UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2014March 31, 2015
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number1-16483
Mondelēz International, Inc.
(Exact name of registrant as specified in its charter)
Virginia | 52-2284372 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
Three Parkway North, Deerfield, Illinois | 60015 | |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code:code) (847) 943-4000
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act. (Check one):
Large accelerated filer x | Accelerated filer ¨ | |||||||||
Non-accelerated filer ¨ | Smaller reporting company ¨ | |||||||||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ¨ No x
At July 31, 2014,April 24, 2015, there were 1,685,888,3801,626,622,679 shares of the registrant’s Class A common stock outstanding.
Page No. | ||||||||
PART I – FINANCIAL INFORMATION | ||||||||
Item 1. | ||||||||
1 | ||||||||
2 | ||||||||
Condensed Consolidated Balance Sheets | 3 | |||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 28 | ||||||
Item 3. | ||||||||
Item 4. | ||||||||
PART II – OTHER INFORMATION | ||||||||
Item 1. | ||||||||
Item 1A. | ||||||||
Item 2. | ||||||||
Item 6. | ||||||||
Signature |
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.
i
PART I – FINANCIAL INFORMATION
Mondelēz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions of U.S. dollars, except per share data)
(Unaudited)
For the Three Months Ended | For the Six Months Ended | For the Three Months Ended | ||||||||||||||||||||||
June 30, | June 30, | March 31, | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2015 | 2014 | |||||||||||||||||||
Net revenues | $ | 8,436 | $ | 8,595 | $ | 17,077 | $ | 17,339 | $ | 7,762 | $ | 8,641 | ||||||||||||
Cost of sales | 5,331 | 5,364 | 10,768 | 10,866 | 4,821 | 5,437 | ||||||||||||||||||
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Gross profit | 3,105 | 3,231 | 6,309 | 6,473 | 2,941 | 3,204 | ||||||||||||||||||
Selling, general and administrative expenses | 2,038 | 2,269 | 4,303 | 4,601 | 1,924 | 2,265 | ||||||||||||||||||
Asset impairment and exit costs | 55 | 48 | 97 | 92 | 160 | 42 | ||||||||||||||||||
Gains on acquisition and divestitures, net | – | (6 | ) | – | (28 | ) | ||||||||||||||||||
Amortization of intangibles | 55 | 55 | 109 | 109 | 46 | 54 | ||||||||||||||||||
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Operating income | 957 | 865 | 1,800 | 1,699 | 811 | 843 | ||||||||||||||||||
Interest and other expense, net | 224 | 235 | 944 | 514 | 386 | 720 | ||||||||||||||||||
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Earnings before income taxes | 733 | 630 | 856 | 1,185 | 425 | 123 | ||||||||||||||||||
Provision for income taxes | 91 | 28 | 64 | 41 | ||||||||||||||||||||
Provision / (benefit) for income taxes | 113 | (27 | ) | |||||||||||||||||||||
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Net earnings | 642 | 602 | 792 | 1,144 | 312 | 150 | ||||||||||||||||||
Noncontrolling interest | 20 | 1 | 7 | 7 | (12 | ) | (13 | ) | ||||||||||||||||
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Net earnings attributable to Mondelēz International | $ | 622 | $ | 601 | $ | 785 | $ | 1,137 | $ | 324 | $ | 163 | ||||||||||||
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Per share data: | ||||||||||||||||||||||||
Basic earnings per share attributable to | $ | 0.37 | $ | 0.34 | $ | 0.46 | $ | 0.64 | $ | 0.20 | $ | 0.10 | ||||||||||||
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Diluted earnings per share attributable to | $ | 0.36 | $ | 0.33 | $ | 0.46 | $ | 0.63 | $ | 0.19 | $ | 0.09 | ||||||||||||
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Dividends declared | $ | 0.14 | $ | 0.13 | $ | 0.28 | $ | 0.26 | $ | 0.15 | $ | 0.14 |
See accompanying notes to the condensed consolidated financial statements.
Mondelēz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Earnings
(in millions of U.S. dollars)
(Unaudited)
For the Three Months Ended | For the Six Months Ended | For the Three Months Ended | ||||||||||||||||||||||
June 30, | June 30, | March 31, | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2015 | 2014 | |||||||||||||||||||
Net earnings | $ | 642 | $ | 602 | $ | 792 | $ | 1,144 | $ | 312 | $ | 150 | ||||||||||||
Other comprehensive earnings / (losses): | ||||||||||||||||||||||||
Currency translation adjustment: | ||||||||||||||||||||||||
Translation adjustment | 373 | (933 | ) | 140 | (1,702 | ) | (1,721 | ) | (233 | ) | ||||||||||||||
Tax (expense) / benefit | (9 | ) | 7 | (3 | ) | (30 | ) | (192 | ) | 6 | ||||||||||||||
Pension and other benefits: | ||||||||||||||||||||||||
Net actuarial gain / (loss) arising during period | (6 | ) | (9 | ) | – | (3 | ) | – | 6 | |||||||||||||||
Reclassification of (gains) / losses into | ||||||||||||||||||||||||
Amortization of experience losses and | 35 | 47 | 69 | 97 | 52 | 34 | ||||||||||||||||||
Settlement losses | 9 | 2 | 16 | 5 | 3 | 7 | ||||||||||||||||||
Tax (expense) / benefit | (8 | ) | (9 | ) | (21 | ) | (26 | ) | (13 | ) | (13 | ) | ||||||||||||
Derivatives accounted for as hedges: | ||||||||||||||||||||||||
Net derivative gains / (losses) | (56 | ) | 92 | (112 | ) | 123 | (56 | ) | (56 | ) | ||||||||||||||
Reclassification of (gains) / losses into | (2 | ) | 22 | (4 | ) | 45 | (4 | ) | (2 | ) | ||||||||||||||
Tax (expense) / benefit | 20 | (42 | ) | 43 | (58 | ) | 16 | 23 | ||||||||||||||||
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Total other comprehensive earnings / (losses) | 356 | (823 | ) | 128 | (1,549 | ) | (1,915 | ) | (228 | ) | ||||||||||||||
Comprehensive earnings / (losses) | 998 | (221 | ) | 920 | (405 | ) | (1,603 | ) | (78 | ) | ||||||||||||||
less: Comprehensive earnings / (losses) | 20 | 1 | 6 | – | (37 | ) | (14 | ) | ||||||||||||||||
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Comprehensive earnings / (losses) | $ | 978 | $ | (222 | ) | $ | 914 | $ | (405 | ) | $ | (1,566 | ) | $ | (64 | ) | ||||||||
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See accompanying notes to the condensed consolidated financial statements.
Mondelēz International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions of U.S. dollars, except share data)
(Unaudited)
June 30, | December 31, | March 31, | December 31, | |||||||||||||
2014 | 2013 | 2015 | 2014 | |||||||||||||
ASSETS | ||||||||||||||||
Cash and cash equivalents | $ | 2,132 | $ | 2,664 | $ | 1,835 | $ | 1,631 | ||||||||
Receivables (net of allowances of $77 in 2014 and $86 in 2013) | 5,533 | 5,403 | ||||||||||||||
Trade receivables (net of allowances of $63 at March 31, 2015 and $66 at December 31, 2014) | 4,061 | 3,802 | ||||||||||||||
Other receivables (net of allowances of $93 at March 31, 2015 and $91 at December 31, 2014) | 852 | 949 | ||||||||||||||
Inventories, net | 4,088 | 3,743 | 3,421 | 3,480 | ||||||||||||
Deferred income taxes | 570 | 517 | 557 | 480 | ||||||||||||
Other current assets | 777 | 889 | 1,138 | 1,408 | ||||||||||||
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Total current assets | 13,100 | 13,216 | 11,864 | 11,750 | ||||||||||||
Property, plant and equipment, net | 10,483 | 10,247 | 9,261 | 9,827 | ||||||||||||
Goodwill | 25,527 | 25,597 | 22,356 | 23,389 | ||||||||||||
Intangible assets, net | 22,066 | 21,994 | 19,434 | 20,335 | ||||||||||||
Prepaid pension assets | 58 | 54 | 51 | 53 | ||||||||||||
Other assets | 1,446 | 1,449 | 1,240 | 1,461 | ||||||||||||
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TOTAL ASSETS | $ | 72,680 | $ | 72,557 | $ | 64,206 | $ | 66,815 | ||||||||
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LIABILITIES | ||||||||||||||||
Short-term borrowings | $ | 2,044 | $ | 1,636 | $ | 3,688 | $ | 1,305 | ||||||||
Current portion of long-term debt | 2,242 | 1,003 | 2,195 | 1,530 | ||||||||||||
Accounts payable | 5,303 | 5,345 | 5,199 | 5,299 | ||||||||||||
Accrued marketing | 1,938 | 2,318 | 1,872 | 2,047 | ||||||||||||
Accrued employment costs | 948 | 1,043 | 803 | 946 | ||||||||||||
Other current liabilities | 2,440 | 3,051 | 2,709 | 2,880 | ||||||||||||
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Total current liabilities | 14,915 | 14,396 | 16,466 | 14,007 | ||||||||||||
Long-term debt | 14,255 | 14,482 | 12,822 | 13,865 | ||||||||||||
Deferred income taxes | 6,086 | 6,282 | 5,373 | 5,512 | ||||||||||||
Accrued pension costs | 1,869 | 1,962 | 2,406 | 2,912 | ||||||||||||
Accrued postretirement health care costs | 426 | 412 | 524 | 526 | ||||||||||||
Other liabilities | 2,722 | 2,491 | 2,003 | 2,140 | ||||||||||||
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TOTAL LIABILITIES | 40,273 | 40,025 | 39,594 | 38,962 | ||||||||||||
Commitments and Contingencies (Note 12) | ||||||||||||||||
Commitments and Contingencies (Note 11) | ||||||||||||||||
EQUITY | ||||||||||||||||
Common Stock, no par value (1,996,537,778 shares issued in 2014 and 2013) | – | – | ||||||||||||||
Common Stock, no par value (5,000,000,000 shares authorized and 1,996,537,778 shares issued at March 31, 2015 and December 31, 2014) | – | – | ||||||||||||||
Additional paid-in capital | 31,583 | 31,396 | 31,645 | 31,651 | ||||||||||||
Retained earnings | 13,666 | 13,419 | 14,582 | 14,529 | ||||||||||||
Accumulated other comprehensive losses | (2,760 | ) | (2,889 | ) | (9,208 | ) | (7,318 | ) | ||||||||
Treasury stock, at cost (309,616,525 shares at June 30, 2014 and | (10,221 | ) | (9,553 | ) | ||||||||||||
Treasury stock, at cost (370,308,929 shares at March 31, 2015 and 332,896,779 shares at December 31, 2014) | (12,473 | ) | (11,112 | ) | ||||||||||||
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Total Mondelēz International Shareholders’ Equity | 32,268 | 32,373 | 24,546 | 27,750 | ||||||||||||
Noncontrolling interest | 139 | 159 | 66 | 103 | ||||||||||||
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TOTAL EQUITY | 32,407 | 32,532 | 24,612 | 27,853 | ||||||||||||
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TOTAL LIABILITIES AND EQUITY | $ | 72,680 | $ | 72,557 | $ | 64,206 | $ | 66,815 | ||||||||
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See accompanying notes to the condensed consolidated financial statements.
Mondelēz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Equity
(in millions of U.S. dollars, except per share data)
(Unaudited)
Mondelēz International Shareholders’ Equity | Mondelēz International Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Earnings / (Losses) | Treasury Stock | Noncontrolling Interest | Total Equity | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Earnings / (Losses) | Treasury Stock | Noncontrolling Interest* | Total Equity | |||||||||||||||||||||||||||||||||||||||||||
Balances at January 1, 2013 | $ | – | $ | 31,548 | $ | 10,551 | $ | (2,666 | ) | $ | (7,157 | ) | $ | 140 | $ | 32,416 | ||||||||||||||||||||||||||||||||||||||||
Balances at January 1, 2014 | $ | – | $ | 31,396 | $ | 13,419 | $ | (2,889 | ) | $ | (9,553 | ) | $ | 159 | $ | 32,532 | ||||||||||||||||||||||||||||||||||||||||
Comprehensive earnings / (losses): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings | – | – | 3,915 | – | – | 20 | 3,935 | – | – | 2,184 | – | – | 17 | 2,201 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive losses, | – | – | – | (223 | ) | – | – | (223 | ) | – | – | – | (4,429 | ) | – | (33 | ) | (4,462 | ) | |||||||||||||||||||||||||||||||||||||
Exercise of stock options and issuance of other stock awards | – | 10 | (97 | ) | – | 343 | – | 256 | – | 271 | (98 | ) | – | 332 | – | 505 | ||||||||||||||||||||||||||||||||||||||||
Common Stock repurchased | – | (161 | ) | – | – | (2,739 | ) | (2,900 | ) | – | – | – | (1,891 | ) | – | (1,891 | ) | |||||||||||||||||||||||||||||||||||||||
Cash dividends declared | – | – | (950 | ) | – | – | – | (950 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.58 per share) | – | – | (976 | ) | – | – | – | (976 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid on noncontrolling interest and other activities | – | (1 | ) | – | – | – | (1 | ) | (2 | ) | – | (16 | ) | – | – | – | (40 | ) | (56 | ) | ||||||||||||||||||||||||||||||||||||
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Balances at December 31, 2013 | $ | – | $ | 31,396 | $ | 13,419 | $ | (2,889 | ) | $ | (9,553 | ) | $ | 159 | $ | 32,532 | ||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2014 | $ | – | $ | 31,651 | $ | 14,529 | $ | (7,318 | ) | $ | (11,112 | ) | $ | 103 | $ | 27,853 | ||||||||||||||||||||||||||||||||||||||||
Comprehensive earnings / (losses): | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings | – | – | 785 | – | – | 7 | 792 | – | – | 324 | – | – | (12 | ) | 312 | |||||||||||||||||||||||||||||||||||||||||
Other comprehensive losses, | – | – | – | 129 | – | (1 | ) | 128 | – | – | – | (1,890 | ) | – | (25 | ) | (1,915 | ) | ||||||||||||||||||||||||||||||||||||||
Exercise of stock options and issuance of other stock awards | – | (5 | ) | (64 | ) | – | 244 | – | 175 | – | (6 | ) | (27 | ) | �� | 139 | – | 106 | ||||||||||||||||||||||||||||||||||||||
Common Stock repurchased | – | 192 | – | – | (912 | ) | – | (720 | ) | – | – | – | – | (1,500 | ) | – | (1,500 | ) | ||||||||||||||||||||||||||||||||||||||
Cash dividends declared | – | – | (474 | ) | – | – | – | (474 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Dividends paid on noncontrolling interest | – | – | – | – | – | (26 | ) | (26 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.15 per share) | – | – | (244 | ) | – | – | – | (244 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
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Balances at June 30, 2014 | $ | – | $ | 31,583 | $ | 13,666 | $ | (2,760 | ) | $ | (10,221 | ) | $ | 139 | $ | 32,407 | ||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2015 | $ | – | $ | 31,645 | $ | 14,582 | $ | (9,208 | ) | $ | (12,473 | ) | $ | 66 | $ | 24,612 | ||||||||||||||||||||||||||||||||||||||||
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* | Noncontrolling interest as of March 31, 2014 was $127 million, as compared to $159 million as of January 1, 2014. The change of $(32) million during the three months ended March 31, 2014 was due to $(18) million of dividends paid, $(13) million of net earnings and $(1) million of other comprehensive losses, net of taxes. |
See accompanying notes to the condensed consolidated financial statements.
Mondelēz International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions of U.S. dollars)
(Unaudited)
For the Six Months Ended | For the Three Months Ended | |||||||||||||||
June 30, | March 31, | |||||||||||||||
2014 | 2013 | 2015 | 2014 | |||||||||||||
CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES | ||||||||||||||||
Net earnings | $ | 792 | $ | 1,144 | $ | 312 | $ | 150 | ||||||||
Adjustments to reconcile net earnings to operating cash flows: | ||||||||||||||||
Depreciation and amortization | 533 | 532 | 232 | 262 | ||||||||||||
Stock-based compensation expense | 68 | 68 | 36 | 35 | ||||||||||||
Deferred income tax benefit | (180 | ) | (113 | ) | ||||||||||||
Gains on acquisition and divestitures, net | – | (28 | ) | |||||||||||||
Deferred income tax provision / (benefit) | 25 | (98 | ) | |||||||||||||
Asset impairments | 27 | 27 | 78 | 12 | ||||||||||||
Loss on early extinguishment of debt | 493 | – | 708 | 492 | ||||||||||||
Unrealized gain on planned coffee business divestiture currency hedges | (240 | ) | – | |||||||||||||
Gain on monetization of planned coffee business divestiture currency hedges | (311 | ) | – | |||||||||||||
Other non-cash items, net | 132 | 102 | 67 | 48 | ||||||||||||
Change in assets and liabilities, net of acquisitions and divestitures: | ||||||||||||||||
Change in assets and liabilities, net of acquisition and divestitures: | ||||||||||||||||
Receivables, net | 70 | 25 | (558 | ) | (305 | ) | ||||||||||
Inventories, net | (353 | ) | (337 | ) | (178 | ) | (299 | ) | ||||||||
Accounts payable | (18 | ) | (170 | ) | 317 | 67 | ||||||||||
Other current assets | (60 | ) | (23 | ) | (50 | ) | (59 | ) | ||||||||
Other current liabilities | (1,095 | ) | (817 | ) | (481 | ) | (815 | ) | ||||||||
Change in pension and postretirement assets and liabilities, net | (41 | ) | 8 | (239 | ) | (67 | ) | |||||||||
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Net cash provided by operating activities | 368 | 418 | ||||||||||||||
Net cash used in operating activities | (282 | ) | (577 | ) | ||||||||||||
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CASH PROVIDED BY / (USED IN) INVESTING ACTIVITIES | ||||||||||||||||
Capital expenditures | (724 | ) | (568 | ) | (439 | ) | (326 | ) | ||||||||
Proceeds from planned coffee business divestiture currency hedge settlements | 939 | – | ||||||||||||||
Acquisition, net of cash received | – | (119 | ) | (81 | ) | – | ||||||||||
Proceeds from divestitures, net of disbursements | – | 48 | ||||||||||||||
Cash received from Kraft Foods Group related to the Spin-Off | – | 55 | ||||||||||||||
Other | 26 | 2 | ||||||||||||||
Proceeds from sale of property, plant and equipment and other | (2 | ) | 9 | |||||||||||||
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Net cash used in investing activities | (698 | ) | (582 | ) | ||||||||||||
Net cash provided by / (used in) investing activities | 417 | (317 | ) | |||||||||||||
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CASH PROVIDED BY / (USED IN) FINANCING ACTIVITIES | ||||||||||||||||
Issuances of commercial paper, maturities greater than 90 days | 1,956 | 70 | 333 | 1,607 | ||||||||||||
Repayments of commercial paper, maturities greater than 90 days | (1,164 | ) | – | (96 | ) | (723 | ) | |||||||||
Net (repayments) / issuances of other short-term borrowings, net | (384 | ) | 427 | |||||||||||||
Net issuances / (repayments) of other short-term borrowings | 2,154 | (68 | ) | |||||||||||||
Long-term debt proceeds | 3,029 | – | 3,601 | 2,994 | ||||||||||||
Long-term debt repaid | (2,516 | ) | (1,749 | ) | (4,085 | ) | (2,514 | ) | ||||||||
Repurchase of Common Stock | (720 | ) | (92 | ) | (1,500 | ) | (468 | ) | ||||||||
Dividends paid | (476 | ) | (464 | ) | (249 | ) | (238 | ) | ||||||||
Other | 112 | 80 | 27 | 40 | ||||||||||||
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Net cash used in financing activities | (163 | ) | (1,728 | ) | ||||||||||||
Net cash provided by financing activities | 185 | 630 | ||||||||||||||
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Effect of exchange rate changes on cash and cash equivalents | (39 | ) | (107 | ) | (116 | ) | (27 | ) | ||||||||
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Cash and cash equivalents: | ||||||||||||||||
Increase / (decrease) | (532 | ) | (1,999 | ) | 204 | (291 | ) | |||||||||
Balance at beginning of period | 2,664 | 4,475 | 1,631 | 2,622 | ||||||||||||
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Balance at end of period | $ | 2,132 | $ | 2,476 | $ | 1,835 | $ | 2,331 | ||||||||
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See accompanying notes to the condensed consolidated financial statements.
Mondelēz International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Basis of Presentation
The condensed consolidated financial statements include Mondelēz International, Inc. as well as our wholly owned and majority owned subsidiaries.
Our interim condensed consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in 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 financial position and operating results. Net revenues and net earnings for any interim period are not necessarily indicative of future or annual results.
We derived the condensed consolidated balance sheet data as of December 31, 20132014 from audited financial statements, but do not include all disclosures required by U.S. GAAP. You should read these statements in conjunction with our consolidated financial statements and related notes in our Annual Report on Form10-K for the year ended December 31, 2013.2014.
Revision of Financial Statements:Accounting Calendar Change:
In finalizingconnection with moving toward a common consolidation date across the Company, in the first quarter of 2015, we changed the consolidation date for our 2013North America segment from the last Saturday of each period to the last calendar day of each period. The change had a favorable impact of $39 million on net revenues and $19 million on operating income in the three months ended March 31, 2015.
As a result of this change, each of our operating subsidiaries now reports results we identified certain out-of-period, non-cash, income tax-related errors in prior interimas of the last calendar day of the period. We believe the change will improve business planning and annual periods. These errors werefinancial reporting by better matching the close dates of the operating subsidiaries and bringing the reporting dates to the period-end date. As the effect to prior-period results was not material, to any previously reported financial results; however, we have not revised our 2013 interim and prior-year financial statements and accompanying notes in our Annual Report on Form 10-K for the year ended December 31, 2013, to reflect these items in the appropriate periods. The net effect of the revision was to lower tax expense in years prior to 2013. The impact of the revision for the six months ended June 30, 2013 was a $47 million reduction of net earnings. The impact of the revision to fiscal years prior to 2013 was an increase in cumulative net earnings of $94 million.prior-period results.
We evaluated the cumulative impact of the errors on prior periods under the guidance in Accounting Standards Codification (“ASC”) 250-10,Accounting Changes and Error Corrections, and the guidance from the Securities and Exchange Commission (“SEC”) in Staff Accounting Bulletin (“SAB”) No. 99,Materiality. We also evaluated the impact of correcting the errors through an adjustment to our financial statements under the guidance in ASC 250-10 relating to SAB No. 108,Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements. We concluded that these errors were not material, individually or in the aggregate, to any of the prior reporting periods and, therefore, amendments of previously filed reports were not required.
The effects of the revision on the condensed consolidated financial statements for the three and six months ended June 30, 2013 are detailed below.
Condensed Consolidated Statement of Earnings
For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||
June 30, 2013 | June 30, 2013 | |||||||||||||||||||||||
Reported | Correction | Revised | Reported | Correction | Revised | |||||||||||||||||||
(in millions, except per share data) | ||||||||||||||||||||||||
Provision / (benefit) for | $ | 13 | $ | 15 | $ | 28 | $ | (6 | ) | $ | 47 | $ | 41 | |||||||||||
Net earnings | 617 | (15 | ) | 602 | 1,191 | (47 | ) | 1,144 | ||||||||||||||||
Net earnings attributable to Mondelēz International | 616 | (15 | ) | 601 | 1,184 | (47 | ) | 1,137 | ||||||||||||||||
Net earnings attributable to Mondelēz International: | ||||||||||||||||||||||||
Per share, basic | $ | 0.34 | $ | – | $ | 0.34 | $ | 0.66 | $ | (0.02 | ) | $ | 0.64 | |||||||||||
Per share, diluted | $ | 0.34 | $ | (0.01 | ) | $ | 0.33 | $ | 0.66 | $ | (0.03 | ) | $ | 0.63 |
Condensed Consolidated Statement of Comprehensive Earnings
For the Three Months Ended | For the Six Months Ended | |||||||||||||||||||||||
June 30, 2013 | June 30, 2013 | |||||||||||||||||||||||
Reported | Correction | Revised | Reported | Correction | Revised | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Net earnings | $ | 617 | $ | (15 | ) | $ | 602 | $ | 1,191 | $ | (47 | ) | $ | 1,144 | ||||||||||
Translation adjustment | (938 | ) | 5 | (933 | ) | (1,709 | ) | 7 | (1,702 | ) | ||||||||||||||
Total other comprehensive losses | (828 | ) | 5 | (823 | ) | (1,556 | ) | 7 | (1,549 | ) | ||||||||||||||
Comprehensive losses | (211 | ) | (10 | ) | (221 | ) | (365 | ) | (40 | ) | (405 | ) | ||||||||||||
Comprehensive losses attributable to Mondelēz International | (212 | ) | (10 | ) | (222 | ) | (365 | ) | (40 | ) | (405 | ) |
Condensed Consolidated Statement of Cash Flows
For the Six Months Ended | ||||||||||||
June 30, 2013 | ||||||||||||
Reported | Correction | Revised | ||||||||||
(in millions) | ||||||||||||
Net earnings | $ | 1,191 | $ | (47 | ) | $ | 1,144 | |||||
Deferred income tax benefit | (166 | ) | 53 | (113 | ) | |||||||
Other non-cash items, net | 97 | 5 | 102 | |||||||||
Change in Other current assets | (22 | ) | (1 | ) | (23 | ) | ||||||
Change in Other current liabilities | (807 | ) | (10 | ) | (817 | ) | ||||||
Net cash provided by operating activities | 418 | – | 418 |
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 such as in Venezuela) and realized exchange gains and losses on transactions in earnings.
Venezuela.As prescribed by U.S. GAAP for highly inflationary economies, we have been accounting for the results of our Venezuelan subsidiaries using the U.S. dollar as the functional currency since January 1, 2010.
On February 8, 2013, the Venezuelan government announced the devaluation of the official Venezuelan bolivar exchange rate from 4.30 bolivars to 6.30 bolivars to the U.S. dollar anddollar. The official rate of 6.30 is the elimination of the second-tier, government-regulated SITME exchange rate previously applied to value certain types of transactions. In connection with the announced changes,import food and other essential items, and we recordedpurchase a $54 million currency remeasurement loss related to the devaluationmaterial portion of our net monetary assets in Venezuela within selling, general and administrative expenses in our Latin America segment during the three months ended March 31, 2013.imported raw materials using U.S. dollars secured at this rate.
On January 24, 2014, the Venezuelan government announced the expansion of thea new auction-based currency transaction program referred towhich became known as SICAD or SICAD I and new profit margin controls. The application of the SICAD I rate was extended to include foreign investments and significant operating activities, including contracts for leasing and services, use and exploitation of patents and trademarks, payments of royalties and contracts for technology import and technical assistance. As of June 30, 2014, the SICAD I exchange rate was 10.60 bolivars to the U.S. dollar.
Additionally, onOn March 24, 2014, the Venezuelan government launched a new market-based currency exchange market, SICAD II. SICAD II, and at that time indicated that it may be used voluntarily to exchange bolivars into U.S. dollars. As of June 30, 2014, the SICAD II exchange rate was 49.98 bolivars to the U.S. dollar. There have been few market transactions to date and we continue to evaluate the new SICAD II market.
Our Venezuelan operations produce a wide range of biscuit, cheese & grocery, confectionery and beverage products. Based on the currency exchange developments this quarter, we have reviewed our domestic and international sourcing of goods and services and the exchange rates we believe will be applicable. We evaluated the level of primarily raw material imports that we believe would continue to be sourced in exchange for U.S. dollars converted at the official 6.30 exchange rate. Our remaining imported goods and services would primarily be valued at the SICAD I exchange rate. Imports that do not currently qualify for either the official rate or SICAD I rate may be sourced at the SICAD II rate.
We believe the SICAD I rate is the most appropriate rate to use as it is most representative of the various exchange rates at which U.S. dollars are currently available to our entire Venezuelan business. While some of our net monetary assets or liabilities qualify for settlement at the official exchange rate, other operations do not, and we have utilized both the SICAD I and SICAD II auction processes. In addition, there is significant uncertainty about our ability to secure approval for transactions and the limited availability of U.S. dollars offered at the official rate. As such, we believe it is more economically representative to use the SICAD I rate than the official rate to value our net monetary assets and translate future operating results.
As of March 31, 2014, we began to apply the SICAD I exchange rate to remeasure our bolivar-denominated net monetary assets, and we began translating our Venezuelan operating results at the newSICAD I rate in the second quarter of 2014. On March 31, 2014, we recognized a $142 million currency remeasurement loss within selling, general and administrative expenses of our Latin America segment as a result of revaluing our bolivar-denominated net monetary assets from the official exchange rate of 6.30 bolivars to the U.S. dollar to the then-prevailing SICAD I exchange rate of 10.70 bolivars to the U.S. dollar. For
On February 10, 2015, the three months ended June 30, 2014, the impact ofVenezuelan government combined the SICAD I and SICAD II (“SICAD”) exchange rate changemechanisms and in addition created a new market-based SIMADI rate, while retaining the 6.30 official rate for food and other essentials. The Venezuelan government also announced an opening SICAD auction rate of 12.00 bolivars to the U.S. dollar, which as of March 31, 2015 is the prevailing SICAD rate until our specific industry group auctions make U.S. dollars available at another offered SICAD rate. We continue to expect to secure U.S. dollars at the SICAD rate in addition to the official rate. The SIMADI rate was designed as a free market exchange rate that makes U.S. dollars available for any transactions based on the available supply of U.S. dollars at the offered rate. As of March 31, 2015, the SIMADI exchange rate was 193.05 bolivars to the U.S. dollar and availability of U.S. dollars at the SIMADI rate was limited. At this time, we do not significantanticipate using the SIMADI rate frequently in managing our local operations.
Our Venezuelan operations produce a range of biscuit, cheese & grocery, confectionery and there were no additionalbeverage products. Based on the currency exchange developments this year, we reviewed our domestic and international sourcing of goods and services and the exchange rates we believe will be applicable. We evaluated the level of primarily raw material imports that we believe would continue to be sourced in exchange for U.S. dollars converted at the official 6.30 exchange rate. Our remaining imported goods and services would primarily be valued at the SICAD exchange rate. Imports that do not currently qualify for either the official rate or SICAD rate could be sourced at the SIMADI rate.
We believe the SICAD rate continues to be the most economically representative rate for us to use to value our net monetary assets and translate our operating results in Venezuela. While some of our net monetary assets or liabilities qualify for settlement at the official exchange rate, other operations do not, and we have utilized the SICAD auction process and expect to use the new SIMADI auctions on an as needed basis.
In the first quarter of 2015, we recognized an $11 million remeasurement charges recordedloss, reflecting an increase in operating income.the SICAD exchange rate from 11.50 to 12.00 bolivars to the U.S. dollar.
The following table sets forth net revenues for our Venezuelan operations for the three and six months ended June 30, 2014 (with the first quarter translatedMarch 31, 2015 (measured at the 6.30 official rate prior to the remeasurement)SICAD rate), and cash, net monetary assets and net assets of our Venezuelan subsidiaries as of June 30, 2014March 31, 2015 (translated at 10.70a SICAD rate of 12.00 bolivars to the U.S. dollar):
Venezuela operations | Three Months Ended | |
Net | $ |
| |||
As of | ||
Cash | $ | |
Net | $ | |
Net | $ |
The SICAD I and II rates are variable rates. Unlike the official rate that was devalued andis fixed at 6.30 bolivars to the U.S. dollar, the SICAD I rate reflects currently offered rates based on recently cleared auction transactions, and the SICAD II rate reflects voluntary market-based currency exchange transactions cleared by the Central Bank of Venezuela. As such, these rates are expected tocan vary over time. If any of the three-tier currency exchange rates, or the application of the rates to our business, were to change, we maywould recognize additional currency losses, or gains, which could be significant.
In light of the currentongoing difficult macroeconomic environment in Venezuela, we continue to monitor and actively manage our investment and exposures in Venezuela. We plan to continue to do business in the country as long as we can successfully operate our business there. We strive to locally source and produce a significant amount of the products we sell in Venezuela. We have taken other protective measures against currency devaluation, such as converting monetary assets into non-monetary assets that we can use in our business. However, suitable protective measures have become less available and more expensive and may not be available to offset further currency devaluation that could occur.
Argentina. On January 23, 2014, the Central Bank of Argentina adjusted its currency policy, removed its currency stabilization measures and allowed the Argentine peso exchange rate to float relative to the U.S. dollar. On that day, the value of the Argentine peso relative to the U.S. dollar fell by 15%, and. In July 2014, Argentina had a technical default on its debt as the government was blocked from making payments on its restructured debt by certain creditors who did not participate in a debt restructuring in 2001. Further volatility in the exchange rate is expected. Since December 31, 20132014 and through June 30, 2014,March 31, 2015, the value of the peso declined 25%4%. Further volatility and declines in the exchange rate are expected. Based on the current state of Argentine currency rules and regulations,While the business operating environment remains challenging; however,challenging, we do not expectcontinue to monitor and actively manage our investment and exposures in Argentina. We continue refining our product portfolio to improve our product offerings, mix and profitability. We also continue to implement additional cost initiatives to protect the existingbusiness. Further currency declines, economic controls andor other business restrictions tocould have a materialan adverse effectimpact on our business, financial condition orongoing results of operations. Our Argentinian operations contributed approximately $170$175 million, or 2.0%2.3% of consolidated net revenues infor the three months and $340 million, or 2.0%ended March 31, 2015. As of consolidatedMarch 31, 2015, the net revenues, in the six months ended June 30, 2014.monetary liabilities of
our Argentina operations were not material. Argentina is not designated as a highly-inflationary economy at this time for accounting purposes and so we continue to record currency translation adjustments within equity and realized exchange gains and losses on transactions in earnings.
Russia. During the fourth quarter of 2014, the value of the Russian ruble relative to the U.S. dollar declined 50%. In the first quarter of 2015, the value of the ruble relative to the U.S. dollar fluctuated significantly, declining 18% in January then increasing 17% across February and March. Due to the significant currency movements, we continue to take actions to protect our near-term operating results, financial condition and cash flow. Our operations in Russia contributed approximately $170 million, or 2.2% of consolidated net revenues for the three months ended March 31, 2015. As of March 31, 2015, the net monetary assets of our Russia operations were not material. Russia is not designated as a highly-inflationary economy for accounting purposes and so we continue to record currency translation adjustments within equity and realized exchange gains and losses on transactions in earnings.
Ukraine. On February 5, 2015, the National Bank of Ukraine changed its currency policy by eliminating daily auctions, which effectively supported the exchange rate, and allowed the Ukrainian hryvnya exchange rate to float relative to the U.S. dollar. During the quarter, the International Monetary Fund also extended $18 billion of financing to Ukraine to support it meeting short- and near-term commitments. The value of the Ukrainian hryvnya relative to the U.S. dollar declined 49% from December 31, 2014 through March 31, 2015, and further volatility in the currency is expected. We continue to take actions to protect our near-term operating results, cash flow and financial condition. Our Ukrainian operations contributed approximately $45 million, or 0.6% of consolidated net revenues for the three months ended March 31, 2015. As of March 31, 2015, the net monetary assets of our Ukrainian operations were not material. Ukraine is not designated as a highly-inflationary economy for accounting purposes and so we continue to record currency translation adjustments within equity and realized exchange gains and losses on transactions in earnings.
New Accounting Pronouncements:
In June 2014,April 2015, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update (“ASU”) to clarify thethat provides guidance on evaluating whether a cloud computing arrangement includes a software license. If there is a software license component, software licensing accounting for certain stock-based compensation grants in which a performance target can be achieved after a requisite service period is completed. Under this new guidance, entities are required to treat performance targets that affect vesting, and could be achieved after the requisite service period, as a performance condition. The performance targets are not reflected in estimating the grant-date fair value of the grants. Compensation cost is recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the periods for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisiteapplied; otherwise, service period.contract accounting should be applied. The ASU is effective for annual reporting periodsfiscal years beginning after December 15,31, 2015, with early adoption permitted. We are currently assessing the impact of the new standard on our consolidated financial statements.
In April 2015, the FASB issued an ASU that provides a practical expedient for reporting entities with a fiscal year end that does not coincide with a month end when measuring the fair value of plan assets of a defined benefit pension or other postretirement benefit plan. It allows the measurement of plan assets and obligations using the month end that is closest to the entity’s fiscal year end. The ASU requires prospective application and is effective for fiscal years beginning after December 31, 2015, with early adoption permitted. As our current fiscal year end coincides with a calendar month end, we do not expect the standard to have an impact on our consolidated financial statements.
In April 2015, the FASB issued an ASU that simplifies the presentation of debt issuance costs. The standard requires debt issuance costs related to a recognized debt obligation to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt instead of being presented as an asset, similar to the presentation of debt discounts. The ASU requires retrospective application and represents a change in accounting principle. The update is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. We plan to adopt the new standard on or by the January 1, 2016 effective date and are currently assessing the impact on our consolidated financial statements.
In February 2015, the FASB issued an ASU that amends current consolidation guidance related to the evaluation of whether certain legal entities should be consolidated. The standard modifies both the variable interest entity (“VIE”) model and the voting interest model, including analyses of whether limited partnerships are VIEs and the impact of service fees and related party interests in determining if an entity is a VIE to the reporting entity. The guidance is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. We plan to adopt the new standard on the January 1, 2016 effective date and are currently assessing the impact on our consolidated financial statements.
In January 2015, the FASB issued an ASU to simplify income statement classification by removing the concept of extraordinary items from U.S. GAAP. As a result, items that are both unusual and infrequent will no longer be separately reported net of tax after continuing operations. The guidance is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. The standard is not expected to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued an accounting standards updateASU on revenue recognition from contracts with customers. The new ASU outlines a new, single comprehensive model for companies to use in accounting for revenue. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to a customer in an amount that reflects the consideration the entity expects to be entitled to receive in exchange for the goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows from customer contracts, including significant judgments made in recognizing revenue. The guidance is effective for annual reporting periods beginning after December 15, 2016, with early adoption prohibited. In April 2015, the FASB proposed to defer the effective date by one year and allow early adoption as of the original effective date; the deferral has not yet been approved by the board but approval is expected. The ASU may be applied retrospectively to historical periods presented or as a cumulative-effect adjustment as of the date of adoption. We willplan to adopt the new standard on the January 1, 2017 effective date and are currently assessing the impact of the new standard on our consolidated financial statements.
In April 2014, the FASB issued an accounting standards update on the reporting of discontinued operations. The guidance changed the definition of a discontinued operation to include dispositions that represent a strategic shift and have a major effect on operations and financial results. Strategic shifts may include the disposal of operations in a major geographical area, a major line of business, a major investment accounted for under the equity method or other major parts of an entity. For disposals that qualify, additional disclosures, including cash flow and balance sheet information for the discontinued operation, will be required. The guidance is effective for fiscal years and interim reporting periods beginning on or after December 15, 2014, with early adoption permitted. We will apply these provisions to prospective divestitures beginning in 2015, including the planned coffee business transactions. Please see Note 2,Divestitures and Acquisition – Planned Coffee Business Transactions, for additional information.
Note 2. Divestitures and AcquisitionAcquisitions
Planned Coffee Business Transactions:
On May 7, 2014, we announced that we entered into an agreement to combine our wholly owned coffee portfolio (outside of France) with D.E Master Blenders 1753 B.V. (“DEMB”). In conjunction with this transaction, Acorn Holdings B.V. (“AHBV”), owner of D.E Master Blenders 1753, hasDEMB, also made a binding offer to receive our coffee business in France. The parties have also invited our partners in certain joint ventures to join the new company. The transactions remain subject
During the first quarter of 2015, we entered into an agreement to regulatory approvalssell our interest in a Japanese coffee joint venture to our joint venture partner so they may operate the business independently. In lieu of contributing our interest in the joint venture, we will instead contribute the net cash proceeds from the sale of the interest. Please see discussion of the pending divestiture of the Japanese coffee joint venture below underOther Divestiture and the completion of employee information and consultation requirements.Acquisitions.
Upon completion of all proposed transactions, we willexpect to receive cash of approximately $5€4 billion and aan equity interest of approximately 49 percent equity interest in the new company, to be called Jacobs Douwe Egberts.Egberts (“JDE”). AHBV will hold a majority share in the proposed combined company and will have a majority of the seats on the board, which will be chaired by current D.E Master Blenders 1753DEMB Chairman Bart Becht. We will have certain minority rights. AHBV is owned by an investor group led by JAB Holding Company s.à r.l.
Once we have contributed our coffee businesses to the new company, we expect to record our interest in JDE as an equity method investment on our consolidated balance sheet and to include our share of its earnings prospectively within our continuing results of operations. We will have certain minority rights.also anticipate recording a gain on the divested assets of our coffee business portfolio.
The transactions are expectedremain subject to regulatory approvals and the completion of employee information and consultation requirements. We continue to expect the transactions to be completed in the coursethird quarter of 2015, subject to limited closing conditions, including regulatory approvals. During this time,In December 2014, the European Commission announced its intention to further evaluate the proposed transaction against EU antitrust regulations and in order to make a final determination on merger clearance, which we currently expect in the second quarter of 2015. We and D.E Master Blenders 1753 willDEMB also continue to undertake consultations with all Works Councils and employee representatives as required in connection with the transactions.
Certain expenses relatedIn connection with the expected receipt of approximately€4 billion upon closing, we entered into currency exchange forward contracts in the second quarter of 2014 to readying the businesses for the planned transactions have been incurred. During the three months ended June 30, 2014, the expenses totaled $12lock in an expected U.S. dollar value of approximately $5 billion. On February 11, 2015, we monetized these forward contracts and realized total pre-tax gains of $939 million, of which $7$311 million was recognized in the first quarter of 2015. We also entered into new currency exchange forward contracts to lock in an expected euro/U.S. dollar exchange rate on the expected€4 billion cash receipt that generated a $240 million unrealized gain in the first quarter of 2015. The unrealized gain was recorded inwithin interest and other expense, net and $5the asset derivative is recorded within other current assets. On April 17, 2015, we monetized the new forward contracts for a realized gain of $296 million and executed new currency exchange forward contracts to continue to lock in an expected U.S. dollar value on the receipt of the€4 billion at closing. Based on changes in the euro/U.S. dollar exchange rate, the actual closing date of the planned coffee business transactions and the settlement dates of the hedges or other hedges we may put into place, the actual amount of U.S. dollars we receive could change.
We have incurred incremental expenses related to readying our coffee businesses for the planned transactions that totaled $28 million in the three months ended March 31, 2015 and were recorded within selling, general and administrative expenses of primarily our Europe and Eastern Europe, Middle East and Africa segments and within our Europe segment.
Spin-Off Costs following Kraft Foods Group Divestiture:Other Divestiture and Acquisitions:
On October 1, 2012,February 27, 2015, we completed the Spin-Off ofannounced our North American grocery business, Kraft Foods Group, Inc. (“Kraft Foods Group”),agreement to sell our 50 percent interest in a Japanese coffee joint venture to our shareholders (the “Spin-Off”). Followingjoint venture partner. During the Spin-Off, Kraft Foods Group is an independent public companyfirst quarter of 2015, we reclassified our $96 million held for sale investment from long-term other assets to other current assets, and we do not beneficially own any shares of Kraft Foods Group common stock. We continue to incur primarily Spin-Off transition costs, and historically we have incurred Spin-Off transaction, transition and financing and related costs (“Spin-Off Costs”) in our operating results. Within selling, general and administrative expenses, we recorded $16recognized $32 million of pre-tax Spin-Off Costs intax charges related to the three months and $19 million in the six months ended June 30, 2014 and $15 million in the three months and $24 million in the six months ended June 30, 2013. In fiscal year 2014, we expect to incur approximately $30pending sale. We also will divest $42 million of Spin-Off Costs related primarily to customer servicecumulative translation losses in connection with the sale. On April 23, 2015, we closed on the transaction and logistics, information systems and processes, as well as legal costs associated with revising intellectual property and other long-term agreements.
Acquisition and Other Divestitures:
During the three months ended June 30, 2013, we completed two divestitures within our EEMEA segment which generatedreceived cash proceeds of $4827 billion Japanese yen ($225 million duringU.S. dollars as of April 23, 2015).
On February 16, 2015, we acquired a U.S. snacking company, Enjoy Life Foods (“Enjoy Life”) within our North America segment. We paid cash and settled debt totaling $81 million in connection with the acquisition. As of March 31, 2015, we recorded a preliminary $81 million purchase price allocation of $58 million in estimated identifiable intangible assets, $19 million of estimated goodwill and $4 million of other net assets. We currently expect to finalize the valuation in the second quarter and pre-tax gains of $6 million.2015. The divestitures included a salty snacks business in Turkeyacquisition-related costs and a confectionery business in South Africa. The aggregate operating results of these divestituresthe acquisition were not material to our condensed consolidated financial statements during the periods presented.
On February 22, 2013, we acquired the remaining interest in a biscuit operation in Morocco, which is now a wholly-owned subsidiary within our EEMEA segment. We paid net cash consideration of $119 million, consisting of $155 million purchase price net of cash acquired of $36 million. Prior to the acquisition, our interest in the operation was accounted for under the equity method. As a result of obtaining a controlling interest, we consolidated the operation and upon finalizing the valuation of the acquired net assets, as of December 31, 2013, we had recorded the fair value of acquired assets (including identifiable intangible assets of $48 million), the liabilities assumed and goodwill of $209 million. Duringfor the three months ended March 31, 2013,2015.
On November 11, 2014, we also recordedannounced the pending acquisition of a pre-tax gainbiscuit operation in Vietnam. The biscuit operation will become a subsidiary within our Asia Pacific segment. The total consideration to be paid is expected to be up to 12,656 billion Vietnamese dong ($596 million U.S. dollars as of $22 million relatedMarch 31, 2015). We expect to close the remeasurementinitial phase of our previously-held equity interestthe transaction in the operation to fair value in accordance with U.S. GAAPmid 2015 after regulatory and acquisition costs of $7other matters are resolved. We deposited $46 million in selling, generalescrow upon signing the purchase agreement on November 10, 2014. We expect to pay approximately 9,935 billion Vietnamese dong ($468 million U.S. dollars as of March 31, 2015) and administrative expensesdeposit an additional 991 billion Vietnamese dong ($47 million U.S. dollars as of March 31, 2015) in escrow upon completing the initial phase of the transaction in mid 2015, which we expect to fund from current borrowing capacity. The balance will be paid upon the satisfaction of final conditions, including the resolution of warranty or other claims and interest and other expense, net. We recorded integration charges of $2 million for the three months and $3 million for the six months ended June 30, 2014 and $1 million for the three months ended June 30, 2013 within selling, general and administrative expenses.purchase price adjustments.
Note 3. Inventories
Inventories at June 30, 2014 and December 31, 2013 were:consisted of the following:
June 30, | December 31, | As of March 31, | As of December 31, | |||||||||||||
2014 | 2013 | 2015 | 2014 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Raw materials | $ | 1,388 | $ | 1,165 | $ | 1,210 | $ | 1,122 | ||||||||
Finished product | 2,700 | 2,578 | 2,211 | 2,358 | ||||||||||||
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Inventories, net | $ | 4,088 | $ | 3,743 | $ | 3,421 | $ | 3,480 | ||||||||
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Note 4. Property, Plant and Equipment
Property, plant and equipment at June 30, 2014 and December 31, 2013 were:consisted of the following:
June 30, | December 31, | As of March 31, | As of December 31, | |||||||||||||
2014 | 2013 | 2015 | 2014 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Land and land improvements | $ | 593 | $ | 617 | $ | 540 | $ | 574 | ||||||||
Buildings and building improvements | 3,328 | 3,270 | 2,946 | 3,117 | ||||||||||||
Machinery and equipment | 12,550 | 12,351 | 11,107 | 11,737 | ||||||||||||
Construction in progress | 1,593 | 1,376 | 1,490 | 1,484 | ||||||||||||
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18,064 | 17,614 | 16,083 | 16,912 | |||||||||||||
Accumulated depreciation | (7,581 | ) | (7,367 | ) | (6,822 | ) | (7,085 | ) | ||||||||
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Property, plant and equipment, net | $ | 10,483 | $ | 10,247 | $ | 9,261 | $ | 9,827 | ||||||||
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In connection with our 2012-2014 Restructuring Program and 2014-2018 Restructuring Program (see Note 6,Restructuring Programs), we recorded non-cash asset write-downs (including accelerated depreciation and asset impairments) of $27$78 million in the sixthree months ended
June 30, 2014 March 31, 2015 and $23$12 million in the sixthree months ended June 30, 2013.March 31, 2014. These charges were recorded in the condensed consolidated statements of earnings within asset impairment and exit costs and arose from restructuring activities further described in Note 6,Restructuring Programs – 2012-2014 Restructuring Program.as follows:
For the Three Months Ended | ||||||||
March 31, | ||||||||
2015 | 2014 | |||||||
(in millions) | ||||||||
Latin America | $ | 13 | $ | – | ||||
Asia Pacific | 19 | – | ||||||
EEMEA | – | – | ||||||
Europe | 25 | 1 | ||||||
North America | 21 | 11 | ||||||
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Total non-cash asset write-downs | $ | 78 | $ | 12 | ||||
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Note 5. Goodwill and Intangible Assets
Goodwill by reportable segment at June 30, 2014 and December 31, 2013 was:
As of March 31, | As of December 31, | |||||||||||||||
June 30, 2014 | December 31, 2013 | 2015 | 2014 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Latin America | $ | 1,312 | $ | 1,262 | $ | 1,004 | $ | 1,127 | ||||||||
Asia Pacific | 2,588 | 2,504 | 2,314 | 2,395 | ||||||||||||
EEMEA | 2,494 | 2,764 | 1,775 | 1,942 | ||||||||||||
Europe | 10,089 | 10,026 | 8,338 | 8,952 | ||||||||||||
North America | 9,044 | 9,041 | 8,925 | 8,973 | ||||||||||||
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Goodwill | $ | 25,527 | $ | 25,597 | $ | 22,356 | $ | 23,389 | ||||||||
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Intangible assets at June 30, 2014 and December 31, 2013 were:consisted of the following:
June 30, | December 31, | As of March 31, | As of December 31, | |||||||||||||
2014 | 2013 | 2015 | 2014 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Non-amortizable intangible assets | $ | 20,236 | $ | 20,067 | $ | 18,017 | $ | 18,810 | ||||||||
Amortizable intangible assets | 2,870 | 2,852 | 2,407 | 2,525 | ||||||||||||
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23,106 | 22,919 | 20,424 | 21,335 | |||||||||||||
Accumulated amortization | (1,040 | ) | (925 | ) | (990 | ) | (1,000 | ) | ||||||||
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Intangible assets, net | $ | 22,066 | $ | 21,994 | $ | 19,434 | $ | 20,335 | ||||||||
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Non-amortizable intangible assets consist principally of brand names purchased through our acquisitions of Nabisco Holdings Corp., the Spanish and Portuguese operations of United Biscuits, the globalLU biscuit business of Groupe Danone S.A. and Cadbury Limited. Amortizable intangible assets consist primarily of trademarks, customer-related intangibles, process technology, licenses and non-compete agreements. At June 30, 2014,March 31, 2015, the weighted-average life of our amortizable intangible assets was 13.3 years.
Amortization expense for intangible assets was $55$46 million forin the three months ended March 31, 2015 and $109$54 million forin the sixthree months ended June 30, 2014 and 2013.March 31, 2014. We currently estimate annual amortization expense for each of the next five years to be approximately $217 million.$190 million, estimated using March 31, 2015 exchange rates.
During our 20132014 review of non-amortizable intangible assets, there were no impairments identified; however, we recorded an impairment charge of $57 million within asset impairment and exit costs for the impairment of intangible assets in Asia Pacific and Europe. We also noted seventhree brands with $511$341 million of aggregate book value as of December 31, 20132014 that each had a fair value in excess of book value of 10% or less. While these intangible assets passed our annual impairment testing and we believe our current plans for each of these brands will allow them to continue to not be impaired, if expectations are not met or specific valuation factors outside of our control, such as discount rates, change significantly, then a brand or brands mightcould become impaired in the future.
Changes in goodwill and intangible assets consisted of:
Intangible | ||||||||
Goodwill | Assets, at Cost | |||||||
(in millions) | ||||||||
Balance at January 1, 2014 | $ | 25,597 | $ | 22,919 | ||||
Changes due to: | ||||||||
Currency | (121 | ) | 187 | |||||
Other | 51 | – | ||||||
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Balance at June 30, 2014 | $ | 25,527 | $ | 23,106 | ||||
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Intangible | ||||||||
Goodwill | Assets, at Cost | |||||||
(in millions) | ||||||||
Balance at January 1, 2015 | $ | 23,389 | $ | 21,335 | ||||
Changes due to: | ||||||||
Currency | (1,052 | ) | (969 | ) | ||||
Acquisition | 19 | 58 | ||||||
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Balance at March 31, 2015 | $ | 22,356 | $ | 20,424 | ||||
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Refer to Note 2,Divestitures and Acquisitions, for additional information related to the Enjoy Life acquisition completed in the first quarter.
Note 6. Restructuring Programs
2014-2018 Restructuring Program
On May 6, 2014, our Board of Directors approved a $3.5 billion restructuring program, comprised of approximately $2.5 billion in cash costs and $1 billion in non-cash costs (the “2014-2018 Restructuring Program”), and up to $2.2 billion of capital expenditures. The primary objective of the 2014-2018 Restructuring Program is to reduce our operating cost structure in both our supply chain and overhead costs. The program is intended primarily to cover severance as well as asset disposals and other manufacturing-related one-time costs. We expect to incur the majority of the program’s charges in 2015 and 2016 and to complete the program by year-end 2018. Since inception, we have incurred total restructuring and related implementation charges of $605 million related to the 2014-2018 Restructuring Program.
Restructuring CostsCosts::
We recorded restructuring charges for cash severance and related costs of $1$163 million in the three and six months ended June 30, 2014March 31, 2015 within asset impairment and exit costs. At June 30, 2014, there was no restructuring liability recorded related toThe activity for the 2014-2018 Restructuring Program.Program liability for the three months ended March 31, 2015 was:
Severance and related costs | Asset Write-downs | Total | ||||||||||
(in millions) | ||||||||||||
Liability balance, January 1, 2015 | $ | 224 | $ | – | $ | 224 | ||||||
Charges | 85 | 78 | 163 | |||||||||
Cash spent | (39 | ) | – | (39 | ) | |||||||
Non-cash settlements / adjustments | – | (78 | ) | (78 | ) | |||||||
Currency | (14 | ) | – | (14 | ) | |||||||
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Liability balance, March, 31, 2015 | $ | 256 | $ | – | $ | 256 | ||||||
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We spent $39 million in the three months ended March 31, 2015 in cash severance and related costs. We also recognized non-cash asset write-downs (including accelerated depreciation and asset impairments) and other non-cash adjustments totaling $78 million in the three months ended March 31, 2015. At March 31, 2015, $248 million of our net restructuring liability was recorded within other current liabilities and $8 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. TheseWe believe the disclosure of implementation costs provides readers of our financial statements with more information on the total costs of our 2014-2018 Restructuring 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. We believe the disclosure of implementation costs provides readers of our financial statements greater transparency to the total costs of our 2014-2018 Restructuring Program. Within our continuing results of operations, we recorded implementation costs of $9$61 million in the three and six months ended June 30, 2014.March 31, 2015. We recorded these costs within cost of sales and general corporate expense within selling, general and administrative expenses.
Restructuring and Implementation Costs in Operating Income:
During the three2015 and six months ended June 30, 2014, we recorded restructuring and implementation costs related to the 2014-2018 Restructuring Program within operating income as follows:
For the Three and Six Months Ended June 30, 2014 | ||||||||||||
Restructuring | Implementation | |||||||||||
Costs | Costs | Total | ||||||||||
(in millions) | ||||||||||||
Latin America | $ | 1 | $ | 1 | $ | 2 | ||||||
Corporate | – | 8 | 8 | |||||||||
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Total | $ | 1 | $ | 9 | $ | 10 | ||||||
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Latin America | Asia Pacific | EEMEA | Europe | North America | Corporate (1) | Total | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
For the Three Months Ended | ||||||||||||||||||||||||||||
Restructuring Costs | $ | 15 | $ | 25 | $ | 2 | $ | 109 | $ | 11 | $ | 1 | $ | 163 | ||||||||||||||
Implementation Costs | 9 | 4 | 4 | 20 | 9 | 15 | 61 | |||||||||||||||||||||
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Total | $ | 24 | $ | 29 | $ | 6 | $ | 129 | $ | 20 | $ | 16 | $ | 224 | ||||||||||||||
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Total Project 2014-2015 (2) | ||||||||||||||||||||||||||||
Restructuring Costs | $ | 96 | $ | 41 | $ | 21 | $ | 200 | $ | 68 | $ | 11 | $ | 437 | ||||||||||||||
Implementation Costs | 25 | 13 | 8 | 57 | 14 | 51 | 168 | |||||||||||||||||||||
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Total | $ | 121 | $ | 54 | $ | 29 | $ | 257 | $ | 82 | $ | 62 | $ | 605 | ||||||||||||||
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(1) | Includes adjustment for rounding. |
(2) | Includes all charges recorded since program inception on May 6, 2014 through March 31, 2015. |
2012-2014 Restructuring Program
InOn October 1, 2012, we completed the Spin-Off of our North American grocery business, Kraft Foods Group, Inc. (“Kraft Foods Group”), to our shareholders (the “Spin-Off”). Prior to this transaction, in 2012, our Board of Directors approved $1.5 billion of related restructuring and related implementation costs (the “2012-2014 Restructuring Program”) reflecting primarily severance, asset disposals and other manufacturing-related one-time costs. The primary objective of the 2012-2014 Restructuring Program was to ensure that Mondelēz International and Kraft Foods Group were each set up to operate efficiently and execute on our respective business strategies upon separation and in the future.
Of the $1.5 billion of 2012-2014 Restructuring Program costs, we retained approximately $925 million and Kraft Foods Group retained the balance of the program. Since inception,Through the end of 2014, we have incurred $579total restructuring and related implementation charges of $899 million, of our estimated $925 million totaland completed incurring planned charges on the 2012-2014 Restructuring Program charges.Program.
Restructuring Costs:
We recorded reversals to the restructuring charges of $2 million in the three months ended March 31, 2015 related to accruals no longer required. We recorded restructuring charges of $54$42 million in the three months and $96 million in the six months ended June 30,March 31, 2014 and $48 million in the three months and $88 million in the six months ended June 30, 2013 within asset impairment and exit costs.
The activity for the 2012-2014 Restructuring Program liability for the sixthree months ended June 30, 2014March 31, 2015 was:
Severance and related costs | Asset Write-downs | Total | Severance and related costs | Asset Write-downs | Total | |||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||
Liability balance, January 1, 2014 | $ | 68 | $ | – | $ | 68 | ||||||||||||||||||
Liability balance, January 1, 2015 | $ | 128 | $ | – | $ | 128 | ||||||||||||||||||
Charges | 69 | 27 | 96 | (2 | ) | – | (2 | ) | ||||||||||||||||
Cash spent | (66 | ) | – | (66 | ) | (19 | ) | – | (19 | ) | ||||||||||||||
Non-cash settlements | 3 | (27 | ) | (24 | ) | – | – | – | ||||||||||||||||
Currency | (5 | ) | – | (5 | ) | |||||||||||||||||||
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Liability balance, June 30, 2014 | $ | 74 | $ | – | $ | 74 | ||||||||||||||||||
Liability balance, March 31, 2015 | $ | 102 | $ | – | $ | 102 | ||||||||||||||||||
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We spent $38$19 million in the three months ended March 31, 2015 and $66$28 million in the sixthree months ended June 30,March 31, 2014 in cash severance and related costs. We also recognized non-cash pension plan settlement losses (See Note 9,Benefit Plans), non-cash asset write-downs (including accelerated depreciation and asset impairments) and other non-cash settlementsadjustments totaling $11$13 million in the three months and $24 million in the six months ended June 30,March 31, 2014. At June 30, 2014,March 31, 2015, $74 million of our net restructuring liability was $74 million recorded within other current liabilities and $28 million was recorded within other long-term liabilities.
Implementation Costs:
Implementation costs are directly attributablerelated to restructuring activities; however, they do not qualify for special accounting treatmentour 2012-2014 Restructuring Program primarily relate to activities in connection with the Spin-Off such as exit or disposal activities. These costs primarily include costs to reorganizereorganizing our operations and facilities, the discontinuance of certain product lines and the incremental expenses related to the closure of facilities, replicating our information systems infrastructure and reorganizing costs related to our sales function. We believe the disclosure of implementation costs provides readers of our financial statements greater transparency to the total costs of our 2012-2014 Restructuring Program. Within our continuing results of operations, we recorded implementation costs of $19$24 million in the three months and $43 million in the six months ended June 30, 2014 and $7 million in the three months and $11 million in the six months ended June 30, 2013.March 31, 2014. We recorded these costs within cost of sales and selling, general and administrative expenses primarily within our Europe, North America and EEMEA segments.expenses.
Restructuring and Implementation Costs in Operating Income:
During the three and six months ended June 30,March 31, 2014 and 2013,since inception of the 2012-2014 Restructuring Program, we recorded restructuring and implementation costs related to the 2012-2014 Restructuring Program within operating income as follows:
For the Three Months Ended June 30, 2014 | For the Six Months Ended June 30, 2014 | |||||||||||||||||||||||
Restructuring | Implementation | Restructuring | Implementation | |||||||||||||||||||||
Costs | Costs | Total | Costs | Costs | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Latin America | $ | 3 | $ | 1 | $ | 4 | $ | 4 | $ | 1 | $ | 5 | ||||||||||||
Asia Pacific | 1 | – | 1 | 1 | – | 1 | ||||||||||||||||||
EEMEA | 8 | 1 | 9 | 12 | 2 | 14 | ||||||||||||||||||
Europe | 26 | 13 | 39 | 43 | 28 | 71 | ||||||||||||||||||
North America | 16 | 6 | 22 | 36 | 13 | 49 | ||||||||||||||||||
Corporate(1) | – | (2 | ) | (2 | ) | – | (1 | ) | (1 | ) | ||||||||||||||
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Total | $ | 54 | $ | 19 | $ | 73 | $ | 96 | $ | 43 | $ | 139 | ||||||||||||
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For the Three Months Ended June 30, 2013 | For the Six Months Ended June 30, 2013 | |||||||||||||||||||||||
Restructuring | Implementation | Restructuring | Implementation | |||||||||||||||||||||
Costs | Costs | Total | Costs | Costs | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Latin America | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||||
Asia Pacific | – | – | – | – | – | – | ||||||||||||||||||
EEMEA | 3 | – | 3 | 4 | – | 4 | ||||||||||||||||||
Europe | 18 | 2 | 20 | 37 | 4 | 41 | ||||||||||||||||||
North America | 26 | 5 | 31 | 46 | 7 | 53 | ||||||||||||||||||
Corporate(1) | 1 | – | 1 | 1 | – | 1 | ||||||||||||||||||
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Total | $ | 48 | $ | 7 | $ | 55 | $ | 88 | $ | 11 | $ | 99 | ||||||||||||
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Latin America | Asia Pacific | EEMEA | Europe | North America | Corporate (1) | Total | ||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||
For the Three Months Ended | ||||||||||||||||||||||||||||
Restructuring Costs | $ | 1 | $ | – | $ | 4 | $ | 17 | $ | 20 | $ | – | $ | 42 | ||||||||||||||
Implementation Costs | – | – | 1 | 15 | 7 | 1 | 24 | |||||||||||||||||||||
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Total | $ | 1 | $ | – | $ | 5 | $ | 32 | $ | 27 | $ | 1 | $ | 66 | ||||||||||||||
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Total Project 2012-2014 (2) | ||||||||||||||||||||||||||||
Restructuring Costs | $ | 36 | $ | 36 | $ | 69 | $ | 249 | $ | 337 | $ | 2 | $ | 729 | ||||||||||||||
Implementation Costs | 3 | 6 | 4 | 88 | 65 | 4 | 170 | |||||||||||||||||||||
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Total | $ | 39 | $ | 42 | $ | 73 | $ | 337 | $ | 402 | $ | 6 | $ | 899 | ||||||||||||||
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(1) | Includes adjustment for rounding. |
(2) | Includes all charges recorded since program inception in 2012 through conclusion on December 31, 2014. |
Note 7. Integration Program
As a result of our combination with Cadbury Limited (formerly, Cadbury Plc or “Cadbury”) in 2010, we launched an integration program (the “Integration Program”) to combine the Cadbury operations with our operations and realize expected annual cost savings of approximately $750 million by the end of 2013 and revenue synergies from investments in distribution, marketing and product development. We achieved cost savings of approximately $800 million in 2012, a year ahead of schedule, and achieved our planned revenue synergies in 2013. Through the end of 2013, we incurred total integration charges of approximately $1.5 billion and completed incurring planned charges on the Integration Program.
We recorded reversals of Integration Program charges of $3 million in the three months and $5 million in the six months ended June 30, 2014 related to accruals no longer required. We recorded Integration Program charges of $52 million during the three months and $73 million during the six months ended June 30, 2013 in selling, general and administrative expenses within our Europe, Asia Pacific, Latin America and EEMEA segments. Changes in the remaining Integration Program liability during the six months ended June 30, 2014 were:
2014 | ||||
(in millions) | ||||
Balance at January 1 | $ | 145 | ||
Charges | (5 | ) | ||
Cash spent | (42 | ) | ||
Currency / other | (10 | ) | ||
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Balance at June 30 | $ | 88 | ||
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At June 30, 2014, $50 million of our net Integration Program liability was recorded within other current liabilities and $38 million, primarily related to leased facilities no longer in use, was recorded within other long-term liabilities.
Note 8. Debt
Short-Term Borrowings:
At June 30, 2014 and December 31, 2013, ourOur short-term borrowings and related weighted-average interest rates consisted of:
June 30, 2014 | December 31, 2013 | |||||||||||||||||||||||||||||||
Amount | Weighted- | Amount | Weighted- | As of March 31, 2015 | As of December 31, 2014 | |||||||||||||||||||||||||||
Outstanding | Average Rate | Outstanding | Average Rate | Amount Outstanding | Weighted- Average Rate | Amount Outstanding | Weighted- Average Rate | |||||||||||||||||||||||||
(in millions) | (in millions) | (in millions) | (in millions) | |||||||||||||||||||||||||||||
Commercial paper | $ | 1,682 | 0.4% | $ | 1,410 | 0.4% | $ | 3,465 | 0.5% | $ | 1,101 | 0.4% | ||||||||||||||||||||
Bank loans | 362 | 6.4% | 226 | 7.0% | 223 | 12.1% | 204 | 8.8% | ||||||||||||||||||||||||
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Total short-term borrowings | $ | 2,044 | $ | 1,636 | $ | 3,688 | $ | 1,305 | ||||||||||||||||||||||||
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As of June 30, 2014,March 31, 2015, the commercial paper issued and outstanding had between 1 and 16392 days remaining to maturity. Bank loans include borrowings on primarily uncommitted credit lines maintained by some of our international subsidiaries to meet short-term working capital needs.
Borrowing Arrangements:
We maintain a revolving credit facility for general corporate purposes, including for working capital purposes and to support our commercial paper program. Our $4.5 billion four-yearmulti-year senior unsecured revolving credit facility expires on October 11, 2018. The revolving credit agreement includes a covenant that we maintain a minimum shareholders’ equity of at least $24.6 billion, excluding accumulated other comprehensive earnings / (losses) and the cumulative effects of any changes in accounting principles. At June 30, 2014,March 31, 2015, we metcomplied with the covenant as our shareholders’ equity as defined by the covenant was $35.0$33.8 billion. The revolving credit facility agreement 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. As of June 30, 2014,March 31, 2015, no amounts were drawn on the facility.
Some of our international subsidiaries maintain primarily uncommitted credit lines to meet short-term working capital needs. Collectively, these credit lines amounted to $2.0 billion at March 31, 2015 and $2.1 billion at December 31, 2014. Borrowings on these lines amounted to $223 million at March 31, 2015 and $204 million at December 31, 2014.
Long-Term Debt:
On February 19, 2014, $500March 30, 2015, we issuedfr.675 million of Swiss franc-denominated notes, or approximately $694 million in U.S. dollars as of March 31, 2015, consisting of:
• | fr.175 million (or $180 million) of 0.000% fixed rate notes that mature on March 30, 2017 |
• | fr.300 million (or $308 million) of 0.625% fixed rate notes that mature on December 30, 2021 |
• | fr.200 million (or $206 million) of 1.125% fixed rate notes that mature on December 30, 2025 |
We received net proceeds of $675 million that were used for general corporate purposes. We recorded approximately $2 million of premiums and deferred financing costs, which will be amortized into interest expense over the life of the notes.
On March 20, 2015,€850 million of our 6.75% U.S. dollar6.250% euro-denominated notes matured. The notes and accrued interest to date were paid with cash on hand and the issuance of commercial paper.paper and cash on hand.
On February 6, 2014,March 20, 2015, we completed a cash tender offer and retired $1.56$2.5 billion of our long-term U.S. dollar debt consisting of:
$393102 million of our 6.500% Notes due in August 2017
$38271 million of our 6.875% Notes due in February 2038
$25069 million of our 6.875% Notes due in January 2039
$5351,143 million of our 6.500% Notes due in February 2040
We financed the repurchase of these notes, including the payment of accrued interest and other costs incurred, from net proceeds received from the $3.0$2.8 billion notes issuance on January 16, 2014.March 6, 2015 described below and the issuance of commercial paper. In connection with retiring this debt, during the first sixthree months of 2014,2015, we recorded a $493$708 million loss on extinguishment of debt within interest expense related to the amount we paid to retire the debt in excess of its carrying value and from recognizing unamortized discounts and deferred financing costs in earnings at the time of the debt extinguishment. The loss on extinguishment is included in long-term debt repayments in the 2014condensed consolidated statement of cash flows.flows for the three months ended March 31, 2015. We also recognized $2$5 million inof charges within interest expense from hedging instruments related to interest rate cash flow hedges that were deferred in accumulated other comprehensive losses and recognized into earnings over the life of theretired debt. Upon extinguishing the debt, the deferred cash flow hedge amounts were recorded in earnings.
On January 16, 2014,March 6, 2015, we issued $3.0€2.0 billion of euro-denominated notes and £450 million of British pound sterling-denominated notes, or approximately $2.8 billion in U.S. dollar notes,dollars as of March 31, 2015, consisting of:
$400€500 million (or $537 million) of floating rate notes that bear interest at a rate equal to three-month LIBOR plus 0.52% and mature on February 1, 2019
$850 million of 2.250%1.000% fixed rate notes that mature on February 1, 2019
$1,750€750 million (or $805 million) of 4.000%1.625% fixed rate notes that mature on February 1, 2024
We received net proceeds of $2,982$2,890 million that were used to fund the February 2014March 2015 tender offer pay down commercial paper borrowings and for other general corporate purposes. We recorded approximately $18$29 million of discounts and deferred financing costs, which will be amortized into interest expense over the life of the notes.
Our weighted-average interest rate on our total debt was 4.2%3.1% as of June 30, 2014,March 31, 2015, following the completion of our tender offer and debt retirementissuances in the first quarter of 2014.quarter. Our weighted-average interest rate on our total debt as of December 31, 20132014 was 4.8%4.3%, down from 5.8%4.8% as of December 31, 2012.2013.
Fair Value of Our Debt:
The fair value of our short-term borrowings at June 30, 2014March 31, 2015 and December 31, 20132014 reflects current market interest rates and approximates the amounts we have recorded on our condensed consolidated balance sheet. 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. At June 30,March 31, 2015, the aggregate fair value of our total debt was $19,986 million and its carrying value was $18,705 million. At December 31, 2014, the aggregate fair value of our total debt was $20,283$18,463 million and its carrying value was $18,541 million. At December 31, 2013, the aggregate fair value of our total debt was $18,835 million and its carrying value was $17,121$16,700 million.
Interest and Other Expense, Net:
Interest and other expense, net within our results of continuing operations consisted of:
For the Three Months Ended | ||||||||
March 31, | ||||||||
2015 | 2014 | |||||||
(in millions) | ||||||||
Interest expense, debt | $ | 175 | $ | 202 | ||||
Loss on debt extinguishment and related expenses | 713 | 494 | ||||||
Realized gain on planned coffee business divestiture currency hedges | (311 | ) | – | |||||
Unrealized gain on planned coffee business divestiture currency hedges | (240 | ) | – | |||||
Loss related to interest rate swaps | 34 | – | ||||||
Other expense, net | 15 | 24 | ||||||
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Total interest and other expense, net | $ | 386 | $ | 720 | ||||
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See Note 2,Divestitures and Acquisitions, and Note 8,Financial Instruments,for information on the currency exchange forward contracts associated with the planned coffee business transactions. Also see Note 8,Financial Instruments, for information on the loss related to U.S. dollar interest rate swaps no longer designated as accounting cash flow hedges during the quarter.
Note 9.8. Financial Instruments
Fair Value of Derivative Instruments:
Derivative instruments were recorded at fair value in the condensed consolidated balance sheets as of June 30, 2014 and December 31, 2013 as follows:
June 30, 2014 | December 31, 2013 | As of March 31, 2015 | As of December 31, 2014 | |||||||||||||||||||||||||||||
Asset | Liability | Asset | Liability | Asset Derivatives | Liability Derivatives | Asset Derivatives | Liability Derivatives | |||||||||||||||||||||||||
Derivatives | Derivatives | Derivatives | Derivatives | (in millions) | ||||||||||||||||||||||||||||
(in millions) | ||||||||||||||||||||||||||||||||
Derivatives designated as | ||||||||||||||||||||||||||||||||
Currency exchange contracts | $ | 5 | $ | 3 | $ | 3 | $ | 11 | ||||||||||||||||||||||||
Commodity contracts | 8 | 18 | 2 | 3 | ||||||||||||||||||||||||||||
Interest rate contracts | 98 | – | 209 | – | ||||||||||||||||||||||||||||
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$ | 111 | $ | 21 | $ | 214 | $ | 14 | |||||||||||||||||||||||||
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Derivatives not designated as | ||||||||||||||||||||||||||||||||
Derivatives designated as | ||||||||||||||||||||||||||||||||
Currency exchange contracts | $ | 29 | $ | 56 | $ | 84 | $ | 8 | $ | 90 | $ | 33 | $ | 69 | $ | 17 | ||||||||||||||||
Commodity contracts | 94 | 68 | 60 | 51 | 1 | 57 | 12 | 33 | ||||||||||||||||||||||||
Interest rate contracts | 60 | 35 | 64 | 38 | 17 | 73 | 13 | 42 | ||||||||||||||||||||||||
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$ | 183 | $ | 159 | $ | 208 | $ | 97 | $ | 108 | $ | 163 | $ | 94 | $ | 92 | |||||||||||||||||
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Derivatives not designated as | ||||||||||||||||||||||||||||||||
Currency exchange contracts | $ | 284 | $ | 77 | $ | 735 | $ | 24 | ||||||||||||||||||||||||
Commodity contracts | 107 | 156 | 90 | 194 | ||||||||||||||||||||||||||||
Interest rate contracts | 50 | 33 | 59 | 39 | ||||||||||||||||||||||||||||
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$ | 441 | $ | 266 | $ | 884 | $ | 257 | |||||||||||||||||||||||||
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Total fair value | $ | 294 | $ | 180 | $ | 422 | $ | 111 | $ | 549 | $ | 429 | $ | 978 | $ | 349 | ||||||||||||||||
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We record derivative assets and liabilities on a gross basis in our condensed consolidated balance sheet. 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. See our consolidated financial statements and related notes in our Annual Report on Form 10-K for the year ended December 31, 20132014 for additional information on our risk management strategies and use of derivatives and related accounting.
The fair values (asset / (liability)) of our derivative instruments at June 30, 2014 were determined using:
Quoted Prices in | ||||||||||||||||
Active Markets | Significant | Significant | ||||||||||||||
Total | for Identical | Other Observable | Unobservable | |||||||||||||
Fair Value of Net | Assets | Inputs | Inputs | |||||||||||||
Asset / (Liability) | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
(in millions) | ||||||||||||||||
Currency exchange contracts | $ | (25 | ) | $ | – | $ | (25 | ) | $ | – | ||||||
Commodity contracts | 16 | 1 | 15 | – | ||||||||||||
Interest rate contracts | 123 | – | 123 | – | ||||||||||||
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Total derivatives | $ | 114 | $ | 1 | $ | 113 | $ | – | ||||||||
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The fair values (asset / (liability)) of our derivative instruments at December 31, 2013 were determined using:
Quoted Prices in | ||||||||||||||||
Active Markets | Significant | Significant | ||||||||||||||
Total | for Identical | Other Observable | Unobservable | |||||||||||||
Fair Value of Net | Assets | Inputs | Inputs | |||||||||||||
Asset / (Liability) | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
(in millions) | ||||||||||||||||
Currency exchange contracts | $ | 68 | $ | – | $ | 68 | $ | – | ||||||||
Commodity contracts | 8 | (4 | ) | 12 | – | |||||||||||
Interest rate contracts | 235 | – | 235 | – | ||||||||||||
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Total derivatives | $ | 311 | $ | (4 | ) | $ | 315 | $ | – | |||||||
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Currency exchange contracts Commodity contracts Interest rate contracts Total derivatives Currency exchange contracts Commodity contracts Interest rate contracts Total derivatives As of March 31, 2015 Total
Fair Value of Net
Asset / (Liability) Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) Significant
Other Observable
Inputs (Level 2) Significant
Unobservable
Inputs
(Level 3) (in millions) $ 264 $ – $ 264 $ – (105 ) (105 ) – – (39 ) – (39 ) – $ 120 $ (105 ) $ 225 $ – As of December 31, 2014 Total
Fair Value of Net
Asset / (Liability) Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) Significant
Other Observable
Inputs (Level 2) Significant
Unobservable
Inputs
(Level 3) (in millions) $ 763 $ – $ 763 $ – (125 ) (49 ) (76 ) – (9 ) – (9 ) – $ 629 $ (49 ) $ 678 $ –
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. Our exchange-traded derivatives are generally subject to master netting arrangements that permit net settlement of transactions with the same counterparty when certain criteria are met, such as in the event of default. We also are required to maintain cash margin accounts in connection with funding the settlement of our open positions, and the margin requirements generally fluctuate daily based on market conditions. We have recorded margin deposits related to our exchange-traded derivatives of $26$146 million as of June 30, 2014March 31, 2015 and $22$84 million as of December 31, 20132014 within other current assets. Based on our net asset or liability positions with individual counterparties, in the event of default and immediate net settlement of all of our open positions, for derivatives we have in a net liability position, we would owe $1 million as of June 30,March 31, 2015 and $3 million as of December 31, 2014, and for derivatives we have in a net asset position, our counterparties would owe us a total of $27$42 million as of March 31, 2015 and $38 million as of December 31, 2013, our counterparties would owe us a total of $7 million.2014.
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 (“ISDA”) agreements and other standard industry contracts. Under these agreements, we do not post nor require collateral from our counterparties. The majority of our commodity and currency exchange OTC derivatives do not have a legal right of set-off. In connection with our OTC derivatives that could be net-settled in the event of default, assuming all parties were to fail to comply with the terms of the agreements, for derivatives we have in a net liability position, we would owe $77$159 million as of June 30, 2014March 31, 2015 and $47$156 million as of December 31, 2013,2014, and for derivatives we have in a net asset position, our counterparties would owe us a total of $176$67 million as of June 30, 2014March 31, 2015 and $349$72 million as of December 31, 2013.2014. We manage the credit risk in connection with these and all our derivatives by entering into transactions with counterparties with investment grade credit ratings, limiting the amount of exposure with each counterparty and monitoring the financial condition of our counterparties.
Derivative Volume:
The net notional values of our derivative instruments as of June 30, 2014 and December 31, 2013 were:
Notional Amount | Notional Amount | |||||||||||||||
June 30, | December 31, | As of March 31, | As of December 31, | |||||||||||||
2014 | 2013 | 2015 | 2014 | |||||||||||||
(in millions) | (in millions) | |||||||||||||||
Currency exchange contracts: | ||||||||||||||||
Intercompany loans and forecasted interest payments | $ | 6,037 | $ | 4,369 | $ | 3,639 | $ | 3,640 | ||||||||
Forecasted transactions | 7,533 | 2,565 | 6,670 | 6,681 | ||||||||||||
Commodity contracts | 802 | 805 | 1,196 | 1,569 | ||||||||||||
Interest rate contracts | 4,041 | 2,273 | 3,037 | 3,970 | ||||||||||||
Net investment hedge – euro notes | 4,450 | 4,466 | 4,722 | 3,932 | ||||||||||||
Net investment hedge – pound sterling notes | 1,112 | 1,076 | 1,185 | 545 | ||||||||||||
Net investment hedge – Swiss franc notes | 694 | – |
Cash Flow Hedges:
Cash flow hedge activity, net of taxes, within accumulated other comprehensive earnings / (losses) included:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(in millions) | ||||||||||||||||
Accumulated gain / (loss) at beginning of period | $ | 82 | $ | – | $ | 117 | $ | (38 | ) | |||||||
Transfer of realized losses / (gains) in fair value | (2 | ) | 15 | (3 | ) | 32 | ||||||||||
Unrealized gain / (loss) in fair value | (36 | ) | 57 | (70 | ) | 78 | ||||||||||
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Accumulated gain / (loss) at end of period | $ | 44 | $ | 72 | $ | 44 | $ | 72 | ||||||||
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Accumulated gain / (loss) at beginning of period Transfer of realized losses / (gains) in fair value to earnings Unrealized gain / (loss) in fair value Accumulated gain / (loss) at end of period For the Three Months Ended March 31, 2015 2014 (in millions) $ (2 ) $ 117 (18 ) (1 ) (26 ) (34 ) $ (46 ) $ 82
After-tax gains / (losses) reclassified from accumulated other comprehensive earnings / (losses) into net earnings were:
For the Three Months Ended | For the Six Months Ended | For the Three Months Ended | ||||||||||||||||||||||
June 30, | June 30, | March 31, | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2015 | 2014 | |||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||
Currency exchange contracts – forecasted transactions | $ | (2 | ) | $ | (4 | ) | $ | (4 | ) | $ | (12 | ) | $ | 46 | $ | (2 | ) | |||||||
Commodity contracts | 4 | (10 | ) | 9 | (19 | ) | (2 | ) | 5 | |||||||||||||||
Interest rate contracts | – | (1 | ) | (2 | ) | (1 | ) | (26 | ) | (2 | ) | |||||||||||||
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Total | $ | 2 | $ | (15 | ) | $ | 3 | $ | (32 | ) | $ | 18 | $ | 1 | ||||||||||
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After-tax gains / (losses) recognized in other comprehensive earnings / (losses) were:
For the Three Months Ended | For the Six Months Ended | For the Three Months Ended | ||||||||||||||||||||||
June 30, | June 30, | March 31, | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2015 | 2014 | |||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||
Currency exchange contracts – forecasted transactions | $ | 5 | $ | (2 | ) | $ | 7 | $ | 4 | |||||||||||||||
Currency exchange contracts -forecasted transactions | $ | 49 | $ | 2 | ||||||||||||||||||||
Commodity contracts | (8 | ) | (4 | ) | 3 | (8 | ) | (38 | ) | 11 | ||||||||||||||
Interest rate contracts | (33 | ) | 63 | (80 | ) | 82 | (37 | ) | (47 | ) | ||||||||||||||
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Total | $ | (36 | ) | $ | 57 | $ | (70 | ) | $ | 78 | $ | (26 | ) | $ | (34 | ) | ||||||||
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Cash flow hedge ineffectiveness was not material for all periods presented.
Pre-tax gains / (losses) on amounts excluded from effectiveness testing recognized in net earnings from continuing operations included a pre-tax loss of $34 million recognized in the three months ended March 31, 2015 within interest and other expense, net related to certain U.S. dollar interest rate swaps that we no longer designate as accounting cash flow hedges due to a change in financing and hedging plans. In the first quarter, our plans to issue U.S. dollar debt changed and we issued euro, British pound sterling and Swiss franc-denominated notes due to lower overall cost and our decision to hedge a greater portion of our net investments in operations that use these currencies as their functional currencies. In the prior-year period, amounts excluded from effectiveness testing were not material for all periods presented.material.
We record pre-tax and after-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:
cost of sales for commodity contracts;
cost of sales for currency exchange contracts related to forecasted transactions; and
interest and other expense, net for interest rate contracts and currency exchange contracts related to intercompany loans.
Based on current market conditions, we would expect to transfer unrealized losses of $6$55 million (net of taxes) for commodity cash flow hedges, unrealized gains of $4$55 million (net of taxes) for currency cash flow hedges and unrealized losses of less than $1 million (net of taxes) for interest rate cash flow hedges to earnings during the next 12 months.
Hedge Coverage:
As of June 30, 2014,March 31, 2015, we hedged transactions forecasted to impact cash flows over the following periods:
commodity transactions for periods not exceeding the next 916 months;
interest rate transactions for periods not exceeding the next 3130 years and 811 months; and
currency exchange transactions for periods not exceeding the next 1811 months.
Fair Value Hedges:
Pre-tax gains / (losses) due to changes in fair value of our interest rate swaps and related hedged long-term debt were recorded in interest and other expense, net:
For the Three and Six Months Ended June 30, | For the Three Months Ended March 31, | |||||||||||||||||
2014 | 2013 | 2015 | 2014 | |||||||||||||||
(in millions) | (in millions) | |||||||||||||||||
Derivatives | $ | 14 | $ | – | $ | 4 | $ | – | ||||||||||
Borrowings | (14 | ) | – | (4 | ) | – | ||||||||||||
Fair value hedge ineffectiveness and amounts excluded from effectiveness testing were not material for all periods presented.
Economic Hedges: Pre-tax gains / (losses) recorded in net earnings for economic hedges were: | Fair value hedge ineffectiveness and amounts excluded from effectiveness testing were not material for all periods presented.
Economic Hedges: Pre-tax gains / (losses) recorded in net earnings for economic hedges were: | |||||||||||||||||
Location of | ||||||||||||||||||
For the Three Months Ended | Gain / (Loss) | |||||||||||||||||
March 31, | Recognized | |||||||||||||||||
2015 | 2014 | in Earnings | ||||||||||||||||
(in millions) | ||||||||||||||||||
Currency exchange contracts: | ||||||||||||||||||
Intercompany loans and forecasted | $ | 7 | $ | (2 | ) | Interest and other expense, net | ||||||||||||
Forecasted transactions | (3 | ) | (10 | ) | Cost of sales | |||||||||||||
Forecasted transactions | 553 | (5 | ) | Interest and other expense, net | ||||||||||||||
Forecasted transactions | (11 | ) | (1 | ) | Selling, general and administrative expenses | |||||||||||||
Interest rate contracts | 1 | – | Interest and other expense, net | |||||||||||||||
Commodity contracts | (41 | ) | 38 | Cost of sales | ||||||||||||||
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Total | $ | 506 | $ | 20 | ||||||||||||||
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Fair value hedge ineffectiveness and amounts excluded from effectiveness testing were not material for all periods presented.
In connection with the planned coffee business transactions, we entered into euro to U.S. dollar currency exchange forward contracts to hedge an expected cash receipt of€4 billion upon closing. As the forward contracts relate to a pending business divestiture, unrealized gains and losses on the derivative are recorded in earnings. We recorded a $311 million realized gain and a $240 million unrealized gain for the three months ended March 31, 2015 within interest and other expense, net in connection with the forward contracts as the U.S. dollar strengthened relative to the euro. See Note 2,Economic Hedges:Divestitures and Acquisitions—Planned Coffee Business Transactions, for additional information on our currency exchange forward contracts transactions in the first quarter of 2015.
Pre-taxHedges of Net Investments in International Operations:
After-tax gains / (losses) recordedrelated to hedges of net investments in net earnings for economic hedges which are not designated as hedging instrumentsinternational operations in the form of euro, pound sterling and Swiss franc-denominated debt were:
Location of | ||||||||||||||||||
For the Three Months Ended | For the Six Months Ended | Gain / (Loss) | ||||||||||||||||
June 30, | June 30, | Recognized | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | in Earnings | ||||||||||||||
(in millions) | ||||||||||||||||||
Currency exchange contracts: | ||||||||||||||||||
Intercompany loans and forecasted interest payments | $ | 3 | $ | (17 | ) | $ | 1 | $ | 3 | Interest expense | ||||||||
Forecasted purchases | (30 | ) | 38 | (40 | ) | 26 | Cost of sales | |||||||||||
Forecasted transactions | (9 | ) | – | (14 | ) | – | Interest expense | |||||||||||
Forecasted transactions | (2 | ) | 4 | (3 | ) | 3 | Selling, general and administrative expenses | |||||||||||
Interest rate contracts | 1 | – | 1 | (2 | ) | Interest expense | ||||||||||||
Commodity contracts | 32 | 17 | 70 | 34 | Cost of sales | |||||||||||||
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Total | $ | (5 | ) | $ | 42 | $ | 15 | $ | 64 | |||||||||
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Hedges of Net Investments in International Operations: After-tax gains / (losses) related to hedges of net investments in international operations in the form of euro and pound sterling-denominated debt were: | ||||||||||||||||||
For the Three Months Ended | For the Six Months Ended | Location of Gain / (Loss) Recognized in AOCI | ||||||||||||||||
June 30, | June 30, | |||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||||
(in millions) | ||||||||||||||||||
Euro notes | $ | 5 | $ | (10 | ) | $ | – | $ | 10 | Currency Translation | ||||||||
Pound sterling notes | (19 | ) | (1 | ) | (23 | ) | 43 | Adjustment |
For the Three Months Ended March 31, | Location of Gain / (Loss) Recognized in AOCI | |||||||||
2015 | 2014 | |||||||||
(in millions) | ||||||||||
Euro notes | $ | 314 | $ | (5 | ) | Currency | ||||
Pound sterling notes | 32 | (4 | ) | Translation | ||||||
Swiss franc notes | (13 | ) | – | Adjustment |
Note 10.9. Benefit Plans
Pension Plans
Components of Net Periodic Pension Cost:
Net periodic pension cost forconsisted of the three and six months ended June 30, 2014 and 2013 consisted of:following:
U.S. Plans | Non-U.S. Plans | |||||||||||||||
For the Three Months Ended June 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(in millions) | ||||||||||||||||
Service cost | $ | 13 | $ | 19 | $ | 45 | $ | 43 | ||||||||
Interest cost | 16 | 15 | 100 | 88 | ||||||||||||
Expected return on plan assets | (20 | ) | (17 | ) | (125 | ) | (107 | ) | ||||||||
Amortization: | ||||||||||||||||
Net loss from experience differences | 7 | 13 | 27 | 33 | ||||||||||||
Prior service cost | 1 | – | 1 | 1 | ||||||||||||
Settlement losses(1) | 4 | 2 | 5 | – | ||||||||||||
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Net periodic pension cost | $ | 21 | $ | 32 | $ | 53 | $ | 58 | ||||||||
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U.S. Plans | Non-U.S. Plans | |||||||||||||||
For the Three Months Ended March 31, | For the Three Months Ended March 31, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
(in millions) | ||||||||||||||||
Service cost | $ | 17 | $ | 15 | $ | 50 | $ | 44 | ||||||||
Interest cost | 17 | 17 | 77 | 97 | ||||||||||||
Expected return on plan assets | (23 | ) | (20 | ) | (119 | ) | (123 | ) | ||||||||
Amortization: | ||||||||||||||||
Net loss from experience differences | 12 | 8 | 39 | 27 | ||||||||||||
Settlement losses | 3 | 2 | – | 5 | ||||||||||||
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Net periodic pension cost | $ | 26 | $ | 22 | $ | 47 | $ | 50 | ||||||||
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Service cost Interest cost Expected return on plan assets Amortization: Net loss from experience differences Prior service cost Settlement losses(1) Net periodic pension cost U.S. Plans Non-U.S. Plans For the Six Months Ended June 30, 2014 2013 2014 2013 (in millions) $ 28 $ 36 $ 89 $ 86 33 30 197 177 (40 ) (34 ) (248 ) (215 ) 15 27 54 68 1 1 1 1 6 5 10 – $ 43 $ 65 $ 103 $ 117
Employer Contributions:
We make contributions to our U.S. and non-U.S. pension plans primarily to the extent that they are tax deductible and do not generate an excise tax liability. During the sixthree months ended June 30, 2014,March 31, 2015, we contributed $5$202 million to our U.S. plans and $196$116 million to our non-U.S. plans. Based on current tax law, we plan to make further contributions of approximately $5$8 million to our U.S. plans and approximately $113$203 million to our non-U.S. plans during the remainder of 2014.2015. However, our actual contributions may differ due to many factors, including changes in tax and other benefit laws or significant differences between expected and actual pension asset performance or interest rates.
Postretirement Benefit Plans
Net postretirement health care costs duringconsisted of the three and six months ended June 30, 2014 and 2013 consisted of:following:
For the Three Months Ended | For the Six Months Ended | For the Three Months Ended | ||||||||||||||||||||||
June 30, | June 30, | March 31, | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2015 | 2014 | |||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||
Service cost | $ | 3 | $ | 4 | $ | 6 | $ | 8 | $ | 4 | $ | 3 | ||||||||||||
Interest cost | 6 | 4 | 11 | 9 | 6 | 5 | ||||||||||||||||||
Amortization: | ||||||||||||||||||||||||
Net loss from experience differences | 1 | 3 | 3 | 6 | 3 | 2 | ||||||||||||||||||
Prior service credit | (2 | ) | (3 | ) | (5 | ) | (6 | ) | (2 | ) | (3 | ) | ||||||||||||
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Net postretirement health care costs | $ | 8 | $ | 8 | $ | 15 | $ | 17 | $ | 11 | $ | 7 | ||||||||||||
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Postemployment Benefit Plans
Net postemployment costs duringconsisted of the three and six months ended June 30, 2014 and 2013 consisted of:following:
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(in millions) | ||||||||||||||||
Service cost | $ | 2 | $ | 2 | $ | 4 | $ | 4 | ||||||||
Interest cost | 1 | 2 | 3 | 3 | ||||||||||||
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Net postemployment costs | $ | 3 | $ | 4 | $ | 7 | $ | 7 | ||||||||
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For the Three Months Ended | ||||||||
March 31, | ||||||||
2015 | 2014 | |||||||
(in millions) | ||||||||
Service cost | $ | 2 | $ | 2 | ||||
Interest cost | 1 | 2 | ||||||
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Note 11.10. Stock Plans
On May 21, 2014, our shareholders approved the Amended and Restated 2005 Performance Incentive Plan (the “2005 Plan”). Under the amended plan, we now make grants to non-employee directors under the 2005 Plan, and we will no longer make any grants under the Amended and Restated 2006 Stock Compensation Plan for Non-Employee Directors (the “2006 Directors Plan”). We also increased the number of shares available for issuance under the 2005 Plan by 75.7 million, which includes the shares remaining available for issuance under the 2006 Directors Plan as of March 14, 2014. Under the 2005 Plan, we are now authorized to issue a maximum of 243.7 million shares of our Common Stock. We may not make any grants under the 2005 Plan after May 21, 2024. As of June 30, 2014, there were 90.1 million shares available to be granted under the 2005 Plan.
Stock Options:
In February 2014, as partStock option activity consisted of our annual equity program, we granted 9.9 million stock options to eligible employees at an exercise price of $34.17 per share. During the six months ended June 30, 2014, we granted 0.1 million of additional stock options with a weighted-average exercise price of $34.12 per share. In total, 10.0 million stock options were granted with a weighted-average exercise price of $34.16 per share. During the six months ended June 30, 2014, 5.3 million stock options, with an intrinsic value of $79.1 million, were exercised.following:
Shares Subject to Option | Weighted-Average Exercise or Grant Price Per Share | Aggregate Intrinsic Value | ||||||||||
Balance at January 1, 2015 | 56,431,551 | $ | 24.19 | $ | 685 million | |||||||
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| |||||||||||
Annual grant to eligible employees | 8,899,530 | 36.94 | ||||||||||
Additional options issued | 808,460 | 35.48 | ||||||||||
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| |||||||||||
Total options granted | 9,707,990 | 36.82 | ||||||||||
Options exercised | (2,598,094 | ) | 23.16 | $ | 35 million | |||||||
Options cancelled | (632,703 | ) | 31.37 | |||||||||
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| |||||||||||
Balance at March 31, 2015 | 62,908,744 | 26.11 | $ | 635 million | ||||||||
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Restricted and Deferred Stock:
In January 2014, in connection with our long-term incentive plan, we granted 1.2 million shares of restrictedRestricted and deferred stock at a market valueactivity consisted of $34.97 per share. In February 2014, as part of our annual equity program, we granted 2.0 million shares of restricted and deferred stock to eligible employees at a market value of $34.17 per share. During the six months ended June 30, 2014, we issued 0.7 million of additional restricted and deferred shares with a weighted-average market value of $32.24 per share. In total, 3.9 million restricted and deferred shares were issued with a weighted-average market value of $34.05 per share. During the six months ended June 30, 2014, 3.9 million shares of restricted and deferred stock vested with a market value on the vesting date of $135.6 million.following:
Number of Shares | Grant Date | Weighted-Average Fair Value Per Share | Weighted-Average Aggregate Fair Value | |||||||||||||
Balance at January 1, 2015 | 10,582,640 | $ | 28.56 | |||||||||||||
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| |||||||||||||||
Performance share units granted | 1,598,290 | Feb. 18, 2015 | 36.94 | |||||||||||||
Annual grant to eligible employees | 1,253,550 | Feb. 18, 2015 | 36.94 | |||||||||||||
Additional shares issued | 643,413 | Various | 36.71 | |||||||||||||
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| |||||||||||||||
Total shares granted | 3,495,253 | 36.90 | $ | 129 million | ||||||||||||
Vested | (3,234,075 | ) | 36.95 | $ | 119 million | |||||||||||
Forfeited | (267,181 | ) | 32.49 | |||||||||||||
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| |||||||||||||||
Balance at March 31, 2015 | 10,576,637 | 28.65 | ||||||||||||||
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Share Repurchase Program:
During 2013, our Board of Directors authorized the repurchase of $7.7 billion of our Common Stock through December 31, 2016. Repurchases under the program are determined by management and are wholly discretionary. During the sixthree months ended June 30, 2014,March 31, 2015, we repurchased 26.041.7 million shares of Common Stock at an average cost of $35.13$35.98 per share, or an aggregate cost of $0.9$1.5 billion, of which $0.7 billion was paid during the first half of 2014 and $0.2 billion was prepaid in December 2013 at the inception of an accelerated share repurchase program.quarter. All share repurchases were funded through available cash and commercial paper issuances. As of June 30, 2014,March 31, 2015, we have $4.0$1.6 billion in remaining share repurchase capacity.
In December 2013, we initiated an accelerated share repurchase (“ASR”) program. On December 3, 2013, we paid $1.7 billion and received an initial delivery of 44.8 million shares of Common Stock valued at $1.5 billion. We increased treasury stock by $1.5 billion, and the remaining $0.2 billion was recorded against additional paid in capital. In May 2014, the ASR program concluded and we received an additional 5.1 million shares, valued at $0.2 billion, for a total of 49.9 million shares with an average repurchase price of $34.10 per share over the life of the ASR program. The final settlement was based on the volume-weighted average price of our Common Stock during the purchase period less a fixed per share discount. Upon conclusion of the ASR program and receipt of the remaining repurchased shares, the $0.2 billion recorded in additional paid in capital was reclassified to treasury stock.
Note 12.11. Commitments and Contingencies
Legal Proceedings:
We routinely are involved in legal proceedings, claims and governmental inspections or investigations (“Legal Matters”) arising in the ordinary course of our business.
A compliant and ethical corporate culture, which includes adhering to laws and industry regulations in all jurisdictions in which we do business, is integral to our success. Accordingly, after we acquired Cadbury in February 2010, we began reviewing and adjusting, as needed, Cadbury’s operations in light of applicable standards as well as our policies and practices. We initially focused on such high priority areas as food safety, the Foreign Corrupt Practices Act (“FCPA”) and antitrust. Based upon Cadbury’s pre-acquisition policies and compliance programs and our post-acquisition reviews, our preliminary findings indicated that Cadbury’s overall state of compliance was sound. Nonetheless, through our reviews, we determined that in certain jurisdictions, including India, there appeared to be facts and circumstances warranting further investigation. We are continuing our investigations in certain jurisdictions, including in India, and we continue to cooperate with governmental authorities.
As we previously disclosed, on February 1, 2011, we received a subpoena from the SEC in connection with an investigation under the FCPA, primarily related to a facility in India that we acquired in the Cadbury acquisition. The subpoena primarily requests information regarding dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility. We are continuing to cooperate with the U.S. and Indian governments in their investigations of these matters, including through preliminaryongoing meetings with the U.S. government to discuss potential conclusion of the U.S. government investigation.
OnIn February 28, 2013 and March 2014, Cadbury India Limited (now known as Mondelez India Foods Private Limited), a subsidiary of Mondelēz International, and other parties received a show cause noticenotices from the Indian Department of Central Excise Authority (the “Excise Authority”). The notice calls calling upon the parties to demonstrate why the Excise Authority should not collect approximately $46a total of 3.7 billion Indian rupees (approximately $60 million U.S. dollars as of March 31, 2015) of unpaid excise tax and an equivalent amount of penalties, as well as approximately $46 million of penalties and interest, related to production at the same Indian facility. Subsequently,We contested these demands for unpaid excise taxes, penalties and interest. On March 27, 2015, after several hearings, the Commissioner of the Excise Authority issued an order denying the excise exemption that we claimed for the Indian facility and confirming the Excise Authority’s demands for total taxes and penalties in the amount of 5.8 billion Indian rupees (approximately $94 million U.S. dollars as of March 31, 2015). We plan to appeal this order. In addition, the Excise Authority issued another show cause notice, dated March 3, 2014,February 6, 2015, on the same issue but covering the period FebruaryJanuary to December 2013,October 2014, thereby adding approximately $201.0 billion Indian rupees (approximately $17 million U.S. dollars as of March 31, 2015) of unpaid excise taxes as well as approximately $201.0 billion Indian rupees (approximately $17 million U.S. dollars as of March 31, 2015) of penalties, andas well as interest, to the amount claimed by the Excise Authority. The latest notice includes an accruing claim for excise as finished products leave the facility on an ongoing basis. We believe that the decision to claim the excise tax benefit is valid and we are contestingcontinuing to contest the show cause noticenotices through the administrative and judicial process.
In April 2013, the staff of the U.S. Commodity Futures Trading Commission (“CFTC”) advised us and Kraft Foods Group that it was investigating activities related to the trading of December 2011 wheat futures contracts that occurred prior to the Spin-Off of Kraft Foods Group. We are cooperatingcooperated with the staff in its investigation. In March 2014, the staff advised us that they are prepared to recommend thatOn April 1, 2015, the CFTC consider commencingfiled a formal action. We are seekingcomplaint against Kraft Foods Group and Mondelēz Global LLC in the U.S. District Court for the Northern District of Illinois, Eastern Division (the “CFTC action”). The complaint alleges that Kraft Foods Group and we (1) manipulated or attempted to resolve this matter prior to any formalmanipulate the wheat markets during the fall of 2011; (2) violated position limit levels for wheat futures and (3) engaged in non-competitive trades by trading both sides of exchange-for-physical Chicago Board of Trade wheat contracts. The CFTC seeks civil monetary penalties of either triple the monetary gain for each violation of the Commodity Exchange Act (the “Act”) or $1 million for each violation of Section 6(c)(1), 6(c)(3) or 9(a)(2) of the Act and $140,000 for each additional violation of the Act, plus post-judgment interest; an order of permanent injunction prohibiting Kraft Foods Group and us from violating specified provisions of the Act; disgorgement of profits; and costs and fees. In addition, class action being taken.complaints were filed against Kraft Foods Group and us in the U.S. District Court for the Northern District of Illinois. These were filed on April 2, 2015 by Harry Ploss, as trustee for the Harry Ploss Trust dated 8/16/1993, on April 9, 2015 by Richard Dennis, on April 16,
2015 by Henrik Christensen, on April 22, 2015 by White Oak Fund, LP and on April 24, 2015 by Budicak Inc., in each case on behalf of themselves and others similarly situated. The complaints make the same allegations as those made in the CFTC action and seek class action certification; an unspecified amount for damages, interest and unjust enrichment; and costs and fees. It is not possible to predict the outcome of this matter;these matters; however, based on our Separation and Distribution Agreement with Kraft Foods Group dated as of September 27, 2012, we expect to predominantly bear any monetary penalties or other payments thatin connection with the CFTC may impose.action.
While we cannot predict with certainty the results of any Legal Matters in which we are currently involved, we do not expect that the ultimate costs to resolve any of these Legal Matters, individually or in the aggregate, will have a material effect on our financial results.
Third-Party Guarantees:
We enter into third-party guarantees primarily to cover the long-term obligations of our vendors. As part of these transactions, we guarantee that third parties will make contractual payments or achieve performance measures. At June 30, 2014,March 31, 2015, we had no material third-party guarantees recorded on our condensed consolidated balance sheet.
Note 13.12. Reclassifications from Accumulated Other Comprehensive Income
The components of accumulated other comprehensive earnings / (losses) attributable to Mondelēz International were:
Mondelēz International Shareholders’ Equity | ||||||||||||||||||||||||||||||||
Currency Translation Adjustments | Pension and Other Benefits | Derivatives Accounted for as Hedges | Total | Currency Translation Adjustments | Pension and Other Benefits | Derivatives Accounted for as Hedges | Total | |||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||
Balances at January 1, 2014 | $ | (1,414 | ) | $ | (1,592 | ) | $ | 117 | $ | (2,889 | ) | $ | (1,414 | ) | $ | (1,592 | ) | $ | 117 | $ | (2,889 | ) | ||||||||||
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Other comprehensive earnings / (losses), | ||||||||||||||||||||||||||||||||
Currency translation adjustment(1) | 167 | (6 | ) | – | 161 | (225 | ) | 8 | – | (217 | ) | |||||||||||||||||||||
Pension and other benefits | – | – | – | – | – | 6 | – | 6 | ||||||||||||||||||||||||
Derivatives accounted for as hedges | (20 | ) | – | (112 | ) | (132 | ) | (15 | ) | – | (56 | ) | (71 | ) | ||||||||||||||||||
Losses / (gains) reclassified into | – | 85 | (4 | ) | 81 | – | 41 | (2 | ) | 39 | ||||||||||||||||||||||
Tax (expense) / benefit | (3 | ) | (21 | ) | 43 | 19 | 6 | (13 | ) | 23 | 16 | |||||||||||||||||||||
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Total other comprehensive | 129 | (227 | ) | |||||||||||||||||||||||||||||
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Balances at June 30, 2014 | $ | (1,270 | ) | $ | (1,534 | ) | $ | 44 | $ | (2,760 | ) | |||||||||||||||||||||
Balances at March 31, 2014 | $ | (1,648 | ) | $ | (1,550 | ) | $ | 82 | $ | (3,116 | ) | |||||||||||||||||||||
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Balances at January 1, 2015 | $ | (5,042 | ) | $ | (2,274 | ) | $ | (2 | ) | $ | (7,318 | ) | ||||||||||||||||||||
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Other comprehensive earnings / (losses), | ||||||||||||||||||||||||||||||||
Currency translation adjustment(1) | (2,352 | ) | 131 | – | (2,221 | ) | ||||||||||||||||||||||||||
Pension and other benefits | – | – | – | – | ||||||||||||||||||||||||||||
Derivatives accounted for as hedges | 525 | – | (56 | ) | 469 | |||||||||||||||||||||||||||
Losses / (gains) reclassified into | – | 55 | (4 | ) | 51 | |||||||||||||||||||||||||||
Tax (expense) / benefit | (192 | ) | (13 | ) | 16 | (189 | ) | |||||||||||||||||||||||||
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Total other comprehensive | (1,890 | ) | ||||||||||||||||||||||||||||||
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Balances at March 31, 2015 | $ | (7,061 | ) | $ | (2,101 | ) | $ | (46 | ) | $ | (9,208 | ) | ||||||||||||||||||||
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(1) | The condensed consolidated statement of other comprehensive earnings |
Amounts reclassified from accumulated other comprehensive earnings / (losses) during the three and six months ended June 30, 2014 and their locations in the condensed consolidated financial statements were as follows:
For the Three | For the Six | Location of | ||||||||||||||||||||
Months Ended | Months Ended | Gain / (Loss) | For the Three Months Ended | Location of Gain / (Loss) Recognized in Net Earnings | ||||||||||||||||||
June 30, | June 30, | Recognized | March 31, | |||||||||||||||||||
2014 | 2014 | in Net Earnings | 2015 | 2014 | ||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||
Pension and other benefits: | ||||||||||||||||||||||
Reclassification of losses / (gains) into net earnings: | ||||||||||||||||||||||
Amortization of experience losses and | $ | 35 | $ | 69 | ||||||||||||||||||
Amortization of experience losses and | $ | 52 | $ | 34 | ||||||||||||||||||
Settlement losses(1) | 9 | 16 | 3 | 7 | ||||||||||||||||||
Tax impact | (8 | ) | (21 | ) | Provision for income taxes | (13 | ) | (13 | ) | Provision for income taxes | ||||||||||||
Derivatives accounted for as hedges: | ||||||||||||||||||||||
Reclassification of losses / (gains) into net earnings: | ||||||||||||||||||||||
Currency exchange contracts – forecasted transactions | 2 | 4 | Cost of sales | (50 | ) | 2 | Cost of sales | |||||||||||||||
Commodity contracts | (4 | ) | (11 | ) | Cost of sales | 5 | (7 | ) | Cost of sales | |||||||||||||
Interest rate contracts | – | 3 | Interest and other expense, net | 41 | 3 |
| Interest and other expense, net |
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Tax impact | 1 | 1 | Provision for income taxes | (14 | ) | – | Provision for income taxes | |||||||||||||||
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Total reclassifications into net earnings, net of tax | $ | 35 | $ | 61 | 24 | 26 | ||||||||||||||||
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(1) | These items are included in the components of net periodic benefit costs disclosed in Note |
Note 14.13. Income Taxes
See Note 1,Basis of Presentation – Revision of Financial Statements, for information related to the revision of income taxes. During the three months ended June 30, 2014,2015, as part of our ongoing remediation efforts related to the material weakness in internal controls over the accounting for income taxes, we recorded a number of out-of-period adjustments that had an immaterial benefitimpact on the provision for income taxes of $7 million for the three months ended June 30, 2014 of $5 million.March 31, 2015. The out-of-period adjustments were not material to the consolidated financial statements for any prior period.
Based on current tax laws, our estimated annual effective tax rate for 2015 is 20.5%, reflecting favorable impacts from the mix of pre-tax income in various non-U.S. tax jurisdictions. Our 2015 first quarter effective tax rate of 26.6% was unfavorably impacted by net tax expense from $25 million of discrete one-time events. The discrete net tax expense primarily consisted of a $32 million tax charge related to the sale of our interest in a Japanese coffee joint venture that subsequently closed on April 23, 2015. The investment’s change to held-for-sale status in the first quarter of 2015 resulted in the recognition of the tax charge since we are no longer indefinitely reinvested in this joint venture.
As of the first quarter of 2014, is 19.6%our estimated annual effective tax rate for 2014 was 20.1%, reflecting favorable impacts from the mix of pre-tax income in various non-U.S. tax jurisdictions, partially offset by the remeasurement of our Venezuelan net monetary assets. Our 2014 secondfirst quarter effective tax rate of 12.4% was favorably impacted by net tax benefits from $52 million of discrete one-time events, of which $37 million related to tax return to provision adjustments and $9 million related to favorable tax audit settlements and expirations of statutes of limitations in several jurisdictions. Our effective tax rate for the six months ended June 30, 2014 of 7.5%(22.0)% was due to net tax benefits from discrete one-time events and lower pre-tax income due to the tender-related loss on debt extinguishment and the remeasurement of the Venezuela net monetary assets. Of the discrete net tax benefits of $104$52 million $60in the quarter, $51 million related to favorable tax audit settlements and expirations of statutes of limitations in several jurisdictions and $37 million related to tax return to provision adjustments.jurisdictions.
As of the second quarter of 2013, our estimated annual effective tax rate for 2013 was 19.7%, reflecting favorable impacts from the mix of pre-tax income in various non-U.S. tax jurisdictions. Our 2013 second quarter effective tax rate of 4.4% was favorably impacted by net tax benefits from $93 million of discrete one-time events, of which $52 million related to favorable tax audit settlements and expirations of statutes of limitations in several jurisdictions and $39 million was associated with a business divestiture. Our effective tax rate for the six months ended June 30, 2013 of 3.5% was favorably impacted by net tax benefits from $186 million of discrete one-time events, of which, $132 million related to favorable tax audit settlements and expirations of statutes of limitations in several jurisdictions and $39 million was associated with a business divestiture.
Note 15.14. Earnings Per Share
Basic and diluted earnings per share (“EPS”) were calculated using the following:
For the Three Months Ended | For the Six Months Ended | For the Three Months Ended | ||||||||||||||||||||||
June 30, | June 30, | March 31, | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2015 | 2014 | |||||||||||||||||||
(in millions, except per share data) | (in millions, except per share data) | |||||||||||||||||||||||
Net earnings | $ | 642 | $ | 602 | $ | 792 | $ | 1,144 | $ | 312 | $ | 150 | ||||||||||||
Noncontrolling interest | 20 | 1 | 7 | 7 | (12 | ) | (13 | ) | ||||||||||||||||
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Net earnings attributable to | $ | 622 | $ | 601 | $ | 785 | $ | 1,137 | $ | 324 | $ | 163 | ||||||||||||
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Weighted-average shares for basic EPS | 1,694 | 1,788 | 1,699 | 1,786 | 1,648 | 1,704 | ||||||||||||||||||
Plus incremental shares from assumed | 18 | 15 | 18 | 14 | 17 | 18 | ||||||||||||||||||
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Weighted-average shares for diluted EPS | 1,712 | 1,803 | 1,717 | 1,800 | 1,665 | 1,722 | ||||||||||||||||||
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Basic earnings per share attributable to | $ | 0.37 | $ | 0.34 | $ | 0.46 | $ | 0.64 | ||||||||||||||||
Diluted earnings per share attributable to | $ | 0.36 | $ | 0.33 | $ | 0.46 | $ | 0.63 | ||||||||||||||||
Basic earnings per share attributable to Mondelēz International | $ | 0.20 | $ | 0.10 | ||||||||||||||||||||
Diluted earnings per share attributable to Mondelēz International | $ | 0.19 | $ | 0.09 |
We exclude antidilutive Mondelēz International stock options from our calculation of weighted-average shares for diluted EPS. We excluded 9.910.9 million antidilutive stock options for the three months ended March 31, 2015 and 7.3 million antidilutive stock options for the six months ended June 30, 2014 and we excluded 8.14.7 million antidilutive stock options for the three months and 8.6 million antidilutive stock options for the six months ended June 30, 2013.March 31, 2014.
Note 16.15. Segment Reporting
We manufacture and market primarily snack food and beverage products, including biscuits (cookies, crackers and salted snacks), chocolate, gum & candy, coffee & powdered beverages and various cheese & grocery products. We manage our global business and report operating results through geographic units.
Our operations and management structure and segments are organized into five reportable operating segments:
Latin America
Asia Pacific
EEMEA
Europe
North America
We manage theour operations by region to leverage regional operating scale, manage different and changing business environments more effectively and pursue growth opportunities as they arise in our key markets. Beginning in 2015, within each region, we also manage by product category. The change did not affect our operating or reportable segments. In 2014, we managed our operations within Latin America, Asia Pacific and EEMEA by location and within Europe and North America by product category. Also, in 2015, we began to report stock-based compensation for our corporate employees, which was previously reported within our North America region, within general corporate expenses. During the first quarter of 2015, we reclassified $11 million of corporate stock-based compensation expense out of the North America segment.
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 or acquisitions 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 interest and other expense, net. Accordingly, we do not present these items by segment because they are excluded from the segment profitability measure that management reviews.
Our segment net revenues and earnings were:
For the Three Months Ended June 30, | For the Six Months Ended June 30, | For the Three Months Ended March 31, | ||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2015 | 2014 | |||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||
Net revenues: | ||||||||||||||||||||||||
Latin America | $ | 1,242 | $ | 1,339 | $ | 2,598 | $ | 2,737 | $ | 1,257 | $ | 1,356 | ||||||||||||
Asia Pacific | 1,084 | 1,240 | 2,307 | 2,607 | 1,153 | 1,223 | ||||||||||||||||||
EEMEA | 1,008 | 1,039 | 1,846 | 1,902 | 695 | 838 | ||||||||||||||||||
Europe | 3,379 | 3,273 | 6,936 | 6,731 | 2,975 | 3,557 | ||||||||||||||||||
North America | 1,723 | 1,704 | 3,390 | 3,362 | 1,682 | 1,667 | ||||||||||||||||||
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Net revenues | $ | 8,436 | $ | 8,595 | $ | 17,077 | $ | 17,339 | $ | 7,762 | $ | 8,641 | ||||||||||||
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Earnings before income taxes: | ||||||||||||||||||||||||
Operating income: | ||||||||||||||||||||||||
Latin America | $ | 140 | $ | 162 | $ | 184 | $ | 254 | ||||||||||||||||
Asia Pacific | 111 | 129 | 299 | 318 | ||||||||||||||||||||
EEMEA | 146 | 112 | 210 | 173 | ||||||||||||||||||||
Europe | 463 | 369 | 926 | 775 | ||||||||||||||||||||
North America | 269 | 194 | 472 | 364 | ||||||||||||||||||||
Unrealized gains / (losses) on | (54 | ) | 24 | (47 | ) | 43 | ||||||||||||||||||
General corporate expenses | (63 | ) | (76 | ) | (135 | ) | (145 | ) | ||||||||||||||||
Amortization of intangibles | (55 | ) | (55 | ) | (109 | ) | (109 | ) | ||||||||||||||||
Gains on acquisition and divestitures, net | – | 6 | – | 28 | ||||||||||||||||||||
Acquisition-related costs | – | – | – | (2 | ) | |||||||||||||||||||
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Operating income | 957 | 865 | 1,800 | 1,699 | ||||||||||||||||||||
Interest and other expense, net | (224 | ) | (235 | ) | (944 | ) | (514 | ) | ||||||||||||||||
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Earnings before income taxes | $ | 733 | $ | 630 | $ | 856 | $ | 1,185 | ||||||||||||||||
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For the Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
(in millions) | ||||||||
Earnings before income taxes: | ||||||||
Operating income: | ||||||||
Latin America | $ | 154 | $ | 44 | ||||
Asia Pacific | 146 | 188 | ||||||
EEMEA | 32 | 64 | ||||||
Europe | 326 | 463 | ||||||
North America | 281 | 203 | ||||||
Unrealized gains / (losses) on hedging activities | (7 | ) | 7 | |||||
General corporate expenses | (74 | ) | (72 | ) | ||||
Amortization of intangibles | (46 | ) | (54 | ) | ||||
Acquisition-related costs | (1 | ) | – | |||||
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Operating income | 811 | 843 | ||||||
Interest and other expense, net | (386 | ) | (720 | ) | ||||
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Earnings before income taxes | $ | 425 | $ | 123 | ||||
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Items impacting our segment operating results are discussed in Note 1,Basis of Presentation, including the Venezuelan currency remeasurements,devaluation, Note 2,Divestitures and AcquisitionAcquisitions, and Note 6,Restructuring Programs. Also see Note 7,Debt, and Note 7,8,Integration ProgramFinancial Instruments,. for more information on our interest and other expense, net for each period.
Net revenues by consumer sectorproduct category were:
For the Three Months Ended June 30, 2014 | For the Three Months Ended March 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||
Latin | Asia | North | Latin | Asia | North | |||||||||||||||||||||||||||||||||||||||||||
America | Pacific | EEMEA | Europe | America | Total | America | Pacific | EEMEA | Europe | America | Total | |||||||||||||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Biscuits | $ | 333 | $ | 273 | $ | 171 | $ | 809 | $ | 1,384 | $ | 2,970 | $ | 309 | $ | 316 | $ | 124 | $ | 594 | $ | 1,358 | $ | 2,701 | ||||||||||||||||||||||||
Chocolate | 256 | 329 | 221 | 1,113 | 50 | 1,969 | 294 | 402 | 199 | 1,228 | 56 | 2,179 | ||||||||||||||||||||||||||||||||||||
Gum & Candy | 293 | 188 | 200 | 238 | 275 | 1,194 | 295 | 191 | 118 | 183 | 268 | 1,055 | ||||||||||||||||||||||||||||||||||||
Beverages | 197 | 137 | 327 | 848 | – | 1,509 | 214 | 115 | 185 | 674 | – | 1,188 | ||||||||||||||||||||||||||||||||||||
Cheese & Grocery | 163 | 157 | 89 | 371 | 14 | 794 | 145 | 129 | 69 | 296 | – | 639 | ||||||||||||||||||||||||||||||||||||
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Total net revenues | $ | 1,242 | $ | 1,084 | $ | 1,008 | $ | 3,379 | $ | 1,723 | $ | 8,436 | $ | 1,257 | $ | 1,153 | $ | 695 | $ | 2,975 | $ | 1,682 | $ | 7,762 | ||||||||||||||||||||||||
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For the Three Months Ended June 30, 2013 | For the Three Months Ended March 31, 2014 (1) | |||||||||||||||||||||||||||||||||||||||||||||||
Latin | Asia | North | Latin | Asia | North | |||||||||||||||||||||||||||||||||||||||||||
America | Pacific | EEMEA | Europe | America | Total | America | Pacific | EEMEA | Europe | America | Total | |||||||||||||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
Biscuits | $ | 334 | $ | 355 | $ | 174 | $ | 780 | $ | 1,349 | $ | 2,992 | $ | 327 | $ | 331 | $ | 147 | $ | 722 | $ | 1,341 | $ | 2,868 | ||||||||||||||||||||||||
Chocolate | 270 | 363 | 240 | 1,062 | 58 | 1,993 | 324 | 418 | 243 | 1,476 | 63 | 2,524 | ||||||||||||||||||||||||||||||||||||
Gum & Candy | 363 | 207 | 190 | 246 | 278 | 1,284 | 286 | 206 | 147 | 223 | 263 | 1,125 | ||||||||||||||||||||||||||||||||||||
Beverages | 212 | 145 | 353 | 835 | – | 1,545 | 255 | 122 | 228 | 777 | – | 1,382 | ||||||||||||||||||||||||||||||||||||
Cheese & Grocery | 160 | 170 | 82 | 350 | 19 | 781 | 164 | 146 | 73 | 359 | – | 742 | ||||||||||||||||||||||||||||||||||||
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Total net revenues | $ | 1,339 | $ | 1,240 | $ | 1,039 | $ | 3,273 | $ | 1,704 | $ | 8,595 | $ | 1,356 | $ | 1,223 | $ | 838 | $ | 3,557 | $ | 1,667 | $ | 8,641 | ||||||||||||||||||||||||
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For the Six Months Ended June 30, 2014 | ||||||||||||||||||||||||
Latin | Asia | North | ||||||||||||||||||||||
America | Pacific | EEMEA | Europe | America | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Biscuits | $ | 660 | $ | 604 | $ | 318 | $ | 1,545 | $ | 2,711 | $ | 5,838 | ||||||||||||
Chocolate | 580 | 747 | 464 | 2,590 | 113 | 4,494 | ||||||||||||||||||
Gum & Candy | 579 | 394 | 347 | 461 | 538 | 2,319 | ||||||||||||||||||
Beverages | 452 | 259 | 555 | 1,625 | – | 2,891 | ||||||||||||||||||
Cheese & Grocery | 327 | 303 | 162 | 715 | 28 | 1,535 | ||||||||||||||||||
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Total net revenues | $ | 2,598 | $ | 2,307 | $ | 1,846 | $ | 6,936 | $ | 3,390 | $ | 17,077 | ||||||||||||
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(1) | During 2014, we realigned some of our products across product categories and as such, we reclassified the product category net revenues on a basis consistent with the 2015 presentation. |
For the Six Months Ended June 30, 2013 | ||||||||||||||||||||||||
Latin | Asia | North | ||||||||||||||||||||||
America | Pacific | EEMEA | Europe | America | Total | |||||||||||||||||||
(in millions) | ||||||||||||||||||||||||
Biscuits | $ | 624 | $ | 743 | $ | 325 | $ | 1,481 | $ | 2,642 | $ | 5,815 | ||||||||||||
Chocolate | 648 | 812 | 512 | 2,456 | 131 | 4,559 | ||||||||||||||||||
Gum & Candy | 696 | 429 | 345 | 475 | 556 | 2,501 | ||||||||||||||||||
Beverages | 455 | 272 | 589 | 1,640 | – | 2,956 | ||||||||||||||||||
Cheese & Grocery | 314 | 351 | 131 | 679 | 33 | 1,508 | ||||||||||||||||||
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Total net revenues | $ | 2,737 | $ | 2,607 | $ | 1,902 | $ | 6,731 | $ | 3,362 | $ | 17,339 | ||||||||||||
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Note 17. Subsequent Event
On August 5, 2014, our Audit Committee, with authorization from our Board of Directors, approved a quarterly dividend of $0.15 per common share or $0.60 per common share on an annual basis. The dividend is payable on October 14, 2014 to shareholders of record at the close of business on September 30, 2014.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Description of the Company
We manufacture and market primarily snack food and beverage products, including biscuits (cookies, crackers and salted snacks), chocolate, gum & candy, coffee & powdered beverages and various cheese & grocery products. We have operations in more than 80 countries and sell our products in approximately 165 countries.
Over the last several years, we have been expanding geographically and building our presence in the snacking category. At the same time, we continue investingcontinued to invest in product quality, marketing and innovation behind our iconic brands, while implementing a series of cost saving initiatives. We expect our global snacks businesses will build upon our strong presence across numerous markets, categories and channels including the high-margin instant consumption channel. Our goal isgoals are to achieve industry-leading revenue growth over time along with the higher expected growth rates of advantaged snack categories; leverage our cost structure through supply chain reinvention, productivity programs, overhead streamlining, volume growth and improved product mix to drive margin gainsgains; and grow earnings per share in the top-tier of our peer group.
Planned Coffee Business Transactions
On May 7, 2014, we announced that we have entered into an agreement to combine our wholly owned coffee portfolio (outside of France) with D.E Master Blenders 1753 B.V. (“DEMB”). In conjunction with this transaction, Acorn Holdings B.V. (“AHBV”), owner of D.E Master Blenders 1753, hasDEMB, also made a binding offer to receive our coffee business in France. The parties have also invited our partners in certain joint ventures to join the new company. The transactions remain subject
During the first quarter of 2015, we entered into an agreement to regulatory approvalssell our interest in a Japanese coffee joint venture to our joint venture partner so they may operate the business independently. In lieu of contributing our interest in the joint venture, we will instead contribute the net cash proceeds from the sale of the interest. Please see discussion of the pending divestiture of the Japanese coffee joint venture in Note 2,Divestitures and the completion of employee information and consultation requirements.Acquisitions.
Upon completion of all proposed transactions, we willexpect to receive cash of approximately $5€4 billion and aan equity interest of approximately 49 percent equity interest in the new company, to be called Jacobs Douwe Egberts (“JDE”). AHBV will hold a majority share in the proposed combined company and will have a majority of the seats on the board, which will be chaired by current D.E Master Blenders 1753DEMB Chairman Bart Becht. We will have certain minority rights. AHBV is owned by an investor group led by JAB Holding Company s.à r.l. We will have certain minority rights.
The transactions are expectedremain subject to regulatory approvals and the completion of employee information and consultation requirements. We continue to expect the transactions to be completed in the coursethird quarter of 2015, subject to limited closing conditions, including regulatory approvals. During this time,In December 2014, the European Commission announced its intention to further evaluate the proposed transaction against EU antitrust regulations in order to make a final determination on merger clearance, which we currently expect in the second quarter of 2015. We and D.E Master Blenders 1753 willDEMB also continue to undertake consultations with all Works Councils and employee representatives as required in connection with the transactions.
Certain expenses relatedIn connection with the expected receipt of approximately€4 billion upon closing, we entered into currency exchange forward contracts in the second quarter of 2014 to readying the businesses for the planned transactions (the “JDE coffee transactions”) have been incurred. During the three months ended June 30, 2014, the expenses totaled $12lock in an expected U.S. dollar value of approximately $5 billion. On February 11, 2015, we monetized these forward contracts and realized total pre-tax gains of $939 million, of which $7$311 million was recognized in the first quarter of 2015. We also entered into new currency exchange forward contracts to lock in an expected euro/U.S. dollar exchange rate on the expected€4 billion cash receipt that generated a $240 million unrealized gain in the first quarter of 2015. The unrealized gain was recorded inwithin interest and other expense, net and $5the asset derivative is recorded within other current assets. On April 17, 2015, we monetized the new forward contracts for a realized gain of $296 million and executed new currency exchange forward contracts to continue to lock in an expected U.S. dollar value on the receipt of the€4 billion at closing. Based on changes in the euro/U.S. dollar exchange rate, the actual closing date of the planned coffee business transactions and the settlement dates of the hedges or other hedges we may put into place, the actual amount of U.S. dollars we receive could change.
We have incurred incremental expenses related to readying our coffee businesses for the planned transactions which totaled $28 million in the three months ended March 31, 2015 and were recorded within selling, general and administrative expenses of primarily our Europe and EEMEA segments and within our Europe segment.
2014-2018 Restructuring Program
On May 6, 2014, our Board of Directors approved a $3.5 billion restructuring program, comprised of approximately $2.5 billion in cash costs and $1 billion in non-cash costs (the “2014-2018 Restructuring Program”), and up to $2.2 billion of capital expenditures. The primary objective of the 2014-2018 Restructuring Program is to reduce our operating cost structure in both our supply chain and overhead costs. We expect the 2014-2018 Restructuring Program to generate annualized savings of at least $1.5 billion by the program’s completion at the end of 2018. Lower overheads and accelerated supply chain cost reductions are each expected to generate roughly half of the total incremental savings. We expect to incur the majority of the program’s charges in 2015 and 2016 and to complete the program by year-end 2018. The $2.2 billion of capital expenditures to support the restructuring program is included within our capital expenditure guidance of approximately 5 percent of net revenues for the next few years. For the three and six months ended June 30, 2014, we recorded restructuring and related implementation charges of $10 million.general corporate expenses. For additional information on the 2014-2018 Restructuring Program,JDE coffee transactions, see Note 6,2,Restructuring ProgramsDivestitures and Acquisitions – Planned Coffee Business Transactions.
Debt Issuances and Tender Offer On March 30, 2015, we issued $694 million of RevisionFinancial Statements
Swiss franc-denominated notes that generated approximately $675 million of net cash proceeds, which were used for general corporate purposes. In finalizing our 2013 results,March 2015, we identified certain out-of-period, non-cash, income tax-related errors in prior interimalso recorded approximately $2 million of premiums and annual periods. These errors were not material to any previously reported financial results; however, we revised our 2013 interim and prior-year financial statements and accompanying notes in our Annual Report on Form 10-K fordeferred financing costs, which will be amortized into interest expense over the year ended December 31, 2013, to reflect these items in the appropriate periods. The impactlife of the revision was a reduction of net earnings of $15 million for the three months and $47 million for the six months ended June 30, 2013. For additional details about the adjustments, see Note 1,Basis of Presentation – Revision of Financial Statements. For additional information about the procedures and controls we are also implementing, see Item 4,Controls and Procedures. The following discussion and analysis relates to after-tax results that were revised for the prior-periods presented.notes.
Summary of Results and Other Highlights
Net revenues decreased 1.8% to $8.4 billion in the second quarter of 2014 and decreased 1.5% to $17.1 billion in the first six months of 2014 as compared to the same periods in the prior year.
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Diluted EPS attributable to Mondelēz International increased 9.1% to $0.36 in the second quarter of 2014 and decreased 27.0% to $0.46 in the first six months of 2014 as compared to the same periods in the prior year. As further discussed below, a number of items affected the comparability of our results, including the impact of Venezuela currency exchange developments that resulted in currency remeasurement charges of $142 million in the first quarter of 2014 and $54 million in the first quarter of 2013. Also, in connection with the debt tender offer that we completed in February 2014, we recorded $495 million in debt extinguishment and related expenses in the first six months of 2014.
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On February 19, 2014, $500 million of our 6.75% U.S. dollar notes matured. The notes and accrued interest to date were paid with cash on hand and the issuance of commercial paper.
On February 6, 2014,March 20, 2015, we completed a cash tender offer and retired $1.6$2.5 billion of our outstanding higher coupon U.S. dollar debt. In connection with retiring this debt, during the first sixthree months of 2014,2015, we recorded a $495$713 million loss on debt extinguishment and related expenses related to the amount we paid to retire the debt in excess of its carrying value and from recognizing unamortized discounts and deferred financing costs in earnings at the time of the debt extinguishment.
On January 16, 2014,March 6, 2015, we issued $3.0$2.8 billion aggregate amount of U.S. dollareuro and British pound sterling-denominated notes that generated approximately $3.0$2.9 billion of net cash proceeds, which were used in part to fund the February 2014March 2015 tender offer and for other general corporate purposes. In January 2014,March 2015, we also recorded approximately $18 million of discounts and deferred financing costs, which will be amortized into interest expense over the life of the notes.
During 2013, our Board of Directors authorized the repurchase of $7.7 billion of our Common Stock through December 31, 2016 under a share repurchase program. During the six months ended June 30, 2014, we repurchased $0.9 billion, or 26.0 million shares, of Common Stock at an average cost of $35.13 per share. All share repurchases were funded through available cash and commercial paper issuances. As of June 30, 2014, we have $4.0 billion in remaining share repurchase capacity.
Financial Outlook
Our long-term financial targets include:
Organic Net Revenue growth at or above expected category growth
Adjusted Operating Income growth of high single-digits on a constant currency basis
Double-digit Adjusted EPS growth on a constant currency basis
Refer toNon-GAAP Financial Measuresappearing later in this section for more information on these measures.
Over the last three quarters, growth in the global food categories in which we sell our products has slowed significantly, due largely to macroeconomic issues impacting our consumers, particularly in emerging markets. We anticipate this slowdown will continue in the near term. Additionally, we may realize some dislocation as we increase prices to cover input cost inflation.
In 2014, we expect Organic Net Revenue growth to be 2% to 2.5%. Based on this outlook, we expect high single-digit growth in Adjusted Operating Income on a constant currency basis and high 12 percent range for our Adjusted Operating Income margin. We continue to expect Adjusted EPS of $1.73 to $1.78, up double digits on a constant currency basis. Our 2014 Adjusted EPS outlook reflects average 2013 currency rates.
Discussion and Analysis
Items Affecting Comparability of Financial Results
Remeasurement of Venezuelan Net Monetary Assets
As a result of recent Venezuelan currency exchange developments and the expected impact on our Venezuelan operations, on March 31, 2014, we remeasured our Venezuelan bolivar-denominated net monetary assets from the official exchange rate of 6.30 bolivars to the U.S. dollar to the then-prevailing SICAD I exchange rate of 10.70 bolivars to the U.S. dollar. We recognized a $142 million currency remeasurement loss within selling, general and administrative expenses in the three months ended March 31, 2014. In the three months ended March 31, 2013, we also recorded a $54 million currency remeasurement loss related to the devaluation of our net monetary assets in Venezuela at that time. Note that the impact of the current and prior-year remeasurements is included in our GAAP results and excluded from our non-GAAP Adjusted Operating Income and Adjusted EPS financial measures.
For the three months ended June 30, 2014, the impact of the SICAD I rate change was not significant and there were no additional remeasurement charges recorded in operating income. As of June 30, 2014, our remaining bolivar-denominated net monetary assets were $227 million. Our Venezuela net revenues were approximately $155 million, or 1.8% of consolidated net revenues, in the second quarter of 2014 and approximately $392 million, or 2.3% of consolidated net revenues, in the first half of 2014 (with the first quarter translated at the 6.30 official rate prior to the 2014 remeasurement). If any of the rates, or application of the rates to our business, were to change, we may recognize additional currency losses or gains, which could be significant. Refer to Note 1,Basis of Presentation —Currency Translation and Highly Inflationary Accounting, for additional information.
Tender Offer and Debt Issuance
On February 6, 2014, we completed a cash tender offer and retired $1.6 billion of our outstanding higher coupon U.S. dollar debt. In the first six months of 2014, we recorded a $495 million loss on debt extinguishment and related expenses related to the amount we paid to retire the debt in excess of its carrying value and from recognizing unamortized discounts and deferred financing costs in earnings at the time of the debt extinguishment. See Note 8,Debt, for additional information.
On January 16, 2014, we issued $3.0 billion of U.S. dollar notes that generated approximately $3.0 billion of net cash proceeds, which were used in part to fund the February 2014 tender offer and for other general corporate purposes. In January 2014, we also recorded approximately $18$29 million of discounts and deferred financing costs, which will be amortized into interest expense over the life of the notes.
Our weighted-average interest rate on our total debt was 4.2%3.1% as of June 30, 2014,March 31, 2015, following the completion of our tender offer and debt retirementissuances in the first quarter of 2014.quarter. Our weighted-average interest rate on our total debt as of December 31, 20132014 was 4.8%4.3%, down from 5.8%4.8% as of December 31, 2012.
2012-2014 Restructuring Program
In 2012, our Board of Directors approved $1.5 billion of restructuring and related implementation costs (the “2012-2014 Restructuring Program”) reflecting primarily severance, asset disposals and other manufacturing-related one-time costs. The primary objective of the 2012-2014 Restructuring Program was to ensure that Mondelēz International and Kraft Foods Group, Inc. (“Kraft Foods Group”) were each set up to operate efficiently and execute on our respective business strategies upon separation and in the future.
Of the $1.5 billion of 2012-2014 Restructuring Program costs, we retained approximately $925 million and Kraft Foods Group retained the balance of the program. Since inception, we have incurred $579 million of our estimated $925 million total 2012-2014 Restructuring Program charges.
We recorded restructuring charges of $54 million for the three months and $96 million for the six months ended June 30, 2014 and $48 million for the three months and $88 million for the six months ended June 30, 2013 within asset impairment and exit costs. We also incurred implementation costs of $19 million for the three months and $43 million for the six months ended June 30, 2014 and $7 million for the three months and $11 million for the six months ended June 30, 2013, which were recorded within cost of sales and selling, general and administrative expenses.2013. See Note 6,7,Restructuring Programs – 2012-2014 Restructuring ProgramDebt, for additional information.information on these transactions.
Integration ProgramSummary of Results
As a result
We recorded reversals of Integration Program charges of $3 milliondecreased 10.2% in the three months and $5 million in the six months ended June 30, 2014 related to accruals no longer required. We recorded Integration Program chargesfirst quarter of $52 million for the three months and $73 million for the six months ended June 30, 2013 in selling, general and administrative expenses within our Europe, Asia Pacific, Latin America and EEMEA segments. At June 30, 2014, we had a remaining accrued liability of $88 million related2015 as compared to the Integration Program,first quarter of which $50 million was recorded within other current liabilities and $38 million, primarily related to leased facilities no longer2014. Net revenues in use, was recorded within other long-term liabilities. See Note 7,Integration Program, for additional information.
Spin-Off Costs following Kraft Foods Group Divestiture
On October 1, 2012, we completed the Spin-Off of our North American grocery business, Kraft Foods Group, to our shareholders (the “Spin-Off”). Following the Spin-Off, Kraft Foods Group is an independent public company and we do not beneficially own any shares of Kraft Foods Group common stock. We continue to incur primarily Spin-Off transition costs, and historically we have incurred Spin-Off transaction, transition and financing and related costs (“Spin-Off Costs”) in our operating results. We recorded $16 million of pre-tax Spin-Off Costs in the three months and $19 million in the six months ended June 30, 2014 and $15 million in the three months and $24 million in the six months ended June 30, 2013. In fiscal year 2014, we expect to incur approximately $30 million of Spin-Off Costs related primarily to customer service and logistics, information systems and processes, as well as legal costs associated with revising intellectual property and other long-term agreements.
Divestitures and Acquisition
During the three months ended June 30, 2013, we completed two divestitures within our EEMEA segment which generated cash proceeds of $48 million during the quarter and pre-tax gains of $6 million. The divestitures included a salty snacks business in Turkey and a confectionery business in South Africa. The aggregate operating results of these divestitures2015 were not material to our condensed consolidated financial statements during the periods presented.
On February 22, 2013, we acquired the remaining interest in a biscuit operation in Morocco, which is now a wholly-owned subsidiary within our EEMEA segment. We paid net cash consideration of $119 million, consisting of $155 million purchase price net of cash acquired of $36 million. During the three months ended March 31, 2013, we also recorded a pre-tax gain of $22 million related to the remeasurement of our previously-held equity interest in the operation to fair value in accordance with U.S. GAAP. We recorded acquisition costs of $7 million in selling, general and administrative expenses and interest and other expense, net during the three months ended March 31, 2013. We recorded integration charges of $2 million for the three months and $3 million for the six months ended June 30, 2014 and $1 million for the three months ended June 30, 2013 within selling, general and administrative expenses.
Provision for Income Taxes
Our income tax provision could be significantly affected by unfavorable currency translation as the U.S dollar strengthened against most currencies in which we operate.
• | Organic Net Revenue of $9.0 billion increased 3.8% in the first quarter of 2015 as compared to the first quarter of 2014. Organic Net Revenue is a non-GAAP financial measure we use to evaluate our underlying results (see the definition of Organic Net Revenue and our reconciliation with net revenues withinNon-GAAP Financial Measures appearing later in this section). |
• | Diluted EPS attributable to Mondelēz International of $0.19 increased 111.1% in the first quarter of 2015 as compared to the first quarter of 2014. A number of significant items also affected the comparability of our reported results, as further described in theDiscussion and Analysis of Historical Results appearing later in this section and in the notes to the condensed consolidated financial statements. |
• | Adjusted EPS of $0.41 increased 5.1% in the first quarter of 2015 as compared to the first quarter of 2014. On a constant currency basis, Adjusted EPS of $0.49 increased 25.6% in the first quarter of 2015. Adjusted EPS is a non-GAAP financial measure we use to evaluate our underlying results (see the definition of Adjusted EPS and our reconciliation with diluted EPS withinNon-GAAP Financial Measures appearing later in this section). |
Financial Performance Measures
We seek to achieve top-tier financial performance. We manage our business to achieve this goal using our key operating metrics: Organic Net Revenue, Adjusted Operating Income and Adjusted EPS. As we evaluate our revenue growth, in addition to evaluating underlying revenue drivers such as pricing and volume/mix, we also evaluate revenue growth from emerging markets and our Power Brands. Refer toNon-GAAP Financial Measures appearing later in this section for more information on these measures.
We also monitor a shiftnumber of factors and trends that we expect may affect our revenues and profitability. During the first quarter of 2015, we continued to note similar trends as we highlighted in pre-tax income between non-U.S. tax jurisdictions, from non-U.S. tax jurisdictions to the U.S. or by changes in non-U.S. or U.S. tax laws and regulations that apply to the earnings of subsidiaries outside of the United States as well as other factors. At the end of each interim period, we make our best estimate of the effective tax rate expected to be applicablemost recently filed Annual Report on Form 10-K for the full fiscal year. This estimate reflects, among other items, our best estimate of operating resultsyear ended December 31, 2014. In particular, volatility in the global commodity and currency exchange rates. However,markets continued. Refer toCommodity Trends appearing later in arriving at this estimate, we do not include the estimated impact of discrete one-time events. Examples of items which are not included in the estimated annual effective tax rate include subsequent recognition, derecognitionsection and measurement of tax positions taken in previous periods.
Based on current tax laws, our estimated annual effective tax rate for 2014 is 19.6%, reflecting favorable impacts from the mix of pre-tax income in various non-U.S. tax jurisdictions, partially offset by the remeasurement of our Venezuelan net monetary assets. Our 2014 second quarter effective tax rate of 12.4% was favorably impacted by net tax benefits from $52 million of discrete one-time events, of which $37 million related to tax return to provision adjustments and $9 million related to favorable tax audit settlements and expirations of statutes of limitations in several jurisdictions. Our effective tax rate for the six months ended June 30, 2014 of 7.5% was due to net tax benefits from discrete one-time events and lower pre-tax income due to the tender-related loss on debt extinguishment and the remeasurement of the Venezuela net monetary assets. Of the discrete net tax benefits of $104 million, $60 million related to favorable tax audit settlements and expirations of statutes of limitations in several jurisdictions and $37 million related to tax return to provision adjustments.
As of the second quarter of 2013, our estimated annual effective tax rate for 2013 was 19.7%, reflecting favorable impacts from the mix of pre-tax income in various non-U.S. tax jurisdictions. Our 2013 second quarter effective tax rate of 4.4% was favorably impacted by net tax benefits from $93 million of discrete one-time events, of which $52 million related to favorable tax audit settlements and expirations of statutes of limitations in several jurisdictions and $39 million was associated with a business divestiture. Our effective tax rate for the six months ended June 30, 2013 of 3.5% was favorably impacted by net tax benefits from $186 million of discrete one-time events, of which, $132 million related to favorable tax audit settlements and expirations of statutes of limitations in several jurisdictions and $39 million was associated with a business divestiture.
See Note 1,Basis of Presentation – RevisionCurrency Translation and Highly Inflationary Accounting, for additional information on our commodity costs and specific currency risks we are monitoring.
Discussion and Analysis of Historical Results
Items Affecting Comparability of Financial Statements, for information relatedResults
The following table includes significant income or (expense) items that affected the comparability of our pre-tax results of operations and our effective tax rates. Please refer to the revision of income taxes. During the three months ended June 30, 2014, as part of our ongoing remediation efforts relatednotes to the material weakness in internal controls over the accounting for income taxes, we recorded a number of out-of-period adjustments that had an immaterial benefit on the provision for income taxes for the three months ended June 30, 2014 of $5 million. The out-of-period adjustments were not material to thecondensed consolidated financial statements indicated below for any prior period.
more information. Refer also to theConsolidated Results of Operations – Net Earnings and Earnings per Share Attributable to Mondelēz International table for the per share impacts of these items.
For the Three Months Ended March 31, | ||||||||||
See Note | 2015 | 2014 | ||||||||
(in millions of U.S. dollars) | ||||||||||
Planned coffee business transactions: | Note 2 | |||||||||
Incremental costs for readying the businesses | $ | (28 | ) | $ | – | |||||
Unrealized gain on currency hedges | 240 | – | ||||||||
Realized gain on currency hedges(1) | 311 | – | ||||||||
2014-2018 Restructuring Program: | Note 6 | |||||||||
Restructuring charges | (163 | ) | – | |||||||
Implementation charges | (61 | ) | – | |||||||
2012-2014 Restructuring Program: | Note 6 | |||||||||
Restructuring charges | 2 | (42 | ) | |||||||
Implementation charges | – | (24 | ) | |||||||
Remeasurement of Venezuelan net | Note 1 | |||||||||
Q1 2014: 6.30 to 10.70 bolivars to U.S. dollar | – | (142 | ) | |||||||
Q1 2015: 11.50 to 12.00 bolivars to U.S. dollar | (11 | ) | – | |||||||
Loss on debt extinguishment and | Note 7 | (713 | ) | (494 | ) | |||||
Effective tax rate | Note 13 | 26.6 | % | (22.0 | )% |
(1) | On February 11, 2015, we monetized certain currency hedges related to the anticipated cash receipt of€4 billion from the planned coffee business transactions, and we realized total pre-tax gains of $939 million, of which $311 million was recognized in the first quarter of 2015. Refer to Note 2,Divestitures and Acquisitions–Planned Coffee Business Transactions, for more information. |
Consolidated Results of Operations
The following discussion compares our consolidated results of operations for the three and six months ended June 30, 2014March 31, 2015 and 2013.2014.
Three Months Ended June 30:March 31:
For the Three Months Ended | For the Three Months Ended | |||||||||||||||||||||||||||||||
June 30, | March 31, | |||||||||||||||||||||||||||||||
2014 | 2013 | $ change | % change | 2015 | 2014 | $ change | % change | |||||||||||||||||||||||||
(in millions, except per share data) | (in millions, except per share data) | |||||||||||||||||||||||||||||||
Net revenues | $ | 8,436 | $ | 8,595 | $ | (159 | ) | (1.8% | ) | $ | 7,762 | $ | 8,641 | $ | (879 | ) | (10.2)% | |||||||||||||||
Operating income | $ | 957 | $ | 865 | $ | 92 | 10.6% | 811 | 843 | (32 | ) | (3.8)% | ||||||||||||||||||||
Net earnings attributable to Mondelēz International | $ | 622 | $ | 601 | $ | 21 | 3.5% | 324 | 163 | 161 | 98.8% | �� | ||||||||||||||||||||
Diluted earnings per share attributable to Mondelēz International | $ | 0.36 | $ | 0.33 | $ | 0.03 | 9.1% | 0.19 | 0.09 | 0.10 | 111.1% |
Net Revenues – Net revenues decreased $159$879 million (1.8%(10.2%) to $8,436$7,762 million in the secondfirst quarter of 2014,2015, and Organic Net Revenue (1) increased $102$328 million (1.2%(3.8%) to $8,683$8,969 million. Organic Net Revenue growth was driven primarily by our Power Brands, which grew 5.9%. In addition, emerging markets grew 10.8% and accounted for the entire increase in our Organic Net Revenue. The underlying changes in net revenues and Organic Net Revenue are detailed below:
2015 | |||||
Change in net revenues (by percentage point) | |||||
Higher net pricing | pp | ||||
Unfavorable volume/mix | ( | )pp | |||
|
| ||||
Total change in Organic Net Revenue(1) | 3.8 | % | |||
Unfavorable currency | ( | )pp | |||
Impact of | 0.4 | ||||
Impact of acquisition | 0.1 | ||||
|
| ||||
Total change in net revenues | (10.2 | )% | |||
|
|
(1) | Please see theNon-GAAP Financial Measures section at the end of this item. |
Organic Net Revenue growth was driven by higher net pricing, partially offset by unfavorable volume/mix. Net pricing was up, which includes the carryover benefit of pricing actions taken in 2014 as well as the effects of input cost-driven pricing actions taken during the quarter. Higher net pricing inwas reflected across all segments, primarily Latin America, (primarily Venezuela, ArgentinaEurope and Brazil), EEMEA, Asia Pacific and North America was partially offset by lower net pricing in Europe due to lower coffee prices.EEMEA. Unfavorable volume/mix was drivenlargely due to price elasticity as well as strategic decisions to exit certain low-margin product lines, partially offset by the shift of Easter-related shipments into the first quarter. Unfavorable volume/mix was reflected primarily by lower shipments in Europe, Latin America and Asia Pacific, Europe and Latin America.Pacific. Unfavorable currency impacts decreased net revenues by $247$1,251 million, due primarily to the devaluation of the Venezuelan bolivar in March 2014 and the strength of the U.S. dollar relative to several foreign currencies, including the Argentinean peso, Ukrainian hryvnya,euro, Venezuelan bolivar, Russian ruble, Brazilian real, Russian ruble, Australian dollar and Canadian dollar, partially offset by the strength of the euro and British pound sterling relative to the U.S. dollar.and Ukrainian hryvnya. The impact of divestitures completed in 2013North America segment accounting calendar change resulted in a year-over-year decreaseincrease in net revenues of $14$39 million. The February 16, 2015 acquisition of the Enjoy Life Foods snacking business in North America added $5 million in incremental net revenues for the quarter.
Operating Income – Operating income increased $92decreased $32 million (10.6%(3.8%) to $957$811 million in the secondfirst quarter of 2014,2015, Adjusted Operating Income(1) increased $81$19 million (8.3%(1.8%) to $1,060$1,072 million and Adjusted Operating Income (onon a constant currency basis)basis(1) increased $116$201 million (11.8%(19.1%) to $1,095$1,254 million due to the following:
Operating | ||||||||
Income | Change | |||||||
(in millions) | (percentage point) | |||||||
Operating Income for the Three Months Ended June 30, 2013 | $ | 865 | ||||||
Integration Program and other acquisition integration costs | 53 | 6.1pp | ||||||
Spin-Off Costs | 15 | 1.9pp | ||||||
2012-2014 Restructuring Program costs | 55 | 6.7pp | ||||||
Gains on divestitures, net | (6 | ) | (0.7)pp | |||||
Operating income from divestitures | (3 | ) | (0.3)pp | |||||
|
| |||||||
Adjusted Operating Income (1) for the Three Months Ended June 30, 2013 | $ | 979 | ||||||
Higher net pricing | 309 | 31.6pp | ||||||
Higher input costs | (175 | ) | (17.9)pp | |||||
Unfavorable volume/mix | (108 | ) | (11.1)pp | |||||
Lower selling, general and administrative expenses | 167 | 17.0pp | ||||||
Change in unrealized gains / (losses) on hedging activities | (78 | ) | (7.9)pp | |||||
Other, net | 1 | 0.1pp | ||||||
|
|
|
| |||||
Total change in Adjusted Operating Income (constant currency) (1) | 116 | 11.8% | ||||||
|
|
|
| |||||
Unfavorable currency—translation | (35 | ) | (3.5)pp | |||||
|
|
|
| |||||
Total change in Adjusted Operating Income (1) | 81 | 8.3% | ||||||
|
|
|
| |||||
Adjusted Operating Income (1) for the Three Months Ended June 30, 2014 | $ | 1,060 | ||||||
Integration Program and other acquisition integration costs | 1 | 0.1pp | ||||||
Spin-Off Costs | (16 | ) | (1.8)pp | |||||
2012-2014 Restructuring Program costs | (73 | ) | (7.9)pp | |||||
2014-2018 Restructuring Program costs | (10 | ) | (1.2)pp | |||||
Costs associated with the JDE coffee transactions | (5 | ) | (0.6)pp | |||||
|
|
|
| |||||
Operating Income for the Three Months Ended June 30, 2014 | $ | 957 | 10.6% | |||||
|
|
|
|
Operating | ||||||||
Income | Change | |||||||
(in millions) | (percentage point) | |||||||
Operating Income for the Three Months Ended March 31, 2014 | $ | 843 | ||||||
Spin-Off Costs(2) | 3 | 0.3pp | ||||||
2012-2014 Restructuring Program costs(3) | 66 | 6.8pp | ||||||
Integration Program and other acquisition integration costs(4) | (1 | ) | (0.1)pp | |||||
Remeasurement of net monetary assets in Venezuela(5) | 142 | 18.2pp | ||||||
Operating income from divestitures(6)(7) | – | – | ||||||
|
| |||||||
Adjusted Operating Income(1) for the Three Months Ended March 31, 2014 | $ | 1,053 | ||||||
Higher net pricing | 558 | 53.0pp | ||||||
Higher input costs | (312 | ) | (29.7)pp | |||||
Unfavorable volume/mix | (74 | ) | (7.0)pp | |||||
Lower selling, general and administrative expenses | 28 | 2.6pp | ||||||
Change in unrealized gains/losses on hedging activities | (14 | ) | (1.3)pp | |||||
Gain on sale of property in 2014 | (7 | ) | (0.6)pp | |||||
Impact of accounting calendar change(5) | 19 | 1.8pp | ||||||
Other, net | 3 | 0.3pp | ||||||
|
|
|
| |||||
Total change in Adjusted Operating Income (constant currency)(1) | 201 | 19.1% | ||||||
Unfavorable currency—translation | (182 | ) | (17.3)pp | |||||
|
|
|
| |||||
Total change in Adjusted Operating Income(1) | 19 | 1.8% | ||||||
|
|
|
| |||||
Adjusted Operating Income(1) for the Three Months Ended March 31, 2015 | $ | 1,072 | ||||||
2012-2014 Restructuring Program costs(3) | 2 | 0.2pp | ||||||
2014-2018 Restructuring Program costs(3) | (224 | ) | (26.6)pp | |||||
Remeasurement of net monetary assets in Venezuela(5) | (11 | ) | (1.1)pp | |||||
Costs associated with the planned coffee business transactions(6) | (28 | ) | (3.3)pp | |||||
Operating income from divestitures(6)(7) | – | – | ||||||
Acquisition-related costs(6) | (1 | ) | (0.1)pp | |||||
Rounding | 1 | 0.1pp | ||||||
|
|
|
| |||||
Operating Income for the Three Months Ended March 31, 2015 | $ | 811 | (3.8)% | |||||
|
|
|
|
(1) | Please see theNon-GAAP Financial Measures section at the end of this item. |
(2) | Refer to Note 2 to the consolidated financial statements in our Form 10-K for the year ended December 31, 2014 for more information on Spin-Off Costs incurred following the Kraft Foods Group, Inc. divestiture. |
(3) | Refer to Note 6,Restructuring Programs, for more information on our 2014-2018 Restructuring Program and our 2012-2014 Restructuring Program. |
(4) | Refer to Note 7 to the consolidated financial statements in our Form 10-K for the year ended December 31, 2014 for more information on our Cadbury Integration Program and other acquisition integration costs. |
(5) | Refer to Note 1,Basis of Presentation, for more information on the remeasurements of net monetary assets in Venezuela in the current and prior-year periods and the accounting calendar change in the current year. |
(6) | Refer to Note 2,Divestitures and Acquisitions, for more information on the planned coffee business transactions, the Enjoy Life Foods acquisition in our North America segment and a pending divestiture in our Asia Pacific segment. |
(7) | Includes divestitures and businesses for which we have entered into a sales agreement and cleared significant sale-related conditions such that the pending sale is probable as of the end of the reporting period. |
During the quarter, higher net pricing outpaced increased input costs. Higher net pricing, in Latin America, EEMEA, Asia Pacific and North America was partially offset by lower netincluding the carryover impact of pricing in Europe due to lower coffee pricing. The increase in input costs was driven by higher raw material costs, in part due to higher currency exchange transaction costs on imported materials, partially offset by lower manufacturing costs. Unfavorable volume/mix was driven primarily by Asia Pacific, Latin America and Europe, partially offset by EEMEA and North America.
Total selling, general and administrative expenses decreased $231 million from the second quarter of 2013, due in part to a favorable currency impact, lower Integration Program costs and the absence of costs related to businesses divested in 2013, which were partially offset by costs incurred for the 2014-2018 Restructuring Program, higher 2012-2014 Restructuring Program costs and costs incurred related to the JDE coffee transactions. Excluding these factors, selling, general and administrative expenses decreased $167 million from the second quarter of 2013, driven primarily by lower advertising and consumer promotion costs and lower overhead costs. Advertising and consumer promotion costs were lower in the current year due to the timing of significant prior-year investments, savings through consolidating media providers, reduction in non-working media costs and efficiencies gained by shifting spending to lower-cost, digital media outlets. Overhead costs fell as a result of continued cost management efforts.
The change in unrealized gains / (losses) decreased operating income by $78 million for the second quarter of 2014 and relates to currency and commodity hedging activity. For the three months ended June 30, 2014, the change in unrealized gains / (losses) was a net loss of $54 million as compared to a net gain of $24 million for the three months ended June 30, 2013.
Unfavorable currency impacts decreased operating income by $35 million, due primarily to the devaluation of the Venezuelan bolivaractions taken in 2014, and the strength of the U.S. dollar relative to several foreign currencies, including the Argentinean peso, Ukrainian hryvnya, Brazilian real, Russian ruble and Canadian dollar, partially offset by the strength of the euro and British pound sterling relative to the U.S. dollar.
Operating income margin increased from 10.1% in the second quarter of 2013 to 11.3% in the second quarter of 2014. Adjusted Operating Income margin increased from 11.4% in the second quarter of 2013 to 12.6% in the second quarter of 2014. The increase in Adjusted Operating Income margin was driven primarily by lower advertising and consumer promotion costs due to timing of prior-year investments and current year productivity initiatives and lower overhead costs from continued cost management efforts, partially offset by a decline in gross profit margin due entirely to the unfavorable impact of unrealized gains / (losses) from commodity and currency hedging activities.
Net Earnings and Earnings per Share Attributable to Mondelēz International – Net earnings attributable to Mondelēz International of $622 million increased by $21 million (3.5%) in the second quarter of 2014. Diluted EPS attributable to Mondelēz International was $0.36 in the second quarter of 2014, up $0.03 (9.1%) from the second quarter of 2013. Adjusted EPS (1) was $0.40 in the second quarter of 2014, up $0.04 (11.1%) from the second quarter of 2013. Adjusted EPS (on a constant currency basis) (1) was $0.43 in the second quarter of 2014, up $0.07 (19.4%) from the second quarter of 2013. These changes, shown net of tax below, were due to the following:
Diluted EPS | ||||
Diluted EPS Attributable to Mondelēz International for the | $ | 0.33 | ||
Spin-Off Costs(2) | 0.01 | |||
2012-2014 Restructuring Program costs | 0.02 | |||
Integration Program and other acquisition integration costs | 0.02 | |||
Gains on divestitures, net | (0.02 | ) | ||
Net earnings from divestitures | – | |||
|
| |||
Adjusted EPS(1) for the Three Months Ended June 30, 2013 | $ | 0.36 | ||
Increase in operations | 0.07 | |||
Change in unrealized gains / (losses) on hedging activities | (0.03 | ) | ||
Lower interest and other expense, net(3) | 0.01 | |||
Changes in shares outstanding | 0.02 | |||
Changes in income taxes | – | |||
|
| |||
Adjusted EPS (constant currency)(1) for the Three Months Ended June 30, 2014 | $ | 0.43 | ||
Unfavorable currency—translation | (0.03 | ) | ||
|
| |||
Adjusted EPS(1) for the Three Months Ended June 30, 2014 | $ | 0.40 | ||
Spin-Off Costs(2) | (0.01 | ) | ||
2012-2014 Restructuring Program costs | (0.03 | ) | ||
2014-2018 Restructuring Program costs | – | |||
Integration Program and other acquisition integration costs | – | |||
Tax benefit related to remeasurement of net monetary assets in Venezuela | 0.01 | |||
Costs associated with the JDE coffee transactions | (0.01 | ) | ||
|
| |||
Diluted EPS Attributable to Mondelēz International for the | $ | 0.36 | ||
|
|
Six Months Ended June 30:
For the Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2014 | 2013 | $ change | % change | |||||||||||||
(in millions, except per share data) | ||||||||||||||||
Net revenues | $ | 17,077 | $ | 17,339 | $ | (262 | ) | (1.5% | ) | |||||||
Operating income | $ | 1,800 | $ | 1,699 | $ | 101 | 5.9% | |||||||||
Net earnings attributable to | $ | 785 | $ | 1,137 | $ | (352 | ) | (31.0% | ) | |||||||
Diluted earnings per share attributable to Mondelēz International | $ | 0.46 | $ | 0.63 | $ | (0.17 | ) | (27.0% | ) |
Net Revenues – Net revenues decreased $262 million (1.5%) to $17,077 million in the first six months of 2014, and Organic Net Revenue (1) increased $343 million (2.0%) to $17,634 million. The changes in net revenues and Organic Net Revenue are detailed below:
| ||||
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| ||||
| ||||
| ||||
| ||||
| ||||
| ||||
Organic Net Revenue growth was driven by higher net pricing, partially offset by unfavorable volume/mix. Higher net pricing in Latin America (primarily Venezuela, Argentina and Brazil), EEMEA, North America and Asia Pacific was partially offset by lower net pricing in Europe due to lower coffee prices. Unfavorable volume/mix was driven primarily by lower shipments in Asia Pacific, Europe and Latin America, partially offset by higher shipments in North America and EEMEA. Unfavorable currency impacts decreased net revenues by $571 million, due primarily to the devaluation of the Venezuelan bolivar in February 2013 and March 2014 and the strength of the U.S. dollar relative to several foreign currencies, including the Argentinean peso, Brazilian real, Russian ruble, Australian dollar, Ukrainian hryvnya, Indian rupee and Canadian dollar, partially offset by the strength of the euro and British pound sterling relative to the U.S. dollar. The impact of divestitures completed in 2013 resulted in a year-over-year decrease in net revenues of $48 million. The acquisition of a biscuit operation in Morocco on February 22, 2013 added $14 million in incremental net revenues this year for the period prior to the anniversary date of the acquisition.
Operating Income – Operating income increased $101 million (5.9%) to $1,800 million in the first six months of 2014, Adjusted Operating Income (1) increased $191 million (9.9%) to $2,113 million, and Adjusted Operating Income (on a constant currency basis) (1) increased $265 million (13.8%) to $2,187 million due to the following:
Operating | ||||||||
Income | Change | |||||||
(in millions) | (percentage point) | |||||||
Operating Income for the Six Months Ended June 30, 2013 | $ | 1,699 | ||||||
Spin-Off Costs | 24 | 1.5pp | ||||||
2012-2014 Restructuring Program costs | 99 | 5.9pp | ||||||
Integration Program and other acquisition integration costs | 74 | 4.2pp | ||||||
Remeasurement of net monetary assets in Venezuela | 54 | 3.3pp | ||||||
Gains on acquisition and divestitures, net | (28 | ) | (1.5)pp | |||||
Acquisition-related costs | 2 | 0.1pp | ||||||
Operating income from divestitures | (2 | ) | (0.2)pp | |||||
|
| |||||||
Adjusted Operating Income(1) for the Six Months Ended June 30, 2013 | $ | 1,922 | ||||||
Higher net pricing | 529 | 27.5pp | ||||||
Higher input costs | (292 | ) | (15.1)pp | |||||
Unfavorable volume/mix | (128 | ) | (6.7)pp | |||||
Lower selling, general and administrative expenses | 236 | 12.2pp | ||||||
Change in unrealized gains / (losses) on hedging activities | (90 | ) | (4.7)pp | |||||
Gain on sale of property in 2014 | 7 | 0.4pp | ||||||
Impact from acquisition | 3 | 0.2pp | ||||||
|
|
|
| |||||
Total change in Adjusted Operating Income (constant currency)(1) | 265 | 13.8% | ||||||
|
|
|
| |||||
Unfavorable currency—translation | (74 | ) | (3.9)pp | |||||
|
|
|
| |||||
Total change in Adjusted Operating Income(1) | 191 | 9.9% | ||||||
|
|
|
| |||||
Adjusted Operating Income(1) for the Six Months Ended June 30, 2014 | $ | 2,113 | ||||||
Spin-Off Costs | (19 | ) | (1.1)pp | |||||
2012-2014 Restructuring Program costs | (139 | ) | (7.4)pp | |||||
2014-2018 Restructuring Program costs | (10 | ) | (0.6)pp | |||||
Integration Program and other acquisition integration costs | 2 | 0.2pp | ||||||
Remeasurement of net monetary assets in Venezuela | (142 | ) | (8.1)pp | |||||
Costs associated with the JDE coffee transactions | (5 | ) | (0.3)pp | |||||
|
|
|
| |||||
Operating Income for the Six Months Ended June 30, 2014 | $ | 1,800 | 5.9% | |||||
|
|
|
|
During the first six months of 2014, higher net pricing outpaced increased input costs. Higher net pricing in Latin America, EEMEA, North America and Asia Pacific was partially offset by lower net pricing in Europe due to lower coffee pricing.reflected across all segments. The increase in input costs was driven by higher raw material costs, in part due to higher currency exchange transaction costs on imported materials, partially offset by lower manufacturing costs. Unfavorable volume/mix was driven by Asia Pacific,Europe, Latin America, North America and Europe,Asia Pacific, partially offset by EEMEA and North America.a gain in EEMEA.
Total selling, general and administrative expenses decreased $298$341 million from the first six monthsquarter of 2013,2014, due to a number of factors noted in the table above, including in part, to a favorable currency impact, lower Integrationdevaluation charges related to our net monetary assets in Venezuela and the absence of 2012-2014 Restructuring Program costs. Items that increased selling, general and administrative expenses included costs incurred for the 2014-2018 Restructuring Program, costs lower Spin-Off Costs,incurred related to the planned coffee business transactions and a gain on a sale of property in 20142014.
Excluding the factors noted above, selling, general and administrative expenses decreased $28 million from the absencefirst quarter of 2014. The decrease was driven primarily by lower overhead costs due to continued cost reduction efforts, while we maintained advertising and consumer promotions support, particularly behind our Power Brands.
The change in unrealized gains / (losses) decreased operating income by $14 million in the first quarter of 2015. In the first quarter of 2015, the net unrealized losses on primarily commodity hedging activity were $7 million, as compared to net unrealized gains of $7 million in the first quarter of 2014 related to businesses divestedcurrency and commodity hedging activity.
Unfavorable currency impacts decreased operating income by $182 million, due primarily to the strength of the U.S. dollar relative to several currencies, including the euro, Venezuelan bolivar, Brazilian real, British pound sterling and Russian ruble.
Operating income margin increased from 9.8% in 2013, which were partially offsetthe first quarter of 2014 to 10.4% in the first quarter of 2015. The increase in operating income margin was driven primarily by the year-over-year negative impact from thean increase in our Adjusted Operating Income margin, lower devaluation ofcharges related to our net monetary assets in Venezuela in both 2014 and 2013, higherthe absence of 2012-2014 Restructuring Program costs,costs. Items that decreased our Operating Income margin were costs incurred for the 2014-2018 Restructuring Program and costs incurred related to the JDEplanned coffee business transactions. Excluding these factors, selling, general and administrative expenses decreased $236 million from the first six months of 2013, driven primarily by lower advertising and consumer promotion costs and lower overhead costs. Advertising and consumer promotion costs were lower in the current year due to the timing of significant prior-year investments, savings through consolidating media providers, reduction in non-working media costs and efficiencies gained by shifting spending to lower-cost, digital media outlets. Overhead costs fell as a result of continued cost management efforts.
The change in unrealized gains / (losses) decreased operating income by $90 million for the first six months of 2014 and relates to currency and commodity hedging activity. For the six months ended June 30, 2014, the change in unrealized gains / (losses) was a net loss of $47 million, primarily due to currency hedging activity, as compared to a net gain of $43 million for the six months ended June 30, 2013. In the first six months of 2014, we recorded a pre-tax gain of $7 million related to a property in Europe. The acquisition of a biscuit operation in Morocco on February 22, 2013 added $3 million in incremental operating income this year for the period prior to the anniversary of the acquisition.
Unfavorable currency impacts decreased operating income by $74 million, due primarily to the devaluation of the Venezuelan bolivar in 2013 and 2014 and the strength of the U.S. dollar relative to several foreign currencies, including the Argentinean peso, Brazilian real, Australian dollar, Russian ruble and Ukrainian hryvnya, partially offset by the strength of the euro and British pound sterling relative to the U.S. dollar.
Operating income margin increased from 9.8% in the first six months of 2013 to 10.5% in the first six months of 2014. Adjusted Operating Income margin increased from 11.1%12.2% in the first six monthsquarter of 20132014 to 12.4%13.8% in the first six monthsquarter of 2014.2015. The increase in Adjusted Operating Income margin was driven primarily by lower advertising and consumer promotion costs due to timing of prior-year investments and current year productivity initiatives and lower overhead costs from continued cost managementreduction programs and improved gross margin driven by productivity efforts, partially offset by a decline in gross profit margin due entirely to the year-over-year unfavorable impact of unrealized gains / (losses) on currency and commodity hedging activities.
Net Earnings and Earnings per Share Attributable to Mondelēz International – Net earnings attributable to Mondelēz International of $785$324 million decreasedincreased by $352$161 million (31.0%(98.8%) in the first six monthsquarter of 2014.2015. Diluted EPS attributable to Mondelēz International was $0.46$0.19 in the first six monthsquarter of 2014, down $0.17 (27.0%2015, up $0.10 (111.1%) from the first six monthsquarter of 2013.2014. Adjusted EPS(1) was $0.79$0.41 in the first six monthsquarter of 2014,2015, up $0.07 (9.7%$0.02 (5.1%) from the first six monthsquarter of 2013.2014. Adjusted EPS (onon a constant currency basis)basis(1) was $0.83$0.49 in the first six monthsquarter of 2014,2015, up $0.11 (15.3%$0.10 (25.6%) from the first six monthsquarter of 2013. These changes, shown net of tax below, were due to the following:2014.
Diluted EPS | ||||
Diluted EPS Attributable to Mondelēz International for the | $ | 0.63 | ||
Spin-Off Costs (2) | 0.01 | |||
2012-2014 Restructuring Program costs | 0.04 | |||
Integration Program and other acquisition integration costs | 0.03 | |||
Remeasurement of net monetary assets in Venezuela | 0.03 | |||
Gains on acquisition and divestitures, net | (0.03 | ) | ||
Acquisition-related costs | 0.01 | |||
Net earnings from divestitures | – | |||
|
| |||
Adjusted EPS(1) for the Six Months Ended June 30, 2013 | $ | 0.72 | ||
Increase in operations | 0.15 | |||
Gain on sale of property in 2014 | – | |||
Change in unrealized gains / (losses) on hedging activities | (0.04 | ) | ||
Lower interest and other expense, net(3) | 0.02 | |||
Changes in income taxes | (0.06 | ) | ||
Changes in shares outstanding | 0.04 | |||
|
| |||
Adjusted EPS (constant currency)(1) for the Six Months Ended June 30, 2014 | $ | 0.83 | ||
Unfavorable currency—translation | (0.04 | ) | ||
|
| |||
Adjusted EPS(1) for the Six Months Ended June 30, 2014 | $ | 0.79 | ||
Spin-Off Costs(2) | (0.01 | ) | ||
2012-2014 Restructuring Program costs | (0.06 | ) | ||
2014-2018 Restructuring Program costs | – | |||
Loss on debt extinguishment and related expenses(4) | (0.18 | ) | ||
Integration Program and other acquisition integration costs | – | |||
Remeasurement of net monetary assets in Venezuela | (0.08 | ) | ||
Net earnings from divestitures | – | |||
|
| |||
Diluted EPS Attributable to Mondelēz International for the | $ | 0.46 | ||
|
|
Diluted EPS | ||||
Diluted EPS Attributable to Mondelēz International for the Three Months Ended March 31, 2014 | $ | 0.09 | ||
Spin-Off Costs(2) | – | |||
2012-2014 Restructuring Program costs(3) | 0.03 | |||
Integration Program and other acquisition integration costs(4) | – | |||
Remeasurement of net monetary assets in Venezuela(5) | 0.09 | |||
Net earnings from divestitures(6)(7) | – | |||
Loss on debt extinguishment and related expenses(8) | 0.18 | |||
|
| |||
Adjusted EPS(1) for the Three Months Ended March 31, 2014 | $ | 0.39 | ||
Increase in operations | 0.09 | |||
Change in unrealized gains / (losses) on hedging activities | (0.01 | ) | ||
Impact of accounting calendar change(5) | 0.01 | |||
Gain on sale of property in 2014 | – | |||
Lower interest and other expense, net(9) | 0.01 | |||
Changes in shares outstanding(10) | 0.02 | |||
Changes in income taxes(11) | (0.02 | ) | ||
|
| |||
Adjusted EPS (constant currency)(1) for the Three Months Ended March 31, 2015 | $ | 0.49 | ||
Unfavorable currency—translation | (0.08 | ) | ||
|
| |||
Adjusted EPS(1) for the Three Months Ended March 31, 2015 | $ | 0.41 | ||
2012-2014 Restructuring Program costs(3) | – | |||
2014-2018 Restructuring Program costs(3) | (0.11 | ) | ||
Remeasurement of net monetary assets in Venezuela(5) | (0.01 | ) | ||
Income / (costs) associated with the planned coffee business transactions(6) | 0.20 | |||
Loss related to interest rate swaps(12) | (0.01 | ) | ||
Net earnings from divestitures(6)(7) | (0.02 | ) | ||
Acquisition-related costs(6) | – | |||
Loss on debt extinguishment and related expenses(8) | (0.27 | ) | ||
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Diluted EPS Attributable to Mondelēz International for the Three Months Ended March 31, 2015 | $ | 0.19 | ||
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(1) | Please see theNon-GAAP Financial Measures section at the end of this item. |
(2) | Refer to Note 2 to the consolidated financial statements in our Form 10-K for the year ended December 31, 2014 for more information on Spin-Off Costs |
(3) | Refer to Note 6,Restructuring Programs, for more information on our 2014-2018 Restructuring Program and our 2012-2014 Restructuring Program. |
(4) | Refer to Note 7 to the consolidated financial statements in our Form 10-K for the year ended December 31, 2014 for more information on our Cadbury Integration Program and other acquisition integration costs. |
(5) | Refer to Note 1,Basis of Presentation, for more information on the remeasurements of net monetary assets in Venezuela in the current and prior-year periods and the accounting calendar change in the current year. |
(6) | Refer to Note 2,Divestitures and Acquisitions, for more information on the planned coffee business transactions, the Enjoy Life Foods acquisition in our North America segment and a pending divestiture in our Asia Pacific segment. Note the $311 million realized gain and $240 million unrealized gain on the currency hedges related to the planned coffee business transactions were recorded in interest and other expense, net and are included in the income / (costs) associated with the planned coffee business transactions of $0.20 above. |
(7) | Includes divestitures and businesses for which we have entered into a sales agreement and cleared significant sale-related conditions such that the pending sale is probable as of the end of the reporting period. |
(8) | Refer to Note 7,Debt, for more information on our loss on debt extinguishment and related expenses in connection with our debt tender offer in March 2015. |
(9) | Excludes the favorable currency impact on interest expense related to our non-U.S. |
(11) | Refer to Note 13,Income Taxes, for more information on the change in our income taxes and effective tax rate. |
(12) | Refer to Note 8, Financial Instruments, for more information on our interest rate swaps which we |
Results of Operations by Reportable Segment
Our operations and management structure and segments are organized into five reportable operating segments:
Latin America
Asia Pacific
EEMEA
Europe
North America
We manage theour operations by region to leverage regional operating scale, manage different and changing business environments more effectively and pursue growth opportunities as they arise in our key markets. Beginning in 2015, within each region, we also manage by product category. In 2014, we managed our operations within Latin America, Asia Pacific and EEMEA by location and within Europe and North America by product category. Also, in 2015, we began to report stock-based compensation for our corporate employees, which was previously reported within our North America region, within general corporate expenses. During the first quarter of 2015, we reclassified $11 million of corporate stock-based compensation expense out of the North America segment.
The following discussion compares the net revenues and earnings of each of our reportable segments for the three and six months ended June 30, 2014 and 2013.
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues: | ||||||||||||||||
Latin America | $ | 1,242 | $ | 1,339 | $ | 2,598 | $ | 2,737 | ||||||||
Asia Pacific | 1,084 | 1,240 | 2,307 | 2,607 | ||||||||||||
EEMEA | 1,008 | 1,039 | 1,846 | 1,902 | ||||||||||||
Europe | 3,379 | 3,273 | 6,936 | 6,731 | ||||||||||||
North America | 1,723 | 1,704 | 3,390 | 3,362 | ||||||||||||
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Net revenues | $ | 8,436 | $ | 8,595 | $ | 17,077 | $ | 17,339 | ||||||||
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Earnings before income taxes: | ||||||||||||||||
Operating income: | ||||||||||||||||
Latin America | $ | 140 | $ | 162 | $ | 184 | $ | 254 | ||||||||
Asia Pacific | 111 | 129 | 299 | 318 | ||||||||||||
EEMEA | 146 | 112 | 210 | 173 | ||||||||||||
Europe | 463 | 369 | 926 | 775 | ||||||||||||
North America | 269 | 194 | 472 | 364 | ||||||||||||
Unrealized gains / (losses) on | (54 | ) | 24 | (47 | ) | 43 | ||||||||||
General corporate expenses | (63 | ) | (76 | ) | (135 | ) | (145 | ) | ||||||||
Amortization of intangibles | (55 | ) | (55 | ) | (109 | ) | (109 | ) | ||||||||
Gains on acquisition and divestitures, net | – | 6 | – | 28 | ||||||||||||
Acquisition-related costs | – | – | – | (2 | ) | |||||||||||
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Operating income | 957 | 865 | 1,800 | 1,699 | ||||||||||||
Interest and other expense, net | (224 | ) | (235 | ) | (944 | ) | (514 | ) | ||||||||
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Earnings before income taxes | $ | 733 | $ | 630 | $ | 856 | $ | 1,185 | ||||||||
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As discussed in Note 16,Segment Reporting, management usesWe 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 15,Segment operating income excludes unrealized gainsReporting, for additional information on our segments and losses on hedging activities (which are a componentItems Affecting Comparability 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 acquisitions and acquisition-related costs (which are a component of selling, general and administrative expenses)Financial Results earlier in all periods presented. We exclude thesethis section for items from segment operating income in order to provide better transparency ofaffecting our segment operating results. Furthermore, we centrally manage 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.
In connection with our 2014-2018 Restructuring Program, we recorded restructuring charges of $1 million during the three and six months ended June 30, 2014 in operations as part of asset impairment and exit costs. We also recorded implementation costs of $9 million during the three and six months ended June 30, 2014 in operations as a part of cost of sales and selling, general and administrative expenses. These charges were recorded within our Latin America segment and general corporate expenses.
In connection with our 2012-2014 Restructuring Program, we recorded restructuring charges of $54 million during the three months and $96 million during the six months ended June 30, 2014 and $48 million during the three months and $88 million during the six months ended June 30, 2013 in operations, as a part of asset impairment and exit costs. We also recorded implementation costs of $19 million during the three months and $43 million during the six months ended June 30, 2014 and $7 million during the three months and $11 million during the six months ended June 30, 2013 in operations, as a part of cost of sales and selling, general and administrative expenses. These charges were recorded primarily within our Europe, North America and EEMEA segments.
In connection with our Integration Program, we recorded reversals of Integration Program charges of $3 million during the three months and $5 million during the six months ended June 30, 2014 related to accruals no longer required. We recorded charges of $52 million during the three months and $73 million during the six months ended June 30, 2013. At June 30, 2014, $50 million of our net Integration Program liability was recorded within other current liabilities and $38 million, primarily related to leased facilities no longer in use, was recorded within other long-term liabilities. We recorded charges in the Integration Program in operations, as a part of selling, general and administrative expenses primarily within our Europe, Asia Pacific, Latin America and EEMEA segments.
On February 8, 2013, the Venezuelan government announced the devaluation of the official Venezuelan bolivar exchange rate from 4.30 bolivars to 6.30 bolivars to the U.S. dollar and the elimination of the second-tier, government-regulated SITME exchange rate previously applied to value certain types of transactions. In connection with the announced changes, we recorded a $54 million currency remeasurement loss related to the devaluation of our net monetary assets in Venezuela within selling, general and administrative expenses in our Latin America segment during the three months ended March 31, 2013.
On January 24, 2014, the Venezuelan government announced the expansion of the auction-based currency transaction program referred to as SICAD or SICAD I and new profit margin controls. The application of the SICAD I rate was extended to include foreign investments and significant operating activities, including contracts for leasing and services, use and exploitation of patents and trademarks, payments of royalties and contracts for technology import and technical assistance. As of June 30, 2014, the SICAD I exchange rate was 10.60 bolivars to the U.S. dollar.
Additionally, on March 24, 2014, the Venezuelan government launched a new market-based currency exchange market, SICAD II. SICAD II may be used voluntarily to exchange bolivars into U.S. dollars. As of June 30, 2014, the SICAD II exchange rate was 49.98 bolivars to the U.S. dollar. There have been few market transactions to date and we continue to evaluate the new SICAD II market.
Our Venezuelan operations produce a wide range of biscuit, cheese & grocery, confectionery and beverage products. Based on the currency exchange developments this quarter, we have reviewed our domestic and international sourcing of goods and services and the exchange rates we believe will be applicable. We evaluated the level of primarily raw material imports that we believe would continue to be sourced in exchange for U.S. dollars converted at the official 6.30 exchange rate. Our remaining imported goods and services would primarily be valued at the SICAD I exchange rate. Imports that do not currently qualify for either the official rate or SICAD I rate may be sourced at the SICAD II rate.
We believe the SICAD I rate is the most appropriate rate to use as it is most representative of the various exchange rates at which U.S. dollars are currently available to our entire Venezuelan business. While some of our net monetary assets or liabilities qualify for settlement at the official exchange rate, other operations do not, and we have utilized both the SICAD I and SICAD II auction processes. In addition, there is significant uncertainty about our ability to secure approval for transactions and the limited availability of U.S. dollars offered at the official rate. As such, we believe it is more economically representative to use the SICAD I rate than the official rate to value our net monetary assets and translate future operating results.
As of March 31, 2014, we began to apply the SICAD I exchange rate to remeasure our bolivar-denominated net monetary assets, and we began translating our Venezuelan operating results at the new rate in the second quarter of 2014. On March 31, 2014, we recognized a $142 million currency remeasurement loss within selling, general and administrative
expenses of our Latin America segment as a result of revaluing our bolivar-denominated net monetary assets from the official exchange rate of 6.30 bolivars to the U.S. dollar to the then-prevailing SICAD I exchange rate of 10.70 bolivars to the U.S. dollar. For the three months ended June 30, 2014, the impact of the SICAD I rate change was not significant and there were no additional remeasurement charges recorded in operating income.
The following table sets forth net revenues for our Venezuelan operations for the three and six months ended June 30, 2014 (with the first quarter translated at the 6.30 official rate prior to the remeasurement), and cash, net monetary assets and net assets of our Venezuelan subsidiaries as of June 30, 2014 (translated at 10.70 bolivars to the U.S. dollar):earnings were:
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For the Three Months Ended | ||||||||
March 31, | ||||||||
2015 | 2014 | |||||||
(in millions) | ||||||||
Net revenues: | ||||||||
Latin America | $ | 1,257 | $ | 1,356 | ||||
Asia Pacific | 1,153 | 1,223 | ||||||
EEMEA | 695 | 838 | ||||||
Europe | 2,975 | 3,557 | ||||||
North America | 1,682 | 1,667 | ||||||
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Net revenues | $ | 7,762 | $ | 8,641 | ||||
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The SICAD I and II rates are variable rates. Unlike the official rate that was devalued and fixed at 6.30 bolivars to the U.S. dollar, the SICAD I rate reflects currently offered rates based on recently cleared auction transactions, and the SICAD II rate reflects voluntary market-based currency exchange transactions cleared by the Central Bank of Venezuela. As such, these rates are expected to vary over time. If any of the rates, or application of the rates to our business, were to change, we may recognize additional currency losses or gains, which could be significant.
In light of the current difficult macroeconomic environment in Venezuela, we continue to monitor and actively manage our investment and exposures in Venezuela. We have taken protective measures against currency devaluation, such as converting monetary assets into non-monetary assets that we can use in our business. However, suitable protective measures have become less available and more expensive and may not be available to offset further currency devaluation that could occur.
On January 23, 2014, the Central Bank of Argentina adjusted its currency policy, removed its currency stabilization measures and allowed the Argentine peso exchange rate to float relative to the U.S. dollar. On that day, the value of the Argentine peso relative to the U.S. dollar fell by 15%, and from December 31, 2013 through June 30, 2014, the value of the peso declined 25%. Further volatility and declines in the exchange rate are expected. Based on the current state of Argentine currency rules and regulations, the business environment remains challenging; however, we do not expect the existing controls and restrictions to have a material adverse effect on our business, financial condition or results of operations. Our Argentinian operations contributed approximately $170 million, or 2.0% of consolidated net revenues, in the three months and $340 million, or 2.0% of consolidated net revenues, in the six months ended June 30, 2014. Argentina is not designated as a highly-inflationary economy at this time for accounting purposes, so we continue to record currency translation adjustments within equity and realized exchange gains and losses on transactions in earnings.
During the three months ended June 30, 2013, we completed two divestitures within our EEMEA segment which generated cash proceeds of $48 million and pre-tax gains of $6 million. The divestitures included a salty snacks business in Turkey and a confectionery business in South Africa. The aggregate operating results of these divestitures were not material to our condensed consolidated financial statements during the periods presented.
On February 22, 2013, we acquired the remaining interest in a biscuit operation in Morocco, which is now a wholly-owned subsidiary within our EEMEA segment. We paid net cash consideration of $119 million, consisting of $155 million purchase price net of cash acquired of $36 million. During the three months ended March 31, 2013, we also recorded a pre-tax gain of $22 million related to the remeasurement of our previously-held equity interest in the operation to fair value in accordance with U.S. GAAP and acquisition costs of $7 million in selling, general and administrative expenses and interest and other expense, net. We recorded integration charges of $2 million for the three months and $3 million for the six months ended June 30, 2014 and $1 million for the three months ended June 30, 2013 within selling, general and administrative expenses.
For the Three Months Ended | ||||||||
March 31, | ||||||||
2015 | 2014 | |||||||
(in millions) | ||||||||
Earnings before income taxes: | ||||||||
Operating income: | ||||||||
Latin America | $ | 154 | $ | 44 | ||||
Asia Pacific | 146 | 188 | ||||||
EEMEA | 32 | 64 | ||||||
Europe | 326 | 463 | ||||||
North America | 281 | 203 | ||||||
Unrealized gains / (losses) on hedging activities | (7 | ) | 7 | |||||
General corporate expenses | (74 | ) | (72 | ) | ||||
Amortization of intangibles | (46 | ) | (54 | ) | ||||
Acquisition-related costs | (1 | ) | – | |||||
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Operating income | 811 | 843 | ||||||
Interest and other expense, net | (386 | ) | (720 | ) | ||||
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Earnings before income taxes | $ | 425 | $ | 123 | ||||
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Net changes in unrealized gains / (losses) relate to currency and commodity hedging activity and were $(54) million for the three months and $(47) million for the six months ended June 30, 2014 and $24 million for the three months and $43 million for the six months ended June 30, 2013. Once realized, the gains or losses are reclassified to segment operating income.
The $13 million decrease in general corporate expenses in the three months ended June 30, 2014 was due primarily to lower corporate functions/project expenses and other general corporate expenses, partially offset by implementation costs incurred for the 2014-2018 Restructuring Program. Corporate functions/project expenses decreased $12 million from $56 million to $44 million, primarily due to certain personnel-related support costs that were migrated to our North America segment. The $10 million decrease in general corporate expenses for the six months ended June 30, 2014 was due primarily to lower Spin-Off Costs and lower other general corporate expenses, partially offset by implementation costs incurred for the 2014-2018 Restructuring Program and higher corporate functions/project expenses. Spin-Off Costs within general corporate expenses decreased $7 million from $24 million to $17 million. Implementation costs incurred for the 2014-2018 Restructuring Program of $8 million were charged to general corporate expense. Corporate functions/project expenses increased $1 million from $109 million to $110 million, driven by charges due to an unclaimed property liability and a legal matter, mostly offset by certain personnel-related support costs that were migrated to our North America segment and continued costs management efforts.
The $11 million decrease in interest and other expense, net in the three months ended June 30, 2014 was due primarily to lower interest expense due to recently refinanced long-term debt. The $430 million increase in interest and other expense, net for the six months ended June 30, 2014 was due primarily to the $495 million loss on debt extinguishment and related expenses, partially offset by lower interest expense due to recently refinanced long-term debt.
Latin America
For the Three Months Ended June 30, | ||||||||||||||||
2014 | 2013 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 1,242 | $ | 1,339 | $ | (97 | ) | (7.2% | ) | |||||||
Segment operating income | 140 | 162 | (22 | ) | (13.6% | ) |
For the Six Months Ended June 30, | ||||||||||||||||
2014 | 2013 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 2,598 | $ | 2,737 | $ | (139 | ) | (5.1% | ) | |||||||
Segment operating income | 184 | 254 | (70 | ) | (27.6% | ) |
Three Months Ended June 30:
For the Three Months Ended March 31, | ||||||||||||||||
2015 | 2014 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 1,257 | $ | 1,356 | $ | (99 | ) | (7.3)% | ||||||||
Segment operating income | 154 | 44 | 110 | 250.0% |
Net revenues decreased $97$99 million (7.2%(7.3%), due to unfavorable currency (19.0(26.2 pp) and unfavorable volume/mix (6.9 pp), partially offset by higher net pricing (18.7 pp). Unfavorable currency impacts were due primarily to the Venezuelan bolivar devaluation in March 2014 and the strength of the U.S. dollar relative to the Argentinean peso and Brazilian real. Unfavorable volume/mix was driven primarily by Mexico, Venezuela and Argentina, partially offset by gains in Brazil (including a benefit from the later timing of Easter) and the Western Andean countries. Higher net pricing was reflected primarily in higher inflationary countries, Venezuela and Argentina, as well as in Brazil and Mexico.
Segment operating income decreased $22 million (13.6%), due primarily to higher raw material costs, unfavorable volume/mix, unfavorable currency and higher manufacturing costs, partially offset by higher net pricing and lower other selling, general and administrative expenses.
Six Months Ended June 30:
Net revenues decreased $139 million (5.1%), due to unfavorable currency (18.4 pp) and unfavorable volume/mix (4.0 pp), partially offset by higher net pricing (17.3 pp). Unfavorable currency impacts were due primarily to the Venezuelan bolivar devaluation in February 2013 and March 2014 and the strength of the U.S. dollar relative to the Argentinean peso and Brazilian real. Unfavorable volume/mix was driven primarily by Venezuela, Mexico and Argentina, partially offset by gains in the Western Andean countries and Brazil. Higher net pricing was reflected primarily in higher inflationary countries, Venezuela and Argentina, as well as in Brazil and Mexico.
Segment operating income decreased $70 million (27.6%), due primarily to higher raw material costs, the year-over-year net impact from the remeasurement of net monetary assets in Venezuela, unfavorable currency, unfavorable volume/mix and higher 2012-2014 Restructuring Program costs, partially offset by higher net pricing, the absence of Integration Program costs in the first six months of 2014 and lower other selling, general and administrative expenses.
Asia Pacific
For the Three Months Ended June 30, | ||||||||||||||||
2014 | 2013 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 1,084 | $ | 1,240 | $ | (156 | ) | (12.6% | ) | |||||||
Segment operating income | 111 | 129 | (18 | ) | (14.0% | ) |
For the Six Months Ended June 30, | ||||||||||||||||
2014 | 2013 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 2,307 | $ | 2,607 | $ | (300 | ) | (11.5% | ) | |||||||
Segment operating income | 299 | 318 | (19 | ) | (6.0% | ) |
Three Months Ended June 30:
Net revenues decreased $156 million (12.6%), due to unfavorable volume/mix (9.9 pp) and unfavorable currency (4.3 pp), partially offset by higher net pricing (1.6(23.2 pp). Unfavorable volume/mix was driven primarily by China, Australia/New Zealand and Indonesia, partially offset by gains in India. Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to most currencies in the Australian dollarregion, including the Venezuelan bolivar, Brazilian real, Argentinean peso and Indian rupee.Mexican peso. Unfavorable volume/mix was largely due to the impact of pricing-related elasticity as well as strategic decisions to exit certain low-margin product lines, partially offset by the shift of Easter-related shipments into the first quarter. By category, the unfavorable volume/mix was driven primarily by declines in refreshment beverages, cheese & grocery and biscuits, partially offset by gains in gum & candy. Higher net pricing was reflected across all categories. Both the unfavorable volume/mix and higher net pricing were driven primarily due to India, Indonesiaby the higher inflationary countries of Venezuela and the Philippines.Argentina.
Segment operating income decreased $18increased $110 million (14.0%(250.0%), primarily due primarily to higher net pricing, lower remeasurement losses related to our net monetary assets in Venezuela and lower manufacturing costs. These favorable items were partially offset by higher raw material costs, andunfavorable currency, costs incurred for the 2014-2018 Restructuring Program, unfavorable volume/mix partially offset by lower manufacturing costs, lower other selling, general and administrative expenses, lowerhigher advertising and consumer promotion costs, higher net pricing and the absence of Integration Program costs in 2014.costs.
Six Months Ended June 30:Asia Pacific
For the Three Months Ended March 31, | ||||||||||||||||
2015 | 2014 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 1,153 | $ | 1,223 | $ | (70 | ) | (5.7 | )% | |||||||
Segment operating income | 146 | 188 | (42 | ) | (22.3 | )% |
Net revenues decreased $300$70 million (11.5%(5.7%), due to unfavorable volume/mix (6.7currency (6.0 pp) and unfavorable currency (6.1volume/mix (2.7 pp), partially offset by higher net pricing (1.3(3.0 pp). Unfavorable volume/mix was driven primarily by China, Australia/New Zealand, Indonesia and Thailand, partially offset by gains in India. Unfavorable currency impacts were due primarily to the strength of the U.S. dollar relative to most currencies in the region, including the Australian dollar, Indian rupeeJapanese yen and Indonesian rupiah.Chinese yuan. Unfavorable volume/mix was largely due to the impact of pricing-related elasticity as well as strategic decisions to exit certain low-margin product lines. By category, unfavorable volume/mix was driven by declines in cheese & grocery, biscuits, refreshment beverages, candy and chocolate. Higher net pricing was primarily due to India, Indonesia and the Philippines.reflected across all categories except refreshment beverages.
Segment operating income decreased $19$42 million (6.0%(22.3%), primarily due primarily to higher raw material costs, unfavorable volume/mix and unfavorable currency, partially offset by lower manufacturing costs lowerincurred for the 2014-2018 Restructuring Program, higher other selling, general and administrative expenses (including a phase-out of a local tax incentive program), unfavorable currency and unfavorable volume/mix. These unfavorable items were partially offset by higher net pricing, lower manufacturing costs and lower advertising and consumer promotion costs, higher net pricing and the absence of Integration Program costs in 2014.
EEMEA
For the Three Months Ended June 30, | ||||||||||||||||
2014 | 2013 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 1,008 | $ | 1,039 | $ | (31 | ) | (3.0% | ) | |||||||
Segment operating income | 146 | 112 | 34 | 30.4% |
For the Six Months Ended June 30, | ||||||||||||||||
2014 | 2013 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 1,846 | $ | 1,902 | $ | (56 | ) | (2.9% | ) | |||||||
Segment operating income | 210 | 173 | 37 | 21.4% |
Three Months Ended June 30:
For the Three Months Ended March 31, | ||||||||||||||||
2015 | 2014 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 695 | $ | 838 | $ | (143 | ) | (17.1 | )% | |||||||
Segment operating income | 32 | 64 | (32 | ) | (50.0 | )% |
Net revenues decreased $31$143 million (3.0%(17.1%), due to unfavorable currency (9.2 pp) and the impact of divestitures (0.1(28.2 pp), partially offset by favorable volume/mix (3.3 pp) and higher net pricing (3.0(9.9 pp). Unfavorable currency impacts were due to the strength of the U.S. dollar relative to most currencies in the region, primarily the Ukrainian hryvnya, Russian ruble, Turkish lira and South African rand. Divestitures completed in 2013 resulted in a $1 million decline in net revenues. Favorable volume/mix was driven primarily by the Gulf Cooperation Council (“GCC”) countries and Turkey. Higher net pricing was reflected across most of the segment, primarily in Russia and Turkey.
Segment operating income increased $34 million (30.4%), due primarily to higher net pricing, the absence of Integration Program costs in 2014, lower advertising and consumer promotion costs, lower manufacturing costs, favorable volume/mix and lower other selling, general and administrative expenses, partially offset by higher raw material costs, unfavorable currency and higher 2012-2014 Restructuring Program costs.
Six Months Ended June 30:
Net revenues decreased $56 million (2.9%), due to unfavorable currency (9.7 pp) and the impact of divestitures (1.0 pp), partially offset by favorable volume/mix (4.3 pp), higher net pricing (2.7 pp) and the impact of the February 2013 acquisition of a biscuit operation in Morocco (0.8(1.2 pp). Unfavorable currency impacts were due to the strength of the U.S. dollar relative to most currencies in the region, primarily the Russian ruble and Ukrainian hryvnya, South African randhryvnya. Higher net pricing was reflected across most categories, except cheese & grocery and Turkish lira. Divestitures completed in 2013 resulted in a $20 million decline in net revenues.refreshment beverages. Favorable volume/mix was driven primarily by the GCC countries, Russiagains in biscuits, coffee, refreshment beverages and Turkey. Higher net pricing was reflected across most of the segment, primarilycheese & grocery, partially offset by declines in Turkeychocolate and Russia. The acquisition of a biscuit operation in Morocco in February 2013 added $14 million in incremental net revenues for the first six months of 2014 for the period prior to the anniversary date of the acquisition.gum.
Segment operating income increased $37decreased $32 million (21.4%(50.0%), primarily due primarily to higher net pricing, favorable volume/mix, lower manufacturingraw material costs, the absence of Integration Program costs in 2014, lowerhigher advertising and consumer promotion costs and costs incurred for the impact of 2013 divestitures,2014-2018 Restructuring Program. These unfavorable items were partially offset by higher raw materialnet pricing, lower manufacturing costs, unfavorable currency, higher other selling, generalfavorable volume/mix and administrative expenses and higherthe absence of 2012-2014 Restructuring Program costs.
Europe
For the Three Months Ended June 30, | ||||||||||||||||
2014 | 2013 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 3,379 | $ | 3,273 | $ | 106 | 3.2% | |||||||||
Segment operating income | 463 | 369 | 94 | 25.5% |
For the Six Months Ended June 30, | ||||||||||||||||
2014 | 2013 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 6,936 | $ | 6,731 | $ | 205 | 3.0% | |||||||||
Segment operating income | 926 | 775 | 151 | 19.5% |
Three Months Ended June 30:
For the Three Months Ended March 31, | ||||||||||||||||
2015 | 2014 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 2,975 | $ | 3,557 | $ | (582 | ) | (16.4 | )% | |||||||
Segment operating income | 326 | 463 | (137 | ) | (29.6 | )% |
Net revenues increased $106decreased $582 million (3.2%(16.4%), due to favorableunfavorable currency (5.2(15.8 pp) and unfavorable volume/mix (4.0 pp), partially offset by unfavorable volume/mix (1.6 pp), lowerhigher net pricing (0.3 pp) and the impact of divestitures (0.1(3.4 pp). FavorableUnfavorable currency impacts primarily reflected the strength of the U.S. dollar against most currencies in the region, including the euro and British pound sterling relativesterling. Unfavorable volume/mix was largely due to the U.S. dollar. Unfavorable volume/mix, netimpact of the benefit from the later timing of Easter, was driven primarily by lower shipments in chocolate and gum & candy,pricing-related elasticity as well as strategic decisions to exit certain low-margin product lines, partially offset by favorable product the shift of Easter-related shipments into the first quarter. By category, unfavorable volume/mix was driven by declines in coffee. Lowerchocolate, coffee, gum and cheese & grocery. Higher net pricing was driven by chocolate and coffee, partially offset by lower net pricing in biscuits and gum & candy.
Segment operating income decreased $137 million (29.6%), primarily bydue to costs incurred for the 2014-2018 Restructuring Program, higher raw material costs, unfavorable currency, unfavorable volume/mix and costs associated with the planned coffee which reflected the pass-through of lower green coffee costs,business transactions. These unfavorable items were partially offset by higher net pricing, in chocolate. Divestitures completed in 2013 resulted in a $3 million decline in net revenues.
Segment operating income increased $94 million (25.5%), due primarily to lower manufacturing costs, lower other selling, general and administrative expenses, lower advertising and consumer promotion costs, favorable currency and lower Integration Program costs (including the reversalabsence of a prior-year accrual), partially offset by unfavorable volume/mix, higher 2012-2014 Restructuring Program costs, lower net pricing and costs associated with the JDE coffee transactions.
Six Months Ended June 30:
Net revenues increased $205 million (3.0%), due to favorable currency (4.6 pp), partially offset by lower net pricing (1.1 pp), unfavorable volume/mix (0.4 pp) and the impact of divestitures (0.1 pp). Favorable currency impacts primarily reflected the strength of the euro and British pound sterling relative to the U.S. dollar. Lower net pricing was driven primarily by coffee, which reflected the pass-through of lower green coffee costs, partially offset by higher net pricing in chocolate and cheese & grocery. Unfavorable volume/mix was driven by lower shipments in gum & candy, chocolate and cheese & grocery, partially offset by favorable product mix in coffee. Divestitures completed in 2013 resulted in a $6 million decline in net revenues.
Segment operating income increased $151 million (19.5%), due primarily to lower manufacturing costs, lower other selling, general and administrative expenses (including a gain on a sale of property), favorable currency, lower advertising and consumer promotion costs and lower Integration Program costs (includingother selling, general and administrative expenses (net of the reversalunfavorable year-over-year impact from the 2014 gain on a sale of a prior-year accrual), partially offset by lower net pricing, higher 2012-2014 Restructuring Program costs, higher raw material costs (including higher cocoa and dairy costs, net of lower green coffee costs) and costs associated withproperty in the JDE coffee transactions.
North America
For the Three Months Ended June 30, | ||||||||||||||||
2014 | 2013 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 1,723 | $ | 1,704 | $ | 19 | 1.1% | |||||||||
Segment operating income | 269 | 194 | 75 | 38.7% |
For the Six Months Ended June 30, | ||||||||||||||||
2014 | 2013 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 3,390 | $ | 3,362 | $ | 28 | 0.8% | |||||||||
Segment operating income | 472 | 364 | 108 | 29.7% |
Three Months Ended June 30:
For the Three Months Ended March 31, | ||||||||||||||||
2015 | 2014 | $ change | % change | |||||||||||||
(in millions) | ||||||||||||||||
Net revenues | $ | 1,682 | $ | 1,667 | $ | 15 | 0.9% | |||||||||
Segment operating income | 281 | 203 | 78 | 38.4% |
Net revenues increased $19$15 million (1.1%(0.9%), due to favorable volume/mix (1.6the impact of an accounting calendar change (2.3 pp), the impact of acquisitions (0.3 pp) and higher net pricing (1.1(0.1 pp), partially offset by unfavorable currency (1.0(1.4 pp) and the impact of divestitures (0.6unfavorable volume/mix (0.4 pp). Favorable volume/mix was driven primarily by higher shipmentsThe change in biscuits and gum & candy, partially offset by lower shipmentsNorth America’s accounting calendar added net revenues of $39 million. The acquisition of the Enjoy Life Foods snacking business in chocolate.February 2015 added net revenues of $5 million. Higher net pricing was reflected primarily in biscuitsgum and candy,chocolate, partially offset by lower net pricing in chocolatecandy and gum.biscuits. Unfavorable currency impact was due to the strength of the U.S. dollar relative to the Canadian dollar. Divestitures completed in 2013 resultedUnfavorable volume/mix was largely due to a change in a $10 million declinelarge customer’s strategy that reduced merchandising and display opportunities within its stores, partially offset by the shift of Easter-related shipments into the first quarter. By category, the unfavorable volume/mix was driven by declines in net revenues.gum, chocolate and biscuits, partially offset by a gain in candy.
Segment operating income increased $75$78 million (38.7%(38.4%), primarily due primarily to lower raw materialmanufacturing costs, higher net pricing, favorable volume/mix, lower other selling, general and administrative expenses and lowerthe absence of 2012-2014 Restructuring Program costs.
Six Months Ended June 30:
Net revenues increased $28 million (0.8%), due to higher net pricing (1.3 pp) and favorable volume/mix (1.3 pp), partially offset by unfavorable currency (1.1 pp) and the impact of divestitures (0.7 pp). Higher net pricing was reflected primarily in biscuits and candy, partially offset by lower net pricing in chocolate and gum. Favorable volume/mix was driven primarily by higher shipments in biscuits, partially offset by lower shipments in chocolate and unfavorable product mix in gum & candy. Unfavorable currency impact was due to the strength of the U.S. dollar relative to the Canadian dollar. Divestitures completed in 2013 resulted in a $22 million decline in net revenues.
Segment operating income increased $108 million (29.7%), due primarily to higher net pricing, lower raw material costs, lower other selling, general and administrative expenses, favorable volume/mixthe impact of an accounting calendar change and lower advertising and consumer promotion costs,raw material costs. These favorable items were partially offset by higher manufacturing costs incurred for the 2014-2018 Restructuring Program and the impact of divestitures.unfavorable volume/mix.
Liquidity and Capital Resources
We believe that cash from operations, our $4.5 billion revolving credit facility (which supports our commercial paper program) and our authorized long-term financing will provide sufficient liquidity to meetfor our working capital needs, planned capital expenditures, future contractual obligations, share repurchases and payment of our anticipated quarterly dividends. We continue to maintain investment grade credit ratings on our debt. We continue to utilize our commercial paper program, primarily uncommitted international credit lines and long-term debt issuances for regular funding requirements. We also use intercompany loans with our international subsidiaries to improve financial flexibility. Overall, we do not expect any negative effects to our funding sources that would have a material effect on our liquidity, including the indefinite reinvestment of our earnings outside of the United States. In Venezuela, we consider all undistributed earnings to be indefinitely reinvested and access to cash of $261$313 million in Venezuela to be limited due to the uncertain economic and political environment. We do not expect this limitation to have a material adverse effect on our liquidity. Refer to Note 1,Basis of Presentation — Currency Translation and Highly Inflationary Accounting, for additional information.
Net Cash Provided By Operating Activities:
During the first six months of 2014, net cash provided by operating activities was $368 million, compared with $418 million provided in the first six months of 2013. Net cash provided by operating activities decreased primarily due to higher working capital costs, mainly due to higher income taxes paid in 2014 related to the resolution of the Starbucks arbitration in the fourth quarter of 2013, partially offset by the lengthening of days that payables are outstanding, lower interest payments and acceleration of accounts receivable collection and increased earnings on a cash basis.
Net Cash Used In Operating Activities:
Net cash used in operating activities was $282 million in the first quarter of 2015 and $577 million in the first quarter of 2014. Cash flows from operating activities were favorably impacted primarily due to significant tax payments in the prior year related to the $2.6 billion Starbucks arbitration award we received in late 2013 and net working capital improvements in the current year, partially offset by higher expenditures related to our pension and postretirement obligations.
Net Cash Provided by / Used in Investing Activities:
DuringNet cash provided by investing activities was $417 million in the first six monthsquarter of 2014,2015 and net cash used in investing activities was $698$317 million compared with $582 million used in the first six monthsquarter of 2013. In the first half of 2014 and 2013,2014. The increase in net cash used inprovided by investing activities consisted primarily relates to the cash receipt of $939 million due to the settlement of currency exchange forward contracts related to our planned coffee business transactions, partially offset by $113 million of higher capital expenditures with an increaseand $81 million of payments to acquire the Enjoy Life Foods snacking business.
Capital expenditures were $439 million for the three months ended March 31, 2015 and $326 million in 2014 relatedthe three months ended March 31, 2014. Capital expenditures were made primarily to building new plants, modernizingmodernize manufacturing facilities and launchingsupport new product and productivity initiatives. Net cash used in 2013 also included cash paid in connection with the 2013 acquisition of a biscuit operation in Morocco, partially offset by cash received from Kraft Foods Group related to the Spin-Off and proceeds from divestitures in 2013.
We expect 20142015 capital expenditures to be up to $2.0$1.8 billion, including capital expenditures required for investments in systems the 2012-2014 Restructuring Program and the 2014-2018 Restructuring Program, including the acceleration of the supply chain reinvention program.Program. We expect to continue to fund these expenditures from operations and commercial paper issuances.operations.
Net Cash Used InProvided by Financing Activities:
During the first six months of 2014, netNet cash used inprovided by financing activities was $163$185 million compared with $1,728 million used in the first six monthsquarter of 2013. Net2015 and $630 million in the first quarter of 2014. The decrease in net cash used inprovided by financing activities decreasedwas primarily due to the issuancehigher repayments of long-term debt in the first quarter of 20142015 (including the tender offer, euro notes maturity and issuances ofshort-dated commercial paper in the first and second quarters of 2014, offset in part by an increase in long-term debt repaid, commercial paper and other short-term borrowings repaid and share repurchases.
Borrowing Arrangements:
We maintain a revolving credit facility for general corporate purposes, including for working capital requirements and to support our commercial paper program. Our $4.5 billion five-year senior unsecured revolving credit facility expires on October 11, 2018. The revolving credit agreement includes a covenant that we maintain a minimum shareholders’ equity of at least $24.6 billion, excluding accumulated other comprehensive earnings / (losses) and the cumulative effects of any changes in accounting principles. At June 30, 2014, we met the covenantnet borrowings) as our shareholders’ equitywell as defined by the covenant was $35.0 billion. The revolving credit agreement 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. As of June 30, 2014, no amounts were drawn on the facility.
Some of our international subsidiaries maintain primarily uncommitted credit lines to meet short-term working capital needs. Collectively, these credit lines amounted to $2.1 billion at June 30, 2014 and $1.8 billion at December 31, 2013. Borrowings on these lines amounted to $362 million at June 30, 2014 and $226 million at December 31, 2013.
Long-Term Debt:
We regularly evaluate our variable and fixed-rate debt and recently refinanced $6.4$1 billion of our long-term U.S. dollar denominated debt for lower cost long-term euro and U.S. dollar-denominated debt. We continued to use lower cost short and long-term debt to finance our ongoing working capital, capital and other investments, dividends andhigher share
repurchases. Our weighted-average interest rate on our total debt as of December 31, 2013 was 4.8%, down from 5.8% as of December 31, 2012. Following the completion of our tender offer and debt retirement in the first quarter of 2014, our weighted-average interest rate on our total debt as of June 30, 2014 was 4.2%.
On February 19, 2014, $500 million of our 6.75% U.S. dollar notes matured. The notes and accrued interest to date were paid with cash on hand and the issuance of commercial paper.
On February 6, 2014, we completed a cash tender offer and retired $1.56 billion of our long-term U.S. dollar debt consisting of:
$393 million of our 7.000% Notes due in August 2037
$382 million of our 6.875% Notes due in February 2038
$250 million of our 6.875% Notes due in January 2039
$535 million of our 6.500% Notes due in February 2040
We financed the repurchase of these notes, including the payment of accrued interest and other costs incurred, from net repurchases, partially offset by higher proceeds received from the $3.0 billion notes issuance on January 16, 2014. In connection with retiring this debt, during the first six months of 2014, we recorded a $493 million loss on extinguishment of debt within interest expense related to the amount we paid to retire the debt in excess of its carrying value and from recognizing unamortized discounts and deferred financing costs in earnings at the time of the debt extinguishment. The loss on extinguishment is included in long-term debt repayments in the 2014 consolidated statement of cash flows. We also recognized $2 million in interest expense related to interest rate cash flow hedges that were deferred in accumulated other comprehensive losses and recognized into earnings over the life of the debt. Upon extinguishing the debt, the deferred cash flow hedge amounts were recorded in earnings.
On January 16, 2014, we issued $3.0 billion of U.S. dollar notes, consisting of:
$400 million of floating rate notes that bear interest at a rate equal to three-month LIBOR plus 0.52% and mature on February 1, 2019
$850 million of 2.250% fixed rate notes that mature on February 1, 2019
$1,750 million of 4.000% fixed rate notes that mature on February 1, 2024
We received net proceeds of $2,982 million that were used to fund the February 2014 tender offer, pay down commercial papershort-term borrowings and for other general corporate purposes. We recorded approximately $18 million of discounts and deferred financing costs, which will be amortized into interest expense over the life of the notes.long-term note issuances.
We expect to continue to comply with our long-term debt covenants. Refer to our Annual Report on Form 10-K for the year ended December 31, 2013 for further details of our debt covenants.
Total Debt:
Our total debt was $18.5 billion at June 30, 2014 and $17.1 billion at December 31, 2013. Our debt-to-capitalization ratio was 0.36 at June 30, 2014 and 0.35 at December 31, 2013. At June 30, 2014, the weighted-average term of our outstanding long-term debt was 7.8 years.
From time to time we refinance long-term and short-term debt. Refer to Note 7,Debt, for details of our tender offer and debt issuances during the first quarter of 2015. The nature and amount of our long-term and short-term debt and the proportionate amount of each varies as a result of futurecurrent and expected business requirements, market conditions and other factors. Generally, in the first and second quarters of the year, our working capital requirements grow, increasing the need for short-term financing. The third and fourth quarters of the year typically generate 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.
In February 2014, our Board of Directors approved a new $5 billion long-term financing authority that superseded the prior authority. AllAs of the $5March 31, 2015, we had $1.5 billion remaining long-term financing authority remains available as of June 30, 2014.authority.
In the next 12 months, $2,225$2,179 million of long-term debt will mature as follows: $513€400 million ($429 million as of March 31, 2015) in June 2015 and $1,750 million in December 2014, $1,164 million in March 2015 and $548 million in June 2015.February 2016. We expect to fund these repayments with cash from operations and the issuance of commercial paper or additional debt.
Our total debt was $18.7 billion at March 31, 2015 and $16.7 billion at December 31, 2014. Our debt-to-capitalization ratio was 0.43 at March 31, 2015 and 0.38 at December 31, 2014. At March 31, 2015, the weighted-average term of our outstanding long-term debt was 8.5 years. Our average daily commercial borrowings were $2.5 billion during the first quarter of 2015 and $1.8 billion for the first quarter of 2014. We expect to continue to comply with our long-term debt covenants. Refer to Note 7,Debt, for more information on our debt and debt covenants.
Commodity Trends
We purchase and use large quantities of commodities, including sugar and other sweeteners, coffee, cocoa, wheat, corn products, soybean and vegetable oils and dairy. In addition, we purchase and use significant quantities of packaging
materials to package our products and natural gas, fuels and electricity for our factories and warehouses. We regularly monitor worldwide supply, commodity cost and costcurrency trends of these commodities so we can cost-effectively secure ingredients, packaging and packagingfuel required for production.
Significant cost items in biscuits, chocolate, gum, candy and many powdered beverage products are sugar and cocoa. We purchase sugar and cocoa on world markets, and the quality and availability of supply and changes in currencies affect the prices of these commodities. During the first six months of 2014, cocoa bean and cocoa butter costs rose significantly due to growing demand for chocolate. Significant cost items in our biscuit products are grains (primarily wheat, corn and soybean oil). In recent years, grain costs have been affected largely by the burgeoning global demand for food, livestock feed and biofuels such as ethanol and biodiesel, as well as other factors such as weather. The most significant cost item in coffee products is green coffee beans, which we purchase on world markets as well as from local grower cooperatives. Green coffee bean prices are affected by the quality and availability of supply, changes in the value of the U.S. dollar in relation to other currencies and consumer demand for coffee products. During the first six months of 2014, coffee bean costs have risen significantly since 2013, primarily due to the threat of reduced supply because of poor weather conditions in leading coffee producing countries such as Brazil. Significant cost items in packaging include cardboards, resins and plastics, and our energy costs include natural gas, electricity and diesel fuel. We purchase these packaging and energy commodities on world markets and within the countries where we operate. Supply and changes in currencies affect the prices of these commodities.
During the sixthree months ended June 30, 2014,March 31, 2015, the primary drivers of the increase in our aggregate commodity costs were increased costs for coffee beans, cocoa, dairy,nuts, packaging, energy, grains and energy costs as well asoils and higher currency-related costs on our commodity purchases. Our covered coffee bean costs were lower in the first six months of 2014, whichpurchases, partially offset these increased aggregate commodity costs. We generally price to protect gross profit dollars. We address higher commodityby lower costs for dairy and currency impacts primarily through higher pricing, hedging and manufacturing and overhead cost control. In particular for the coffee category, we adjust our prices and pass through changes in green coffee costs, which affect our net revenues but generally do not affect our bottom-line profitability over time. Our pricing actions may lag commodity cost changes temporarily as competitive or market conditions, planned trade or promotional incentives, or other factors could affect the timing of pricing decisions. We expect price volatility and a slightly higher aggregate cost environment to continue over the remainder of 2014.sugar.
A number of external factors such as 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 alsoaddress 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,materials; however, we domay not be able to fully hedge against changes in commodity costs,cost changes, 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 slightly higher aggregate cost environment to continue in 2015. 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. However, any significant constraints in the supply of key commodities may limit our ability to grow our net revenues for a period of time.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
See Note 8,7,Debt, for information on debt transactions during the first six monthsquarter of 2014,2015, including the February 19, 2014March 30, 2015 issuance offr.675 million of Swiss franc notes, the March 20, 2015 repayment of $500€850 million of matured U.S. dollareuro notes, the February 6, 2014March 20, 2015 completion of a cash tender offer and retirement of $1.6$2.5 billion of long-term U.S. dollar debt and our January 16, 2014 $3.0the March 6, 2015 issuance of€2.0 billion U.S. dollar note issuance.of euro notes and £450 million of British pound sterling notes. There were no other material 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, 2013.2014. We also do not expect a material change in the effect these arrangements and obligations will have on our liquidity. See Note 12,11,Commitments and Contingencies, for a discussion of guarantees.
Equity and Dividends
Stock Plans:Plans and Share Repurchases:
See Note 11,10,Stock Plans, to the condensed consolidated financial statements for more information on our stock plans, grant activity and award activityshare repurchase program for the sixthree months ended June 30, 2014.
Share Repurchases:
During 2013, our Board of Directors authorized the repurchase of $7.7 billion of our Common Stock through DecemberMarch 31, 2016. Repurchases under the program are determined by management and are wholly discretionary.
During the six months ended June 30, 2014, we repurchased 26.0 million shares of Common Stock at an average cost of $35.13 per share, or an aggregate cost of $0.9 billion, of which $0.7 billion was paid during the first half of 2014 and $0.2 billion was prepaid in December 2013 at the inception of an accelerated share repurchase program. All share repurchases were funded through available cash and commercial paper issuances. As of June 30, 2014, we have $4.0 billion in remaining share repurchase capacity.
In December 2013, we initiated an accelerated share repurchase (“ASR”) program. On December 3, 2013, we paid $1.7 billion and received an initial delivery of 44.8 million shares of Common Stock valued at $1.5 billion. We increased treasury stock by $1.5 billion, and the remaining $0.2 billion was recorded against additional paid in capital. In May 2014, the ASR program concluded and we received an additional 5.1 million shares, valued at $0.2 billion, for a total of 49.9 million shares with an average repurchase price of $34.10 per share over the life of the ASR program. The final settlement was based on the volume-weighted average price of our Common Stock during the purchase period less a fixed per share discount. Upon conclusion of the ASR program and receipt of the remaining repurchased shares, the $0.2 billion recorded in additional paid in capital was reclassified to treasury stock.2015.
We intend to continue to use a portion of our cash for share repurchases. Under our current Board of Directors’ authorization to repurchase up to $7.7 billion of our Common Stock through December 31, 2016, we have repurchased $6.1 billion of shares ($1.5 billion in the first three months of 2015, $1.9 billion in 2014 and $2.7 billion in 2013) and have $1.6 billion of share repurchase capacity remaining. 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 $476$249 million in the first six monthsquarter of 20142015 and $464$238 million in the first six monthsquarter of 2013.2014. On August 5, 2014, our Audit Committee, with authorization from our Board of Directors, approved a 7% increase in the quarterly dividend ofto $0.15 per common share or $0.60 per common share on an annual basis. The dividend is payable on October 14, 2014 to shareholders of record at the close of business on September 30, 2014. 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.
Significant Accounting Estimates
We prepare our condensed consolidated financial statements in conformityaccordance 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, 2013.2014. Our significant accounting estimates are described in ourManagement’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, 2013.2014. See Note 1,Basis of Presentation, for a discussion of the impact of new accounting standards. There were no changes in our accounting policies in the current period that had a material impact on our financial statements.
New Accounting Guidance
See Note 1,Basis of Presentation, for a discussion of new accounting guidance.
Contingencies
See Note 12,11,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,” “intend,” “plan,” “believe,” “estimate,” “anticipate,” “likely,“seek,” “estimate,“achieve,” “guidance,” “outlook”“potential” and similar expressions are intended to identify our forward-looking statements, including but not limited to those related tostatements about: our future performance, including our future revenue growth, margins and earnings per share; price volatility;volatility and pricing actions; the cost environment and measures to address increased costs; the costs of, timing of expenditures under and completion of our future performance, including our future revenue growth, operating income, earnings per share and margins;restructuring program; growth in emerging markets; economic conditions; customer and consumer dislocation; category growth;our categories; commodity prices and supply; economic conditions; currency exchange rates, controls and restrictions; our expansion plans; Spin-Off Costs; legal matters;operations in Venezuela; our entry into and the timeframe for completing the planned coffee business transactions; the cash proceeds and ownership interest to be received in the transactions; the costs of, cost savings generated by, timing of expenditures under and completion of our restructuring programs; our accounting estimates;biscuit operation acquisition; legal matters; changes in laws and regulations; the estimated value of goodwill and intangible assets; pension expenses, contributionsimpairment of goodwill and assumptions; planned effortsintangible assets and outcomeour projections of operating results and other factors that may affect our impairment testing; our accounting estimates and judgments; remediation efforts related to income tax controls; pension contributions; tax positions; our liquidity, funding sources and uses of funding; reinvestment of earnings; capital expenditures and funding; compliance with financial and long-term debt covenants; debt repayment and funding; our aggregate contractual obligations; our 2014 Outlook, in particular, 2014 Organic Net Revenue growth, Adjusted Operating Income growth, Adjusted Operating Income margin and Adjusted EPS; share repurchases; and our risk management program, including the use of financial instruments for hedging activities.activities; capital expenditures and funding; share repurchases; dividends; compliance with financial and long-term debt covenants; debt repayment and funding; and our contractual obligations.
These forward-looking statements involve risks and uncertainties, many of which are beyond our control. Important factors that could cause actual results to differ materially from those in our forward-looking statements include, but are not limited to, risks from operating globally and in emerging markets; changes in currency exchange rate fluctuations;rates, controls and restrictions; continued volatility of commodity and other input costs; weakness in economic conditions; continuedweakness in consumer weakness;spending; pricing actions; increasedunanticipated disruptions to our business; competition; protection of our reputation and brand image; consolidation of large retail customers; changes in our supplier or customer base; our ability to innovate and differentiate our products; increased costs of sales; regulatory or legal changes, claims or actions; our ability to protect our intellectual property and intangible assets; a shift in our product mix to lower margin offerings; private label brands; strategic transactions; failing to successfully complete the planned coffee business transactions on the anticipated timeframe; the transactions, and the restructuring programsprogram and our other transformation initiatives not yielding the anticipated benefits; changes in the assumptions on which the restructuring programs areprogram is based; protection of our reputation and brand image; management of our workforce; consolidation of retail customers and competition with retailer and other economy brands; changes in our relationships with suppliers or customers; legal, regulatory, tax or benefit law changes, claims or actions; strategic transactions; our ability to innovate and differentiate our products; 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; unanticipated disruptionsfailure to our business;maintain effective internal control over financial reporting; volatility of capital or other markets; pension costs; use of information technology; our workforce;ability to protect our intellectual property and intangible assets; a shift in our pre-tax income among jurisdictions, including the U.S.;United States; and tax law changes. For additional information on these and other factors that could affect our forward-looking statements, see our risk factors, as they may be amended from time to time, set forth in our filings with the SEC, including our most recently filed Annual Report on Form 10-K and this Quarterly Report on Form 10-Q.10-K. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this report.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 transparency on how we evaluate our business. We use certain non-GAAP financial measures to budget, make operating and strategic decisions and evaluate our performance. We disclose non-GAAP financial measures so that you have the same financial data that we use to assist you in making comparisons to our historical operating results and analyzing our underlying performance.
Our primary non-GAAP financial measures reflect how we evaluate our current and prior-year operating results. As new events or circumstances arise, these definitions could change over time:time.
“Organic Net Revenue” is defined as net revenues excluding the impactimpacts of acquisitions, divestitures (including businesses under sale agreements for which we have cleared significant sale-related conditions such that the pending sale is probable as of the end of the reporting period and exits of major product lines under a sale or licensing agreement), Integration Program costs, accounting calendar changes and currency rate fluctuations.
- | Our emerging markets include our Latin America and EEMEA regions in their entirety; the Asia Pacific region, excluding Australia, New Zealand and Japan; and the following countries from the Europe region: Poland, Czech Republic, Slovak Republic, Hungary, Bulgaria, Romania, the Baltics and the East Adriatic countries. |
- | Our Power Brands include some of our largest global and regional brands such asOreo, Chips Ahoy!, Ritz andbelVita biscuits;Milka,Cadbury Dairy MilkandLacta chocolate;Tridentgum;Hall’s candy;Tang powdered beverages; andJacobs, Tassimo andCarte Noire coffee. |
“Adjusted Operating Income” is defined as operating income excluding the impact of Spin-Off Costs, pension costs related to obligations transferred in the Spin-Off, the 2012-2014 Restructuring Program, the 2014-2018 Restructuring Program, the Integration Program and other acquisition integration costs, the remeasurement of net monetary assets in Venezuela, the benefit from the Cadbury acquisition-related indemnification resolution, costs associated with the JDE coffee transactions, gains / losses on divestitures or acquisitions, acquisition-related costs and the operating results of divestitures (including businesses under sale agreements and exits of major product lines under a sale or licensing agreement). We also evaluate growth in our Adjusted Operating Income on a constant currency basis.
“Adjusted EPS” is defined as diluted EPS attributable to Mondelēz International from continuing operations excluding the impactimpacts of Spin-Off Costs, pension costs related to the obligations transferred in the Spin-Off, the 2012-2014 Restructuring Program, the 2014-2018 Restructuring Program, the Integration Program and other acquisition integration costs, the remeasurement of net monetary assets in Venezuela, the benefit from the Cadbury acquisition-related indemnification resolution, incremental costs associated with the planned coffee business transactions, impairment charges related to goodwill and intangible assets, gains or losses on divestitures or acquisitions, divestiture-related costs, acquisition-related costs and the operating results of divestitures (including businesses under sale agreements for which we have cleared significant sale-related conditions such that the pending sale is probable as of the end of the reporting period and exits of major product lines under a sale or licensing agreement). We also evaluate growth in our Adjusted Operating Income on a constant currency basis.
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 may vary among other 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 whichthat 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. Because GAAP financial measures on a forward-looking basis are neither accessible nor deemed to be significantly different from the non-GAAP financial measures, and reconciling information is not available without unreasonable effort, we have not provided this information in connection with the non-GAAP financial measures in our Financial Outlook.
Organic Net Revenue
UsingApplying the definition of “Organic Net Revenue” above,, the only adjustments made to “net revenues” (the most comparable U.S. GAAP financial measure) were to exclude the impact of currency, divestituresan acquisition and an acquisition.accounting calendar change. We believe that Organic Net Revenue better 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 Power Brands and these underlying measures are also reconciled to U.S. GAAP below.
For the Three Months Ended June 30, | ||||||||||||||||
2014 | 2013 | $ Change | % Change | |||||||||||||
(in millions) | ||||||||||||||||
Organic Net Revenue | $ | 8,683 | $ | 8,581 | $ | 102 | 1.2% | |||||||||
Impact of currency | (247) | – | (247) | (2.9)pp | ||||||||||||
Impact of divestitures | – | 14 | (14) | (0.1)pp | ||||||||||||
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Net revenues | $ | 8,436 | $ | 8,595 | $ | (159) | (1.8)% | |||||||||
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For the Six Months Ended June 30, | For the Three Months Ended March 31, 2015 | For the Three Months Ended March 31, 2014 | ||||||||||||||||||||||||||||||||||||||
2014 | 2013 | $ Change | % Change | Emerging Markets | Developed Markets | Total | Emerging Markets | Developed Markets | Total | |||||||||||||||||||||||||||||||
(in millions) | (in millions) | (in millions) | ||||||||||||||||||||||||||||||||||||||
Organic Net Revenue | $ | 17,634 | $ | 17,291 | $ | 343 | 2.0% | $ | 3,645 | $ | 5,324 | $ | 8,969 | $ | 3,291 | $ | 5,350 | $ | 8,641 | |||||||||||||||||||||
Impact of currency | (571) | – | (571) | (3.3)pp | (672 | ) | (579 | ) | (1,251 | ) | – | – | – | |||||||||||||||||||||||||||
Impact of divestitures | – | 48 | (48) | (0.3)pp | ||||||||||||||||||||||||||||||||||||
Impact of acquisition | 14 | – | 14 | 0.1pp | – | 5 | 5 | – | – | – | ||||||||||||||||||||||||||||||
Impact of accounting calendar change | – | 39 | 39 | – | – | – | ||||||||||||||||||||||||||||||||||
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Net revenues | $ | 17,077 | $ | 17,339 | $ | (262) | (1.5)% | $ | 2,973 | $ | 4,789 | $ | 7,762 | $ | 3,291 | $ | 5,350 | $ | 8,641 | |||||||||||||||||||||
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For the Three Months Ended March 31, 2015 | For the Three Months Ended March 31, 2014 | |||||||||||||||||||||||||||||||||||||||
Power Brands | Non-Power Brands | Total | Power Brands | Non-Power Brands | Total | |||||||||||||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||||||||||
Organic Net Revenue | $ | 6,244 | $ | 2,725 | $ | 8,969 | $ | 5,894 | $ | 2,747 | $ | 8,641 | ||||||||||||||||||||||||||||
Impact of currency | (870 | ) | (381 | ) | (1,251 | ) | – | – | – | |||||||||||||||||||||||||||||||
Impact of acquisition | – | 5 | 5 | – | – | – | ||||||||||||||||||||||||||||||||||
Impact of accounting calendar change | 30 | 9 | 39 | – | – | – | ||||||||||||||||||||||||||||||||||
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Net revenues | $ | 5,404 | $ | 2,358 | $ | 7,762 | $ | 5,894 | $ | 2,747 | $ | 8,641 | ||||||||||||||||||||||||||||
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Adjusted Operating Income
UsingApplying the definition of “Adjusted Operating Income” above,, the only adjustments made to “operating income” (the most comparable U.S. GAAP financial measure) were to exclude Spin-Off Costs, 2012-2014 Restructuring Program costs, 2014-2018 Restructuring Program costs, the Integration Program and other acquisition integration costs, the remeasurement of net monetary assets in Venezuela, incremental costs associated with the JDEplanned coffee business transactions, net gains on acquisition and divestitures, acquisition-related costs and operating income from divestitures.a pending divestiture. We also evaluate Adjusted Operating Income on a constant currency basis. We believe these measures provide improved comparability of operating results.
For the Three Months Ended June 30, | For the Three Months Ended March 31, | |||||||||||||||||||||||||||||||
2014 | 2013 | $ Change | % Change | 2015 | 2014 | $ Change | % Change | |||||||||||||||||||||||||
(in millions) | (in millions) | |||||||||||||||||||||||||||||||
Adjusted Operating Income (constant currency) | $ | 1,095 | $ | 979 | $ | 116 | 11.8% | $ | 1,254 | $ | 1,053 | $ | 201 | 19.1% | ||||||||||||||||||
Impact of unfavorable currency | (35) | – | (35) | (3.5)pp | (182 | ) | – | (182 | ) | |||||||||||||||||||||||
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Adjusted Operating Income | $ | 1,060 | $ | 979 | $ | 81 | 8.3% | $ | 1,072 | $ | 1,053 | $ | 19 | 1.8% | ||||||||||||||||||
Spin-Off Costs | (16) | (15) | (1) | 0.1pp | – | (3 | ) | 3 | ||||||||||||||||||||||||
2012-2014 Restructuring Program costs | (73) | (55) | (18) | (1.2)pp | 2 | (66 | ) | 68 | ||||||||||||||||||||||||
2014-2018 Restructuring Program costs | (10) | – | (10) | (1.2)pp | (224 | ) | – | (224 | ) | |||||||||||||||||||||||
Integration Program and other acquisition integration costs | 1 | (53) | 54 | 6.2pp | – | 1 | (1 | ) | ||||||||||||||||||||||||
Costs associated with the JDE coffee transactions | (5) | – | (5) | (0.6)pp | ||||||||||||||||||||||||||||
Gains on divestitures, net | – | 6 | (6) | (0.7)pp | ||||||||||||||||||||||||||||
Operating income from divestitures | – | 3 | (3) | (0.3)pp | ||||||||||||||||||||||||||||
Remeasurement of net monetary assets in Venezuela | (11 | ) | (142 | ) | 131 | |||||||||||||||||||||||||||
Costs associated with the planned coffee business transactions | (28 | ) | – | (28 | ) | |||||||||||||||||||||||||||
Acquisition-related costs | (1 | ) | – | (1 | ) | |||||||||||||||||||||||||||
Operating income from divestiture (1) | – | – | – | |||||||||||||||||||||||||||||
Rounding | 1 | – | 1 | |||||||||||||||||||||||||||||
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Operating income | $ | 957 | $ | 865 | $ | 92 | 10.6% | $ | 811 | $ | 843 | $ | (32 | ) | (3.8 | )% | ||||||||||||||||
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2014 | 2013 | $ Change | % Change | |||||||||||||
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Adjusted Operating Income (constant currency) | $ | 2,187 | $ | 1,922 | $ | 265 | 13.8% | |||||||||
Impact of unfavorable currency | (74) | – | (74) | (3.9)pp | ||||||||||||
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Adjusted Operating Income | $ | 2,113 | $ | 1,922 | $ | 191 | 9.9% | |||||||||
Spin-Off Costs | (19) | (24) | 5 | 0.4pp | ||||||||||||
2012-2014 Restructuring Program costs | (139) | (99) | (40) | (1.5)pp | ||||||||||||
2014-2018 Restructuring Program costs | (10) | – | (10) | (0.6)pp | ||||||||||||
Integration Program and other acquisition integration costs | 2 | (74) | 76 | 4.4pp | ||||||||||||
Remeasurement of net monetary assets in Venezuela | (142) | (54) | (88) | (4.8)pp | ||||||||||||
Costs associated with the JDE coffee transactions | (5) | – | (5) | (0.3)pp | ||||||||||||
Gains on acquisition and divestitures, net | – | 28 | (28) | (1.5)pp | ||||||||||||
Acquisition-related costs | – | (2) | 2 | 0.1pp | ||||||||||||
Operating income from divestitures | – | 2 | (2) | (0.2)pp | ||||||||||||
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Operating income | $ | 1,800 | $ | 1,699 | $ | 101 | 5.9% | |||||||||
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(1) | Includes divestitures and businesses for which we have entered into a sales agreement and cleared significant sale-related conditions such that the pending sale is probable as of the end of the reporting period. |
Adjusted EPS
UsingApplying the definition of “Adjusted EPS” above,, the only adjustments made to “diluted EPS attributable to Mondelēz International” (the most comparable U.S. GAAP financial measure) were to exclude Spin-Off Costs, 2012-2014 Restructuring Program costs, 2014-2018 Restructuring Program costs, the Integration Program and other acquisition integration costs, losses on debt extinguishment and related expenses, the remeasurement of net monetary assets in Venezuela, hedging gains and incremental costs associated with the JDEplanned coffee business transactions, gainslosses on acquisitioninterest rate swaps no longer designated as accounting cash flow hedges due to changed financing and divestitures,hedging plans, acquisition-related costs and net earnings from divestitures.a pending divestiture. We also evaluate Adjusted EPS on a constant currency basis. We believe Adjusted EPS provides improved comparability of operating results.
For the Three Months Ended June 30, | For the Three Months Ended March 31, | |||||||||||||||||||||||||||||||
2014 | 2013 | $ Change | % Change | 2015 | 2014 | $ Change | % Change | |||||||||||||||||||||||||
Adjusted EPS (constant currency) | $ | 0.43 | $ | 0.36 | $ | 0.07 | 19.4% | $ | 0.49 | $ | 0.39 | $ | 0.10 | 25.6% | ||||||||||||||||||
Impact of unfavorable currency | (0.03 | ) | – | (0.03 | ) | (0.08 | ) | – | (0.08 | ) | ||||||||||||||||||||||
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Adjusted EPS | $ | 0.40 | $ | 0.36 | $ | 0.04 | 11.1% | $ | 0.41 | $ | 0.39 | $ | 0.02 | 5.1% | ||||||||||||||||||
Spin-Off Costs | (0.01 | ) | (0.01 | ) | – | – | – | – | ||||||||||||||||||||||||
2012-2014 Restructuring Program costs | (0.03 | ) | (0.02 | ) | (0.01 | ) | – | (0.03 | ) | 0.03 | ||||||||||||||||||||||
2014-2018 Restructuring Program costs | – | – | – | (0.11 | ) | – | (0.11 | ) | ||||||||||||||||||||||||
Integration Program and other acquisition integration costs | – | (0.02 | ) | 0.02 | – | – | – | |||||||||||||||||||||||||
Tax benefit related to remeasurement of | 0.01 | – | 0.01 | |||||||||||||||||||||||||||||
Costs associated with the JDE coffee transactions | (0.01 | ) | – | (0.01 | ) | |||||||||||||||||||||||||||
Gains on divestitures, net | – | 0.02 | (0.02 | ) | ||||||||||||||||||||||||||||
Net earnings from divestitures | – | – | – | |||||||||||||||||||||||||||||
Loss on debt extinguishment and | (0.27 | ) | (0.18 | ) | (0.09 | ) | ||||||||||||||||||||||||||
Remeasurement of net monetary assets in Venezuela | (0.01 | ) | (0.09 | ) | 0.08 | |||||||||||||||||||||||||||
Income / (costs) associated with the planned coffee business transactions | 0.20 | – | 0.20 | |||||||||||||||||||||||||||||
Loss related to interest rate swaps | (0.01 | ) | – | (0.01 | ) | |||||||||||||||||||||||||||
Acquisition-related costs | – | – | – | |||||||||||||||||||||||||||||
Net earnings from divestiture(1) | (0.02 | ) | – | (0.02 | ) | |||||||||||||||||||||||||||
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Diluted EPS attributable to Mondelēz International | $ | 0.36 | $ | 0.33 | $ | 0.03 | 9.1% | $ | 0.19 | $ | 0.09 | $ | 0.10 | 111.1% | ||||||||||||||||||
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For the Six Months Ended June 30, | ||||||||||||||||
2014 | 2013 | $ Change | % Change | |||||||||||||
Adjusted EPS (constant currency) | $ | 0.83 | $ | 0.72 | $ | 0.11 | 15.3% | |||||||||
Impact of unfavorable currency | (0.04 | ) | – | (0.04 | ) | |||||||||||
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Adjusted EPS | $ | 0.79 | $ | 0.72 | $ | 0.07 | 9.7% | |||||||||
Spin-Off Costs | (0.01 | ) | (0.01 | ) | – | |||||||||||
2012-2014 Restructuring Program costs | (0.06 | ) | (0.04 | ) | (0.02 | ) | ||||||||||
2014-2018 Restructuring Program costs | – | – | – | |||||||||||||
Integration Program and other acquisition integration costs | – | (0.03 | ) | 0.03 | ||||||||||||
Loss on debt extinguishment and related expenses | (0.18 | ) | – | (0.18 | ) | |||||||||||
Remeasurement of net monetary assets in Venezuela | (0.08 | ) | (0.03 | ) | (0.05 | ) | ||||||||||
Gains on acquisition and divestitures, net | – | 0.03 | (0.03 | ) | ||||||||||||
Acquisition-related costs | – | (0.01 | ) | 0.01 | ||||||||||||
Net earnings from divestitures | – | – | – | |||||||||||||
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Diluted EPS attributable to Mondelēz International | $ | 0.46 | $ | 0.63 | $ | (0.17 | ) | (27.0)% | ||||||||
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(1) | Includes divestitures and businesses for which we have entered into a sales agreement and cleared significant sale-related conditions such that the pending sale is probable as of the end of the reporting period. |
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
As we operate globally, we use certain financial instrumentsare primarily exposed to manage our 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. We maintain currency, commodity price and interest rate risk management policies that principally useutilize 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 8,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. SeeConsolidated Results of Operations andResults of Operations by Reportable Segment underDiscussion and Analysis of Historical Results for currency exchange effects on our financial results during the three months ended March 31, 2015. For additional information on the impact of currency policies and the remeasurement of our Venezuelan net monetary assets on our financial condition and results of operations, also see Note 1,Basis of Presentation—Currency Translation and Highly Inflationary Accounting.
We also sell commodity futurescontinually monitor the market for commodities that we use in our products. Input costs may fluctuate widely due to unpriceinternational demand, weather conditions, government policy and regulation and unforeseen conditions. To manage the 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, London Interbank Offered Rates (“LIBOR”), Euro Interbank Offered Rate (“EURIBOR”) and commercial paper rates. We periodically use interest rate swaps and forward interest rate contracts to achieve a desired proportion of variable versus fixed rate debt based on current and projected market conditions. In addition to using interest rate derivatives to manage future purchase commitments,interest payments, this quarter, we also retired $2.5 billion of our long-term debt and we occasionally use related futures to cross-hedge a commodity exposure. We are not a party to leveraged derivatives and, by policy, do not use financial instruments for speculative purposes. issued $3.5 billion of lower borrowing cost debt. Our weighted-average interest rate on our total debt as of March 31, 2015 was 3.1%, down from 4.3% as of December 31, 2014.
There were no significant changes in the types of derivative instruments we use to hedge our exposures since December 31, 2013. Refer to Note 9,Financial Instruments, for2014. For additional information on our derivative activity during the first six months of 2014hedging strategies, policies and the types of derivative instruments we use to hedge our currency exchange, commodity price and interest rate exposures, andpractices on an ongoing basis, also refer to Note 1,Basis of Presentation—Currency Translation and Highly Inflationary Accounting,our Annual Report on Form 10-K for additional information on recent currency exchange developments in Venezuela and Argentina and the impact on our financial condition and results of operations.year ended December 31, 2014.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Management, together withWe 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 ourthe Company’s disclosure controls and procedures (as defined in Securities and Exchange Act of 1934, as amended, Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report.March 31, 2015. Based on theirthis evaluation, the CEO and CFO concluded that, due to a continued material weakness in our internal control over financial reporting described below,related to the accounting for income taxes, our disclosure controls and procedures were not effective as of June 30, 2014.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
As previously reported in our Annual Report on Form 10-K, as of DecemberMarch 31, 2013, our management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2013, because of the material weakness described in our Annual Report on Form 10-K. Specifically, we did not maintain effective monitoring and oversight of controls over the completeness, accuracy and presentation of our accounting for income taxes, including the income tax provision and related tax assets and liabilities. The underlying control deficiencies resulted in inconsistent reconciliation of account balances, errors in the calculation of certain deferred tax balances, inaccurate information used to assess uncertain tax positions and incorrect balance sheet classification of certain balances.
The errors arising from the control deficiencies were not material to the financial results reported in any interim or annual period. For additional details of the adjustments made related to the first half of 2013, see Note 1, Basis of Presentation—Revision of Financial Statements.
2015. In light of thethis material weakness, in internal control over financial reporting, prior to filing this Quarterly Report on Form 10-Q, we completedundertook substantive procedures related to our disclosure controls, including validating and in certain cases correcting, the completeness and accuracy of the underlying data used for accounting for income taxes.
These additional procedures have allowed us to conclude that, notwithstanding the material weakness in our internal control over financial reporting related to the accounting for income taxes, the consolidated financial statements included in this report fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
We are implementingStatus of Remediation
To date, we have made substantial progress toward remediating the following specific controls to address the material weakness and to strengthen our overall internal control over accounting for income taxes:tax material weakness including:
revising and formalizing numerous income tax review processes,
performing incremental substantive testing at lower materiality levels,
enhancingimplementing industry-standard technology tools utilized in the formalityaccounting for income taxes,
hiring additional personnel with specific tax accounting expertise.
While significant improvement in the internal controls was made through March 31, 2015, we continue to evaluate the effectiveness of our new internal controls to confirm that a sustainable, controlled process is fully in place. As we have utilized outside tax advisors and resources to execute many of the new processes and controls earlier in the remediation process, we hired and continue to hire additional tax accounting personnel across the Company. We have put in place processes to help ensure that sufficient knowledge transfer has occurred and that relevant personnel and processes have been in operation for income tax expertise.a sustained period of time.
We and our Board of Directors are committed to maintaining a strong and sustainable internal control environment, andenvironment. We believe that thesethe remediation efforts will represent significant improvements inwork completed to date has significantly improved our controlsinternal control over the accounting for income taxes. SomeWe believe it is important to confirm that the new processes and controls that we put in place as part of these controls will take time to bethe remediation are fully integrated and confirmed to be effective and sustainable. Additional controls may also be required over time. As such, the identified material weakness in internal control will not be considered fully addressed until the internal controls over the income tax process have been in operationoperational for a sufficient period of time for our management to conclude that the material weakness has been fully remediated. We continue to work on implementing the new controls in order to make this final determination.provide the Company with adequate assurance of a sustainable and reliable control environment related to income tax accounting.
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 June 30, 2014.March 31, 2015. As outlined above, we are in the process of addingadded controls to remediate the material weakness related to theour accounting for income taxes identified astaxes. We are also working with our outsourced partners to further simplify and standardize processes and focus on scalable, transactional processes in finance, human resources, receivables and payables. As of DecemberApril 1, 2015, we transitioned our European shared service center and some of our EEMEA shared service center procedures to an outsourced partner who began to perform certain accounting close procedures for the region for the first quarter ended March 31, 2013.2015. The controls previously established at the shared service center will be maintained by our outsourced partner, who also retained employees who performed the procedures in the past. There were no other changes in our internal control over financial reporting during the quarter ended June 30, 2014,March 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We routinely are involved in legal proceedings, claims and governmental inspections or investigations (“Legal Matters”) arising in the ordinary course of our business.
Information regarding Legal Matters is available in Note 12,11,Commitments and Contingencies, to the condensed consolidated financial statements in this report.
While we cannot predict with certainty the results of any Legal Matters in which we are currently involved, we do not expect that the ultimate costs to resolve any of these Legal Matters, individually or in the aggregate, will have a material effect on our financial results.
There were no material changes to the risk factors disclosed in our Annual Report onForm 10-K for the year ended December 31, 2013.2014.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table shows the shareOur stock repurchase activity for each of the three months in the quarter ended June 30, 2014:March 31, 2015 included:
Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program (2) | Maximum Dollar Value of Shares That May Yet be Purchased Under the Program (2) | |||||||||||||
April 1-30, 2014 | 4,869,164 | $ | 34.92 | 4,851,200 | $ | 4,299,112,067 | ||||||||||
May 1-31, 2014 | 6,022,343 | 37.28 | 6,009,900 | $ | 4,075,036,270 | |||||||||||
June 1-30, 2014 | 725,074 | 37.01 | 717,288 | $ | 4,048,483,484 | |||||||||||
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For the Quarter Ended | 11,616,581 | 36.28 | 11,578,388 | |||||||||||||
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Issuer Purchases of Equity Securities | ||||||||||||||||
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | 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) | ||||||||||||
January 1-31, 2015 | 14,437,033 | $ | 36.58 | 14,401,707 | $ | 2,541,926,929 | ||||||||||
February 1-28, 2015 | 13,907,537 | 36.53 | 12,962,797 | 2,068,780,002 | ||||||||||||
March 1-31, 2015 | 14,329,778 | 34.91 | 14,322,148 | 1,568,780,004 | ||||||||||||
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For the Quarter Ended | 42,674,348 | 36.01 | 41,686,652 | |||||||||||||
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(1) | The total number of shares purchased includes: (i) shares purchased pursuant to the repurchase program described in |
(2) | During 2013, our Board of Directors authorized the repurchase of $7.7 billion of our Common Stock through December 31, 2016. |
Exhibit
| Description | |
2.1 | First Amendment to the Master Ownerships and License Agreement Regarding Trademarks and Related Intellectual Property, among Intercontinental Great Brands LLC and Kraft Foods Group Brands LLC, dated as of July 15, 2013. | |
2.2 | Second Amendment to the Master Ownership and License Agreement Regarding Trademarks and Related Intellectual Property, among Intercontinental Great Brands LLC and Kraft Foods Group Brands LLC, dated as of October 1, 2014. | |
4.1 | The Registrant agrees to furnish to the SEC upon request copies of any instruments defining the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries that does not exceed 10 percent of the total assets of the Registrant and its consolidated subsidiaries. | |
10.1 | ||
10.2 | ||
Computation of Ratios of Earnings to Fixed Charges. | ||
31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. | |
32.1 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.1 | The following materials from Mondelēz International’s Quarterly Report on Form 10-Q for the quarter ended | |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MONDELĒZ INTERNATIONAL, INC. | ||
Executive Vice President and | ||
Chief Financial Officer | ||
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