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(Exact name of registrant as specified in its charter)
iVirginia
i52-2284372
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i905 West Fulton Market, Suite 200
iChicago,
iIllinois
i60607
(Address
of principal executive offices)
(Zip Code)
(Registrant’s telephone number, including area code) (i847) i943-4000
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
iClass
A Common Stock, no par value
iMDLZ
iThe Nasdaq Global Select Market
i1.625%
Notes due 2027
iMDLZ27
iThe Nasdaq Stock Market LLC
i0.250%
Notes due 2028
iMDLZ28
iThe Nasdaq Stock Market LLC
i0.750%
Notes due 2033
iMDLZ33
iThe Nasdaq Stock Market LLC
i2.375%
Notes due 2035
iMDLZ35
iThe Nasdaq Stock Market LLC
i4.500%
Notes due 2035
iMDLZ35A
iThe Nasdaq Stock Market LLC
i1.375%
Notes due 2041
iMDLZ41
iThe Nasdaq Stock Market LLC
i3.875%
Notes due 2045
iMDLZ45
iThe Nasdaq Stock Market LLC
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. iYesx 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). iYesx 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.
iLarge
accelerated filer
x
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
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 i☐No x
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.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
i
Note
1. Basis of Presentation
iOur 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, 2020.
i
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.
i
Currency
Translation and Highly Inflationary Accounting:
We translate the results of operations of our subsidiaries from multiple currencies using average exchange rates during each period and translate balance sheet accounts using exchange rates at the end of each period. We record currency translation adjustments as a component of equity (except for highly inflationary currencies) and realized exchange gains and losses on transactions in earnings.
Highly inflationary accounting is triggered when a country’s three-year cumulative inflation rate exceeds 100%. It requires the remeasurement of financial statements of subsidiaries in the country from the functional currency of the subsidiary
to our U.S. dollar reporting currency, with currency remeasurement gains or losses recorded in earnings. As discussed below, beginning on July 1, 2018, we began to apply highly inflationary accounting for our operations in Argentina.
Argentina. During the second quarter of 2018, primarily based on published estimates that indicated that Argentina's three-year cumulative inflation rate exceeded 100%, we concluded that Argentina became a highly inflationary economy for accounting purposes. As of July 1, 2018, we began to apply highly inflationary accounting for our Argentinean subsidiaries and changed their functional currency from the Argentinean peso to the U.S. dollar. On July
1, 2018, both monetary and non-monetary assets and liabilities denominated in Argentinean pesos were remeasured into U.S. dollars using the exchange rate as of the balance sheet date, with remeasurement and other transaction gains and losses recorded in net earnings. As of March 31, 2021, our Argentinean operations had $i5 million of Argentinean peso denominated net monetary assets. Our Argentinean operations contributed $i89
million, or i1.2% of consolidated net revenues in the three months ended March 31, 2021. Within selling, general and administrative expenses, we recorded a remeasurement loss of $i5
million during the three months ended March 31, 2021 as well as a remeasurement loss of $i2 million during the three months ended March 31, 2020 related to the revaluation of the Argentinean peso denominated net monetary position over these periods.
Brexit. Following the separation of the United Kingdom
from the European Union ("Brexit") in 2020, a new trade arrangement was reached between the U.K. and E.U. that began on January 1, 2021. The main trade provisions include the continuation of no tariffs or quotas on trade between the U.K. and E.U. subject to prescribed trade terms. We also need to meet product and labeling standards for both the U.K. and E.U. Cross-border trade between the U.K. and E.U. is now subject to new customs regulations, documentation and reviews. To comply with the new requirements, we increased resources in customer service and logistics, in our factories, and on our customs support teams. We adapted our processes and systems for the new and increased number of customs transactions. We continue to closely monitor and manage our inventory levels of imported raw materials, packaging and finished goods in the U.K. If the U.K.’s separation from, or new trade arrangements with, the E.U. negatively
impact the U.K. economy or result in disagreements on trade terms, delays affecting our supply chain or distribution, or disruptions
to sales or collections, the impact to our results of operations, financial condition and cash flows could be material. In the three months ended March
31, 2021, we generated i9.9% of our consolidated net revenues in the U.K.
Other Countries. Since we sell our products in over i150
countries and have operations in approximately i80 countries, we monitor economic and currency-related risks and seek to take protective measures in response to potential exposures. We continue to monitor 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, except for Argentina which is accounted for as a highly
inflationary economy, we do not anticipate any other countries in which we operate to be at risk of becoming highly inflationary countries.
iCash, 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 $i31
million as of March 31, 2021 and $i31 million as of December 31, 2020. Total cash, cash equivalents and restricted cash was $i2,059
million as of March 31, 2021 and $i3,650 million as of December 31, 2020.
i
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.
i
Changes
in allowances for credit losses consisted of:
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 $i905
million as of March 31, 2021 and $i760 million as of December 31, 2020. 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 $i29 million in operating lease and $i30
million in finance lease right-of-use assets obtained in exchange for lease obligations during the three months ended March 31, 2021 and $i89 million in operating lease and $i25
million in finance lease right-of-use assets obtained in exchange for lease obligations during the three months ended March 31, 2020.
i
New Accounting Pronouncements:
In December 2019, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update ("ASU") that removes certain exceptions in accounting for income taxes, improves consistency in application and
clarifies existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. On January 1, 2021, we adopted this ASU and it did not have a material impact on our consolidated financial statements.
iReclassifications:
Certain amounts previously
reported have been reclassified to conform to current-year presentation. During the second quarter of 2020, in connection with the JDE Peet's (as defined below) transaction (refer to Note 6, Equity Method Investments), we changed our accounting principle to reflect our share of Jacobs Douwe Egberts ("JDE") historical results and JDE Peet's ongoing results on a one-quarter lag basis while we continue to record dividends when cash is received. This change was applied retrospectively to all periods presented.
i
Note
2. Acquisitions and Divestitures
On April 1, 2021, we acquired Gourmet Food Holdings Pty Ltd, a leading Australian food company in the premium biscuit and cracker category, for closing cash consideration of approximately $i458 million Australian dollars ($i348
million). We incurred acquisition-related costs of $i1 million during the three months ended March 31, 2021.
On March 25, 2021, we acquired a majority interest in Lion/Gemstone Topco Ltd ("Grenade"), a performance nutrition leader in the United Kingdom, for closing cash consideration of £i188
million ($i260 million), net of cash received. The acquisition of Grenade expands our position into the premium nutrition market. We are working to complete the valuation and have recorded a preliminary purchase price allocation of $i81
million to indefinite-lived intangible assets, $i24 million to definite-lived intangible assets, $i180
million to goodwill, $i1 million to property, plant and equipment, $i11
million to inventory, $i18 million to accounts receivable, $i1
million to other current assets, $i25 million to current liabilities, $i20
million to deferred tax liabilities and $i11 million to long-term other liabilities. We incurred acquisition-related costs of $i2
million during the three months ended March 31, 2021.
On January 4, 2021, we acquired the remaining i93% of equity of Hu Master Holdings, 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 $i229 million, net of cash received, and the Company may be required to pay additional cash consideration. The estimated fair value of the contingent consideration obligation at the acquisition date was $i132
million and was determined using a Monte Carlo simulation based on forecasted future results. We are unable to provide a range of amounts that could be paid as contingent consideration as it is based primarily on revenue and gross margin of the business for the twelve months ended December 31, 2022 and there is not a minimum or maximum payout. 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 $i9 million
($i7 million after-tax) related to stepping up our previously-held $i8
million (i7%) investment to fair value. We are working to complete the valuation and have recorded a preliminary purchase price allocation of $i123
million to indefinite-lived intangible assets, $i51 million to definite-lived intangible assets, $i202
million to goodwill, $i1 million to property, plant and equipment, $i2
million to inventory, $i4 million to accounts receivable, $i5
million to current liabilities and $i132 million to long-term other liabilities. During the three months ended March 31, 2021, the acquisition added incremental net revenues of $i8
million and an operating loss of $i6 million. We incurred acquisition-related costs of $i4
million during the three months ended March 31, 2021.
On April 1, 2020, we acquired a majority interest in Give & Go, a North American leader in fully-finished sweet baked goods and owner of the famous two-bite® brand of brownies and the Create-A-Treat® brand, known for cookie and gingerbread house decorating kits. The acquisition of Give & Go provides access to the in-store bakery channel and expands our position in broader snacking. The purchase consideration for Give & Go totaled $i1,136
million, net of cash received. iWe have recorded a preliminary purchase price allocation of net tangible and intangible assets acquired and liabilities assumed as follows:
Within definite-life intangible assets, we allocated $i416 million
to customer relationships which have an estimated useful life of i17 years. Goodwill arises principally as a result of expansion opportunities and synergies across both new and legacy product categories. iNone
of the goodwill recognized is expected to be deductible for income tax purposes.
The fair value for customer relationships at the acquisition date was determined using the multi-period excess earnings method under the income approach. 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 discounted future cash flows, customer attrition rates and discount rates. The acquisition added incremental net revenues of $i106
million and operating income of $i6 million in the three months ended March 31, 2021. During the first quarter of 2020, we incurred $i5
million of acquisition-related costs.
For
the three months ended March 31, 2021, capital expenditures of $i216 million excluded $i230
million of accrued capital expenditures remaining unpaid at March 31, 2021 and included payment for a portion of the $i275 million of capital expenditures that were accrued and unpaid at December 31, 2020. For the three months ended March 31, 2020, capital expenditures of $i214
million excluded $i259 million of accrued capital expenditures remaining unpaid at March 31, 2020 and included payment for a portion of the $i334
million of capital expenditures that were accrued and unpaid at December 31, 2019.
i
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).
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 $i38 million
for the three months ended March 31, 2021 and $i43 million for the three months ended March 31, 2020. For the next five years, we currently estimate annual amortization expense of approximately $i130
million in 2021, approximately $iii120//
million in 2022-2024 and approximately $i105 million in 2025 (reflecting March 31, 2021 exchange rates).
i
Changes
in goodwill and intangible assets consisted of:
In
connection with our acquisitions of Grenade and the remaining interest in Hu Master Holdings during the first quarter of 2021, we recorded a preliminary purchase price allocation of $i382 million to goodwill and $i279 million
to intangible assets. See Note 2, Acquisitions and Divestitures, for additional information.
During the first quarters of 2021 and 2020, we evaluated our goodwill and intangible asset impairment risk through an assessment of potential triggering events. In light of the ongoing COVID-19 global pandemic, we considered qualitative and quantitative information in our assessment over indefinite-life intangible assets. Based on the financial performance of our goodwill reporting units and intangible assets and review of other significant fair value assumptions, we concluded that no impairment indicators were present that would require a full impairment assessment. We will continue to monitor the potential for asset impairment risk over coming quarters.
In 2020, we recorded $i144
million of intangible asset impairment charges related to ieightbrands. The ongoing impact of the COVID-19 pandemic resulted in greater declines in the sales and earnings for certain brands, particularly our gum brands. During our annual impairment testing as of July 1, 2020, we identified inine
brands, including the ieight impaired brands, that each had a fair value in excess of book value of 10% or less. The aggregate book value of the inine
brands was $i738 million as of March 31, 2021. We continue to monitor our brand performance, particularly in light of the significant uncertainty due to the COVID-19 pandemic and related impacts to our business. If the brand earnings expectations, including the timing of the expected recovery from the COVID-19 pandemic impacts, 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.
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. As of March 31, 2021, we owned i22.8%, i8.3%,
i50.0% and i49.0%, respectively, of these companies' outstanding shares.
Our investments accounted for under the
equity method of accounting totaled $i5,916 million as of March 31, 2021 and $i6,036 million as of December
31, 2020. We recorded equity earnings and cash dividends of $i78 million and $i74 million in the first quarter of 2021
and equity earnings and cash dividends of $i121 million and $i165 million in the first quarter of 2020.
Based
on the quoted closing prices as of March 31, 2021, the combined fair value of our publicly-traded investments in JDEP and KDP was $i8.3 billion, and for each investment, its fair value exceeded its carrying value.
Keurig Dr Pepper Transactions:
On March 4, 2020, we participated in a secondary offering of KDP shares and sold approximately i6.8 million
shares, which reduced our ownership interest by i0.5% of the total outstanding shares. We received $i185
million of proceeds and recorded a pre-tax gain of $i71 million (or $i54
million after-tax) during the first quarter of 2020.
We hold itwo director positions on the KDP board as well as additional governance rights. As we continue to have significant influence, we continue to account for our investment in KDP under the equity method, resulting in recognizing our share of their earnings within our earnings and our share of their dividends within our cash flows.
JDE Peet’s Transaction:
On
May 19, 2020, JDE Peet’s B.V. (renamed JDE Peet’s N.V. immediately prior to Settlement (as defined below), “JDE Peet’s”) announced its intention to launch an offering of its ordinary shares (the “offering”) and to apply for admission to listing and trading of all of its ordinary shares on Euronext Amsterdam, a regulated market operated by Euronext Amsterdam N.V. (the “admission”). On May 26, 2020, JDE Peet’s published a prospectus in connection with the offering and the admission. On May 29, 2020, JDE Peet’s announced the final pricing terms of the offering, and JDE Peet’s and the selling shareholders, including us, agreed to sell at a price of €i31.50
per ordinary share a total of approximately i82.1 million ordinary shares, including ordinary shares subject to an over-allotment option. The ordinary shares were listed and first traded on May 29, 2020, and payment for, and delivery of, the ordinary shares sold in the offering (excluding ordinary shares subject to the over-allotment option) took place on June 2, 2020 (“Settlement”).
Prior
to Settlement, we exchanged our i26.4% ownership interest in JDE for a i26.5% equity interest in JDE Peet’s. We did
not invest new capital in connection with the transaction and the exchange was accounted for as a change in interest transaction. Upon Settlement, we sold approximately i9.7 million of our ordinary shares in JDE Peet’s in the offering for gross proceeds of €i304
million ($i343 million). We subsequently sold approximately i1.4 million
additional shares and received gross proceeds of €i46 million ($i51
million) upon exercise of the over-allotment option. Following Settlement and the exercise of the over-allotment option, we held a i22.9% equity interest in JDE Peet’s.
As was the case in our ownership interest in JDE, we have significant influence with respect to JDE Peet’s, and we will continue to account for our investment in JDE Peet’s under the equity method, resulting in recognizing our share of JDE Peet’s earnings within our earnings and our share of JDE Peet’s dividends within our cash flows. In the second
quarter of 2020, in connection with this transaction, we changed our accounting principle to reflect our share of JDE’s historical and JDE Peet’s ongoing earnings on a one-quarter lag basis, although we continue to record dividends when cash is received. We determined a lag was preferable as it enables us to continue to report our quarterly and annual results on a timely basis, while recording our share of JDE Peet’s ongoing results after JDE
Peet’s has publicly
reported its results. This change in accounting principle was applied retrospectively to all periods.
i
The following tables show the primary line items on the condensed consolidated statements of earnings and comprehensive earnings and the condensed consolidated balance sheet that changed as a result of the lag. The condensed consolidated statements of cash flow and equity were also updated to reflect these changes.
Net earnings attributable to Mondelēz
International
i753
i736
Earnings per share
attributable to Mondelēz International:
Basic EPS
$
i0.53
$
i0.51
Diluted
EPS
$
i0.52
$
i0.51
Statements
of Other Comprehensive Earnings
Currency translation adjustment
$
(i1,511)
$
(i1,371)
Pension
and other benefit plans
i79
i60
Derivative
cash flow hedges
i60
i58
Total
other comprehensive earnings/(losses)
(i1,372)
(i1,253)
Comprehensive
earnings/(losses) attributable to Mondelēz International
(i614)
(i512)
/
i
Note
7. Restructuring Program
On May 6, 2014, our Board of Directors approved a $i3.5 billion 2014-2018 restructuring program and up to $i2.2
billion of capital expenditures. On August 31, 2016, our Board of Directors approved a $i600 million reallocation between restructuring program cash costs and capital expenditures so the $i5.7
billion program consisted of approximately $i4.1 billion of restructuring program charges ($i3.1 billion cash
costs and $i1.0 billion non-cash costs) and up to $i1.6 billion of capital expenditures. On September
6, 2018, our Board of Directors approved an extension of the restructuring program through 2022, an increase of $i1.3 billion in the program charges and an increase of $i700
million in capital expenditures. The total $i7.7 billion program now consists of $i5.4 billion of program charges
($i4.1 billion of cash costs and $i1.3 billion of non-cash costs) and total capital expenditures of $i2.3
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 $i4.8
billion related to the Simplify to Grow Program. We expect to incur the remainder of the program charges by year-end 2022.
•We
recorded restructuring charges of $i88 million in the first quarter of 2021 and $i15 million in the first quarter of 2020 within asset impairment and exit costs and benefit plan non-service
income.
•We spent $i34 million in the first quarter of 2021 and $i37 million in the first quarter
of 2020 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 $i40 million in the first quarter of 2021 and $i3
million in the first quarter of 2020.
•At March 31, 2021, $i261 million of our net restructuring liability was recorded within other current liabilities and $i47
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 $i34 million in the first quarter of 2021 and $i43 million
in the first quarter of 2020. We recorded these costs within cost of sales and general corporate expense within selling, general and administrative expenses.
During the three months ended March 31, 2021 and March 31, 2020, 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:
As
of March 31, 2021, commercial paper issued and outstanding had between i6 and i15 days remaining to maturity. Commercial paper borrowings since year end increased to help finance the debt redemption, share repurchases and dividend payments.
(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 $i24.6 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, 2021, we complied with this covenant as our shareholders' equity, as defined by the covenant, was $i37.8 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.
Long-Term Debt:
i
Redemptions:
On March 31, 2021, we completed an early redemption of Euro and U.S. dollar denominated notes for the following amounts (in millions):
Interest
Rate
Maturity Date
Amount Redeemed
USD Equivalent
i1.000%
March 2022
€i500
$i587
i1.625%
January
2023
€i700
$i821
i2.125%
April
2023
$i500
$i500
i4.000%
February
2024
$i492
$i492
/
We
recorded $i137 million of extinguishment loss and debt-related expenses within interest and other expense, net related to $i110 million
paid in excess of carrying value of the debt and recognizing unamortized discounts and deferred financing in earnings and $i27 million foreign currency derivative loss related to the redemption payment at the time of the debt extinguishment. The cash payments related to the redemption were classified as cash outflows from financing activities in the consolidated statement of cash flows.
i
Repayments:
During
the three months ended March 31, 2021, we repaid the following notes or term loans (in millions):
Interest Rate
Maturity Date
Amount
USD Equivalent
i2.375%
January
2021
€i679
$i827
/
Issuances:
i
During
the three months ended March 31, 2021, we issued the following notes (in millions):
Issuance Date
Interest Rate
Maturity Date
Gross
Proceeds (1)
Gross Proceeds USD Equivalent
March 2021
i1.375%
March 2041
€i650
$i777
March
2021
i0.750%
March 2033
€i600
$i717
March
2021
i0.250%
March 2028
€i750
$i896
(1)
Represents gross proceeds from the issuance of notes excluding debt issuance costs, discounts and premiums.
/
Fair Value of Our Debt:
i
The fair value of our short-term borrowings at March 31, 2021 and December
31, 2020 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.
Other
income includes amounts excluded from hedge effectiveness related to our net investment hedge derivative contracts that totaled $i20 million in the three months ended March 31, 2021 and $i33 million
in the three months ended March 31, 2020.
i
Note 9. Financial Instruments
Fair Value of Derivative Instruments:
i
Derivative
instruments were recorded at fair value in the condensed consolidated balance sheets as follows:
(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.
/
Derivatives designated as accounting hedges include cash flow and net investment hedge derivative contracts. Our currency exchange and commodity derivative 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 the fair value of our liability
derivatives is recorded within other current liabilities.
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; 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 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.
Within
interest and other expense, net, due to changes in forecasted debt, we recognized losses related to forward-starting interest rate swaps of $i79 million ($i103
million pre-tax) in the three months ended March 31, 2020.
After-tax gains/(losses) recognized in other comprehensive earnings/(losses) were:
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 $i113 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, 2021, our longest dated cash flow hedges were interest rate swaps that hedge forecasted interest rate payments over the next 3 years and 6 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, 2021 was $i4.7 billion. iThe
impacts of the net investment hedge derivative contracts on other comprehensive earnings and net earnings were as follows:
(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.
Amounts excluded from the assessment of hedge effectiveness(1)
$
i20
$
i33
(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:
During the three months ended March 31, 2021, we contributed $i3 million to our U.S. pension plans and $i63
million to our non-U.S. pension plans, including $i31 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, 2021, over the remainder of 2021, we plan
to make further contributions of approximately $i5 million to our U.S. plans and approximately $i165
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.
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 $i526 million requiring pro-rata monthly payments over i20
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 $ii3/
million in the three months ended March 31, 2021 and in the three months ended March 31, 2020 within interest and other expense, net. As of March 31, 2021, the remaining discounted withdrawal liability was $i372 million, with $i14
million recorded in other current liabilities and $i358 million recorded in long-term other liabilities.
Postretirement Benefit Plans
i
Net
periodic postretirement health care benefit consisted of the following:
(1)Cash received from options exercised was $i67
million in the three months ended March 31, 2021. The actual tax benefit realized and recorded in the provision for income taxes for the tax deductions from the option exercises totaled $i7 million in the three months ended March 31, 2021.
(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 $i6 million in the three months ended March 31, 2021.
/
(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 $i13.7 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 $i6.0 billion in the share repurchase program, raising the authorization to $i19.7 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 $i4.0 billion in the share repurchase program, raising the authorization to $i23.7 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, 2021, we had repurchased approximately $i18.0 billion of Common Stock pursuant to this authorization. During the three months ended March 31, 2021, we repurchased approximately i18.2
million shares of Common Stock at an average cost of $i55.97 per share, or an aggregate cost of approximately $i1.0 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, 2021, we have $i4.7 billion in remaining share repurchase capacity.
i
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 iApril 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 $i1
million for each violation of Section 6(c)(1), 6(c)(3) or 9(a)(2) of the Act and $i140,000 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 class action certification; 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 plantiffs' 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 their 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, 2021, 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
i
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 $i34
million in the first three months of 2021 and $i104 million in the first three months of 2020.
As of the first quarter of 2021, our estimated annual effective tax rate, which excludes discrete tax impacts, was i25.2%.
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 i19.1% was favorably impacted by discrete net tax benefits of $i65
million, primarily driven by a $i32 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 $i27
million benefit from a U.S. amended tax return filed to reflect new guidance from the U.S. Treasury Department.
As of the first quarter of 2020, our estimated annual effective tax rate, which excluded discrete tax impacts, was i25.2%. 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, 2020 of i21.2% was favorably impacted by discrete net tax benefits of $i28
million, primarily driven by a $i22 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.
/
i
Note
15. Earnings per Share
i
Basic and diluted earnings per share (“EPS”) were calculated as follows:
Net
earnings attributable to Mondelēz International
$
i961
$
i736
Weighted-average
shares for basic EPS
i1,412
i1,434
Plus
incremental shares from assumed conversions of stock options and long-term incentive plan shares
i10
i11
Weighted-average
shares for diluted EPS
i1,422
i1,445
Basic
earnings per share attributable to Mondelēz International
$
i0.68
$
i0.51
Diluted earnings per share attributable to
Mondelēz International
$
i0.68
$
i0.51
/
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 i3.6 million in the first three months of 2021and i4.0
million in the first three months of 2020.
/
i
Note 16. Segment Reporting
We manufacture and market primarily snack food products, including biscuits (cookies, crackers and salted snacks), 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 ifour 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.
Unrealized
gains/(losses) on hedging activities (mark-to-market impacts)
i118
(i185)
General
corporate expenses
(i64)
(i76)
Amortization
of intangibles
(i38)
(i43)
Gain
on acquisition
i9
i—
Acquisition-related
costs
(i7)
(i5)
Operating
income
i1,283
i856
Benefit
plan non-service income
i44
i33
Interest
and other expense, net
(i218)
(i190)
Earnings
before income taxes
$
i1,109
$
i699
/
Items
impacting our segment operating results are discussed in Note 1, Basis of Presentation, Note 2, Acquisitions and Divestitures, 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.
We make and sell primarily snacks, including biscuits (cookies, crackers and salted snacks), chocolate, gum & candy as well as various cheese & grocery and powdered beverage products. We have operations in approximately 80 countries and sell our products in over 150 countries.
We aim to be the global leader in snacking. Our strategy is to drive long-term growth by focusing on three strategic priorities:
accelerating consumer-centric growth, driving operational excellence and creating a winning growth culture. 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
COVID-19
As we pass the one-year anniversary of the World Health
Organization declaring COVID-19 a pandemic on March 11, 2020, our main priority continues to be the safety of our employees and helping maintain the global food supply. Together with our employees, customers, suppliers and other partners, we are working to emerge from the pandemic stronger.
During 2020, we experienced a significant increase in demand and revenue growth in certain markets as consumers increased their food purchases for in-home consumption. Results were particularly strong in modern trade (such as large grocery supermarkets and retail chains), e-commerce and especially for categories such as biscuits. However, other parts of our business were negatively affected by mandated lockdowns and other related restrictions. This was especially so during the second quarter of 2020 for some of our emerging markets due to store closures (particularly in
our Latin America region as well as parts of our AMEA region) that have a greater concentration of traditional trade (such as small family-run stores), our world travel retail (such as international duty-free stores), our foodservice businesses as well as in categories like gum and candy, which are more traditionally purchased and consumed out of home. The negative impacts experienced in the second quarter of 2020 subsided in the second half of 2020, as demand grew in both developed and emerging markets and a number of our key markets returned to higher growth.
During the first quarter of 2021, many of the trends we saw in late 2020 continued. While we continued to see increased demand for most of our snack category products in both our emerging and developed markets, lower out-of-home consumption continued to negatively impact sales of our gum and candy products and our foodservice business, and the sharp
reduction in global travel due to the pandemic continued to negatively impact our world travel retail business.
Overall, since the beginning of the global pandemic in the first quarter of 2020, temporary disruptions experienced in operations were not material to our consolidated results. We discuss these and other impacts of COVID-19 below.
Our Employees, Customers and Communities
We have taken a number of actions to promote the health and safety of our employees, customers and consumers, which is our first priority:
•We implemented enhanced protocols to provide a safe and sanitary working environment for our employees. In many locations, our employees are working remotely whenever possible. For employees who are unable to
work remotely, we adopted a number of heightened protocols, consistent with those prescribed by the World Health Organization, related to social distancing (including staggering lunchtimes and shifts where possible and restricting in-person gatherings and non-essential travel) and enhanced hygiene and workplace sanitation. At a local level, we also provided additional flexibility and support to employees in our manufacturing facilities, distribution and logistics operations and sales organization.
•We have hired frontline employees in the U.S. and other locations to meet additional marketplace demand and promote uninterrupted functioning of our manufacturing, distribution and sales network.
•To assist those most impacted by COVID-19, we made a $15 million initial global commitment to support local and global organizations responding to food instability and providing emergency relief. To date, we have increased the level of support provided to approximately $28 million.
Our Supply Chain and Operations
We operate in the food and beverages industry and are part of the global food supply chain. One of our main objectives during the pandemic has been to maintain the availability of our products to meet the needs of our consumers. In response to increased demand, we increased production and, to date, we have not experienced material disruptions in our supply chain or operations:
•We leveraged learnings from our
timely response to the initial outbreak in China, and we put in place procedures across our supply chain to help mitigate the risk that our manufacturing sites experience material closures or disruptions.
•We have not experienced material disruptions in our workforce; however, mandatory and voluntary stay-at-home restrictions have resulted in increased levels of absenteeism.
•We continue to source raw ingredients, packaging, energy and transportation and deliver our products to our customers. Transportation costs have increased and commodity costs have become more volatile. Although we monitor these costs and our exposure to commodity prices and hedge against input price 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 material
costs. We anticipate continued commodity and other cost volatility as the pandemic continues.
•While to date, the temporary disruptions in operations we experienced were not material to our consolidated results, the ongoing COVID-19 outbreak could still disrupt our global supply chain, operations and routes to market or those of our suppliers, their suppliers, or our co-manufacturers or distributors. These disruptions or our failure to effectively respond to them could increase product or distribution costs, prices and potentially affect the availability of our products.
•In 2020, a generally stronger U.S. dollar relative to other currencies in which we operate negatively affected our net revenue and net earnings reported in U.S. dollars. In the first quarter of 2021, other currencies, such as the euro, British pound sterling and Australian
dollar, strengthened relative to the U.S. dollar, which had a favorable effect on net revenues and net earnings.
•During the second quarter of 2020 especially, we incurred higher operating costs primarily for labor, customer service and logistics, security, personal protective equipment and cleaning. In the second half of 2020 and through the first quarter of 2021, our spending in these areas was significantly less but still above pre-COVID levels. Most other aspects of our global supply chain and operations did not change materially to date. While we have not had material disruptions, we do not know whether or how our supply chain or operations may be negatively affected if the pandemic persists for an extended period or worsens. As we respond to this evolving situation, we intend to continue to execute on our strategic operating plans. Disruptions, higher operating costs or uncertainties like those
noted above could result in delays or modifications to our plans and initiatives.
Our Liquidity
We believe the steps we have taken to enhance our capital structure and liquidity, prior to and during the pandemic, strengthened our ability to operate during the pandemic:
•During both 2020 and 2019, we generated $4.0 billion of cash from operations, or approximately $3 billion each year after deducting capital expenditures.
•Additionally, within cash provided by other investing activities, in 2020, we also received $185 million of cash proceeds from our participation in the KDP secondary offering during the first quarter of 2020 as well as $1.9 billion from subsequent KDP share sales over the third and fourth quarters of
2020. During the second quarter of 2020, we also received €350 million ($394 million) from our participation in the JDE Peet's public share offerings. (Refer to our Annual Report on Form 10-K for the year ended December 31, 2020 and Note 7, Equity Method Investments, for additional information).
•As of March 31, 2021, we had $2.0 billion, and as of December 31, 2020, we had $3.6 billion, of cash and cash equivalents on hand. Based on our current available cash and access to financing markets, we do not anticipate any issue funding our next long-term debt maturities of approximately $1.5 billion in October 2021 and approximately $0.3 billion in December 2021.
•We
also have access to short-term and long-term financing markets and actively utilized these markets in 2020 and the first quarter of 2021. We continue to utilize the commercial paper markets in the United States and Europe for flexible, low-cost, short-term financing. We issued additional long-term debt several times since the beginning of 2020 due to favorable market conditions and opportunities to shift a portion of our funding mix from short-term to long-term debt at a low cost. We renewed one of our credit facilities during
the first quarter of 2021 and now have $7.0 billion of undrawn
credit facilities as well as other forms of short-term and long-term financing options available. We have been, and we expect to continue to be, in compliance with our debt covenants (refer to the Liquidity and Capital Resources section and Note 8, Debt and Borrowing Arrangements).
•In connection with various legislatively authorized 2020 tax payment deferral mechanisms available for income tax, indirect tax (such as value-added tax) and payroll tax in a number of jurisdictions, we were able to defer certain of these tax payments in 2020, which provided a cash benefit that reverses when the payments come due. Some of these payments were already made by the end of the first quarter of 2021; the remainder will come due in 2021 and 2022. The benefits associated with the deferral of these tax payments were not
material to our financial statements.
•After suspending our share repurchase program in March 2020 as a precautionary measure following the onset of the pandemic, we resumed the program in the fourth quarter of 2020.
Our Financial Position
•During the first quarter of 2021, we evaluated the realizability of our assets and whether there were any impairment indicators. We reviewed our receivables, inventory, right-of-use lease assets, long-lived assets, equity method and other long-term investments, deferred tax assets, goodwill and intangible assets.
•In connection with the ongoing pandemic, we identified a decline in demand for certain of our brands, primarily in the gum category, that
prompted additional evaluation of our indefinite-life intangible assets. During the second and third quarters of 2020, we concluded that eight brands were impaired and we recorded $144 million of impairment charges in 2020. Subsequently and through the first quarter of 2021, while we did not identify impairment triggers for these or other brands, there continues to be significant uncertainty due to the pandemic. If brand earnings expectations are not met or specific valuation factors outside of our control, such as discount rates, change significantly, then a brand or brands could become impaired in the future. Refer to Note 5, Goodwill and Intangible Assets, for additional details on our intangible asset impairment evaluation.
•Restructuring and implementation activities continued to be in line with our Simplify to Grow Program strategic objectives.
•Our
equity investments in JDE Peet's and KDP give us additional financial flexibility.
•We continue to monitor the quality of our assets and our overall financial position.
•We also continue to maintain oversight over our core process controls through our centralized shared service model, with key controls operating as designed.
Some of the initial impacts of the pandemic on our business moderated in the second half of 2020 and into the first quarter of 2021. While we have seen some improvements in business and economic conditions across many markets in which we do business, additional adverse impacts could arise that we cannot currently anticipate. Barring material business disruptions or other negative developments, we expect to continue to meet the demand of consumers for our
snacks, food and beverage products. However, the elevated consumer demand we experienced to date may not continue. We are unable to predict with certainty how long the sustained demand will last or how significant it will be. In the near term, we continue to expect lower revenues in some markets that have a higher concentration of traditional trade outlets (such as small family-run stores), our gum and candy categories (which are more instant consumption in nature), as well as our world travel retail (such as international duty-free stores) and foodservice businesses. These businesses and different markets may also recover from the COVID-19 outbreak at different rates depending on many factors including vaccination levels. As we continue to proactively manage our business in response to the evolving impacts of the pandemic, we will continue to communicate with and support our employees and customers; monitor and take steps to further safeguard our supply chain, operations,
technology and assets; protect our liquidity and financial position; work toward our strategic priorities and monitor our financial performance. We seek to position the Company to withstand the current uncertainties related to this pandemic and to emerge stronger.
KDP and JDE Peet's 2020 Equity Method Investment Transactions
On March 4, 2020, we participated in a secondary offering of KDP shares and sold approximately 6.8 million shares, which reduced our ownership interest by 0.5% to 13.1% of the total outstanding shares. We received $185 million of proceeds and recorded a pre-tax gain of $71 million (or $54 million after-tax) during the first quarter of 2020. Subsequently, on August
3, 2020, we sold approximately 14.1 million shares and on September 9, 2020, we sold approximately 12.5 million shares, which in the aggregate reduced our KDP ownership interest to 11.2% of total outstanding shares. During the third quarter of 2020, we received $777 million of proceeds and recorded pre-tax gains of $335 million (or $258 million after-tax). On November 17, 2020, we also sold approximately 40.0 million
shares, which reduced our ownership interest by 2.8% to 8.4%. We received $1,132 million
of proceeds and recorded a pretax gain of $459 million (or $350 million after tax) during the fourth quarter of 2020. The cash taxes associated with the KDP share sales were paid in 2020.
During the second quarter of 2020, in connection with the JDE Peet's offering of its ordinary shares, we exchanged our 26.4% ownership interest in JDE for a 26.5% equity interest in JDE Peet’s. On May 29, 2020, we participated in the JDE Peet's offering and, with the subsequent exercise of the over-allotment option, we sold a total of approximately 11.1 million shares during the second quarter of 2020, retaining a 22.9% ownership interest in JDE Peet's. We received €350 million ($394 million) of total proceeds from the sales of JDE Peet's shares and we recorded a preliminary pre-tax gain of $121 million during the second quarter of 2020. We also incurred a $261 million tax
expense that is payable in 2020 and 2021. During the third quarter of 2020, we increased our preliminary gain by $10 million to $131 million. During the fourth quarter of 2020, we reduced our tax expense by $11 million to $250 million. Consistent with our accounting for KDP and in connection with JDE Peet's becoming a public company, during the second quarter of 2020, we changed our accounting principle to reflect our share of JDE historical results and JDE Peet's ongoing results on a one-quarter lag basis while we continue to record dividends when cash is received. We determined a lag was preferable as it enables us to continue to report our quarterly and annual results on a timely basis and to record our share of JDE Peet's ongoing results once JDE Peet's has publicly reported its results. This change was applied retrospectively to all periods presented.
Refer to our Annual Report on Form 10-K for the year
ended December 31, 2020 and Note 7, Equity Method Investments, and Note 16, Income Taxes, and within this report, refer to Note 6, Equity Method Investments, for additional information.
Summary of Results
•Net revenues increased 7.9% to $7.2 billion in the first three months of 2021 as compared to the same period in the prior year. In the first quarter of 2021, within our developed markets, demand for our biscuits and chocolate products grew, though at a more moderate rate than in the same prior-year period,
as we continued to see increased food purchases for in-home consumption due to the ongoing COVID-19 pandemic. In our emerging markets, the initial negative impacts we experienced from COVID-19 have subsided, resulting in a return to strong revenue growth across most of our key markets. However, the sharp reduction in global travel due to the pandemic continued to negatively impact our world travel retail business, and lower out-of-home consumption continued to negatively impact sales of our gum and candy products and our foodservice business. Our net revenue growth was positively impacted by favorable currency translation, higher net pricing, incremental net revenues from acquisitions and favorable volume/mix.
•Organic Net Revenue, a non-GAAP financial measure, increased 3.8% to $7.0 billion in the first three months of 2021 as compared to same period in the prior
year. During the first three months of 2021, 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 increased 33.3% to $0.68 in the first three months of 2021 as compared to the same period in the prior year. The increase was primarily
driven by favorable year-over-year mark-to-market impacts from currency and commodity derivatives, an increase in Adjusted EPS and lapping the prior-year loss on interest rate swaps, partially offset by a loss on debt extinguishment, higher Simplify to Grow program costs and lapping the prior-year gain on equity method investment transactions.
•Adjusted EPS, a non-GAAP financial measure, increased 16.7% to $0.77 in the first three months of 2021 as compared to the same period in the prior year. (On a constant currency basis, Adjusted EPS increased 10.6% to $0.73.) The increase in Adjusted EPS was driven by gains in operating activities, favorable currency translation and fewer shares outstanding, partially offset by lower equity method investment
earnings and higher taxes primarily due to changes in our mix of earnings. 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).
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 GAAP results. We have provided reconciliations between our 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, 2020 and discussed in the footnotes to our financial statements.
•Market conditions. Snack categories grew in the first quarter of 2021, in part as we continue to see increased consumer demand for snacks purchases for in-home consumption during the COVID-19 pandemic. As further discussed below and in Item 3, Quantitative and Qualitative Disclosures about Market Risk, we continue to monitor volatility in global consumer, commodity, currency and capital markets that may continue until the COVID-19 outbreak is largely resolved.
•COVID-19. We continue to monitor and respond to the COVID-19 pandemic. While its full impact is not yet known, it has had a material negative effect on the economy and could have a material negative effect on our business and results in the future, particularly if there are significant adverse changes to consumer demand or significant disruptions to the supply, production or distribution of our products or the credit or financial stability of our customers and other business partners. While we have seen some improvements in overall economic conditions and the business climate in many markets where we sell and operate, new COVID-19 spikes in infections and related lockdowns continue across a number of markets. If an unexpected significant economic or credit deterioration occurs, it could impair credit availability and our ability to raise capital when needed. A significant disruption
in the financial markets may also 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. Any of these and other developments could materially harm our business, results of operations and financial condition. We will continue to prioritize the safety of our employees and consumers. As we continue to manage operations during the pandemic, we may continue to incur increased labor, customer service, commodity, transportation and other costs. As consumer demand for our products evolves, we could see continued shifts in product mix that could have a negative impact on results. As discussed in Recent Developments and Significant Items Affecting Comparability, we are working to mitigate
any negative impacts to our business from the COVID-19 outbreak, but we may not be able to fully predict or respond to all impacts on a timely basis to prevent adverse impacts to our results.
•Brexit. Following the separation of the United Kingdom from the European Union in 2020, a new trade arrangement was reached between the U.K. and E.U. that began on January 1, 2021. The main trade provisions include the continuation of no tariffs or quotas on trade between the U.K. and E.U. subject to prescribed trade terms. We also need to meet product and labeling standards for both the U.K. and E.U. Cross-border trade between the U.K. and E.U. is now subject to new customs regulations, documentation and reviews. Our supply chain in this market relies on imports of raw and packaging materials as well as finished goods. To date, we have not
experienced significant delays at U.K.-E.U. border crossings. To comply with the new requirements, we increased resources in customer service and logistics, in our factories, and on our customs support teams. We adapted our processes and systems for the new and increased number of customs transactions. We continue to closely monitor and manage our inventory levels of imported raw materials, packaging and finished goods in the U.K. If the U.K.’s separation from, or new
trade arrangements with, the E.U. negatively impact the U.K. economy or result in disagreements on trade terms, delays affecting
our supply chain or distribution, or disruptions to sales or collections, the impact to our results of operations, financial condition and cash flows could be material. In the three months ended March 31, 2021, we generated 9.9% of our consolidated net revenues in the U.K.
•Taxes. We continue to monitor existing and potential future tax reform. During 2019, we recorded the impact of Swiss tax reform and we will continue to monitor for any additional interpretative guidance that could result in changes to the amounts we have recorded. In the United States, while the 2017 U.S. tax reform reduced the U.S. corporate tax rate and included some beneficial provisions, other provisions have, and will continue to have, an adverse effect on our results. Refer to our Annual Report on Form 10-K for the year ended December 31,
2020 for more information on Swiss and U.S. tax reform.
•Argentina. As further discussed in Note 1, Basis of Presentation– Currency Translation and Highly Inflationary Accounting, we continue to apply highly inflationary accounting for our Argentinean subsidiaries. During the three months ended March 31, 2021, we recorded a remeasurement loss of $5 million 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 Argentinean pesos to U.S. dollars could change over time, so it is difficult
to predict the overall impact of the Argentina highly inflationary accounting on future net earnings.
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 March 31,
See Note
2021
2020
(in millions, except percentages)
Simplify to Grow Program
Note 7
Restructuring
charges
$
(88)
$
(15)
Implementation charges
(34)
(43)
Mark-to-market
gains/(losses) from derivatives (1)
Note 9
117
(184)
Acquisitions:
Acquisition integration costs
(1)
—
Acquisition-related
costs
(7)
(5)
Gain on acquisition
9
—
Remeasurement
of net monetary position
Note 1
(5)
(2)
Impact from pension participation changes (1)
Note 10
(4)
(3)
Loss
related to interest rate swaps
Note 8 & 9
—
(103)
Loss on debt extinguishment
Note 8
(137)
—
(Loss)/gain
on equity method investment transactions (2)
Note 6
(7)
71
Equity method investee items (3)
(16)
(6)
Effective
tax rate (4)
Note 14
19.1
%
21.2
%
(1)Includes impacts recorded in operating income and interest expense and other, net.
(2)(Loss)/gain on equity method investment transactions is recorded outside pre-tax operating results on the condensed consolidated statement of earnings.
(3)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.
(4)Refer to Note 14, Income Taxes, for more information on our effective tax rate.
Net
Revenues – Net revenues increased $531 million (7.9%) to $7,238 million in the first quarter of 2021, and Organic Net Revenue (1) increased $257 million (3.8%) to $6,964 million. Developed markets net revenue increased 9.0% and developed markets Organic Net Revenue increased 0.4% (1). Emerging markets net revenues increased 6.0% and emerging markets Organic Net Revenue increased 9.9% (1). The underlying changes in net revenues and Organic Net Revenue are detailed below:
2021
Change
in net revenues (by percentage point)
Total change in net revenues
7.9
%
Add back the following items affecting comparability:
Favorable currency
(2.4)
pp
Impact of acquisitions
(1.7)
pp
Total change in Organic Net
Revenue (1)
3.8
%
Higher net pricing
2.3
pp
Favorable volume/mix
1.5
pp
(1)Please see the Non-GAAP Financial Measures section at the end of this item.
Net revenue increase of 7.9% was driven by our underlying Organic Net Revenue growth of 3.8%, favorable currency and
the impact of acquisitions. Overall, our net revenues continued to be affected by the COVID-19 pandemic. In developed markets, net revenues increased as demand for our biscuits and chocolate products grew, though at a more moderate rate than in the prior-year period, reflecting continued increased food purchases for in-home consumption. However, the sharp reduction in global travel due to the pandemic continued to negatively impact our world travel retail business, and lower out-of-home consumption continued to negatively impact sales of our gum and candy products and our foodservice business. Incremental net revenues from acquisitions and favorable currency translation also added to our developed markets revenue growth in the quarter. In emerging markets, the negative initial impacts we experienced from COVID-19 have subsided, resulting in a return to strong revenue growth across most of our key markets though some markets were still challenged, particularly those with
significant gum and candy portfolios. In addition, unfavorable currency translation tempered emerging markets growth in the quarter.
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 2020 as well as the effects of input cost-driven pricing actions taken during the first three months of 2021. Favorable volume/mix in AMEA and Europe, driven by strong volume gains, was partially offset by unfavorable volume/mix in North America and Latin America. Favorable currency impacts increased net revenues by $160 million, due primarily to the strength of several currencies relative to the U.S. dollar, including the euro, British pound sterling, Australian dollar, Chinese yuan, Canadian dollar and Swedish krona, partially offset by the strength of the U.S. dollar relative to several currencies, including
the Brazilian real, Argentinean peso and Russian ruble. The April 1, 2020 acquisition of Give & Go added incremental net revenues of $106 million and the January 4, 2021 acquisition of Hu Master Holdings added incremental net revenues of $8 million. Refer to Note 2, Acquisitions and Divestitures, for additional information.
Operating Income – Operating income increased $427 million (49.9%) to $1,283 million in the first quarter
of 2021. Adjusted Operating Income (1) increased $186 million (16.8%) to $1,292 million and Adjusted Operating Income on a constant currency basis (1) increased $142 million (12.8%) to $1,248 million due to the following:
Operating Income
% Change
(in millions)
Operating
Income for the Three Months Ended March 31, 2020
Operating
Income for the Three Months Ended March 31, 2021
$
1,283
49.9
%
(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,
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.
(4)Refer to Note 2, Acquisitions and Divestitures, for more information on the April 1, 2021 acquisition of Gourmet Food Holdings Pty Ltd, the March 25, 2021 acquisition of a majority interest in Grenade, the January 4, 2021 acquisition of the remaining 93% of equity in Hu Master Holdings and the April 1, 2020 acquisition of a significant majority interest in
Give & Go.
(5)Refer to Note 1, Basis of Presentation – Currency Translation and Highly Inflationary Accounting, for information on our application of highly inflationary accounting for Argentina.
During the first quarter of 2021, 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 2020 as well as the effects of input
cost-driven pricing actions taken during the first three months of 2021, was reflected across all regions. Volume/mix benefited from increased food purchases for in-home consumption though at a more moderate rate than the same period last year, but the sharp reduction in global travel due to the pandemic continued to negatively impact our world travel business, while lower out-of-home consumption continued to negatively impact sales of our gum and candy products and our foodservice business. Overall, favorable volume/mix was driven by AMEA and Europe, mostly offset by unfavorable volume/mix in North America and Latin America. The increase in input costs was driven by higher raw material costs, partially offset by lower manufacturing costs driven by productivity net of incremental COVID-19 related costs. Higher raw material costs were in part due to higher currency exchange transaction costs on imported materials, as well as higher cocoa, sugar, oils, packaging, grains,
nuts and other ingredients costs, partially offset by lower costs for dairy and energy.
Total selling, general and administrative expenses increased $27 million from the first quarter of 2020, due to a number of factors noted in the table above, including in part, an unfavorable currency impact related to expenses, the impact of acquisitions, higher remeasurement loss of net monetary position and higher acquisition-related costs, which were partially offset by lower implementation costs incurred for the Simplify to Grow Program. Excluding these factors, selling, general and administrative expenses decreased $19 million from the first quarter of 2020. The decrease was driven primarily by lower overhead costs primarily due to productivity efforts, partially offset by higher advertising and consumer promotion costs.
Favorable currency changes increased
operating income by $44 million due primarily to the strength of several currencies relative to the U.S. dollar, including the euro, British pound sterling, Australian dollar and Chinese yuan, partially offset by the strength of the U.S. dollar relative to several currencies, including the Brazilian real and Russian ruble.
Operating income margin increased from 12.8% in the first quarter of 2020 to 17.7% in the first quarter of 2021. The increase in operating income margin was driven primarily by the favorable year-over-year change in mark-to-market gains/(losses) from currency and commodity hedging activities and higher Adjusted Operating Income margin, partially offset by higher Simplify to Grow program costs. Adjusted Operating Income margin increased from 16.5% for the first quarter of 2020 to 17.9% for the first quarter of 2021. The increase in Adjusted Operating Income margin was driven primarily by
higher net pricing, lower manufacturing costs and lower overhead costs, partially offset by higher raw material costs and higher advertising and consumer promotion costs.
Net Earnings and Earnings per Share Attributable to Mondelēz International – Net earnings attributable to Mondelēz International of $961 million increased by $225 million (30.6%) in the first quarter of 2021. Diluted EPS attributable to Mondelēz International was $0.68 in the first quarter of 2021, up $0.17 (33.3%) from the first quarter of 2020. Adjusted EPS (1) was
$0.77 in the first quarter of 2021, up $0.11 (16.7%) from the first quarter of 2020. Adjusted EPS on a constant currency basis (1) was $0.73 in the first quarter of 2021, up $0.07 (10.6%) from the first quarter of 2020.
Diluted EPS
Diluted EPS Attributable to Mondelēz International for the
(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)Includes the impact from last-year's partial sales of our equity method investments in KDP and JDE Peet’s as if the sales occurred at the beginning of all periods presented.
(4)Refer to Note 9, Financial Instruments, for information on our interest swaps that we no longer designate as cash flow hedges.
(5)Refer to Note 6, Equity Method Investments,
for more information on the gain/(loss) on equity method investment transactions.
(6)Refer to Note 14, Income Taxes, for more information on the items affecting income taxes.
(7)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.
(8)Refer to Note 8, Debt and Borrowing Arrangements, for more information on the loss on debt extinguishment and related expenses.
(9)Includes
our proportionate share of significant operating and non-operating items recorded by our JDE Peet's and KDP equity investees, such as acquisition and divestiture-related costs and restructuring program costs.
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.
Net revenues decreased $57 million (7.9%), due to unfavorable currency (15.1 pp) and unfavorable volume/mix (2.9 pp), partially offset by higher net pricing (10.1 pp). Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to most currencies in the region including the Brazilian real and Argentinean peso. Unfavorable volume/mix was due to the continued impact from the COVID-19 pandemic as lower out-of-home consumption continued to negatively impact sales of gum and candy products, as well as the impact of pricing-related elasticity. Unfavorable volume/mix was driven by declines in gum and candy, partially offset by gains in biscuits, chocolate, refreshment beverages and cheese & grocery. Higher net pricing was reflected across all categories, driven primarily by Argentina, Brazil and Mexico.
Segment
operating income decreased $2 million (2.6%), primarily due to higher raw material costs, unfavorable volume/mix, unfavorable currency and higher advertising and consumer promotion costs. These unfavorable items were mostly offset by higher net pricing, lower manufacturing costs (net of incremental COVID-19 related costs), lower other selling, general administrative expenses and lower costs incurred for the Simplify to Grow Program.
Net revenues increased $243 million (16.2%), due to favorable volume/mix (7.9 pp), favorable currency (5.4 pp) and higher net pricing (2.9 pp). Favorable volume/mix reflected overall volume gains as the negative impacts from COVID-19 that we experienced in the prior year period subsided across most of the region though some markets were still challenged, particularly those with significant gum and candy portfolios. Favorable volume/mix was driven by gains in chocolate, biscuits, cheese & grocery, and refreshment beverages partially offset by declines in gum and candy. Favorable currency impacts were due to the strength of most currencies relative to the U.S. dollar, including the Australian dollar, Chinese yuan, New Zealand dollar and Philippine peso. Higher net pricing was reflected across all categories.
Segment operating
income increased $128 million (54.7%), primarily due to favorable volume/mix, higher net pricing, lower manufacturing costs (net of incremental COVID-19 related costs), lower Simplify to Grow program costs and favorable currency. These favorable items were partially offset by higher raw material costs and higher advertising and consumer promotion costs.
Net revenues increased $263 million (10.2%), due to favorable currency (6.9 pp), favorable volume/mix (2.4 pp) and higher net pricing (0.9 pp). Favorable currency impacts reflected the strength of most currencies in the region relative to the U.S. dollar, including the euro, British pound sterling Swedish krona and Norwegian krone, partially offset by the strength of the U.S. dollar relative to a few currencies, including the Russian ruble and Turkish lira. Favorable volume/mix was due to overall higher volume, reflecting continuation of increased food purchases for in-home consumption during the pandemic, though at a more moderate rate than in the prior-year period. However, the sharp reduction in global travel due to the pandemic continued to negatively impact our world travel retail business, and lower out-of-home consumption continued to negatively impact sales of our gum and candy
products and our foodservice business. Favorable volume/mix was driven by gains in chocolate, cheese & grocery, biscuits and refreshment beverages, partially offset by declines in gum and candy. Higher net pricing was driven by chocolate, candy, refreshment beverages and gum, partially offset by lower net pricing in biscuits and cheese & grocery.
Segment operating income increased $85 million (18.0%), primarily due to favorable currency, favorable volume/mix, higher net pricing, lower advertising and consumer promotion costs and lower manufacturing costs (net of incremental COVID-19 related costs). These favorable items were partially offset by higher raw material costs.
Net revenues increased $82 million (4.3%), due to the impact of acquisitions (6.0 pp), favorable currency (0.6 pp) and higher net pricing (0.5 pp), partially offset by unfavorable volume/mix (2.8 pp). The April 1, 2020 acquisition of Give & Go added incremental net revenues of $106 million and the January 4, 2021 acquisition of Hu Master Holdings added incremental net revenues of $8 million in the first quarter of 2021. Favorable currency impact was due to the strength of the Canadian dollar relative to the U.S. dollar. Higher net pricing was driven by biscuits and chocolate, partially offset by lower net pricing in candy and gum. Unfavorable volume mix reflects impacts from the COVID-19 pandemic, as lower out-of-home consumption continued to negatively impact sales of our gum and
candy products and our foodservice business. Unfavorable volume/mix was driven by declines in candy, gum and chocolate partially offset by gains in biscuits.
Segment operating income decreased $111 million (29.1%), primarily due to higher Simplify to Grow Program costs, unfavorable volume/mix, higher advertising and consumer promotion costs and higher raw material costs. These unfavorable items were partially offset by lower other selling, general and administrative expenses, lower manufacturing costs (net of incremental COVID-19 related costs), higher net pricing and the impact of acquisitions.
We believe that cash from operations, our revolving credit facilities, short-term borrowings and our authorized long-term financing will continue to provide sufficient liquidity for our working capital needs, planned capital expenditures, payments of our contractual, tax and benefit plan obligations and payments for acquisitions, share repurchases and quarterly dividends. In light of the ongoing uncertainty related to the COVID-19 outbreak, however, 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 could also impair our banking and other business partners, on whom we rely for access to capital and as counterparties for a number of our derivative contracts.
Any of these and other developments could materially harm our access to capital or financial condition. We carry $7.0 billion of undrawn credit facilities, continue to utilize our commercial paper program and international credit lines, and we secured and continue to 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. In connection with various legislatively authorized tax payment deferral mechanisms available for income tax, indirect tax (such as value-added tax) and payroll tax in a number of jurisdictions, we were able to defer certain of these tax payments in 2020, which provided a cash benefit that reverses when the cash tax payments become due. Some of these payments were already made by the first quarter of 2021; the remainder will
come due in 2021 and 2022. The benefits associated with the deferral of these tax payments were not material to our financial statements. Overall, at this time, we do not expect any negative effects to our funding sources that would have a material effect on our liquidity; however, if a serious economic or credit market crisis were to occur, it could have a material adverse effect on our liquidity, results of operations and financial condition.
Net Cash Provided by Operating Activities:
Net cash provided by operating activities was $915 million in the first three months of 2021 and $284 million in the first three months of 2020. The increase in net cash provided by operating activities was due primarily to higher earnings and lower working capital requirements, partially offset by higher cash tax payments and lower cash dividends received from our equity method investments.
Net
Cash Used in Investing Activities:
Net cash used in investing activities was $690 million in the first three months of 2021 and $55 million in the first three months of 2020. The increase in net cash used in investing activities was due primarily to cash paid to acquire a majority interest in Grenade and the remaining equity of Hu Master Holdings and lapping the prior-year cash proceeds from our participation in the KDP secondary offering. We continue to make capital expenditures primarily to modernize manufacturing facilities and support new product and productivity initiatives. We expect 2021 capital expenditures to be approximately $1.0 billion, including capital expenditures in connection with our Simplify to Grow Program. We expect to continue to fund these expenditures with cash from operations.
Net Cash Used in/Provided by Financing Activities:
Net
cash used in financing activities was $1,781 million in the first three months of 2021, compared to net cash provided by financing activities of $455 million in the first three months of 2020. The increase in cash used in financing activities was primarily due to the debt redeemed in the first quarter of 2021, higher share repurchases and higher dividends paid.
Debt:
From time to time we refinance long-term and short-term debt. Refer to Note 8, Debt and Borrowing Arrangements, for details of our debt activity during the first three months of 2021. 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 needs.
One of our subsidiaries, Mondelez International Holdings Netherlands B.V. (“MIHN”), has outstanding debt. The operations held by MIHN generated approximately 75.0% (or $5.4 billion) of the $7.2 billion of consolidated net revenue in the three months ended March 31, 2021. The operations held by MIHN represented approximately 79.0% (or $21.4 billion) of the $27.1 billion of net assets as of March 31, 2021 and 76.2% (or $21.1 billion) of the $27.7 billion
of net assets as of December 31, 2020.
During December 2020, our Board of Directors approved a new $6.0 billion long-term financing authority to replace the prior $8.0 billion authority. As of March 31, 2021, we had $3.6 billion of long-term financing authority remaining.
In the next 12 months, we expect to repay approximately $1.8 billion of maturing long-term debt: $1.5 billion in October 2021 and $0.3 billion in December 2021. We expect to
fund these repayments with cash on hand, as well as short-term and long-term debt.
Our total debt was $19.5 billion at March 31, 2021 and $20.0 billion at December 31, 2020. Our debt-to-capitalization ratio was 0.42 at March 31, 2021 and 0.42 at December 31, 2020. At March 31, 2021, the weighted-average term of our outstanding long-term debt was 8.9 years. Our average daily commercial paper borrowings outstanding were $0.2 billion in the first three months of 2021 and $3.7 billion in the first three months of 2020. We had commercial paper outstanding totaling $0.6 billion as of March 31, 2021 and no commercial paper
borrowings outstanding at December 31, 2020. We expect to continue to use cash or commercial paper to finance various short-term financing needs. We continue to comply with our debt covenants. Refer to Note 8, Debt and Borrowing Arrangements.
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 three months of 2021, the primary drivers of the increase in our aggregate commodity costs were higher currency exchange transaction costs on imported materials, as well as increased costs for cocoa,
sugar, oils, packaging, grains, nuts and other ingredients costs, partially offset by lower costs for dairy and energy.
A number of external factors such as the current COVID-19 global pandemic, weather conditions, commodity 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.
We expect price volatility and a higher aggregate cost environment to continue in the remainder of 2021. 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 from numerous sources.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
See Note 8, Debt and Borrowing Arrangements, for information
on debt transactions during 2021. There were no other material developments or changes to our off-balance sheet arrangements and aggregate contractual obligations disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.
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 and Use of Proceeds, for more information on our stock plans, grant activity and share repurchase program for the three months
ended March 31, 2021.
As of March 31, 2021, our Board of Directors has authorized share repurchases up to $23.7 billion through December 31, 2023. Under this program, we have repurchased approximately $19.0 billion of shares through March 31, 2021 ($1.0 billion in the first three months of 2021, $1.4 billion in 2020, $1.5 billion in 2019, $2.0 billion in 2018, $2.2 billion in 2017, $2.6 billion in 2016, $3.6 billion in 2015, $1.9 billion in 2014 and $2.7 billion in 2013), at a weighted-average cost of $41.18 per share.
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 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 $453 million in the first three months
of 2021 and $409 million in the first three months of 2020. The first quarter 2021 dividend of $0.315 per share, declared on February 4, 2021 for shareholders of record as of March 31, 2021, was paid on April 14, 2021. 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 2021 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 2021.
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, 2020. 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, 2020. See Note 1, Basis of Presentation, for a discussion of the impact of new accounting standards.
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,”“potential,”“outlook” and similar expressions are intended to identify our forward-looking statements, including but not limited to statements about: the impact of the COVID-19 pandemic on our business including consumer demand, costs, product mix, the availability of our products, our strategic initiatives, our and our partners’ global supply chains, operations, technology, assets and routes to market, and our financial performance; our future performance, including our future revenue and earnings growth; our strategy to accelerate consumer-centric growth, drive operational excellence
and create a winning growth culture; volatility in global consumer, commodity, currency and capital markets; price volatility and pricing actions; the cost environment and measures to address increased costs; our ability to meet demand for our products; our tax rate, tax positions, tax proceedings and the impact of U.S. and Swiss tax reform on our results; the U.K.'s separation from the E.U. and its impact on our business and results, including in connection with disagreements on trade terms, delays affecting our supply chain or distribution, or disruptions to sales or collections; the costs of, timing of expenditures under and completion of our restructuring program; commodity prices and supply; our investments including in JDE Peet's and KDP; innovation; political, business and economic conditions and volatility; 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 Argentinean subsidiaries 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 liquidity, funding sources and uses of
funding, including debt issuances and our use of commercial paper; our capital structure and liquidity, 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; 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; share repurchases; dividends; long-term value for our shareholders; the characterization of 2021 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. 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, uncertainty about the magnitude, duration, geographic reach, impact on the global economy and related current and potential travel restrictions of the COVID-19 pandemic; the current, and uncertain future, impact of the COVID-19 pandemic on our business, growth, reputation, prospects, financial condition, operating results (including components of our financial results), cash flows and liquidity; risks from operating globally including in emerging markets; changes in currency exchange rates, controls and restrictions; volatility of commodity and other input costs; weakness in economic conditions; weakness in consumer spending; 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 the malware incident, cyberattacks or other security breaches; global or regional health pandemics or epidemics, including COVID-19; competition; 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; consolidation of retail customers and competition with retailer and other economy brands; changes in our relationships with customers, suppliers or distributors; legal, regulatory, tax or benefit law changes, claims or actions; the impact of climate change on our supply chain and operations; strategic
transactions; 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; volatility of and access to capital or other markets and our liquidity; pension costs; the expected discontinuance of London Interbank Offered Rates and transition to any other interest rate benchmark; and our ability to protect our intellectual property and intangible assets. 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 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 GAAP and non-GAAP financial measures below, and we also discuss our underlying 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, Turkey, 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 and related divestiture (2), acquisition and integration costs (2); the operating results of divestitures (2); remeasurement of net monetary position (5); mark-to-market impacts from commodity and forecasted
currency transaction derivative contracts(6); impact from resolution of tax matters (7); CEO transition remuneration (8);impact from pension participation changes (9); Swiss tax reform impacts (10); 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 equity method investment transactions; net earnings from divestitures (2); gains or losses on interest rate swaps no longer designated as accounting cash flow hedges due to changed financing and hedging plans; and U.S. and Swiss tax reform impacts (10). Similarly, within Adjusted EPS, our equity method investment net earnings exclude our proportionate share of our investees’ significant operating and non-operating items (11). 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.
(2)Divestitures include completed sales of businesses (including the partial or full sale of an equity method investment) and exits of major product lines upon completion of a sale or licensing agreement. 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. See Note 2, Acquisitions and Divestitures, and Note 6, Equity Method Investments, for information on acquisitions and divestitures impacting the comparability of our results.
(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.
(5)During the third quarter of 2018, as we began to apply highly inflationary accounting for Argentina (refer to Note 1, Basis
of Presentation), we excluded the remeasurement gains or losses related to remeasuring net monetary assets or liabilities in Argentina during the period 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.
(6)We exclude unrealized gains and losses (mark-to-market impacts) from outstanding commodity and forecasted currency transaction derivatives from our non-GAAP earnings measures 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 made 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 also discontinued designating commodity and forecasted currency transaction derivatives for hedge accounting treatment. To facilitate comparisons of our underlying operating results, we have recast all historical non-GAAP earnings measures to exclude the mark-to-market impacts.
(7)See Note 12, Commitments and Contingencies – Tax Matters, and our Annual Report on Form 10-K for the year ended December 31, 2018 for additional information.
(8)On November 20, 2017, Dirk Van de Put succeeded Irene Rosenfeld as CEO of Mondelēz International in
advance of her retirement at the end of March 2018. In order to incent Mr. Van de Put to join us, we provided him compensation with a total combined target value of $42.5 million to make him whole for incentive awards he forfeited or grants that were not made to him when he left his former employer. The compensation we granted took the form of cash, deferred stock units, performance share units and stock options. In connection with Irene Rosenfeld’s retirement, we made her outstanding grants of performance share units for the 2016-2018 and 2017-2019 performance cycles eligible for continued vesting and approved a $0.5 million salary for her service as Chairman from January through March 2018. We refer to these elements of Mr. Van de Put’s and Ms. Rosenfeld’s compensation arrangements together as “CEO transition remuneration.” We are excluding amounts we expense as CEO
transition remuneration from our non-GAAP results because those amounts are not part of our regular compensation program and are incremental to amounts we would have incurred as ongoing CEO compensation. As a result, in 2017, we excluded amounts expensed for the cash payment to Mr. Van de Put and partial vesting of his equity grants. In 2018, we excluded amounts paid for Ms. Rosenfeld’s service as Chairman and partial vesting of Mr. Van de Put’s and Ms. Rosenfeld’s equity grants. In 2019, we excluded amounts related to the partial vesting of Mr. Van de Put’s equity grants. During the first quarter of 2020, Mr. Van de Put's equity grants became fully vested.
(9)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.
(10)We exclude the impact of the 2019 Swiss tax reform and 2017 U.S. tax reform. During the third quarter of 2019, Swiss Federal and Zurich Cantonal tax events drove our recognition of a Swiss tax reform net benefit to our results of operations. On December 22, 2017, the United States enacted tax reform legislation that included a broad range of business tax provisions. We exclude these tax reform impacts from our Adjusted EPS as they do not reflect our ongoing tax obligations under the new tax reforms. Refer to our Annual Report on Form 10-K for the year ended
December 31, 2020 for more information on the impact of Swiss and U.S. tax reform.
(11)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 discrete U.S. tax reform impacts, 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 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 measure. 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.
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 and acquisitions. 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.
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; mark-to-market impacts from commodity and forecasted currency transaction derivative contracts; acquisition integration costs; acquisition-related costs; gain on an acquisition; the remeasurement of net monetary position; and impact from pension participation changes. We also evaluate Adjusted Operating Income on a constant currency basis. We believe these measures provide improved comparability of underlying operating results.
Mark-to-market (gains)/losses from derivatives (2)
(118)
185
(303)
Acquisition
integration costs (3)
1
—
1
Acquisition-related costs (3)
7
5
2
Gain
on acquisition (3)
(9)
—
(9)
Remeasurement of net monetary
position (4)
5
2
3
Impact from pension participation changes
1
—
1
Adjusted
Operating Income
$
1,292
$
1,106
$
186
16.8
%
Favorable currency translation
(44)
—
(44)
Adjusted
Operating Income (constant currency)
$
1,248
$
1,106
$
142
12.8
%
(1)Refer to Note 7, Restructuring Program, for more information.
(2)Refer
to Note 9, Financial Instruments, Note 16, Segment Reporting, and Non-GAAP Financial Measures section for more information on the unrealized gains/losses on commodity and forecasted currency transaction derivatives.
(3)Refer to Note 2, Acquisitions and Divestitures, for more information on the April 1, 2021 acquisition of Gourmet Food Holdings Pty Ltd, the March 25, 2021 acquisition of a majority interest in Grenade, the January 4, 2021 acquisition of the remaining 93% of equity in Hu Master Holdings and the April 1,
2020 acquisition of a significant majority interest in Give & Go.
(4)Refer to Note 1, Basis of Presentation – Currency Translation and Highly Inflationary Accounting, for information on our application of highly inflationary accounting for Argentina.
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; a loss related to interest rate swaps; a loss on debt extinguishment and related expenses; gain 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.
Diluted EPS attributable to Mondelēz International
$
0.68
$
0.51
$
0.17
33.3
%
Simplify
to Grow Program (2)
0.07
0.03
0.04
Mark-to-market (gains)/losses from derivatives (2)
(0.07)
0.11
(0.18)
Acquisition-related
costs (2)
0.01
—
0.01
Net earnings from divestitures (3)
—
(0.01)
0.01
Loss
related to interest rate swaps (4)
—
0.06
(0.06)
Loss on debt extinguishment (5)
0.07
—
0.07
Gain
on equity method investment
transactions (6)
—
(0.04)
0.04
Equity method investee items (7)
0.01
—
0.01
Adjusted
EPS
$
0.77
$
0.66
$
0.11
16.7
%
Favorable currency translation
(0.04)
—
(0.04)
Adjusted
EPS (constant currency)
$
0.73
$
0.66
$
0.07
10.6
%
(1)The tax expense/(benefit) of each of the pre-tax items excluded from our 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 March 31, 2021, taxes for the: Simplify to Grow Program were $(31) million, mark-to-market gains from derivatives were $22 million, acquisition-related costs were $(1) million, loss on debt extinguishment were $(34) million and equity method investee items were $(1) million.
•For the three months ended March 31, 2020, taxes for the: Simplify to Grow Program were $(13) million, mark-to-market losses from derivatives were $(32) million, net earnings from divestitures were $5 million, loss related to interest rate swaps were $(24) million and gain on equity method investment transactions were $17 million.
(2)See the Adjusted
Operating Income table above and the related footnotes for more information.
(3)Includes the impact from last-year's partial sales of our equity method investments in KDP and JDE Peet’s as if the sales occurred at the beginning of all periods presented.
(4)Refer to Note 9, Financial Instruments, for information on our interest rate swaps that we no longer designate as cash flow hedges.
(5)Refer to Note 8, Debt and Borrowing Arrangements, for more information on the loss on debt extinguishment and related expenses.
(6)Refer to Note 6, Equity Method Investments,
for more information on the gains and losses on equity method investment transactions.
(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.
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 has had a material unfavorable impact on global markets, including commodity, currency and capital markets. While some of these markets such as the U.S. and other major stock markets and certain currencies have rebounded significantly in recent quarters, these markets are likely to continue to remain volatile while the situation continues. 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 three months ended March 31, 2021. 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.
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. To manage input cost volatility, 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, commercial paper rates as well as limited debt tied to London Interbank Offered Rates (“LIBOR”). The Financial Conduct Authority in the United Kingdom plans to initiate the phase-out of many term
LIBOR rates by the end of 2021 and to phase out the remaining LIBOR rates by June 30, 2023.. We do not anticipate a significant impact to our financial position from the planned phase out of LIBOR given our current mix of variable and fixed-rate debt. 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 2021 debt activity, see Note 8, Debt and Borrowing Arrangements.
See Note 9, Financial Instruments, for more information on our 2021 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, 2020.
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 March 31, 2021. Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2021.
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 March 31, 2021. Many of our employees and those of our outsourcing partners and other accounting service providers continued to work remotely as a significant number of our and their offices were closed in response to the COVID-19 outbreak. There were no material changes in our internal controls over financial reporting as we were able to continue to maintain our existing controls and procedures over our financial reporting during the quarter ended March 31, 2021.
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,
2020.
Item 2. Unregistered Sales of Equity and Use of Proceeds.
Our stock repurchase activity for each of the three months in the quarter ended March 31, 2021 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)(3)
(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 8,576 shares, 690,648 shares and 3,431 shares for the fiscal months of January, February and March 2021, respectively.
(2)Our Board of Directors has authorized the repurchase of $23.7 billion of our Common Stock through December 31, 2023. Authorizations to increase and extend the program duration included: $4.0 billion on December 2, 2020, $6.0 billion on January 31, 2018, $6.0 billion on July
29, 2015, $1.7 billion on December 3, 2013, $6.0 billion on August 6, 2013 (cumulatively including amounts authorized on March 12, 2013) and the lesser of 40 million shares and $1.2 billion on March 12, 2013. Since the program inception on March 12, 2013 through March 31, 2021, we have repurchased $19.0 billion, and as of March 31, 2021, we had $4.7 billion share repurchase authorization remaining. See related information in Note 11, Stock Plans.
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.
The
following materials from Mondelēz International’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 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 March 31, 2021, formatted in Inline XBRL (included as Exhibit 101).
+ Indicates
a management contract or compensatory plan or arrangement.
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.
