Description of the Company
We make and sell primarily snacks, including biscuits, chocolate, gum & candy as well as various cheese & grocery and powdered beverage products around the world.
We aim to be the global leader in snacking. InMay 2022 , we announced the evolution of our strategy to drive long-term growth by focusing on four strategic pillars and priorities: accelerating consumer-centric growth, driving operational excellence, creating a winning growth culture and scaling sustainable snacking. We also announced our plans to reshape our portfolio, with a focus on extending our leadership positions in chocolate and biscuits as well as baked snacks. We seek to further enable our growth by investing in our strong and inclusive talent, brand portfolio and digital technologies and skills, as well as our sales and marketing capabilities. We believe the successful implementation of our strategic priorities and leveraging of our strong foundation of iconic global and local brands, an attractive global footprint, our market leadership in developed and emerging markets, our deep innovation, marketing and distribution capabilities, and our efficiency and sustainability efforts, will drive top- and bottom-line growth, enabling us to continue to create long-term value for our shareholders.
Recent Developments and Significant Items Affecting Comparability
War in
InFebruary 2022 ,Russia began a military invasion ofUkraine . For the safety of our employees, we stopped production and closed our facilities inUkraine . We are providing all of our employees with compensation and with help in securing shelter in neighboring countries. We have also made cash and in-kind donations to several humanitarian aid organizations in the region. InMarch 2022 , our two Ukrainian manufacturing facilities in Trostyanets and Vyshhorod were significantly damaged. In connection with the damage to these plants and impairment of other assets, primarily inventory, other plant, property and equipment, as well as increased allowances on our receivables, during the first quarter of 2022, we recorded$143 million of charges directly incurred as a result of the war inUkraine , including an accrual for continued compensation for our employees inUkraine (see Note 1, Basis of Presentation, to the condensed consolidated financial statements, and refer to Items Affecting Comparability of Financial Results for additional information.) We have increased operations and continue to provide resources in other primarily European manufacturing and distribution facilities to seek to continue supplying ourUkraine business's customers and consumers acrossEurope . During the second quarter of 2022, the war continued through parts ofUkraine . Our Trostyanets plant continues to be significantly damaged. In our Vyshhorod plant, we made and continue to make targeted repairs. We relaunched our systems and implemented additional safety and security measures. In late June, we decided to partially reopen the Vyshhorod plant and restart limited potato chip production. During the second quarter of 2022, we reversed approximately$15 million of previously recorded charges as a result of higher than expected collection of trade receivables and inventory recoveries. As a food company, we continue to work to support the continuity of food supply and provide packaged foods to consumers. We have discontinued new capital investments and suspended our advertising spending inRussia , but as a food company with more than 2,500 employees inRussia , we have not ceased operations given we believe we play a role in the continuity of the food supply. We are required to comply with applicable international sanctions and other measures that have been or may be imposed on Russian entities. We continue to evaluate the situation inUkraine andRussia and our ability to control our operating activities and businesses on an ongoing basis, and we continue to consolidate both our Ukrainian and Russian subsidiaries. Prior to the onset of the war,Ukraine generated 0.5% andRussia generated 2.9% of 2021 consolidated net revenues. The war has not had a material impact on our Russian entities during the first six months of 2022.
We provide more information on risks related to the war in
31 -------------------------------------------------------------------------------- Table of Contents COVID-19 In the third year of the COVID-19 global pandemic, our main priority remains the safety of our employees as well as continuing to help maintain the global food supply. During the pandemic, we experienced an overall increase in demand and revenue growth as consumers increased their food purchases for in-home consumption in many markets, while parts of our business were negatively affected by related lockdowns and restrictions. In late 2021, global supply chain, transportation and labor issues escalated and we experienced significantly higher operating costs, including higher overall raw material, transportation, labor and energy costs that have continued to rise in 2022 as the pandemic continues to affect global markets and operations. During the first six months of 2022, our net revenues continued to increase with growth of 8.3% and Organic Net Revenue growth of 10.7%, compared to the first six months of 2021. In the first half of 2022, we continued to see increased demand primarily for our snack category products and revenue growth in both our emerging and developed markets relative to the first half of 2021. We continued to also experience significantly higher operating costs. See additional details on our results in our Discussion and Analysis of Historical Results. During the pandemic, we continued to closely monitor our cash position and cash flows and worked to increase our access to financing. As ofJune 30, 2022 , our liquidity remains strong. During the first quarter of 2022, we funded our acquisition ofChipita (see additional information below) and issued$2 billion of long-term debt, refinancing approximately$2 billion of tendered and redeemed debt (refer to Note 8, Debt and Borrowing Arrangements for details) ahead of a 2022 rising interest rate environment. We generated$2.0 billion of cash from operations, ending the quarter with cash and cash equivalents of$1.9 billion as ofJune 30, 2022 . We also had$9 billion of unused credit facilities available as ofJune 30, 2022 as well as ongoing access to additional financing as evidenced by the incremental term loan facility we entered into and announced onJuly 11, 2022 . OurJDE Peet's and KDP equity method investments also give us additional financial flexibility. We will continue to proactively manage our business in response to the evolving global economic environment and related uncertainty and business risks as well as prioritize and support our employees and customers. We continue to take steps to mitigate impacts to our supply chain, operations, technology and assets. We intend to continue to execute on our new strategic and operating plans as the situation evolves. We seek to further our strategic priorities and position the Company to withstand the current uncertainties and emerge stronger.
Acquisitions and Divestitures
During the second quarter of 2022, we announced the planned acquisitions ofClif Bar & Company ("Clif Bar") and Ricolino. Refer to Financial Outlook below and Note 2, Acquisitions and Divestitures, for additional details. In the second quarter, we also announced our intention to divest our developed market gum and global Halls candy businesses. OnJanuary 3, 2022 , we closed on our acquisition ofChipita Global S.A. ("Chipita"), which is a strategic complement to our existing snacks portfolio and advances our strategy to become the global leader in broader snacking. We paid cash consideration of €1.2 billion ($1.4 billion ), net of cash received, and we assumed and paid down €0.4 billion ($0.4 billion ) ofChipita's debt in January for a total purchase price of approximately €1.7 billion ($1.8 billion ). Refer to our Discussion and Analysis of Historical Results for more information on the impact of the acquisition on our results and refer to Note 2, Acquisitions and Divestitures, for additional details on the acquisition.
JDE Peet's OnMay 8, 2022 , we sold approximately 18.6 millionJDE Peet's shares directly back toJDE Peet's , which reduced our ownership interest to 19.8%. We received €500 million ($529 million ) of proceeds and recorded a loss of €8 million ($8 million ) on this sale during the second quarter of 2022.
KDP
OnJune 7, 2021 , we participated in a secondary offering of KDP shares and sold approximately 28 million shares, which reduced our ownership interest to 6.4% of the total outstanding shares. We received$997 million of proceeds and recorded a pre-tax gain of$520 million (or$392 million after-tax) during the second quarter of 2021. The cash taxes associated with the KDP share sales were paid in late 2021. 32 -------------------------------------------------------------------------------- Table of Contents Summary of Results •Net revenues increased 9.5% to$7.3 billion in the second quarter of 2022 and increased 8.3% to$15.0 billion in the first six months of 2022 as compared to the same period in the prior year. In the second quarter and first six months of 2022, our net revenue growth continued to reflect increased demand for most of our snack category products in both our emerging and developed markets relative to 2021. Overall, our net revenue growth in the second quarter and first six months of 2022 was driven by higher net pricing, favorable volume/mix and incremental net revenues from acquisitions, partially offset by unfavorable currency translation and the impact of a prior-year divestiture. •Organic Net Revenue, a non-GAAP financial measure, increased 13.1% to$7.5 billion in the second quarter of 2022 and increased 10.7% to$15.4 billion in the first six months of 2022 as compared to same period in the prior year. During the second quarter and first six months of 2022, Organic Net Revenue grew due to higher net pricing and favorable volume/mix. Refer to our Discussion and Analysis of Historical Results below for additional information. Organic Net Revenue is on a constant currency basis and excludes revenue from acquisitions and divestitures. We use Organic Net Revenue as it provides improved year-over-year comparability of our underlying operating results (see the definition of Organic Net Revenue and our reconciliation with net revenues within Non-GAAP Financial Measures appearing later in this section). •Diluted EPS attributable to Mondel?z International decreased 28.9% to$0.54 in the second quarter of 2022 and decreased 20.1% to$1.15 in the first six months of 2022 as compared to the same period in the prior year. -Diluted EPS decreased in the second quarter of 2022, primarily driven by lapping a prior-year net gain on equity method transactions, an unfavorable year-over-year change in mark-to-market impacts from currency and commodity derivatives and higher acquisition integration costs, partially offset by lower Simplify to Grow program costs, lower negative impacts from enacted tax law changes, lapping a prior-year intangible asset impairment charge, lapping a prior-year unfavorable impact of pension participation changes and an increase in Adjusted EPS. -Diluted EPS decreased during the first six months of 2022, primarily driven by lapping prior-year net gain on equity method transactions, unfavorable year-over-year mark-to-market impacts from currency and commodity derivatives, incremental costs incurred due to the war inUkraine , higher intangible asset impairment charges, higher acquisition integration costs and contingent consideration adjustments and higher acquisition-related costs, partially offset by lower Simplify to Grow program costs, lower negative impacts from enacted tax law changes, lower equity method investee items and an increase in Adjusted EPS. •Adjusted EPS, a non-GAAP financial measure, increased 1.5% to$0.67 in the second quarter of 2022 and increased 3.4% to$1.50 in the first six months of 2022 as compared to the same period in the prior year. On a constant currency basis, Adjusted EPS increased 9.1% to$0.72 in the second quarter of 2022 and up 11.7% to$1.62 in the first six months of 2022 as compared to the same periods in the prior year. -Adjusted EPS increased in the second quarter of 2022, primarily driven by operating gains, lower taxes and fewer shares outstanding, mostly offset by unfavorable currency translation, higher interest expense and lower equity method investment earnings. -Adjusted EPS increased during the first six months of 2022, primarily driven by operating gains, fewer shares outstanding and lower interest expense, partially offset by unfavorable currency translation, lower benefit plan non-service income, higher taxes primarily due to lower net benefits from non-recurring discrete tax items and lower equity method investment 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). 33 -------------------------------------------------------------------------------- Table of Contents 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 ourU.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 endedDecember 31, 2021 and discussed in the footnotes to our financial statements. •Market conditions. Snack categories continued to grow in the first six months of 2022. This is consistent with the latest findings in the third annual State of Snacking report, commissioned by Mondel?z International and issued inJanuary 2022 . The research report was conducted in conjunction with consumer poll specialist The Harris Poll and summarizes the findings from interviews with thousands of consumers across 12 countries. The report underscores the growth of snacking worldwide and how behavior, sentiment and routines surrounding food are being reshaped by factors such as the COVID-19 pandemic. Snacking, which was already increasing among consumers, continues to grow as we noted in our latest Annual Report on Form 10-K. Our outlook for future snacks revenue growth remains strong, but we anticipate some volatility in revenues while current events and conditions continue. As the COVID-19 pandemic, war inUkraine and related impacts continue, we could see shifts in consumer demand and in our sales and product mix that could have a negative impact on our results. We continue to monitor volatility across markets, including global consumer, energy and other commodity, transportation, labor, currency and capital markets. We expect greater inflation, including input cost volatility and a higher aggregate cost environment to continue in 2022, as the war inUkraine , the pandemic, supply chain disruptions (affecting the availability of raw materials, packaging, transportation and other costs), rising energy costs, labor shortages, adverse weather events and conditions and other factors are expected to continue. Refer also to Commodity Trends and Item 3, Quantitative and Qualitative Disclosures about Market Risk. •War inUkraine . We expect to experience heightened volatility and higher costs in international supply chains and global markets (including energy and other commodities, currencies and capital markets) in connection with the war inUkraine with related negative impacts to our operating results that we cannot fully predict with certainty. We also expect increased inflationary pressures that will adversely impact our operating costs, particularly as the war continues. Demand for our products may also be negatively impacted, particularly in those markets closest toUkraine or other markets that are more vulnerable to consumer price increases. We have expanded operations in other European facilities and are adapting to continue supplying the majority of ourUkraine business's customers and consumers acrossEurope . We continue to take action and evaluate additional ways to mitigate risks, including executing business continuity plans to cover products produced inUkraine and taking actions to adjust product offerings, package sizes and pricing to help address rising costs. In addition, we may experience negative impacts to our business inRussia due to the war inUkraine , including challenges to supply products as a result of sanctions or other supply chain challenges, reductions in consumer demand or local government actions that negatively impact our business. Our continued operating presence inRussia may result in negative publicity or consumer actions against our brands, which may have negative impacts on our business. We may also experience increased cyber attacks from state sponsored threat actors with ransomware or other type of malware attacks due to a heightened level of malicious cyber activity as a result of the War inUkraine . While we are working to mitigate negative effects on our business, we may not be able to fully predict or respond to all of the direct or indirect impacts on our business on a timely basis to prevent adverse impacts to our results. We also continue to monitor the situation inRussia and any risks to our employees, operations or assets. Any ongoing or new developments in the war could have a material negative effect on our business and results in the future. •COVID-19. As described above, we continue to monitor and respond to the COVID-19 pandemic. Since its inception, it has had a material negative effect on the global and local economies and could have a material negative effect on our business and results in the future, particularly if there are significant adverse changes 34 -------------------------------------------------------------------------------- Table of Contents to consumer demand, product mix or operating costs; significant disruptions to the supply, production or distribution of our products; or deterioration of the credit or financial stability of our customers and other business partners. Disruptions or our failure to effectively respond to them could further increase product or distribution costs and prices and negatively affect operations and results. Although we hedge to mitigate exposures to commodity and other input cost increases, we cannot fully hedge against all cost increases and changes in costs, and our hedging strategies may not protect us from increases in specific raw materials or other costs. We also may not be able to adjust pricing timely or fully, and this may negatively affect our revenue, margins or earnings. If a 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. As we continue to manage operations during the pandemic, we will continue to prioritize the safety of our employees and consumers and we may continue to incur increased labor, customer service, commodity, transportation and other costs. We are working to mitigate negative impacts to our business from the COVID-19 pandemic, 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. Any of these and other developments could materially harm our business, results of operations and financial condition. •Clif Bar acquisition. OnJune 20, 2022 , we announced an agreement to acquireClif Bar for approximately$2.9 billion . The acquisition ofClif Bar includes a contingent consideration arrangement that may require us to pay additional consideration to the sellers for achieving certain revenue and earnings targets in 2025 and 2026 that exceed our base financial projections for the business implied in the upfront purchase price. The possible payments range from zero to a maximum total of$2.4 billion , with higher payouts requiring the achievement of targets that generate rates of returns in excess of the base financial projections. In connection with this acquisition, we expect to generate a meaningful cash tax benefit over time from the amortization of acquisition-related intangibles. The acquisition is subject to customary closing conditions and regulatory reviews and is expected to close in the third quarter of 2022. Refer to Note 2, Acquisitions and Divestitures, and Liquidity and Capital Resources for additional details. •Ricolino acquisition. OnApril 24, 2022 , we entered into an agreement with Grupo Bimbo to acquire Ricolino, its confectionery business located primarily inMexico for a purchase price of approximately$1.3 billion , subject to closing purchase price adjustments. The transaction is subject to relevant antitrust approvals and closing conditions and is expected to close in the second half of 2022. Refer to Note 2, Acquisitions and Divestitures, and Liquidity and Capital Resources for additional details. •Planned Divestiture of our developed market gum and global Halls candy businesses. InMay 2022 , we announced our intention to divest these businesses. In the third quarter of 2022, we will formally begin to seek potential buyers for these businesses. •Taxes. We continue to monitor existing and potential future tax reform around the world. InMarch 2022 ,President Biden sent a proposed 2023 budget toCongress and inNovember 2021 , theU.S. House of Representatives passed a bill that has not yet been acted on by theSenate ; both proposals contain significant changes to currently enactedU.S. tax rules. In addition, theOrganization of Economic Cooperation and Development (OECD) continues to work toward agreement regarding model rules for a global minimum tax. These proposedU.S. and global legislative changes could have a material effect on us if enacted. •Türkiye,Argentina and currency volatility. During the first quarter of 2022, currency exchange rate volatility increased. We discuss currency impacts on our results in our Discussion and Analysis of Historical Results. As further discussed in Note 1, Basis of Presentation - Currency Translation and Highly Inflationary Accounting, during the first quarter of 2022, we concluded that Türkiye became a highly inflationary economy for accounting purposes. As ofApril 1, 2022 , we apply highly inflationary accounting for our subsidiaries operating in Türkiye and changed their functional currency from the Turkish lira to theU.S. dollar. Our operations in Türkiye contributed$90 million or 0.6% of our condensed consolidated net revenues in the six months endedJune 30, 2022 . Within selling, general and administrative expenses, we recorded a remeasurement loss of less than$1 million during the three months endedJune 30, 2022 related to the revaluation of the Turkish lira denominated net monetary position during the quarter. We also continue to apply highly inflationary accounting for our Argentinean subsidiaries. We recorded a remeasurement loss of$10 million during the three months and$15 million during the six months endedJune 30, 2022 within selling, general and administrative expenses related to the revaluation of our Argentinean peso denominated net monetary position. The mix of monetary assets and liabilities and the exchange rate to convert Turkish lira and Argentinean pesos toU.S. dollars could change over time, so it is difficult to predict the overall impact of Türkiye andArgentina highly inflationary accounting on future net earnings. 35 -------------------------------------------------------------------------------- Table of Contents •U.K. advertising and promotion ban. In theUnited Kingdom , a ban on specific types of TV and online advertising of food containing levels of fat, sugar or salt above specified thresholds is expected to go into effect in 2023, and new measures restricting certain promotions and in-store placement of some of those products are expected to go into effect inOctober 2022 . Although we are unable to estimate precisely the impact of the restrictions, they could significantly negatively affect ourU.K. results of operations in 2022 and thereafter. In the six months endedJune 30, 2022 , we generated 8.1% of our consolidated net revenues in theU.K. •Cybersecurity Risks. Global cybersecurity risks continue to increase and we continue to be on heightened alert and dedicate focused resources to network security, backup and disaster recovery and to provide ongoing workforce training and employ security measures to protect our systems and data. We also continue to monitor threats in our environment, including but not limited to the manufacturing environment and operational technologies, as well as adjusting information security controls based on updated threats. While we have taken security measures to protect our systems and data, security measures cannot provide absolute certainty or guarantee that we will be successful in preventing or responding to every breach or disruption on a timely basis. 36 -------------------------------------------------------------------------------- Table of Contents Discussion and Analysis of Historical Results
Items Affecting Comparability of Financial Results
The following table includes significant income or (expense) items that affected the comparability of our results of operations and our effective tax rates. Please refer to the notes to the condensed consolidated financial statements indicated below for more information. Refer also to the Consolidated Results of Operations -Net Earnings and Earnings per Share Attributable to Mondel?z International table for the after-tax per share impacts of these items. For the Three Months Ended For the Six Months Ended June 30, June 30, See Note 2022 2021 2022 2021 (in millions, except percentages)
Simplify to Grow Program Note 7 Restructuring charges$ (4) $ (100) $ (15) $ (188) Implementation charges (19) (33) (39) (67) Intangible asset impairment charges Note 5 - (32) (78) (32) Mark-to-market (losses)/gains from derivatives (1) Note 9 (128) 17 (100) 134 Acquisitions and divestiture-related costs: Note 2
Acquisition integration costs and
contingent consideration adjustments (1) (37) (2) (72) (3) Acquisition-related costs (5) (17) (26) (24) Gain on acquisition - - - 9 Divestiture-related costs (5) - (6) - Incremental costs due to war in Ukraine (2) Note 1 15 - (128) - Remeasurement of net monetary position Note 1 (10) (3) (15) (8) Impact from pension participation changes (1) Note 10 (2) (33) (5) (37) Impact from resolution of tax matters (1) Note 12 - 7 - 7 Loss on debt extinguishment and related expenses Note 8 - - (129) (137) Initial impacts from enacted tax law changes Note 14 (9) (95) (9) (99)
(Loss)/gain on equity method investment
transactions (3) (8) 502 (13) 495 Equity method investee items (4) 12 (5) 13 (62) Effective tax rate Note 14 23.4 % 45.9 % 22.6 % 30.9 % (1)Includes impacts recorded in operating income and interest expense and other, net. Mark-to-market gains/(losses) above also include our equity method investment-related derivative contract mark-to-market gains/(losses) (refer to Note 9, Financial Instruments) that are recorded in the gain on equity method investment transactions on our condensed consolidated statement of earnings. (2)Incremental costs due to the war inUkraine include direct charges such as asset impairments due to damaged facilities and inventory, higher expected allowances for uncollectible accounts receivable and committed compensation. Please see the Non-GAAP Financial Measures section at the end of this item and Note 1, Basis of Presentation - War inUkraine , for additional information. (3)(Loss)/gain on equity method investment transactions is recorded outside pre-tax operating results on the condensed consolidated statement of earnings. See footnote (1) as mark-to-market gains/(losses) on our equity method-investment-related derivative contracts are presented in the table above within mark-to-market gains/(losses) from derivatives. (4)Includes our proportionate share of significant operating and non-operating items recorded by ourJDE Peet's and KDP equity method investees, including acquisition and divestiture-related costs and restructuring program costs. 37 --------------------------------------------------------------------------------
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