquisition-related costs are primarily related to the buyout of the non-vested ESOP shares.
On January 3, 2022, we acquired 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).
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We are working to complete the valuation and have recorded a preliminary purchase price allocation of:
| (in millions) | |||||
| Cash | $ | ||||
| Receivables | |||||
| Inventory | |||||
| Other current assets | |||||
| Property, plant and equipment | |||||
| Finance leases right of use assets | |||||
| Definite life intangible assets | |||||
| Indefinite life intangible assets | |||||
| Goodwill | |||||
| Other assets | |||||
| Assets acquired | $ | ||||
| Current liabilities | |||||
| Deferred tax liability | |||||
| Finance lease liabilities | |||||
| Other liabilities | |||||
| Total purchase price | $ | ||||
| Less: long-term debt | ( | ||||
| Less: cash received | ( | ||||
| Net Cash Paid | $ | ||||
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 segment.
Chipita added incremental net revenues of $158 million during the three months and $490 million during the nine months ended September 30, 2022, and operating income of $25 million during the three months and $39 million during the nine months ended September 30, 2022. We incurred acquisition-related costs of $21 million during the nine months ended September 30, 2022 and $6 million during the nine months ended September 30, 2021. We incurred acquisition integration costs of $14 million during the three months and $85 million during the nine months ended September 30, 2022. We incurred acquisition integration costs of $6
On November 1, 2021, we completed the sale of MaxFoods Pty Ltd, an Australian packaged seafood business that we had acquired as part of our acquisition of Gourmet Food Holdings Pty Ltd (“Gourmet Food”). The sales price was $57 million Australian dollars ($41 million), net of cash divested with the business, and we recorded an immaterial loss on the transaction.
On April 1, 2021, we acquired Gourmet Food, a leading Australian food company in the premium biscuit and cracker category, for closing cash consideration of approximately $450 million Australian dollars ($343 million), net of cash received. We have recorded a purchase price allocation of net tangible and intangible assets acquired and liabilities assumed of $41 million to indefinite-lived intangible assets, $80 million to definite-lived intangible assets, $164 million to goodwill, $19 million to property, plant and equipment, $18 million to inventory, $25 million to accounts receivable, $12 million to other assets, $5 million to operating right of use assets, $3 million to other current assets, $19 million to current liabilities and $5 million to long-term operating lease liabilities. Through the one-year anniversary of the acquisition, Gourmet Food added incremental net revenues of $14 million, and operating income of $1 million during the nine months ended September 30, 2022. We incurred acquisition integration costs of $1 million during the three months ended September 30, 2022. We incurred acquisition-related costs of $7 million during the nine months ended September 30, 2021.
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On March 25, 2021, we acquired a majority interest in Lion/Gemstone Topco Ltd ("Grenade"), a performance nutrition leader in the United Kingdom, for closing cash consideration of £188 million ($261 million), net of cash received. The acquisition of Grenade expands our position into the premium nutrition segment. We have recorded a purchase price allocation of net tangible and intangible assets acquired and liabilities assumed of $82 million to indefinite-lived intangible assets, $28 million to definite-lived intangible assets, $181 million to goodwill, $1 million to property, plant and equipment, $11 million to inventory, $18 million to accounts receivable, $25 million to current liabilities, $20 million to deferred tax liabilities and $15 million to long-term other liabilities. Through the one-year anniversary of the acquisition, Grenade added incremental net revenues of $21 million, and operating income of $2 million during the nine months ended September 30, 2022. We incurred acquisition-related costs of $2 million during the nine months ended September 30, 2021.
On January 4, 2021, we acquired the remaining 93 % of equity of Hu Master Holdings ("Hu"), a category leader in premium chocolate in the United States, which provides a strategic complement to our snacking portfolio in North America through growth opportunities in chocolate and other categories in the well-being category. The initial cash consideration paid was $229 million, net of cash received, and we may be required to pay additional contingent consideration. The estimated fair value of the contingent consideration obligation at the acquisition date was $132 million and was determined using a Monte Carlo simulation based on forecasted future results. During the third quarter of 2021, we recorded a $70 million reduction to the liability due to changes in the expected pace of growth. During the third quarter of 2022, we recorded an additional $7 million reduction to the liability due to further changes to forecasted future results. As a result of acquiring the remaining equity interest, we consolidated the operations prospectively from the date of acquisition and recorded a pre-tax gain of $9 million ($7 million after-tax) related to stepping up our previously-held $8 million (7 %) investment to fair value. We have recorded a purchase price allocation of net tangible and intangible assets acquired and liabilities assumed of $123 million to indefinite-lived intangible assets, $51 million to definite-lived intangible assets, $202 million to goodwill, $1 million to property, plant and equipment, $2 million to inventory, $4 million to accounts receivable, $5 million to current liabilities and $132 million to long-term other liabilities. We incurred acquisition-related costs of $9 million during the nine months ended September 30, 2021.
Note 3. Inventories
Inventories consisted of the following:
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| (in millions) | |||||||||||
| Raw materials | $ | $ | |||||||||
| Finished product | |||||||||||
| Inventory reserves | ( | ( | |||||||||
| Inventories, net | $ | $ | |||||||||
Note 4. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| (in millions) | |||||||||||
| Land and land improvements | $ | $ | |||||||||
| Buildings and building improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Construction in progress | |||||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Property, plant and equipment, net | $ | $ | |||||||||
For the nine months ended September 30, 2022, capital expenditures of $621 million excluded $255 million of accrued capital expenditures remaining unpaid at September 30, 2022 and included payment for $249 million of
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capital expenditures that were accrued and unpaid at December 31, 2021. For the nine months ended September 30, 2021, capital expenditures of $639 million excluded $237 million of accrued capital expenditures remaining unpaid at September 30, 2021 and included payment for $275 million of capital expenditures that were accrued and unpaid at December 31, 2020.
In connection with our restructuring program, we recorded non-cash property, plant and equipment write-downs (including accelerated depreciation and asset impairments) and losses/(gains) on disposal in the condensed consolidated statements of earnings within asset impairment and exit costs and within the segment results as follows (refer to Note 7, Restructuring Program).
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Latin America | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| AMEA | ( | ||||||||||||||||||||||
| Europe | |||||||||||||||||||||||
| North America | ( | ( | |||||||||||||||||||||
| Total | $ | ( | $ | $ | ( | $ | |||||||||||||||||
Note 5. Goodwill and Intangible Assets
Goodwill by segment was:
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| (in millions) | |||||||||||
| Latin America | $ | $ | |||||||||
| AMEA | |||||||||||
| Europe | |||||||||||
| North America | |||||||||||
| Goodwill | $ | $ | |||||||||
Intangible assets consisted of the following:
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| (in millions) | |||||||||||
| Indefinite-life intangible assets | $ | $ | |||||||||
| Definite-life intangible assets | |||||||||||
| Accumulated amortization | ( | ( | |||||||||
| Intangible assets, net | $ | $ | |||||||||
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 brands, customer-related intangibles, process technology, licenses and non-compete agreements.
Amortization expense for intangible assets was $32 million for the three months and $96 million for the nine months ended September 30, 2022 and $32 million for the three months and $102 million for the nine months ended September 30, 2021. For the next five years, we currently estimate annual amortization expense of approximately $130 110 million in 2025 and approximately $75 million in 2026 (reflecting September 30, 2022 exchange rates).
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Changes in goodwill and intangible assets consisted of:
| Goodwill | Intangible Assets, at cost | ||||||||||
| (in millions) | |||||||||||
| Balance at January 1, 2022 | $ | $ | |||||||||
| Currency | ( | ( | |||||||||
| Divestiture | ( | ||||||||||
| Acquisitions | |||||||||||
| Asset impairments | ( | ||||||||||
| Balance at September 30, 2022 | $ | $ | |||||||||
Changes to goodwill and intangibles were:
•Acquisitions - In connection with our 2022 acquisitions, we recorded preliminary purchase price allocations of $1 billion to goodwill and $1.7 billion to intangible assets for Clif Bar and $791 million to goodwill and $734 million to intangible assets for Chipita. See Note 2, Acquisitions and Divestitures, for additional information.
•Asset impairment - As further described below, we recorded a $78 million and $23 million intangible asset impairment, during the first and third quarters of 2022, respectively, in Asia, Middle East and Africa ("AMEA") due to lower than expected growth and profitability of two local biscuit brands sold in select markets in AMEA and Europe.
During the third quarter of 2022, we performed our annual impairment assessment test for goodwill and indefinite-life intangible assets as of July 1, 2022.
Our 2022 annual testing of goodwill resulted in no impairments as each reporting unit had sufficient fair value in excess of its carrying value. As part of our goodwill quantitative annual impairment testing, we compare a reporting unit's estimated fair value with its carrying value. If the carrying value of a reporting unit's net assets exceeds its fair value, we would record an impairment based on the difference between the carrying value and fair value of the reporting unit. We estimate a reporting unit's fair value using a discounted cash flow method that incorporates planned growth rates, market-based discount rates and estimates of residual value. This year, for our Europe and North America reporting units, we used a market based, weighted-average cost of capital of 6.8 % to discount the projected cash flows of those operations. For our Latin America and AMEA reporting units, we used a risk-rated discount rate of 9.8 %. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans and industry and economic conditions based on available information. Given the uncertainty of the global economic environment, those estimates could be significantly different than future performance. While all reporting units passed our annual impairment testing, if planned business performance expectations are not met or specific valuation factors outside of our control, such as discount rates, change significantly, then the estimated fair values of a reporting unit or reporting units might decline and lead to a goodwill impairment in the future.
During our 2022 annual testing of indefinite-life intangible assets, we recorded a $23 million impairment charge in the third quarter of 2022 related to one brand. The impairment arose due to lower than expected growth and profitability in a local biscuit brand in AMEA. The impairment charge was calculated as the excess of the carrying value over the estimated fair value of the intangible assets on a global basis and were recorded within asset impairment and exit costs. During our annual testing, we use several accepted valuation methods, including relief from royalty, excess earnings and excess margin, that utilize estimates of future sales, earnings growth rates, royalty rates and discount rates in determining a brand's global fair value. We identified eight brands, including the one brand impaired during the third quarter of 2022, that each had a fair value in excess of book value of 10% or less. The aggregate book value of the eight brands was $1.4 billion as of September 30, 2022. We continue to monitor our brand performance, particularly in light of the significant global economic uncertainties and related impacts to our business. If a brand's earnings expectations, including the timing of the expected recovery from the war and pandemic, 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.
During interim periods, we evaluate our goodwill and intangible asset impairment risk through an assessment of potential triggering events. During the first quarter of 2022, we determined a local biscuit brand in AMEA was impaired. We recorded a $78 million impairment charge for the brand within asset impairment and exit costs based on the excess carrying value over its estimated fair value.
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Note 6. Equity Method Investments
Equity method investments consist of our investments in entities in which we maintain an equity ownership interest and apply the equity method of accounting due to our ability to exert significant influence over decisions relating to their operating and financial affairs. Revenue and expenses of our equity method investees are not consolidated into our financial statements; rather, our proportionate share of the earnings of each investee is reflected as equity method investment net earnings. The carrying values of our equity method investments are also impacted by our proportionate share of items impacting the investee's accumulated other comprehensive income or losses and other items, such as our share of investee dividends.
Our equity method investments include, but are not limited to, our ownership interests in JDE Peet's (Euronext Amsterdam: "JDEP"), Keurig Dr Pepper Inc. (Nasdaq: "KDP"), 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 September 30, 2022, we owned 19.8 %, 5.3 %, 50.0 % and 49.0 %, respectively, of these companies' outstanding shares.
Our investments accounted for under the equity method of accounting totaled $4.5 billion as of September 30, 2022 and $5.3 billion as of December 31, 2021. We recorded equity earnings of $85 million and cash dividends of $48 million in the third quarter of 2022 and equity earnings of $105 million and cash dividends of $64 million in the third quarter of 2021. We recorded equity earnings of $300 million and cash dividends of $169 million in the first nine months of 2022 and equity earnings of $290 million and cash dividends of $158 million in the first nine months of 2021.
Based on the quoted closing prices as of September 30, 2022, the combined fair value of our publicly-traded investments in JDEP and KDP was $5.5 billion, and for each investment, its fair value exceeded its carrying value.
JDE Peet’s Transactions:
On May 8, 2022, we sold approximately 18.6 million of our JDE Peet’s shares back to JDE Peet’s, which reduced our ownership interest by approximately 3 %. We received €500 million ($529 million) of proceeds and recorded a loss of €8 million ($8 million) on this sale during the second quarter of 2022. As we will continue to have significant influence, we will continue to account for our investment in JDE Peet's 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. We will continue to have board representation with two directors on the JDE Peet's Board of Directors and we retained certain additional governance rights.
On September 20, 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 September 30, 2022. Refer to Note 9, Financial Instruments, for further details on this transaction.
Keurig Dr Pepper Transactions:
On August 2, 2021, we sold approximately 14.7 million shares of KDP, which reduced our ownership interest by 1 % of the total outstanding shares. We received $500 million of proceeds and recorded a pre-tax gain of $248 million (or $189 million after-tax) during the third quarter of 2021. 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. We continue to have board representation with one director on the KDP Board of Directors and we retained certain additional governance rights.
On June 7, 2021, we participated in a secondary offering of KDP shares and sold approximately 28 million shares, which reduced our ownership interest by 2 % of the total outstanding shares. We received $997 million of proceeds and recorded a pre-tax gain of $520 million (or $392 million after-tax) during the second quarter of 2021.
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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 $5.1 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 nine months ended September 30, 2022 was:
| Severance and related costs | Asset Write-downs (1) | Total | |||||||||||||||
| (in millions) | |||||||||||||||||
| Liability balance, January 1, 2022 | $ | $ | $ | ||||||||||||||
Charges (2) | ( | ||||||||||||||||
Cash spent (3) | ( | ( | |||||||||||||||
Non-cash settlements/adjustments (4) | ( | ||||||||||||||||
| Currency | ( | ( | |||||||||||||||
Liability balance, September 30, 2022 (5) | $ | $ | $ | ||||||||||||||
(1)Includes gains as a result of assets sold which are included in the restructuring program.
(2)We recorded a $10 million gain in the third quarter of 2022 due to the sale of assets included in the restructuring program as well as restructuring charges of $3 million, and restructuring charges of $8 million in the first nine months of 2022. We recorded restructuring charges of $62 million in the third quarter and $250 million in the first nine months of 2021. This activity is recorded within asset impairment and exit costs and benefit plan non-service income.
(3)We spent $12 million in the third quarter of 2022 and $65 million in the third quarter of 2021 and $45 million in the first nine months of 2022 and $129 million in the first nine months of 2021 in cash severance and related costs.
(4)We recognized non-cash asset write-downs (including accelerated depreciation and asset impairments), and other adjustments, including any gains on sale of restructuring program assets, which totaled a gain of $10 million in the third quarter and $1 million in the first nine months of 2022 and a charge of $54 million in the third quarter and of $170 million in the first nine months of 2021.
(5)At September 30, 2022, $106 million of our net restructuring liability was recorded within other current liabilities and $51 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 $23 million in the third quarter of 2022 and $65 million in the third quarter of 2021 and $62 million in the first nine months of 2022 and $132 million in the first nine months of 2021. 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 and nine months ended September 30, 2022 and September 30, 2021, 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 September 30, 2022 | |||||||||||||||||||||||||||||||||||
| Restructuring Costs | $ | ( | $ | $ | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||||||
| Implementation Costs | |||||||||||||||||||||||||||||||||||
| Total | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| For the Three Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||
| Restructuring Costs | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Implementation Costs | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||||||||
| Restructuring Costs | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Implementation Costs | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||||||||
| Restructuring Costs | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Implementation Costs | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||
Total Project (Inception to Date) | |||||||||||||||||||||||||||||||||||
| Restructuring Costs | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Implementation Costs | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Note 8. Debt and Borrowing Arrangements
Short-Term Borrowings:
Our short-term borrowings and related weighted-average interest rates consisted of:
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||||||||||||||
| Amount Outstanding | Weighted- Average Rate | Amount Outstanding | Weighted- Average Rate | ||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||
| Commercial paper | $ | % | $ | % | |||||||||||||||||||
| Bank loans | % | % | |||||||||||||||||||||
| Total short-term borrowings | $ | $ | |||||||||||||||||||||
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Our uncommitted credit lines and committed credit lines available as of September 30, 2022 and December 31, 2021 include:
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||||||||||||||
| Facility Amount | Borrowed Amount | Facility Amount | Borrowed Amount | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Uncommitted credit facilities | $ | $ | $ | $ | |||||||||||||||||||
Credit facility expiry (1): | |||||||||||||||||||||||
| February 23, 2022 | |||||||||||||||||||||||
| February 22, 2023 | |||||||||||||||||||||||
March 11, 2023 (3) | |||||||||||||||||||||||
| February 27, 2024 | |||||||||||||||||||||||
July 29, 2025 (2) | |||||||||||||||||||||||
| February 23, 2027 | |||||||||||||||||||||||
(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 September 30, 2022, we complied with this covenant as our shareholders' equity, as defined by the covenant, was $37.9 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.
(3)On July 11, 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. The maturity dates of any loans drawn under this facility will be eighteen months after the funding date of the applicable loan(s).
Long-Term Debt:
Tender Offers:
On March 18, 2022, we completed a tender offer in cash and redeemed long term U.S. dollar denominated notes for the following amounts (in millions):
| Interest Rate | Redemption Date | Maturity Date | Amount Redeemed | USD Equivalent | ||||||||||||||||||||||
| March 2022 | February 2026 | $ | $ | |||||||||||||||||||||||
| March 2022 | May 2028 | $ | $ | |||||||||||||||||||||||
| March 2022 | April 2030 | $ | $ | |||||||||||||||||||||||
| March 2022 | November 2031 | $ | $ | |||||||||||||||||||||||
| March 2022 | August 2037 | $ | $ | |||||||||||||||||||||||
| March 2022 | February 2038 | $ | $ | |||||||||||||||||||||||
| March 2022 | January 2039 | $ | $ | |||||||||||||||||||||||
| March 2022 | February 2040 | $ | $ | |||||||||||||||||||||||
| March 2022 | May 2048 | $ | $ | |||||||||||||||||||||||
We recorded a $129 million loss on debt extinguishment and related expenses within interest and other expense, net, consisting of $38 million paid in excess of carrying value of the debt and from recognizing unamortized discounts and deferred financing costs in earnings and $91 million from recognizing unamortized forward starting swap losses in earnings at the time of the debt extinguishment. The cash payments related to the debt extinguishment were classified as cash outflows from financing activities in the consolidated statement of cash flows.
Redemptions:
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| Interest Rate | Redemption Date | Maturity Date | Amount Redeemed | USD Equivalent | ||||||||||||||||||||||
| March 2022 | July 2022 | $ | $ | |||||||||||||||||||||||
Debt Repayments
During the nine months ended September 30, 2022, we repaid the following notes (in millions):
| Interest Rate | Maturity Date | Amount | USD Equivalent | |||||||||||||||||
| Various | Various(1) | € | $ | |||||||||||||||||
September 2022(2) | $ | $ | ||||||||||||||||||
| July 2022 | Fr. | $ | ||||||||||||||||||
(1) On January 3, 2022, we closed on our acquisition of Chipita and assumed and entirely paid down €0.4 billion ($0.4 billion) of Chipita's debt during the nine months ended September 30, 2022.
Issuances:
During the nine months ended September 30, 2022, we issued the following notes (in millions):
| Issuance Date | Interest Rate | Maturity Date | Gross Proceeds (1) | Gross Proceeds USD Equivalent | ||||||||||||||||||||||
September 2022(2) | September 2025 | $ | $ | |||||||||||||||||||||||
| March 2022 | March 2024 | $ | $ | |||||||||||||||||||||||
| March 2022 | March 2027 | $ | $ | |||||||||||||||||||||||
| March 2022 | March 2032 | $ | $ | |||||||||||||||||||||||
(1) Represents gross proceeds from the issuance of notes excluding debt issuance costs, discounts and premiums.
Fair Value of Our Debt:
The fair value of our short-term borrowings at September 30, 2022 and December 31, 2021 reflects current market interest rates and approximates the amounts we have recorded on our consolidated balance sheets. The fair value of our long-term debt was determined using quoted prices in active markets (Level 1 valuation data) for the publicly traded debt obligations.
| As of September 30, 2022 | As of December 31, 2021 | ||||||||||
| (in millions) | |||||||||||
| Fair Value | $ | $ | |||||||||
| Carrying Value | $ | $ | |||||||||
Interest and Other Expense, net:
Interest and other expense, net consisted of:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Interest expense, debt | $ | $ | $ | $ | |||||||||||||||||||
| Loss on debt extinguishment and related expenses | |||||||||||||||||||||||
| Other expense/(income), net | ( | ( | ( | ( | |||||||||||||||||||
| Interest and other expense, net | $ | $ | $ | $ | |||||||||||||||||||
Other expense/(income) includes amounts excluded from hedge effectiveness related to our net investment hedge derivative contracts and early settlement of forecasted currency derivative transactions due to changes in related future cash flows. Refer to Note 9, Financial Instruments.
18
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 September 30, 2022 | As of December 31, 2021 | ||||||||||||||||||||||
| Asset Derivatives | Liability Derivatives | Asset Derivatives | Liability Derivatives | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
Derivatives designated as accounting hedges: | |||||||||||||||||||||||
| Currency exchange contracts | $ | $ | $ | $ | |||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||
Net investment hedge derivative contracts (1) | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Derivatives not designated as accounting hedges: | |||||||||||||||||||||||
| Currency exchange contracts | $ | $ | $ | $ | |||||||||||||||||||
| Commodity contracts | |||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||
Equity method investment contracts (2) | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Total fair value | $ | $ | $ | $ | |||||||||||||||||||
(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 the bifurcated embedded derivative option that was a component of the September 20, 2021 €300 million exchangeable bonds issuance. Refer to Note 6, Equity Method Investments .
Derivatives designated as accounting hedges include cash flow and net investment hedge derivative contracts. Our currency exchange, commodity derivative and equity method investment contracts are economic hedges that are not designated as accounting hedges. 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 September 30, 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 | $ | $ | $ | $ | |||||||||||||||||||
| Commodity contracts | ( | ||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||
| Net investment hedge contracts | |||||||||||||||||||||||
| Equity method investment contracts | ( | ( | |||||||||||||||||||||
| Total derivatives | $ | $ | ( | $ | $ | ||||||||||||||||||
19
| As of December 31, 2021 | |||||||||||||||||||||||
| 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 | $ | $ | $ | $ | |||||||||||||||||||
| Commodity contracts | |||||||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||
| Net investment hedge contracts | |||||||||||||||||||||||
| Equity method investment contracts | ( | ( | |||||||||||||||||||||
| Total derivatives | $ | $ | $ | $ | |||||||||||||||||||
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 September 30, 2022 | As of December 31, 2021 | ||||||||||
| (in millions) | |||||||||||
| Currency exchange contracts: | |||||||||||
Intercompany loans and forecasted interest payments | $ | $ | |||||||||
Forecasted transactions | |||||||||||
| Commodity contracts | |||||||||||
| Interest rate contracts | |||||||||||
| Net investment hedges: | |||||||||||
| Net investment hedge derivative contracts | |||||||||||
| Non-U.S. dollar debt designated as net investment hedges | |||||||||||
Euro notes | |||||||||||
British pound sterling notes | |||||||||||
Swiss franc notes | |||||||||||
Canadian dollar notes | |||||||||||
20
Cash Flow Hedges:
Cash flow hedge activity, net of taxes, within accumulated other comprehensive earnings/(losses) included:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Accumulated (loss)/gain at beginning of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Transfer of realized losses/(gains) in fair value to earnings | ( | ( | ( | ( | |||||||||||||||||||
| Unrealized (loss)/gain in fair value | |||||||||||||||||||||||
| Accumulated (loss)/gain at end of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
After-tax gains/(losses) reclassified from accumulated other comprehensive earnings/(losses) to net earnings were:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Currency exchange contracts – forecasted transactions | $ | ( | $ | $ | ( | $ | |||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
After-tax gains/(losses) recognized in other comprehensive earnings/(losses) were:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Currency exchange contracts – forecasted transactions | $ | $ | ( | $ | $ | ||||||||||||||||||
| Interest rate contracts | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Cash flow hedge ineffectiveness was not material for all periods presented.
We record pre-tax (i) gains or losses reclassified from accumulated other comprehensive earnings/(losses) into earnings, (ii) gains or losses on ineffectiveness and (iii) gains or losses on amounts excluded from effectiveness testing in interest and other expense, net for interest rate contracts.
Based on current market conditions, we would expect to transfer losses of $13 million (net of taxes) for interest rate cash flow hedges to earnings during the next 12 months.
Cash Flow Hedge Coverage:
As of September 30, 2022, our longest dated cash flow hedges were interest rate swaps that hedge forecasted interest rate payments over the next 3 years, 11 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 September 30, 2022 was $6.5 billion.
21
Net investment hedge derivative contract impacts on other comprehensive earnings and net earnings were:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
After-tax gain/(loss) on NIH contracts(1) | $ | $ | $ | $ | |||||||||||||||||||
(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 September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
Amounts excluded from the assessment of hedge effectiveness(1) | $ | $ | $ | $ | |||||||||||||||||||
(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 in the form of euro, British pound sterling, Swiss franc and Canadian dollar-denominated debt were recorded within the cumulative translation adjustment section of other comprehensive income and were:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Euro notes | $ | $ | $ | $ | |||||||||||||||||||
| British pound sterling notes | |||||||||||||||||||||||
| Swiss franc notes | |||||||||||||||||||||||
| Canadian notes | ( | ||||||||||||||||||||||
Economic Hedges:
Pre-tax gains/(losses) recorded in net earnings for economic hedges were:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | Location of Gain/(Loss) Recognized in Earnings | |||||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Currency exchange contracts: | |||||||||||||||||||||||||||||
| Intercompany loans and forecasted interest payments | $ | ( | $ | ( | $ | ( | $ | Interest and other expense, net | |||||||||||||||||||||
Forecasted transactions | ( | Cost of sales | |||||||||||||||||||||||||||
Forecasted transactions | ( | ( | Interest and other expense, net | ||||||||||||||||||||||||||
Forecasted transactions | ( | ( | ( | Selling, general and administrative expenses | |||||||||||||||||||||||||
| Commodity contracts | ( | Cost of sales | |||||||||||||||||||||||||||
| Equity method investment contracts | ( | ( | Gain on equity method investment transactions | ||||||||||||||||||||||||||
| Total | $ | ( | $ | $ | $ | ||||||||||||||||||||||||
In the first quarter of 2022, we had early settlements of forecasted currency exchange contracts comprised of $74 million in cost of sales, $5 million in selling, general and administrative expenses and $20 million in interest and other expense, net.
22
Fair Value of Contingent Consideration
The following is a summary of our contingent consideration liability activity:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Liability at beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Contingent consideration arising from acquisitions | |||||||||||||||||||||||
| Changes in fair value | ( | ( | |||||||||||||||||||||
| Currency | ( | ||||||||||||||||||||||
| Liability at end of period | $ | $ | $ | $ | |||||||||||||||||||
Contingent consideration was recorded at fair value in the condensed consolidated balance sheets as follows:
| As of September 30, 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) | |||||||||||||||||||||||
Clif Bar(1) | $ | $ | $ | ||||||||||||||||||||
Other(2) | |||||||||||||||||||||||
| Total contingent consideration | $ | $ | $ | $ | |||||||||||||||||||
| As of December 31, 2021 | |||||||||||||||||||||||
| 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) | |||||||||||||||||||||||
Other(2) | $ | $ | $ | $ | |||||||||||||||||||
| Total contingent consideration | $ | $ | $ | $ | |||||||||||||||||||
(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 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 $101 million classified as other current liabilities at September 30, 2022 and $57 million and $159 million classified as long term liabilities at September 30, 2022 and December 31, 2021. 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.
23
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 September 30, | For the Three Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Amortization: | |||||||||||||||||||||||
| Net loss from experience differences | |||||||||||||||||||||||
| Prior service cost/(benefit) | ( | ||||||||||||||||||||||
Curtailment credit (1) | ( | ||||||||||||||||||||||
| Settlement losses and other expenses | |||||||||||||||||||||||
| Net periodic pension cost/(benefit) | $ | $ | $ | ( | $ | ( | |||||||||||||||||
| U.S. Plans | Non-U.S. Plans | ||||||||||||||||||||||
| For the Nine Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||||||||
| Amortization: | |||||||||||||||||||||||
| Net loss from experience differences | |||||||||||||||||||||||
| Prior service cost/(benefit) | ( | ( | |||||||||||||||||||||
Curtailment credit (1) | ( | ||||||||||||||||||||||
| Settlement losses and other expenses | |||||||||||||||||||||||
| Net periodic pension cost/(benefit) | $ | $ | $ | ( | $ | ( | |||||||||||||||||
(1)During the third quarter of 2021, we terminated our Defined Benefit Pension Scheme in Nigeria. During the second quarter of 2021, we made a decision to freeze our Defined Benefit Pension Scheme in the United Kingdom. As a result, we recognized curtailment credits of $(3 million) for the three months and $(17 million) for the nine months ended September 30, 2021 recorded within benefit plan non-service income. In connection with the United Kingdom plan freeze, we also incurred incentive payment charges and other expenses of $2 million for the three months and $47 million for the nine months ended September 30, 2021 included in operating income.
Employer Contributions:
During the nine months ended September 30, 2022, we contributed $3 million to our U.S. pension plans and $137 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 September 30, 2022, we plan to make further contributions of approximately $46 million to our non-U.S. plans for the remainder of 2022. 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.
24
Multiemployer Pension Plans:
On July 11, 2019, we received an undiscounted withdrawal liability assessment related to our complete withdrawal 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 and $8 million in the three and nine months ended September 30, 2022 and $2 million and $8 million in the three and nine months ended September 30, 2021 within interest and other expense, net. As of September 30, 2022, the remaining discounted withdrawal liability was $348 million, with $15 million recorded in other current liabilities and $333 million recorded in long-term other liabilities.
Postretirement Benefit Plans
Net periodic postretirement health care cost/(benefit) consisted of the following:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Amortization: | |||||||||||||||||||||||
| Net loss from experience differences | |||||||||||||||||||||||
| Prior service credit | |||||||||||||||||||||||
| Net periodic postretirement health care cost/(benefit) | $ | $ | $ | $ | |||||||||||||||||||
Postemployment Benefit Plans
Net periodic postemployment cost consisted of the following:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Amortization of net gains | ( | ( | ( | ( | |||||||||||||||||||
| Net periodic postemployment cost | $ | $ | $ | $ | |||||||||||||||||||
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, 2022 | $ | $ | million | ||||||||||||||||||||
| Annual grant to eligible employees | |||||||||||||||||||||||
| Additional options issued | |||||||||||||||||||||||
| Total options granted | |||||||||||||||||||||||
Options exercised (1) | ( | $ | million | ||||||||||||||||||||
| Options canceled | ( | ||||||||||||||||||||||
| Balance at September 30, 2022 | $ | million | |||||||||||||||||||||
(1)Cash received from options exercised was $22 million in the three months and $123 million in the nine months ended September 30, 2022. The actual tax benefit realized and recorded in the provision for income taxes for the tax deductions from the option exercises totaled $3 million in the three months and $17 million in the nine months ended September 30, 2022.
25
Performance Share Units and Other Stock-Based Awards:
Our performance share unit, deferred stock unit and historically granted restricted stock activity is reflected below:
| Number of Shares | Grant Date | Weighted-Average Fair Value Per Share (3) | Weighted-Average Aggregate Fair Value (3) | ||||||||||||||||||||
| Balance at January 1, 2022 | $ | ||||||||||||||||||||||
| Annual grant to eligible employees: | |||||||||||||||||||||||
| Performance share units | |||||||||||||||||||||||
| Deferred stock units | |||||||||||||||||||||||
Additional shares granted (1) | Various | ||||||||||||||||||||||
| Total shares granted | $ | million | |||||||||||||||||||||
Vested (2) | ( | $ | million | ||||||||||||||||||||
| Forfeited | ( | ||||||||||||||||||||||
| Balance at September 30, 2022 | |||||||||||||||||||||||
(1)Includes performance share units and deferred stock units.
(2)The actual tax benefit realized and recorded in the provision for income taxes for the tax deductions from the shares vested totaled less than $1 million in the three months and $4 million in the nine months ended September 30, 2022.
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. Repurchases under the program are determined by management and are wholly discretionary. Prior to January 1, 2022, we had repurchased approximately $20.0 billion of Common Stock pursuant to this authorization. During the nine months ended September 30, 2022, we repurchased approximately 29 million shares of Common Stock at an average cost of $63.78 per share, or an aggregate cost of approximately $1.8 billion, all of which was paid during the period except for approximately $20 million settled in October 2022. All share repurchases were funded through available cash and commercial paper issuances. As of September 30, 2022, we have approximately $1.8 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
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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.
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 restricting cross-border trade within the European Economic Area. On January 28, 2021, the European Commission announced it took the next procedural step in its investigation and opened formal proceedings. We are cooperating with the investigation and are engaging with the European Commission as its investigation proceeds. It is not possible to predict how long the investigation will take or the ultimate outcome of this matter.
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 September 30, 2022, 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.
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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 $103 million in the third quarter of 2022 and $26 million in the third quarter of 2021 and $143 million in the first nine months of 2022 and $63 million in the first nine months of 2021.
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Currency Translation Adjustments: | |||||||||||||||||||||||
| Balance at beginning of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Currency translation adjustments | ( | ( | ( | ( | |||||||||||||||||||
| Tax (expense)/benefit | ( | ( | |||||||||||||||||||||
| Other comprehensive earnings/(losses) | ( | ( | ( | ( | |||||||||||||||||||
| Less: other comprehensive (earnings)/loss attributable to noncontrolling interests | |||||||||||||||||||||||
| Balance at end of period | ( | ( | ( | ( | |||||||||||||||||||
| Pension and Other Benefit Plans: | |||||||||||||||||||||||
| Balance at beginning of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net actuarial gain/(loss) arising during period | ( | ||||||||||||||||||||||
| Tax (expense)/benefit on net actuarial gain/(loss) | ( | ( | ( | ||||||||||||||||||||
| Losses/(gains) reclassified into net earnings: | |||||||||||||||||||||||
Amortization of experience losses and prior service costs (2) | |||||||||||||||||||||||
Settlement losses and other expenses (2) | |||||||||||||||||||||||
Curtailment credit (2) | ( | ( | |||||||||||||||||||||
Tax expense/(benefit) on reclassifications (3) | ( | ( | ( | ( | |||||||||||||||||||
| Currency impact | |||||||||||||||||||||||
| Other comprehensive earnings/(losses) | |||||||||||||||||||||||
| Balance at end of period | ( | ( | ( | ( | |||||||||||||||||||
| Derivative Cash Flow Hedges: | |||||||||||||||||||||||
| Balance at beginning of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net derivative gains/(losses) | |||||||||||||||||||||||
| Tax (expense)/benefit on net derivative gain/(loss) | |||||||||||||||||||||||
| Losses/(gains) reclassified into net earnings: | |||||||||||||||||||||||
Currency exchange contracts(4) | |||||||||||||||||||||||
Interest rate contracts (2)(4) | ( | ( | ( | ( | |||||||||||||||||||
Tax expense/(benefit) on reclassifications (3) | ( | ( | ( | ||||||||||||||||||||
| Currency impact | |||||||||||||||||||||||
| Other comprehensive earnings/(losses) | ( | ||||||||||||||||||||||
| Balance at end of period | ( | ( | ( | ( | |||||||||||||||||||
| Accumulated other comprehensive income attributable to Mondelēz International: | |||||||||||||||||||||||
| Balance at beginning of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Total other comprehensive earnings/(losses) | ( | ( | ( | ( | |||||||||||||||||||
| Less: other comprehensive (earnings)/loss attributable to noncontrolling interests | |||||||||||||||||||||||
| Other comprehensive earnings/(losses) attributable to Mondelēz International | ( | ( | ( | ( | |||||||||||||||||||
| Balance at end of period | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
(1)These reclassified losses are included in net periodic benefit costs disclosed in Note 10, Benefit Plans.
(2)These amounts include equity method investment transactions recorded within gain on equity method investment transactions.
(3)Taxes reclassified to earnings are recorded within the provision for income taxes.
(4)These reclassified gains or losses are recorded within interest and other expense, net.
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Note 14. Income Taxes
As of the third quarter of 2022, our estimated annual effective tax rate, which excludes discrete tax impacts, was 24.0 %. 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 as well as the expense related to the buyout of the Clif Bar ESOP that was recorded to third quarter earnings before income taxes with no associated income tax benefit, as any tax impacts are included in the tax purchase price. Our 2022 third quarter effective tax rate of 28.8 % was high due to the Clif Bar ESOP expense. Excluding this impact, our third quarter effective tax rate of 19.9 % was favorably impacted by discrete net tax benefits of $28 million. The discrete net tax benefit primarily consisted of a $43 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, partially offset by a $13 million expense from U.S. state tax law changes. Our effective tax rate for the nine months ended September 30, 2022 of 24.2 % considers the unfavorable impacts of the Ukraine loss and the Clif Bar ESOP expense as well as favorable discrete net tax benefits of $92 million. The discrete net tax benefit primarily consisted of a $75 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 and a $43 million net benefit from the Chipita acquisition, partially offset by $22 million expense from tax law changes in various jurisdictions.
As of the third quarter of 2021, our estimated annual effective tax rate, which excluded discrete tax impacts, was 23.0 %. 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. Our 2021 third quarter effective tax rate of 27.4 % was high due to a $59 million tax expense incurred in connection with the KDP share sale that occurred during the third quarter (the related gain is reported separately in our statement of earnings and thus not included in earnings before income taxes). Excluding this impact, our third quarter effective tax rate was 22.7 %, including a discrete net tax expense of $11 million primarily driven by the change in liabilities for uncertain tax positions in several jurisdictions. Our effective tax rate for the nine months ended September 30, 2021 of 29.5 % was also high due to the $187 million net tax expense incurred in connection with the KDP share sales during the second and third quarters. Excluding this impact, our effective tax rate for the nine months ended September 30, 2021 was 23.7 %, which was unfavorably impacted by discrete net tax expense of $26 million, primarily driven by $95 million net tax expense from the increase of our deferred tax liabilities resulting from enacted tax legislation (mainly in the United Kingdom), partially offset by a $45 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 and a $27 million benefit from a U.S. amended tax return filed to reflect new guidance from the U.S. Treasury Department.
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Note 15. Earnings per Share
Basic and diluted earnings per share (“EPS”) were calculated as follows:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions, except per share data) | |||||||||||||||||||||||
| Net earnings | $ | $ | $ | $ | |||||||||||||||||||
| Noncontrolling interest earnings | ( | ( | ( | ( | |||||||||||||||||||
| Net earnings attributable to Mondelēz International | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average shares for basic EPS | |||||||||||||||||||||||
| Plus incremental shares from assumed conversions of stock options and long-term incentive plan shares | |||||||||||||||||||||||
| Weighted-average shares for diluted EPS | |||||||||||||||||||||||
| Basic earnings per share attributable to Mondelēz International | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share attributable to Mondelēz International | $ | $ | $ | $ | |||||||||||||||||||
We exclude antidilutive Mondelēz International stock options from our calculation of weighted-average shares for diluted EPS. We excluded antidilutive stock options and performance share units of 3.3 million in the third quarter of 2022 and 2.7 million in the third quarter of 2021 and 2.9 million in the first nine months of 2022 and 3.0 million in the first nine months of 2021.
Note 16. Segment Reporting
We manufacture and market primarily snack food products, including biscuits, chocolate, gum & candy and various cheese & grocery products, as well as powdered beverage products.
We manage our global business and report operating results through geographic units. We manage our operations by region to leverage regional operating scale, manage different and changing business environments more effectively and pursue growth opportunities as they arise 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.
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Our segment net revenues and earnings were:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net revenues: | |||||||||||||||||||||||
| Latin America | $ | $ | $ | $ | |||||||||||||||||||
| AMEA | |||||||||||||||||||||||
| Europe | |||||||||||||||||||||||
| North America | |||||||||||||||||||||||
| Net revenues | $ | $ | $ | $ | |||||||||||||||||||
Earnings before income taxes: | |||||||||||||||||||||||
| Operating income: | |||||||||||||||||||||||
| Latin America | $ | $ | $ | $ | |||||||||||||||||||
| AMEA | |||||||||||||||||||||||
| Europe | |||||||||||||||||||||||
| North America | |||||||||||||||||||||||
| Unrealized (losses)/gains on hedging activities (mark-to-market impacts) | ( | ( | |||||||||||||||||||||
| General corporate expenses | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of intangible assets | ( | ( | ( | ( | |||||||||||||||||||
| Gain on acquisition | |||||||||||||||||||||||
| Acquisition-related costs | ( | ( | ( | ||||||||||||||||||||
| Operating income | |||||||||||||||||||||||
| Benefit plan non-service income | |||||||||||||||||||||||
| Interest and other expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Earnings before income taxes | $ | $ | $ | $ | |||||||||||||||||||
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.
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Net revenues by product category were:
| For the Three Months Ended September 30, 2022 | |||||||||||||||||||||||||||||
| Latin America | AMEA | Europe | North America | Total | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Biscuits | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Chocolate | |||||||||||||||||||||||||||||
| Gum & Candy | |||||||||||||||||||||||||||||
| Beverages | |||||||||||||||||||||||||||||
| Cheese & Grocery | |||||||||||||||||||||||||||||
| Total net revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
For the Three Months Ended September 30, 2021 (1) | |||||||||||||||||||||||||||||
| Latin America | AMEA | Europe | North America | Total | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Biscuits | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Chocolate | |||||||||||||||||||||||||||||
| Gum & Candy | |||||||||||||||||||||||||||||
| Beverages | |||||||||||||||||||||||||||||
| Cheese & Grocery | |||||||||||||||||||||||||||||
| Total net revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||
| Latin America | AMEA | Europe | North America | Total | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Biscuits | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Chocolate | |||||||||||||||||||||||||||||
| Gum & Candy | |||||||||||||||||||||||||||||
| Beverages | |||||||||||||||||||||||||||||
| Cheese & Grocery | |||||||||||||||||||||||||||||
| Total net revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
For the Nine Months Ended September 30, 2021 (1) | |||||||||||||||||||||||||||||
| Latin America | AMEA | Europe | North America | Total | |||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Biscuits | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Chocolate | |||||||||||||||||||||||||||||
| Gum & Candy | |||||||||||||||||||||||||||||
| Beverages | |||||||||||||||||||||||||||||
| Cheese & Grocery | |||||||||||||||||||||||||||||
| Total net revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
(1) Our snack product categories include biscuits, chocolate and gum & candy. During the first quarter of 2022, we realigned some of our products between our biscuits and chocolate categories; as such, we reclassified the product category net revenues on a basis consistent with the 2022 presentation.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Description of the Company
We make and sell primarily snacks, including biscuits, chocolate, gum & candy as well as various cheese & grocery and powdered beverage products around the world.
We aim to be the global leader in snacking. In May 2022, we announced the evolution of our strategy to drive long-term growth by focusing on four strategic pillars and priorities: accelerating consumer-centric growth, driving operational excellence, creating a winning growth culture and scaling sustainable snacking. We also announced our plans to reshape our portfolio, with a focus on extending our leadership positions in chocolate and biscuits as well as baked snacks. We seek to further enable our growth by investing in our strong and inclusive talent, brand portfolio and digital technologies and skills, as well as our sales and marketing capabilities. We believe the successful implementation of our strategic priorities and leveraging of our strong foundation of iconic global and local brands, an attractive global footprint, our market leadership in developed and emerging markets, our deep innovation, marketing and distribution capabilities, and our efficiency and sustainability efforts, will drive top- and bottom-line growth, enabling us to continue to create long-term value for our shareholders.
Recent Developments and Significant Items Affecting Comparability
War in Ukraine
In February 2022, Russia began a military invasion of Ukraine. For the safety of our employees, we stopped production and closed our facilities in Ukraine. We are providing all of our employees with compensation and with help in securing shelter in neighboring countries. We have also made cash and in-kind donations to several humanitarian aid organizations in the region.
In March 2022, our two Ukrainian manufacturing facilities in Trostyanets and Vyshhorod were significantly damaged. In connection with the damage to these plants and impairment of other assets, primarily inventory, other plant, property and equipment, as well as increased allowances on our receivables, during the first quarter of 2022, we recorded $143 million of charges directly incurred as a result of the war in Ukraine, including an accrual for continued compensation for our employees in Ukraine (see Note 1, Basis of Presentation, to the condensed consolidated financial statements, and refer to Items Affecting Comparability of Financial Results for additional information). We have increased operations and continue to provide resources in other primarily European manufacturing and distribution facilities to seek to continue supplying our Ukraine business's customers and consumers across Europe.
During the second and third quarters of 2022, the war continued through parts of Ukraine. We continue to make targeted repairs on both our plants. We relaunched our systems and implemented additional safety and security measures. In late June, we partially reopened the Vyshhorod plant and restarted limited potato chip production. During the second and third quarters of 2022, we reversed approximately $15 million and $7 million, respectively, of previously recorded charges primarily as a result of higher than expected collection of trade receivables and inventory recoveries.
As a food company, we continue to work to support the continuity of food supply and provide packaged foods to consumers. We have discontinued new capital investments and suspended our advertising spending in Russia, but as a food company with more than 2,500 employees in Russia, we have not ceased operations given we believe we play a role in the continuity of the food supply. We are required to comply with applicable international sanctions and other measures that have been or may be imposed on Russian entities. We continue to evaluate the situation in Ukraine and Russia and our ability to control our operating activities and businesses on an ongoing basis, and we continue to consolidate both our Ukrainian and Russian subsidiaries. Prior to the onset of the war, Ukraine generated 0.5% and Russia generated 2.9% of 2021 consolidated net revenues. During the nine months ended September 30, 2022, Ukraine generated 0.3% and Russia generated 3.6% of consolidated net revenue. Our Russian business has grown as a result of the recent strengthening of the Russian ruble versus the U.S. dollar and increased demand for packaged foods. The war has not had a material impact on our Russian business through the first nine months of 2022.
We provide more information on risks related to the war in Ukraine in our Financial Outlook and Commodity Trends section, Item 3, Quantitative and Qualitative Disclosures about Market Risk and under Item 1A, Risk Factors.
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COVID-19 and Inflationary Cost Environment
In the third year of the COVID-19 global pandemic, our main priority remains the safety of our employees as well as continuing to help maintain the global food supply. During the pandemic, we experienced an overall increase in demand and revenue growth as consumers increased their food purchases for in-home consumption in many markets, while parts of our business were negatively affected by related lockdowns and restrictions. In late 2021, global supply chain, transportation and labor issues escalated and we experienced significantly higher operating costs, including higher overall raw material, transportation, labor and energy costs that have continued to rise in 2022.
During the first nine months of 2022, our net revenues continued to increase with growth of 8.3% and Organic Net Revenue growth of 11.2%, compared to the first nine months of 2021. Throughout 2022, we continued to see increased demand primarily for our snack category products and revenue growth in both our emerging and developed markets relative to the first nine months of 2021. We continued to also experience significantly higher operating costs. See additional details on our results in our Discussion and Analysis of Historical Results.
During the pandemic and the related inflationary environment, we continued to closely monitor our cash position and cash flows and worked to increase our access to financing. As of September 30, 2022, our liquidity remains strong. During the first nine months of 2022, we funded our acquisitions of Chipita and Clif Bar (see additional information below) and also issued $2.5 billion of new long-term debt in order to refinance approximately $2 billion of tendered and redeemed debt (refer to Note 8, Debt and Borrowing Arrangements for details) ahead of the rising interest rate environment. We generated $2.5 billion of cash from operations during the first nine months of 2022, ending the quarter with cash and cash equivalents of $2.2 billion as of September 30, 2022. We also had $9 billion of unused credit facilities available as of September 30, 2022 as well as ongoing access to financing markets as evidenced by the incremental term loan facility we entered into and announced on July 11, 2022. Our JDE Peet's and KDP equity method investments also give us additional financial flexibility.
We will continue to proactively manage our business in response to the evolving global economic environment and related uncertainty and business risks while also prioritizing and supporting our employees and customers. We continue to take steps to mitigate impacts to our supply chain, operations, technology and assets. We intend to continue to execute on our new strategic and operating plans as the situation evolves. We seek to further our strategic priorities and position the Company to withstand the current uncertainties and emerge stronger.
Acquisitions and Divestitures
During the second quarter of 2022, we announced our intention to divest our developed market gum and global Halls candy businesses. Refer to Financial Outlook below for additional details.
On November 1, 2022, we completed our acquisition of Ricolino, a confectionery business located primarily in Mexico, for a purchase price of approximately $1.3 billion.
On August 1, 2022, we completed our acquisition of Clif Bar, a leading U.S. maker of nutritious energy bars with organic ingredients. We paid cash consideration of $2.9 billion, which includes purchase price consideration of $2.6 billion, net of cash received and compensation expense of $0.3 billion related to the buyout of the non-vested ESOP shares.
On January 3, 2022, we completed our acquisition of Chipita Global S.A. ("Chipita"), which is a strategic complement to our existing snacks portfolio and advances our strategy to become the global leader in broader snacking. We paid cash consideration of €1.2 billion ($1.4 billion), net of cash received, and we assumed and paid down €0.5 billion ($0.4 billion) of Chipita's debt in January for a total purchase price of approximately €1.7 billion ($1.8 billion).
Refer to our Discussion and Analysis of Historical Results for more information on the impact of the Ricolino, Clif Bar and Chipita acquisitions on our results and refer to Note 2, Acquisitions and Divestitures, for additional details.
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JDE Peet's and KDP Equity Method Investment Transactions
JDE Peet's
On May 8, 2022, we sold approximately 18.6 million JDE Peet's shares directly back to JDE Peet's, which reduced our ownership interest to 19.8%. We received €500 million ($529 million) of proceeds and recorded a loss of €8 million ($8 million) on this sale during the second quarter of 2022.
KDP
On June 7, 2021, we participated in a secondary offering of KDP shares and sold approximately 28 million shares, which reduced our ownership interest to 6.4% of the total outstanding shares. We received $997 million of proceeds and recorded a pre-tax gain of $520 million (or $392 million after-tax) during the second quarter of 2021. On August 2, 2021, we sold approximately 14.7 million KDP shares, which reduced our ownership interest to 5.3%. We received $500 million of proceeds and recorded a pre-tax gain of $248 million (or $189 million after-tax) during the third quarter of 2021. The cash taxes associated with both KDP share sales were paid in 2021.
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Summary of Results
•Net revenues increased 8.1% to $7.8 billion in the third quarter of 2022 and increased 8.3% to $22.8 billion in the first nine months of 2022 as compared to the same period in the prior year. In the third quarter and first nine months of 2022, our net revenue growth continued to reflect increased demand for most of our snack category products in both our emerging and developed markets relative to 2021. Overall, our net revenue growth in the third quarter and first nine months of 2022 was driven by higher net pricing, incremental net revenues from acquisitions and favorable volume/mix, partially offset by unfavorable currency translation and the impact of divestitures.
•Organic Net Revenue, a non-GAAP financial measure, increased 12.1% to $8.0 billion in the third quarter of 2022 and increased 11.2% to $23.3 billion in the first nine months of 2022 as compared to same period in the prior year. During the third quarter and first nine months of 2022, Organic Net Revenue grew due to higher net pricing and favorable volume/mix. Refer to our Discussion and Analysis of Historical Results below for additional information. Organic Net Revenue is on a constant currency basis and excludes revenue from acquisitions and divestitures. We use Organic Net Revenue as it provides improved year-over-year comparability of our underlying operating results (see the definition of Organic Net Revenue and our reconciliation with net revenues within Non-GAAP Financial Measures appearing later in this section).
•Diluted EPS attributable to Mondelēz International decreased 56.2% to $0.39 in the third quarter of 2022 and decreased 33.9% to $1.54 in the first nine months of 2022 as compared to the same period in the prior year.
–Diluted EPS decreased in the third quarter of 2022, primarily driven by acquisition-related costs incurred in 2022, an unfavorable year-over-year change in mark-to-market impacts from currency and commodity derivatives, lapping a prior-year net gain on equity method transactions, higher acquisition integration costs and contingent consideration adjustments, intangible asset impairment charges incurred in 2022 and inventory step-up charges incurred in 2022, partially offset by lower Simplify to Grow program costs and an increase in Adjusted EPS.
–Diluted EPS decreased during the first nine months of 2022, primarily driven by lapping prior-year net gains on equity method transactions, unfavorable year-over-year mark-to-market impacts from currency and commodity derivatives, higher acquisition-related costs, incremental costs incurred due to the war in Ukraine, higher acquisition integration costs and contingent consideration adjustments, higher intangible asset impairment charges, lower net earnings from divestitures and inventory step-up charges incurred in 2022, partially offset by lower Simplify to Grow program costs, an increase in Adjusted EPS, lower negative impacts from enacted tax law changes, lower equity method investee items and lapping the prior-year negative impact from pension participation changes.
•Adjusted EPS, a non-GAAP financial measure, increased 5.7% to $0.74 in the third quarter of 2022 and increased 3.7% to $2.22 in the first nine months of 2022 as compared to the same period in the prior year. On a constant currency basis, Adjusted EPS increased 15.7% to $0.81 in the third quarter of 2022 and up 12.6% to $2.41 in the first nine months of 2022 as compared to the same periods in the prior year.
–Adjusted EPS increased in the third quarter of 2022, primarily driven by operating gains, lower taxes primarily due to higher net benefits from non-recurring discrete tax items, fewer shares outstanding and higher equity method earnings, partially offset by unfavorable currency translation and higher interest expense.
–Adjusted EPS increased during the first nine months of 2022, primarily driven by operating gains, fewer shares outstanding and lower taxes, partially offset by unfavorable currency translation, lower benefit plan non-service income and higher interest expense.
Adjusted EPS and Adjusted EPS on a constant currency basis are non-GAAP financial measures. We use these measures as they provide improved year-over-year comparability of our underlying results (see the definition of Adjusted EPS and our reconciliation with diluted EPS within Non-GAAP Financial Measures appearing later in this section).
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Financial Outlook
We seek to achieve profitable, long-term growth and manage our business to attain this goal using our key operating metrics: Organic Net Revenue, Adjusted Operating Income and Adjusted EPS. We use these non-GAAP financial metrics and related computations, particularly growth in profit dollars, to evaluate and manage our business and to plan and make near- and long-term operating and strategic decisions. As such, we believe these metrics are useful to investors as they provide supplemental information in addition to our U.S. Generally Accepted Accounting Principles ("U.S. GAAP") financial results. We believe it is useful to provide investors with the same financial information that we use internally to make comparisons of our historical operating results, identify trends in our underlying operating results and evaluate our business. We believe our non-GAAP financial measures should always be considered in relation to our U.S. GAAP results. We have provided reconciliations between our U.S. GAAP and non-GAAP financial measures in Non-GAAP Financial Measures, which appears later in this section.
In addition to monitoring our key operating metrics, we monitor developments and trends that could impact our revenue and profitability objectives, similar to those we highlighted in our most recently filed Annual Report on Form 10-K for the year ended December 31, 2021 and discussed in the footnotes to our financial statements.
•Market conditions. Snack categories continued to grow in the first nine months of 2022. This is consistent with the latest findings in the third annual State of Snacking report, commissioned by Mondelēz International and issued in January 2022. The research report was conducted in conjunction with consumer poll specialist The Harris Poll and summarizes the findings from interviews with thousands of consumers across 12 countries. The report underscores the growth of snacking worldwide and how behavior, sentiment and routines surrounding food are being reshaped by factors such as the COVID-19 pandemic. Snacking, which was already increasing among consumers, continues to grow as we noted in our latest Annual Report on Form 10-K. Our outlook for future snacks revenue growth remains strong, but we anticipate some volatility in revenues while current events and conditions continue. As the COVID-19 pandemic, inflationary cost environment, war in Ukraine and related impacts continue, we could see shifts in consumer demand and in our sales and product mix that could have a negative impact on our results. We continue to monitor volatility across markets, including global consumer, energy and other commodity, transportation, labor, currency and capital markets. We expect greater inflation, including input cost volatility and a higher aggregate cost environment to continue in 2022, as the war in Ukraine, the pandemic, supply chain disruptions (affecting the availability of raw materials, packaging, transportation and other costs), rising energy costs, labor shortages, adverse weather events and conditions and other factors are expected to continue. Although we hedge to mitigate exposures to commodity and other input cost increases, we cannot fully hedge against all cost increases and changes in costs, and our hedging strategies may not protect us from increases in specific raw materials or other costs. Refer also to Commodity Trends and Item 3, Quantitative and Qualitative Disclosures about Market Risk.
•War in Ukraine. We expect to experience heightened volatility and higher costs in international supply chains and global markets (including energy and other commodities, currencies and capital markets) in connection with the war in Ukraine with related negative impacts to our operating results that we cannot fully predict with certainty. We also expect increased inflationary pressures that will adversely impact our operating costs, particularly as the war continues. Demand for our products may also be negatively impacted, particularly in those markets closest to Ukraine or other markets that are more vulnerable to consumer price increases. We have expanded operations in other European facilities and are adapting to continue supplying the majority of our Ukraine business's customers and consumers across Europe. We continue to take action and evaluate additional ways to mitigate risks, including executing business continuity plans to cover products produced in Ukraine and taking actions to adjust product offerings, package sizes and pricing to help address rising costs. In addition, while our business in Russia has continued to perform well in 2022, we may experience negative impacts to our business in the future due to the war in Ukraine, including challenges to supply products as a result of sanctions or other supply chain challenges, reductions in consumer demand or local government actions that negatively impact our business. Our continued operating presence in Russia may result in negative publicity or consumer actions against our brands, which may have negative impacts on our business. We may also experience increased cyber attacks from state sponsored threat actors with ransomware or other type of malware attacks due to a heightened level of malicious cyber activity as a result of the war in Ukraine. While we are working to mitigate negative effects on our business, we may not be able to fully predict or respond to all of the direct or indirect impacts on our business on a timely basis to prevent adverse impacts to our results. We also continue to monitor the situation in Russia and any risks to our employees, operations or assets. Any ongoing or new developments in the war could have a material negative effect on our business and results in the future.
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•Clif Bar acquisition. On August 1, 2022, we completed our acquisition of Clif Bar for approximately $2.9 billion. 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. In connection with this acquisition, we expect to generate a meaningful cash tax benefit over time from the amortization of acquisition-related intangibles. Refer to Note 2, Acquisitions and Divestitures, and Liquidity and Capital Resources for additional details.
•Ricolino acquisition. On November 1, 2022, we completed our acquisition of Ricolino, a confectionery business located primarily in Mexico, for a purchase price of approximately $1.3 billion. Refer to Note 2, Acquisitions and Divestitures, and Liquidity and Capital Resources for additional details.
•Planned Divestiture of our developed market gum and global Halls businesses. In May 2022, we announced our intention to divest these businesses and in the third quarter of 2022, we began to seek potential buyers for these businesses.
•Taxes. We continue to monitor existing and potential future tax reform around the world. On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on our initial analysis of the provisions, we expect to meet the criteria of a large corporation but we do not believe this legislation will have a material impact on our consolidated financial statements; we will continue to evaluate it as additional guidance and clarification becomes available. In addition, the Organization of Economic Cooperation and Development (OECD) continues to work toward agreement regarding model rules for a global minimum tax. This could have a material effect on us if enacted.
•Türkiye, Argentina and currency volatility. During 2022, currency exchange rate volatility increased, particularly in connection with the war in Ukraine, and we continue to monitor Ukraine and Russia and inflationary economic impacts there and in other countries. We discuss historical currency impacts in our Discussion and Analysis of Historical Results. As further discussed in Note 1, Basis of Presentation – Currency Translation and Highly Inflationary Accounting, during the first quarter of 2022, we concluded that Türkiye became a highly inflationary economy for accounting purposes. As of April 1, 2022, we began to apply highly inflationary accounting for our subsidiaries operating in Türkiye and changed their functional currency from the Turkish lira to the U.S. dollar. Our operations in Türkiye contributed $141 million or 0.6% of our condensed consolidated net revenues in the nine months ended September 30, 2022. Within selling, general and administrative expenses, we recorded a remeasurement gain of $1 million during the three months and nine months ended September 30, 2022 related to the revaluation of the Turkish lira denominated net monetary position. We also continue to apply highly inflationary accounting for our Argentinean subsidiaries. We recorded a remeasurement gain of $1 million during the three months and $1 million during the nine months ended September 30, 2022 within selling, general and administrative expenses related to the revaluation of our Argentinean peso denominated net monetary position. The mix of monetary assets and liabilities and the exchange rate to convert Turkish lira and Argentinean pesos to U.S. dollars could change over time, so it is difficult to predict the overall impact of Türkiye and Argentina highly inflationary accounting on future net earnings.
•U.K. advertising and promotion ban. In the United Kingdom, a ban on specific types of TV, online advertising and certain promotions of food containing levels of fat, sugar or salt above specified thresholds is expected to go into effect in 2024, and new measures restricting in-store placement of some of those products went into effect in October 2022. Although we are unable to estimate precisely the impact of the restrictions, they could significantly negatively affect our U.K. results of operations in 2022 and thereafter. In the nine months ended September 30, 2022, we generated 7.9% of our consolidated net revenues in the U.K.
•Cybersecurity Risks. Global cybersecurity risks continue to increase and we continue to be on heightened alert and dedicate focused resources to network security, backup and disaster recovery and to provide ongoing workforce training and employ security measures to protect our systems and data. We also continue to monitor threats in our environment, including but not limited to the manufacturing environment and operational technologies, as well as adjusting information security controls based on updated threats. While we have taken security measures to protect our systems and data, security measures cannot provide absolute certainty or guarantee that we will be successful in preventing or responding to every breach or disruption on a timely basis.
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Discussion and Analysis of Historical Results
Items Affecting Comparability of Financial Results
The following table includes significant income or (expense) items that affected the comparability of our results of operations and our effective tax rates. Please refer to the notes to the condensed consolidated financial statements indicated below for more information. Refer also to the Consolidated Results of Operations – Net Earnings and Earnings per Share Attributable to Mondelēz International table for the after-tax per share impacts of these items.
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| See Note | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||
| (in millions, except percentages) | |||||||||||||||||||||||||||||
| Simplify to Grow Program | Note 7 | ||||||||||||||||||||||||||||
| Restructuring charges | $ | 7 | $ | (62) | $ | (8) | $ | (250) | |||||||||||||||||||||
| Implementation charges | (23) | (65) | (62) | (132) | |||||||||||||||||||||||||
| Intangible asset impairment charges | Note 5 | (23) | — | (101) | (32) | ||||||||||||||||||||||||
Mark-to-market (losses)/gains from derivatives (1) | Note 9 | (120) | 134 | (220) | 268 | ||||||||||||||||||||||||
| Acquisition and divestiture-related costs: | Note 2 | ||||||||||||||||||||||||||||
Acquisition integration costs and contingent consideration adjustments (1) | (28) | 57 | (100) | 54 | |||||||||||||||||||||||||
| Inventory step-up | (20) | — | (20) | — | |||||||||||||||||||||||||
| Acquisition-related costs | (292) | — | (318) | (24) | |||||||||||||||||||||||||
| Gain on acquisition | — | — | — | 9 | |||||||||||||||||||||||||
| Divestiture-related costs | (6) | — | (12) | — | |||||||||||||||||||||||||
Incremental costs due to war in Ukraine (2) | Note 1 | 7 | — | (121) | — | ||||||||||||||||||||||||
| Remeasurement of net monetary position | Note 1 | (11) | (2) | (26) | (10) | ||||||||||||||||||||||||
Impact from pension participation changes (1) | Note 10 | (3) | (1) | (8) | (38) | ||||||||||||||||||||||||
Impact from resolution of tax matters (1) | Note 12 | — | — | — | 7 | ||||||||||||||||||||||||
| Loss on debt extinguishment and related expenses | Note 8 | — | — | (129) | (137) | ||||||||||||||||||||||||
| Initial impacts from enacted tax law changes | Note 14 | (13) | 4 | (22) | (95) | ||||||||||||||||||||||||
(Loss)/gain on equity method investment transactions (3) | (3) | 248 | (16) | 743 | |||||||||||||||||||||||||
Equity method investee items (4) | (1) | 4 | 13 | (51) | |||||||||||||||||||||||||
| Effective tax rate | Note 14 | 28.8 | % | 27.4 | % | 24.2 | % | 29.5 | % | ||||||||||||||||||||
(1)Includes impacts recorded in operating income and interest expense and other, net. Mark-to-market gains/(losses) above also include our equity method investment-related derivative contract mark-to-market gains/(losses) (refer to Note 9, Financial Instruments) that are recorded in the gain on equity method investment transactions on our condensed consolidated statement of earnings.
(2)Incremental costs due to the war in Ukraine include direct charges such as asset impairments due to damaged facilities and inventory, higher expected allowances for uncollectible accounts receivable and committed compensation. Please see the Non-GAAP Financial Measures section at the end of this item and Note 1, Basis of Presentation – War in Ukraine, for additional information.
(3)(Loss)/gain on equity method investment transactions is recorded outside pre-tax operating results on the condensed consolidated statement of earnings. See footnote (1) as mark-to-market gains/(losses) on our equity method-investment-related derivative contracts are presented in the table above within mark-to-market gains/(losses) from derivatives.
(4)Includes our proportionate share of significant operating and non-operating items recorded by our JDE Peet's and KDP equity method investees, including acquisition and divestiture-related costs and restructuring program costs.
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Consolidated Results of Operations
Three Months Ended September 30:
| For the Three Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ change | % change | ||||||||||||||||||||
| (in millions, except per share data) | |||||||||||||||||||||||
| Net revenues | $ | 7,763 | $ | 7,182 | $ | 581 | 8.1 | % | |||||||||||||||
| Operating income | 679 | 1,294 | (615) | (47.5) | % | ||||||||||||||||||
Net earnings attributable to Mondelēz International | $ | 532 | $ | 1,258 | $ | (726) | (57.7) | % | |||||||||||||||
Diluted earnings per share attributable to Mondelēz International | $ | 0.39 | $ | 0.89 | $ | (0.50) | (56.2) | % | |||||||||||||||
Net Revenues – Net revenues increased $581 million (8.1%) to $7,763 million in the third quarter of 2022, and Organic Net Revenue (1) increased $863 million (12.1%) to $8,018 million. Developed markets net revenues increased 1.5% and developed markets Organic Net Revenue increased 5.2% (1). Emerging markets net revenues increased 19.7% and emerging markets Organic Net Revenue increased 24.4% (1). The underlying changes in net revenues and Organic Net Revenue are detailed below:
| 2022 | |||||
| Change in net revenues (by percentage point) | |||||
| Total change in net revenues | 8.1 | % | |||
| Remove the following items affecting comparability: | |||||
| Unfavorable currency | 8.2 | pp | |||
| Impact of divestitures | 0.4 | pp | |||
| Impact of acquisitions | (4.6) | pp | |||
Total change in Organic Net Revenue (1) | 12.1 | % | |||
| Higher net pricing | 11.4 | pp | |||
| Favorable volume/mix | 0.7 | pp | |||
(1)Please see the Non-GAAP Financial Measures section at the end of this item.
Net revenue increase of 8.1% was driven by our underlying Organic Net Revenue growth of 12.1% and the impact of acquisitions, partially offset by unfavorable currency translation and the impact of divestitures. Overall, we continued to see increased demand for our snack category products. Organic Net Revenue growth was driven by higher net pricing and favorable volume/mix. Higher net pricing in all regions was due to the benefit of carryover pricing from 2021 as well as the effects of input cost-driven pricing actions taken during the first nine months of 2022. Favorable volume/mix was driven primarily by volume gains in Latin America and AMEA, partially offset by volume declines in Europe, due to disruptions caused by pricing negotiations, and North America. The August 1, 2022 acquisition of Clif Bar added incremental net revenues of $158 million (constant currency basis) and the January 3, 2022 acquisition of Chipita added incremental net revenues of $176 million (constant currency basis). Unfavorable currency impacts decreased net revenues by $590 million, due primarily to the strength of the U.S. dollar relative to most currencies, including the euro, British pound sterling, Turkish lira, Argentinean peso, Indian rupee, Chinese yuan, Australian dollar and Polish zloty, partially offset by the strength of a few currencies relative to the U.S. dollar, primarily the Russian ruble. The impact of divestitures resulted in a year-over-year reduction in net revenues of $26 million. Refer to Note 2, Acquisitions and Divestitures, for additional information.
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Operating Income – Operating income decreased $615 million (47.5%) to $679 million in the third quarter of 2022. Adjusted Operating Income (1) increased $23 million (1.9%) to $1,253 million and Adjusted Operating Income on a constant currency basis (1) increased $118 million (9.6%) to $1,348 million due to the following:
| Operating Income | % Change | ||||||||||
| (in millions) | |||||||||||
Operating Income for the Three Months Ended September 30, 2021 | $ | 1,294 | |||||||||
Simplify to Grow Program (2) | 127 | ||||||||||
Mark-to-market gains from derivatives (3) | (132) | ||||||||||
Acquisition integration costs and contingent consideration adjustments (4) | (57) | ||||||||||
Operating income from divestitures (4) | (6) | ||||||||||
Remeasurement of net monetary position (5) | 2 | ||||||||||
Impact from pension participation changes (6) | 2 | ||||||||||
Adjusted Operating Income (1) for the Three Months Ended September 30, 2021 | $ | 1,230 | |||||||||
Higher net pricing | 817 | ||||||||||
Higher input costs | (545) | ||||||||||
| Unfavorable volume/mix | (28) | ||||||||||
| Higher selling, general and administrative expenses | (154) | ||||||||||
| Lower amortization of intangible assets | (1) | ||||||||||
Impact from acquisition (4) | 30 | ||||||||||
Other | (1) | ||||||||||
Total change in Adjusted Operating Income (constant currency) (1) | 118 | 9.6 | % | ||||||||
| Unfavorable currency translation | (95) | ||||||||||
Total change in Adjusted Operating Income (1) | 23 | 1.9 | % | ||||||||
Adjusted Operating Income (1) for the Three Months Ended September 30, 2022 | $ | 1,253 | |||||||||
Simplify to Grow Program (2) | (16) | ||||||||||
Intangible asset impairment charges (7) | (23) | ||||||||||
Mark-to-market losses from derivatives (4) | (186) | ||||||||||
Acquisition integration costs and contingent consideration adjustments (4) | (27) | ||||||||||
Inventory step-up (4) | (20) | ||||||||||
Acquisition-related costs (4) | (292) | ||||||||||
Divestiture-related costs (4) (8) | (6) | ||||||||||
Incremental costs due to war in Ukraine (5) | 7 | ||||||||||
Remeasurement of net monetary position (5) | (11) | ||||||||||
Operating Income for the Three Months Ended September 30, 2022 | $ | 679 | (47.5) | % | |||||||
(1)Refer to the Non-GAAP Financial Measures section at the end of this item.
(2)Refer to Note 7, Restructuring Program, for more information.
(3)Refer to Note 9, Financial Instruments, and the Non-GAAP Financial Measures section at the end of this item for more information on the unrealized gains/losses on commodity and forecasted currency transaction derivatives.
(4)Refer to Note 2, Acquisitions and Divestitures, for more information on the August 1, 2022 acquisition of Clif Bar, January 3, 2022 acquisition of Chipita, the November 1, 2021 sale of MaxFoods Pty Ltd, the April 1, 2021 acquisition of Gourmet Food Holdings Pty Ltd, the March 25, 2021 acquisition of a majority interest in Grenade and the January 4, 2021 acquisition of the remaining 93% of equity in Hu Master Holdings.
(5)Refer to Note 1, Basis of Presentation, for information on our accounting for the war in Ukraine and our application of highly inflationary accounting for Argentina and Türkiye.
(6)Refer to Note 10, Benefit Plans, for more information.
(7)Refer to Note 5, Goodwill and Intangible Assets, for more information.
(8)Divestiture-related costs includes costs incurred associated with our publicly-announced processes to divest our developed markets gum and global Halls businesses.
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During the third quarter of 2022, we realized higher net pricing, which was partially offset by increased input costs and unfavorable volume/mix. Higher net pricing, which included the carryover impact of pricing actions taken in the second half of 2021 as well as the effects of input cost-driven pricing actions taken during the first nine months of 2022, was reflected across all regions. The increase in input costs was driven by higher raw material costs as well as increased manufacturing costs. Higher raw material costs were in part due to higher dairy, packaging, edible oils, grains, energy, sugar, nuts and other ingredients costs as well as unfavorable year-over-year currency exchange transaction costs on imported materials, partially offset by lower cocoa costs. Unfavorable volume/mix was driven by Europe, due to disruptions caused by pricing negotiations, and North America, partially offset by favorable volume/mix in AMEA and Latin America.
Total selling, general and administrative expenses increased $448 million from the third quarter of 2021, due to a number of factors noted in the table above, including in part, acquisition-related costs incurred in 2022, the impact of acquisitions, higher acquisition integration costs and contingent consideration adjustments, higher remeasurement of net monetary position, divestiture-related costs incurred in 2022 and higher implementation costs incurred for the Simplify to Grow Program, which were partially offset by a favorable currency impact related to expenses, and a decrease of allowance and other cost reserves associated with incremental costs due to the war in Ukraine. Excluding these factors, selling, general and administrative expenses increased $154 million from the third quarter of 2021. The increase was driven primarily by higher overhead costs in part due to increased investments in route-to-market capabilities and higher advertising and consumer promotion costs.
Unfavorable currency changes decreased operating income by $95 million due primarily to the strength of the U.S. dollar relative to most currencies, including the euro, British pound sterling, Turkish lira, Indian rupee, Argentinean peso and Chinese yuan, partially offset by the strength of a few currencies relative to the U.S. dollar, primarily the Russian ruble.
Operating income margin decreased from 18.0% in the third quarter of 2021 to 8.7% in the third quarter of 2022. The decrease was driven primarily by unfavorable year-over-year change in mark-to-market gains/(losses) from currency and commodity hedging activities, acquisition-related costs incurred in 2022, lower Adjusted Operating Income margin, higher acquisition integration costs and contingent consideration adjustments, intangible asset impairment charge incurred in 2022, inventory step-up charge incurred in 2022 and higher remeasurement of net monetary position, partially offset by lower Simplify to Grow program costs. Adjusted Operating Income margin decreased from 17.2% for the third quarter of 2021 to 16.1% for the third quarter of 2022. The decrease was driven primarily by higher raw material costs and unfavorable product mix, partially offset by higher net pricing and overhead cost leverage.
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Net Earnings and Earnings per Share Attributable to Mondelēz International – Net earnings attributable to Mondelēz International of $532 million decreased by $726 million (57.7%) in the third quarter of 2022. Diluted EPS attributable to Mondelēz International was $0.39 in the third quarter of 2022, down $0.50 (56.2%) from the third quarter of 2021. Adjusted EPS (1) was $0.74 in the third quarter of 2022, up $0.04 (5.7%) from the third quarter of 2021. Adjusted EPS on a constant currency basis (1) was $0.81 in the third quarter of 2022, up $0.11 (15.7%) from the third quarter of 2021.
| Diluted EPS | |||||
Diluted EPS Attributable to Mondelēz International for the Three Months Ended September 30, 2021 | $ | 0.89 | |||
Simplify to Grow Program (2) | 0.06 | ||||
Mark-to-market gains from derivatives (2) | (0.08) | ||||
Acquisition integration costs and contingent consideration adjustments (2) | (0.03) | ||||
Net earnings from divestitures (2) | (0.01) | ||||
Gain on equity method investment transactions (3) | (0.13) | ||||
Adjusted EPS (1) for the Three Months Ended September 30, 2021 | $ | 0.70 | |||
| Increase in operations | 0.05 | ||||
| Increase in equity method investment net earnings | 0.01 | ||||
Impact from acquisition (2) | 0.02 | ||||
Changes in interest and other expense, net (4) | (0.03) | ||||
Changes in income taxes (5) | 0.04 | ||||
Changes in shares outstanding (6) | 0.02 | ||||
Adjusted EPS (constant currency) (1) for the Three Months Ended September 30, 2022 | $ | 0.81 | |||
| Unfavorable currency translation | (0.07) | ||||
Adjusted EPS (1) for the Three Months Ended September 30, 2022 | $ | 0.74 | |||
Simplify to Grow Program (2) | (0.01) | ||||
Intangible asset impairment charges (2) | (0.01) | ||||
Mark-to-market losses from derivatives (2) | (0.07) | ||||
Acquisition integration costs and contingent consideration adjustments (2) | (0.02) | ||||
Acquisition-related costs (2) | (0.21) | ||||
Inventory step-up (2) | (0.01) | ||||
Remeasurement of net monetary position (2) | (0.01) | ||||
Initial impacts from enacted tax law changes (5) | (0.01) | ||||
Diluted EPS Attributable to Mondelēz International for the Three Months Ended September 30, 2022 | $ | 0.39 | |||
(1)Refer to the Non-GAAP Financial Measures section appearing later in this section.
(2)See the Operating Income table above and the related footnotes for more information.
(3)Refer to Note 6, Equity Method Investments, for more information on gain/loss on equity method investment transactions.
(4)Excludes the currency impact on interest expense related to non-U.S. dollar-denominated debt, which is included in currency translation.
(5)Refer to Note 14, Income Taxes, for more information on the items affecting income taxes.
(6)Refer to Note 11, Stock Plans, for more information on our equity compensation programs and share repurchase program and Note 15, Earnings per Share, for earnings per share weighted-average share information.
(7)Includes our proportionate share of significant operating and non-operating items recorded by our JDE Peet's and KDP equity method investees, such as acquisition and divestiture-related costs and restructuring program costs.
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Nine Months Ended September 30:
| For the Nine Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ change | % change | ||||||||||||||||||||
| (in millions, except per share data) | |||||||||||||||||||||||
| Net revenues | $ | 22,801 | $ | 21,062 | $ | 1,739 | 8.3 | % | |||||||||||||||
| Operating income | 2,700 | 3,449 | (749) | (21.7) | % | ||||||||||||||||||
Net earnings attributable to Mondelēz International | $ | 2,134 | $ | 3,297 | $ | (1,163) | (35.3) | % | |||||||||||||||
Diluted earnings per share attributable to Mondelēz International | $ | 1.54 | $ | 2.33 | $ | (0.79) | (33.9) | % | |||||||||||||||
Net Revenues – Net revenues increased $1,739 million (8.3%) to $22,801 million in the first nine months of 2022, and Organic Net Revenue (1) increased $2,342 million (11.2%) to $23,346 million. Developed markets net revenues increased 2.3% and developed markets Organic Net Revenue increased 5.7% (1). Emerging markets net revenues increased 19.1% and emerging markets Organic Net Revenue increased 21.1% (1). The underlying changes in net revenues and Organic Net Revenue are detailed below:
| 2022 | |||||
| Change in net revenues (by percentage point) | |||||
| Total change in net revenues | 8.3 | % | |||
| Add back the following items affecting comparability: | |||||
| Unfavorable currency | 6.2 | pp | |||
| Impact of divestitures | 0.2 | pp | |||
| Impact of acquisitions | (3.5) | pp | |||
Total change in Organic Net Revenue (1) | 11.2 | % | |||
| Higher net pricing | 8.1 | pp | |||
| Favorable volume/mix | 3.1 | pp | |||
(1)Please see the Non-GAAP Financial Measures section at the end of this item.
Net revenue increase of 8.3% was driven by our underlying Organic Net Revenue growth of 11.2% and the impact of acquisitions, partially offset by unfavorable currency translation and the impact of divestitures. Overall, we continued to see increased demand for our snack category products. Organic Net Revenue growth was driven by higher net pricing and favorable volume/mix. Higher net pricing in all regions was due to the benefit of carryover pricing from 2021 as well as the effects of input cost-driven pricing actions taken during the first nine months of 2022. Favorable volume/mix was driven by AMEA, Latin America and Europe, primarily by strong volume gains across our snack category products, partially offset by unfavorable volume/mix in North America. The August 1, 2022 acquisition of Clif Bar added incremental net revenues of $158 million (constant currency basis), the January 3, 2022 acquisition of Chipita added incremental net revenues of $543 million (constant currency basis), the April 1, 2021 acquisition of Gourmet Food added incremental net revenues of $15 million (constant currency basis) and the March 25, 2021 acquisition of Grenade added incremental net revenues of $22 million (constant currency basis). Unfavorable currency impacts decreased net revenues by $1,305 million, due primarily to the strength of the U.S. dollar relative to most currencies, including the euro, British pound sterling, Turkish lira, Argentinean peso, Australian dollar, Indian rupee, Polish zloty and Swedish krona, partially offset by the strength of a few currencies relative to the U.S. dollar, including the Russian ruble and Brazilian real. The impact of divestitures resulted in a year-over-year reduction in net revenues of $36 million. Refer to Note 2, Acquisitions and Divestitures, for additional information.
44
Operating Income – Operating income decreased $749 million (21.7%) to $2,700 million in the first nine months of 2022. Adjusted Operating Income (1) increased $133 million (3.7%) to $3,727 million and Adjusted Operating Income on a constant currency basis (1) increased $382 million (10.6%) to $3,976 million due to the following:
| Operating Income | % Change | ||||||||||
| (in millions) | |||||||||||
Operating Income for the Nine Months Ended September 30, 2021 | $ | 3,449 | |||||||||
Simplify to Grow Program (2) | 381 | ||||||||||
Intangible asset impairment charge (3) | 32 | ||||||||||
Mark-to-market gains from derivatives (4) | (270) | ||||||||||
Acquisition integration costs and contingent consideration adjustments (5) | (54) | ||||||||||
Acquisition-related costs (5) | 24 | ||||||||||
Gain from acquisition (5) | (9) | ||||||||||
Operating income from divestitures (5) | (11) | ||||||||||
Remeasurement of net monetary position (6) | 10 | ||||||||||
Impact from pension participation changes (7) | 47 | ||||||||||
Impact from resolution of tax matters (8) | (5) | ||||||||||
Adjusted Operating Income (1) for the Nine Months Ended September 30, 2021 | 3,594 | ||||||||||
Higher net pricing | 1,698 | ||||||||||
Higher input costs | (1,172) | ||||||||||
| Favorable volume/mix | 161 | ||||||||||
Higher selling, general and administrative expenses | (358) | ||||||||||
| Lower amortization of intangible assets | 7 | ||||||||||
Impact from acquisitions (5) | 46 | ||||||||||
Total change in Adjusted Operating Income (constant currency) (1) | 382 | 10.6 | % | ||||||||
Unfavorable currency translation | (249) | ||||||||||
Total change in Adjusted Operating Income (1) | 133 | 3.7 | % | ||||||||
Adjusted Operating Income (1) for the Nine Months Ended September 30, 2022 | $ | 3,727 | |||||||||
Simplify to Grow Program (2) | (69) | ||||||||||
Intangible asset impairment charge (3) | (101) | ||||||||||
Mark-to-market losses from derivatives (4) | (268) | ||||||||||
Acquisition integration costs and contingent consideration adjustments (5) | (96) | ||||||||||
Inventory step-up (5) | (20) | ||||||||||
Acquisition-related costs (5) | (318) | ||||||||||
Divestiture-related costs (5) (9) | (12) | ||||||||||
Operating income from divestitures (6) | 4 | ||||||||||
Incremental costs due to war in Ukraine (6) | (121) | ||||||||||
Remeasurement of net monetary position (6) | (26) | ||||||||||
Operating Income for the Nine Months Ended September 30, 2022 | $ | 2,700 | (21.7) | % | |||||||
(1)Refer to the Non-GAAP Financial Measures section at the end of this item.
(2)Refer to Note 7, Restructuring Program, for more information.
(3)Refer to Note 5, Goodwill and Intangible Assets, for more information.
(4)Refer to Note 9, Financial Instruments, Note 16,Segment Reporting, and Non-GAAP Financial Measures section at the end of this item for more information on the unrealized gains/losses on commodity and forecasted currency transaction derivatives.
(5)Refer to Note 2, Acquisitions and Divestitures, for more information on the August 1, 2022 acquisition of Clif Bar, the January 3, 2022 acquisition of Chipita, the November 1, 2021 sale of MaxFoods Pty Ltd, the April 1, 2021 acquisition of Gourmet Food Holdings Pty Ltd, the March 25, 2021 acquisition of a majority interest in Grenade and the January 4, 2021 acquisition of the remaining 93% of equity in Hu Master Holdings.
(6)Refer to Note 1, Basis of Presentation, for information on our accounting for the war in Ukraine and our application of highly inflationary accounting for Argentina and Türkiye.
(7)Refer to Note 10, Benefit Plans, for more information.
45
(8)Refer to Note 12, Commitments and Contingencies, for more information.
(9)Divestiture-related costs includes costs incurred associated with our publicly-announced processes to divest our developed markets gum and global Halls businesses.
During the first nine months of 2022, we realized higher net pricing and favorable volume/mix, which was partially offset by increased input costs. Higher net pricing, which included the carryover impact of pricing actions taken in 2021 as well as the effects of input cost-driven pricing actions taken during the first nine months of 2022, was reflected in all regions. Favorable volume/mix was driven by AMEA, Latin America and Europe, which was partially offset by unfavorable volume/mix in North America. Overall volume/mix benefited from strong volume growth due to continued increased demand for our snack category products. The increase in input costs was driven by higher raw material costs as well as higher manufacturing costs. Higher raw material costs were in part due to higher packaging, dairy, edible oils, energy, grains, sugar, nuts and other ingredients costs, partially offset by lower cocoa costs and favorable year-over-year currency exchange transaction costs on imported materials.
Total selling, general and administrative expenses increased $660 million from the first nine months of 2021, due to a number of factors noted in the table above, including in part, higher acquisition-related costs, higher acquisition integration costs, the impact of acquisitions, incremental costs due to the war in Ukraine, higher remeasurement of net monetary position, divestiture-related costs incurred in 2022 and lapping the prior-year favorable impact from the resolution of a tax matter, which were partially offset by a favorable currency impact related to expenses, lapping the prior-year unfavorable impact from pension participation changes and lower implementation costs incurred for the Simplify to Grow Program. Excluding these factors, selling, general and administrative expenses increased $358 million from the first nine months of 2021. The increase was driven primarily by higher advertising and consumer promotion costs and higher overheads in part due to increased investments in route-to-market capabilities.
Unfavorable currency changes decreased operating income by $249 million due primarily to the strength of the U.S. dollar relative to most currencies, including the euro, British pound sterling, Turkish lira, Argentinian peso, Australian dollar, Indian rupee, Polish zloty and Swedish krona, partially offset by the strength of a few currencies relative to the U.S. dollar, including the Brazilian real.
Operating income margin decreased from 16.4% in the first nine months of 2021 to 11.8% in the first nine months of 2022. The decrease in operating income margin was driven primarily by the year-over-year unfavorable change in mark-to-market gains/(losses) from currency and commodity hedging activities, higher acquisition-related costs, higher acquisition integration costs, lower Adjusted Operating Income margin, incremental costs due to the war in Ukraine, higher intangible asset impairment charges, higher remeasurement of net monetary position, divestiture-related costs incurred in 2022 and inventory step-up charges incurred in 2022, partially offset by lower costs for the Simplify to Grow Program and lapping the prior-year unfavorable impact from pension participation changes. Adjusted Operating Income margin decreased from 17.1% for the first nine months of 2021 to 16.4% for the first nine months of 2022. The decrease was driven primarily by higher raw material costs and unfavorable product mix, partially offset by higher net pricing and overhead cost leverage.
46
Net Earnings and Earnings per Share Attributable to Mondelēz International – Net earnings attributable to Mondelēz International of $2,134 million decreased by $1,163 million (35.3%) in the first nine months of 2022. Diluted EPS attributable to Mondelēz International was $1.54 in the first nine months of 2022, down $0.79 (33.9%) from the first nine months of 2021. Adjusted EPS (1) was $2.22 in the first nine months of 2022, up $0.08 (3.7%) from the first nine months of 2021. Adjusted EPS on a constant currency basis (1) was $2.41 in the first nine months of 2022, up $0.27 (12.6%) from the first nine months of 2021.
| Diluted EPS | |||||
Diluted EPS Attributable to Mondelēz International for the Nine Months Ended September 30, 2021 | $ | 2.33 | |||
Simplify to Grow Program (2) | 0.20 | ||||
Intangible asset impairment charge (2) | 0.02 | ||||
Mark-to-market gains from derivatives (2) | (0.16) | ||||
Acquisition integration costs and contingent consideration adjustments (2) | (0.03) | ||||
Acquisition-related costs (2) | 0.01 | ||||
Net earnings from divestitures (2) | (0.03) | ||||
Remeasurement of net monetary position (2) | 0.01 | ||||
Impact from pension participation changes (2) | 0.02 | ||||
Loss on debt extinguishment and related expenses (3) | 0.07 | ||||
Initial impacts from enacted tax law changes (4) | 0.07 | ||||
Gain on equity method investment transaction (5) | (0.40) | ||||
Equity method investee items (6) | 0.03 | ||||
Adjusted EPS (1) for the Nine Months Ended September 30, 2021 | $ | 2.14 | |||
Increase in operations | 0.18 | ||||
Impact from acquisition (2) | 0.03 | ||||
Changes in benefit plan non-service income | (0.01) | ||||
Changes in interest and other expense, net (7) | (0.01) | ||||
Changes in income taxes (4) | 0.04 | ||||
Changes in shares outstanding (8) | 0.04 | ||||
Adjusted EPS (constant currency) (1) for the Nine Months Ended September 30, 2022 | $ | 2.41 | |||
Unfavorable currency translation | (0.19) | ||||
Adjusted EPS (1) for the Nine Months Ended September 30, 2022 | $ | 2.22 | |||
Simplify to Grow Program (2) | (0.04) | ||||
Intangible asset impairment charges (2) | (0.05) | ||||
Mark-to-market losses from derivatives (2) | (0.13) | ||||
Acquisition integration costs and contingent consideration adjustments (2) | (0.03) | ||||
Inventory step-up (2) | (0.01) | ||||
Acquisition-related costs (2) | (0.23) | ||||
Divestiture-related costs (2) | (0.01) | ||||
Net earnings from divestitures (2) | 0.01 | ||||
Incremental costs due to war in Ukraine (2) | (0.09) | ||||
Remeasurement of net monetary position (2) | (0.02) | ||||
Loss on debt extinguishment and related expenses (3) | (0.07) | ||||
Initial impacts from enacted tax law changes (4) | (0.01) | ||||
Loss on equity method investment transactions (6) | (0.01) | ||||
Equity method investee items (6) | 0.01 | ||||
Diluted EPS Attributable to Mondelēz International for the Nine Months Ended September 30, 2022 | $ | 1.54 | |||
(1)Refer to the Non-GAAP Financial Measures section appearing later in this section.
(2)See the Operating Income table above and the related footnotes for more information.
47
(3)Refer to Note 8, Debt and Borrowing Arrangements, for more information on the loss on debt extinguishment and related expenses.
(4)Refer to Note 14, Income Taxes, on the items affecting income taxes.
(5)Refer to Note 6, Equity Method Investments, for more information on the gain/(loss) on equity method investment transactions.
(6)Includes our proportionate share of significant operating and non-operating items recorded by our JDE Peet's and KDP equity method investees, such as acquisition and divestiture-related costs and restructuring program costs.
(7)Excludes the currency impact on interest expense related to our non-U.S. dollar-denominated debt, which is included in currency translation.
(8)Refer to Note 11, Stock Plans, for more information on our equity compensation programs and share repurchase program and Note 15, Earnings per Share, for earnings per share weighted-average share information.
48
Results of Operations by Reportable Segment
Our operations and management structure are organized into four operating segments:
•Latin America
•AMEA
•Europe
•North America
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.
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. See Note 16, Segment Reporting, for additional information on our segments and Items Affecting Comparability of Financial Results earlier in this section for items affecting our segment operating results.
Our segment net revenues and earnings were:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net revenues: | |||||||||||||||||||||||
| Latin America | $ | 913 | $ | 751 | $ | 2,615 | $ | 2,089 | |||||||||||||||
| AMEA | 1,704 | 1,629 | 5,106 | 4,826 | |||||||||||||||||||
| Europe | 2,649 | 2,714 | 8,210 | 8,035 | |||||||||||||||||||
| North America | 2,497 | 2,088 | 6,870 | 6,112 | |||||||||||||||||||
| Net revenues | $ | 7,763 | $ | 7,182 | $ | 22,801 | $ | 21,062 | |||||||||||||||
Earnings before income taxes: | |||||||||||||||||||||||
| Operating income: | |||||||||||||||||||||||
| Latin America | $ | 112 | $ | 91 | $ | 305 | $ | 221 | |||||||||||||||
| AMEA | 257 | 267 | 740 | 842 | |||||||||||||||||||
| Europe | 413 | 508 | 1,170 | 1,478 | |||||||||||||||||||
| North America | 465 | 363 | 1,337 | 932 | |||||||||||||||||||
| Unrealized (losses)/gains on hedging activities (mark-to-market impacts) | (186) | 132 | (268) | 270 | |||||||||||||||||||
| General corporate expenses | (58) | (35) | (170) | (177) | |||||||||||||||||||
| Amortization of intangible assets | (32) | (32) | (96) | (102) | |||||||||||||||||||
| Gain on acquisition | — | — | — | 9 | |||||||||||||||||||
| Acquisition-related costs | (292) | — | (318) | (24) | |||||||||||||||||||
| Operating income | 679 | 1,294 | 2,700 | 3,449 | |||||||||||||||||||
| Benefit plan non-service income | 30 | 37 | 93 | 135 | |||||||||||||||||||
| Interest and other expense, net | (71) | (82) | (337) | (358) | |||||||||||||||||||
| Earnings before income taxes | $ | 638 | $ | 1,249 | $ | 2,456 | $ | 3,226 | |||||||||||||||
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Latin America
| For the Three Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ change | % change | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net revenues | $ | 913 | $ | 751 | $ | 162 | 21.6 | % | |||||||||||||||
| Segment operating income | 112 | 91 | 21 | 23.1 | % | ||||||||||||||||||
| For the Nine Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ change | % change | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net revenues | $ | 2,615 | $ | 2,089 | $ | 526 | 25.2 | % | |||||||||||||||
| Segment operating income | 305 | 221 | 84 | 38.0 | % | ||||||||||||||||||
Three Months Ended September 30:
Net revenues increased $162 million (21.6%), due to higher net pricing (25.8 pp) and favorable volume/mix (5.8 pp), partially offset by unfavorable currency (8.4 pp) and the impact of divestitures (1.6 pp). Higher net pricing was reflected across all categories, driven primarily by Argentina, Brazil and Mexico. Favorable volume/mix reflected strong volume growth as the region continued to see increased demand for our snack category products. Favorable volume/mix was driven by gains in candy, biscuits, gum and chocolate, partially offset by declines in refreshment beverages and cheese & grocery. Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to most currencies in the region, primarily the Argentinean peso, slightly offset by the strength of a few currencies relative to the U.S. dollar. The impact of divestitures resulted in a year-over-year reduction in net revenues of $10 million.
Segment operating income increased $21 million (23.1%), primarily due to higher net pricing, favorable volume/mix and lower manufacturing costs due to productivity. These favorable items were partially offset by higher raw material costs, higher other selling, general and administrative expenses, higher advertising and consumer promotion costs, higher remeasurement loss of net monetary position, acquisition integration costs incurred in 2022 and unfavorable currency.
Nine Months Ended September 30:
Net revenues increased $526 million (25.2%), due to higher net pricing (21.5 pp) and favorable volume/mix (8.6 pp), partially offset by unfavorable currency (4.3 pp) and the impact of divestitures (0.6 pp). Higher net pricing was reflected across all categories, driven primarily by Argentina, Brazil and Mexico. Favorable volume/mix reflected strong volume growth as the region continued to see increased demand for our snack category products. Favorable volume/mix was driven by gains in gum, biscuits, chocolate and candy, partially offset by a decline in refreshment beverages and cheese & grocery. Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to most currencies in the region, primarily the Argentinean peso, partially offset by the strength of a few currencies relative to the U.S. dollar, primarily the Brazilian real. The impact of divestitures resulted in a year-over-year decline in net revenues of $6 million.
Segment operating income increased $84 million (38.0%), primarily due to higher net pricing, favorable volume/mix, lower manufacturing costs due to productivity and lower costs incurred for the Simplify to Grow Program. These favorable items were partially offset by higher raw material costs, higher advertising and consumer promotion costs, higher other selling, general and administrative expenses, higher remeasurement loss on net monetary position, acquisition integration costs and lapping a prior-year favorable impact from the resolution of a tax matter.
50
AMEA
| For the Three Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ change | % change | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net revenues | $ | 1,704 | $ | 1,629 | $ | 75 | 4.6 | % | |||||||||||||||
| Segment operating income | 257 | 267 | (10) | (3.7) | % | ||||||||||||||||||
| For the Nine Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ change | % change | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net revenues | $ | 5,106 | $ | 4,826 | $ | 280 | 5.8 | % | |||||||||||||||
| Segment operating income | 740 | 842 | (102) | (12.1) | % | ||||||||||||||||||
Three Months Ended September 30:
Net revenues increased $75 million (4.6%), due to favorable volume/mix (8.5 pp) and higher net pricing (6.1 pp), partially offset by unfavorable currency (9.0 pp) and the impact of a divestiture (1.0 pp). Favorable volume/mix reflected overall volume gains from increased demand for our snack category products. Favorable volume/mix was driven by gains in biscuits, chocolate, candy and refreshment beverages, partially offset by declines in gum and cheese & grocery. Higher net pricing was reflected across all categories. Unfavorable currency impacts were due to the strength of the U.S. dollar relative to most currencies in the region, including the Indian rupee, Chinese yuan, Australian dollar, South African rand, Egyptian pound and Philippine peso. The impact of the November 1, 2021 divestiture of the packaged seafood business, which was part of our April 1, 2021 acquisition of Gourmet Food, resulted in a year-over-year reduction in net revenues of $16 million.
Segment operating income decreased $10 million (3.7%), primarily due to higher raw material costs, unfavorable currency, higher advertising and consumer promotion costs, an intangible asset impairment charge in 2022 and higher other selling, general and administrative expenses. These unfavorable items were partially offset by higher net pricing, favorable volume/mix and lower manufacturing costs driven by productivity.
Nine Months Ended September 30:
Net revenues increased $280 million (5.8%), due to favorable volume/mix (7.8 pp), higher net pricing (4.3 pp) and the impact of an acquisition (0.3 pp), partially offset by unfavorable currency (5.9 pp) and the impact of a divestiture (0.7 pp). Favorable volume/mix reflected overall volume gains from increased demand for our snack category products. Favorable volume/mix was driven by gains in chocolate, biscuits, refreshment beverages and candy, partially offset by declines in cheese & grocery and gum. Higher net pricing was reflected across all categories. The April 1, 2021 acquisition of Gourmet Food added incremental net revenues of $15 million (constant currency basis) in the first quarter of 2022. Unfavorable currency impacts were due to the strength of the U.S. dollar relative to most currencies in the region, including the Australian dollar, Indian rupee, Philippine peso, South African Rand, Chinese yuan, Egyptian pound and Japanese yen. The impact of the November 1, 2021 divestiture of the packaged seafood business, which was part of our April 1, 2021 acquisition of Gourmet Food, resulted in a year-over-year reduction in net revenues of $30 million.
Segment operating income decreased $102 million (12.1%), primarily due to higher raw material costs, intangible asset impairment charges incurred in 2022, higher advertising and consumer promotion costs, unfavorable currency, higher other selling, general and administrative expenses and higher costs incurred for the Simplify to Grow Program. These unfavorable items were partially offset by higher net pricing, favorable volume/mix and lower manufacturing costs driven by productivity.
51
Europe
| For the Three Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ change | % change | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net revenues | $ | 2,649 | $ | 2,714 | $ | (65) | (2.4) | % | |||||||||||||||
| Segment operating income | 413 | 508 | (95) | (18.7) | % | ||||||||||||||||||
| For the Nine Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ change | % change | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net revenues | $ | 8,210 | $ | 8,035 | $ | 175 | 2.2 | % | |||||||||||||||
| Segment operating income | 1,170 | 1,478 | (308) | (20.8) | % | ||||||||||||||||||
Three Months Ended September 30:
Net revenues decreased $65 million (2.4%), due to unfavorable currency (13.8 pp) and unfavorable volume/mix (4.6 pp), partially offset by higher net pricing (9.8 pp) and the impact of an acquisition (6.2 pp). Unfavorable currency impact reflected the strength of the U.S. dollar relative to most currencies across the region, including the euro, British pound sterling, Turkish lira, Polish zloty and Swedish krona, partially offset by the strength of a few currencies relative to the U.S. dollar, primarily the Russian ruble. Unfavorable volume/mix reflected volume declines driven by disruptions due to pricing negotiations. Unfavorable volume/mix was driven by declines in biscuits, chocolate, cheese & grocery, gum and refreshment beverages, partially offset by a gain in candy. Higher net pricing was reflected across all categories. The January 3, 2022 acquisition of Chipita added incremental net revenues of $167 million (constant currency basis) in the third quarter of 2022.
Segment operating income decreased $95 million (18.7%), primarily due to higher raw material costs, unfavorable volume/mix, unfavorable currency, higher other selling, general and administrative expenses and acquisition integration costs incurred in the third quarter of 2022. These unfavorable items were partially offset by higher net pricing, the impact of an acquisition, a decrease in estimated allowances and reserves associated with incremental costs due to the war in Ukraine and lower manufacturing costs.
Nine Months Ended September 30:
Net revenues increased $175 million (2.2%), due to the impact of acquisitions (6.7 pp), higher net pricing (5.3 pp) and favorable volume/mix (1.5 pp), partially offset by unfavorable currency (11.3 pp). The January 3, 2022 acquisition of Chipita added incremental net revenues of $518 million (constant currency basis) and the March 25, 2021 acquisition of Grenade added incremental net revenues of $22 million (constant currency basis) in the first nine months of 2022. Higher net pricing was reflected across all categories. Overall, favorable volume/mix was driven by strong volume growth, despite disruptions in the third quarter due to pricing negotiations, as we experienced increased demand for most of our snack category products and our world travel business grew as global travel continued to improve. Favorable volume/mix was driven by gains in chocolate, candy and gum, partially offset by declines in cheese & grocery, biscuits and refreshment beverages. Unfavorable currency impacts reflected the strength of the U.S. dollar relative to most currencies across the region, including the euro, British pound sterling, Turkish lira, Polish zloty, Swedish krona and Romanian leu, partially offset by the strength of a few currencies relative to the U.S. dollar, primarily the Russian ruble.
Segment operating income decreased $308 million (20.8%), primarily due to higher raw material costs, unfavorable currency, incremental costs incurred due to the war in Ukraine, higher acquisition integration costs, higher other selling, general and administrative expenses and higher advertising and consumer promotion costs. These unfavorable items were partially offset by higher net pricing, lapping the prior-year unfavorable impact of pension participation changes, the impact of acquisitions, favorable volume/mix, lower costs incurred for the Simplify to Grow Program and lower manufacturing costs.
52
North America
| For the Three Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ change | % change | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net revenues | $ | 2,497 | $ | 2,088 | $ | 409 | 19.6 | % | |||||||||||||||
| Segment operating income | 465 | 363 | 102 | 28.1 | % | ||||||||||||||||||
| For the Nine Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ change | % change | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Net revenues | $ | 6,870 | $ | 6,112 | $ | 758 | 12.4 | % | |||||||||||||||
| Segment operating income | 1,337 | 932 | 405 | 43.5 | % | ||||||||||||||||||
Three Months Ended September 30:
Net revenues increased $409 million (19.6%), due to higher net pricing (12.6 pp) and the impact of acquisitions (8.0 pp), partially offset by unfavorable volume/mix (0.6 pp) and unfavorable currency (0.4 pp). Higher net pricing was reflected across all categories except gum, driven by pricing actions taken in the first nine months of 2022. The August 1, 2022 acquisition of Clif Bar added incremental net revenues of $158 million (at constant currency) and the January 3, 2022 acquisition of Chipita added incremental net revenues of $9 million in the third quarter of 2022. Unfavorable volume/mix was driven by a decline in biscuits, chocolate and gum, which primarily reflected the impact of supply chain constraints on volume, partially offset by gains in candy. Unfavorable currency impact was due to the strength of the U.S. dollar relative to the Canadian dollar.
Segment operating income increased $102 million (28.1%), primarily due to higher net pricing, lower costs incurred for the Simplify to Grow Program and the impact of acquisitions. These favorable items were partially offset by higher raw material costs, lapping the prior-year net benefit from acquisition integration costs and contingent consideration adjustments, higher manufacturing costs, inventory step-up charges incurred in 2022, higher advertising and consumer promotion costs, unfavorable volume/mix and higher other selling, general and administrative expenses.
Nine Months Ended September 30:
Net revenues increased $758 million (12.4%), due to higher net pricing (10.1 pp) and the impact of acquisitions (3.0 pp), partially offset by unfavorable volume/mix (0.4 pp) and unfavorable currency (0.3 pp). Higher net pricing was reflected across all categories driven by pricing actions taken in the first nine months of 2022. The August 1, 2022 acquisition of Clif Bar added incremental net revenues of $158 million (at constant currency) and the January 3, 2022 acquisition of Chipita added incremental net revenues of $25 million in the first nine months of 2022. Unfavorable volume/mix was driven by a decline in biscuits which primarily reflected the impact of supply chain constraints on volume, mostly offset by gains in candy, gum and chocolate. Unfavorable currency impact was due to the strength of the U.S. dollar relative to the Canadian dollar.
Segment operating income increased $405 million (43.5%), primarily due to higher net pricing, lower costs incurred for the Simplify to Grow Program, lapping a prior-year intangible asset impairment charge and the impact of acquisitions. These favorable items were partially offset by higher raw material costs, higher manufacturing costs, lapping the prior-year net benefit from acquisition integration costs and contingent consideration adjustments, unfavorable volume/mix, higher advertising and consumer promotion costs, inventory step-up charges incurred in 2022 and higher other selling, general and administrative expenses.
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Liquidity and Capital Resources
We believe that cash from operations, our revolving credit and term loan facilities, short-term borrowings and our authorized long-term financing will continue to provide sufficient liquidity for our working capital needs, planned capital expenditures, future payments of our contractual, tax and benefit plan obligations and payments for acquisitions, share repurchases and quarterly dividends. We expect to continue to utilize our commercial paper program and available international credit lines as needed. We continually evaluate long-term debt issuances to meet our short- and longer-term funding requirements. We also use intercompany loans with our international subsidiaries to improve financial flexibility. Our investments in JDE Peet's and KDP also provide us additional flexibility. Overall, we do not expect negative effects to our funding sources that would have a material effect on our liquidity, and we continue to monitor our operations in Europe and related effects from the war in Ukraine. To date, we have been successful in generating cash and raising financing as needed. However, if a serious economic or credit market crisis ensues or other adverse developments arise in connection with the COVID-19 pandemic, war in Ukraine or other circumstances, it could have a material adverse effect on our liquidity, results of operations and financial condition.
Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for raw materials, labor, manufacturing and distribution, trade and promotions, advertising and marketing, tax liabilities, benefit plan obligations and lease expenses) as well as periodic expenditures for acquisitions, shareholder returns (such as dividend payments and share repurchases) and property, plant and equipment.
Long-term cash requirements primarily relate to funding long-term debt repayments (refer to Note 8, Debt and Borrowing Arrangements), our U.S. tax reform transition tax liability which is payable through 2026, and deferred taxes (refer to Note 16, Income Taxes, in our Annual Report on Form 10-K), our long-term benefit plan obligations (refer to Note 10, Benefit Plans, and Note 11, Benefit Plans, in our Annual report on Form 10-K) and commodity-related purchase commitments and derivative contracts (refer to Note 9, Financial Instruments).
We generally fund short- and long-term cash requirements with cash from operating activities as well as cash proceeds from short- and long-term debt financing (refer to Debt below). We generally do not use equity to fund our ongoing obligations.
Cash Flow:
We believe our ability to generate substantial cash from operating activities and readily access capital markets and secure financing at competitive rates are key strengths and give us significant flexibility to meet our short- and long-term financial commitments. Our cash flow activity is noted below:
| Nine months ended September 30, | 2022 | 2021 | ||||||
| Net cash provided by operating activities | $ | 2,516 | $ | 2,720 | ||||
| Net cash (used in)/provided by investing activities | $ | (3,410) | $ | 106 | ||||
| Net cash used in financing activities | $ | (297) | $ | (2,971) | ||||
Net Cash Provided by Operating Activities:
The decrease in net cash provided by operating activities was due primarily to lower cash basis net earnings driven in part by the compensation expense charge related to the non-vested ESOP shares acquired in the Clif Bar acquisition, partially offset by lower year-over-year working capital requirements and lower payments to benefit plans than in the same prior-year period.
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Net Cash (Used in)/Provided by Investing Activities:
The increase in net cash used in investing activities was largely driven by higher cash payments for acquisitions, including $1.4 billion cash consideration paid for the Chipita acquisition during January 2022 and $2.6 billion cash consideration paid for the Clif Bar acquisition during August 2022 relative to $833 million paid in the prior-year to acquire Gourmet Food, Grenade and Hu (refer to Note 2, Acquisitions and Divestitures), as well as lower proceeds from sales of equity method investments than in the prior-year period (refer to Note 6, Equity Method Investments), partially offset by proceeds from the settlement and replacement of net investment hedge derivative contracts. We continue to make capital expenditures primarily to modernize manufacturing facilities, support new product and productivity initiatives and fund strategic priorities. We expect 2022 capital expenditures to be approximately $0.9 billion, including capital expenditures in connection with our Simplify to Grow Program and for funding our strategic priorities. We expect to continue to fund these expenditures with cash from operations.
Net Cash Used in Financing Activities:
The decrease in cash used in financing activities was primarily due to lower net debt repayments in 2022 to date as we refinanced debt during the first quarter of 2022 with lower interest rate debt and we lapped higher net long-term debt repayments in the prior-year, partially offset primarily by higher dividends paid in the first nine months of 2022 than in the same prior-year period.
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 September 30, 2022 and September 30, 2021, $2.1 billion and $2.4 billion, respectively, of our outstanding accounts payable relate to suppliers that participate in the SCF programs.
Guarantees:
As discussed in Note 12, Commitments and Contingencies, we enter into third-party guarantees primarily to cover the 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 September 30, 2022, we had no material third-party guarantees recorded on our condensed consolidated balance sheet. Guarantees do not have, and we do not expect them to have, a material effect on our liquidity.
Debt:
The nature and amount of our long-term and short-term debt and the proportionate amount of each varies as a result of current and expected business requirements, market conditions and other factors. Due to seasonality, in the first and second quarters of the year, our working capital requirements grow, increasing the need for short-term financing. The second half of the year typically generates higher cash flows. As such, we may issue commercial paper or secure other forms of financing throughout the year to meet short-term working capital or other financing needs.
Refer to Note 8, Debt and Borrowing Arrangements, for details of our debt activity during the first nine months of 2022. We fund ongoing debt maturities and other long-term obligations using cash on hand or we may refinance obligations with long-term debt or short-term financing (such as our commercial paper borrowings) depending on financing available, timing considerations, flexibility to raise funding and the cost of financing.
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At its July 2022 meeting, the Board of Directors approved a new $2 billion long-term financing authorization that replaced the prior long-term financing authorization of $7 billion. As of September 30, 2022, $1.5 billion of the long-term financing authorization remained available. Refer to Note 8, Debt and Borrowing Arrangements.
Our total debt was $21.7 billion at September 30, 2022 and $19.5 billion at December 31, 2021. Our debt-to-capitalization ratio was 0.45 at September 30, 2022 and 0.41 at December 31, 2021. At September 30, 2022, the weighted-average term of our outstanding long-term debt was 8.4 years. Our average daily commercial paper borrowings outstanding were $1.4 billion in the first nine months of 2022 and $0.5 billion in the first nine months of 2021. We had commercial paper outstanding totaling $1.7 billion as of September 30, 2022 and $0.2 billion as of December 31, 2021. We expect to continue to use cash or commercial paper to finance various short-term financing needs. Through September 30, 2022, we continue to comply with our debt covenants.
One of our subsidiaries, Mondelez International Holdings Netherlands B.V. (“MIHN”), has outstanding debt. The operations held by MIHN generated approximately 72.4% (or $16.5 billion) of the $22.8 billion of consolidated net revenue in the nine months ended September 30, 2022. The operations held by MIHN represented approximately 82.0% (or $21.9 billion) of the $26.7 billion of net assets as of September 30, 2022 and 79.2% (or $22.4 billion) of the $28.3 billion of net assets as of December 31, 2021.
Refer to Note 8, Debt and Borrowing Arrangements, for more information on our debt and debt covenants.
Commodity Trends
We regularly monitor worldwide supply, commodity cost and currency trends so we can cost-effectively secure ingredients, packaging and fuel required for production. During the first nine months of 2022, the primary drivers of the increase in our aggregate commodity costs were higher packaging, dairy, edible oils, energy, grains, sugar, nuts and other ingredient costs, partially offset by lower cocoa costs and favorable year-over-year currency exchange transaction costs on imported materials.
A number of external factors such as the COVID-19 global pandemic, effects of the war in Ukraine, climate and weather conditions, commodity, transportation and labor market conditions, currency fluctuations and the effects of governmental agricultural or other programs affect the cost and availability of raw materials and agricultural materials used in our products. We address higher commodity costs and currency impacts primarily through hedging, higher pricing and manufacturing and overhead cost control. We use hedging techniques to limit the impact of fluctuations in the cost of our principal raw materials; however, we may not be able to fully hedge against commodity cost changes, such as dairy, where there is a limited ability to hedge, and our hedging strategies may not protect us from increases in specific raw material costs. Due to competitive or market conditions, planned trade or promotional incentives, fluctuations in currency exchange rates or other factors, our pricing actions may also lag commodity cost changes temporarily.
As a result of international supply chain, transportation and labor market disruptions and generally higher commodity, transportation and labor costs in the first nine months of 2022, we expect price volatility and a higher aggregate cost environment to continue in the remainder of 2022. While the costs of our principal raw materials fluctuate, we believe there will continue to be an adequate supply of the raw materials we use and that they will generally remain available.
Equity and Dividends
Stock Plans and Share Repurchases:
See Note 11, Stock Plans, to our condensed consolidated financial statements and Part II, Item 2, Unregistered Sales of Equity Securities and Use of Proceeds, for more information on our stock plans, grant activity and share repurchase program for the nine months ended September 30, 2022.
As of September 30, 2022, our Board of Directors has authorized share repurchases up to $23.7 billion through December 31, 2023. Under this program, we have repurchased approximately $21.9 billion of shares through September 30, 2022. Of which, we repurchased $1.8 billion in the first nine months of 2022, $2.1 billion in 2021, $1.4 billion in 2020 and a total of $16.5 billion in the years 2013 through 2019, at a weighted-average cost per share.
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The number of shares that we ultimately repurchase under our share repurchase program may vary depending on numerous factors, including share price and other market conditions, our ongoing capital allocation planning, levels of cash and debt balances, other demands for cash, such as acquisition activity, general economic or business conditions and Board of Directors and management discretion. Additionally, our share repurchase activity during any particular period may fluctuate. We may accelerate, suspend, delay or discontinue our share repurchase program at any time, without notice.
Dividends:
We paid dividends of $1,457 million in the first nine months of 2022 and $1,337 million in the first nine months of 2021. The third quarter 2022 dividend of $0.385 per share, declared on July 26, 2022 for shareholders of record as of September 30, 2022, was paid on October 14, 2022. The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors that our Board of Directors deems relevant to its analysis and decision making.
We anticipate that the 2022 distributions will be characterized as dividends under U.S. federal income tax rules. The final determination will be made on an IRS Form 1099–DIV issued in early 2023.
Significant Accounting Estimates
We prepare our condensed consolidated financial statements in conformity with U.S. GAAP. The preparation of these financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. Our significant accounting policies are described in Note 1 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021. Our significant accounting estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2021. See also Note 1, Basis of Presentation, in this report.
New Accounting Guidance:
See Note 1, Basis of Presentation, for a discussion of new accounting standards.
Contingencies:
See Note 12, Commitments and Contingencies, and Part II, Item 1. Legal Proceedings, for a discussion of contingencies.
Forward-Looking Statements
This report contains a number of forward-looking statements. Words, and variations of words, such as “will,” “may,” “expect,” “would,” “could,” “might,” “intend,” “plan,” “believe,” “likely,” “estimate,” “anticipate,” “objective,” “predict,” “project,” “seek,” “aim,” "target," “potential,” “outlook” and similar expressions are intended to identify our forward-looking statements, including but not limited to statements about: the impact on our business of the war in Ukraine and current and future sanctions imposed by governments or other authorities, including the impact on matters such as costs, markets, the global economic environment, availability of commodities, demand, supplying our Ukraine business's customers and consumers, impairments, continuation of and our ability to control our operating activities and businesses in Russia and Ukraine, and our operating results; the impact of the COVID-19 pandemic and related disruptions on our business including consumer demand, costs, product mix, our strategic initiatives, our and our partners’ global supply chains, operations, technology and assets, and our financial performance; price volatility, inflation and pricing actions; our strategic priorities and growth strategy; our future performance, including our future revenue and earnings growth; plans to reshape our portfolio and extend our leadership positions in chocolate and biscuits as well as baked snacks; plans to divest our developed market gum and global Halls businesses; our strategic transactions and initiatives; our leadership position in snacking; political, business and economic conditions and volatility; volatility in global consumer, commodity, supply, transportation, labor and currency; the cost environment, including higher labor, customer service, commodity, operating, transportation and other costs; volatility in the natural gas and electricity markets in Europe; consumer behavior, consumption and demand trends and our business in developed and emerging markets, our channels, our brands and our categories; our tax rate, tax positions, tax proceedings, tax liabilities, valuation allowances and the impact on us of potential U.S. and global tax reform; advertising and promotion bans and restrictions in the U.K.; the costs of, timing of expenditures under and completion of our restructuring program; commodity prices, supply and availability; our investments and our
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ownership interests in those investments, including JDE Peet's and KDP; innovation; currency exchange rates, controls and restrictions, volatility in foreign currencies and the effect of currency translation on our results of operations; the application of highly inflationary accounting for our subsidiaries in Argentina and Türkiye and the potential for and impacts from currency devaluation in other countries; the outcome and effects on us of legal proceedings and government investigations; the estimated value of goodwill and intangible assets; amortization expense for intangible assets; impairment of goodwill and intangible assets and our projections of operating results and other factors that may affect our impairment testing; our accounting estimates and judgments and the impact of new accounting pronouncements; pension expenses, contributions and assumptions; our ability to prevent and respond to cybersecurity breaches and disruptions; our liquidity, funding sources and uses of funding, including debt issuances and our use of commercial paper and international credit lines; our capital structure, credit availability and our ability to raise capital, and the impact of market disruptions on us, our counterparties and our business partners; the planned phase out of London Interbank Offered Rates and transition to other interest rate benchmarks; our risk management program, including the use of financial instruments and the impacts and effectiveness of our hedging activities; working capital; capital expenditures and funding; funding of debt maturities, acquisitions and other obligations; share repurchases; dividends; long-term value for our shareholders; guarantees; the characterization of 2022 distributions as dividends; compliance with our debt covenants; and our contractual and other obligations.
These forward-looking statements involve risks and uncertainties, many of which are beyond our control, and many of these risks and uncertainties are currently amplified by and may continue to be amplified by the COVID-19 pandemic, including the spread of new variants of COVID-19. Important factors that could cause our actual results to differ materially from those described in our forward-looking statements include, but are not limited to, the impact of ongoing or new developments in the war in Ukraine, related current and future sanctions imposed by governments and other authorities, and related impacts on our business, growth, employees, reputation, prospects, financial condition, operating results (including components of our financial results), cash flows and liquidity; global or regional health pandemics or epidemics, including COVID-19; risks from operating globally including in emerging markets, including political, economic and regulatory risks; changes in currency exchange rates, controls and restrictions; volatility of commodity and other input costs and availability of commodities; weakness in economic conditions; weakness in consumer spending; inflation (and related monetary policy actions by governments in response to inflation); pricing actions; tax matters including changes in tax laws and rates, disagreements with taxing authorities and imposition of new taxes; use of information technology and third-party service providers; unanticipated disruptions to our business, such as malware incidents, cyberattacks or other security breaches, and our compliance with privacy and data security laws; competition and our response to channel shifts and pricing and other competitive pressures; promotion and protection of our reputation and brand image; changes in consumer preferences and demand and our ability to innovate and differentiate our products; the restructuring program and our other transformation initiatives not yielding the anticipated benefits; changes in the assumptions on which the restructuring program is based; management of our workforce and shifts in labor availability; consolidation of retail customers and competition with retailer and other economy brands; changes in our relationships with customers, suppliers or distributors; compliance with legal, regulatory, tax and benefit laws and related changes, claims or actions; the impact of climate change on our supply chain and operations; our ability to identify, complete, manage and realize the full extent of the benefits, cost savings or synergies presented by strategic transactions, including our recently completed acquisitions of Chipita, Gourmet Food, Grenade, Clif Bar and Ricolino; significant changes in valuation factors that may adversely affect our impairment testing of goodwill and intangible assets; perceived or actual product quality issues or product recalls; failure to maintain effective internal control over financial reporting or disclosure controls and procedures; volatility of and access to capital or other markets, the effectiveness of our cash management programs and our liquidity; pension costs; the expected discontinuance of London Interbank Offered Rates and transition to any other interest rate benchmark; our ability to protect our intellectual property and intangible assets; and the risks and uncertainties, as they may be amended from time to time, set forth in our filings with the U.S. Securities and Exchange Commission, including our most recently filed Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q. There may be other factors not presently known to us or which we currently consider to be immaterial that could cause our actual results to differ materially from those projected in any forward-looking statements we make. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this report except as required by applicable law or regulation.
Non-GAAP Financial Measures
We use non-GAAP financial information and believe it is useful to investors as it provides additional information to facilitate comparisons of historical operating results, identify trends in our underlying operating results and provide additional insight and transparency on how we evaluate our business. We use non-GAAP financial measures to budget, make operating and strategic decisions and evaluate our performance. We have detailed the non-GAAP
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adjustments that we make in our non-GAAP definitions below. The adjustments generally fall within the following categories: acquisition & divestiture activities, gains and losses on intangible asset sales and non-cash impairments, major program restructuring activities, constant currency and related adjustments, major program financing and hedging activities and other major items affecting comparability of operating results. We believe the non-GAAP measures should always be considered along with the related U.S. GAAP financial measures. We have provided the reconciliations between the U.S. GAAP and non-GAAP financial measures below, and we also discuss our underlying U.S. GAAP results throughout our Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q.
Our primary non-GAAP financial measures are listed below and reflect how we evaluate our current and prior-year operating results. As new events or circumstances arise, these definitions could change. When our definitions change, we provide the updated definitions and present the related non-GAAP historical results on a comparable basis (1).
•“Organic Net Revenue” is defined as net revenues excluding the impacts of acquisitions, divestitures (2) and currency rate fluctuations (3). We also evaluate Organic Net Revenue growth from emerging markets and developed markets.
•Our emerging markets include our Latin America region in its entirety; the AMEA region, excluding Australia, New Zealand and Japan; and the following countries from the Europe region: Russia, Ukraine, Türkiye, Kazakhstan, Georgia, Poland, Czech Republic, Slovak Republic, Hungary, Bulgaria, Romania, the Baltics and the East Adriatic countries.
•Our developed markets include the entire North America region, the Europe region excluding the countries included in the emerging markets definition, and Australia, New Zealand and Japan from the AMEA region.
•“Adjusted Operating Income” is defined as operating income excluding the impacts of the Simplify to Grow Program (4); gains or losses (including non-cash impairment charges) on goodwill and intangible assets; divestiture (2) or acquisition gains or losses, divestiture-related costs (5), acquisition-related costs (6), and acquisition integration costs and contingent consideration adjustments (7); inventory step-up charges (8); the operating results of divestitures (2); remeasurement of net monetary position (9); mark-to-market impacts from commodity, forecasted currency and equity method investment transaction derivative contracts (10); impact from resolution of tax matters (11); incremental costs due to the war in Ukraine (12); impact from pension participation changes (13); and costs associated with the JDE Peet's transaction. We also present “Adjusted Operating Income margin,” which is subject to the same adjustments as Adjusted Operating Income. We also evaluate growth in our Adjusted Operating Income on a constant currency basis (3).
•“Adjusted EPS” is defined as diluted EPS attributable to Mondelēz International from continuing operations excluding the impacts of the items listed in the Adjusted Operating Income definition as well as losses on debt extinguishment and related expenses; gains or losses on interest rate swaps no longer designated as accounting cash flow hedges due to changed financing and hedging plans; net earnings from divestitures (2); initial impacts from enacted tax law changes (14); and gains or losses on equity method investment transactions. Similarly, within Adjusted EPS, our equity method investment net earnings exclude our proportionate share of our investees’ significant operating and non-operating items (15). We also evaluate growth in our Adjusted EPS on a constant currency basis (3).
(1)When items no longer impact our current or future presentation of non-GAAP operating results, we remove these items from our non-GAAP definitions. In the first quarter of 2022, we added to the non-GAAP definitions the exclusion of incremental costs due to the war in Ukraine (refer to footnote (12) below), in the second quarter of 2022, we added to the non-GAAP definitions the exclusion of costs incurred associated with our publicly-announced processes to sell businesses (refer to footnote (5) below) and in the third quarter of 2022, we added to the non-GAAP definitions the exclusion of inventory step-up charges associated with acquisitions (refer to footnote (8) below).
(2)Divestitures include completed sales of businesses, exits of major product lines upon completion of a sale or licensing agreement and the partial or full sale of an equity method investment such as KDP or JDE Peet's. As we record our share of KDP and JDE Peet’s ongoing earnings on a one-quarter lag basis, any KDP or JDE Peet’s ownership reductions are reflected as divestitures within our non-GAAP results the following quarter.
(3)Constant currency operating results are calculated by dividing or multiplying, as appropriate, the current-period local currency operating results by the currency exchange rates used to translate the financial statements in the comparable prior-year period to determine what the current-period U.S. dollar operating results would have been if the currency exchange rate had not changed from the comparable prior-year period.
(4)Non-GAAP adjustments related to the Simplify to Grow Program reflect costs incurred that relate to the objectives of our program to transform our supply chain network and organizational structure. Costs that do not meet the program objectives are not reflected in the non-GAAP adjustments.
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(5)Divestiture-related costs, which includes costs incurred in relation to the preparation and completion of our divestitures as defined in footnote (2), also includes costs incurred associated with our publicly-announced processes to sell businesses. We exclude these items to better facilitate comparisons of our underlying operating performance across periods.
(6)Acquisition-related costs, which includes transaction costs such as third party advisor, investment banking and legal fees, also includes one-time compensation expense related to the buyout of non-vested ESOP shares. We exclude these items to better facilitate comparisons of our underlying operating performance across periods.
(7)Acquisition integration costs and contingent consideration adjustments include one-time costs related to the integration of acquisitions as well as any adjustments made to the fair market value of contingent compensation liabilities that have been previously booked for earn-outs related to acquisitions that do not relate to employee compensation expense. We exclude these items to better facilitate comparisons of our underlying operating performance across periods.
(8)In the third quarter of 2022, we began to exclude the one-time inventory step-up charges associated with acquired companies related to the fair market valuation of the acquired inventory. We exclude this item to better facilitate comparisons of our underlying operating performance across periods.
(9)In connection with our applying highly inflationary accounting (refer to Note 1, Basis of Presentation) for Argentina (beginning in the third quarter of 2018) and Türkiye (beginning in the second quarter of 2022), we exclude the related remeasurement gains or losses related to remeasuring net monetary assets or liabilities denominated in the local currency to the U.S. dollar during the periods presented to be consistent with our prior accounting for these remeasurement gains/losses for Venezuela when it was subject to highly inflationary accounting prior to deconsolidation in 2015.
(10)We exclude unrealized gains and losses (mark-to-market impacts) from outstanding commodity and forecasted currency and equity method investment transaction derivative contracts from our non-GAAP earnings measures. The mark-to-market impacts of commodity and forecasted currency transaction derivatives are excluded until such time that the related exposures impact our operating results. Since we purchase commodity and forecasted currency transaction contracts to mitigate price volatility primarily for inventory requirements in future periods, we make this adjustment to remove the volatility of these future inventory purchases on current operating results to facilitate comparisons of our underlying operating performance across periods. We exclude equity method investment transaction derivative contract settlements as they represent protection of value for future divestitures.
(11)Refer to Note 12, Commitments and Contingencies – Tax Matters, in this report, and Note 14, Commitments and Contingencies –Tax Matters, in our Annual Report on Form 10-K for the year ended December 31, 2021.
(12)In February 2022, Russia began a military invasion of Ukraine and we stopped our production and closed our facilities in Ukraine. We began to incur incremental costs directly related to the war including asset impairments, such as property and inventory losses, higher expected allowances for uncollectible accounts receivable and committed compensation. We have isolated and exclude these costs and related impacts from our operating results to facilitate evaluation and comparisons of our ongoing results. Incremental costs related to increasing operations in other primarily European facilities are not included with these costs.
(13)The impact from pension participation changes represents the charges incurred when employee groups are withdrawn from multiemployer pension plans and other changes in employee group pension plan participation. We exclude these charges from our non-GAAP results because those amounts do not reflect our ongoing pension obligations. See Note 10, Benefit Plans, for more information on the multiemployer pension plan withdrawal.
(14)We have excluded the initial impacts from enacted tax law changes. Initial impacts include items such as the remeasurement of deferred tax balances and the transition tax from the 2017 U.S. tax reform. We exclude initial impacts from enacted tax law changes from our Adjusted EPS as they do not reflect our ongoing tax obligations under the enacted tax law changes. Refer to our Annual Report on Form 10-K for the year ended December 31, 2021 for more information on the impact of Swiss and U.S. tax reform.
(15)We have excluded our proportionate share of our equity method investees’ significant operating and non-operating items such as acquisition and divestiture related costs, restructuring program costs and initial impacts from enacted tax law changes, in order to provide investors with a comparable view of our performance across periods. Although we have shareholder rights and board representation commensurate with our ownership interests in our equity method investees and review the underlying operating results and significant operating and non-operating items each reporting period, we do not have direct control over their operations or resulting revenue and expenses. Our use of equity method investment net earnings on an adjusted basis is not intended to imply that we have any such control. Our U.S. GAAP “diluted EPS attributable to Mondelēz International from continuing operations” includes all of the investees’ significant operating and non-operating items.
We believe that the presentation of these non-GAAP financial measures, when considered together with our U.S. GAAP financial measures and the reconciliations to the corresponding U.S. GAAP financial measures, provides you with a more complete understanding of the factors and trends affecting our business than could be obtained absent these disclosures. Because non-GAAP financial measures vary among companies, the non-GAAP financial measures presented in this report may not be comparable to similarly titled measures used by other companies. Our use of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for any U.S. GAAP financial measures. A limitation of these non-GAAP financial measures is they exclude items detailed below that have an impact on our U.S. GAAP reported results. The best way this limitation can be addressed is by evaluating our non-GAAP financial measures in combination with our U.S. GAAP reported results and carefully evaluating the following tables that reconcile U.S. GAAP reported figures to the non-GAAP financial measures in this Form 10-Q.
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Organic Net Revenue:
Applying the definition of “Organic Net Revenue,” the adjustments made to “net revenues” (the most comparable U.S. GAAP financial measure) were to exclude the impact of currency, acquisitions and divestitures. We believe that Organic Net Revenue reflects the underlying growth from the ongoing activities of our business and provides improved comparability of results. We also evaluate our Organic Net Revenue growth from emerging markets and developed markets, and these underlying measures are also reconciled to U.S. GAAP below.
| For the Three Months Ended September 30, 2022 | For the Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||
| Emerging Markets | Developed Markets | Total | Emerging Markets | Developed Markets | Total | ||||||||||||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||
| Net Revenues | $ | 3,094 | $ | 4,669 | $ | 7,763 | $ | 2,584 | $ | 4,598 | $ | 7,182 | |||||||||||||||||||||||
| Impact of currency | 232 | 358 | 590 | — | — | — | |||||||||||||||||||||||||||||
| Impact of acquisitions | (125) | (209) | (334) | — | — | — | |||||||||||||||||||||||||||||
| Impact of divestitures | (1) | — | (1) | (11) | (16) | (27) | |||||||||||||||||||||||||||||
| Organic Net Revenue | $ | 3,200 | $ | 4,818 | $ | 8,018 | $ | 2,573 | $ | 4,582 | $ | 7,155 | |||||||||||||||||||||||
| For the Nine Months Ended September 30, 2022 | For the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||||
| Emerging Markets | Developed Markets | Total | Emerging Markets | Developed Markets | Total | ||||||||||||||||||||||||||||||
| (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||
| Net Revenues | $ | 8,864 | $ | 13,937 | 22,801 | $ | 7,440 | $ | 13,622 | $ | 21,062 | ||||||||||||||||||||||||
| Impact of currency | 507 | 798 | 1,305 | — | — | — | |||||||||||||||||||||||||||||
| Impact of acquisitions | (376) | (362) | (738) | — | — | — | |||||||||||||||||||||||||||||
| Impact of divestitures | (22) | — | (22) | (28) | (30) | (58) | |||||||||||||||||||||||||||||
| Organic Net Revenue | $ | 8,973 | $ | 14,373 | $ | 23,346 | $ | 7,412 | $ | 13,592 | $ | 21,004 | |||||||||||||||||||||||
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Adjusted Operating Income:
Applying the definition of “Adjusted Operating Income,” the adjustments made to “operating income” (the most comparable U.S. GAAP financial measure) were to exclude Simplify to Grow Program; intangible asset impairment charges; mark-to-market impacts from commodity, forecasted currency and equity method investment transaction derivative contracts; acquisition integration costs and contingent consideration adjustments; inventory step-up charges: acquisition-related costs; divestiture-related costs; operating income from divestitures, gain on an acquisition; incremental costs due to the war in Ukraine; the remeasurement of net monetary position; impact from pension participation changes; and impact from resolution of tax matters. We also evaluate Adjusted Operating Income on a constant currency basis. We believe these measures provide improved comparability of underlying operating results.
| For the Three Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Operating Income | $ | 679 | $ | 1,294 | $ | (615) | (47.5) | % | |||||||||||||||
Simplify to Grow Program (1) | 16 | 127 | (111) | ||||||||||||||||||||
Intangible asset impairment charge (2) | 23 | — | 23 | ||||||||||||||||||||
Mark-to-market losses/(gains) from derivatives (3) | 186 | (132) | 318 | ||||||||||||||||||||
Acquisition integration costs and contingent consideration adjustments (4) | 27 | (57) | 84 | ||||||||||||||||||||
| Inventory step-up | 20 | — | 20 | ||||||||||||||||||||
Acquisition-related costs (4) | 292 | — | 292 | ||||||||||||||||||||
Divestiture-related costs (4) | 6 | — | 6 | ||||||||||||||||||||
Operating income from divestitures (4) | — | (6) | 6 | ||||||||||||||||||||
Incremental costs due to war in Ukraine (5) | (7) | — | (7) | ||||||||||||||||||||
Remeasurement of net monetary position (5) | 11 | 2 | 9 | ||||||||||||||||||||
Impact from pension participation changes (6) | — | 2 | (2) | ||||||||||||||||||||
| Adjusted Operating Income | $ | 1,253 | $ | 1,230 | $ | 23 | 1.9 | % | |||||||||||||||
| Unfavorable currency translation | 95 | — | 95 | ||||||||||||||||||||
| Adjusted Operating Income (constant currency) | $ | 1,348 | $ | 1,230 | $ | 118 | 9.6 | % | |||||||||||||||
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| For the Nine Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Operating Income | $ | 2,700 | $ | 3,449 | $ | (749) | (21.7) | % | |||||||||||||||
Simplify to Grow Program (1) | 69 | 381 | (312) | ||||||||||||||||||||
Intangible asset impairment charges (2) | 101 | 32 | 69 | ||||||||||||||||||||
Mark-to-market losses/(gains) from derivatives (3) | 268 | (270) | 538 | ||||||||||||||||||||
Acquisition integration costs and contingent consideration adjustments (4) | 96 | (54) | 150 | ||||||||||||||||||||
Inventory step-up (4) | 20 | — | 20 | ||||||||||||||||||||
Acquisition-related costs (4) | 318 | 24 | 294 | ||||||||||||||||||||
Gain on acquisition (4) | — | (9) | 9 | ||||||||||||||||||||
Divestiture-related costs (4) | 12 | — | 12 | ||||||||||||||||||||
Operating income from divestitures (4) | (4) | (11) | 7 | ||||||||||||||||||||
Incremental costs due to war in Ukraine (5) | 121 | — | 121 | ||||||||||||||||||||
Remeasurement of net monetary position (5) | 26 | 10 | 16 | ||||||||||||||||||||
Impact from pension participation changes (6) | — | 47 | (47) | ||||||||||||||||||||
Impact from resolution of tax matters (7) | — | (5) | 5 | ||||||||||||||||||||
| Adjusted Operating Income | $ | 3,727 | $ | 3,594 | $ | 133 | 3.7 | % | |||||||||||||||
Unfavorable currency translation | 249 | — | 249 | ||||||||||||||||||||
| Adjusted Operating Income (constant currency) | $ | 3,976 | $ | 3,594 | $ | 382 | 10.6 | % | |||||||||||||||
(1)Refer to Note 7, Restructuring Program, for more information.
(2)Refer to Note 5, Goodwill and Intangible Assets, for more information.
(3)Refer to Note 9, Financial Instruments, Note 16, Segment Reporting, and the Non-GAAP Financial Measures section for more information on the unrealized gains/losses on commodity, forecasted currency and equity method investment transaction derivatives.
(4)Refer to Note 2, Acquisitions and Divestitures, for more information on the August 1, 2022 acquisition of Clif Bar, the January 3, 2022 acquisition of Chipita, the November 1, 2021 sale of MaxFoods Pty Ltd, the April 1, 2021 acquisition of Gourmet Food Holdings Pty Ltd, the March 25, 2021 acquisition of a majority interest in Grenade and the January 4, 2021 acquisition of the remaining 93% of equity in Hu Master Holdings.
(5)Refer to Note 1, Basis of Presentation, for information on our accounting for the war in Ukraine and our application of highly inflationary accounting for Argentina and Türkiye.
(6)Refer to Note 10, Benefit Plans, for more information.
(7)Refer to Note 12, Commitments and Contingencies, for more information.
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Adjusted EPS:
Applying the definition of “Adjusted EPS,” (1) the adjustments made to “diluted EPS attributable to Mondelēz International” (the most comparable U.S. GAAP financial measure) were to exclude the impacts of the items listed in the Adjusted Operating Income tables above as well as net earnings from divestitures; losses on debt extinguishment and related expenses; initial impacts from enacted tax law changes; gains or losses on equity method investment transactions; and our proportionate share of significant operating and non-operating items recorded by our JDE Peet's and KDP equity method investees. We also evaluate Adjusted EPS on a constant currency basis. We believe Adjusted EPS provides improved comparability of underlying operating results.
| For the Three Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Diluted EPS attributable to Mondelēz International | $ | 0.39 | $ | 0.89 | $ | (0.50) | (56.2) | % | |||||||||||||||
Simplify to Grow Program (2) | 0.01 | 0.06 | (0.05) | ||||||||||||||||||||
Intangible asset impairment charge (2) | 0.01 | — | 0.01 | ||||||||||||||||||||
Mark-to-market losses/(gains) from derivatives (2) | 0.07 | (0.08) | 0.15 | ||||||||||||||||||||
Acquisition integration costs and contingent consideration adjustments (2) | 0.02 | (0.03) | 0.05 | ||||||||||||||||||||
| Inventory step-up | 0.01 | — | 0.01 | ||||||||||||||||||||
Acquisition-related costs (2) | 0.21 | — | 0.21 | ||||||||||||||||||||
Net earnings from divestitures (3) | — | (0.01) | 0.01 | ||||||||||||||||||||
Remeasurement of net monetary position (2) | 0.01 | — | 0.01 | ||||||||||||||||||||
Initial impacts from enacted tax law changes (4) | 0.01 | — | 0.01 | ||||||||||||||||||||
Loss/(gain) on equity method investment transactions (5) | — | (0.13) | 0.13 | ||||||||||||||||||||
| Adjusted EPS | $ | 0.74 | $ | 0.70 | $ | 0.04 | 5.7 | % | |||||||||||||||
| Unfavorable currency translation | 0.07 | — | 0.07 | ||||||||||||||||||||
| Adjusted EPS (constant currency) | $ | 0.81 | $ | 0.70 | $ | 0.11 | 15.7 | % | |||||||||||||||
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| For the Nine Months Ended September 30, | |||||||||||||||||||||||
| 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||
| Diluted EPS attributable to Mondelēz International | $ | 1.54 | $ | 2.33 | $ | (0.79) | (33.9) | % | |||||||||||||||
Simplify to Grow Program (2) | 0.04 | 0.20 | (0.16) | ||||||||||||||||||||
Intangible asset impairment charges (2) | 0.05 | 0.02 | 0.03 | ||||||||||||||||||||
Mark-to-market losses/(gains) from derivatives (2) | 0.13 | (0.16) | 0.29 | ||||||||||||||||||||
Acquisition integration costs and contingent consideration adjustments (2) | 0.03 | (0.03) | 0.06 | ||||||||||||||||||||
Inventory step-up (2) | 0.01 | — | 0.01 | ||||||||||||||||||||
Acquisition-related costs (2) | 0.23 | 0.01 | 0.22 | ||||||||||||||||||||
Divestiture-related costs (2) | 0.01 | — | 0.01 | ||||||||||||||||||||
Net earnings from divestitures (3) | (0.01) | (0.03) | 0.02 | ||||||||||||||||||||
Incremental costs due to war in Ukraine (2) | 0.09 | — | 0.09 | ||||||||||||||||||||
Remeasurement of net monetary position (2) | 0.02 | 0.01 | 0.01 | ||||||||||||||||||||
Impact from pension participation changes (2) | — | 0.02 | (0.02) | ||||||||||||||||||||
Loss on debt extinguishment and related expenses (6) | 0.07 | 0.07 | — | ||||||||||||||||||||
Initial impacts from enacted tax law changes (4) | 0.01 | 0.07 | (0.06) | ||||||||||||||||||||
Loss/(gain) on equity method investment transactions (5) | 0.01 | (0.40) | 0.41 | ||||||||||||||||||||
Equity method investee items (7) | (0.01) | 0.03 | (0.04) | ||||||||||||||||||||
| Adjusted EPS | $ | 2.22 | $ | 2.14 | $ | 0.08 | 3.7 | % | |||||||||||||||
| Unfavorable currency translation | 0.19 | — | 0.19 | ||||||||||||||||||||
| Adjusted EPS (constant currency) | $ | 2.41 | $ | 2.14 | $ | 0.27 | 12.6 | % | |||||||||||||||
(1)The tax expense/(benefit) of each of the pre-tax items excluded from our U.S. GAAP results was computed based on the facts and tax assumptions associated with each item, and such impacts have also been excluded from Adjusted EPS.
•For the three months ended September 30, 2022, taxes for the: Simplify to Grow Program were $(3) million, intangible asset impairment charges were $(6) million, mark-to-market losses from derivatives were $(22) million, acquisition integration costs and contingent consideration adjustments were $(6) million, inventory step-up charges were $(5) million, acquisition-related costs were zero, remeasurement of net monetary position were zero and initial impacts from enacted tax law changes were $13 million.
•For the three months ended September 30, 2021, taxes for the: Simplify to Grow Program were $(32) million, mark-to-market gains from derivatives were $24 million, acquisition integration costs and contingent consideration adjustments were $15 million, net earnings from divestitures were $4 million and gain on equity method transactions were $59 million.
•For the nine months ended September 30, 2022, taxes for the: Simplify to Grow Program were $(16) million, intangible asset impairment charge was $(25) million, mark-to-market losses from derivatives were $(41) million, acquisition integration costs and contingent consideration adjustments were $(57) million, inventory step-up charges were $(5) million, acquisition-related costs were $(3) million, divestiture-related costs were $(3) million, remeasurement of net monetary position were zero, incremental costs due to the war in Ukraine were $4 million, loss on debt extinguishment and related expenses were $(31) million, initial impacts from enacted tax law changes were $22 million, loss on equity method investment transactions were $1 million and equity method investee items were $1 million.
•For the nine months ended September 30, 2021, taxes for the: Simplify to Grow Program were $(98) million, intangible asset impairment charges were $(8) million, mark-to-market gains from derivatives were $42 million, acquisition-related costs were $(4) million, acquisition integration costs and contingent consideration adjustments were $14 million, net earnings from divestitures were $11 million, remeasurement of net monetary position were zero, impact from pension participation changes were $(8) million, loss on debt extinguishment were $(34) million, initial impacts from enacted tax law changes were $95 million, gain on equity method investment transactions were $184 million and equity method investee items were $(3) million.
(2)See the Adjusted Operating Income table above and the related footnotes for more information.
(3)Includes the impact from 2021 sales of a portion of our equity method investment in KDP and our second quarter 2022 sale of a portion of our equity method investment in JDE Peet's as if the sales occurred at the beginning of all periods presented.
(4)Refer to Note 14, Income Taxes, and the Non-GAAP Financial Measures section for more information on the impact.
(5)Refer to Note 6, Equity Method Investments, for more information on the gains and losses on equity method investment transactions.
(6)Refer to Note 8, Debt and Borrowing Arrangements, for more information on the loss on debt extinguishment and related expenses.
(7)Includes our proportionate share of significant operating and non-operating items recorded by our JDE Peet's and KDP equity method investees, such as acquisition and divestiture-related costs and restructuring program costs..
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As we operate globally, we are primarily exposed to currency exchange rate, commodity price and interest rate market risks. We monitor and manage these exposures as part of our overall risk management program. Our risk management program focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our operating results.
The COVID-19 pandemic and related global response significantly impacted economic activity and markets around the world. National and local governments imposed preventative or protective restrictions on travel and business operations and advised or required citizens to remain at home. Temporary closures of businesses were ordered and numerous other businesses temporarily closed voluntarily. The impact of the global pandemic and response as well as the war in Ukraine has had a material unfavorable impact on global and local markets, including commodity, currency and capital markets. These markets are likely to continue to remain volatile while these situations continue. An economic or credit crisis could occur and impair credit availability and our ability to raise capital when needed. A disruption in the financial markets may have a negative effect on our derivative counterparties and could impair our banking or other business partners, on whom we rely for access to capital and as counterparties for a number of our derivative contracts. We work to mitigate these risks and we largely employ existing strategies that are described below to mitigate currency, commodity and interest rate market risks.
We principally utilize derivative instruments to reduce significant, unanticipated earnings fluctuations that may arise from volatility in currency exchange rates, commodity prices and interest rates. For additional information on our derivative activity and the types of derivative instruments we use to hedge our currency exchange, commodity price and interest rate exposures, see Note 9, Financial Instruments.
Many of our non-U.S. subsidiaries operate in functional currencies other than the U.S. dollar. Fluctuations in currency exchange rates create volatility in our reported results as we translate the balance sheets, operating results and cash flows of these subsidiaries into the U.S. dollar for consolidated reporting purposes. The translation of non-U.S. dollar denominated balance sheets and statements of earnings of our subsidiaries into the U.S. dollar for consolidated reporting generally results in a cumulative translation adjustment to other comprehensive income within equity. A stronger U.S. dollar relative to other functional currencies adversely affects our consolidated earnings and net assets while a weaker U.S. dollar benefits our consolidated earnings and net assets. While we hedge significant forecasted currency exchange transactions as well as certain net assets of non-U.S. operations and other currency impacts, we cannot fully predict or eliminate volatility arising from changes in currency exchange rates on our consolidated financial results. See Consolidated Results of Operations and Results of Operations by Reportable Segment under Discussion and Analysis of Historical Results for currency exchange effects on our financial results during the nine months ended September 30, 2022. Throughout our discussion and analysis of results, we isolate currency impacts and supplementally provide net revenues, operating income and diluted earnings per share on a constant currency basis. For additional information on the impact of currency policies, recent currency devaluations and highly inflationary accounting on our financial condition and results of operations, also see Note 1, Basis of Presentation – Currency Translation and Highly Inflationary Accounting, including our discussion of Türkiye becoming a highly inflationary economy on April 1, 2022 and the related currency remeasurement impacts.
We also continually monitor the market for commodities that we use in our products. Input costs may fluctuate widely due to international demand, weather conditions, government policy and regulation and unforeseen conditions such as the current COVID-19 global pandemic and war in Ukraine. Refer to Recent Developments and Significant Items Affecting Comparability and Financial Outlook above for updates on recent supply chain, transportation, labor and other disruptions that are increasing operating costs and impacting our results. To manage input cost volatility and inflation, we enter into forward purchase agreements and other derivative financial instruments. We also pursue productivity and cost saving measures and take pricing actions when necessary to mitigate the impact of higher input costs on earnings.
We regularly evaluate our variable and fixed-rate debt as well as current and expected interest rates in the markets in which we raise capital. Our primary exposures include movements in U.S. Treasury rates, corporate credit spreads and commercial paper rates. We periodically use interest rate swaps and forward interest rate contracts to achieve a desired proportion of variable versus fixed rate debt based on current and projected market conditions. For more information on our 2022 debt activity, see Note 8, Debt and Borrowing Arrangements.
See Note 9, Financial Instruments, for more information on our 2022 derivative activity. For additional information on our hedging strategies, policies and practices on an ongoing basis, also refer to our Annual Report on Form 10-K for the year ended December 31, 2021.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure. Management, together with our CEO and CFO, evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2022. Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2022.
Changes in Internal Control Over Financial Reporting
Management, together with our CEO and CFO, evaluated the changes in our internal control over financial reporting during the quarter ended September 30, 2022. There were no material changes in our internal control over financial reporting during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
Information regarding legal proceedings is available in Note 12, Commitments and Contingencies, to the condensed consolidated financial statements in this report.
Item 1A. Risk Factors.
There were no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Our stock repurchase activity for each of the three months in the quarter ended September 30, 2022 was:
| Issuer Purchases of Equity Securities | |||||||||||||||||||||||
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (2) | |||||||||||||||||||
| July 1-31, 2022 | 2,108,944 | $ | 61.93 | 2,105,950 | $ | 2,019 | |||||||||||||||||
| August 1-31, 2022 | 1,053,061 | 64.03 | 1,049,976 | 1,952 | |||||||||||||||||||
| September 1-30, 2022 | 2,361,113 | 59.36 | 2,356,985 | 1,812 | |||||||||||||||||||
| For the Quarter Ended September 30, 2022 | 5,523,118 | $ | 61.23 | 5,512,911 | |||||||||||||||||||
(1)The total number of shares purchased (and the average price paid per share) reflects: (i) shares purchased pursuant to the repurchase program described in (2) below; and (ii) shares tendered to us by employees who used shares to exercise options and to pay the related taxes for grants of deferred stock that vested, totaling 2,994 shares, 3,085 shares and 4,128 shares for the fiscal months of July, August and September 2022, respectively.
(2)Dollar values stated in millions. As of September 30, 2022, our Board of Directors has authorized the repurchase up to $23.7 billion of our Common Stock through December 31, 2023. Since the program inception on March 12, 2013 through September 30, 2022, we have repurchased $21.9 billion, and as of September 30, 2202, we had approximately $1.8 billion share repurchase authorization remaining. See related information in Note 11, Stock Plans.
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Item 6. Exhibits.
| Exhibit Number | Description | ||||||||||
| 3.1 | |||||||||||
| 4.1 | The Registrant agrees to furnish to the SEC upon request copies of any instruments defining the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries that does not exceed 10 percent of the total assets of the Registrant and its consolidated subsidiaries. | ||||||||||
| 4.2 | Sixth Supplemental Indenture, dated as of September 15, 2022, by and among Mondelez International Holdings Netherlands B.V., as issuer, Mondelēz International, Inc., as guarantor, and Deutsche Bank Trust Company Americas, as trustee (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on September 16, 2022). | ||||||||||
| 10.1 | |||||||||||
| 31.1 | |||||||||||
| 31.2 | |||||||||||
| 32.1 | |||||||||||
| 101 | The following materials from Mondelēz International’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 are formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Statements of Earnings, (ii) the Condensed Consolidated Statements of Comprehensive Earnings, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Equity, (v) the Condensed Consolidated Statements of Cash Flows and (vi) Notes to Condensed Consolidated Financial Statements. | ||||||||||
| 104 | The cover page from Mondelēz International’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL (included as Exhibit 101). | ||||||||||
'+Indicates a management contract or compensatory plan or arrangement. | |||||||||||
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MONDELĒZ INTERNATIONAL, INC. | ||
| By: /s/ LUCA ZARAMELLA | ||
| Luca Zaramella | ||
| Executive Vice President and | ||
| Chief Financial Officer | ||
| (Duly Authorized Officer) | ||
| November 1, 2022 | ||
70
EXHIBIT 31.1
Certifications
I, Dirk Van de Put, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Mondelēz International, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 1, 2022
| /s/ DIRK VAN DE PUT | ||
| Dirk Van de Put Chairman and Chief Executive Officer | ||
EXHIBIT 31.2
Certifications
I, Luca Zaramella, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Mondelēz International, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 1, 2022
| /s/ LUCA ZARAMELLA | ||
| Luca Zaramella Executive Vice President and Chief Financial Officer | ||
EXHIBIT 32.1
CERTIFICATIONS OF
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Dirk Van de Put, Chairman and Chief Executive Officer of Mondelēz International, Inc. (“Mondelēz International”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that Mondelēz International’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, Mondelēz International’s financial condition and results of operations.
| /s/ DIRK VAN DE PUT | ||
| Dirk Van de Put | ||
| Chairman and Chief Executive Officer | ||
| November 1, 2022 | ||
I, Luca Zaramella, Executive Vice President and Chief Financial Officer of Mondelēz International, Inc. (“Mondelēz International”), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that Mondelēz International’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, Mondelēz International’s financial condition and results of operations.
| /s/ LUCA ZARAMELLA | ||
| Luca Zaramella | ||
| Executive Vice President and | ||
| Chief Financial Officer | ||
| November 1, 2022 | ||
A signed original of these written statements required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Mondelēz International, Inc. and will be retained by Mondelēz International, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.