Mondelez International, Inc. [MDLZ] Filings

10-Q 1 mdlz-20230930.htm 10-Q mdlz-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


			☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


			☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-16483

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.)

905 West Fulton Market, Suite 200
Chicago,	Illinois	60607
(Address of principal executive offices)		(Zip Code)

(Registrant’s telephone number, including area code) (847) 943-4000

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Class A Common Stock, no par value

MDLZ

The Nasdaq Global Select Market

1.625% Notes due 2027

MDLZ27

The Nasdaq Stock Market LLC

0.250% Notes due 2028

MDLZ28

The Nasdaq Stock Market LLC

0.750% Notes due 2033

MDLZ33

The Nasdaq Stock Market LLC

2.375% Notes due 2035

MDLZ35

The Nasdaq Stock Market LLC

4.500% Notes due 2035

MDLZ35A

The Nasdaq Stock Market LLC

1.375% Notes due 2041

MDLZ41

The Nasdaq Stock Market LLC

3.875% Notes due 2045

MDLZ45

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

At October 27, 2023, there were 1,360,895,585 shares of the registrant’s Class A Common Stock outstanding.

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Mondelēz International, Inc.

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		Page No.
PART I -	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended September 30, 2023 and 2022	1

	Condensed Consolidated Statements of Comprehensive Earnings for the Three and Nine Months Ended September 30, 2023 and 2022	2

	Condensed Consolidated Balance Sheets at Se pte mber 30, 2023 and December 31, 2022	3

	Condensed Consolidated Statements of Equity for the Three and Nine Months Ended Septembe r 30, 2023 and 2022	4

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	58

Item 4.	Controls and Procedures	58

PART II -	OTHER INFORMATION

Item 1.	Legal Proceedings	60

Item 1A.	Risk Factors	60

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	60

Item 5.	Other Information	60

Item 6.	Exhibits	61

Signature		62

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.

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

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 September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Net revenues	$	9,029	$	7,763	$	26,702	$	22,801
Cost of sales	5,535		5,150		16,408		14,564
Gross profit	3,494		2,613		10,294		8,237
Selling, general and administrative expenses	2,019		1,884		5,743		5,253
Asset impairment and exit costs	58		18		128		188

Amortization of intangible assets	38		32		114		96
Operating income	1,379		679		4,309		2,700
Benefit plan non-service income	(19)		(30)		(60)		(93)
Interest and other expense, net	66		71		258		337
Loss/(gain) on marketable securities	1		—		(606)		—
Earnings before income taxes	1,331		638		4,717		2,456
Income tax provision	(354)		(184)		(1,280)		(595)
Gain/(loss) on equity method investment transactions	1		(6)		465		(19)
Equity method investment net earnings	10		85		116		300
Net earnings	988		533		4,018		2,142
less: Noncontrolling interest earnings	(4)		(1)		(9)		(8)
Net earnings attributable to Mondelēz International	$	984	$	532	$	4,009	$	2,134
Per share data:
Basic earnings per share attributable to Mondelēz International	$	0.72	$	0.39	$	2.94	$	1.55
Diluted earnings per share attributable to Mondelēz International	$	0.72	$	0.39	$	2.92	$	1.54

See accompanying notes to the condensed consolidated financial statements.

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Mondelēz International, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings

(in millions of U.S. dollars)

(Unaudited)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Net earnings	$	988	$	533	$	4,018	$	2,142
Other comprehensive earnings/(losses), net of tax:
Currency translation adjustment	(570)		(667)		(273)		(1,016)
Pension and other benefit plans	32		57		4		317
Derivative cash flow hedges	10		5		(28)		65
Total other comprehensive earnings/(losses)	(528)		(605)		(297)		(634)
Comprehensive earnings/(losses)	460		(72)		3,721		1,508
less: Comprehensive earnings/(losses) attributable to noncontrolling interests	(2)		(11)		(3)		(19)
Comprehensive earnings/(losses) attributable to Mondelēz International	$	462	$	(61)	$	3,724	$	1,527

See accompanying notes to the condensed consolidated financial statements.

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Mondelēz International, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in millions of U.S. dollars, except share data)

(Unaudited)


	September 30, 2023		December 31, 2022
ASSETS
Cash and cash equivalents	$	1,610	$	1,923
Trade receivables (net of allowances of $63 at September 30, 2023 and $45 at December 31, 2022)	3,498		3,088
Other receivables (net of allowances of $52 at September 30, 2023 and $59 at December 31, 2022)	793		819
Inventories, net	3,808		3,381
Other current assets	1,806		880
Total current assets	11,515		10,091
Property, plant and equipment, net	9,142		9,020
Operating lease right-of-use assets	608		660
Goodwill	23,307		23,450
Intangible assets, net	19,475		19,710
Prepaid pension assets	1,106		1,016
Deferred income taxes	483		473
Equity method investments	3,051		4,879
Other assets	2,173		1,862
TOTAL ASSETS	$	70,860	$	71,161
LIABILITIES
Short-term borrowings	$	1,221	$	2,299
Current portion of long-term debt	2,354		383
Accounts payable	7,658		7,562
Accrued marketing	2,704		2,370
Accrued employment costs	1,043		949
Other current liabilities	3,956		3,168
Total current liabilities	18,936		16,731
Long-term debt	16,411		20,251
Long-term operating lease liabilities	466		514
Deferred income taxes	3,444		3,437
Accrued pension costs	352		403
Accrued postretirement health care costs	212		217
Other liabilities	2,479		2,688
TOTAL LIABILITIES	42,300		44,241
Commitments and Contingencies (Note 12)
EQUITY
Common Stock, no par value (5,000,000,000 shares authorized and 1,996,537,778 shares issued at September 30, 2023 and December 31, 2022)	—		—
Additional paid-in capital	32,181		32,143
Retained earnings	33,866		31,481
Accumulated other comprehensive losses	(11,232)		(10,947)
Treasury stock, at cost (635,672,022 shares at September 30, 2023 and 630,646,687 shares at December 31, 2022)	(26,280)		(25,794)
Total Mondelēz International Shareholders’ Equity	28,535		26,883
Noncontrolling interest	25		37
TOTAL EQUITY	28,560		26,920
TOTAL LIABILITIES AND EQUITY	$	70,860	$	71,161

See accompanying notes to the condensed consolidated financial statements.

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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
	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Earnings/ (Losses)		Treasury Stock		Non-controlling Interest		Total Equity
Three Months Ended September 30, 2023
Balances at July 1, 2023	$	—	$	32,148	$	33,458	$	(10,710)	$	(26,249)	$	32	$	28,679
Comprehensive earnings/(losses):
Net earnings	—		—		984		—		—		4		988
Other comprehensive earnings/(losses), net of income taxes	—		—		—		(522)		—		(6)		(528)
Exercise of stock options and issuance of other stock awards	—		33		4		—		26		—		63
Common Stock repurchased	—						—		(57)		—		(57)
Cash dividends declared ($0.425 per share)	—		—		(580)		—		—		—		(580)
Dividends paid on noncontrolling interest and other activities	—		—		—		—		—		(5)		(5)
Balances at September 30, 2023	$	—	$	32,181	$	33,866	$	(11,232)	$	(26,280)	$	25	$	28,560
Nine Months Ended September 30, 2023
Balances at January 1, 2023	$	—	$	32,143	$	31,481	$	(10,947)	$	(25,794)	$	37	$	26,920
Comprehensive earnings/(losses):
Net earnings	—		—		4,009		—		—		9		4,018
Other comprehensive earnings/(losses), net of income taxes	—		—		—		(285)		—		(12)		(297)
Exercise of stock options and issuance of other stock awards	—		38		(5)		—		176		—		209
Common Stock repurchased	—		—		—		—		(662)		—		(662)
Cash dividends declared ($1.195 per share)	—		—		(1,633)		—		—		—		(1,633)
Dividends paid on noncontrolling interest and other activities	—		—		14		—		—		(9)		5
Balances at September 30, 2023	$	—	$	32,181	$	33,866	$	(11,232)	$	(26,280)	$	25	$	28,560
Three Months Ended September 30, 2022
Balances at July 1, 2022	$	—	$	32,086	$	31,431	$	(10,638)	$	(25,368)	$	42	$	27,553
Comprehensive earnings/(losses):
Net earnings	—		—		532		—		—		1		533
Other comprehensive earnings/(losses), net of income taxes	—		—		—		(593)		—		(12)		(605)
Exercise of stock options and issuance of other stock awards	—		30		(2)		—		25		—		53
Common Stock repurchased	—		—		—		—		(338)		—		(338)
Cash dividends declared ($0.385 per share)	—		—		(524)		—		—		—		(524)
Dividends paid on noncontrolling interest and other activities	—		—		—		—		—		(2)		(2)
Balances at September 30, 2022	$	—	$	32,116	$	31,437	$	(11,231)	$	(25,681)	$	29	$	26,670
Nine Months Ended September 30, 2022
Balances at January 1, 2022	$	—	$	32,097	$	30,806	$	(10,624)	$	(24,010)	$	54	$	28,323
Comprehensive earnings/(losses):
Net earnings	—		—		2,134		—		—		8		2,142
Other comprehensive earnings/(losses), net of income taxes	—		—		—		(607)		—		(27)		(634)
Exercise of stock options and issuance of other stock awards	—		19		(13)		—		172		—		178
Common Stock repurchased	—		—		—		—		(1,843)		—		(1,843)
Cash dividends declared ($1.085 per share)	—		—		(1,493)		—		—		—		(1,493)
Dividends paid on noncontrolling interest and other activities	—		—		3		—		—		(6)		(3)
Balances at September 30, 2022	$	—	$	32,116	$	31,437	$	(11,231)	$	(25,681)	$	29	$	26,670

See accompanying notes to the condensed consolidated financial statements.

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Mondelēz International, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in millions of U.S. dollars)

(Unaudited)


	For the Nine Months Ended September 30,
	2023		2022
CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES
Net earnings	$	4,018	$	2,142
Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization	902		819
Stock-based compensation expense	109		88
Deferred income tax provision	9		41
Asset impairments and accelerated depreciation	95		178
Loss on early extinguishment of debt	1		38

(Gain)/loss on equity method investment transactions	(465)		19
Equity method investment net earnings	(116)		(300)
Distributions from equity method investments	136		169

Unrealized (gain)/loss on derivative contracts	(259)		220
Gain on marketable securities	(593)		—
Other non-cash items, net	53		32
Change in assets and liabilities, net of acquisitions and divestitures:
Receivables, net	(687)		(625)
Inventories, net	(484)		(745)
Accounts payable	18		332
Other current assets	(108)		(143)
Other current liabilities	641		413
Change in pension and postretirement assets and liabilities, net	(120)		(162)
Net cash provided by operating activities	3,150		2,516
CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES
Capital expenditures	(780)		(621)
Acquisitions, net of cash received	19		(3,978)
Proceeds from divestitures including equity method and marketable security investments	2,727		604
(Payments)/proceeds from investments and derivative settlements	(180)		585
Net cash provided by/(used in) investing activities	1,786		(3,410)
CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES
Issuances of commercial paper, maturities greater than 90 days	67		—
Repayments of commercial paper, maturities greater than 90 days	(67)		—
Net (repayments)/issuances of short-term borrowings	(1,070)		1,370
Long-term debt proceeds	189		4,490
Long-term debt repayments	(2,087)		(3,005)
Repurchases of Common Stock	(659)		(1,838)
Dividends paid	(1,581)		(1,457)
Other	134		143
Net cash used in financing activities	(5,074)		(297)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(133)		(167)
Cash, cash equivalents and restricted cash:
Decrease	(271)		(1,358)
Balance at beginning of period	1,948		3,553
Balance at end of period	$	1,677	$	2,195

See accompanying notes to the condensed consolidated financial statements.

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Mondelēz International, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Basis of Presentation

Our interim condensed consolidated financial statements are unaudited. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted. It is management’s opinion that these financial statements include all normal and recurring adjustments necessary for a fair presentation of our results of operations, financial position and cash flows. Results of operations for any interim period are not necessarily indicative of future or annual results. For a complete set of consolidated financial statements and related notes, refer to our Annual Report on Form 10-K for the year ended December 31, 2022.

Principles of Consolidation

The condensed consolidated financial statements include Mondelēz International, Inc. as well as our wholly owned and majority owned subsidiaries, except our Venezuelan subsidiaries that were deconsolidated in 2015. All intercompany transactions are eliminated. The noncontrolling interest represents the noncontrolling investors' interests in the results of subsidiaries that we control and consolidate. We account for investments over which we exercise significant influence under the equity method of accounting. Investments with readily determinable fair values for which we do not have the ability to exercise significant influence are measured at fair value.

War in Ukraine

In February 2022, Russia began a military invasion of Ukraine and we closed our operations and facilities in Ukraine. In March 2022, our two Ukrainian manufacturing facilities in Trostyanets and Vyshhorod were significantly damaged. During the first quarter of 2022, we evaluated and impaired these and other related assets. We recorded $143 million of total expenses ($145 million after-tax) incurred as a direct result of the war. We reversed $22 million during the remainder of 2022 of previously recorded charges primarily as a result of higher than expected collection of trade receivables and inventory recoveries. We continue to make targeted repairs on both our plants and have partially reopened and restarted limited production in both plants. We also continue to support our Ukraine employees, including paying salaries to those not yet able to return to work until full production returns. We continue to consolidate both our Ukrainian and Russian subsidiaries and continue to evaluate our ability to control our operating activities and businesses on an ongoing basis. We base our estimates on historical experience, expectations of future impacts and other assumptions that we believe are reasonable. Given the uncertainty of the ongoing effects of the war in Ukraine, and its impact on the global economic environment, our estimates could be significantly different than future performance.

Highly Inflationary Accounting

Within our consolidated entities, Argentina and Türkiye (Turkey) are accounted for as highly inflationary economies. Argentina and Türkiye represent 1.6% and 0.5% of our consolidated net revenues with remeasurement losses of $20 million and $2 million for the three months ended September 30, 2023, respectively, and 1.6% and 0.8% of our consolidated net revenues with remeasurement losses of $41 million and $19 million for the nine months ended September 30, 2023. Given the continued volatility of these currencies, impacts to our financial statements in future periods could be significantly different from historical levels.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less. We also have restricted cash within other current assets of $67 million as of September 30, 2023 and $25 million as of December 31, 2022. Total cash, cash equivalents and restricted cash was $1,677 million as of September 30, 2023 and $1,948 million as of December 31, 2022.

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Allowances for Credit Losses

Changes in allowances for credit losses consisted of:


	Allowance for Trade Receivables		Allowance for Other Current Receivables		Allowance for Long-Term Receivables
	(in millions)
Balance at January 1, 2023	$	(45)	$	(59)	$	(14)
Current period (provision)/recovery for expected credit losses	(22)		3		1
Write-offs charged against the allowance	6		—		—

Currency	(2)		4		(1)
Balance at September 30, 2023	$	(63)	$	(52)	$	(14)

Transfers of Financial Assets

The outstanding principal amount of receivables under our uncommitted revolving non-recourse accounts receivable factoring arrangements amounted to $755 million as of September 30, 2023 and $516 million as of December 31, 2022. The incremental cost of factoring receivables under this arrangement was not material for all periods presented. The proceeds from the sales of receivables are included in cash from operating activities in the condensed consolidated statements of cash flows.

Non-Cash Lease Transactions

We recorded $86 million in operating lease and $101 million in finance lease right-of-use assets obtained in exchange for lease obligations during the nine months ended September 30, 2023 and $206 million in operating lease and $135 million in finance lease right-of-use assets obtained in exchange for lease obligations during the nine months ended September 30, 2022.

Supply Chain Financing

As part of our continued efforts to improve our working capital efficiency, we have worked with our suppliers over the past several years to optimize our terms and conditions, which include the extension of payment terms. Our current payment terms with a majority of our suppliers are from 30 to 180 days, which we deem to be commercially reasonable. We also facilitate voluntary supply chain financing (“SCF”) programs through several participating financial institutions. Under these programs, our suppliers, at their sole discretion, determine invoices that they want to sell to participating financial institutions. Our suppliers’ voluntary inclusion of invoices in SCF programs has no bearing on our payment terms or amounts due. Our responsibility is limited to making payments based upon the agreed-upon contractual terms. No guarantees are provided by the Company or any of our subsidiaries under the SCF programs and we have no economic interest in the suppliers’ decision to participate in the SCF programs. Amounts due to our suppliers that elected to participate in the SCF program are included in accounts payable in our consolidated balance sheet. We have been informed by the participating financial institutions that our outstanding accounts payable related to suppliers that participate in the SCF programs was $2.3 billion and $2.4 billion, respectively, as of September 30, 2023 and December 31, 2022.

New Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) which requires companies to recognize and measure customer contract assets and contract liabilities acquired in a business combination as if the acquiring company originated the related revenue contracts. Prior to adopting this ASU, acquired contract assets and liabilities were measured at fair value. This ASU is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. We adopted this standard in the first quarter of 2023 and it did not have an impact on our consolidated financial statements.

In September 2022, the FASB issued an ASU which enhances the transparency of supplier finance programs by requiring additional disclosure about the key terms of these programs and a roll-forward of the related obligations to understand the effects of these programs on working capital, liquidity and cash flows. The ASU is effective for fiscal years beginning after December 15, 2022, except for the roll-forward requirement, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We adopted, with the exception of the roll-forward requirement, this standard in the first quarter of 2023 and it did not have a material impact on our consolidated financial statements and related disclosures.

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Note 2. Acquisitions and Divestitures

Acquisitions

Ricolino

On November 1, 2022, we acquired 100% of the equity of Grupo Bimbo's confectionery business, Ricolino, located primarily in Mexico. The acquisition of Ricolino builds on our continued prioritization of fast-growing snacking segments in key geographies. The cash consideration paid for Ricolino totaled $26 billion Mexican pesos ($1.3 billion), net of cash received.

We are working to complete the valuation of assets acquired and liabilities assumed and have recorded a preliminary purchase price allocation of:



	(in millions)
Cash	$	22
Receivables	86
Inventory	70
Other current assets	3
Property, plant and equipment	144
Operating leases right of use assets	23

Definite-life intangible assets	218
Indefinite-life intangible assets	339
Goodwill	717
Other assets	3
Assets acquired	$	1,625
Current liabilities	182
Deferred tax liability	76
Operating lease liabilities	23
Other liabilities	14
Total purchase price	$	1,330
Less: cash received	(22)
Net Cash Paid	$	1,308

Within identifiable intangible assets, we allocated $339 million to trade names, which have an indefinite life. The fair value for the Ricolino, Dulces Vero, LaCorona and Coronado trade names were determined using the Relief from Royalty method, a form of the income approach, at the acquisition date. The fair value measurement of indefinite-life intangible assets are based on significant unobservable inputs, and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include estimates of future sales, discount and royalty rates.

Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired and arises principally as a result of expansion opportunities and synergies across both new and legacy product categories in Mexico. None of the goodwill recognized is expected to be deductible for income tax purposes. All of the goodwill was assigned to the Latin America operating segment.

Ricolino added incremental net revenues of $180 million during the three months and $506 million during the nine months ended September 30, 2023, and operating income of $15 million during the three months and $31 million during the nine months ended September 30, 2023. We incurred acquisition integration costs of $14 million during the three months and $30 million during the nine months ended September 30, 2023. We also incurred during the three and nine months ended September 30, 2022, acquisition integration costs of $7 million in preparation for the acquisition. We incurred $1 million of acquisition-related costs during the nine months ended September 30, 2022.

Clif Bar

On August 1, 2022, we acquired 100% of the equity of Clif Bar & Company (“Clif Bar”), a leading U.S. maker of

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nutritious energy bars with organic ingredients. The acquisition expands our global snack bar business and complements our refrigerated snacking and performance nutrition bar portfolios. The total cash payment of $2.9 billion includes purchase price consideration of $2.6 billion, net of cash received, and one-time compensation expense of $0.3 billion related to the buyout of the non-vested employee stock ownership plan ("ESOP") shares. This compensation expense is considered an acquisition-related cost. The acquisition of Clif Bar includes a contingent consideration arrangement that may require us to pay additional consideration to the sellers for achieving certain revenue and earnings targets in 2025 and 2026 that exceed our base financial projections for the business implied in the upfront purchase price. The possible payments range from zero to a maximum total of $2.4 billion, with higher payouts requiring the achievement of targets that generate rates of returns in excess of the base financial projections. The estimated fair value of the contingent consideration obligation at the acquisition date was $440 million determined using a Monte Carlo simulation. Significant assumptions used in assessing the fair value of the liability include financial projections for net revenue, gross profit, and earnings before interest, tax, depreciation and amortization ("EBITDA"), as well as discount and volatility rates.

We have completed the valuation of assets acquired and liabilities assumed and have recorded a purchase price allocation of:



	(in millions)
Cash	$	99
Receivables	76
Inventory	123
Other current assets	9
Property, plant and equipment	186
Operating lease right-of-use assets	22
Deferred tax assets	107

Definite-life intangible assets	200
Indefinite-life intangible assets	1,450
Goodwill	988
Other assets	11
Assets acquired	$	3,271
Current liabilities	159

Contingent consideration	440
Other liabilities	15
Total purchase price	$	2,657
Less: cash received	(99)
Net Cash Paid	$	2,558

Within identifiable intangible assets, we allocated $1,450 million to trade names, which have an indefinite life. The fair value for the Clif and Luna trade names, were determined using the Relief from Royalty method, a form of the income approach, at the acquisition date. The fair value measurement of intangible assets are based on significant unobservable inputs, and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include forecasted future revenue, discount and royalty rates. We expect to generate a meaningful cash tax benefit over time from the amortization of acquisition-related intangibles.

Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired and arises principally as a result of expansion opportunities and synergies across the U.S. and other key markets. All of the goodwill was assigned to the North America operating segment. Tax deductible goodwill is expected to be $1.4 billion and will be amortized.

Through the one-year anniversary of the acquisition, Clif Bar added incremental net revenues of $71 million during the three months and $529 million during the nine months ended September 30, 2023, and operating income of $11 million during the three months and $81 million during the nine months ended September 30, 2023. We also incurred acquisition integration costs of $37 million during the three months and $92 million during the nine months ended September 30, 2023. These acquisition integration costs include an increase to the contingent consideration liability due to changes to underlying assumptions. Refer to Note 9, Financial Instruments for additional information. During the three and nine months ended September 30, 2022, we incurred acquisition integration costs of $16 million and an inventory step-up charge of $20 million. We also incurred acquisition-related costs of $292 million

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during the three months and $296 million during the nine months ended September 30, 2022. These acquisition-related costs are primarily related to the buyout of the non-vested ESOP shares.

Chipita

On January 3, 2022, we acquired 100% of the equity of Chipita Global S.A. (“Chipita”), a leading croissants and baked snacks company in the Central and Eastern European markets. The acquisition of Chipita offers a strategic complement to our existing portfolio and advances our strategy to become the global leader in broader snacking. The cash consideration paid for Chipita totaled €1.2 billion ($1.4 billion), net of cash received, plus the assumption of Chipita’s debt of €0.4 billion ($0.4 billion) for a total purchase price of €1.7 billion ($1.8 billion).

We have recorded a purchase price allocation of net tangible and intangible assets acquired and liabilities assumed as follows:



	(in millions)
Cash	$	52
Receivables	102
Inventory	60
Other current assets	3
Property, plant and equipment	379
Finance lease right-of-use assets	8
Definite-life intangible assets	48
Indefinite-life intangible assets	686
Goodwill	795
Other assets	77
Assets acquired	$	2,210
Current liabilities	133
Deferred tax liability	158
Finance lease liabilities	8
Other liabilities	21
Total purchase price	$	1,890
Less: long-term debt	(436)
Less: cash received	(52)
Net Cash Paid	$	1,402

Within identifiable intangible assets, we allocated $686 million to trade names, which have an indefinite life. The fair value for the 7 Days trade name, which is the primary asset acquired, was determined using the multi-period excess earnings method under the income approach at the acquisition date. The fair value measurements of intangible assets are based on significant unobservable inputs, and thus represent Level 3 inputs. Significant assumptions used in assessing the fair values of intangible assets include forecasted future cash flows and discount rates.

Goodwill was determined as the excess of the purchase price over the fair value of the net assets acquired and arises principally as a result of expansion opportunities and synergies across both new and legacy product categories. None of the goodwill recognized is expected to be deductible for income tax purposes. All of the goodwill was assigned to the Europe operating segment.

We incurred acquisition integration costs of $5 million during the three months and $15 million during the nine months ended September 30, 2023. We incurred acquisition integration costs of $14 million during the three months and $85 million during the nine months ended September 30, 2022. We incurred acquisition-related costs of $21 million during the nine months ended September 30, 2022.

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Divestitures

Developed Market Gum - Held for Sale

On December 16, 2022, we entered into an agreement to sell our developed market gum business in North America and Europe for $1.4 billion. In connection with these agreements, we concluded that the disposal group met the held for sale criteria as of December 31, 2022. The disposal group is included as part of the North America and Europe operating segments.

We incurred divestiture-related costs of $14 million in the three months ended September 30, 2023 and $66 million in the nine months ended September 30, 2023.

Total assets and liabilities held for sale are comprised of the following:


	As of September 30, 2023		As of December 31, 2022
	(in millions)
Assets held for sale
Other receivables, net of allowances	$	2	$	—
Inventories, net	83		79
Current assets held for sale (1)	85		79
Property, plant and equipment, net	164		159
Operating lease right-of-use assets	1		—
Goodwill	290		292
Intangible assets, net	697		671
Deferred income taxes	8		—
Noncurrent assets held for sale (2)	1,160		1,122
Total assets held for sale	$	1,245	$	1,201

Liabilities held for sale
Accrued employment costs	$	—	$	4
Other current liabilities	1		—
Current liabilities held for sale (3)	1		4
Long-term operating lease liabilities	1		—
Deferred income taxes	—		15
Noncurrent liabilities held for sale (4)	1		15
Total liabilities held for sale	$	2	$	19

(1)Reported in Other current assets on the condensed consolidated balance sheets.

(2)Reported in Other assets on the condensed consolidated balance sheets.

(3)Reported in Other current liabilities on the condensed consolidated balance sheets.

(4)Reported in Other liabilities on the condensed consolidated balance sheets.

On October 1, 2023, we completed the sale of our developed market gum business in the United States, Canada, and Europe to Perfetti Van Melle Group, excluding the Portugal business which we retained pending regulatory approval. We completed the sale of the Portugal business to Perfetti Van Melle Group on October 23, 2023. We received net cash proceeds of $1.4 billion, subject to certain closing adjustments, that can be utilized for general corporate purposes, including the support of our commercial paper program.

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Note 3. Inventories

Inventories consisted of the following:


	As of September 30, 2023		As of December 31, 2022
	(in millions)
Raw materials	$	1,027	$	1,031
Finished product	2,924		2,501
	3,951		3,532
Inventory reserves	(143)		(151)
Inventories, net	$	3,808	$	3,381

Note 4. Property, Plant and Equipment

Property, plant and equipment consisted of the following:


	As of September 30, 2023		As of December 31, 2022
	(in millions)
Land and land improvements	$	370	$	378
Buildings and building improvements	3,313		3,250
Machinery and equipment	12,100		11,724
Construction in progress	990		879
	16,773		16,231
Accumulated depreciation	(7,631)		(7,211)
Property, plant and equipment, net	$	9,142	$	9,020

For the nine months ended September 30, 2023, capital expenditures of $780 million excluded $321 million of accrued capital expenditures remaining unpaid at September 30, 2023 and included payment for the $324 million of capital expenditures that were accrued and unpaid at December 31, 2022. For the nine months ended September 30, 2022, capital expenditures of $621 million excluded $255 million of accrued capital expenditures remaining unpaid at September 30, 2022 and included payment for the $249 million of capital expenditures that were accrued and unpaid at December 31, 2021.

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Note 5. Goodwill and Intangible Assets

Goodwill

Changes in goodwill consisted of (in millions):


	Latin America		AMEA		Europe		North America		Total
January 1, 2022	$	674	$	3,365	$	7,830	$	10,109	$	21,978
Currency	41		(233)		(550)		(15)		(757)
Acquisitions (1)	714		—		795		1,020		2,529
Held for Sale (1)	—		—		(66)		(226)		(292)
Divestitures	(8)		—		—		—		(8)
Balance at December 31, 2022	$	1,421	$	3,132	$	8,009	$	10,888	$	23,450
Currency	136		(134)		(117)		2		(113)
Acquisitions (1) (2)	3		—		—		(33)		(30)


Balance at September 30, 2023	$	1,560	$	2,998	$	7,892	$	10,857	$	23,307

(1)Refer to Note 2, Acquisitions and Divestitures for more information.

(2)Relates to purchase price allocation adjustments for Ricolino and Clif Bar during 2023.

Intangible Assets

Intangible assets consisted of the following (in millions):


	As of September 30, 2023						As of December 31, 2022
	Gross carrying amount		Accumulated amortization		Net carrying amount		Gross carrying amount		Accumulated amortization		Net carrying amount
Definite-life intangible assets	$	3,259	$	(2,071)	$	1,188	$	3,354	$	(2,057)	$	1,297
Indefinite-life intangible assets (1) (2)	18,287		—		18,287		18,413		—		18,413
Total	$	21,546	$	(2,071)	$	19,475	$	21,767	$	(2,057)	$	19,710

(1)In 2022, we recorded $101 million of intangible asset impairment charges related to two biscuit brands in the AMEA segment, of which $78 million was recorded in the first quarter and $23 million was recorded in the third quarter.

(2)In 2023, we recorded $26 million of intangible asset impairment charges related to a chocolate brand in the North America segment for $20 million and a biscuit brand in the Europe segment for $6 million in the third quarter.

Indefinite-life intangible assets consist principally of brand names purchased through our acquisitions of Nabisco Holdings Corp., the global LU biscuit business of Groupe Danone S.A., Cadbury Limited and Clif Bar. Definite-life intangible assets consist primarily of trademarks, customer-related intangibles, process technology, licenses and non-compete agreements.

Amortization expense for intangible assets was $38 million for the three months and $114 million for the nine months ended September 30, 2023 and $32 million for the three months and $96 million for the nine months ended September 30, 2022. For the next five years, we currently estimate annual amortization expense of approximately $145 million in 2023-2025, approximately $95 million in 2026 and approximately $90 million in 2027 (reflecting September 30, 2023 exchange rates).

During the third quarter of 2023, we performed our annual impairment assessment test for goodwill and indefinite-life intangible assets as of July 1, 2023.

Our 2023 annual testing of goodwill resulted in no impairments as each reporting unit had fair value in excess of carrying value. As part of our goodwill quantitative assessment, we compare a reporting unit's estimated fair value to its carrying value. If the carrying value of the reporting unit exceeds the fair value, we would record an impairment for the difference. We estimate a reporting unit's fair value using a discounted cash flow method that incorporates discount rates, planned growth rates, and estimates of residual value. For our Europe and North America reporting units, we used a market-based weighted average cost of capital of 7.1% to discount projected cash flows of those operations. For our Latin America and AMEA reporting units, we used a risk-rated discount rate of 10.1% to discount projected cash flows from those operations. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, industry conditions and economic conditions based on available information. Given the uncertainty of the global macroeconomic environment, those estimates could be

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significantly different than future performance. While all reporting units passed our annual impairment testing, if planned business performance expectations are not met or specific valuation factors outside our control, such as discount rates, changes significantly, then the estimated fair values of a reporting unit might decline and lead to a goodwill impairment in the future.

Our 2023 annual testing of indefinite-life intangible assets resulted in an impairment of $26 million related to a chocolate brand in the North America segment and a biscuit brand in the Europe segment. The impairments were driven by changes in projections as a result of current and expected operating environment. The impairment charges were calculated as the excess of the carrying value over the estimated fair value of the intangible assets on a global basis and were recorded within asset impairment and exit costs.

We use several accepted valuation methods, including Relief from Royalty, excess earnings and excess margin. The valuation methods utilize estimates of future sales, earnings growth rates, royalty rates and discount rates to determine the fair value of each intangible asset. We identified thirteen brands that each had a fair value in excess of book value of 10% or less. The aggregate book value of the thirteen brands was $3.5 billion as of September 30, 2023, of which $1.8 billion is related to five recently acquired brands. We believe our current plans for each of these brands will allow them to not be impaired, but if plans to grow brand earnings and expand margin are not met or specific valuation factors outside of our control, such as discount rates, change then a brand or brands could become impaired in the future.

Note 6. Investments

Marketable Securities

Our reduction in ownership in Keurig Dr Pepper Inc. (Nasdaq: "KDP") during the first quarter of 2023, to below 5% of the outstanding shares, resulted in a change of accounting for our KDP investment, from equity method investment accounting to accounting for equity interests with readily determinable fair values ("marketable securities") as we no longer have significant influence. These marketable securities were measured at fair value based on quoted prices in active markets for identical assets (Level 1).

On July 13, 2023, we sold 23 million shares, the remainder of our shares of KDP. We received proceeds of approximately $704 million.

On June 8, 2023, we sold 23 million shares of KDP, which reduced our ownership by 1.6 percentage points, from 3.2% to 1.6% of the total outstanding shares. We received proceeds of approximately $708 million.

On March 2, 2023, we sold 30 million shares of KDP, which reduced our ownership interest by 2.1 percentage points, from 5.3% to 3.2% of the total outstanding shares. We received proceeds of approximately $1.0 billion and recorded a pre-tax gain on equity method transactions of $493 million ($366 million after-tax) during the first quarter of 2023.

Pre-tax gains and losses for marketable securities are summarized below (in millions):


	Three Months Ended September 30, 2023		Nine Months Ended September 30, 2023
	(in millions)
Loss/(gain) on marketable securities sold during the period	$	—	$	(593)
Dividend income and other	1		(13)
Total loss/(gain) on marketable securities	$	1	$	(606)

In the table above, loss/(gain) on marketable securities sold during the period reflects the difference between the sale proceeds and the carrying value of the equity securities at the beginning of the period or the date of the change of accounting for our investment in KDP, if later.

Equity Method Investments

Our equity method investments include, but are not limited to, our ownership interests in JDE Peet's (Euronext Amsterdam: "JDEP"), Dong Suh Foods Corporation and Dong Suh Oil & Fats Co. Ltd. Our ownership interests may change over time due to investee stock-based compensation arrangements, share issuances or other equity-related transactions. As of September 30, 2023, we owned 17.7%, 50.0% and 49.0%, respectively, of these companies'

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outstanding shares.

Our investments accounted for under the equity method of accounting totaled $3.1 billion as of September 30, 2023 and $4.9 billion as of December 31, 2022. The investment balance as of December 31, 2022 is inclusive of our investment in KDP. We recorded equity earnings of $10 million and cash dividends of $34 million in the three months ended September 30, 2023, and equity earnings of $85 million and cash dividends of $48 million in the three months ended September 30, 2022. We recorded equity earnings of $116 million and cash dividends of $136 million in the nine months ended September 30, 2023 and equity earnings of $300 million and cash dividends of $169 million in the nine months ended September 30, 2022.

Based on the quoted closing prices as of September 30, 2023, the fair value of our publicly traded investment in JDEP was $2.4 billion, and there was no other than temporary impairment identified.

JDEP Transactions

On March 30, 2023, we issued options to sell shares of JDEP in tranches equivalent to approximately 7.7 million shares. These options were exercisable at their maturities which were between July 3, 2023 and September 29, 2023, with strike prices ranging from €26.10 to €28.71 per share. During the three months ended September 30, 2023, options were exercised on 2.2 million shares, which reduced our ownership by 0.4 percentage point, from 18.1% to 17.7% of the total outstanding shares. We received cash proceeds of €57 million ($62 million) and recorded a loss of €3 million ($4 million) for these sales during the three months ended September 30, 2023. We continue to have board representation with two directors on JDEP's Board of Directors and have retained certain additional governance rights. As we continue to have significant influence, we continue to account for our investment in JDEP under the equity method.

On April 3, 2023, we sold approximately 7.7 million shares of JDEP, which reduced our ownership interest by 1.6 percentage points, from 19.7% to 18.1% of the total outstanding shares. We received cash proceeds of €198 million ($217 million) and recorded a loss of €18 million ($19 million) on this sale during the second quarter of 2023.

On May 8, 2022, we sold approximately 18.6 million of our JDEP shares back to JDEP, which reduced our ownership interest by approximately 3 percentage points. We received cash proceeds of €500 million ($529 million) and recorded a loss of €8 million ($8 million) on this sale during the second quarter of 2022.