Mondelez International, Inc. [MDLZ] Filings

10-Q 1 mdlz-20220331.htm 10-Q mdlz-20220331

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 March 31, 2022


			☐			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:

Tile 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 April 22, 2022, there were 1,383,923,632 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 Months Ended March 31, 2022 and 2021	1

	Condensed Consolidated Statements of Comprehensive Earnings for the Three Months Ended March 31, 2022 and 2021	2

	Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021	3

	Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2022 and 2021	4

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	5

	Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52

Item 4.	Controls and Procedures	53

PART II -	OTHER INFORMATION

Item 1.	Legal Proceedings	54

Item 1A.	Risk Factors	54

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

Item 6.	Exhibits	56

Signature		57

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 March 31,
	2022		2021
Net revenues	$	7,764	$	7,238
Cost of sales	4,781		4,272
Gross profit	2,983		2,966
Selling, general and administrative expenses	1,693		1,564
Asset impairment and exit costs	164		90
Gain on acquisition	—		(9)
Amortization of intangible assets	32		38
Operating income	1,094		1,283
Benefit plan non-service income	(33)		(44)
Interest and other expense, net	168		218
Earnings before income taxes	959		1,109
Income tax provision	(210)		(212)
Loss on equity method investment transactions	(5)		(7)
Equity method investment net earnings	117		78
Net earnings	861		968
Noncontrolling interest earnings	(6)		(7)
Net earnings attributable to Mondelēz International	$	855	$	961
Per share data:
Basic earnings per share attributable to Mondelēz International	$	0.62	$	0.68
Diluted earnings per share attributable to Mondelēz International	$	0.61	$	0.68

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 March 31,
	2022		2021
Net earnings	$	861	$	968
Other comprehensive earnings/(losses), net of tax:
Currency translation adjustment	50		(136)
Pension and other benefit plans	93		69
Derivative cash flow hedges	52		2
Total other comprehensive earnings/(losses)	195		(65)
Comprehensive earnings/(losses)	1,056		903
less: Comprehensive earnings/(losses) attributable to noncontrolling interests	2		(2)
Comprehensive earnings/(losses) attributable to Mondelēz International	$	1,054	$	905

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)


	March 31, 2022		December 31, 2021
ASSETS
Cash and cash equivalents	$	1,946	$	3,546
Trade receivables (net of allowances of $55 at March 31, 2022 and $37 at December 31, 2021)	2,943		2,337
Other receivables (net of allowances of $48 at March 31, 2022 and $49 at December 31, 2021)	749		851
Inventories, net	2,838		2,708
Other current assets	1,143		900
Total current assets	9,619		10,342
Property, plant and equipment, net	9,015		8,658
Operating lease right of use assets	653		613
Goodwill	22,618		21,978
Intangible assets, net	18,829		18,291
Prepaid pension assets	1,046		1,009
Deferred income taxes	561		541
Equity method investments	5,255		5,289
Other assets	398		371
TOTAL ASSETS	$	67,994	$	67,092
LIABILITIES
Short-term borrowings	$	606	$	216
Current portion of long-term debt	754		1,746
Accounts payable	7,241		6,730
Accrued marketing	2,272		2,097
Accrued employment costs	721		822
Other current liabilities	2,509		2,397
Total current liabilities	14,103		14,008
Long-term debt	18,344		17,550
Long-term operating lease liabilities	508		459
Deferred income taxes	3,521		3,444
Accrued pension costs	645		681
Accrued postretirement health care costs	304		301
Other liabilities	2,353		2,326
TOTAL LIABILITIES	39,778		38,769
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 March 31, 2022 and December 31, 2021)	—		—
Additional paid-in capital	32,053		32,097
Retained earnings	31,163		30,806
Accumulated other comprehensive losses	(10,425)		(10,624)
Treasury stock, at cost (612,818,033 shares at March 31, 2022 and 604,907,239 shares at December 31, 2021)	(24,630)		(24,010)
Total Mondelēz International Shareholders’ Equity	28,161		28,269
Noncontrolling interest	55		54
TOTAL EQUITY	28,216		28,323
TOTAL LIABILITIES AND EQUITY	$	67,994	$	67,092

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 March 31, 2022
Balances at January 1, 2022	$	—	$	32,097	$	30,806	$	(10,624)	$	(24,010)	$	54	$	28,323
Comprehensive earnings/(losses):
Net earnings	—		—		855		—		—		6		861
Other comprehensive earnings/(losses), net of income taxes	—		—		—		199		—		(4)		195
Exercise of stock options and issuance of other stock awards	—		(44)		(11)		—		115		—		60
Common Stock repurchased	—		—		—		—		(735)		—		(735)
Cash dividends declared ($0.350 per share)	—		—		(487)		—		—		—		(487)
Dividends paid on noncontrolling interest and other activities	—		—		—		—		—		(1)		(1)
Balances at March 31, 2022	$	—	$	32,053	$	31,163	$	(10,425)	$	(24,630)	$	55	$	28,216










Three Months Ended March 31, 2021
Balances at January 1, 2021	$	—	$	32,070	$	28,402	$	(10,690)	$	(22,204)	$	76	$	27,654
Comprehensive earnings/(losses):
Net earnings	—		—		961		—		—		7		968
Other comprehensive earnings/(losses), net of income taxes	—		—		—		(56)		—		(9)		(65)
Exercise of stock options and issuance of other stock awards	—		(61)		(15)		—		130		—		54
Common Stock repurchased	—		—		—		—		(1,017)		—		(1,017)
Cash dividends declared ($0.315 per share)	—		—		(445)		—		—		—		(445)
Dividends paid on noncontrolling interest and other activities	—		—		—		—		—		—		—
Balances at March 31, 2021	$	—	$	32,009	$	28,903	$	(10,746)	$	(23,091)	$	74	$	27,149

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 Three Months Ended March 31,
	2022		2021
CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES
Net earnings	$	861	$	968
Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization	275		284
Stock-based compensation expense	24		25

Deferred income tax (benefit)/provision	(70)		34
Asset impairments and accelerated depreciation	155		43
Loss on early extinguishment of debt	38		110
Gain on acquisition	—		(9)
Loss on equity method investment transactions	5		7
Equity method investment net earnings	(117)		(78)
Distributions from equity method investments	107		74
Other non-cash items, net	(13)		(23)
Change in assets and liabilities, net of acquisitions and divestitures:
Receivables, net	(517)		(494)
Inventories, net	(81)		(37)
Accounts payable	397		283
Other current assets	(104)		(140)
Other current liabilities	230		(55)
Change in pension and postretirement assets and liabilities, net	(59)		(77)
Net cash provided by operating activities	1,131		915
CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES
Capital expenditures	(167)		(216)
Acquisitions, net of cash received	(1,418)		(490)
Proceeds from divestitures including equity method investments	66		—
Proceeds from sale of property, plant and equipment and other	78		16
Net cash used in investing activities	(1,441)		(690)
CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES
Issuances of commercial paper, maturities greater than 90 days	—		—
Repayments of commercial paper, maturities greater than 90 days	—		—
Net issuances/(repayments) of other short-term borrowings	217		647
Long-term debt proceeds	1,991		2,373
Long-term debt repayments	(2,306)		(3,353)
Repurchase of Common Stock	(751)		(1,046)
Dividends paid	(491)		(453)
Other	60		51
Net cash used in financing activities	(1,280)		(1,781)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(10)		(35)
Cash, cash equivalents and restricted cash:
(Decrease)/Increase	(1,600)		(1,591)
Balance at beginning of period	3,553		3,650
Balance at end of period	$	1,953	$	2,059

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, 2021.

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 over which we do not have significant influence or control are not material and as there are no readily determinable fair values for the equity interests, these investments are carried at cost with changes in the investment recognized to the extent cash is received.

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 assets. We recorded $143 million of total expenses ($145 million after-tax) incurred as a direct result of the war, including $75 million recorded in asset impairment and exit costs, $44 million in cost of sales and $24 million in selling, general and administrative expenses. We recorded $75 million of property, plant and equipment impairments, $33 million of estimated inventory reserves and write-offs, $19 million of increased estimated allowances for trade receivables and $16 million in accrued expenses. 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. In connection with these findings and impacts, we have made estimates and assumptions based on information available to us. 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.

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) and realized exchange gains and losses on currency transactions in earnings.

Highly inflationary accounting is triggered when a country’s three-year cumulative inflation rate exceeds 100%. It requires the remeasurement of financial statements of subsidiaries in the country from the functional currency of the subsidiary to our U.S. dollar reporting currency. Local currency monetary assets and liabilities are remeasured into U.S. dollars using exchange rates as of the latest balance sheet date, with remeasurement gains and losses recognized in net earnings.

Türkiye. During the first quarter of 2022, primarily based on data published by the Türkiye Statistical Institute that indicated that Türkiye's three-year cumulative inflation rate exceeded 100%, we concluded that Türkiye became a highly inflationary economy for accounting purposes. As of April 1, 2022, we expect to apply highly inflationary accounting for our subsidiaries operating in Türkiye and change their functional currency from the Turkish lira to the U.S. dollar. Our operations in Türkiye contributed $43 million, or 0.6% of our condensed consolidated net revenues in the three months ended March 31, 2022. Based on a review of our Turkish lira-denominated monetary assets and liabilities, our operations in Türkiye had an immaterial net monetary liability position as of March 31, 2022.

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Argentina. During the second quarter of 2018, primarily based on published estimates that indicated that Argentina's three-year cumulative inflation rate exceeded 100%, we concluded that Argentina became a highly inflationary economy for accounting purposes. As of July 1, 2018, we began to apply highly inflationary accounting for our Argentinean subsidiaries and changed their functional currency from the Argentinean peso to the U.S. dollar. Our operations in Argentina contributed $129 million, or 1.7% of our condensed consolidated net revenues in the three months ended March 31, 2022. As of March 31, 2022, our Argentinean operations had $26 million of Argentinean peso denominated net monetary assets. Within selling, general and administrative expenses, we recorded a remeasurement loss of $5 million during the three months ended March 31, 2022 related to the revaluation of the Argentinean peso denominated net monetary position over these periods.

Other Countries. Since we sell our products in over 150 countries and have operations in approximately 80 countries, we monitor economic and currency-related risks and seek to take protective measures in response to potential exposures. We continue to monitor the developments in Ukraine and Russia as well as in the ongoing COVID-19 global pandemic and related impacts to our business operations, currencies and net monetary exposures. Since the global onset of COVID-19 in early 2020, most countries in which we do business experienced periods of significant economic uncertainty as well as exchange rate volatility. At this time, within our consolidated entities, Argentina and Türkiye are or will be accounted for as highly inflationary economies as noted above, and we continue to monitor currency volatility and associated risks, including highly inflationary economies.

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 that is recorded within other current assets of $7 million as of March 31, 2022 and $7 million as of December 31, 2021. Total cash, cash equivalents and restricted cash was $1,953 million as of March 31, 2022 and $3,553 million as of December 31, 2021.

Allowances for Credit Losses:

The allowances for credit losses are recorded against our receivables. They are developed at a country and region level based on historical collection experiences, current economic condition of specific customers and the forecasted economic condition of countries using various factors such as bond default rates and consumption indexes. We write off receivables once it is determined that the receivables are no longer collectible and as allowed by local laws.

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, 2022	$	(37)	$	(49)	$	(10)
Current period provision for expected credit losses	(19)		(2)		(5)
Write-offs charged against the allowance	3		—		—

Currency	(2)		3		(2)
Balance at March 31, 2022	$	(55)	$	(48)	$	(17)

Transfers of Financial Assets:

We account for transfers of financial assets, such as uncommitted revolving non-recourse accounts receivable factoring arrangements, when we have surrendered control over the related assets. Determining whether control has transferred requires an evaluation of relevant legal considerations, an assessment of the nature and extent of our continuing involvement with the assets transferred and any other relevant considerations. We use receivable factoring arrangements periodically when circumstances are favorable to manage liquidity. We have non-recourse factoring arrangements in which we sell eligible trade receivables primarily to banks in exchange for cash. We may then continue to collect the receivables sold, acting solely as a collecting agent on behalf of the banks. The outstanding principal amount of receivables under these arrangements amounted to $887 million as of March 31, 2022 and $761 million as of December 31, 2021. 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.

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Non-Cash Lease Transactions:

We recorded $95 million in operating lease and $56 million in finance lease right-of-use assets obtained in exchange for lease obligations during the three months ended March 31, 2022 and $29 million in operating lease and $30 million in finance lease right-of-use assets obtained in exchange for lease obligations during the three months ended March 31, 2021.

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 are evaluating the timing and effects of adopting this ASU and currently we do not expect this ASU to have a material impact on our consolidated financial statements.

In March 2020 and subsequently in January 2021, the FASB issued an ASU to provide optional accounting guidance for a limited period of time to ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions to existing accounting requirements for contract modifications and hedge accounting related to transitioning from discontinued reference rates, such as LIBOR, to alternative reference rates, if certain criteria are met. The new accounting requirements can be applied as of the beginning of the interim period including March 12, 2020, or any date thereafter, through December 31, 2022. We expect to adopt this standard in the fourth quarter of 2022. Based on our evaluation of our contracts to date, we do not expect this ASU to have a material impact on our consolidated financial statements.

Note 2. Acquisitions and Divestitures

On April 24, 2022, we entered into an agreement with Grupo Bimbo to acquire Ricolino, its confectionery business located primarily in Mexico for a purchase price of approximately $1.3 billion, subject to closing purchase price adjustments. The transaction, which will be funded through a combination of an issuance of debt and cash on hand, is subject to relevant antitrust approvals and closing conditions and is expected to close in late Q3 or early Q4 2022.

On January 3, 2022, we acquired Chipita 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 €1.3 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 ($1.9 billion).

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


	(in millions)
Cash	$	52
Receivables	102
Inventory	62
Other current assets	4
Property, plant and equipment	406
Finance leases right of use assets	8
Definite life intangible assets	48
Indefinite life intangible assets	686
Goodwill	774
Other assets	79
Assets acquired	$	2,221
Current liabilities	131
Deferred tax liability	155
Finance lease liabilities	8
Other liabilities	21
Total purchase price	$	1,906
Less: long-term debt	(436)
Less: cash received	(52)
Net Cash Paid	$	1,418

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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 segment.

Chipita added incremental net revenues of $152 million and operating income of $4 million in the three months ended March 31, 2022. We incurred acquisition-related costs of $21 million and integration costs of $35 million in the three months ended March 31, 2022.

On November 1, 2021, we completed the sale of MaxFoods Pty Ltd, an Australian packaged seafood business that we had acquired as part of our acquisition of Gourmet Food Holdings Pty Ltd (“Gourmet Food”). The sales price was $57 million Australian dollars ($41 million), net of cash divested with the business, and we recorded an immaterial loss on the transaction.

On April 1, 2021, we acquired Gourmet Food, a leading Australian food company in the premium biscuit and cracker category, for closing cash consideration of approximately $450 million Australian dollars ($343 million), net of cash received. We have recorded a purchase price allocation of net tangible and intangible assets acquired and liabilities assumed of $41 million to indefinite-lived intangible assets, $80 million to definite-lived intangible assets, $164 million to goodwill, $19 million to property, plant and equipment, $18 million to inventory, $25 million to accounts receivable, $12 million to other assets, $5 million to operating right of use assets, $3 million to other current assets, $19 million to current liabilities and $5 million to long-term operating lease liabilities. The acquisition added incremental net revenues of $14 million, and operating income of $1 million in the three months ended March 31, 2022. We incurred acquisition-related costs of $1 million in the three months ended March 31, 2021.

On March 25, 2021, we acquired a majority interest in Lion/Gemstone Topco Ltd ("Grenade"), a performance nutrition leader in the United Kingdom, for closing cash consideration of £188 million ($261 million), net of cash received. The acquisition of Grenade expands our position into the premium nutrition segment. We have recorded a purchase price allocation of net tangible and intangible assets acquired and liabilities assumed of $82 million to indefinite-lived intangible assets, $28 million to definite-lived intangible assets, $181 million to goodwill, $1 million to property, plant and equipment, $11 million to inventory, $18 million to accounts receivable, $25 million to current liabilities, $20 million to deferred tax liabilities and $15 million to long-term other liabilities. Through the one-year anniversary of the acquisition, Grenade added incremental net revenues of $21 million, and operating income of $2 million in the three months ended March 31, 2022. We incurred acquisition-related costs of $2 million in the three months ended March 31, 2021.

On January 4, 2021, we acquired the remaining 93% of equity of Hu Master Holdings ("Hu"), a category leader in premium chocolate in the United States, which provides a strategic complement to our snacking portfolio in North America through growth opportunities in chocolate and other categories in the well-being category. The initial cash consideration paid was $229 million, net of cash received, and the Company may be required to pay additional contingent consideration. The estimated fair value of the contingent consideration obligation at the acquisition date was $132 million and was determined using a Monte Carlo simulation based on forecasted future results. As a result of acquiring the remaining equity interest, we consolidated the operations prospectively from the date of acquisition and recorded a pre-tax gain of $9 million ($7 million after-tax) related to stepping up our previously-held $8 million (7%) investment to fair value. We have recorded a purchase price allocation of net tangible and intangible assets acquired and liabilities assumed of $123 million to indefinite-lived intangible assets, $51 million to definite-lived intangible assets, $202 million to goodwill, $1 million to property, plant and equipment, $2 million to inventory, $4 million to accounts receivable, $5 million to current liabilities and $132 million to long-term other liabilities. We incurred acquisition-related costs of $4 million during the three months ended March 31, 2021.

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Note 3. Inventories

Inventories consisted of the following:


	As of March 31, 2022		As of December 31, 2021
	(in millions)
Raw materials	$	891	$	770
Finished product	2,093		2,054
	2,984		2,824
Inventory reserves	(146)		(116)
Inventories, net	$	2,838	$	2,708

Note 4. Property, Plant and Equipment

Property, plant and equipment consisted of the following:


	As of March 31, 2022		As of December 31, 2021
	(in millions)
Land and land improvements	$	405	$	379
Buildings and building improvements	3,322		3,139
Machinery and equipment	12,043		11,842
Construction in progress	669		732
	16,439		16,092
Accumulated depreciation	(7,424)		(7,434)
Property, plant and equipment, net	$	9,015	$	8,658

For the three months ended March 31, 2022, capital expenditures of $167 million excluded $244 million of accrued capital expenditures remaining unpaid at March 31, 2022 and included payment for a portion of the $249 million of capital expenditures that were accrued and unpaid at December 31, 2021. For the three months ended March 31, 2021, capital expenditures of $216 million excluded $230 million of accrued capital expenditures remaining unpaid at March 31, 2021 and included payment for a portion of the $275 million of capital expenditures that were accrued and unpaid at December 31, 2020.

In connection with our restructuring program, we recorded non-cash property, plant and equipment write-downs (including accelerated depreciation and asset impairments) and losses/(gains) on disposal in the condensed consolidated statements of earnings within asset impairment and exit costs and within the segment results as follows (refer to Note 7, Restructuring Program).


	For the Three Months Ended March 31,
	2022		2021
	(in millions)
Latin America	$	—	$	—
AMEA	—		(16)
Europe	1		2
North America	1		54
Total	$	2	$	40

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Note 5. Goodwill and Intangible Assets

Goodwill by segment was:


	As of March 31, 2022		As of December 31, 2021
	(in millions)
Latin America	$	738	$	674
AMEA	3,371		3,365
Europe	8,355		7,830
North America	10,154		10,109
Goodwill	$	22,618	$	21,978

Intangible assets consisted of the following:


	As of March 31, 2022		As of December 31, 2021
	(in millions)
Indefinite-life intangible assets	$	17,827	$	17,299
Definite-life intangible assets	3,025		2,991
	20,852		20,290
Accumulated amortization	(2,023)		(1,999)
Intangible assets, net	$	18,829	$	18,291

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

Amortization expense for intangible assets was $32 million for the three months ended March 31, 2022 and $38 million for the three months ended March 31, 2021. For the next five years, we currently estimate annual amortization expense of approximately $130 million in 2022-2024, approximately $105 million in 2025 and approximately $65 million in 2026 (reflecting March 31, 2022 exchange rates).

Changes in goodwill and intangible assets consisted of:


	Goodwill		Intangible Assets, at cost
	(in millions)
Balance at January 1, 2022	$	21,978	$	20,290
Currency	(134)		(94)

Acquisitions	774		734
Asset impairments	—		(78)
Balance at March 31, 2022	$	22,618	$	20,852

Changes to goodwill and intangibles were:

•Acquisitions - In connection with our acquisition of Chipita during the first three months of 2022, we recorded a preliminary purchase price allocation of $774 million to goodwill and $734 million to intangible assets. See Note 2, Acquisitions and Divestitures, for additional information.

•Asset impairment - As further described below, during the first quarter of 2022, we recorded a $78 million intangible asset impairment in AMEA due to lower than expected growth and profitability of a local biscuit brand sold in select markets in AMEA and Europe.

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During the first quarter of 2022, we evaluated our goodwill and intangible asset impairment risk through an assessment of potential triggering events. In light of the war in Ukraine and the overall global economic environment, we considered qualitative and quantitative information in our assessment of goodwill and indefinite-life intangible assets. Based on the financial performance of our goodwill reporting units, we concluded there were no impairment indicators for goodwill. Based on further quantitative analysis of our indefinite-life intangible assets, we concluded that a biscuit brand was impaired. During the first quarter of 2022, we recorded a $78 million impairment charge for the brand within asset impairment and exit costs and based on the excess carrying value over its estimated fair value. During our indefinite-life impairment testing, we use several accepted valuation methods, including relief of royalty, excess earnings and excess margin, that utilize estimates of future sales, earnings growth rates, royalty rates and discount rates in determining a brand's global fair value.

During the first quarter of 2021, there were no impairments of goodwill or intangible assets. During our 2021 annual indefinite-life intangible asset testing in the third quarter of 2021, we identified eight brands, including the one brand impaired during the first quarter of 2022, that each had a fair value in excess of book value of 10% or less. The aggregate book value of the eight brands was $1,045 million as of March 31, 2022. We continue to monitor our brand performance, particularly in light of the significant global economic uncertainties and related impacts to our business. If a brand's earnings expectations, including the timing of the expected recovery from the war and the pandemic, are not met or specific valuation factors outside of our control, such as discount rates, change significantly, then a brand or brands could become impaired in the future.

Note 6. Equity Method Investments

Equity method investments consist of our investments in entities in which we maintain an equity ownership interest and apply the equity method of accounting due to our ability to exert significant influence over decisions relating to their operating and financial affairs. Revenue and expenses of our equity method investees are not consolidated into our financial statements; rather, our proportionate share of the earnings of each investee is reflected as equity method investment net earnings. The carrying values of our equity method investments are also impacted by our proportionate share of items impacting the investee's accumulated other comprehensive income or losses and other items, such as our share of investee dividends.

Our equity method investments include, but are not limited to, our ownership interests in JDE Peet's (Euronext Amsterdam: "JDEP"), Keurig Dr Pepper Inc. (Nasdaq: "KDP"), 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 March 31, 2022, we owned 22.7%, 5.3%, 50.0% and 49.0%, respectively, of these companies' outstanding shares.

Our investments accounted for under the equity method of accounting totaled $5,255 million as of March 31, 2022 and $5,289 million as of December 31, 2021. We recorded equity earnings of $117 million and cash dividends of $107 million in the first quarter of 2022 and equity earnings of $78 million and cash dividends of $74 million in the first quarter of 2021.

Based on the quoted closing prices as of March 31, 2022, the combined fair value of our publicly-traded investments in JDEP and KDP was $6.1 billion, and for each investment, its fair value exceeded its carrying value.

On September 20, 2021, we issued €300 million exchangeable bonds, which are redeemable at maturity in September 2024 at their principal amount in cash or, at our option, through the delivery of an equivalent number of JDE Peet’s ordinary shares based on an initial exchange price of €35.40 and, as the case may be, an additional amount in cash. If all bonds were redeemed in exchange for JDE Peet's shares, this would represent approximately 8.5 million shares or approximately 7% of our equity interest in JDE Peet's. Refer to Note 9, Debt and Borrowing Arrangements, for further details on this transaction.

Note 7. Restructuring Program

On May 6, 2014, our Board of Directors approved a $3.5 billion 2014-2018 restructuring program and up to $2.2 billion of capital expenditures. On August 31, 2016, our Board of Directors approved a $600 million reallocation between restructuring program cash costs and capital expenditures so the $5.7 billion program consisted of approximately $4.1 billion of restructuring program charges ($3.1 billion cash costs and $1.0 billion non-cash costs) and up to $1.6 billion of capital expenditures. On September 6, 2018, our Board of Directors approved an extension of the restructuring program through 2022, an increase of $1.3 billion in the program charges and an increase of

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$700 million in capital expenditures. On October 21, 2021, our Board of Directors approved an extension of the restructuring program through 2023. The total $7.7 billion program now consists of $5.4 billion of program charges ($4.1 billion of cash costs and $1.3 billion of non-cash costs) and total capital expenditures of $2.3 billion to be incurred over the life of the program. The current restructuring program, as increased and extended by these actions, is now called the Simplify to Grow Program.

The primary objective of the Simplify to Grow Program is to reduce our operating cost structure in both our supply chain and overhead costs. The program covers severance as well as asset disposals and other manufacturing and procurement-related one-time costs. Since inception, we have incurred total restructuring and implementation charges of $5.1 billion related to the Simplify to Grow Program. We expect to incur the remainder of the program charges by year-end 2023.

Restructuring Costs:

The Simplify to Grow Program liability activity for the three months ended March 31, 2022 was:


	Severance and related costs		Asset Write-downs		Total
	(in millions)
Liability balance, January 1, 2022	$	211	$	—	$	211
Charges	9		2		11
Cash spent	(17)		—		(17)
Non-cash settlements/adjustments	—		(2)		(2)
Currency	(1)		—		(1)
Liability balance, March 31, 2022	$	202	$	—	$	202

•We recorded restructuring charges of $11 million in the first quarter of 2022 and $88 million in the first quarter of 2021 within asset impairment and exit costs and benefit plan non-service income.

•We spent $17 million in the first quarter of 2022 and $34 million in the first quarter of 2021 in cash severance and related costs.

•We recognized non-cash asset write-downs (including accelerated depreciation and asset impairments), and other adjustments, including any gains on sale of restructuring program assets, which totaled $2 million in the first quarter of 2022 and $40 million in the first quarter of 2021.

•At March 31, 2022, $172 million of our net restructuring liability was recorded within other current liabilities and $30 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. We believe the disclosure of implementation costs provides readers of our financial statements with more information on the total costs of our Simplify to Grow 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. Within our continuing results of operations, we recorded implementation costs of $20 million in the first quarter of 2022 and $34 million in the first quarter of 2021. We recorded these costs within cost of sales and general corporate expense within selling, general and administrative expenses.

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Restructuring and Implementation Costs:

During the three months ended March 31, 2022 and March 31, 2021, and since inception of the Simplify to Grow Program, we recorded the following restructuring and implementation costs within segment operating income and earnings before income taxes:

Latin
America

AMEA

Europe

North
America

Corporate

Total

(in millions)

For the Three Months Ended March 31, 2022

Restructuring Costs

(1)