MONDELEZ INTERNATIONAL, INC. Description of the Company
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 theWorld Health Organization declaring COVID-19 a pandemic onMarch 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 ourLatin 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 employeeswho are unable to work remotely, we adopted a number of heightened protocols, consistent with those prescribed by theWorld 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 theU.S. and other locations to meet additional marketplace demand and promote uninterrupted functioning of our manufacturing, distribution and sales network. 29 -------------------------------------------------------------------------------- Table of Contents •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 inChina , 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 strongerU.S. dollar relative to other currencies in which we operate negatively affected our net revenue and net earnings reported inU.S. dollars. In the first quarter of 2021, other currencies, such as the euro, British pound sterling and Australian dollar, strengthened relative to theU.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 theJDE Peet's public share offerings. (Refer to our Annual Report on Form 10-K for the year endedDecember 31, 2020 and Note 7, Equity Method Investments, for additional information). •As ofMarch 31, 2021 , we had$2.0 billion , and as ofDecember 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 inOctober 2021 and approximately$0.3 billion inDecember 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 inthe United States andEurope 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 30 -------------------------------------------------------------------------------- Table of Contents 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 inMarch 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 inJDE 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
OnMarch 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, onAugust 3, 2020 , we sold approximately 14.1 million shares and onSeptember 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). OnNovember 17, 2020 , we also sold approximately 40.0 million 31 -------------------------------------------------------------------------------- Table of Contents 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 theJDE Peet's offering of its ordinary shares, we exchanged our 26.4% ownership interest in JDE for a 26.5% equity interest inJDE Peet's . OnMay 29, 2020 , we participated in theJDE 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 inJDE Peet's . We received €350 million ($394 million ) of total proceeds from the sales ofJDE 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 withJDE 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 andJDE 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 ofJDE Peet's ongoing results onceJDE 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 endedDecember 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 Mondel?z 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 32 -------------------------------------------------------------------------------- Table of Contents 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 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, 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 theUnited Kingdom from theEuropean Union in 2020, a new trade arrangement was reached between theU.K. and E.U. that began onJanuary 1, 2021 . The main trade provisions include the continuation of no tariffs or quotas on trade between theU.K. and E.U. subject to prescribed trade terms. We also need to meet product and labeling standards for both theU.K. and E.U. Cross-border trade between theU.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 atU.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 theU.K.'s separation from, or new 33 -------------------------------------------------------------------------------- Table of Contents trade arrangements with, the E.U. negatively impact theU.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 endedMarch 31, 2021 , we generated 9.9% of our consolidated net revenues in theU.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. Inthe United States , while the 2017 U.S. tax reform reduced theU.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 endedDecember 31, 2020 for more information on Swiss andU.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 endedMarch 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 toU.S. dollars could change over time, so it is difficult to predict the overall impact of theArgentina highly inflationary accounting on future net earnings. 34 -------------------------------------------------------------------------------- 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 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 ourJDE 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. 35
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