Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
Our interim condensed consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted. It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of our results of operations, financial position and cash flows. Results of operations for any interim period are not necessarily indicative of future or annual results. For a complete set of consolidated financial statements and related notes, refer to our Annual Report on Form 10-K for the year ended December 31, 2021.
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 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 reserves and write-offs, $19 million of increased estimated allowances for trade receivables and $16 million in accrued expenses. 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 expect to apply highly inflationary accounting for our subsidiaries operating in Türkiye and change their functional currency from the Turkish lira to the U.S. dollar. Our operations in Türkiye contributed $43 million, or 0.6% of our condensed consolidated net revenues in the three months ended March 31, 2022. Based on a review of our Turkish lira-denominated monetary assets and liabilities, our operations in Türkiye had an immaterial net monetary liability position as of March 31, 2022.
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 $129 million, or 1.7% of our condensed consolidated net revenues in the three months ended March 31, 2022. As of March 31, 2022, our Argentinean operations had $26 million of Argentinean peso denominated net monetary assets. Within selling, general and administrative expenses, we recorded a remeasurement loss of $5 million during the three months ended March 31, 2022 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 as well as in the ongoing COVID-19 global pandemic and related impacts to our business operations, currencies and net monetary exposures. Since the global onset of COVID-19 in early 2020, most countries in which we do business experienced periods of significant economic uncertainty as well as exchange rate volatility. At this time, within our consolidated entities, Argentina and Türkiye are or will be accounted for as highly inflationary economies as noted above, and we continue to monitor currency volatility and associated risks, including highly inflationary economies.
Cash, Cash Equivalents and Restricted Cash:
Cash and cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less. We also have restricted cash that is recorded within other current assets of $7 million as of March 31, 2022 and $7 million as of December 31, 2021. Total cash, cash equivalents and restricted cash was $1,953 million as of March 31, 2022 and $3,553 million as of December 31, 2021.
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 | $ | (37) | | | $ | (49) | | | $ | (10) | |
| Current period provision for expected credit losses | (19) | | | (2) | | | (5) | |
| Write-offs charged against the allowance | 3 | | | — | | | — | |
| | | | | |
| Currency | (2) | | | 3 | | | (2) | |
| Balance at March 31, 2022 | $ | (55) | | | $ | (48) | | | $ | (17) | |
Transfers of Financial Assets:
We account for transfers of financial assets, such as uncommitted revolving non-recourse accounts receivable factoring arrangements, when we have surrendered control over the related assets. Determining whether control has transferred requires an evaluation of relevant legal considerations, an assessment of the nature and extent of our continuing involvement with the assets transferred and any other relevant considerations. We use receivable factoring arrangements periodically when circumstances are favorable to manage liquidity. We have non-recourse factoring arrangements in which we sell eligible trade receivables primarily to banks in exchange for cash. We may then continue to collect the receivables sold, acting solely as a collecting agent on behalf of the banks. The outstanding principal amount of receivables under these arrangements amounted to $887 million as of March 31, 2022 and $761 million as of December 31, 2021. The incremental cost of factoring receivables under this arrangement was not material for all periods presented. The proceeds from the sales of receivables are included in cash from operating activities in the condensed consolidated statements of cash flows.
Non-Cash Lease Transactions:
We recorded $95 million in operating lease and $56 million in finance lease right-of-use assets obtained in exchange for lease obligations during the three months ended March 31, 2022 and $29 million in operating lease and $30 million in finance lease right-of-use assets obtained in exchange for lease obligations during the three months ended March 31, 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.
Note 2. Acquisitions and Divestitures
On April 24, 2022, we entered into an agreement with Grupo Bimbo to acquire Ricolino, its confectionery business located primarily in Mexico for a purchase price of approximately $1.3 billion, subject to closing purchase price adjustments. The transaction, which will be funded through a combination of an issuance of debt and cash on hand, is subject to relevant antitrust approvals and closing conditions and is expected to close in late Q3 or early Q4 2022.
On January 3, 2022, we acquired Chipita 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 €1.3 billion ($1.4 billion), net of cash received, plus the assumption of Chipita’s debt of €0.4 billion ($0.4 billion) for a total purchase price of €1.7 billion ($1.9 billion).
We are working to complete the valuation and have recorded a preliminary purchase price allocation of:
| | | | | | |
| (in millions) | |
| Cash | $ | 52 | | |
| Receivables | 102 | | |
| Inventory | 62 | | |
| Other current assets | 4 | | |
| Property, plant and equipment | 406 | | |
| Finance leases right of use assets | 8 | | |
| Definite life intangible assets | 48 | | |
| Indefinite life intangible assets | 686 | | |
| Goodwill | 774 | | |
| Other assets | 79 | | |
| Assets acquired | $ | 2,221 | | |
| Current liabilities | 131 | | |
| Deferred tax liability | 155 | | |
| Finance lease liabilities | 8 | | |
| Other liabilities | 21 | | |
| Total purchase price | $ | 1,906 | | |
| Less: long-term debt | (436) | | |
| Less: cash received | (52) | | |
| Net Cash Paid | $ | 1,418 | | |
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 $152 million and operating income of $4 million in the three months ended March 31, 2022. We incurred acquisition-related costs of $21 million and integration costs of $35 million in the three months ended March 31, 2022.
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. The acquisition added incremental net revenues of $14 million, and operating income of $1 million in the three months ended March 31, 2022. We incurred acquisition-related costs of $1 million in the three months ended March 31, 2021.
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 in the three months ended March 31, 2022. We incurred acquisition-related costs of $2 million in the three months ended March 31, 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 the Company 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. 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 $4 million during the three months ended March 31, 2021.
Note 3. Inventories
Inventories consisted of the following:
| | | | | | | | | | | |
| As of March 31, 2022 | | As of December 31, 2021 |
| | (in millions) |
| Raw materials | $ | 891 | | | $ | 770 | |
| Finished product | 2,093 | | | 2,054 | |
| 2,984 | | | 2,824 | |
| Inventory reserves | (146) | | | (116) | |
| Inventories, net | $ | 2,838 | | | $ | 2,708 | |
Note 4. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
| | | | | | | | | | | |
| | As of March 31, 2022 | | As of December 31, 2021 |
| | (in millions) |
| Land and land improvements | $ | 405 | | | $ | 379 | |
| Buildings and building improvements | 3,322 | | | 3,139 | |
| Machinery and equipment | 12,043 | | | 11,842 | |
| Construction in progress | 669 | | | 732 | |
| 16,439 | | | 16,092 | |
| Accumulated depreciation | (7,424) | | | (7,434) | |
| Property, plant and equipment, net | $ | 9,015 | | | $ | 8,658 | |
For the three months ended March 31, 2022, capital expenditures of $167 million excluded $244 million of accrued capital expenditures remaining unpaid at March 31, 2022 and included payment for a portion of the $249 million of capital expenditures that were accrued and unpaid at December 31, 2021. For the three months ended March 31, 2021, capital expenditures of $216 million excluded $230 million of accrued capital expenditures remaining unpaid at March 31, 2021 and included payment for a portion of the $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
March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions) |
| Latin America | $ | — | | | $ | — | | | | | |
| AMEA | — | | | (16) | | | | | |
| Europe | 1 | | | 2 | | | | | |
| North America | 1 | | | 54 | | | | | |
| Total | $ | 2 | | | $ | 40 | | | | | |
Note 5. Goodwill and Intangible Assets
Goodwill by segment was:
| | | | | | | | | | | |
| As of March 31, 2022 | | As of December 31, 2021 |
| | (in millions) |
| Latin America | $ | 738 | | | $ | 674 | |
| AMEA | 3,371 | | | 3,365 | |
| Europe | 8,355 | | | 7,830 | |
| North America | 10,154 | | | 10,109 | |
| Goodwill | $ | 22,618 | | | $ | 21,978 | |
Intangible assets consisted of the following:
| | | | | | | | | | | |
| As of March 31, 2022 | | As of December 31, 2021 |
| | (in millions) |
| Indefinite-life intangible assets | $ | 17,827 | | | $ | 17,299 | |
| Definite-life intangible assets | 3,025 | | | 2,991 | |
| 20,852 | | | 20,290 | |
| Accumulated amortization | (2,023) | | | (1,999) | |
| Intangible assets, net | $ | 18,829 | | | $ | 18,291 | |
Indefinite-life intangible assets consist principally of brand names purchased through our acquisitions of Nabisco Holdings Corp., the Spanish and Portuguese operations of United Biscuits, the global LU biscuit business of Groupe Danone S.A. and Cadbury Limited. 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 ended March 31, 2022 and $38 million for the three months ended March 31, 2021. For the next five years, we currently estimate annual amortization expense of approximately $130 million in 2022-2024, approximately $105 million in 2025 and approximately $65 million in 2026 (reflecting March 31, 2022 exchange rates).
Changes in goodwill and intangible assets consisted of:
| | | | | | | | | | | |
| | Goodwill | | Intangible
Assets, at cost |
| | (in millions) |
| Balance at January 1, 2022 | $ | 21,978 | | | $ | 20,290 | |
| Currency | (134) | | | (94) | |
| | | |
| Acquisitions | 774 | | | 734 | |
| Asset impairments | — | | | (78) | |
| Balance at March 31, 2022 | $ | 22,618 | | | $ | 20,852 | |
Changes to goodwill and intangibles were:
•Acquisitions - In connection with our acquisition of Chipita during the first three months of 2022, we recorded a preliminary purchase price allocation of $774 million to goodwill and $734 million to intangible assets. See Note 2, Acquisitions and Divestitures, for additional information.
•Asset impairment - As further described below, during the first quarter of 2022, we recorded a $78 million intangible asset impairment in AMEA due to lower than expected growth and profitability of a local biscuit brand sold in select markets in AMEA and Europe.
During the first quarter of 2022, we evaluated our goodwill and intangible asset impairment risk through an assessment of potential triggering events. In light of the war in Ukraine and the overall global economic environment, we considered qualitative and quantitative information in our assessment of goodwill and indefinite-life intangible assets. Based on the financial performance of our goodwill reporting units, we concluded there were no impairment indicators for goodwill. Based on further quantitative analysis of our indefinite-life intangible assets, we concluded that a biscuit brand was impaired. During the first quarter of 2022, we recorded a $78 million impairment charge for the brand within asset impairment and exit costs and based on the excess carrying value over its estimated fair value. During our indefinite-life impairment testing, we use several accepted valuation methods, including relief of 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.
During the first quarter of 2021, there were no impairments of goodwill or intangible assets. During our 2021 annual indefinite-life intangible asset testing in the third quarter of 2021, we identified eight brands, including the one brand impaired during the first 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 $1,045 million as of March 31, 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 the 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.
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 March 31, 2022, we owned 22.7%, 5.3%, 50.0% and 49.0%, respectively, of these companies' outstanding shares.
Our investments accounted for under the equity method of accounting totaled $5,255 million as of March 31, 2022 and $5,289 million as of December 31, 2021. We recorded equity earnings of $117 million and cash dividends of $107 million in the first quarter of 2022 and equity earnings of $78 million and cash dividends of $74 million in the first quarter of 2021.
Based on the quoted closing prices as of March 31, 2022, the combined fair value of our publicly-traded investments in JDEP and KDP was $6.1 billion, and for each investment, its fair value exceeded its carrying value.
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 7% of our equity interest in JDE Peet's. Refer to Note 9, Debt and Borrowing Arrangements, for further details on this transaction.
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 three months ended March 31, 2022 was:
| | | | | | | | | | | | | | | | | |
| | Severance
and related
costs | | Asset
Write-downs | | Total |
| | (in millions) |
| Liability balance, January 1, 2022 | $ | 211 | | | $ | — | | | $ | 211 | |
| Charges | 9 | | | 2 | | | 11 | |
| Cash spent | (17) | | | — | | | (17) | |
| Non-cash settlements/adjustments | — | | | (2) | | | (2) | |
| Currency | (1) | | | — | | | (1) | |
| Liability balance, March 31, 2022 | $ | 202 | | | $ | — | | | $ | 202 | |
•We recorded restructuring charges of $11 million in the first quarter of 2022 and $88 million in the first quarter of 2021 within asset impairment and exit costs and benefit plan non-service income.
•We spent $17 million in the first quarter of 2022 and $34 million in the first quarter of 2021 in cash severance and related costs.
•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 $2 million in the first quarter of 2022 and $40 million in the first quarter of 2021.
•At March 31, 2022, $172 million of our net restructuring liability was recorded within other current liabilities and $30 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 $20 million in the first quarter of 2022 and $34 million in the first quarter of 2021. We recorded these costs within cost of sales and general corporate expense within selling, general and administrative expenses.
Restructuring and Implementation Costs:
During the three months ended March 31, 2022 and March 31, 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 March 31, 2022 | | | | | | | | | | | |
| Restructuring Costs | $ | (1) | | | $ | 2 | | | $ | 2 | | | $ | 8 | | | $ | — | | | $ | 11 | |
| Implementation Costs | 1 | | | 1 | | | 5 | | | 7 | | | 6 | | | 20 | |
| Total | $ | — | | | $ | 3 | | | $ | 7 | | | $ | 15 | | | $ | 6 | | | $ | 31 | |
| For the Three Months Ended March 31, 2021 | | | | | | | | | | | |
| Restructuring Costs | $ | 3 | | | $ | (21) | | | $ | 6 | | | $ | 101 | | | $ | (1) | | | $ | 88 | |
| Implementation Costs | 3 | | | 2 | | | 10 | | | 10 | | | 9 | | | 34 | |
| Total | $ | 6 | | | $ | (19) | | | $ | 16 | | | $ | 111 | | | $ | 8 | | | $ | 122 | |
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| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total Project (Inception to Date) | | | | | | | | | | | |
| Restructuring Costs | $ | 553 | | | $ | 543 | | | $ | 1,149 | | | $ | 653 | | | $ | 149 | | | $ | 3,047 | |
| Implementation Costs | 297 | | | 240 | | | 549 | | | 560 | | | 362 | | | 2,008 | |
| Total | $ | 850 | | | $ | 783 | | | $ | 1,698 | | | $ | 1,213 | | | $ | 511 | | | $ | 5,055 | |
Note 8. Debt and Borrowing Arrangements
Short-Term Borrowings:
Our short-term borrowings and related weighted-average interest rates consisted of:
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2022 | | As of December 31, 2021 |
| Amount
Outstanding | | Weighted-
Average Rate | | Amount
Outstanding | | Weighted-
Average Rate |
| (in millions, except percentages) |
| Commercial paper | $ | 463 | | | 0.9 | % | | $ | 192 | | | 0.2 | % |
| Bank loans | 143 | | | 3.5 | % | | 24 | | | 8.6 | % |
| Total short-term borrowings | $ | 606 | | | | | $ | 216 | | | |
Our uncommitted credit lines and committed credit lines available as of March 31, 2022 and December 31, 2021 include:
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2022 | | As of December 31, 2021 |
| Facility Amount | | Borrowed Amount | | Facility Amount | | Borrowed Amount |
| (in millions) |
| Uncommitted credit facilities | $ | 1,435 | | | $ | 143 | | | $ | 1,367 | | | $ | 24 | |
Credit facility expiry(1): | | | | | | | |
November 30, 2022(2) | 2,000 | | | — | | | — | | | — | |
| February 23, 2022 | — | | | — | | | 2,500 | | | — | |
| February 22, 2023 | 2,500 | | | — | | | — | | | — | |
| February 27, 2024 | — | | | — | | | 4,500 | | | — | |
| February 23, 2027 | 4,500 | | | — | | | — | | | — | |
(1) We maintain a multi-year senior unsecured revolving credit facility for general corporate purposes, including working capital needs, and to support our commercial paper program. The revolving credit agreement includes a covenant that we maintain a minimum shareholders' equity of at least $25.0 billion, excluding accumulated other comprehensive earnings/(losses), the cumulative effects of any changes in accounting principles and earnings/(losses) recognized in connection with the ongoing application of any mark-to-market accounting for
pensions and other retirement plans. At March 31, 2022, we complied with this covenant as our shareholders' equity, as defined by the covenant, was $38.6 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. The maturity dates of any loans drawn under this facility will be three years 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 |
| 3.625% | | March 2022 | | February 2026 | | $130 | | $130 |
| 4.125% | | March 2022 | | May 2028 | | $211 | | $211 |
| 2.750% | | March 2022 | | April 2030 | | $500 | | $500 |
| 6.500% | | March 2022 | | November 2031 | | $17 | | $17 |
| 7.000% | | March 2022 | | August 2037 | | $10 | | $10 |
| 6.875% | | March 2022 | | February 2038 | | $21 | | $21 |
| 6.875% | | March 2022 | | January 2039 | | $8 | | $8 |
| 6.500% | | March 2022 | | February 2040 | | $36 | | $36 |
| 4.625% | | March 2022 | | May 2048 | | $54 | | $54 |
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:
On March 18, 2022, we completed a redemption of long term U.S. dollar denominated notes for the following amounts (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest Rate | | Redemption Date | | Maturity Date | | Amount Redeemed | | USD Equivalent |
| 0.625% | | March 2022 | | July 2022 | | $1,000 | | $1,000 |
Debt Repayments
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 three months ended March 31, 2022.
Issuances:
During the three months ended March 31, 2022, we issued the following notes (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance Date | | Interest Rate | | Maturity Date | | Gross Proceeds (1) | | Gross Proceeds USD Equivalent |
| March 2022 | | 2.125% | | March 2024 | | $500 | | $500 |
| March 2022 | | 2.625% | | March 2027 | | $750 | | $750 |
| March 2022 | | 3.000% | | March 2032 | | $750 | | $750 |
(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 March 31, 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 March 31, 2022 | | As of December 31, 2021 |
| (in millions) |
| Fair Value | $ | 19,009 | | | $ | 20,249 | |
| Carrying Value | $ | 19,704 | | | $ | 19,512 | |
Interest and Other Expense, net:
Interest and other expense, net consisted of:
| | | | | | | | | | | | | | | |
| For the Three Months Ended
March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions) |
| Interest expense, debt | $ | 91 | | | $ | 98 | | | | | |
Loss on debt extinguishment and
related expenses | 129 | | | 137 | | | | | |
| Other (income)/expense, net | (52) | | | (17) | | | | | |
| Interest and other expense, net | $ | 168 | | | $ | 218 | | | | | |
Other income includes amounts excluded from hedge effectiveness related to our net investment hedge derivative contracts that totaled $22 million in the three months ended March 31, 2022 and $20 million in the three months ended March 31, 2021.
Early settlement of forecasted currency exchange contracts comprise $20 million in other (income)/expense, net due to changes in related forecasted future cash flows in the three months ended March 31, 2022. Refer to Note 9, Financial Instruments.
Note 9. Financial Instruments
Fair Value of Derivative Instruments:
Derivative instruments were recorded at fair value in the condensed consolidated balance sheets as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2022 | | As of December 31, 2021 |
| Asset
Derivatives | | Liability
Derivatives | | Asset
Derivatives | | Liability
Derivatives |
| | (in millions) |
Derivatives designated as accounting hedges: | | | | | | | |
| Currency exchange contracts | $ | 1 | | | $ | 3 | | | $ | — | | | $ | — | |
| Interest rate contracts | 27 | | | 3 | | | 27 | | | 17 | |
Net investment hedge derivative contracts (1) | 137 | | | 51 | | | 117 | | | 45 | |
| $ | 165 | | | $ | 57 | | | $ | 144 | | | $ | 62 | |
Derivatives not designated as
accounting hedges: | | | | | | | |
| Currency exchange contracts | $ | 135 | | | $ | 124 | | | $ | 156 | | | $ | 40 | |
| Commodity contracts | 589 | | | 220 | | | 387 | | | 137 | |
Equity method investment contracts(2) | — | | | 3 | | | — | | | 3 | |
| $ | 724 | | | $ | 347 | | | $ | 543 | | | $ | 180 | |
| Total fair value | $ | 889 | | | $ | 404 | | | $ | 687 | | | $ | 242 | |
(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 8, Debt and Borrowing Arrangements.
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 March 31, 2022 |
| | Total
Fair Value of Net
Asset/(Liability) | | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) |
| | (in millions) |
| Currency exchange contracts | $ | 9 | | | $ | — | | | $ | 9 | | | $ | — | |
| Commodity contracts | 369 | | | 213 | | | 156 | | | — | |
| Interest rate contracts | 24 | | | — | | | 24 | | | — | |
| Net investment hedge contracts | 86 | | | — | | | 86 | | | — | |
| Equity method investment contracts | (3) | | | — | | | (3) | | | — | |
| Total derivatives | $ | 485 | | | $ | 213 | | | $ | 272 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | $ | 116 | | | $ | — | | | $ | 116 | | | $ | — | |
| Commodity contracts | 251 | | | 161 | | | 90 | | | — | |
| Interest rate contracts | 10 | | | — | | | 10 | | | — | |
| Net investment hedge contracts | 71 | | | — | | | 71 | | | — | |
| Equity method investment contracts | (3) | | | — | | | (3) | | | — | |
| Total derivatives | $ | 445 | | | $ | 161 | | | $ | 284 | | | $ | — | |
Level 1 financial assets and liabilities consist of exchange-traded commodity futures and listed options. The fair value of these instruments is determined based on quoted market prices on commodity exchanges.
Level 2 financial assets and liabilities consist primarily of over-the-counter (“OTC”) currency exchange forwards, options and swaps; commodity forwards and options; net investment hedge contracts; and interest rate swaps. Our currency exchange contracts are valued using an income approach based on observable market forward rates less the contract rate multiplied by the notional amount. Commodity derivatives are valued using an income approach based on the observable market commodity index prices less the contract rate multiplied by the notional amount or based on pricing models that rely on market observable inputs such as commodity prices. Our bifurcated exchange options are valued, as derivative instrument liabilities, using the Black-Scholes option pricing model. This model requires assumptions related to the market price of the underlying note and associated credit spread combined with the share of price, expected dividend yield, and expected volatility of the JDE Peet’s shares over the life of the option. Our calculation of the fair value of interest rate swaps is derived from a discounted cash flow analysis based on the terms of the contract and the observable market interest rate curve. Our calculation of the fair value of financial instruments takes into consideration the risk of nonperformance, including counterparty credit risk. Our OTC derivative transactions are governed by International Swap Dealers Association agreements and other
standard industry contracts. Under these agreements, we do not post nor require collateral from our counterparties. The majority of our derivative contracts do not have a legal right of set-off. We manage the credit risk in connection with these and all our derivatives by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure with each counterparty and monitoring the financial condition of our counterparties.
Derivative Volume:
The notional values of our hedging instruments were:
| | | | | | | | | | | |
| | Notional Amount |
| | As of March 31, 2022 | | As of December 31, 2021 |
| | (in millions) |
| Currency exchange contracts: | | | |
Intercompany loans and forecasted interest payments | $ | 3,073 | | | $ | 1,891 | |
Forecasted transactions | 4,822 | | | 4,831 | |
| Commodity contracts | 10,281 | | | 9,694 | |
| Interest rate contracts | 1,850 | | | 1,850 | |
| Net investment hedges: | | | |
| Net investment hedge derivative contracts | 7,306 | | | 3,915 | |
| Non-U.S. dollar debt designated as net investment hedges | | | |
Euro notes | 3,525 | | | 3,622 | |
British pound sterling notes | 346 | | | 356 | |
Swiss franc notes | 802 | | | 811 | |
Canadian dollar notes | 480 | | | 475 | |
Cash Flow Hedges:
Cash flow hedge activity, net of taxes, within accumulated other comprehensive earnings/(losses) included:
| | | | | | | | | | | | | | | |
| | For the Three Months Ended
March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions) |
| Accumulated (loss)/gain at beginning of period | $ | (148) | | | $ | (161) | | | | | |
Transfer of realized losses/(gains) in fair value
to earnings | 25 | | | 5 | | | | | |
| Unrealized (loss)/gain in fair value | 27 | | | (3) | | | | | |
| Accumulated (loss)/gain at end of period | $ | (96) | | | $ | (159) | | | | | |
After-tax gains/(losses) reclassified from accumulated other comprehensive earnings/(losses) to net earnings were:
| | | | | | | | | | | | | | | |
| | For the Three Months Ended
March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions) |
| Currency exchange contracts – forecasted transactions | $ | (2) | | | $ | — | | | | | |
| Interest rate contracts | (23) | | | (5) | | | | | |
| Total | $ | (25) | | | $ | (5) | | | | | |
After-tax gains/(losses) recognized in other comprehensive earnings/(losses) were:
| | | | | | | | | | | | | | | |
| | For the Three Months Ended
March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions) |
Currency exchange contracts –
forecasted transactions | $ | 2 | | | $ | (1) | | | | | |
| Interest rate contracts | 25 | | | (2) | | | | | |
| Total | $ | 27 | | | $ | (3) | | | | | |
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 $9 million (net of taxes) for interest rate cash flow hedges to earnings during the next 12 months.
Cash Flow Hedge Coverage:
As of March 31, 2022, our longest dated cash flow hedges were interest rate swaps that hedge forecasted interest rate payments over the next 4 years, 5 months.
Hedges of Net Investments in International Operations:
Net investment hedge ("NIH") derivative contracts:
We enter into cross-currency interest rate swaps, forwards and options to hedge certain investments in our non-U.S. operations against movements in exchange rates. The aggregate notional value as of March 31, 2022 was $7.3 billion.
The impacts of the net investment hedge derivative contracts on other comprehensive earnings and net earnings were as follows:
| | | | | | | | | | | | | | | |
| | For the Three Months Ended
March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions) |
After-tax gain/(loss) on NIH contracts(1) | $ | 41 | | | $ | 59 | | | | | |
(1)Amounts recorded for unsettled and settled NIH derivative contracts are recorded in the cumulative translation adjustment within other comprehensive earnings. The cash flows from the settled contracts are reported within other investing activities in the condensed consolidated statement of cash flows.
| | | | | | | | | | | | | | | |
| | For the Three Months Ended
March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions) |
Amounts excluded from the assessment of hedge effectiveness(1) | $ | 22 | | | $ | 20 | | | | | |
(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
March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions) |
| Euro notes | $ | 74 | | | $ | 124 | | | | | |
| British pound sterling notes | 8 | | | (2) | | | | | |
| Swiss franc notes | 6 | | | 56 | | | | | |
| Canadian notes | (4) | | | (5) | | | | | |
Economic Hedges:
Pre-tax gains/(losses) recorded in net earnings for economic hedges were:
| | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended
March 31, | | | | Location of Gain/(Loss) Recognized in Earnings |
| | 2022 | | 2021 | | | | | |
| | (in millions) | | |
| Currency exchange contracts: | | | | | | | | | |
| Intercompany loans and forecasted interest payments | $ | (11) | | | $ | 70 | | | | | | | Interest and other expense, net |
Forecasted transactions | (7) | | | 50 | | | | | | | Cost of sales |
Forecasted transactions | 21 | | | (16) | | | | | | | Interest and other expense, net |
Forecasted transactions | 2 | | | 2 | | | | | | | Selling, general and administrative expenses |
| Commodity contracts | 237 | | | 94 | | | | | | | Cost of sales |
Equity method investment
contracts | — | | | — | | | | | | | Gain on equity method investment transactions |
| Total | $ | 242 | | | $ | 200 | | | | | | | |
Early settlement of forecasted currency exchange contracts comprise $74 million in cost of sales, $5 million in selling, general and administrative expenses and $20 million in interest and other expense, net in the three months ended March 31, 2022.
Note 10. Benefit Plans
Pension Plans
Components of Net Periodic Pension Cost:
Net periodic pension cost/(benefit) consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Plans | | Non-U.S. Plans |
| | For the Three Months Ended
March 31, | | For the Three Months Ended
March 31, |
| | 2022 | | 2021 | | 2022 | | 2021 |
| | (in millions) |
| Service cost | $ | 1 | | | $ | 2 | | | $ | 39 | | | $ | 35 | |
| Interest cost | 11 | | | 10 | | | 41 | | | 29 | |
| Expected return on plan assets | (18) | | | (18) | | | (93) | | | (106) | |
| Amortization: | | | | | | | |
| Net loss from experience differences | 3 | | | 4 | | | 19 | | | 33 | |
| Prior service cost/(benefit) | — | | | — | | | (1) | | | (2) | |
| Settlement losses and other expenses | 3 | | | 3 | | | — | | | — | |
| Net periodic pension cost/(benefit) | $ | — | | | $ | 1 | | | $ | 5 | | | $ | (11) | |
| | | | | | | |
| | | |
| | | |
| | | | | | | |
| |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Employer Contributions:
During the three months ended March 31, 2022, we contributed less than $1 million to our U.S. pension plans and $64 million to our non-U.S. pension plans, including $25 million to plans in the United Kingdom and Ireland. We make contributions to our pension plans in accordance with local funding arrangements and statutory minimum funding requirements. Discretionary contributions are made to the extent that they are tax deductible and do not generate an excise tax liability.
As of March 31, 2022, over the remainder of 2022, we plan to make further contributions of approximately $3 million to our U.S. plans and approximately $121 million to our non-U.S. plans. Our actual contributions may be different due to many factors, including changes in tax and other benefit laws, significant differences between expected and actual pension asset performance or interest rates.
Multiemployer Pension Plans:
On July 11, 2019, we received an undiscounted withdrawal liability assessment 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 in the three months ended March 31, 2022 and $3 million in the three months ended March 31, 2021 within interest and other expense, net. As of March 31, 2022, the remaining discounted withdrawal liability was $356 million, with $15 million recorded in other current liabilities and $341 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
March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions) |
| Service cost | $ | 1 | | | $ | 1 | | | | | |
| Interest cost | 2 | | | 2 | | | | | |
| Amortization: | | | | | | | |
| Net loss from experience differences | — | | | 1 | | | | | |
| Prior service credit | — | | | — | | | | | |
| Net periodic postretirement health care cost/(benefit) | $ | 3 | | | $ | 4 | | | | | |
Postemployment Benefit Plans
Net periodic postemployment cost consisted of the following:
| | | | | | | | | | | | | | | |
| | For the Three Months Ended
March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions) |
| Service cost | $ | 1 | | | $ | 1 | | | | | |
| Interest cost | 1 | | | 1 | | | | | |
| Amortization of net gains | (1) | | | (1) | | | | | |
| Net periodic postemployment cost | $ | 1 | | | $ | 1 | | | | | |
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 | 23,503,759 | | | $42.65 | | 5 years | | $ | 556 | million |
| Annual grant to eligible employees | 2,180,540 | | | 64.65 | | | | |
| Additional options issued | 1,710 | | | 65.97 | | | | |
| Total options granted | 2,182,250 | | | 64.65 | | | | |
Options exercised (1) | (2,329,139) | | | 34.61 | | | | $ | 74 | million |
| Options canceled | (208,761) | | | 53.50 | | | | |
| Balance at March 31, 2022 | 23,148,109 | | | 45.43 | | 6 years | | $ | 406 | million |
(1)Cash received from options exercised was $70 million in the three months ended March 31, 2022. The actual tax benefit realized and recorded in the provision for income taxes for the tax deductions from the option exercises totaled $10 million in the three months ended March 31, 2022.
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 | 4,668,046 | | | | | $57.04 | | |
| Annual grant to eligible employees: | | | Feb 24, 2022 | | | | |
| Performance share units | 806,590 | | | | | 61.87 | | |
| Deferred stock units | 505,090 | | | | | 64.65 | | |
Additional shares granted (1) | 653,365 | | | Various | | 60.17 | | |
| Total shares granted | 1,965,045 | | | | | 62.02 | | $ | 122 | million |
Vested (2) | (1,670,302) | | | | | 55.34 | | $ | 92 | million |
| Forfeited | (187,367) | | | | | 61.42 | | |
| Balance at March 31, 2022 | 4,775,422 | | | | | 59.51 | | |
(1)Includes performance share units and deferred stock units.
(2)The actual tax benefit/(expense) realized and recorded in the provision for income taxes for the tax deductions from the shares vested totaled $5 million in the three months ended March 31, 2022.
(3)The grant date fair value of performance share units is determined based on the Monte Carlo simulation model for the market-based total shareholder return component and the closing market price of the Company’s stock on the grant date for performance-based components. The Monte Carlo simulation model incorporates the probability of achieving the total shareholder return market condition. Compensation expense is recognized using the grant date fair values regardless of whether the market condition is achieved, so long as the requisite service has been provided.
Share Repurchase Program:
Between 2013 and 2017, our Board of Directors authorized the repurchase of a total of $13.7 billion of our Common Stock through December 31, 2018. On January 31, 2018, our Finance Committee, with authorization delegated from our Board of Directors, approved an increase of $6.0 billion in the share repurchase program, raising the authorization to $19.7 billion of Common Stock repurchases, and extended the program through December 31, 2020. On December 2, 2020, our Board of Directors approved an increase of $4.0 billion in the share repurchase program, raising the authorization to $23.7 billion of Common Stock repurchases, 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 three months ended March 31, 2022, we repurchased approximately 11 million shares of Common Stock at an average cost of $65.96 per share, or an aggregate cost of approximately $0.8 billion, all of which was paid during the period. All share repurchases were funded through available cash and commercial paper issuances. As of March 31, 2022, we have approximately $2.9 billion in remaining share repurchase capacity.
Note 12. Commitments and Contingencies
Legal Proceedings:
We routinely are involved in legal proceedings, claims, disputes, regulatory matters and governmental 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 litigation 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 proceedings, individually and in the aggregate, will not materially harm our financial position, results of operations or cash flows. However, legal proceedings and government investigations are subject to inherent uncertainties, and unfavorable rulings or other events could occur. Unfavorable resolutions could involve substantial monetary damages. In addition, in matters for which conduct remedies are sought, unfavorable resolutions could include an injunction or other order prohibiting us from selling one or more products at all or in particular ways, precluding particular business practices or requiring other remedies. An unfavorable outcome might result in a material adverse impact on our business, results of operations or financial position.
On April 1, 2015, the U.S. Commodity Futures Trading Commission ("CFTC") filed a complaint against Kraft Foods Group and Mondelēz Global LLC (“Mondelēz Global”) in the U.S. District Court for the Northern District of Illinois (the "District Court"), Eastern Division (the “CFTC action”) following its investigation of activities related to the trading of December 2011 wheat futures contracts that occurred prior to the spin-off of Kraft Foods Group. The complaint alleges that Kraft Foods Group and Mondelēz Global (1) manipulated or attempted to manipulate the wheat markets during the fall of 2011; (2) violated position limit levels for wheat futures and (3) engaged in non-competitive trades by trading both sides of exchange-for-physical Chicago Board of Trade wheat contracts. The CFTC seeks civil monetary penalties of either triple the monetary gain for each violation of the Commodity Exchange Act (the “Act”) or $1 million for each violation of Section 6(c)(1), 6(c)(3) or 9(a)(2) of the Act and $140,000 for each additional violation of the Act, plus post-judgment interest; an order of permanent injunction prohibiting Kraft Foods Group and Mondelēz Global from violating specified provisions of the Act; disgorgement of profits; and costs and fees. On August 15, 2019, 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. On October 23, 2019, following a ruling by the United States Court of Appeals for the Seventh Circuit regarding Mondelēz Global's allegations that the CFTC and its Commissioners violated certain terms of the settlement agreement and the CFTC's argument that the Commissioners were not bound by the terms of the settlement agreement, the District Court vacated the settlement agreement and reinstated all pending motions that the District Court had previously mooted as a result of the settlement. The parties have reached a new agreement in principle to resolve the CFTC action and have submitted the settlement to the District Court for approval. The District Court cancelled a scheduled conference on June 4, 2020 to discuss the proposed settlement agreement but indicated that it would rule on pending motions in due course. Additionally, several class action complaints 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 District Court. 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 CFTC action and the class action. Although the CFTC action and the class action complaints involve the same alleged conduct, a resolution or decision with respect to one of the matters may not be dispositive as to the outcome of the other matter.
In November 2019, the European Commission informed us that it has 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 has taken the next procedural step in its investigation and opened formal proceedings. We are cooperating with the investigation and expect to continue to engage 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 March 31, 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.
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 losses of $42 million in the first quarter of 2022 and $34 million in the first quarter of 2021.
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| For the Three Months Ended
March 31, | | |
| 2022 | | 2021 | | | | |
| (in millions) |
| Currency Translation Adjustments: | | | | | | | |
| Balance at beginning of period | $ | (9,097) | | | $ | (8,655) | | | | | |
| Currency translation adjustments | 6 | | | (134) | | | | | |
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| Tax (expense)/benefit | 44 | | | (2) | | | | | |
| Other comprehensive earnings/(losses) | 50 | | | (136) | | | | | |
| Less: other comprehensive (earnings)/loss attributable to noncontrolling interests | 4 | | | 9 | | | | | |
| Balance at end of period | (9,043) | | | (8,782) | | | | | |
| Pension and Other Benefit Plans: | | | | | | | |
| Balance at beginning of period | $ | (1,379) | | | $ | (1,874) | | | | | |
| Net actuarial gain/(loss) arising during period | 44 | | | (1) | | | | | |
| Tax (expense)/benefit on net actuarial gain/(loss) | — | | | — | | | | | |
| Losses/(gains) reclassified into net earnings: | | | | | | | |
Amortization of experience losses and prior service costs (2) | 20 | | | 35 | | | | | |
Settlement losses and other expenses (2) | 3 | | | 3 | | | | | |
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Tax expense/(benefit) on reclassifications (3) | (6) | | | (9) | | | | | |
| Currency impact | 32 | | | 41 | | | | | |
| Other comprehensive earnings/(losses) | 93 | | | 69 | | | | | |
| Balance at end of period | (1,286) | | | (1,805) | | | | | |
| Derivative Cash Flow Hedges: | | | | | | | |
| Balance at beginning of period | $ | (148) | | | $ | (161) | | | | | |
| Net derivative gains/(losses) | 26 | | | (7) | | | | | |
| Tax (expense)/benefit on net derivative gain/(loss) | (1) | | | 1 | | | | | |
| Losses/(gains) reclassified into net earnings: | | | | | | | |
Interest rate contracts (2)(4) | 48 | | | 6 | | | | | |
Tax expense/(benefit) on reclassifications (3) | (23) | | | (1) | | | | | |
| Currency impact | 2 | | | 3 | | | | | |
| Other comprehensive earnings/(losses) | 52 | | | 2 | | | | | |
| Balance at end of period | (96) | | | (159) | | | | | |
Accumulated other comprehensive income
attributable to Mondelēz International: | | | | | | | |
| Balance at beginning of period | $ | (10,624) | | | $ | (10,690) | | | | | |
| Total other comprehensive earnings/(losses) | 195 | | | (65) | | | | | |
| Less: other comprehensive (earnings)/loss attributable to noncontrolling interests | 4 | | | 9 | | | | | |
| Other comprehensive earnings/(losses) attributable to Mondelēz International | 199 | | | (56) | | | | | |
| Balance at end of period | $ | (10,425) | | | $ | (10,746) | | | | | |
(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.
Note 14. Income Taxes
As of the first quarter of 2022, our estimated annual effective tax rate, which excludes discrete tax impacts, was 24.8%. This rate reflected the impact of unfavorable foreign provisions under U.S. tax laws and our tax related to earnings from equity method investments (the earnings are reported separately on our statement of earnings and thus not included in earnings before income taxes), partially offset by favorable impacts from the mix of pre-tax income in various non-U.S. jurisdictions. The estimated annual effective tax rate also considers the impact of the establishment of a valuation allowance related to a deferred tax asset arising from the anticipated 2022 Ukraine loss. Our effective tax rate for the three months ended March 31, 2022 of 21.9% was favorably impacted by discrete net tax benefits of $62 million primarily driven by the Chipita acquisition, which resulted in the release of a portion of the valuation allowance recorded against the deferred tax asset for the step-up of intangible assets in Switzerland.
As of the first quarter of 2021, our estimated annual effective tax rate, which excluded discrete tax impacts, was 25.2%. 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 effective tax rate for the three months ended March 31, 2021 of 19.1% was favorably impacted by discrete net tax benefits of $65 million, primarily driven by a $32 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.
Note 15. Earnings per Share
Basic and diluted earnings per share (“EPS”) were calculated as follows:
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| | For the Three Months Ended
March 31, | | |
| | 2022 | | 2021 | | | | |
| | (in millions, except per share data) |
| Net earnings | $ | 861 | | | $ | 968 | | | | | |
| Noncontrolling interest earnings | (6) | | | (7) | | | | | |
| Net earnings attributable to Mondelēz International | $ | 855 | | | $ | 961 | | | | | |
| Weighted-average shares for basic EPS | 1,389 | | | 1,412 | | | | | |
Plus incremental shares from assumed conversions
of stock options and long-term incentive plan shares | 9 | | | 10 | | | | | |
| Weighted-average shares for diluted EPS | 1,398 | | | 1,422 | | | | | |
Basic earnings per share attributable to
Mondelēz International | $ | 0.62 | | | $ | 0.68 | | | | | |
Diluted earnings per share attributable to
Mondelēz International | $ | 0.61 | | | $ | 0.68 | | | | | |
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 2.1 million in the first three months of 2022 and 3.6 million in the first three 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.
Our segment net revenues and earnings were:
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| For the Three Months Ended
March 31, | | |
| 2022 | | 2021 | | | | |
| (in millions) |
| Net revenues: | | | | | | | |
| Latin America | $ | 826 | | | $ | 669 | | | | | |
| AMEA | 1,867 | | | 1,745 | | | | | |
| Europe | 2,935 | | | 2,847 | | | | | |
| North America | 2,136 | | | 1,977 | | | | | |
| Net revenues | $ | 7,764 | | | $ | 7,238 | | | | | |
Earnings before income taxes: | | | | | | | |
| Operating income: | | | | | | | |
| Latin America | $ | 103 | | | $ | 76 | | | | | |
| AMEA | 272 | | | 362 | | | | | |
| Europe | 377 | | | 557 | | | | | |
| North America | 418 | | | 270 | | | | | |
Unrealized gains/(losses) on hedging activities
(mark-to-market impacts) | 27 | | | 118 | | | | | |
| General corporate expenses | (50) | | | (64) | | | | | |
| Amortization of intangible assets | (32) | | | (38) | | | | | |
| Gain on acquisition | — | | | 9 | | | | | |
| Acquisition-related costs | (21) | | | (7) | | | | | |
| Operating income | 1,094 | | | 1,283 | | | | | |
| Benefit plan non-service income | 33 | | | 44 | | | | | |
| Interest and other expense, net | (168) | | | (218) | | | | | |
| Earnings before income taxes | $ | 959 | | | $ | 1,109 | | | | | |
Items impacting our segment operating results are discussed in Note 1, Basis of Presentation, Note 2, Acquisitions and Divestitures, Note 3, Inventories, Note 4, Property, Plant and Equipment, Note 5, Goodwill and Intangible Assets, and Note 7, Restructuring Program. Also see Note 8, Debt and Borrowing Arrangements, and Note 9, Financial Instruments, for more information on our interest and other expense, net for each period.
Net revenues by product category were:
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| For the Three Months Ended March 31, 2022 |
| Latin
America | | AMEA | | Europe | | North
America | | Total |
| (in millions) |
| Biscuits | $ | 224 | | | $ | 657 | | | $ | 951 | | | $ | 1,799 | | | $ | 3,631 | |
| Chocolate | 248 | | | 706 | | | 1,512 | | | 77 | | | 2,543 | |
| Gum & Candy | 172 | | | 203 | | | 152 | | | 260 | | | 787 | |
| Beverages | 102 | | | 197 | | | 32 | | | — | | | 331 | |
| Cheese & Grocery | 80 | | | 104 | | | 288 | | | — | | | 472 | |
| Total net revenues | $ | 826 | | | $ | 1,867 | | | $ | 2,935 | | | $ | 2,136 | | | $ | 7,764 | |
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| Three Months Ended March 31, 2021 (1) |
| Latin
America | | AMEA | | Europe | | North
America | | Total |
| (in millions) |
| Biscuits | $ | 177 | | | $ | 583 | | | $ | 810 | | | $ | 1,736 | | | $ | 3,306 | |
| Chocolate | 192 | | | 670 | | | 1,544 | | | 63 | | | 2,469 | |
| Gum & Candy | 131 | | | 194 | | | 148 | | | 178 | | | 651 | |
| Beverages | 94 | | | 180 | | | 33 | | | — | | | 307 | |
| Cheese & Grocery | 75 | | | 118 | | | 312 | | | — | | | 505 | |
| Total net revenues | $ | 669 | | | $ | 1,745 | | | $ | 2,847 | | | $ | 1,977 | | | $ | 7,238 | |
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(1) Our snack product categories include biscuits, chocolate and gum & candy. During 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.