Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MDLZ > SEC Filings for MDLZ > Form 10-Q on 8-Aug-2013All Recent SEC Filings

Show all filings for MONDELEZ INTERNATIONAL, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for MONDELEZ INTERNATIONAL, INC.


8-Aug-2013

Quarterly Report


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, chocolate, gum & candy, beverages and various cheese & grocery products. We have operations in more than 80 countries and sell our products in approximately 165 countries.

On 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"). We retained our global snacks business along with other food and beverage categories. The divested Kraft Foods Group is presented as a discontinued operation on the condensed consolidated statements of earnings for the three and six months ended June 30, 2012. The Kraft Foods Group equity transactions, other comprehensive earnings and cash flows are included within our condensed consolidated statements of equity, comprehensive earnings and cash flows through October 1, 2012. For more information on the Spin-Off and impact on our continuing results of operations, see Note 2, Divestitures and Acquisition.

Effective as of January 1, 2013, we reorganized our operations, management and segments into five reportable segments:

Latin America

Asia Pacific

Eastern Europe, Middle East & Africa ("EEMEA")

Europe

North America

We changed and flattened our operating structure to reflect our greater concentration of operations in high-growth emerging markets and to further enhance collaboration across regions, expedite decision making and drive greater efficiencies to fuel our growth. Coincident with the change in segment structure, segment operating income for our North America region also changed to include all U.S. pension plan expenses, a portion of which was previously excluded from segment operating results evaluated by management as the costs were centrally managed. See Note 16, Segment Reporting, for additional segment information. Our segment results reflect our new segment structure for all periods presented.

Subsequent Events

As part of our 2010 Cadbury acquisition, we became the responsible party for tax matters under the Cadbury Schweppes Plc and Dr Pepper Snapple Group, Inc. ("DPSG") Tax Sharing and Indemnification Agreement dated May 1, 2008 ("Tax Indemnity") for certain 2007 and 2008 transactions relating to the demerger of Cadbury's Americas Beverage business. A U.S. federal tax audit of DPSG for the 2006-2008 tax years was concluded with the IRS in August 2013. As a result, we will report income during the third quarter of 2013 in the amount of $385 million ($375 million net of tax) due to the reversal of the accrued liability in excess of the amount which we will pay to DPSG under the Tax Indemnity. We will exclude this income from our non-GAAP financial measures "Adjusted Operating Income" and "Adjusted EPS."

On August 6, 2013, our Audit Committee, with authorization from the Board of Directors, declared a quarterly dividend of $0.14 per common share, an increase of $0.01 per share, or 8 percent. The dividend is payable on October 15, 2013 to shareholders of record as of September 30, 2013.

On August 6, 2013, our Audit Committee, with authorization from the Board of Directors, increased our stock repurchase program capacity from $1.2 billion to $6.0 billion of repurchases of our Common Stock and extended the expiration date from March 12, 2016 to December 31, 2016. The primary purposes of the program are to return cash to shareholders and to offset dilution from our equity compensation plans.


Table of Contents

Summary of Results and Other Highlights

Net revenues increased 0.8% to $8.6 billion in the second quarter of 2013 and increased 0.8% to $17.3 billion in the first six months of 2013 as compared to the same periods in the prior year. Our reported net revenues were impacted by unfavorable foreign currency and divestitures, offset in part by an acquisition completed in the first quarter of 2013.

Organic Net Revenues increased 3.8% to $8.7 billion in the second quarter of 2013 and increased 3.8% to $17.6 billion in the first six months of 2013 as compared to the same periods in the prior year. Organic Net Revenues is a non-GAAP financial measure we use to evaluate our underlying results (see the definition of Organic Net Revenues and our reconciliation with net revenues within Non-GAAP Financial Measures later in this section). Organic Net Revenues is on a constant currency basis and excludes the impact of divestitures and the acquisition last quarter.

Diluted EPS attributable to Mondel?z International decreased 41.4% to $0.34 in the second quarter of 2013 and decreased 35.9% to $0.66 in the first six months of 2013 as compared to the same periods in the prior year. Excluding the results of discontinued operations in 2012, our diluted EPS attributable to Mondel?z International from continuing operations increased 25.9% to $0.34 in the second quarter of 2013 and increased 43.5% to $0.66 in the first six months of 2013 as compared to the same periods in the prior year. Included within our continuing results of operations were one-time Spin-Off Costs, 2012-2014 Restructuring Program costs, Integration Program and other acquisition integration costs, net gains on divestitures and acquisition and acquisition-related costs. Diluted EPS was also significantly impacted by a lower effective tax rate in 2013 due to the impact of favorable discrete items.

Adjusted EPS (previously referred to as "Operating EPS") increased 2.8% to $0.37 in the second quarter of 2013 and increased 6.0% to $0.71 in the first six months of 2013 as compared to the same periods in the prior year. 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 within Non-GAAP Financial Measures later in this section). Adjusted EPS provides transparency of our underlying results and excludes Spin-Off Costs, 2012-2014 Restructuring Program costs, Integration Program and other acquisition integration costs, net earnings from divestitures, net gains on acquisition and divestitures and acquisition-related costs. Adjusted EPS was also significantly impacted by a lower effective tax rate in 2013 due to the impact of favorable discrete items.

During the three months ended June 30, 2013, under our Stock Repurchase Program (see Note 11, Stock Plans) we repurchased 3.2 million shares of common stock at an aggregate cost of $97.5 million, or an average cost of $30.21 per share. All share repurchases were funded through available cash and commercial paper and the repurchased shares are held in treasury.

On May 8, 2013, $1 billion of our 2.625% notes matured. The notes and accrued interest to date were paid with cash on hand and the issuance of commercial paper.

On February 11, 2013, $750 million of our 6.00% notes matured and were paid with cash on hand.

In February 2013, we recorded a $54 million unfavorable foreign currency charge related to the devaluation of our net monetary assets in Venezuela. We also incurred net unfavorable devaluation-related foreign currency charges within our pretax earnings of $17 million during the second quarter of 2013 and $24 million during the first six months of 2013 related to translating the earnings of our Venezuelan subsidiary to the U.S. dollar at the new exchange rate.


Table of Contents

Discussion and Analysis

Items Affecting Comparability of Financial Results

Spin-Off of Kraft Foods Group

On October 1, 2012, we completed the Spin-Off of Kraft Foods Group to our shareholders. The results of Kraft Foods Group are presented as a discontinued operation on the condensed consolidated statements of earnings for the three and six months ended June 30, 2012. Certain corporate and business unit costs, which we historically allocated to Kraft Foods Group and which continued at Mondel?z International following the Spin-Off, were included in our results from continuing operations. These costs include primarily corporate overheads, information systems and sales force support and, on a pre-tax basis, were estimated to be $48 million for the three months and $102 million for the six months ended June 30, 2012.

Our results of continuing operations include one-time Spin-Off transaction, transition, financing and related costs ("Spin-Off Costs") we have incurred to date. Spin-Off Costs were $15 million, or $0.01 per diluted share, for the three months and $24 million, or $0.01 per diluted share, for the six months ended June 30, 2013. Spin-Off Costs were $128 million, or $0.05 per diluted share, for the three months, and $301 million, or $0.11 per diluted share, for the six months ended June 30, 2012. We expect to incur Spin-Off Costs of approximately $100 million in 2013 related primarily to human resources, customer service and logistics and information systems and processes as well as legal costs associated with revising intellectual property and other long-term agreements.

For additional information on the Spin-Off of Kraft Foods Group, see Note 2, Divestitures and Acquisition.

Acquisition, Other Divestitures and Sale of Property

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 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. 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. Acquisition costs of $7 million were included within selling, general and administrative expenses and interest and other expense, net during the six months ended June 30, 2013. We also incurred $1 million of integration costs during the three months ended June 30, 2013, which were included in selling, general and administrative expenses within our EEMEA segment. The operating results of the acquisition were not material to our consolidated financial operating results for the three and six months ended June 30, 2013.

During the three months ended December 31, 2012, we also completed several divestitures within our Europe segment which generated cash proceeds of $200 million and pre-tax gains of $107 million. The divestitures primarily included a dinners and sauces grocery business in Germany and Belgium and a canned meat business in Italy. The aggregate operating results of the divestitures were not material to our consolidated financial operating results for the three and six months ended June 30, 2012.

In 2012, we sold property in Russia and Turkey within our EEMEA segment. The Turkey property sale generated a $22 million pre-tax gain in the second quarter of 2012 and $29 million of cash proceeds which were received primarily in the fourth quarter of 2012 upon finalization of certain terms and conditions of the sale. The Russia property sale generated a $55 million pre-tax gain and $72 million of cash proceeds in the first quarter of 2012. The gains were recorded within selling, general and administrative expenses and the cash proceeds from the Russia property sale were recorded in cash flows from other investing activities in the six months ended June 30, 2012.

2012-2014 Restructuring Program

In 2012, our Board of Directors approved $1.5 billion of restructuring and related implementation costs ("2012-2014 Restructuring Program") reflecting primarily severance, asset disposals and other manufacturing-related one-time costs. The primary objective of the restructuring and implementation activities is to ensure that both Mondel?z 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.


Table of Contents

Of the $1.5 billion of 2012-2014 Restructuring Program costs, we retained approximately $925 million after the Spin-Off. Since the inception of the 2012-2014 Restructuring Program, we have incurred $209 million of the estimated $925 million total 2012-2014 Restructuring Program charges.

We recorded restructuring charges of $48 million, or $0.02 per diluted share, for the three months and $88 million, or $0.04 per diluted share, for the six months ended June 30, 2013, and $27 million, or $0.01 per diluted share, for the three months and $50 million, or $0.02 per diluted share, for the six months ended June 30, 2012, within asset impairment and exit costs. We also incurred implementation costs of $7 million for the three months and $11 million for the six months ended June 30, 2013 and $2 million for the three months and $1 million for the six months ended June 30, 2012. The implementation costs were recorded within cost of sales and selling, general and administrative expenses. See Note 6, 2012-2014 Restructuring Program, for additional information.

Integration Program

As a result of our combination with Cadbury Limited (formerly, Cadbury plc or "Cadbury") in 2010, we launched an integration program to realize annual cost savings of approximately $750 million by the end of 2013 and revenue synergies from investments in distribution, marketing and product development. In order to achieve these cost savings and synergies and combine and integrate the two businesses, we expect to incur total integration charges of approximately $1.5 billion through the end of 2013 (the "Integration Program").

Integration Program costs include the costs associated with combining the Cadbury operations with our operations and are separate from the costs related to the acquisition. Since the inception of the Integration Program, we have incurred approximately $1.4 billion of the estimated $1.5 billion total integration charges. In 2012, we met and exceeded our annual cost savings target of $750 million and achieved approximately $800 million of annual costs savings one year ahead of schedule.

We recorded Integration Program charges of $52 million, or $0.02 per diluted share, for the three months and $73 million, or $0.03 per diluted share, for the six months ended June 30, 2013 and $35 million, or $0.02 per diluted share, for the three months and $78 million, or $0.04 per diluted share, for the six months ended June 30, 2012. We recorded these charges in operations, as a part of selling, general and administrative expenses within our Europe, Asia Pacific, Latin America and EEMEA segments.

Provision for Income Taxes

Our effective tax rate was 2.1% in the second quarter of 2013 and (0.5)% for the first six months of 2013. The 2013 second quarter effective tax rate was favorably impacted by the mix of pre-tax income in various foreign jurisdictions and reflects the impact of favorable discrete items, which totaled $108 million in the quarter. These discrete items primarily resulted from net favorable tax audit settlements and expirations of the statutes of limitations in several jurisdictions of $52 million, tax benefits from a business divestiture of $39 million and corrections of prior-year amounts of $11 million. For the first six months of 2013, our effective tax rate was favorably impacted by the mix of pre-tax income in various foreign jurisdictions and net favorable discrete items totaling $233 million, arising principally from net favorable tax audit settlements, expirations of the statutes of limitations in several jurisdictions of $132 million, tax benefits from a business divestiture of $39 million and corrections of prior-year amounts of $47 million.

Our effective tax rate was 17.4% in the second quarter of 2012 and 17.8% for the first six months of 2012. The 2012 second quarter effective tax rate was favorably impacted by the mix of pre-tax income in various foreign jurisdictions and net favorable discrete items totaling $15 million which primarily related to the resolution of outstanding tax matters, principally in foreign jurisdictions. For the first six months of 2012, our effective tax rate was favorably impacted by the mix of pre-tax income in various foreign jurisdictions and net favorable discrete items totaling $21 million which primarily related to the resolution of outstanding tax matters, principally in foreign jurisdictions, expiration of the statute of limitations in various foreign jurisdictions and net favorable foreign and state audit settlements.

Our effective tax rate could be significantly affected by a shift in pre-tax income between foreign jurisdictions, from foreign jurisdictions to the U.S. or by changes in foreign and/or U.S. tax laws that apply to the earnings of foreign subsidiaries.


Table of Contents

Consolidated Results of Operations

The following discussion compares our consolidated results of operations for the three and six months ended June 30, 2013 and 2012.

  Add MDLZ to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MDLZ - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.