Annual Reports

  • 10-K (Feb 24, 2017)
  • 10-K (Feb 19, 2016)
  • 10-K (Feb 20, 2015)
  • 10-K (Mar 3, 2014)
  • 10-K (Jun 20, 2013)
  • 10-K (Feb 25, 2013)

 
Quarterly Reports

 
8-K

 
Other

Mondelez International, Inc. 10-K 2013
Form 10-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark one)

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

For the fiscal year ended December 31, 2012

OR

 

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

COMMISSION FILE NUMBER 1-16483

 

LOGO

Mondelēz International, Inc.

(Exact name of registrant as specified in its charter)

 

Virginia   52-2284372

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

Three Parkway North, Deerfield, Illinois   60015
(Address of principal executive offices)   (Zip Code)

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

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

 

Title of each class

 

Name of each exchange on which registered

Class A Common Stock, no par value   The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.     Yes  ¨    No  x

Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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

 

Large accelerated filer  x  

Accelerated filer  ¨

   Non-accelerated filer  ¨   Smaller reporting company  ¨
  (Do not check if a smaller reporting company)

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

The aggregate market value of the shares of Class A Common Stock held by non-affiliates of the registrant, computed by reference to the closing price of such stock on June 30, 2012, was $69 billion. At January 31, 2013, there were 1,778,287,539 shares of the registrant’s Class A Common Stock outstanding.

Documents Incorporated by Reference

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its annual meeting of shareholders expected to be held on May 21, 2013 are incorporated by reference into Part III hereof.

 

 

 


Table of Contents

Mondelēz International, Inc.

 

         Page No.  
Part I  –     
Item 1.  

Business

     1   
Item 1A.  

Risk Factors

     9   
Item 1B.  

Unresolved Staff Comments

     15   
Item 2.  

Properties

     15   
Item 3.  

Legal Proceedings

     16   
Item 4.  

Mine Safety Disclosures

     16   
Part II  –     
Item 5.  

Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities

     17   
Item 6.  

Selected Financial Data

     19   
Item 7.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations:

     20   
 

Discussion and Analysis

     21   
 

Critical Accounting Policies

     37   
 

Commodity Trends

     43   
 

Liquidity and Capital Resources

     44   
 

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

     46   
 

Equity and Dividends

     47   
 

2013 Outlook

     47   
 

Non-GAAP Financial Measures

     48   
Item 7A.  

Quantitative and Qualitative Disclosures about Market Risk

     52   
Item 8.  

Financial Statements and Supplementary Data:

     53   
 

Report of Management on Internal Control over Financial Reporting

     53   
 

Report of Independent Registered Public Accounting Firm

     54   
 

Consolidated Statements of Earnings
for the Years Ended December 31, 2012, 2011 and 2010

     55   
 

Consolidated Statements of Comprehensive Earnings
for the Years Ended December 31, 2012, 2011 and 2010

     56   
 

Consolidated Balance Sheets at December 31, 2012 and 2011

     57   
 

Consolidated Statements of Equity
for the Years Ended December 31, 2012, 2011 and 2010

     58   
 

Consolidated Statements of Cash Flows
for the Years Ended December 31, 2012, 2011 and 2010

     59   
 

Notes to Consolidated Financial Statements

     60   
Item 9.  

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     102   
Item 9A.  

Controls and Procedures

     102   
Item 9B.  

Other Information

     102   
Part III  –     
Item 10.  

Directors, Executive Officers and Corporate Governance

     102   
Item 11.  

Executive Compensation

     102   
Item 12.  

Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters

     103   
Item 13.  

Certain Relationships and Related Transactions, and Director Independence

     103   
Item 14.  

Principal Accountant Fees and Services

     103   
Part IV  –     
Item 15.  

Exhibits and Financial Statement Schedules

     103   
 

Signatures

     107   
 

Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule

     S-1   
 

Valuation and Qualifying Accounts

     S-2   

In this report, for all periods presented, “we,” “us,” “our,” and “Mondelēz International,” refer to Mondelēz International, Inc. and subsidiaries (formerly Kraft Foods Inc. and subsidiaries). References to “Common Stock” refer to our Class A common stock.

 

i


Table of Contents

Forward-looking Statements

This report contains a number of forward-looking statements. Words, and variations of words, such as “goals,” “expect,” “plan,” “drive,” “focus,” “believe,” “anticipate,” “estimate” and similar expressions are intended to identify our forward-looking statements, including but not limited to those related to our Strategy, in particular, our goal to deliver top-tier financial performance, our expectation to drive substantial growth, our market-leading positions, our expansion plans, sales and earnings growth and our Power Brands and Priority Markets; Spin-Off Costs; price volatility; cost environment; measures to address increased costs; raw material prices and supply; new laws and regulations; environmental compliance and resolutions; relationships with employees and representatives; our Legal Matters; Cadbury synergies; Restructuring Program costs; Integration Program costs; deferred tax assets; our accounting estimates; U.S. Confections and Europe Biscuits fair value; employee benefit plan net expenses, obligations and assumptions; pension expenses, contributions and assumptions; pension costs related to the Hostess bankruptcy; our liquidity and funding sources; capital expenditures and funding; financial and long-term debt covenants; debt repayment and funding; guarantees; our aggregate contractual obligations; dividends; our 2013 Outlook, in particular, 2013 Organic Net Revenue growth and Operating EPS; and our risk management program, including the use of financial instruments for hedging activities.

These forward-looking statements are subject to a number of risks and uncertainties, and the cautionary statements contained in the “Risk Factors” found in this Annual Report on Form 10-K identify important factors that could cause actual results to differ materially from those in our forward-looking statements. Such factors include, but are not limited to, continued volatility of commodity and other input costs, pricing actions, increased competition, our ability to differentiate our products from retailer brands, increased costs of sales, regulatory or legal restrictions, actions or delays, a shift in our product mix to lower margin offerings, private label, risks from operating globally, continued consumer weakness, weakness in economic conditions, our labor force and tax law changes. We disclaim and do not undertake any obligation to update or revise any forward-looking statement in this report.

PART  I

Item 1. Business.

General

Mondelēz International is one of the world’s largest snack companies with global net revenues of $35.0 billion and earnings from continuing operations of $1.6 billion in 2012. Beginning on October 1, 2012, following the spin-off of our North American grocery operations to our shareholders (the “Spin-Off”), Mondelēz International is a “new” company in name and strategy, yet we carry forward the values of our legacy organization and the heritage of our iconic brands.

Our vision is to Create Delicious Moments of Joy. We support this vision by manufacturing and marketing delicious food and beverage products for consumers in approximately 165 countries around the world.

We are a Global Snacks Powerhouse. We hold leading market shares in every category and every region of the world in which we compete. We hold the No. 1 position globally in biscuits, chocolate, candy and powdered beverages as well as the No. 2 position in gum and coffee. Our portfolio includes nine brands with annual revenues exceeding $1 billion each including Oreo, Nabisco and LU biscuits; Milka, Cadbury Dairy Milk and Cadbury chocolates; Trident gum; Jacobs coffee; and Tang powdered beverage. In addition, our portfolio of snack foods and refreshments includes 52 brands which each generated annual revenues of more than $100 million in 2012.

Upon completing the Spin-Off of Kraft Foods Group, Inc., we changed our name from Kraft Foods Inc. to Mondelēz International, Inc. Our name reflects our vision to create a more delicious world in which to live. Following the Spin-Off, on October 2, 2012, our shares began to trade on The NASDAQ Global Select Market under the new symbol “MDLZ.” We remain incorporated in the Commonwealth of Virginia since 2000 and we continue to be a proud member of the Standard & Poor’s 500 and the Dow Jones Sustainability Index. (For more information on the Spin-Off of Kraft Foods Group, see Significant Divestitures and Acquisitions below and Note 2, Divestitures and Acquisitions, to the consolidated financial statements.)

 

1


Table of Contents

Strategy

As a Global Snacks Powerhouse, we intend to leverage our core strengths, including market leadership positions across our categories and a significant presence in every geography, to achieve two primary goals: deliver top-tier financial performance and be a great place to work. We plan to achieve these goals by executing five strategies:

 

   

Unleash the Power of Our People. We recognize the importance of our people living out our shared vision and delivering on our shared goals with joy, commitment and unquestioned integrity. With our employees, we are creating collaborative, creative, learning communities to share good ideas and execute plans more efficiently and effectively.

   

Transform Snacking. Our global Power Brands are the heart of our competitive advantage. They enable us to fulfill consumers’ needs with a full range of snacking choices that fuel the body, treat the spirit and boost the mind. By skewing resources to these brands, we expect to drive substantial growth. In addition, our global innovation platforms, such as those that help consumers “sustain energy” or “satisfy hunger,” allow us to quickly adapt successful products from one market to many others. By meeting the needs of consumers and continually innovating our existing portfolio of products, we expect to grow and maintain our market-leading positions.

   

Revolutionize Selling. Following our acquisitions of the LU biscuit business in 2007 and Cadbury Limited in 2010, we significantly expanded our routes to market around the globe, particularly in emerging markets. We plan to expand and further develop best-in-class sales and distribution capabilities across our key markets in both developing and developed markets.

   

Drive Efficiency to Fuel Growth. We drive growth by managing our business through a virtuous cycle to deliver great quality at advantaged costs. To drive sales and earnings growth, we focus on our Power Brands and Priority Markets, we work to expand margins through overhead discipline and by leveraging lean and simple cost management programs within our integrated supply chain. We then reinvest savings to pursue additional targeted growth opportunities within our portfolio.

   

Protect the Well-being of Our Planet. We are committed to growing our business while protecting our planet and its people. To accomplish this, we deliver safe, high-quality foods and ensure a safe work environment for our employees. We also create foods that fit the way people eat today and provide balanced snacking choices by inventing new solutions and improving our nutritional profile. We protect our resources, focusing on where we can have the greatest impact. We empower farming communities to deliver innovative solutions throughout our ingredient supply chain. We drive resource efficiency and design sustainability into our operations to minimize the toll we have on the planet.

Reportable Segments

We manage our global business and report operating results through three geographic units: Developing Markets, Europe and North America. In connection with the divestiture of Kraft Foods Group, we divested and no longer report on the following segments within our results from continuing operations: U.S. Beverages, U.S. Cheese, U.S. Convenient Meals and U.S. Grocery. Our remaining businesses within North America are predominantly snacks businesses. Our segment results in this Annual Report on Form 10-K reflect these changes for all periods presented.

Beginning in 2013, our segment structure will change. In December 2012, we announced a reorganization of our business and reporting structure following the Spin-Off. Effective January 1, 2013, our operations, management and segments will be reorganized into five operating segments: Asia Pacific; Eastern Europe, Middle East & Africa (“EEMEA”); Europe; Latin America and North America. Accordingly, we will begin to report on our new segment structure during the first quarter of 2013 and reflect the change for all the historical periods we present.

We use segment operating income to evaluate segment performance and to allocate resources. We believe this measure is most relevant to investors in order to analyze segment results and trends. As further discussed in Note 16, Segment Reporting, to the consolidated financial statements, segment operating income excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), certain components of our U.S. pension plan cost (which are a component of cost of sales and selling, general and administrative expenses), gains / (losses) on divestitures, acquisition-related costs (which are a component of selling, general and administrative expenses), general corporate expenses (which are a component of selling, general and administrative expenses) and amortization of intangibles.

 

2


Table of Contents

During the last three fiscal years, our segments contributed to segment operating income as reflected below. See Note 16, Segment Reporting, for additional information, including total assets and net revenues by segment.

 

                                                        
     For the Years Ended December 31,  
     2012      2011      2010  

Developing Markets

     45.4%         46.9%         44.4%   

Europe

     35.4%         32.9%         32.3%   

North America

     19.2%         20.2%         23.3%   
  

 

 

    

 

 

    

 

 

 

Total Segment Operating Income

     100.0%         100.0%         100.0%   
  

 

 

    

 

 

    

 

 

 

Our brands span five consumer sectors:

 

   

Biscuits (including cookies, crackers and salted snacks)

   

Chocolate

   

Gum & Candy

   

Beverages

   

Cheese & Grocery

During 2012, our reportable segments participated in these five consumer sectors as follows:

 

                                                                                                                 
     Percentage of 2012 Net Revenues by Consumer Sector  
                   Gum &             Cheese &         

Segment

   Biscuits      Chocolate      Candy      Beverages      Grocery      Total  

Developing Markets

     10.0%         12.8%         8.8%         8.2%         4.8%         44.6%   

Europe

     6.9%         12.9%         2.8%         8.5%         4.5%         35.6%   

North America

     14.9%         1.0%         3.7%                 0.2%         19.8%   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Consumer Sector Percentage Total

     31.8%         26.7%         15.3%         16.7%         9.5%         100.0%   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Within the consumer sectors, the classes of products which contributed 10% or more to consolidated net revenues for the years ended December 31, were:

 

                                                        
     For the Years Ended December 31,  
     2012      2011      2010  

Biscuits (cookies and crackers)

         27%             26%             26%   

Chocolate

     27%         27%         26%   

Gum & Candy

     15%         16%         16%   

Coffee

     11%         12%         11%   

Significant Divestitures and Acquisitions

Spin-Off of Kraft Foods Group:

On October 1, 2012 (the “Distribution Date”), we completed the spin-off of our North American grocery business, Kraft Foods Group, Inc. (“Kraft Foods Group”), to our shareholders (the “Spin-Off”). Along with our other food and beverage categories, we also retained our global snacks business (the “Global Snacks Business”). On October 1, 2012, each of our shareholders of record as of the close of business on September 19, 2012 (“the Record Date”) received one share of Kraft Foods Group common stock for every three shares of our Common Stock held as of the Record Date. The distribution was structured to be tax free to our U.S. shareholders for U.S. federal income tax purposes.

Kraft Foods Group is now an independent public company and following the Spin-Off, we do not beneficially own any shares of Kraft Foods Group common stock.

The divested Kraft Foods Group business is presented as a discontinued operation on the consolidated statements of earnings for all periods presented. The Kraft Foods Group balance sheet, other comprehensive earnings and cash flows are included within our consolidated balance sheet and consolidated statements of equity, comprehensive earnings and cash flows through October 1, 2012.

 

3


Table of Contents

In order to implement the Spin-Off, we entered into certain agreements with Kraft Foods Group to effect our legal and structural separation; govern the relationship between us; and allocate various assets, liabilities and obligations between us, including, among other things, employee benefits, intellectual property and tax-related assets and liabilities (see Note 14, Income Taxes, for additional information on the current and deferred tax assets and liabilities transferred or retained in the Spin-Off). In addition to executing the Spin-Off in the manner provided in the agreements, in November 2012, pursuant to these agreements, we paid Kraft Foods Group $163 million related to targeted cash flows (together with the $247 million of cash divested on the Distribution Date, totaling $410 million of cash transferred to Kraft Foods Group in connection with the Spin-Off). To facilitate the management, including final payment and resolution, of certain obligations, Kraft Foods Group retained certain of our North American net trade payables and receivables. We also retained approximately $140 million of workers’ compensation liabilities for claims incurred by Kraft Foods Group employees prior to the Spin-Off. In November 2012, we paid Kraft Foods Group $95 million to cash settle the net trade payables and receivables. As of December 31, 2012, we also have a $55 million receivable from Kraft Foods Group related to the cash settlement of stock awards held by our respective employees at the time of the Spin-Off as further described in Note 11, Stock Plans, to the consolidated financial statements.

Our results from continuing operations include one-time Spin-Off transaction, transition and financing and related costs (“Spin-Off Costs”) we have incurred to date. We recorded Spin-Off Costs of $1,053 million, or $0.39 per diluted share in 2012 and $46 million, or $0.02 per diluted share, in 2011. We expect to incur Spin-Off Costs of approximately $100 million in 2013 related primarily to human resource, customer service and logistics and information systems and processes as well as legal costs associated with revising intellectual property and other long-term agreements.

Refer to Note 2, Divestitures and Acquisitions, to the consolidated financial statements, for additional information on the Spin-Off of Kraft Foods Group.

Cadbury Acquisition:

In 2010, we acquired all the outstanding shares of Cadbury Limited (“Cadbury”) in an acquisition valued at $18,547 million, or $17,503 million net of cash and cash equivalents. In 2010, we incurred acquisition-related transaction costs of $218 million (recorded in selling, general and administrative expense) and acquisition-related financing fees of $96 million (recorded in interest and other expenses, net).

As a condition of the acquisition, the EU Commission required that we divest certain Cadbury confectionery operations in Poland and Romania. The divestitures were completed in the third quarter of 2010 and generated $342 million of sale proceeds. The impact of these divestitures was reflected as adjustments within the Cadbury final purchase accounting.

During 2010, Cadbury contributed net revenues of $9,143 million and net earnings of $530 million from February 2, 2010 through December 31, 2010. See Note 2, Divestitures and Acquisitions, to our consolidated financial statements for additional information on the Cadbury acquisition.

Customers

As a percentage of our net revenues from continuing operations, our five largest customers accounted for 15.6% of net revenues in 2012 compared with 15.5% in 2011 and 15.1% in 2010. Also, our ten largest customers accounted for 24.1% of net revenues in 2012 compared with 22.7% in 2011 and 23.2% in 2010. No single customer accounted for 10% or more of our net revenues from continuing operations.

Seasonality

Demand for some of our products may be influenced by holidays, changes in seasons or other annual events. However, overall sales of our products are generally evenly balanced throughout the year due to the offsetting nature of demands for our products within our diversified product portfolio.

Competition

We face competition in all aspects of our business. Competitors include large national and international companies and numerous local and regional companies. Some competitors have different profit objectives and some international competitors are less susceptible to currency exchange rates. We compete primarily on the basis of product quality, brand recognition, brand loyalty, service, marketing, advertising and price. Moreover, improving our market position or introducing a new product requires substantial research, development, advertising and promotional expenditures.

 

4


Table of Contents

Distribution and Marketing

Across our segments, our products are generally sold to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, gasoline stations, drug stores, value stores and other retail food outlets. We distribute our products through direct store delivery, company-owned and satellite warehouses, distribution centers and other facilities. We also use the services of independent sales offices and agents in some of our international locations.

Our marketing efforts are conducted through three principal sets of activities: (i) consumer marketing in on-air, print, outdoor, digital and social media; (ii) consumer incentives such as coupons and contests; and (iii) trade promotions to support price features, displays and other merchandising of our products by our customers.

Raw Materials and Packaging

We purchase large quantities of commodities, including sugar and other sweeteners, coffee, cocoa, wheat, corn products, soybean and vegetable oils and dairy. In addition, we use significant quantities of packaging materials to package our products and natural gas, fuels and electricity for our factories and warehouses. We regularly monitor worldwide supply and cost trends of these commodities so we can cost-effectively secure ingredients and packaging required for production.

Significant cost items in biscuit, chocolate, gum & candy and many powdered beverage products are sugar and cocoa. We purchase sugar and cocoa on world markets, and the prices of these commodities are affected by the quality and availability of supply and changes in foreign currencies. Significant cost items in our biscuit products are grains (wheat, corn and soybean oil). Grain costs have experienced volatility and have increased significantly in recent years due largely to burgeoning global demand for food, livestock feed and biofuels such as ethanol and biodiesel and other factors such as weather. The most significant cost item in coffee products is green coffee beans which we purchase on world markets as well as from local grower cooperatives. Green coffee bean prices are affected by the quality and availability of supply, changes in the value of the U.S. dollar in relation to certain other currencies and consumer demand for coffee products. Significant cost items in packaging include cardboards, resins and plastics and our energy costs include natural gas, electricity and diesel fuel. We purchase these packaging and energy commodities on world markets and within the countries we operate, and the prices are affected by supply and changes in foreign currencies.

During 2012, our aggregate commodity costs increased primarily as a result of increased packaging, energy, grains and oil costs. We expect the price volatility and a slightly higher cost environment to continue over the remainder of 2013. We have addressed higher commodity costs primarily through higher pricing, lower manufacturing costs due to our end-to-end cost management program and overhead cost control. We expect to continue to use these measures to address further commodity cost increases.

External factors such as weather conditions, commodity market conditions, currency fluctuations and the effects of governmental agricultural programs affect the prices for raw materials and agricultural materials used in our products. We use hedging techniques to limit the impact of price fluctuations in our principal raw materials. However, we do not fully hedge against changes in commodity prices, and these strategies may not protect us from increases in specific raw material costs. While the prices of our principal raw materials can be expected to fluctuate, we believe there will continue to be an adequate supply of the raw materials we use and that they will generally remain available from numerous sources.

Intellectual Property

Our intellectual property rights (including trademarks, patents, copyright, registered designs, proprietary trade secrets, technology and know-how) are material to our business.

We own numerous trademarks and patents in countries around the world. Depending upon the country, trademarks remain valid for as long as they are in use or their registration status is maintained. Trademark registrations generally are for renewable, fixed terms. We have patents for a number of current and potential products. Our patents cover inventions ranging from basic packaging techniques to processes relating to specific products and to the products themselves. Our issued patents extend for varying periods according to the date of patent application filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends upon the type of patent, the scope of its coverage as determined by the patent office or courts in the country, and the availability of legal remedies in the country. While our patent portfolio is material to our business, the loss of one patent or a group of related patents would not have a material adverse effect on our business.

From time to time, we grant third parties licenses to use one or more of our trademarks in connection with the manufacture, sale or distribution of third party products. Similarly, we sell some products under brands we license from third parties. In our agreement with the Kraft Foods Group, we each granted the other party various licenses to use certain of our and their respective intellectual property rights in named jurisdictions following the Spin-Off.

 

5


Table of Contents

Research and Development

We pursue four objectives in research and development: product safety and quality; growth through new products; superior consumer satisfaction; and reduced costs. At December 31, 2012, we had approximately 2,700 food scientists, chemists and engineers working primarily in 12 key technology centers: East Hanover, New Jersey; Whippany, New Jersey; Banbury, United Kingdom; Bournville, United Kingdom; Curitiba, Brazil; Eysins, Switzerland; Paris, France; Melbourne, Australia; Mexico City, Mexico; Munich, Germany; Reading, United Kingdom; and Suzhou, China. Many of our technology centers are equipped with pilot plants and state-of-the-art instruments. Our research and development expense was $462 million in 2012, $511 million in 2011 and $404 million in 2010.

Regulation

Our food products and packaging materials are subject to local, national and multi-national regulations comprising labeling, packaging, food content, pricing, marketing and advertising, privacy and related areas. In addition, various jurisdictions regulate our operations by licensing our manufacturing plants, enforcing standards for selected food products, grading food products, inspecting manufacturing plants and warehouses, regulating trade practices related to the sale of and imposing their own labeling requirements on our food products. Many of the food commodities we use in our operations are subject to governmental agricultural programs. These programs have substantial effects on prices and supplies and are subject to periodic governmental and administrative review.

Throughout the countries in which we do business, regulators are continually adopting new laws and implementing new regulations that affect our business and operations, such as the European Commission’s EU Health Claim Regulation, effective December 14, 2012, that limits the number of health claims that may be made by food companies about their products and a major reform of the EU legal framework related to the protection of personal data, and in the U.S., the Food Safety Modernization Act, that provides additional food safety authority to the FDA. We will continue to monitor developments of those new laws and regulations. At this time, we do not expect the cost of complying with these new laws and implementing these new regulations will be material.

Environmental Regulation

Throughout the countries in which we do business, we are subject to local, national and multi-national environmental laws and regulations relating to the protection of the environment. We have programs across our business units designed to meet applicable environmental compliance requirements.

In the United States, the laws and regulations include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). CERCLA imposes joint and severable liability on each potentially responsible party. As of December 31, 2012, our subsidiaries were involved in one active proceeding in the U.S. under a state equivalent of CERCLA related to our current operations. As of December 31, 2011, our subsidiaries were involved in 68 active actions. Except for the one active proceeding we retained, all the remaining active actions relate to and were retained by the divested Kraft Foods Group business.

As of December 31, 2012, we accrued an immaterial amount for environmental remediation. Based on information currently available, we believe that the ultimate resolution of existing environmental remediation actions and our compliance in general with environmental laws and regulations will not have a material effect on our financial results.

 

6


Table of Contents

Employees

At December 31, 2012, we employed approximately 110,000 people worldwide. Our business units are subject to various local, national and multi-national laws and regulations relating to their relationships with their employees. In accordance with European Union requirements, we also have established a European Workers Council composed of management and elected members of our workforce. Employees represented by labor unions or workers’ councils represent 37.7% of our 96,000 employees outside the U.S. and 23.1% of our 14,000 U.S. employees. Most of these workers are represented under contracts which expire at various times throughout the next several years. We believe we have good relationships with employees and their representative organizations.

Foreign Operations

We sell our products to consumers in approximately 165 countries. At December 31, 2012, we had operations in more than 80 countries and made our products at 171 manufacturing and processing facilities in 56 countries. We generated 82.9% of our 2012 net revenues, 83.7% of our 2011 net revenues and 82.6% of our 2010 net revenues from continuing operations outside the U.S. Refer to Note 16, Segment Reporting, for additional information on our foreign operations. Also, for a discussion of risks attendant to our foreign operations, see “Risk Factors” in Item 1A.

Executive Officers of the Registrant

The following are our executive officers as of February 25, 2013:

 

Name

 

Age

  

Title

Irene B. Rosenfeld   59    Chairman and Chief Executive Officer
David A. Brearton   52    Executive Vice President and Chief Financial Officer
Gustavo H. Abelenda   52    Executive Vice President and President, Latin America
Tracey Belcourt   46    Executive Vice President, Strategy
Mark Clouse   44    Executive Vice President and President, North America
Timothy P. Cofer   44    Executive Vice President and President, Europe
Karen J. May   54    Executive Vice President, Global Human Resources
Daniel P. Myers   57    Executive Vice President, Integrated Supply Chain
Pradeep Pant   59    Executive Vice President and President, Asia Pacific and EEMEA
Gerhard W. Pleuhs   56    Executive Vice President and General Counsel
Jean E. Spence   55    Executive Vice President, Research, Development and Quality
Mary Beth West   50    Executive Vice President and Chief Category and Marketing Officer

Ms. Rosenfeld was appointed Chief Executive Officer and Director of Kraft Foods Inc., the predecessor to Mondelēz International, in June 2006 and became Chairman of the Board in March 2007. Prior to that, she served as Chairman and Chief Executive Officer of Frito-Lay, a division of PepsiCo, Inc., a food and beverage company, from September 2004 to June 2006. Previous to that, Ms. Rosenfeld was employed continuously by Kraft Foods Inc., and its predecessor, General Foods Corporation, in various capacities from 1981 until 2003, including President of Kraft Foods North America and President of Operations, Technology, Information Systems and Kraft Foods, Canada, Mexico and Puerto Rico.

Mr. Brearton was appointed Executive Vice President and Chief Financial Officer of Kraft Foods Inc., the predecessor to Mondelēz International, in May 2011. Prior to that, at Kraft Foods Inc., he served as Executive Vice President, Operations and Business Services from January 2008 to May 2011, Executive Vice President, Global Business Services and Strategy from April 2006 to December 2007 and Senior Vice President of Business Process Simplification and Corporate Controller from February 2005 to April 2006. He previously served as Senior Vice President, Finance for Kraft Foods International. Mr. Brearton joined Kraft Foods Inc. in 1984. Mr. Brearton also serves on the Board of Directors of Feeding America, a non-for-profit organization.

Mr. Abelenda was appointed Executive Vice President and President, Latin America effective January 1, 2013. Prior to that, he served as Group Vice President and President, Latin America from August 2003 to December 2012 and Vice President and Managing Director, Brazil, from October 2000 to August 2003. Mr. Abelenda joined Kraft Foods Inc. in 1984.

 

7


Table of Contents

Ms. Belcourt was appointed Executive Vice President, Strategy effective October 2, 2012. She joined Kraft Foods Inc., the predecessor to Mondelēz International, in September 2012. Prior to that, she was a partner of Bain & Company, a management consulting firm, since 1999, where she specialized in the design and implementation of growth strategies to improve business performance across a variety of consumer industries. Prior to Bain, Ms. Belcourt was an assistant professor of economics at Concordia University in Montreal from 1994 to 1999. She also served as an economic consultant to the U.S. Agency for International Development in Africa in 1999 during her professorship.

Mr. Clouse was appointed Executive Vice President and President, North America effective October 2, 2012. Prior to that, Mr. Clouse held various positions around the world during his 16 years with Kraft Foods Inc., the predecessor to Mondelēz International. He served as President of Kraft Foods Inc. Snacks and Confectionery business in North America from June 2011 to October 2012 and Senior Vice President of the Biscuits Global Category Team from October 2010 to June 2011. He was Managing Director of Kraft Foods Brazil from 2008 to 2010 and President of Kraft Foods Greater China from 2006 to 2008. Before joining Kraft Foods Inc. in 1996, Mr. Clouse served in the United States Army for seven years, obtaining the rank of Captain.

Mr. Cofer is Executive Vice President and President, Europe, a position he held with Kraft Foods Inc., the predecessor to Mondelēz International, since August 2011. Prior to that, he served as Senior Vice President Global Chocolate Category from June 2010 to August 2011, Senior Vice President Strategy and Integration from January 2010 to June 2010, President Kraft Pizza Company from January 2008 to January 2010, and Senior Vice President and General Manager of Oscar Mayer from January 2007 to January 2008. He served as General Manager of EU Chocolate from June 2003 to January 2007. Mr. Cofer joined Kraft Foods Inc. in 1992.

Ms. May was appointed Executive Vice President, Global Human Resources of Kraft Foods Inc., the predecessor to Mondelēz International, in October 2005. Prior to that, she was Corporate Vice President, Human Resources, for Baxter International Inc., a healthcare company, since February 2001. Ms. May also serves on the Board of Directors of MB Financial Inc., a financial services provider.

Mr. Myers is Executive Vice President, Integrated Supply Chain, a position he has held since he joined Kraft Foods Inc., the predecessor to Mondelēz International, in September 2011. Prior to that, he worked for Procter & Gamble, a consumer products company, for 33 years, in a variety of leadership positions, most recently serving as Vice President, Product Supply for P&G’s Global Hair Care business from September 2007 to August 2011. Mr. Myers also serves on the Advisory Board of the University of Tennessee’s Supply Chain Institute.

Mr. Pant was appointed Executive Vice President and President, Asia Pacific and EEMEA effective January 1, 2013. Prior to that, he served as President, Asia Pacific from January 2008 to December 2012. Before joining Kraft Foods Inc., the predecessor to Mondelēz International, he served as Regional Managing Director for Asia, Africa and the Middle East of Fonterra Brands, a dairy company, from January 2006 to December 2007 and as a member of the of Fonterra Leadership Team from January 2007 to December 2007. Mr. Pant spent 20 years with Gillette, a consumer products company, holding various positions throughout Asia Pacific including Greater China, Australia, Korea, Japan and India.

Mr. Pleuhs was appointed Executive Vice President and General Counsel of Kraft Foods Inc., the predecessor to Mondelēz International, effective April 1, 2012. Prior to that, he was Senior Vice President & Deputy General Counsel, Business Units from November 2007 to March 2012 and Senior Vice President and Deputy General Counsel, International for Kraft Foods Global, Inc., from July 2004 to November 2007. Before joining Kraft Foods Inc. in 1990, Mr. Pleuhs held a number of senior positions within the German Law Department of Jacobs Kaffee Deutschland GmbH, an international beverage and confectionery company, prior to and after its acquisition by Altria Group, the former parent company of Kraft Foods Inc.

Ms. Spence was appointed Executive Vice President, Research, Development and Quality of Kraft Foods Inc., the predecessor to Mondelēz International, in January 2004. Prior to that, Ms. Spence served as Senior Vice President, Research and Development for Kraft Foods North America from August 2003 to January 2004 and Senior Vice President of Worldwide Quality, Scientific Affairs and Compliance for Kraft Foods North America from November 2001 to August 2003. She joined Kraft Foods Inc. in 1981. Ms. Spence also serves as a Trustee of Clarkson University and on the Supervisory Board of GEA Group AG.

Ms. West was appointed Executive Vice President and Chief Category and Marketing Officer of Kraft Foods Inc., the predecessor to Mondelēz International, effective August 1, 2010. Previously, she served as Executive Vice President and Chief Marketing Officer from October 2007 to July 2010 and as Group Vice President for Kraft Foods and President of the North America Beverages Sector from 2005 to October 2007. Ms. West joined Kraft Foods Inc. in 1986. Ms. West also serves on the Board of Directors of J.C. Penney Company, Inc. and is a member of the Executive Leadership Council.

 

8


Table of Contents

Ethics and Governance

We adopted the Mondelēz International Code of Conduct, which qualifies as a code of ethics under Item 406 of Regulation S-K. The code applies to all of our employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. Our code of ethics is available free of charge on our Web site at www.mondelezinternational.com and will be provided free of charge to any shareholder submitting a written request to: Corporate Secretary, Mondelēz International, Inc., Three Parkway North, Deerfield, IL 60015. We will disclose any waiver we grant to our principal executive officer, principal financial officer, principal accounting officer or controller under our code of ethics, or certain amendments to the code of ethics, on our Web site at www.mondelezinternational.com.

In addition, we adopted Corporate Governance Guidelines, charters for each of the Board’s three standing committees and the Code of Business Conduct and Ethics for Non-Employee Directors. All of these materials are available on our Web site at www.mondelezinternational.com and will be provided free of charge to any shareholder requesting a copy by writing to: Corporate Secretary, Mondelēz International, Inc., Three Parkway North, Deerfield, IL 60015.

Available Information

Our Internet address is www.mondelezinternational.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge as soon as possible after we electronically file them with, or furnish them to, the SEC. You can access our filings with the SEC by visiting www.mondelezinternational.com. The information on our Web site is not, and shall not be deemed to be, a part of this Annual Report on Form 10-K or incorporated into any other filings we make with the SEC.

You can also read, access and copy any document that we file, including this Annual Report on Form 10-K, at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Call the SEC at 1-800-SEC-0330 for information on the operation of the Public Reference Room. In addition, the SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including Mondelēz International, that are electronically filed with the SEC.

Item 1A.  Risk Factors.

You should read the following risk factors carefully in connection with evaluating our business and the forward-looking information contained in this Annual Report on Form 10-K. Any of the following risks could materially and adversely affect our business, operating results, financial condition and the actual outcome of matters in this Annual Report on Form 10-K. While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our business, performance or financial condition in the future.

We operate in a highly competitive industry.

The food and snacking industries are highly competitive. Our principal competitors are major international food, snack and beverage companies that, like us, operate in multiple geographic areas. We compete based on price, product innovation, product quality, brand recognition and loyalty, effectiveness of marketing, promotional activity and the ability to identify and satisfy consumer preferences.

We may need to reduce our prices in response to competitive and customer pressures. Additionally, the emergence of new distribution channels, such as Internet sales directly to consumers, may affect customer and consumer preferences. Competition and customer pressures may also restrict our ability to increase prices in response to commodity and other cost increases. We may also need to increase or reallocate spending on marketing, advertising and new product innovation to protect or increase market share. These expenditures are subject to risks, including uncertainties about trade and consumer acceptance of our efforts. If we reduce prices or our costs increase, but we cannot increase sales volumes to offset those changes, then our financial condition and results of operations will suffer.

 

9


Table of Contents

Maintaining, extending and expanding our reputation and brand image is essential to our business success.

We have many iconic brands with worldwide recognition. Our success depends on our ability to maintain brand image for our existing products, extend our brands into new geographies and to new platforms and expand our brand image with new product offerings.

We seek to maintain, extend and expand our brand image through marketing investments, including advertising and consumer promotions, and product innovation. Continuing global focus on health and wellness, including weight management, and increasing media attention to the role of food marketing could adversely affect our brand image or lead to stricter regulations and greater scrutiny of food and snacking marketing practices. Increased legal or regulatory restrictions on our advertising, consumer promotions and marketing, or our response to those restrictions, could limit our efforts to maintain, extend and expand our brands. Moreover, adverse publicity about regulatory or legal action against us could damage our reputation and brand image, undermine our customers’ confidence and reduce long-term demand for our products, even if the regulatory or legal action is unfounded or not material to our operations.

In addition, our success in maintaining, extending and expanding our brand image depends on our ability to adapt to a rapidly changing media environment, including our increasing reliance on social media and online dissemination of advertising campaigns. We are subject to a variety of legal and regulatory restrictions on how and to whom we market our products, for instance marketing to children. These restrictions may limit our ability to maintain, extend and expand our brand image as the media and communications environment continues to evolve. Negative posts or comments about us on social networking web sites could seriously damage our reputation and brand image. If we do not maintain, extend and expand our brand image, then our product sales, financial condition and results of operations could be materially and adversely affected.

The consolidation of retail customers creates larger retailers with increased influence in the marketplace.

Retail customers, such as supermarkets, warehouse clubs and food distributors in the European Union, the United States and our other major markets, continue to consolidate, resulting in fewer customers on which we can rely for business. Consolidation also produces large, more sophisticated retail customers that can resist price increases and demand lower pricing, increased promotional programs or specifically tailored products. In addition, larger retailers have the scale to develop supply chains that permit them to operate with reduced inventories or to develop and market their own retailer brands. Further retail consolidation and increasing retail power could materially and adversely affect our product sales, financial condition and results of operations.

Retail consolidation also increases the risk that adverse changes in our customers’ business operations or financial performance will have a corresponding material adverse effect on us. For example, if our customers cannot access sufficient funds or financing, then they may delay, decrease or cancel purchases of our products, or delay or fail to pay us for previous purchases.

Changes in our relationships with significant customers or suppliers could affect sales and our ability to supply products to our customers.

During 2012, our five largest customers accounted for 15.6% of our net revenues. No single customer accounted for 10% or more of our net revenues from continuing operations. There can be no assurance that all significant customers will continue to purchase our products in the same mix or quantities or on the same terms as in the past, particularly as increasingly powerful retailers continue to demand lower pricing and develop their own brands. The loss of a significant customer or a material reduction in sales, or a change in the mix of products we sell to a significant customer could materially and adversely affect our product sales, financial condition and results of operations.

Disputes with significant suppliers, including those related to pricing or performance, could adversely affect our ability to supply products to our customers and could materially and adversely affect our product sales, financial condition and results of operations.

Commodity and other input prices are volatile and may rise significantly.

We purchase large quantities of commodities, including sugar and other sweeteners, coffee, cocoa, wheat, corn products, soybean and vegetable oils and dairy. In addition, we use significant quantities of packaging materials to package our products. We also use natural gas, fuels and electricity for our factories and warehouses. Prices for commodities, other supplies and energy are volatile and can fluctuate due to conditions that are difficult to predict, including global

 

10


Table of Contents

competition for resources, currency fluctuations, severe weather, consumer or industrial demand and changes in governmental trade, alternative energy and agricultural programs. Although we monitor our exposure to commodity prices as an integral part of our overall risk management program, and seek to hedge against input price increases, continued volatility in the prices of commodities and other supplies we purchase could increase the costs of our products, and our profitability could suffer. Moreover, increases in the price of our products to cover these increased costs may result in lower sales volumes, while decreases could require us to lower our prices and affect our revenues, profits or margins. If we are not successful in our hedging activities, if we are unable to price to cover increased costs or if we must reduce our prices, then commodity and other input price volatility, increases or decreases could materially and adversely affect our financial condition and results of operations.

We must leverage our value proposition in order to compete against retailer brands and other economy brands.

Retailers are increasingly offering retailer and other economy brands that compete with some of our products. Our products must provide higher value and/or quality to our consumers than less expensive alternatives, particularly during periods of economic uncertainty such as those we continue to experience. Consumers may not buy our products if the difference in value or quality between our products and retailer or other economy brands narrows or if consumers perceive a narrowing. If consumers switch to purchasing, or otherwise prefer retailer or other economy brands, then we could lose market share or sales volumes or shift our product mix to lower margin offerings. The impact could materially and adversely affect our financial condition and results of operations.

Changes in regulations could increase our costs.

Our activities throughout the world are highly regulated and subject to government oversight. Various laws and regulations govern food production and marketing, as well as licensing, trade, tax and environmental matters. Governing bodies regularly adopt new laws and regulations and change existing laws and regulations. Our need to comply with new or revised laws and regulations or their interpretation and application, including proposed requirements designed to enhance food safety or to regulate imported ingredients, could materially and adversely affect our product sales, financial condition and results of operations.

Legal claims or other regulatory enforcement actions could subject us to civil and criminal penalties.

We are a large food and snacking company operating in highly regulated environments and constantly evolving legal and regulatory frameworks around the world. Consequently, we are subject to heightened risk of legal claims or other regulatory enforcement actions. Although we have implemented policies and procedures designed to ensure compliance with existing laws and regulations, there can be no assurance that our employees, contractors or agents will not violate our policies and procedures. Moreover, our failure to maintain effective control environment processes could lead to violations, unintentional or otherwise, of laws and regulations. Legal claims or regulatory enforcement actions arising out of our failure or alleged failure to comply with applicable laws and regulations could subject us to civil and criminal penalties that could materially and adversely affect our product sales, reputation, financial condition and results of operations.

We may decide or be required to recall products or be subjected to other product liability claims.

Selling products for human consumption involves inherent risks. We could decide to, or be required to recall products due to suspected or confirmed product contamination, spoilage or other adulteration, product misbranding or product tampering. Any of these events could materially and adversely affect our reputation and product sales, financial condition and results of operations.

We may also suffer losses if our products or operations violate applicable laws or regulations, or if our products cause injury, illness or death. In addition, our marketing could face claims of false or deceptive advertising or other criticism. A significant product liability or other legal judgment or a related regulatory enforcement action against us, or a widespread product recall, may materially and adversely affect our reputation and profitability. Moreover, even if a product liability or consumer fraud claim is unsuccessful, has no merit or is not pursued, the negative publicity surrounding assertions against our products or processes could materially and adversely affect our product sales, financial condition and results of operations.

 

11


Table of Contents

We are subject to risks generally associated with companies that operate globally.

We are a global company generating 82.9% of our 2012 net revenues, 83.7% of our 2011 net revenues and 82.6% of our 2010 net revenues outside the United States. With operations in more than 80 countries, our operations are subject to risks inherent in multinational operations. Those risks include:

 

   

compliance with U.S. laws affecting operations outside of the United States, such as the Foreign Corrupt Practices Act (“FCPA”),

   

compliance with a varying local, national and multi-national regulations and laws operating in multiple regimes,

   

changes in tax laws and the interpretation of those laws,

   

fluctuations in currency values,

   

sudden changes in currency exchange controls, such as the recent devaluation in Venezuela

   

discriminatory or conflicting fiscal policies,

   

increased risk on sovereign debt investments,

   

varying abilities to enforce intellectual property and contractual rights,

   

greater risk of uncollectible accounts and longer collection cycles,

   

effective and immediate implementation of control environment processes across our diverse operations and employee base, and the

   

imposition of more or new tariffs, quotas, trade barriers, and similar restrictions on our sales.

In addition, political and economic changes or volatility, geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war, public corruption and other economic or political uncertainties could interrupt and negatively affect our business operations. All of these factors could result in increased costs or decreased revenues, and could materially and adversely affect our product sales, financial condition and results of operations.

Our operations in certain emerging markets expose us to political, economic and regulatory risks.

Our growth strategy depends in part on our ability to expand our operations in emerging markets, including Brazil, China, India, Mexico, Russia and Southeast Asia. However, some emerging markets have greater political and economic volatility and greater vulnerability to infrastructure and labor disruptions than most established markets. In many countries outside of the United States, particularly in those with emerging economies, it may be common for others to engage in business practices prohibited by laws and regulations with extraterritorial reach, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act or similar local anti-bribery laws. These laws generally prohibit companies and their employees, contractors or agents from making improper payments to government officials. Failure to comply with these laws could subject us to civil and criminal penalties that could materially and adversely affect our financial condition and results of operations.

In addition, competition in emerging markets is increasing as our competitors grow their global operations and low cost local manufacturers expand their production capacities. Our success in emerging markets, is critical to our growth strategy. If we cannot successfully increase our business in emerging markets, our product sales, financial condition and results of operations could be materially and adversely affected.

Unanticipated business disruptions could affect our ability to provide our products to our customers.

We manufacture and source products and materials on a global scale. We have a complex network of suppliers, owned manufacturing locations, co-manufacturing locations, distribution networks and information systems that support our ability consistently to provide our products to our customers. Factors that are hard to predict or beyond our control, like weather, natural disasters, fire, terrorism, generalized labor unrest or health pandemics, could damage or disrupt our operations, or our suppliers’ or co-manufacturers’ operations. If we cannot respond to disruptions in our operations, for example, by finding alternative suppliers or replacing capacity at key manufacturing or distribution locations, or cannot quickly repair damage to our information, production or supply systems, we may be late in delivering, or be unable to deliver, products to our customers. If that occurs, we may lose our customers’ confidence and long-term demand for our products could decline. Any of these events could materially and adversely affect our product sales, financial condition and results of operations.

 

12


Table of Contents

We must correctly predict, identify and interpret changes in consumer preferences and demand, and offer new products to meet those changes.

Consumer preferences for food and snacking products change continually. Our success depends on our ability to predict, identify and interpret the tastes and dietary habits of consumers and to offer products that appeal to consumer preferences. If we do not offer products that appeal to consumers, our sales and market share will decrease and our profitability could suffer.

We must distinguish among short-term fads, mid-term trends and long-term changes in consumer preferences. If we do not accurately predict which shifts in consumer preferences will be long-term, or if we fail to introduce new and improved products to satisfy those preferences, our sales could decline. In addition, because of our varied consumer base, including by geography, we must offer an array of products that satisfy the broad spectrum of consumer preferences. If we fail to expand our product offerings successfully across product categories, or if we do not rapidly develop products in faster growing and more profitable categories, demand for our products will decrease and our profitability could suffer.

Prolonged negative perceptions concerning the health implications of certain food products could influence consumer preferences and acceptance of some of our products and marketing programs. For example, recently, consumers have been increasingly focused on health and wellness, including weight management and reducing sodium consumption. We strive to respond to consumer preferences and social expectations, but we may be unsuccessful in these efforts. Continued negative perceptions and failure to satisfy consumer preferences could materially and adversely affect our product sales, financial condition and results of operations.

We may not successfully identify or complete acquisitions or divestitures or successfully integrate the businesses we acquire.

From time to time, we evaluate acquisition candidates that may strategically fit our business objectives. If we are unable to complete acquisitions or to successfully integrate and develop acquired businesses we could fail to achieve anticipated synergies and cost savings, including the expected increases in revenues and operating results, any of which could materially and adversely affect our financial results. In addition, we may divest businesses that do not meet our strategic objectives, or do not meet our growth or profitability targets. We may not be able to complete desired or proposed divestitures on terms favorable to us. Gains or losses on the sales of, or lost operating income from, those businesses may affect our profitability. Moreover, we may incur asset impairment charges related to acquisitions or divestitures that reduce our profitability.

Our acquisition or divestiture activities may present financial, managerial and operational risks. Those risks include diversion of management attention from existing core businesses, difficulties integrating or separating personnel and financial and other systems, effective and immediate implementation of control environment processes across our diverse employee population, adverse effects on existing business relationships with suppliers and customers, inaccurate estimates of fair value made in the accounting for acquisitions and amortization of acquired intangible assets which would reduce future reported earnings, potential loss of customers or key employees of acquired businesses, and indemnities and potential disputes with the buyers or sellers. Any of these factors could materially and adversely affect our product sales, financial condition and results of operations.

We are subject to foreign currency exchange rate fluctuations.

The Spin-Off increased the proportion of our business exposed to currency exchange rate fluctuations. Our financial results and capital ratios are now more sensitive to movements in exchange rates than in prior periods because a larger portion of our assets, liabilities, revenue and expenses must be translated into U.S. dollars for external reporting purposes or converted into U.S. dollars to service obligations such as our U.S. dollar-denominated indebtedness and dividends. In addition, movements in foreign exchange rates can affect transaction costs because we source product ingredients from various countries. We may seek to mitigate our exposure to currency exchange rate fluctuations, but our efforts may not be successful. Accordingly, a depreciation of non-U.S. dollar currencies relative to the U.S. dollar, or changes in the relative value of any two currencies that we use for transactions, could materially and adversely affect our financial condition and results of operations.

 

13


Table of Contents

We are increasingly dependent on information technology.

We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic and financial information, to manage a variety of business processes and activities, and to comply with regulatory, legal and tax requirements. We also depend on our information technology infrastructure for digital marketing activities and for electronic communications among our locations, personnel, customers and suppliers around the world. These information technology systems, some of which are managed by third parties, may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, hardware failures, computer viruses, attacks by computer hackers, telecommunication failures, user errors or catastrophic events. If any of our significant information technology systems suffer severe damage, disruption or shutdown, and our business continuity plans do not effectively resolve the issues in a timely manner, our product sales, financial condition and results of operations may be materially and adversely affected, and we could experience delays in reporting our financial results.

In addition, if we are unable to prevent security breaches, we may suffer financial and reputational damage, litigation or remediation costs or penalties because of the unauthorized disclosure of confidential information belonging to us or to our partners, customers or suppliers. In addition, the disclosure of non-public sensitive information through external media channels could lead to the loss of intellectual property or damage our reputation and brand image.

Weak financial performance, downgrades in our credit ratings, illiquid global capital markets and volatile global economic conditions could limit our access to the capital markets, reduce our liquidity and increase our borrowing costs.

From time to time we may need to access the long-term and short-term global capital markets to obtain financing. Our financial performance, our short- and long-term credit ratings, the liquidity of the overall global capital markets and the state of the global economy, including the food industry, will affect our access to, and the availability of, financing on acceptable terms and conditions in the future. There can be no assurance that we will have access to the global capital markets on terms we find acceptable.

We access the U.S. and euro commercial paper markets for regular funding requirements. A downgrade in our credit ratings would increase our borrowing costs and could affect our ability to issue commercial paper. Disruptions in the global commercial paper market or other effects of volatile economic conditions on the global credit markets also could reduce the amount of commercial paper that we could issue and could raise our borrowing costs for both short- and long-term debt offerings.

Our inability to access the global capital markets or an increase in our borrowing costs could materially and adversely affect our financial condition and results of operations.

Volatility in the equity markets, interest rates or other factors could substantially increase our pension costs.

We sponsor a number of benefit plans for our employees throughout the world, including defined benefit pension plans, retiree health and welfare, active health care, severance and other postemployment benefits. At the end of 2012, the projected benefit obligation of our defined benefit pension plans was $11.2 billion and plan assets were $8.3 billion. The difference between plan obligations and assets, or the funded status of the plans, significantly affects the net periodic benefit costs of our pension plans and the ongoing funding requirements of those plans. Our major defined benefit pension plans are funded with trust assets invested in a globally diversified portfolio of investments, including equities and corporate debt. Among other factors, changes in interest rates, mortality rates, early retirement rates, investment returns, minimum funding requirements in the jurisdictions in which the plans operate, arrangements made with the trustees of certain plans and the market value of plan assets can affect the level of plan funding, cause volatility in the net periodic pension cost, and increase our future funding requirements. Legislative and other governmental regulatory actions may also increase funding requirements for our pension plans’ benefits obligation.

Based on current tax laws, we estimate our 2013 pension contributions will be approximately $320 million. We also expect that our net pension cost will decrease to approximately $370 million in 2013. The decrease is primarily due to non-recurring costs in 2012 related primarily to certain pension plan obligations transferred to Kraft Foods Group in the Spin-Off and other 2012 one-time costs, partially offset by increased pension plan expenses in 2013 related to lower discount rates. Volatility in the global capital markets has increased the risk that we may be required to make additional cash contributions to the pension plans and recognize further increases in our net pension cost beyond 2013. A significant portion of some of our pension trust assets are invested in European sovereign debt and are subject to heightened risk that they will lose value as a result of political and financial turmoil in Europe.

 

14


Table of Contents

Due to our participation in multi-employer pension plans, we may have exposure under those plans that extends beyond what our obligation would be with respect to our employees. If a participating employer ceases its contributions to the plan, as a result of a bankruptcy or otherwise, such as in the case of Hostess Brands’ bankruptcy which we are currently evaluating, we may be required to participate in funding the unfunded obligations of the plan allocable to the withdrawing employer and our costs might increase as a result. (See Note 10, Benefit Plans, to the consolidated financial statements for more information). Further, if we withdraw from a multi-employer pension plan, we may be required to pay those plans an amount based on our allocable share of the underfunded status of the plan.

A significant increase in our pension funding requirements could have a negative impact on our ability to invest in the business.

We may be unable to hire or retain and develop key personnel or a highly skilled and diverse global workforce.

Our continued growth requires us to hire, retain and develop our leadership bench and a highly skilled and diverse global workforce. We compete to hire new personnel and then to develop and retain their skills and competencies. Any unplanned turnover or our failure to develop an adequate succession plan to backfill current leadership positions, or to hire and retain a diverse global workforce could deplete our institutional knowledge base and erode our competitive advantage. In addition, our operating results could be adversely affected by increased costs due to increased competition for employees, higher employee turnover or increased employee benefit costs.

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products and brands.

We consider our intellectual property rights, particularly and most notably our trademarks, but also our patents, trade secrets, copyrights and licensing agreements, to be a significant and valuable aspect of our business. We attempt to protect our intellectual property rights through a combination of patent, trademark, copyright and trade secret laws, as well as licensing agreements, third party nondisclosure and assignment agreements and policing of third party misuses of our intellectual property. Our failure to obtain or adequately protect our trademarks, products, new features of our products, or our technology, or any change in law or other changes that serve to lessen or remove the current legal protections of our intellectual property, may diminish our competitiveness and could materially harm our business.

We may be unaware of intellectual property rights of others that may cover some of our technology, brands or products. Any litigation regarding patents or other intellectual property could be costly and time-consuming and could divert management’s and other key personnel’s attention from our business operations. Third party claims of intellectual property infringement might also require us to enter into costly license agreements. We also may be subject to significant damages or injunctions against development and sale of certain of our products. Any of these occurrences could materially and adversely affect our financial condition and results of operations.

Item 1B.   Unresolved Staff Comments.

Not applicable.

Item 2.   Properties.

On December 31, 2012, we had 171 manufacturing and processing facilities located in 56 countries. We own 162 and lease 9 of these manufacturing and processing facilities. It is our practice to maintain all of our plants and properties in good condition. We believe they are suitable and adequate for our present needs.

We also had 173 distribution centers and depots worldwide. We own 44 of these distribution centers and depots, and we lease 129 of these distribution centers and depots. These facilities are in good condition. We believe they have sufficient capacity to meet our distribution needs in the near term.

These facilities are located by segment as follows:

 

                                     
      Number of
Manufacturing
Facilities
     Number of
Distribution
Facilities
 

Developing Markets

     95         61   

Europe

     59         22   

North America

     17         90   
  

 

 

    

 

 

 

Total

     171         173   
  

 

 

    

 

 

 

 

15


Table of Contents

Item 3.   Legal Proceedings.

We routinely are involved in legal proceedings, claims, and governmental inspections or investigations (“Legal Matters”) arising in the ordinary course of our business.

Competition authorities in certain Member States of the European Union have ongoing investigations into possible anticompetitive activity in the fast moving consumer goods (“FMCG”) sector, which includes products such as chocolate and coffee. On January 31, 2012, the German Federal Cartel Office (“FCO”) issued a press release stating that it had discontinued proceedings against our wholly owned subsidiary, Kraft Foods Deutschland GmbH (“KFD”), based on a settlement agreed between KFD and the FCO following the FCO’s finding of an exchange of competitively sensitive information. The FCO also imposed fines against a former KFD employee, as well as several other producers of confectionery. Due to KFD’s cooperation with the FCO in the matter, the fine to resolve the matter against KFD was reduced to 21.7 million.

A compliant and ethical corporate culture, which includes adhering to laws and industry regulations in all jurisdictions in which we do business, is integral to our success. Accordingly, after we acquired Cadbury in February 2010 we began reviewing and adjusting, as needed, Cadbury’s operations in light of applicable standards as well as our policies and practices. We initially focused on such high priority areas as food safety, the Foreign Corrupt Practices Act (“FCPA”) and antitrust. Based upon Cadbury’s pre-acquisition policies and compliance programs and our post-acquisition reviews, our preliminary findings indicated that Cadbury’s overall state of compliance was sound. Nonetheless, through our reviews, we determined that in certain jurisdictions, including India, there appeared to be facts and circumstances warranting further investigation. We are continuing our investigations in certain jurisdictions, including in India, and we continue to cooperate with governmental authorities.

As we previously disclosed, on February 1, 2011, we received a subpoena from the SEC in connection with an investigation under the FCPA, primarily related to a facility in India that we acquired in the Cadbury acquisition. The subpoena primarily requests information regarding dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility. We are cooperating with the U.S. and Indian governments in their investigations of these matters.

As we previously disclosed, on March 1, 2011, the Starbucks Coffee Company (“Starbucks”) took control of the Starbucks packaged coffee business (“Starbucks CPG business”) in grocery stores and other channels. Starbucks did so without our authorization and in what we contend is a violation and breach of our license and supply agreement with Starbucks related to the Starbucks CPG business. The dispute is in arbitration in Chicago, Illinois. We are seeking appropriate remedies, including payment of the fair market value of the supply and license agreement, plus the premium this agreement specifies, prejudgment interest under New York law and attorney’s fees. Starbucks has counterclaimed for damages. Testimony and post-hearing briefing in the arbitration proceeding are completed. We await the arbitrator’s decision. Kraft Foods Group remains the named party in the proceeding. Under the Separation and Distribution Agreement between Kraft Foods Group and us, Kraft Foods Group will direct any recovery awarded in the arbitration proceeding to us. We will reimburse Kraft Foods Group for any costs and expenses it incurs in connection with the arbitration.

While we cannot predict with certainty the results of these or any other Legal Matters in which we are currently involved, we do not expect that the ultimate costs to resolve any of these Legal Matters, individually or in the aggregate, will have a material effect on our financial results.

Item 4.  Mine Safety Disclosures

Not applicable.

 

16


Table of Contents

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

On June 26, 2012, we transitioned our listing from the New York Stock Exchange and our Common Stock began to trade on The NASDAQ Global Select Market under the symbol “KFT.” Following the Spin-Off, on October 2, 2012, our Common Stock began trading under the symbol “MDLZ.” At January 31, 2013, there were 70,992 holders of record of our Common Stock. Information regarding our Common Stock market prices and dividends declared during the last two fiscal years is included in Note 17, Quarterly Financial Data (Unaudited), to the consolidated financial statements.

Comparison of Five-Year Cumulative Total Return

The following graph compares the cumulative total return on our Common Stock with the cumulative total return of the S&P 500 Index, the former Kraft Foods Inc. performance peer group and the new Mondelēz International performance peer group index following the Spin-Off of Kraft Foods Group. The graph assumes, in each case, an initial investment of $100 on December 31, 2007, based on the market prices at the end of each fiscal year through and including December 31, 2012, and reinvestment of dividends (also taking into account the value of Kraft Foods Group shares distributed in the Spin-Off). A vertical line below indicates the October 1, 2012 Spin-Off date and is intended to facilitate comparisons of performance against peers and the stock market before and following the Spin-Off.

 

LOGO

 

                                                                           

Date

   Mondelēz
International
     S&P 500      Performance
Peer Group
     Former
Performance
Peer Group
 

December 31, 2007

   $ 100.00       $ 100.00       $ 100.00       $ 100.00   

December 31, 2008

     85.40         63.00         81.08         78.42   

December 31, 2009

     90.52         79.68         96.80         99.02   

December 31, 2010

     108.97         91.68         108.93         113.41   

December 31, 2011

     133.64         93.61         117.11         121.92   

December 31, 2012

     143.67         108.59         128.78         134.52   

 

17


Table of Contents

The new Mondelēz International performance peer group consists of the following companies considered our market competitors, or that have been selected on the basis of industry, global focus or industry leadership: Campbell Soup Company, The Coca-Cola Company, Colgate-Palmolive Company, DANONE, General Mills, Inc., H.J. Heinz Company, The Hershey Company, Kellogg Company, Nestlé S.A., PepsiCo, Inc., The Procter & Gamble Company and Unilever N.V.

Our former performance peer group consisted of the following companies: Campbell Soup Company, The Coca-Cola Company, ConAgra Foods, Inc., DANONE, General Mills, Inc., H.J. Heinz Company, The Hershey Company, Kellogg Company, Nestlé S.A., PepsiCo, Inc., Sara Lee Corporation, and Unilever N.V.

This performance graph and other information furnished under this Part II Item 5(a) of this Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.

Issuer Purchases of Equity Securities during the Quarter ended December 31, 2012

There are currently no share repurchase programs authorized by our Board of Directors. The following activity represents shares tendered by our employees who used shares to exercise options, and who used shares to pay the related taxes for grants of restricted and deferred stock that vested. Accordingly, these are non-cash transactions.

 

                                     
     Total Number
of Shares
     Average Price Paid
per Share
 

October 1 – 31, 2012

     34,654       $ 27.94   

November 1 – 30, 2012

     9,164         25.73   

December 1 – 31, 2012

     17,355         25.69   
  

 

 

    

For the Quarter Ended December 31, 2012

     61,173       $ 26.97   
  

 

 

    

 

18


Table of Contents

Item 6.  Selected Financial Data.

Mondelēz International, Inc.

Selected Financial Data – Five Year Review(1)

 

                                                                                              
    2012     2011     2010     2009     2008  
    (in millions, except per share and employee data)  

Continuing Operations(2)

         

Net revenues

  $ 35,015      $ 35,810      $ 31,489      $ 21,559      $ 22,872   

Earnings from continuing operations, net of taxes

    1,567        1,737        672        850        147   

Net earnings attributable to Mondelēz International:

         

Per share, basic

    0.87        0.97        0.38        0.57        0.09   

Per share, diluted

    0.86        0.97        0.38        0.57        0.09   

Cash Flow and Financial Position(3)

         

Net cash provided by operating activities

    3,923        4,520        3,748        5,084        4,141   

Capital expenditures

    1,610        1,771        1,661        1,330        1,367   

Property, plant and equipment, net

    10,010        13,813        13,792        10,693        9,917   

Total assets

    75,478        93,837        95,289        66,714        63,173   

Long-term debt

    15,574        23,095        26,859        18,024        18,589   

Total Mondelēz International shareholders’ equity

    32,215        35,217        35,834        25,876        22,295   

Shares outstanding at year end

    1,778        1,768        1,748        1,478        1,469   

Per Share and Other Data(4)

         

Book value per shares outstanding

    18.12        19.92        20.50        17.51        15.18   

Dividends declared per share(5)

    1.00        1.16        1.16        1.16        1.12   

Common Stock closing price at year end(6)

    25.45        37.36        31.51        27.18        26.85   

Number of employees

    110,000        126,000        127,000        97,000        98,000   

 

(1) The selected financial data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K and past Annual Reports on Form 10-K for earlier periods.
(2)

Significant items impacting the comparability of our results from continuing operations include: Spin-Off Costs in 2012, Restructuring Programs in 2012 and 2008, Cost Savings Initiatives in all years; divestitures and sales of property in 2012 and 2010, the acquisition of Cadbury in 2010 and related Integration Program in 2010-2012; accounting calendar changes primarily in 2010 and 2011 (including a 53rd week of operating results in 2011) and our provision for income taxes in all years. Please refer to Notes 1, Summary of Significant Accounting Policies; 2, Divestitures and Acquisitions; 6, 2012-2014 Restructuring Program; 7, Integration Program and Cost Savings Initiatives; 14, Income Taxes; and 16, Segment Reporting, for additional information regarding items affecting comparability of our results from continuing operations.

(3) Our Cash Flow and Financial Position information includes Kraft Foods Group data for periods prior to the October 1, 2012 Spin-Off date. Refer to Note 2, Divestitures and Acquisitions, for information on the divested net assets and items impacting cash flow. Other items impacting comparability primarily relate to our acquisition of Cadbury in 2010.
(4) Per Share and Other Data includes Kraft Foods Group data for periods prior to the October 1, 2012 Spin-Off date.
(5) Refer to the Equity and Dividends section within Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information on our dividends following the Spin-Off.
(6) Closing prices reflect historical market prices and have not been adjusted for periods prior to October 1, 2012 to reflect the Spin-Off of Kraft Foods Group on that date.

 

19


Table of Contents

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8.

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 (the “Distribution Date”), we completed the spin-off of our North American grocery business, Kraft Foods Group, Inc. (“Kraft Foods Group”), to our shareholders (the “Spin-Off”). Along with our other food and beverage categories, we also retained our global snacks business (the “Global Snacks Business”). Over the last several years, we transformed our portfolio by expanding geographically and building our presence in the fast-growing snacking category. At the same time, we continued to invest in product quality, marketing and innovation behind our iconic brands, while implementing a series of cost saving initiatives. We expect our Global Snacks Business will build upon its strong presence across numerous fast-growing markets, categories and channels including the high-margin instant consumption channel. We plan to target industry-leading revenue growth, leverage our cost structure through volume growth and improved product mix to drive margin gains and grow earnings per share in the top-tier of our peer group.

Summary of Results and Significant Highlights

As a result of the Spin-Off, the historical results of Kraft Foods Group have been reflected as a discontinued operation within our consolidated statements of earnings for all periods presented. We discuss our results of continuing operations below and in the discussion and analysis which follows.

 

   

Net revenues decreased 2.2% to $35.0 billion in 2012 and increased 13.7% to $35.8 billion in 2011. Our reported net revenues were significantly impacted by unfavorable foreign currency exchange rates, the lapping of prior-year accounting calendar changes and divestitures in 2012.

 

   

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 appearing later in this section). Organic Net Revenues increased 4.4% to $36.3 billion in 2012 and increased 7.0% to $33.4 billion in 2011. Organic Net Revenues is on a constant currency basis and excludes the impact of accounting calendar changes and divestitures.

 

   

Diluted EPS attributable to Mondelēz International decreased 15.1% to $1.69 in 2012 and decreased 16.7% to $1.99 in 2011. Excluding the results of discontinued operations, our diluted EPS attributable to Mondelēz International from continuing operations decreased 11.3% to $0.86 in 2012 and increased 155.3% to $0.97 in 2011. Included within our reported results were one-time Spin-Off Costs, 2012-2014 Restructuring Program costs, Cadbury Integration Program costs, gains and losses on divestitures and divested operating results.

 

   

Operating EPS is a non-GAAP financial measure we use to evaluate our underlying results (see the definition of Operating EPS and our reconciliation with Diluted EPS within Non-GAAP Financial Measures appearing later in this section). Operating EPS provides transparency of our underlying results from continuing operations and excludes Spin-Off Costs, Spin-Off pension expense and interest expense adjustments, 2012-2014 Restructuring Program costs, Cadbury Integration Program costs, gains and losses on divestitures and divested operating results. We also evaluate Operating EPS on a constant currency basis. Operating EPS increased 0.7% to $1.39 in 2012 and increased 33.0% to $1.41 in 2011. On a constant currency basis, Operating EPS increased 5.1% to $1.45 in 2012 and increased 26.4% to $1.34 in 2011.

 

   

On October 1, 2012, we completed the Spin-Off in a distribution to shareholders of one share of Kraft Foods Group common stock for every three shares of our Common Stock held as of the Record Date. The distribution was structured to be tax free to our U.S. shareholders for U.S. federal income tax purposes. See additional information on the Spin-Off of Kraft Foods Group in Note 2, Divestitures and Acquisitions, to the consolidated financial statements.

 

20


Table of Contents
   

During 2012, in anticipation of the Spin-Off, Kraft Foods Group and we executed a series of debt transactions in order to adequately capitalize both companies and to secure for each investment grade credit ratings following the Spin-Off. During 2012, Kraft Foods Group incurred approximately $10 billion of debt through direct note issuances or exchanges of our debt for their debt. As Kraft Foods Group received cash from its note issuances, the cash was distributed to us through the Distribution Date so that we could reduce our debt over time. We were successful in recapitalizing both companies and secured and maintain an investment grade credit rating following the Spin-Off. See Liquidity and Capital Resources below and Note 8, Debt and Borrowing Arrangements, to the consolidated financial statements for more information.

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. On October 1, 2012, each of our shareholders of record on September 19, 2012 received one share of Kraft Foods Group common stock for every three shares of our Common Stock held. The distribution was structured to be tax free to our U.S. shareholders for U.S. federal income tax purposes. See Note 2, Divestitures and Acquisitions, to the consolidated financial statements for additional information.

The divested Kraft Foods Group business is presented as a discontinued operation on the consolidated statements of earnings for all periods presented. The Kraft Foods Group balance sheet, other comprehensive earnings and cash flows are included within our consolidated balance sheet and consolidated statements of equity, comprehensive earnings and cash flows through October 1, 2012.

Summary results of operations for the divested Kraft Foods Group through October 1, 2012 were as follows:

 

                                                        
     Nine Months Ended      For the Years Ended December 31,  
     October 1, 2012      2011      2010  
            (in millions)         

Net revenues

   $ 13,768       $ 18,555       $ 17,718   
  

 

 

    

 

 

    

 

 

 
        

Earnings before income taxes

   $ 2,266       $ 2,892       $ 2,916   

Provision for income taxes

     778         1,082         1,093   

Earnings and gain from discontinued operations,
net of income taxes
(1)

                     1,644   
  

 

 

    

 

 

    

 

 

 

Earnings from discontinued operations,
net of income taxes

   $ 1,488       $ 1,810       $ 3,467   
  

 

 

    

 

 

    

 

 

 

 

  (1) On March 1, 2010, Kraft Foods Group completed the sale of the assets of the North American frozen pizza business to Nestlē USA, Inc. The earnings through March 1, 2010 and the gain were included in discontinued operations for Kraft Foods Group for the year ended December 31, 2010.

The results of the Kraft Foods Group discontinued operation exclude certain corporate and business unit costs which were allocated to Kraft Foods Group historically and are expected to continue at Mondelēz International after the Spin-Off. These costs include primarily corporate overheads, information systems and sales force support. On a pre-tax basis, through the date of the Spin-Off, these costs were $150 million for the nine months ended October 1, 2012, $236 million for the year ended December 31, 2011 and $209 million for the year ended December 31, 2010.

Interest expense relating to debt Kraft Foods Group incurred or assumed through October 1, 2012 has been included in the results from discontinued operations for all periods presented and as follows:

 

                                                        
     Nine Months Ended      For the Years Ended December 31,  
     October 1, 2012      2011      2010  
            (in millions)         

$6.0 billion note issuance in June 2012

   $ 70       $       $   

$3.6 billion notes exchanged in July 2012

     171         226         216   

$0.4 billion debt transferred in October 2012

     24         31         31   

Capital leases and other

     13         10         7   
  

 

 

    

 

 

    

 

 

 
   $ 278       $ 267       $ 254   
  

 

 

    

 

 

    

 

 

 

 

21


Table of Contents

On October 1, 2012, we divested the following assets and liabilities which net to $4,358 million, or $4,111 million net of cash retained by Kraft Foods Group on the Distribution Date (in millions):

 

                  

Assets

  

Cash

   $ 247   

Receivables

     1,685   

Inventories, net

     2,099   

Deferred income taxes

     338   

Other current assets

     168   

Property, plant and equipment, net

     4,211   

Goodwill

     11,911   

Intangible assets, net

     2,632   

Prepaid pension assets

     16   

Other assets

     856   
  

 

 

 
   $ 24,163   
  

 

 

 

Liabilities

  

Current portion of long-term debt

   $ 6   

Accounts payable

     1,798   

Accrued marketing

     463   

Accrued employment costs

     190   

Other current liabilities

     751   

Long-term debt

     9,965   

Deferred income taxes

     874   

Accrued pension costs

     2,026   

Accrued postretirement health care costs

     3,316   

Other liabilities

     416   
  

 

 

 
   $ 19,805   
  

 

 

 

Net assets divested in the Spin-Off

   $ 4,358   
  

 

 

 

Additionally, $4,308 million of accumulated other comprehensive losses primarily related to the pension and other benefit plan net liabilities transferred to Kraft Foods Group and $89 million of unearned compensation recorded within additional paid in capital were distributed to Kraft Foods Group. In total, we recorded a distribution of $8,755 million to our shareholders in connection with the Spin-Off of Kraft Foods Group.

In order to implement the Spin-Off, we entered into certain agreements with Kraft Foods Group to effect our legal and structural separation; govern the relationship between us; and allocate various assets, liabilities and obligations between us, including, among other things, employee benefits, intellectual property and tax-related assets and liabilities (see Note 14, Income Taxes, for additional information on the current and deferred tax assets and liabilities transferred or retained in the Spin-Off). In addition to executing the Spin-Off in the manner provided in the agreements, in November 2012, pursuant to these agreements, we paid Kraft Foods Group $163 million related to targeted cash flows (together with the $247 million of cash divested on the Distribution Date, totaling $410 million of cash transferred to Kraft Foods Group in connection with the Spin-Off). To facilitate the management, including final payment and resolution, of certain obligations, Kraft Foods Group retained certain of our North American net trade payables and receivables. We also retained approximately $140 million of workers’ compensation liabilities for claims incurred by Kraft Foods Group employees prior to the Spin-Off. In November 2012, we paid Kraft Foods Group $95 million to cash settle the net trade payables and receivables and which are also reflected in table above. As of December 31, 2012, we also have a $55 million receivable from Kraft Foods Group related to the cash settlement of stock awards held by our respective employees at the time of the Spin-Off as further described in Note 11, Stock Plans, to the consolidated financial statements.

Our results from continuing operations include one-time Spin-Off transaction, transition and financing and related costs (“Spin-Off Costs”) we have incurred to date. We recorded Spin-Off Costs of $1,053 million, or $0.39 per diluted share in 2012 and $46 million, or $0.02 per diluted share, in 2011. We expect to incur Spin-Off Costs of approximately $100 million in 2013 related primarily to human resource, customer service and logistics and information systems and processes as well as legal costs associated with revising intellectual property and other long-term agreements.

Cadbury Acquisition:

In 2010, we acquired all the outstanding shares of Cadbury Limited (“Cadbury”) in an acquisition valued at $18,547 million, or $17,503 million net of cash and cash equivalents. In 2010, we incurred acquisition-related transaction costs of $218 million (recorded in selling, general and administrative expense) and acquisition-related financing fees of $96 million (recorded in interest and other expenses, net).

 

22


Table of Contents

As a condition to granting approval of the acquisition, the EU required that we divest certain Cadbury confectionery operations in Poland and Romania. The divestitures were completed in the third quarter of 2010 and generated $342 million of sale proceeds. The impact of these divestitures was reflected as adjustments within the Cadbury final purchase accounting.

During 2010, Cadbury contributed net revenues of $9,143 million and net earnings of $530 million from February 2, 2010 through December 31, 2010. The following unaudited pro forma summary presents our consolidated results of continuing operations as if Cadbury had been acquired on January 1, 2010. These amounts were calculated after conversion to U.S. GAAP, applying our accounting policies, and adjusting Cadbury’s results to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment, and intangible assets had been applied from January 1, 2010, together with the consequential tax effects. These adjustments also reflect the additional interest expense incurred on the debt to finance the purchase and the divestitures of certain Cadbury confectionery operations in Poland and Romania.

 

                  
     Pro forma
Year Ended
December 31, 2010
 
     (in millions)  

Net revenues

     $      32,052   

Net earnings attributable to Mondelēz International

     2,115   

We also acquired assets and assumed liabilities as follows (in millions):

 

                  

Assets

  

Cash and cash equivalents

   $ 1,044   

Receivables (1)

     1,333   

Inventories, net

     1,298   

Other current assets

     660   

Property, plant and equipment, net

     3,293   

Goodwill (2)

     9,530   

Intangible assets, net (3)

     12,905   

Other assets

     593   
  

 

 

 
   $ 30,656   
  

 

 

 

Liabilities

  

Short-term borrowings

   $ 1,206   

Accounts payable

     1,605   

Other current liabilities (4)

     1,866   

Long-term debt

     2,437   

Deferred income taxes

     3,218   

Accrued pension costs

     817   

Other liabilities

     927   

Noncontrolling interest

     33   
  

 

 

 
   $ 12,109   
  

 

 

 

Net assets acquired

   $ 18,547   
  

 

 

 

 

  (1) The gross amount of acquired receivables was $1,474 million, of which $141 million was reserved as uncollectable.
  (2) Goodwill will not be deductible for statutory tax purposes and is attributable to Cadbury’s workforce and the significant synergies we expect from the acquisition.
  (3) We acquired $10.3 billion of indefinite-lived intangible assets, primarily trademarks, and $2.6 billion of amortizable intangible assets, primarily customer relationships and technology. Customer relationships will be amortized over approximately 13 years and technology will be amortized over approximately 12 years.
  (4) Within other current liabilities, a reserve for exposures related to taxes of approximately $70 million was established within our Developing Markets segment. The cumulative exposure was approximately $150 million at December 31, 2010.

Other Divestitures and Sales of Property

During the three months ended December 31, 2012, we 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. In 2011, there were no significant divestitures. In 2010, as discussed above, we divested businesses in Poland and Romania in connection with the acquisition of Cadbury.

During the three months ended March 31, 2012, we also sold property located in Russia which generated cash proceeds of $72 million and a pre-tax gain of $55 million which was recorded within selling, general and administrative expenses.

The aggregate operating results of the divestitures discussed above were not material to our financial statements in any of the periods presented.

 

23


Table of Contents

2012-2014 Restructuring Program

On March 14, 2012, our Board of Directors approved $1.1 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 was to ensure that both Kraft Foods Group and Mondelēz International were each set up to operate efficiently and execute on our respective business strategies upon separation and in the future. On October 23, 2012, our Board of Directors approved $400 million of additional restructuring and related implementation programs, totaling $1.5 billion of expected 2012-2014 Restructuring Program costs.

Of the $1.5 billion of 2012-2014 Restructuring Program costs, $575 million relates to Kraft Foods Group and approximately $925 million are costs we expect to incur or have incurred in our results from continuing operations.

Through December 31, 2012, we have recorded restructuring charges of $102 million, or $0.04 per diluted share, in our results from continuing operations, which were recorded within asset impairment and exit costs. In 2012, we spent $33 million on primarily severance and related costs and also recognized non-cash severance and related costs and asset write-downs (including accelerated depreciation and asset impairments) totaling $33 million. At December 31, 2012, $36 million of restructuring liabilities were recorded within other current liabilities. In 2012, we also incurred $8 million of implementation costs which 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 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 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 within our Global Snacks Business and are separate from the costs related to the acquisition. Since the inception of the Integration Program, we have incurred approximately $1.3 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 $185 million in 2012, $521 million in 2011 and $646 million in 2010. During 2012, we reversed $45 million of Integration Program charges previously accrued in 2010 and primarily related to planned and announced position eliminations that did not occur within our Europe segment. We recorded these charges in operations as a part of selling, general and administrative expenses primarily within our Europe and Developing Markets segments, as well as within general corporate expenses. At December 31, 2012, we had an accrual of $202 million related to the Integration Program. See Note 7, Integration Program and Cost Savings Initiatives, to the consolidated financial statements for additional information.

Cost Savings Initiatives

Cost savings initiatives generally include exit, disposal and other project costs outside of our Integration Program and 2012-2014 Restructuring Program and consist of the following specific initiatives:

   

In 2012, we recorded a $21 million charge primarily within the segment operating income of Europe related to severance benefits provided to terminated employees and charges in connection with the reorganization within the Europe and Developing Markets segment (the “Europe reorganization”).

   

In 2011, we recorded a $61 million charge primarily within the segment operating income of Europe related to severance benefits provided to terminated employees and charges in connection with the Europe reorganization. We also reversed approximately $15 million of cost savings initiative program costs across the North America and Developing Markets segments.

   

In 2010, we recorded $117 million primarily within the segment operating income of Europe in connection with the Europe reorganization.

 

24


Table of Contents

Accounting Calendar Changes in 2011 and 2010

The majority of our operating subsidiaries report results as of the last Saturday of the year. A portion of our international operating subsidiaries report results as of the last calendar day of the year. In 2011, the last Saturday of the year fell on December 31, so our 2011 results included one more week of operating results (“53rd week”) than 2012 or 2010, which each had 52 weeks.

In 2011, we changed the consolidation date for certain operations of our Europe segment and in the Latin America, Central and Eastern Europe (“CEE”) and Middle East and Africa (“MEA”) regions within our Developing Markets segment. Previously, these operations primarily reported results two weeks prior to the end of the period. Subsequent to the 2011 changes, our Europe segment reports results as of the last Saturday of each period. Certain operations within our Developing Markets segment report results as of the last calendar day of the period or the last Saturday of the period. These changes and the 53rd week in 2011 resulted in a favorable impact to net revenues of $679 million and a favorable impact of $93 million to operating income in 2011.

In 2010, we changed the consolidation date for certain European biscuits operations, which are included within our Europe segment, and certain operations in Asia Pacific and Latin America within our Developing Markets segment. Previously, these operations primarily reported period-end results one month or two weeks prior to the end of the period. Europe moved the reporting of these operations to two weeks prior to the end of the period, and Asia Pacific and Latin America moved the reporting of these operations to the last day of the period. These changes resulted in a favorable impact to net revenues of $193 million and a favorable impact of $23 million to operating income in 2010.

We believe these changes are preferable and will improve business planning and financial reporting by better matching the close dates of the operating subsidiaries within our Europe segment and Developing Markets segment and by bringing the reporting date closer to the period-end date. As the effect to prior-period results was not material, we have not revised prior-period results.

Provision for Income Taxes

Our 2012 effective tax rate was favorably impacted by the mix of pre-tax income in various foreign jurisdictions and net tax benefits of $101 million from discrete one-time events, primarily related to the revaluation of U.K. deferred tax assets and liabilities resulting from tax legislation enacted during 2012 that reduced U.K. corporate income tax rates and net favorable tax audit settlements, partially offset by non-deductible expenses.

Our 2011 effective tax rate was favorably impacted by the mix of pre-tax income in various foreign jurisdictions and net tax benefits of $226 million from discrete one-time events, primarily from the revaluation of U.K. deferred tax assets and liabilities resulting from tax legislation enacted in 2011 that reduced U.K. corporate income tax rates, the reversal of valuation allowances on certain foreign deferred tax assets that are now expected to be realized and the net favorable impact from various U.S. federal and foreign tax audit developments during the year.

Our 2010 effective tax rate was favorably impacted by the mix of pre-tax income in various foreign jurisdictions and net tax benefits of $165 million from discrete one-time events, primarily from the favorable resolution of U.S. federal and foreign tax audits and the revaluation of U.K. deferred tax assets and liabilities resulting from tax legislation enacted in 2010 that reduced U.K. corporate income tax rates, partially offset by a write-off of deferred tax assets as a result of the U.S. health care legislation enacted in March 2010.

 

25


Table of Contents

Consolidated Results of Operations

The following discussion compares our consolidated results of operations for 2012 with 2011 and 2011 with 2010.

2012 compared with 2011

 

                                                                           
     For the Years Ended
December  31,
              
     2012      2011      $ change     % change  
     (in millions, except per share data)               

Net revenues

   $ 35,015       $ 35,810       $ (795     (2.2%

Operating income

     3,637         3,498         139        4.0%   

Earnings from continuing operations

     1,567         1,737         (170     (9.8%

Net earnings attributable to
Mondelēz International

     3,028         3,527         (499     (14.1%

Diluted earnings per share from
continuing operations attributable to
Mondelēz International

     0.86         0.97         (0.11     (11.3%

Diluted earnings per share attributable to
Mondelēz International

     1.69         1.99         (0.30     (15.1%

Net Revenues – Net revenues decreased $795 million (2.2%) to $35,015 million in 2012, and Organic Net Revenues(1) increased $1,531 million (4.4%) to $36,347 million as follows.

 

                  

Change in net revenues (by percentage point)

  

Higher net pricing

     3.3pp   

Favorable volume/mix

     1.1pp   
  

 

 

 

Total change in organic net revenues(1)

     4.4%   

Unfavorable foreign currency

     (4.4)pp   

Impact of accounting calendar changes (including the 53rd week of shipments)

     (2.0)pp   

Impact of divestitures

     (0.2)pp   
  

 

 

 

Total change in net revenues

     (2.2)%   
  

 

 

 

 

  (1) Please see the Non-GAAP Financial Measures section at the end of this item.

Organic Net Revenue growth was driven by higher net pricing and favorable volume/mix. Higher net pricing, including the impact of pricing actions from the prior year, was realized across all reportable segments as we increased pricing to offset higher input costs. Favorable volume/mix was driven by higher shipments in Developing Markets and Europe, mostly offset by lower shipments in North America, driven primarily by the completion of a co-manufacturing agreement from a previous divestiture. Unfavorable foreign currency decreased net revenues by $1,576 million, due primarily to the strength of the U.S. dollar relative to most foreign currencies, primarily the euro, Brazilian real, Indian rupee, Argentinean peso, South African rand, Russian ruble and Mexican peso. Non-recurring accounting calendar changes in 2011 resulted in a year-over-year decrease in net revenues of $679 million. Divested businesses also resulted in a year-over-year decrease in net revenues of $72 million.

 

26


Table of Contents

Operating Income – Operating income increased $139 million (4.0%) to $3,637 million in 2012, Adjusted Operating Income(1) increased $138 million (3.4%) to $4,235 million, and Adjusted Operating Income (on a constant currency basis)(1) increased $291 million (7.1%) to $4,388 million due to the following:

                                     
    Operating        
    Income     Change  
    (in millions)     (percentage point)  

Operating Income for the Year Ended December 31, 2011

  $  3,498     

Integration Program costs

    521        14.7pp   

Spin-Off pension expense adjustment (2)

    91        2.7pp   

Spin-Off Costs

    46        1.4pp   

Operating income from divested businesses

    (59     (1.5)pp   
 

 

 

   

 

 

 

Adjusted Operating Income for the Year Ended December 31, 2011 (1)

  $ 4,097     
 

 

 

   

Higher net pricing

    1,132        28.4pp   

Higher input costs

    (598     (15.0)pp   

Favorable volume/mix

    114        2.8pp   

Higher selling, general and administrative expenses

    (293     (7.2)pp   

Impact of accounting calendar changes

    (93     (2.5)pp   

Gain on sale of property

    55        1.3pp   

Intangible asset impairment charge

    (52     (1.3)pp   

Change in unrealized gains/losses on hedging activities

    37        0.9pp   

Other, net

    (11     (0.3)pp   
 

 

 

   

 

 

 

Total change in Adjusted Operating Income (constant currency) (1)

    291        7.1%   
 

 

 

   

 

 

 

Unfavorable foreign currency

    (153     (3.7)pp   
 

 

 

   

 

 

 

Total change in Adjusted Operating Income

    138        3.4%   
 

 

 

   

 

 

 

Adjusted Operating Income for the Year Ended December 31, 2012 (1)

  $ 4,235     

Spin-Off Costs

    (444     (12.3)pp   

Integration Program costs

    (140     (3.4)pp   

2012-2014 Restructuring Program costs

    (110     (3.0)pp   

Spin-Off pension expense adjustment (2)

    (68     (1.9)pp   

Acquisition-related costs

    (1     (0.1)pp   

Gains on divestitures, net

    107        2.6pp   

Operating income from divested businesses

    58        1.4pp   
 

 

 

   

 

 

 

Operating Income for the Year Ended December 31, 2012

  $ 3,637        4.0%   
 

 

 

   

 

 

 

 

(1) Please see the Non-GAAP Financial Measures section at the end of this item.
(2) Represents the estimated annual benefit plan expense associated with certain benefit plan obligations transferred to Kraft Foods Group in the Spin-Off. The estimate of $91 million was based on market conditions and benefit plan assumptions as of January 1, 2012. For the year ended December 31, 2012, a prorated estimate of $68 million was reflected for the nine months prior to the Spin-Off and transfer of the benefit plan obligations to Kraft Foods Group.

Higher net pricing, including the impact of pricing actions taken in the prior year, outpaced increased input costs during 2012. The increase in input costs was driven by higher raw material costs, partially offset by lower manufacturing costs. Favorable volume/mix was driven by strong contributions from Developing Markets and Europe, partially offset by an unfavorable impact in North America. Total selling, general and administrative expenses decreased $206 million from 2011, including the benefits from a favorable impact of foreign currency on expenses, lower Integration Program costs (including the reversal of previously accrued Integration Program charges primarily related to planned and announced position eliminations that did not occur), higher expenses in the prior year related to accounting calendar changes, divested businesses and a gain on the sale of a property in Russia, which were partially offset by the Spin-Off Costs and 2012-2014 Restructuring Program costs incurred in 2012. Excluding these factors, selling, general and administrative expenses increased $293 million from 2011, driven primarily by higher advertising and consumer promotion costs in each of the geographic units, partially offset by the reversal of reserves not required carried over from the Cadbury acquisition in 2010. Unfavorable foreign currency decreased operating income by $153 million, due primarily to the strength of the U.S. dollar relative to most foreign currencies, primarily the euro, Brazilian real, Argentinean peso and Indian rupee, partially offset by the impact of adjustments in the prior year related to the highly inflationary Venezuelan economy. Accounting calendar changes made in 2011 (including the 53rd week of shipments in 2011) decreased operating income by $93 million. In 2012, we divested property located in Russia and recorded a pre-tax gain of $55 million. During 2012, we recorded $52 million related to a trademark impairment in Japan. The change in unrealized gains / (losses) on hedging activities increased operating income by $37 million, as we recognized gains of $1 million in 2012, versus losses of $36 million in 2011.

As a result of the net effect of these drivers, operating income margin increased, from 9.8% in 2011 to 10.4% in 2012. The margin increase was due primarily to higher gross margin, reflecting the impact of pricing actions net of increased input costs and the favorable change in unrealized gains on hedging activities and overhead leverage, partially offset by the impact of higher advertising and consumer promotion costs. The favorable impacts from lower Integration Program costs and the realized net gain on divestitures were offset by the unfavorable impacts of higher Spin-Off Costs and the 2012-2014 Restructuring Program costs.

 

27


Table of Contents

Net Earnings and Earnings per Share Attributable to Mondelēz International – Net earnings attributable to Mondelēz International of $3,028 million decreased by $499 million (14.1%) in 2012. Diluted EPS attributable to Mondelēz International was $1.69 in 2012, down 15.1% from $1.99 in 2011. Diluted EPS from continuing operations attributable to Mondelēz International was $0.86 in 2012, down 11.3% from $0.97 in 2011. Operating EPS(1) was $1.39 in 2012, up $0.01 (0.7%) from $1.38 in 2011. Operating EPS (on a constant currency basis)(1) was $1.45 in 2012, up $0.07 (5.1%) from $1.38 in 2011. These changes, shown net of tax below, were due to the following:

 

                  
     Diluted EPS  

Diluted EPS Attributable to Mondelēz International for the Year Ended December 31,  2011

   $  1.99   

Discontinued operations

     1.02   
  

 

 

 

Diluted EPS Attributable to Mondelēz International from Continuing Operations for the Year Ended December 31, 2011

     0.97   

Integration Program costs

     0.28   

Spin-Off interest expense adjustment (2)

     0.11   

Spin-Off pension expense adjustment (3)

     0.03   

Spin-Off Costs

     0.02   

Net earnings from divested businesses

     (0.03
  

 

 

 

Operating EPS for the Year Ended December 31, 2011 (1)

     1.38   

Increases in operations

     0.16   

Impact of accounting calendar changes

     (0.04

Gain on sale of property

     0.03   

Change in unrealized gains/losses on hedging activities

     0.02   

Intangible asset impairment charge

     (0.02

Lower interest and other expense, net (4)

     0.09   

Changes in income taxes

     (0.16

Higher shares outstanding

     (0.01
  

 

 

 

Operating EPS for the Year Ended December 31, 2012 (constant currency) (1)

     1.45   
  

 

 

 

Unfavorable foreign currency

     (0.06
  

 

 

 

Operating EPS for the Year Ended December 31, 2012 (1)

     1.39   

Spin-Off Costs (5)

     (0.39

Integration Program costs

     (0.08

2012-2014 Restructuring Program costs

     (0.04

Spin-Off interest expense adjustment (2)

     (0.06

Spin-Off pension expense adjustment (3)

     (0.02

Gains on divestitures, net

     0.03   

Net earnings from divested businesses

     0.03   
  

 

 

 

Diluted EPS Attributable to Mondelēz International from Continuing Operations for the Year Ended December 31, 2012

     0.86   

Discontinued operations

     0.83   
  

 

 

 

Diluted EPS Attributable to Mondelēz International for the Year Ended December 31, 2012

   $ 1.69   
  

 

 

 

 

  (1) Please see the Non-GAAP Financial Measures section at the end of this item.
  (2) Represents interest expense associated with the assumed reduction of $6 billion of our debt on January 1, 2011 from the utilization of funds received from the $6 billion of notes Kraft Foods Group issued directly and cash proceeds distributed to us in June 2012 in connection with our Spin-Off capitalization plan. Note during the year ended December 31, 2012, a portion of the $6 billion of debt was retired. As such, we adjusted interest expense during this period as if this debt had been repaid on January 1, 2011 to ensure consistency of our assumption and related results.
  (3) Represents the estimated annual benefit plan expense associated with certain benefit plan obligations transferred to Kraft Foods Group in the Spin-Off. The estimate of $91 million was based on market conditions and benefit plan assumptions as of January 1, 2012. For the year ended December 31, 2012, a prorated estimate of $68 million was reflected for the nine months prior to the Spin-Off and transfer of the benefit plan obligations to Kraft Foods Group.
  (4) Excludes the favorable foreign currency impact on interest expense related to our foreign denominated debt, the change in interest expense included in Spin-Off costs and the change in interest expense associated with the assumed reduction of $6 billion of our debt on January 1, 2011 from the utilization of funds received from the $6 billion of notes Kraft Foods Group issued directly and cash proceeds distributed to us in June 2012 in connection with our Spin-Off capitalization plan.
  (5) Spin-Off costs include $444 million of pre-tax Spin-Off Costs in selling, general and administrative expense and $609 million of pre-tax Spin-Off Costs in interest expense.

 

28


Table of Contents

2011 compared with 2010

 

                                                                           
     For the Years Ended
December  31,
              
     2011      2010      $ change     % change  
     (in millions, except per share data)               

Net revenues

   $ 35,810       $ 31,489       $ 4,321        13.7%   

Operating income

     3,498         2,496         1,002        40.1%   

Earnings from continuing operations

     1,737         672         1,065        158.5%   

Net earnings attributable to
Mondelēz International

     3,527         4,114         (587     (14.3%

Diluted earnings per share from
continuing operations attributable to
Mondelēz International

     0.97         0.38         0.59        155.3%   

Diluted earnings per share attributable to
Mondelēz International

     1.99         2.39         (0.40     (16.7%

Net Revenues – Net revenues increased $4,321 million (13.7%) to $35,810 million in 2011, and Organic Net Revenues(1) increased $2,193 million (7.0%) to $33,385 million as follows.

 

                  

Change in net revenues (by percentage point)

  

Higher net pricing

     5.5pp   

Favorable volume/mix

     1.5pp   
  

 

 

 

Total change in organic net revenues (1)

     7.0%   

Favorable foreign currency

     3.4pp   

Impact of the Cadbury acquisition (2)

     2.3pp   

Impact of accounting calendar changes (including the 53rd week of shipments)

     1.4pp   

Impact of divestitures

     (0.4)pp   
  

 

 

 

Total change in net revenues

     13.7%   
  

 

 

 

 

  (1) Please see the Non-GAAP Financial Measures section at the end of this item.
  (2) Impact of acquisition reflects the incremental January 2011 operating results from our Cadbury acquisition.

Organic Net Revenue growth was driven by higher net pricing and favorable volume/mix. Higher net pricing was realized across all reportable segments as we increased pricing to offset higher input costs. Favorable volume/mix was driven primarily by higher shipments in Developing Markets. Favorable foreign currency increased net revenues by $1,074 million, due primarily to the strength of most foreign currencies relative to the U.S. dollar, primarily the euro, Australian dollar, Brazilian real, Swedish krona, British pound, Swiss franc, Canadian dollar and Russian ruble. The Cadbury acquisition (due to the incremental January 2011 operating results) added $697 million in net revenues in 2011. Accounting calendar changes (including the 53rd week of shipments in 2011 and excluding the effects of foreign currency) added $655 million in net revenues in 2011, as compared to $193 million in 2010. These gains were partially offset by the impact of divestitures.

 

29


Table of Contents

Operating Income – Operating income increased $1,002 million (40.1%) to $3,498 million in 2011, and Adjusted Operating Income(1) increased $654 million (18.7%) to $4,156 million, and Adjusted Operating Income (on a constant currency basis)(1) increased $495 million (14.1%) to $3,997 million due to the following:

                                     
     Operating        
     Income     Change  
     (in millions)     (percentage point)  

Operating Income for the Year Ended December 31, 2010

   $  2,496     

Integration Program costs

     646        23.4pp   

Acquisition-related costs – Cadbury

     273        13.4pp   

Spin-Off pension expense adjustment (2)

     91        5.0pp   

Operating income from divested businesses

     (4     (0.2)pp   
  

 

 

   

 

 

 

Adjusted Operating Income for the Year Ended December 31, 2010 (1)

   $ 3,502     
  

 

 

   

Higher net pricing

     1,715        48.9pp   

Higher input costs

     (1,562     (44.6)pp   

Favorable volume/mix

     293        8.4pp   

Higher selling, general and administrative expenses

     (71     (2.0)pp   

Incremental operating income from the Cadbury acquisition (3)

     83        2.4pp   

Change in unrealized gains/losses on hedging activities

     (74     (2.1)pp   

Impact from accounting calendar changes

     66        1.8pp   

Lower net asset impairment and exit costs

     31        0.9pp   

Other, net

     14        0.4pp   
  

 

 

   

 

 

 

Total change in Adjusted Operating Income (constant currency) (1)

     495        14.1%   
  

 

 

   

 

 

 

Favorable foreign currency

     159        4.6pp   
  

 

 

   

 

 

 

Total change in Adjusted Operating Income

     654        18.7%   
  

 

 

   

 

 

 

Adjusted Operating Income for the Year Ended December 31, 2011 (1)

   $ 4,156     

Integration Program costs

     (521     (14.8)pp   

Spin-Off pension expense adjustment (2)

     (91     (3.5)pp   

Spin-Off Costs

     (46     (1.9)pp   
  

 

 

   

 

 

 

Operating Income for the Year Ended December 31, 2011

   $ 3,498        40.1%   
  

 

 

   

 

 

 

 

(1) Please see the Non-GAAP Financial Measures section at the end of this item.
(2) Represents the estimated annual benefit plan expense associated with certain benefit plan obligations transferred to Kraft Foods Group in the Spin-Off. The estimate of $91 million was based on market conditions and benefit plan obligations as of January 1, 2012.
(3) Impact of acquisition reflects the incremental January 2011 operating results from our Cadbury acquisition.

Higher pricing outpaced increased input costs during 2011. The increase in input costs was driven by significantly higher raw material costs, as well as higher manufacturing costs. Favorable volume/mix was driven by a strong contribution from Developing Markets, partially offset by an unfavorable impact in North America. Total selling, general and administrative expenses increased $242 million from 2010, including the detriments from an unfavorable impact of foreign currency on expenses, the incremental expenses associated with our Cadbury acquisition and 2011 accounting calendar changes, partially offset by lower Integration Program costs and lower expenses related to divested businesses. Excluding these factors, selling, general and administrative expenses increased $71 million from 2010, driven primarily by higher advertising and consumer promotion costs in Developing Markets. Favorable foreign currency increased operating income by $159 million, due primarily to the strength of most foreign currencies relative to U.S. dollar, primarily the euro, Australian dollar and Brazilian real. The Cadbury acquisition, due to the incremental January 2011 operating results, increased operating income by $83 million. The change in unrealized gains/losses on hedging activities decreased operating income by $74 million, as we recognized losses of $36 million in 2011, versus gains of $38 million in 2010. Accounting calendar changes (including the 53rd week of shipments in 2011 and excluding the effects of foreign currency) added $66 million in operating income, as we realized operating income from accounting calendar changes of $89 million in 2011, versus $23 million in 2010. During 2011, we reversed $5 million in restructuring program charges recorded in prior years, versus a reversal of $29 million in restructuring program charges recorded in prior years during 2010. We recorded asset impairment charges of $55 million in 2010 related to intangible assets in China and the Netherlands and on a biscuit plant and related property, plant and equipment in France.

As a result of the net effect of these drivers, operating income margin increased, from 7.9% in 2010 to 9.8% in 2011. The margin increase was due primarily to overhead leverage, lower acquisition-related costs and lower Integration Program costs, which more than offset a decline in gross profit margin, driven primarily by the impact of the higher revenue base on the margin calculation.

 

30


Table of Contents

Net Earnings and Earnings per Share Attributable to Mondelēz International – Net earnings attributable to Mondelēz International of $3,527 million decreased by $587 million (14.3%) in 2011. Diluted EPS attributable to Mondelēz International was $1.99 in 2011, down 16.7% from $2.39 in 2010. Diluted EPS from continuing operations attributable to Mondelēz International was $0.97 in 2011, up 155.3% from $0.38 in 2010. Operating EPS(1) was $1.41 in 2011, up $0.35 (33.0%) from $1.06 in 2010. Operating EPS (on a constant currency basis)(1) was $1.34 in 2012, up $0.28 (26.4%) from $1.06 in 2011. These changes, shown net of tax below, were due to the following:

 

                  
     Diluted EPS  

Diluted EPS Attributable to Mondelēz International for the Year Ended December 31, 2010

   $ 2.39   

Discontinued operations

     2.01   
  

 

 

 

Diluted EPS Attributable to Mondelēz International from Continuing Operations for the Year Ended December 31, 2010

     0.38   

Integration Program costs

     0.29   

Acquisition-related costs

     0.13   

Acquisition-related interest and other expense, net

     0.09   

Spin-Off interest expense adjustment (2)

     0.11   

Spin-Off pension expense adjustment (3)

     0.03   

U.S. health care legislation impact on deferred taxes

     0.03   
  

 

 

 

Operating EPS for the Year Ended December 31, 2010 (1)

     1.06   

Increases in operations

     0.17   

Increases in operations from the Cadbury acquisition (4)

     0.03   

Change in unrealized gains/losses on hedging activities

     (0.03

Impact from accounting calendar changes

     0.02   

Lower net asset impairments and exit costs

     0.01   

Higher interest and other expense, net (5)

     (0.04

Changes in income taxes (6)

     0.16   

Higher shares outstanding

     (0.04
  

 

 

 

Operating EPS for the Year Ended December 31, 2011 (constant currency) (1)

     1.34   
  

 

 

 

Favorable foreign currency

     0.07   
  

 

 

 

Operating EPS for the Year Ended December 31, 2011 (1)

     1.41   

Integration Program costs

     (0.28

Spin-Off interest expense adjustment (2)

     (0.11

Spin-Off pension expense adjustment (3)

     (0.03

Spin-Off Costs

     (0.02
  

 

 

 

Diluted EPS Attributable to Mondelēz International from Continuing Operations for the Year Ended December 31, 2011

     0.97   

Discontinued operations

     1.02   
  

 

 

 

Diluted EPS Attributable to Mondelēz International for the Year Ended December 31,  2011

   $ 1.99   
  

 

 

 

 

  (1) Please see the Non-GAAP Financial Measures section at the end of this item.
  (2) Represents interest expense associated with the assumed reduction of $6 billion of our debt on January 1, 2010 from the utilization of funds received from the $6 billion of notes Kraft Foods Group issued directly and cash proceeds distributed to us in June 2012 in connection with our Spin-Off capitalization plan. Note during the year ended December 31, 2012, a portion of the $6 billion of debt was retired. As such, we adjusted interest expense during this period as if this debt had been repaid on January 1, 2010 to ensure consistency of our assumption and related results.
  (3) Represents the estimated annual benefit plan expense associated with certain benefit plan obligations transferred to Kraft Foods Group in the Spin-Off. The estimate of $91 million was based on market conditions and benefit plan assumptions as of January 1, 2012.
  (4) Impact of acquisition reflects the incremental January 2011 operating results from our Cadbury acquisition.
  (5) Excludes the unfavorable foreign currency impact on interest expense related to our foreign denominated debt and the impacts of acquisition-related interest and other expense, net, and includes a loss of $157 million related to several interest rate swaps that settled in 2011.
  (6) Excludes the impact of the 2010 U.S. health care legislation on deferred taxes.

 

31


Table of Contents

Results of Operations by Reportable Segment

We manage and report operating results through three geographic reporting units: Developing Markets, Europe and North America. We manage the operations of Developing Markets by location and Europe and North America by product category.

The following discussion compares our segment results from continuing operations for the following periods –

 

                                                        
     For the Years Ended December 31,  
     2012      2011      2010  
     (in millions)  

Net revenues:

        

Developing Markets

   $ 15,655       $ 15,621       $ 13,420   

Europe

     12,457         13,356         11,628   

North America

     6,903         6,833         6,441   
  

 

 

    

 

 

    

 

 

 

Net revenues

   $ 35,015       $ 35,810       $ 31,489   
  

 

 

    

 

 

    

 

 

 

 

                                                        
     For the Years Ended December 31,  
     2012     2011     2010  
     (in millions)  

Earnings from continuing operations before income taxes:

      

Operating income:

      

Developing Markets

   $ 2,067      $ 2,003      $ 1,533   

Europe

     1,613        1,406        1,115   

North America

     873        863        805   

Unrealized gains / (losses) on hedging activities

     1        (36     38   

Certain U.S. pension plan costs

     (92     (76     (56

General corporate expenses

     (714     (437     (511

Amortization of intangibles

     (217     (225     (210

Gains on divestitures, net

     107                 

Acquisition-related costs

     (1            (218
  

 

 

   

 

 

   

 

 

 

Operating income

     3,637        3,498        2,496   

Interest and other expense, net

     (1,863     (1,618     (1,770
  

 

 

   

 

 

   

 

 

 

Earnings from continuing operations before income taxes

   $ 1,774      $ 1,880      $ 726   
  

 

 

   

 

 

   

 

 

 

As discussed in Note 16, Segment Reporting, we use segment operating income to evaluate segment performance and allocate resources. We believe it is appropriate to disclose this measure to help investors analyze segment performance and trends. Segment operating income excludes unrealized gains and losses on hedging activities (which are a component of cost of sales), certain components of our U.S. pension plan cost (which are a component of cost of sales and selling, general and administrative expenses), general corporate expenses (which are a component of selling, general and administrative expenses), amortization of intangibles, gains and losses on divestitures and acquisition-related costs (which are a component of selling, general and administrative expenses) in all periods presented. We exclude the unrealized gains and losses on hedging activities from segment operating income in order to provide better transparency of our segment operating results. Once realized, the gains and losses on hedging activities are recorded within segment operating results. We exclude certain components of our U.S. pension plan cost from segment operating income because we centrally manage pension plan funding decisions and the determination of discount rate, expected rate of return on plan assets and other actuarial assumptions. Therefore, we allocate only the service cost component of our U.S. pension plan expense to segment operating income. We exclude general corporate expenses, amortization of intangibles, gains and losses on divestitures and acquisition-related costs from segment operating income in order to provide better transparency of our segment operating results.

 

32


Table of Contents

On February 8, 2013, the Venezuelan government announced the devaluation of the official Venezuelan bolivar exchange rate from 4.30 bolivars to 6.30 bolivars to the U.S. dollar and the elimination of the second-tier, government-regulated SITME exchange rate previously applied to value certain types of transactions. The impact of these announced changes resulted in a one-time $30 million unfavorable foreign currency impact which we will record within our Latin America operating segment in the first quarter of 2013. We began accounting for the results of our Venezuelan subsidiaries in U.S. dollars on January 1, 2010, as prescribed under U.S. GAAP for highly inflationary economies. We use the official Venezuelan bolivar exchange rate to translate the results of our Venezuelan operations into U.S. dollars. During 2012 and 2011, we recorded immaterial foreign currency impacts in connection with highly inflationary accounting for Venezuela. In 2010, we recorded $115 million of unfavorable foreign currency impacts including a one-time $34 million charge upon adopting highly inflationary accounting for Venezuela.

In 2012, we divested property of a Developing Markets subsidiary located in Russia for $72 million in net proceeds and recorded a $55 million pre-tax gain within selling, general and administrative expenses.

In 2012, net changes in unrealized gains / (losses) on hedging activities were favorable, primarily related to gains on foreign currency contracts and commodity hedging activity of $1 million. In 2011, net changes in unrealized gains / (losses) on hedging activities were unfavorable, primarily related to losses on foreign currency contracts and commodity hedging activity of $36 million. In 2010, net changes in unrealized gains / (losses) on hedging activities were favorable, primarily related to gains on foreign currency contracts and commodity hedging activity of $38 million.

In connection with our 2012-2014 Restructuring Program, during 2012 we recorded restructuring charges of $102 million in operations, as a part of asset impairment and exit costs and implementation costs of $8 million in operations, as a part of cost of sales and selling, general and administrative expenses. These charges were recorded primarily within our North America segment.

In 2012, we recorded a $44 million benefit within our Europe segment related to the reversal of reserves carried over from the Cadbury acquisition in 2010 which was subsequently determined to not be required.

We recorded Integration Program charges of $185 million in 2012, $521 million in 2011 and $646 million in 2010. During 2012, we reversed $45 million of Integration Program charges previously accrued in 2010 primarily related to planned and announced position eliminations that did not occur within our Europe segment. We recorded charges in the Integration Program in operations, as a part of selling, general and administrative expenses primarily within our Europe and Developing Markets segments, as well as within general corporate expenses.

The 2012 increase in general corporate expenses was due primarily to $407 million of Spin-Off Costs recorded within general corporate expenses, partially offset by lower Integration Program costs. The 2011 decrease in general corporate expenses was due primarily to lower Integration Program costs in 2011. In 2010, general corporate expenses included $155 million of Integration Program costs, as well as the addition of Cadbury’s corporate charges.

In 2012, we received $200 million in proceeds and recorded pre-tax gains of $107 million primarily related to the divestitures in Germany, Belgium and Italy. In 2011, there were no significant divestitures. In 2010, we divested businesses in Poland and Romania in connection with the acquisition of Cadbury, and reflected the impacts of these divestitures as adjustments to the Cadbury purchase price allocations.

In 2010, we acquired Cadbury and incurred $218 million of acquisition-related costs which was recorded within selling, general and administrative expenses.

The 2012 increase in interest and other expense, net was due primarily to $609 million of Spin-Off Costs recorded within interest expense, partially offset by a 2011 loss of $157 million related to several interest rate swaps that were settled in 2011, as well as lower long-term debt interest expense. The 2011 decrease in interest and other expense, net was due primarily to $251 million of acquisition-related financing fees recorded in 2010, partially offset by the loss of $157 million related to several interest rate swaps that settled in 2011.

 

33


Table of Contents

Developing Markets

 

                                                                           
     For the Years Ended
December 31,
               
     2012      2011      $ change      % change  
     (in millions)                

Net revenues

   $ 15,655       $ 15,621       $ 34         0.2%   

Segment operating income

     2,067         2,003         64         3.2%   

 

                                                                           
     For the Years Ended
December 31,
               
     2011      2010      $ change      % change  
     (in millions)                

Net revenues

   $ 15,621       $ 13,420       $ 2,201         16.4%   

Segment operating income

     2,003         1,533         470         30.7%   

2012 compared with 2011:

Net revenues increased $34 million (0.2%), due to higher net pricing (5.1 pp) and favorable volume/mix (1.9 pp), mostly offset by unfavorable foreign currency (5.6 pp) and the impact of prior year’s accounting calendar changes (1.2 pp). In Central and Eastern Europe, net revenues decreased driven by unfavorable foreign currency and the impact of prior year’s accounting calendar changes (including the 53rd week of shipments in 2011), partially offset by higher net pricing across most of the region and favorable volume/mix. In Middle East and Africa, net revenues increased driven by favorable volume/mix and higher net pricing across most of the region, partially offset by unfavorable foreign currency and the impact of prior year’s accounting calendar changes. In Latin America, net revenues decreased driven by unfavorable foreign currency, unfavorable volume/mix primarily in Mexico and Venezuela and the impact of prior year’s accounting calendar changes, partially offset by higher net pricing across the region. In Asia Pacific, net revenues increased due to higher net pricing across most of the region, favorable volume/mix primarily in China, Southeast Asia and Australia/New Zealand, partially offset by unfavorable foreign currency.

Segment operating income increased $64 million (3.2%), due primarily to higher net pricing, favorable volume/mix, lower Integration Program costs and a gain on the sale of a property in Russia, partially offset by higher raw material costs, higher advertising and consumer promotion costs, unfavorable foreign currency, an asset impairment charge related to a trademark in Japan, higher other selling, general and administrative expenses, higher manufacturing costs, Spin-Off Costs incurred, the impact from prior year’s accounting calendar changes and costs incurred for the 2012-2014 Restructuring Program.

2011 compared with 2010:

Net revenues increased $2,201 million (16.4%), due to higher net pricing (7.4 pp), favorable volume/mix (4.0 pp), favorable foreign currency (3.0 pp), our Cadbury acquisition (2.8 pp), and the impact of accounting calendar changes (including the 53rd week of shipments in 2011) (0.1 pp), partially offset by the impact of the 2010 divestiture of certain Cadbury confectionery operations in Poland and Romania (0.9 pp). In Central and Eastern Europe, net revenues increased, driven by higher net pricing across the region, the impact of accounting calendar changes (including the 53rd week of shipments in 2011), favorable foreign currency and our Cadbury acquisition, partially offset by the impact of divestitures and unfavorable volume/mix. In Middle East and Africa, net revenues increased, driven by higher net pricing across the region, our Cadbury acquisition, favorable volume/mix and the impact of accounting calendar changes, partially offset by unfavorable foreign currency. In Latin America, net revenues increased, driven by higher net pricing across the region, favorable volume/mix across most of the region, our Cadbury acquisition and favorable foreign currency, partially offset by the impact of accounting calendar changes. In Asia Pacific, net revenues increased, due primarily to favorable volume/mix, favorable foreign currency, our Cadbury acquisition and higher net pricing across most of the region, partially offset by the impact of accounting calendar changes.

Segment operating income increased $470 million (30.7%), due primarily to higher net pricing, favorable volume/mix, favorable foreign currency, our Cadbury acquisition due to the incremental January 2011 operating results, 2010 asset impairment charges related to trademarks in China, lower acquisition-related costs and lower Integration Program costs. These favorable variances were partially offset by higher raw material costs, higher manufacturing costs, higher other selling, general and administrative expenses (net of a gain on the sale of land) and higher advertising and consumer promotion costs.

 

34


Table of Contents

Europe

 

                                                                           
     For the Years Ended
December 31,
              
     2012      2011      $ change     % change  
     (in millions)               

Net revenues

   $ 12,457       $ 13,356       $ (899     (6.7%

Segment operating income

     1,613         1,406         207        14.7%   

 

                                                                           
     For the Years Ended
December 31,
               
     2011      2010      $ change      % change  
     (in millions)                

Net revenues

   $ 13,356       $ 11,628       $ 1,728         14.9%   

Segment operating income

     1,406         1,115         291         26.1%   

2012 compared with 2011:

Net revenues decreased $899 million (6.7%), due to unfavorable foreign currency (5.3 pp), the impact of prior year’s accounting calendar changes (including the 53rd week of shipments in 2011) (3.4 pp) and the impact of divestitures (0.3 pp), partially offset by favorable volume/mix (1.5 pp) and higher net pricing (0.8 pp). Unfavorable foreign currency was due to the strength of the U.S. dollar relative to most foreign currencies, primarily the euro, British pound sterling, Swedish krona and Swiss Franc. Favorable volume/mix was driven primarily by higher shipments in chocolate, biscuits and coffee, partially offset by lower shipments in cheese & grocery and gum & candy. Higher net pricing was reflected across all categories except chocolate.

Segment operating income increased $207 million (14.7%), due primarily to lower Integration Program costs (including the $45 million reversal of Integration Program charges previously accrued in 2010 primarily related to planned and announced position eliminations that did not occur upon concluding the majority of local workers council negotiations in April 2012), lower manufacturing costs, higher net pricing, lower other selling, general and administrative expenses (which includes a $44 million benefit related to the reversal of reserves not required carried over from the Cadbury acquisition in 2010), and favorable volume/mix, partially offset by higher advertising and consumer promotion costs, higher raw material costs, unfavorable foreign currency, the impact of prior year’s accounting calendar changes (including the 53rd week of shipments in 2011) and costs incurred for the 2012-2014 Restructuring Program.

2011 compared with 2010:

Net revenues increased $1,728 million (14.9%), due to favorable foreign currency (5.5 pp), higher net pricing (4.4 pp), the impact of accounting calendar changes (including the 53rd week of shipments) (3.0 pp), our Cadbury acquisition (1.8 pp) and favorable volume/mix (0.2 pp). Favorable foreign currency was due to the strength of most foreign currencies relative to the U.S. dollar, primarily the euro, Swedish krona, British pound sterling and Swiss franc. Higher net pricing was reflected across all major categories except gum & candy. Favorable volume/mix was due primarily to higher shipments in biscuits and chocolate, partially offset by lower shipments in coffee, cheese & grocery and gum & candy.

Segment operating income increased $291 million (26.1%), due primarily to higher net pricing, lower manufacturing costs, lower other selling, general and administrative expenses, favorable foreign currency, the impact of accounting calendar changes (including the 53rd week of shipments), the absence of asset impairment charges recorded in 2010, our Cadbury acquisition due to the incremental January 2011 operating results, lower acquisition-related costs, lower advertising and consumer promotion costs and favorable volume/mix. These favorable factors were partially offset by higher raw material costs and lower reversal of prior years’ restructuring program costs.

 

35


Table of Contents

North America

 

                                                                           
     For the Years Ended
December 31,
               
     2012      2011      $ change      % change  
     (in millions)                

Net revenues

   $ 6,903       $ 6,833       $ 70         1.0%   

Segment operating income

     873         863         10         1.2%   

 

                                                                           
     For the Years Ended
December 31,
               
     2011      2010      $ change      % change  
     (in millions)                

Net revenues

   $ 6,833       $ 6,441       $ 392         6.1%   

Segment operating income

     863         805         58         7.2%   

2012 compared with 2011:

Net revenues increased $70 million (1.0%), due to higher net pricing (3.6 pp), partially offset by unfavorable volume/mix (1.2 pp), the impact of prior year’s 53rd week of shipments (1.0 pp), the impact of divestitures (0.2 pp) and unfavorable foreign currency (0.2 pp). In the U.S., net revenues increased due to higher net pricing, partially offset by the impact of prior year’s 53rd week of shipments, unfavorable volume/mix including the impact of package size changes primarily in biscuits and the impact of divestitures. Higher net pricing was reflected primarily in biscuits. In Canada, net revenues decreased due to unfavorable volume/mix, unfavorable foreign currency and the impact of prior year’s 53rd week of shipments, partially offset by higher net pricing. Unfavorable volume/mix was due primarily to lower shipments in chocolate and gum & candy as well as the completion of a co-manufacturing agreement from a previous divestiture, partially offset by higher shipments in biscuits. Higher net pricing was reflected primarily in biscuits and chocolate.

Segment operating income increased $10 million (1.2%), due primarily to higher net pricing, lower Integration Program costs and lower manufacturing costs, partially offset by higher raw material costs, costs incurred for the 2012-2014 Restructuring Program, unfavorable volume/mix, higher advertising and consumer promotion costs, higher other selling, general and administrative expenses and the impact of the prior year’s 53rd week of shipments.

2011 compared with 2010:

Net revenues increased $392 million (6.1%), due to higher net pricing (3.5 pp), our Cadbury acquisition (1.8 pp), the impact of the 53rd week of shipments (1.1 pp) and favorable foreign currency (0.7 pp), partially offset by unfavorable volume/mix (1.0 pp). In the U.S., net revenues increased, due to higher net pricing, our Cadbury acquisition and the impact of the 53rd week of shipments, partially offset by unfavorable volume/mix. Higher net pricing was reflected across all categories. Unfavorable volume/mix was due primarily to lower shipments in gum & candy, partially offset by higher shipments in biscuits. In Canada, net revenues increased, driven primarily by favorable foreign currency, our Cadbury acquisition, the impact of the 53rd week of shipments and higher net pricing, partially offset by unfavorable volume/mix. Higher net pricing was reflected primarily in biscuits. Unfavorable volume/mix was due primarily to lower shipments in chocolate and biscuits.

Segment operating income increased $58 million (7.2%), due to higher net pricing, lower other selling, general and administrative expenses, our Cadbury acquisition due to the incremental January 2011 operating results, the impact of the 53rd week of shipments, favorable foreign currency, lower acquisition-related costs and lower advertising and consumer promotion costs, partially offset by higher raw material costs, higher manufacturing costs, unfavorable volume/mix, and higher Integration Program costs.

 

36


Table of Contents

Critical Accounting Policies

Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements includes a summary of the significant accounting policies we used to prepare our consolidated financial statements. We have discussed the selection and disclosure of our critical accounting policies and estimates with our Audit Committee. The following is a review of the more significant assumptions and estimates, as well as the accounting policies we used to prepare our consolidated financial statements.

Principles of Consolidation:

The consolidated financial statements include Mondelēz International, as well as our wholly owned and majority owned subsidiaries. The majority of our operating subsidiaries report results as of the last Saturday of the year. A portion of our international operating subsidiaries report results as of the last calendar day. In 2011, the last Saturday of the year fell on December 31, so our 2011 results included one more week of operating results (“53rd week”) than 2012 or 2010, which each had 52 weeks.

In 2011, we changed the consolidation date for certain operations of our Europe segment and in the Latin America, Central and Eastern Europe (“CEE”) and Middle East and Africa (“MEA”) regions within our Developing Markets segment. Previously, these operations primarily reported results two weeks prior to the end of the period. Subsequent to the 2011 changes, our Europe segment reports results as of the last Saturday of each period. Certain operations within our Developing Markets segment now report results as of the last calendar day of the period or the last Saturday of the period. These changes and the 53rd week in 2011 resulted in a favorable impact to net revenues of $679 million and a favorable impact of $93 million to operating income in 2011.

In 2010, we changed the consolidation date for certain European biscuits operations, which are included within our Europe segment, and certain operations in Asia Pacific and Latin America within our Developing Markets segment. Previously, these operations primarily reported period-end results one month or two weeks prior to the end of the period. Europe moved the reporting of these operations to two weeks prior to the end of the period, and Asia Pacific and Latin America moved the reporting of these operations to the last day of the period. These changes resulted in a favorable impact to net revenues of $193 million and a favorable impact of $23 million to operating income in 2010.

We believe these changes are preferable and will improve business planning and financial reporting by better matching the close dates of the operating subsidiaries within our Europe and Developing Markets segments and by bringing the reporting dates closer to the period-end date. As the effect to prior-period results was not material, we have not revised prior-period results.

We account for investments in which we exercise significant influence (20%-50% ownership interest) under the equity method of accounting. We use the cost method of accounting for investments in which we have an ownership interest of less than 20% and in which we do not exercise significant influence. Noncontrolling interest in subsidiaries consists of the equity interest of noncontrolling investors in consolidated subsidiaries of Mondelēz International. All intercompany transactions are eliminated.

Use of Estimates:

We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect a number of amounts in our consolidated financial statements. Significant accounting policy elections, estimates and assumptions include, among others, pension and benefit plan assumptions, valuation assumptions of goodwill and intangible assets, useful lives of long-lived assets, marketing program accruals, insurance and self-insurance reserves and income taxes. We base our estimates on historical experience and other assumptions that we believe are reasonable. If actual amounts differ from estimates, we include the revisions in our consolidated results of operations in the period in which we know the actual amounts. Historically, the aggregate differences, if any, between our estimates and actual amounts in any year have not had a material effect on our consolidated financial statements.

Inventories:

Inventories are stated at the lower of cost or market. We value all our inventories using the average cost method. We also record inventory allowances for overstocked and obsolete inventories due to ingredient and packaging changes.

 

37


Table of Contents

Long-Lived Assets:

We review long-lived assets, including amortizable intangible assets, for impairment when conditions exist that indicate the carrying amount of the assets may not be fully recoverable. We perform undiscounted operating cash flow analyses to determine if an impairment exists. When testing for impairment of assets held for use, we group assets and liabilities at the lowest level for which cash flows are separately identifiable. If an impairment is determined to exist, the loss is calculated based on estimated fair value. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

In 2012, we recorded impairment charges of $18 million within the 2012-2014 Restructuring Program. We did not record any asset impairments in 2011. In 2010, we recorded an impairment of $12 million for certain property, plant and equipment in a biscuit plant in France.

Goodwill and Non-Amortizable Intangible Assets:

We test goodwill and non-amortizable intangible assets for impairment at least annually on October 1. We assess goodwill impairment risk by first performing a qualitative review of entity-specific, industry, market and general economic factors for each reporting unit. If significant potential goodwill impairment risk exists for a specific reporting unit, we apply a two-step quantitative test. The first step compares the reporting unit’s estimated fair value with its carrying value. We estimate a reporting unit’s fair value using a 20-year projection of discounted cash flows which incorporates planned growth rates, market-based discount rates and estimates of residual value. For reporting units within our North America and Europe geographic units, we used a market-based, weighted-average cost of capital of 6.3% to discount the projected cash flows of those operations. For reporting units within our Developing Markets geographic unit, we used a risk-rated discount rate of 9.3%. Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, industry and economic conditions. Our actual results and conditions may differ over time. If the carrying value of a reporting unit’s net assets exceeds its fair value, the second step is applied to measure the difference between the carrying value and implied fair value of goodwill. If the carrying value of goodwill exceeds its implied fair value, the goodwill is considered impaired and reduced to its implied fair value.

In 2012, 2011 and 2010, there were no impairments of goodwill. In connection with our 2012 annual impairment testing, we noted two reporting units which were more sensitive to near-term changes in discounted cash flow assumptions: U.S. Confections with $2,177 million of goodwill as of December 31, 2012 and fair value in excess of its carrying value of net assets of 9% and Europe Biscuits with $2,569 million of goodwill as of December 31, 2012 and fair value in excess of its carrying value of net assets of 16%. While the reporting units passed the first step of the impairment test, if the segment operating income or another valuation assumption for either reporting unit were to deteriorate significantly in the future, it could adversely affect the estimated fair value. If we are unsuccessful in our plans to increase the profitability of these businesses, the estimated fair values could fall further and lead to a potential goodwill impairment in the future.

We test non-amortizable intangible assets for impairment by first performing a qualitative review by assessing events and circumstances that could affect the fair value or carrying value of the indefinite-lived intangible asset. If significant potential impairment risk exists for a specific non-amortizable intangible asset, we quantitatively test for impairment by comparing the fair value of each intangible asset with its carrying value. Fair value of non-amortizable intangible assets is determined using planned growth rates, market-based discount rates and estimates of royalty rates. If the carrying value of the asset exceeds its fair value, the intangible asset is considered impaired and is reduced to its estimated fair value. We record intangible asset impairment charges within asset impairment and exit costs.

During our 2012 review of non-amortizable intangible assets, we recorded $52 million of charges related to a trademark on a Japanese chewing gum product within our Developing Markets segment which had significantly lower revenue. The fair value of the intangible asset was determined under a relief of royalty valuation, which models the cash flows from the trademark assuming royalties were received under a licensing arrangement. The charge was calculated as the excess of the carrying value of the intangible asset over its estimated fair value and was recorded within asset impairment and exit costs. During our 2011 review, there were no impairments of non-amortizable intangible assets. During our 2010 review, we recorded a $13 million charge for the impairment of intangible assets in the Netherlands and a $30 million charge for the impairment of intangible assets in China.

Insurance and Self-Insurance:

We use a combination of insurance and self-insurance for a number of risks, including workers’ compensation, general liability, automobile liability, product liability and our obligation for employee health care benefits. We estimate the liabilities associated with these risks by evaluating and making judgments about historical claims experience and other actuarial assumptions and the estimated impact on future results.

 

38


Table of Contents

Revenue Recognition:

We recognize revenues when title and risk of loss pass to customers, which generally occurs upon shipment or delivery of goods. Revenues are recorded net of consumer incentives and trade promotions and include all shipping and handling charges billed to customers. Our shipping and handling costs are classified as part of cost of sales. Provisions for product returns and customer allowances are also recorded as reductions to revenues within the same period that the revenue is recognized.

Marketing and Research and Development:

We promote our products with advertising, consumer incentives and trade promotions. These programs include, but are not limited to, discounts, coupons, rebates, in-store display incentives and volume-based incentives. We expense advertising costs either in the period the advertising first takes place or as incurred. Consumer incentive and trade promotion activities are recorded as a reduction to revenues based on amounts estimated due to customers and consumers at the end of a period. We base these estimates principally on historical utilization and redemption rates. For interim reporting purposes, advertising and consumer incentive expenses are charged to operations as a percentage of volume, based on estimated volume and related expense for the full year. We do not defer costs on our year-end consolidated balance sheet and all marketing costs are recorded as an expense in the year incurred. Advertising expense was $1,815 million in 2012, $1,860 million in 2011, and $1,729 million in 2010. We expense product research and development costs as incurred. Research and development expense was $462 million in 2012, $511 million in 2011, and $404 million in 2010. We record marketing and research and development expenses within selling, general and administrative expenses.

Environmental Costs:

Throughout the countries in which we do business, we are subject to local, national and multi-national environmental laws and regulations relating to the protection of the environment. We have programs across our business units designed to meet applicable environmental compliance requirements.

In the United States, the laws and regulations include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). CERCLA imposes joint and severable liability on each potentially responsible party. As of December 31, 2012, our subsidiaries were involved in one active proceeding in the U.S. under a state equivalent of CERCLA related to our current operations. As of December 31, 2011, our subsidiaries were involved in 68 active actions. Except for the one active proceeding we retained, all the remaining active actions relate to and were retained by the divested Kraft Foods Group business.

As of December 31, 2012, we accrued an immaterial amount for environmental remediation. Based on information currently available, we believe that the ultimate resolution of existing environmental remediation actions and our compliance in general with environmental laws and regulations will not have a material effect on our financial results.

Employee Benefit Plans:

We provide a range of benefits to our current and retired employees. Depending on jurisdictions, tenure, presence of a union, job level and other factors, these include pension benefits, postretirement health care benefits and postemployment benefits, consisting primarily of severance. We record amounts relating to these plans based on calculations specified by U.S. GAAP. These calculations require the use of various actuarial assumptions, such as discount rates, assumed rates of return on plan assets, compensation increases, turnover rates and health care cost trend rates. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate. As permitted by U.S. GAAP, we generally amortize any effect of the modifications over future periods. We believe that the assumptions used in recording our plan obligations are reasonable based on our experience and advice from our actuaries. Refer to Note 10, Benefit Plans, to the consolidated financial statements for a discussion of the assumptions used.

In connection with the Spin-Off, we transferred to Kraft Foods Group, the plan liabilities and assets associated with the Kraft Foods Group active and retired employees and certain of our retired employees that previously participated in our North American benefit plans. At October 1, 2012, we transferred benefit plan liabilities of $12,218 million, pension plan assets of $6,550 million, accumulated other comprehensive losses, net of tax, of $3,810 million and $2,146 million of related deferred tax assets. We also expect annual pension expenses to decrease by $91 million in connection with certain of our North American benefit plan obligations which were transferred to Kraft Foods Group in the Spin-Off.

 

39


Table of Contents

We recorded the following amounts in earnings from continuing operations for these employee benefit plans during the years ended December 31, 2012, 2011 and 2010:

 

                                                        
     2012      2011      2010  
     (in millions)  

U.S. pension plan cost

   $ 168       $ 118       $ 92   

Non-U.S. pension plan cost

     220         180         188   

Postretirement health care cost

     84         66         66   

Postemployment benefit plan cost

     15         49         13   

Employee savings plan cost

     74         62         56   

Multiemployer pension plan contributions

     28         27         27   

Multiemployer medical plan contributions

     18         16         17   
  

 

 

    

 

 

    

 

 

 

Net expense for employee benefit plans

   $ 607       $ 518       $ 459   
  

 

 

    

 

 

    

 

 

 

The 2012 net expense for employee benefit plans of $607 million increased by $89 million over the 2011 amount, primarily related to higher amortization of the net loss from experience differences related to the U.S. and non-U.S. pension plans. The 2011 net expense for employee benefit plans of $518 million increased by $59 million over the 2010 amount, primarily related to higher amortization of the net loss from experience differences related to the U.S. pension plans and the incorporation of a Canadian postemployment plan into our obligations.

We expect our 2013 net expense for employee benefit plans to decrease by approximately $66 million. The decrease is primarily due to non-recurring costs in 2012 related primarily to certain benefit plan obligations transferred to Kraft Foods Group in the Spin-Off and other 2012 one-time costs, partially offset by increased benefit plan expenses in 2013 due to lower discount rates.

In 2012, other comprehensive losses included $2,266 million of net actuarial pre-tax losses primarily related to the decrease in the discount rate utilized to determine our pension plan benefit obligations at December 31, 2012 (65 basis point decrease for U.S. plans and 81 basis point decrease for non-U.S. plans) and the decrease in the discount rate utilized to determine our postretirement benefit obligations at December 31, 2012 (50 basis point decrease for U.S. plans and 21 basis point decrease for our non-U.S. plans). In 2011, other comprehensive losses included $2,333 million of net actuarial pre-tax losses primarily related to the decrease in the discount rate utilized to determine our pension plan benefit obligations at December 31, 2011 (68 basis point decrease for U.S. plans and 49 basis point decrease for non-U.S. plans), unfavorable differences between our expected and actual return on pension plan assets and the decrease in the discount rate utilized to determine our postretirement benefit obligations at December 31, 2011 (60 basis point decrease for U.S. plans and 73 basis point decrease for our non-U.S. plans). In 2010, other comprehensive earnings included $361 million of net actuarial pre-tax losses primarily related to the decrease in the discount rate utilized to determine our pension plan benefit obligations at December 31, 2010 (40 basis point decrease for U.S. plans and 10 basis point decrease for non-U.S. plans) and the decrease in the discount rate utilized to determine our postretirement benefit obligations at December 31, 2010 (40 basis point decrease for U.S. plans and 23 basis point decrease for our non-U.S. plans), partially offset by favorable differences between our expected and actual return on pension plan assets.

In 2012, we contributed $349 million to our U.S. pension plans (including $202 million related to Kraft Foods Group U.S. pension plans) and $329 million to our non-U.S. pension plans (including $42 million related to Kraft Foods Group non-U.S. pension plans). In addition, employees contributed $24 million to our non-U.S. plans. Of our 2012 pension contributions, $315 million was voluntary (including $185 million related to Kraft Foods Group pension plans). We make contributions to our U.S. and non-U.S. pension plans, primarily, to the extent that they are tax deductible and do not generate an excise tax liability.

In 2013, we estimate that our pension contributions will be $8 million to our U.S. plans and $309 million to our non-U.S. plans based on current tax laws. We are currently only required to make a nominal cash contribution to our U.S. qualified pension plans under the Pension Protection Act of 2006. Of the total 2013 pension contributions, none is expected to be voluntary. Our actual contributions may be different due to many factors, including changes in tax and other benefit laws; significant differences between expected and actual pension asset performance or interest rates; or other factors.

For salaried and non-union hourly employees hired in the U.S. after January 1, 2009, we discontinued benefits under our U.S. pension plans, and we replaced them with an enhanced company contribution to our employee savings plan. Additionally, we will be freezing the U.S. pension plans for current salaried and non-union hourly employees effective December 31, 2019.

 

40


Table of Contents

For our postretirement plans, our 2013 health care cost trend rate assumption increased to 7.50% from 7.00% for our U.S. postretirement plans and increased to 7.68% from 7.42% for our non-U.S. postretirement plans. We established these rates based upon our most recent experience as well as our expectation for health care trend rates going forward. We anticipate that our health care cost trend rate assumption will be 5.00% for U.S. plans by 2018 and 5.58% for non-U.S. plans by 2018. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects on our costs and obligation as of December 31, 2012:

 

                                     
     One-Percentage-Point  
     Increase      Decrease  

Effect on total of service and interest cost

     13.8%         (11.2%

Effect on postretirement benefit obligation

     16.8%         (13.4%

Our 2013 discount rate assumption decreased to 4.20% from 4.70% for our U.S. postretirement plans and decreased to 4.08% from 4.29% for our non-U.S. postretirement plans. Our 2013 discount rate decreased to 4.20% from 4.85% for our U.S. pension plans. We model these discount rates using a portfolio of high quality, fixed-income debt instruments with durations that match the expected future cash flows of the benefit obligations. Our 2013 discount rate assumption for our non-U.S. pension plans decreased to 3.81% from 4.62%. We developed the discount rates for our non-U.S. plans from local bond indices that match local benefit obligations as closely as possible. Changes in our discount rates were primarily the result of changes in bond yields year-over-year.

Our 2013 expected rate of return on plan assets decreased to 7.75% from 8.00% for our U.S. pension plans. We determine our expected rate of return on plan assets from the plan assets’ historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class. We attempt to maintain our target asset allocation by rebalancing between asset classes as we make contributions and monthly benefit payments. Our 2013 expected rate of return on plan assets decreased to 6.08% from 6.47% for our non-U.S. pension plans. We determine our expected rate of return on plan assets from the plan assets’ historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class.

While we do not anticipate further changes in the 2013 assumptions for our U.S. and non-U.S. pension and postretirement health care plans, as a sensitivity measure, a fifty-basis point change in our discount rates or the expected rate of return on plan assets would have the following effects, increase / (decrease) in cost, as of December 31, 2012:

 

                                                                           
     U.S. Plans      Non-U.S. Plans  
     Fifty-Basis-Point      Fifty-Basis-Point  
     Increase     Decrease      Increase     Decrease  
     (in millions)  

Effect of change in discount rate on
pension costs

   $ (13   $ 14       $ (43   $ 68   

Effect of change in expected rate of
return on plan assets on pension costs

     (4     4         (32     32   

Effect of change in discount rate on
postretirement health care costs

     (3     3         (1     1   

Financial Instruments:

We use certain financial instruments to manage our foreign currency exchange rate, commodity price and interest rate risks. We monitor and manage these exposures as part of our overall risk management program which focuses on the unpredictability of financial markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on our operating results. A principal objective of our risk management strategies is to reduce significant, unanticipated earnings fluctuations that may arise from volatility in foreign currency exchange rates, commodity prices and interest rates, principally through the use of derivative instruments.

We use a combination of primarily foreign currency forward contracts, futures, options and swaps; commodity forward contracts, futures and options; and interest rate swaps to manage our exposure to cash flow variability, protect the value of our existing foreign currency assets and liabilities and protect the value of our debt. See Note 1, Summary of Significant Accounting Policies, and Note 9, Financial Instruments, to the consolidated financial statements for more information on the types of derivative instruments we use.

 

41


Table of Contents

We record derivative financial instruments at fair value in our consolidated balance sheets within other current assets or other current liabilities due to their relatively short-term duration. Cash flows from derivative instruments are classified in the consolidated statements of cash flows based on the nature of the derivative instrument. Changes in the fair value of a derivative that is designated as a cash flow hedge, to the extent that the hedge is effective, are recorded in accumulated other comprehensive earnings / (losses) and reclassified to earnings when the hedged item affects earnings. Changes in fair value of economic hedges and the ineffective portion of all hedges are recognized in current period earnings. Changes in the fair value of a derivative that is designated as a fair value hedge, along with the changes in the fair value of the related hedged asset or liability, are recorded in earnings in the same period. We use foreign currency denominated debt to hedge a portion of our net investment in foreign operations against adverse movements in exchange rates, with changes in the value of the debt recorded within currency translation adjustment in accumulated other comprehensive earnings / (losses).

In order to qualify for hedge accounting, a specified level of hedging effectiveness between the derivative instrument and the item being hedged must exist at inception and throughout the hedged period. We must also formally document the nature of and relationship between the derivative and the hedged item, as well as our risk management objectives, strategies for undertaking the hedge transaction and method of assessing hedge effectiveness. Additionally, for a hedge of a forecasted transaction, the significant characteristics and expected term of the forecasted transaction must be specifically identified, and it must be probable that the forecasted transaction will occur. If it is no longer probable that the hedged forecasted transaction will occur, we would recognize the gain or loss related to the derivative in earnings.

When we use derivatives, we are exposed to credit and market risks. Credit risk exists when a counterparty to a derivative contract might fail to fulfill its performance obligations under the contract. We minimize our credit risk by entering into transactions with counterparties with high quality, investment grade credit ratings, limiting the amount of exposure with each counterparty and monitoring the financial condition of our counterparties. We also maintain a policy of requiring that all significant, non-exchange traded derivative contracts with a duration of one year or longer are governed by an International Swaps and Derivatives Association master agreement. Market risk exists when the value of a derivative or other financial instrument might be adversely affected by changes in market conditions and foreign currency exchange rates, commodity prices, or interest rates. We manage market risk by limiting the types of derivative instruments and derivative strategies we use and the degree of market risk that we plan to hedge through the use of derivative instruments.

Income Taxes:

We recognize tax benefits in our financial statements when uncertain tax positions are assessed more likely than not to be sustained upon audit. The amount we recognize is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

We recognize deferred tax assets for deductible temporary differences, operating loss carryforwards and tax credit carryforwards. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

Contingencies

See Note 12, Commitments and Contingencies, to the consolidated financial statements.

New Accounting Guidance

See Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements for a discussion of new accounting standards.

 

42


Table of Contents

Commodity Trends

We purchase large quantities of commodities, including sugar and other sweeteners, coffee, cocoa, wheat, corn products, soybean and vegetable oils and dairy. In addition, we use significant quantities of packaging materials to package our products and natural gas, fuels and electricity for our factories and warehouses. We regularly monitor worldwide supply and cost trends of these commodities so we can act quickly to obtain ingredients and packaging needed for production.

Significant cost items in biscuit, chocolate, gum & candy and many powdered beverage products are sugar and cocoa. We purchase sugar and cocoa on world markets, and the prices of these commodities are affected by the quality and availability of supply and changes in foreign currencies. Significant cost items in our biscuit products are grains (wheat, corn and soybean oil). Grain costs have experienced volatility and have increased significantly in recent years due largely to burgeoning global demand for food, livestock feed and biofuels such as ethanol and biodiesel and other factors such as weather. The most significant cost item in coffee products is green coffee beans which we purchase on world markets as well as from local grower cooperatives. Green coffee bean prices are affected by the quality and availability of supply, changes in the value of the U.S. dollar in relation to certain other currencies and consumer demand for coffee products. Significant cost items in packaging include cardboards, resins and plastics and our energy costs include natural gas, electricity and diesel fuel. We purchase these packaging and energy commodities on world markets and within the countries we operate, and the prices are affected by supply and changes in foreign currencies.

During 2012, our aggregate commodity costs increased primarily as a result of increased packaging, energy, grains and oil costs. We expect the price volatility and a slightly higher cost environment to continue over the remainder of 2013. We have addressed higher commodity costs primarily through higher pricing, lower manufacturing costs due to our end-to-end cost management program and overhead cost control. We expect to continue to use these measures to address further commodity cost increases.

External factors such as weather conditions, commodity market conditions, currency fluctuations and the effects of governmental agricultural programs affect the prices for raw materials and agricultural materials used in our products. We use hedging techniques to limit the impact of price fluctuations in our principal raw materials. However, we do not fully hedge against changes in commodity prices, and these strategies may not protect us from increases in specific raw material costs. While the prices of our principal raw materials can be expected to fluctuate, we believe there will continue to be an adequate supply of the raw materials we use and that they will generally remain available from numerous sources.

 

43


Table of Contents

Liquidity and Capital Resources

We believe that our cash from operations, our existing $4.5 billion revolving credit facility (which supports our commercial paper program) and our authorized long-term financing will provide sufficient liquidity to meet our working capital needs, planned capital expenditures, future contractual obligations and payment of our anticipated quarterly dividends. We continue to maintain investment grade credit ratings on our debt. We continue to utilize our commercial paper program and primarily uncommitted international credit lines for regular funding requirements. We also use intercompany loans with foreign subsidiaries to improve financial flexibility. Overall, we do not expect any negative effects to our funding sources that would have a material effect on our liquidity, including the permanent reinvestment of our foreign earnings.

Net Cash Provided by Operating Activities:

Operating activities provided net cash of $3,923 million in 2012, $4,520 million in 2011 and $3,748 million in 2010. The decrease in operating cash flows in 2012 was primarily related to higher spending associated with Spin-Off Costs and the 2012-2014 Restructuring Program, partially offset by lower net working capital costs (primarily related to favorable inventory positions due to higher inventory costs in 2011 and favorable accounts payable positions, partially offset by increased receivables). The increase in operating cash flows in 2011 is primarily related to increased earnings and the absence of tax payments in the prior year in connection with Kraft Foods Group’s Frozen Pizza divestiture, partially offset by higher working capital (mainly higher inventory costs, increased interest payments and increased Integration Program spending) and a $495 million voluntary contribution to our U.S. pension plans.

Net Cash Used in Investing Activities:

Net cash used in investing activities was $1,687 million in 2012, $1,728 million in 2011 and $7,462 million in 2010. The decrease in net cash used in investing activities in 2012 related to proceeds received from our divested businesses and lower capital expenditures in the current year, partially offset by cash transferred to Kraft Foods Group related to the Spin-Off. The decrease in cash used in investing activities in 2011 primarily related to cash payments in 2010 related to the 2010 Cadbury acquisition, partially offset by the proceeds from Kraft Foods Group’s sale of the Frozen Pizza business and proceeds we received from the divestitures in Poland and Romania related to our acquisition of Cadbury.

Capital expenditures, which were funded by operating activities and include expenditures for Kraft Foods Group in all periods through October 1, 2012, were $1,610 million in 2012, $1,771 million in 2011 and $1,661 million in 2010. The 2012 capital expenditures were made primarily to modernize manufacturing facilities and support new product and productivity initiatives. We expect 2013 capital expenditures to be approximately $2 billion, including capital expenditures required for investments in systems, the 2012-2014 Restructuring Program and the Integration Program. We expect to continue to fund these expenditures from operations.

Net Cash Provided by / (Used in) Financing Activities:

Net cash provided by financing activities was $204 million in 2012, $3,175 million used in 2011 and $4,188 million provided in 2010. The increase in net cash provided by financing activities in 2012 was primarily due to higher proceeds from the issuance of long-term debt (including notes issued by Kraft Foods Group in June 2012 for which we retained the proceeds), offset by higher long-term debt repayments. The net cash used in 2011 primarily related to $2,043 million in dividends paid, $1,114 million in long-term debt repayments and $565 million in repayments of short-term borrowings, partially offset by $492 million in primarily proceeds from stock option exercises. The net cash provided by financing activities in 2010 primarily related to proceeds from our long-term debt issuance of $9,433 million, partially offset by $2,175 million in dividends paid, $2,134 million in long-term debt repayments, primarily related to our repurchase of $1.5 billion in notes through our tender offer, and $864 million in net repayments of short-term borrowings.

Borrowing Arrangements:

We maintain a revolving credit facility that we have historically used for general corporate purposes, including for working capital purposes and to support our commercial paper issuances. Our $4.5 billion four-year senior unsecured revolving credit facility expires in April 2015. As of December 31, 2012, no amounts have been drawn on the facility.

The revolving credit agreement includes a covenant that we maintain a minimum shareholders’ equity, excluding accumulated other comprehensive earnings / (losses), of at least $28.6 billion. At December 31, 2012, our shareholders’ equity, excluding accumulated other comprehensive earnings / (losses) was $34.8 billion. We expect to continue to meet this covenant. The revolving credit agreement also contains customary representations, covenants and events of default. However, the revolving credit facility has no other financial covenants, credit rating triggers or provisions that could require us to post collateral as security.

Some of our international subsidiaries maintain primarily uncommitted credit lines to meet short-term working capital needs. Collectively, these credit lines amounted to $2.4 billion at December 31, 2012 and $2.3 billion at December 31, 2011. In the aggregate, borrowings on these lines amounted to $274 million at December 31, 2012 and $182 million at December 31, 2011.

 

44


Table of Contents

Long-term Debt:

Our total debt was $19.4 billion at December 31, 2012 and $26.9 billion at December 31, 2011. Our debt-to-capitalization ratio was 0.38 at December 31, 2012 and 0.43 at December 31, 2011. At December 31, 2012, the weighted-average term of our outstanding long-term debt was 8.8 years.

On October 2, 2012 our $150 million Canadian dollar variable rate loan matured. The loan and accrued interest to date were repaid with cash from operations.

On October 1, 2012, approximately $10 billion of debt on our balance sheet at September 30, 2012 was transferred to or retained by Kraft Foods Group. As described below, the debt primarily included: $6.0 billion of senior unsecured notes issued on June 4, 2012; $3.6 billion of debt exchanged on July 18, 2012; and $400 million migrated on October 1, 2012. See Note 2, Divestitures and Acquisitions, for more information regarding the Spin-Off and liabilities transferred.

On October 1, 2012, in connection with the Spin-Off and related debt capitalization plan, a $400 million 7.55% senior unsecured note was retained by Kraft Foods Group. No cash was generated from the transaction.

On July 18, 2012, we completed a debt exchange in which $3.6 billion of our debt held by third-party note holders was exchanged for notes issued by Kraft Foods Group in order to migrate debt to Kraft Foods Group in connection with our Spin-Off capitalization plan. No cash was generated from the exchange and we incurred one-time financing costs of $18 million which we recorded in interest expense. As a result of the exchange, we retired the following debt:

   

$596 million of our 6.125% Notes due in February 2018

   

$439 million of our 6.125% Notes due in August 2018

   

$900 million of our 5.375% Notes due in February 2020

   

$233 million of our 6.875% Notes due in January 2039

   

$290 million of our 6.875% Notes due in February 2038

   

$185 million of our 7.000% Notes due in August 2037

   

$170 million of our 6.500% Notes due in November 2031 and

   

$787 million of our 6.500% Notes due in 2040.

On June 4, 2012, Kraft Foods Group issued $6.0 billion of senior unsecured notes and distributed $5.9 billion of net proceeds to us in connection with the Spin-Off capitalization plan. We used the proceeds to pay $3.6 billion of outstanding commercial paper borrowings and expect to use the remaining cash proceeds to pay down additional debt over time or for general corporate purposes. This debt and approximately $260 million of related deferred financing costs were retained by Kraft Foods Group in the Spin-Off.

On June 1, 2012, $900 million of our 6.25% notes matured. The notes and accrued interest to date were repaid using primarily commercial paper borrowings which were subsequently repaid from $5.9 billion net proceeds received from the Kraft Foods Group $6.0 billion notes issuance on June 4, 2012.

On March 20, 2012, 2.0 billion of our 5.75% bonds matured. The bonds and accrued interest to date were repaid using proceeds from the issuance of commercial paper which was subsequently repaid in June 2012 as discussed above.

On January 10, 2012, we issued $800 million of floating rate notes which bear interest at a rate equal to the three-month London Inter-Bank Offered Rate plus 0.875%. We received net proceeds of $798.8 million from the issuance. The notes were set to mature on July 10, 2013 or subject to a mandatory redemption tied to the public announcement of the Record Date for the Spin-Off. After announcing the Record Date, on September 24, 2012, the notes were redeemed at a redemption price equal to 100% of the aggregate principal amount of the notes, or $800 million, plus accrued interest of $2 million from cash on hand.

On November 1, 2011, $1.1 billion of our 5.625% notes matured. The notes and accrued interest to date were repaid with cash from operations.

We expect to continue to comply with our long-term debt covenants. Refer to Note 8, Debt and Borrowing Arrangements, for further details of these debt offerings.

From time to time, we refinance long-term and short-term debt. The nature and amount of our long-term and short-term debt and the proportionate amount of each varies as a result of future business requirements, market conditions and other factors. As of December 31, 2012, we had $11.2 billion remaining in long-term financing authority from our Board of Directors.

In the next twelve months, $3.55 billion of long-term debt becomes due as follows: $750 million in February 2013, $1 billion in May 2013 and $1.8 billion in October 2013. We expect to fund these repayments with cash from operations and the issuance of commercial paper.

 

45


Table of Contents

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

We have no off-balance sheet arrangements other than the guarantees and contractual obligations that are discussed below.

Guarantees:

As discussed in Note 12, Commitments and Contingencies, we enter into third-party guarantees primarily to cover the long-term obligations of our vendors. As part of these transactions, we guarantee that third parties will make contractual payments or achieve performance measures. At December 31, 2012, we had no material third-party guarantees recorded on our consolidated balance sheet.

In addition, at December 31, 2012, we were contingently liable for $516 million of guarantees related to our own performance. These include letters of credit and guarantees related to the payment of custom duties and taxes.

As of December 31, 2012, we and three of our indirect wholly owned subsidiaries are joint and several guarantors of $1.0 billion of indebtedness issued by an unrelated third party, Cadbury Schweppes US Finance LLC, and maturing on October 1, 2013. Following the Spin-Off, one of the guarantors of this indebtedness became an indirect wholly owned subsidiary of Kraft Foods Group. We have agreed to indemnify Kraft Foods Group pursuant to the Separation and Distribution Agreement, in the event its subsidiary is called upon to satisfy its obligation under the guarantee.

Guarantees do not have, and we do not expect them to have, a material effect on our liquidity.

Aggregate Contractual Obligations:

The following table summarizes our contractual obligations at December 31, 2012.

 

                                                                                              
     Payments Due  
     Total      2013      2014-15      2016-17      2018 and
Thereafter
 
     (in millions)  

Debt (1)

   $ 19,158       $ 3,567       $ 2,111       $ 3,264       $ 10,216   

Interest expense (2)

     11,191         1,064         1,793         1,502         6,832   

Capital leases

     4         2         2                   

Operating leases (3)

     1,144         330         406         277         131   

Purchase obligations: (4)

              

Inventory and production costs

     5,769         3,979         882         458         450   

Other

     1,540         1,105         331         78         26   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     7,309         5,084         1,213         536         476   

Other long-term liabilities (5)

     246         28         69         43         106   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 39,052       $ 10,075       $ 5,594       $ 5,622       $ 17,761   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (1) Amounts include the expected cash payments of our total debt excluding capital leases which are presented separately in the table above. The amounts also excludes $11 million of unamortized bond premiums or discounts recorded in total debt and excluded here as they are non-cash items.
  (2) Amounts represent the expected cash payments of our interest expense on our long-term debt. Interest calculated on our euro notes was forecasted using the euro to U.S. dollar exchange rate as of December 31, 2012. Interest on our British pound sterling notes was forecasted using the British pound sterling to U.S. dollar exchange rate as of December 31, 2012. An insignificant amount of interest expense was excluded from the table for a portion of our other foreign currency obligations due to the complexities involved in forecasting expected interest payments.
  (3) Operating leases represent the minimum rental commitments under non-cancelable operating leases.
  (4) Purchase obligations for inventory and production costs (such as raw materials, indirect materials and supplies, packaging, co-manufacturing arrangements, storage and distribution) are commitments for projected needs to be utilized in the normal course of business. Other purchase obligations include commitments for marketing, advertising, capital expenditures, information technology and professional services. Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction. Most arrangements are cancelable without a significant penalty and with short notice (usually 30 days). Any amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above.
  (5) Other long-term liabilities primarily consist of estimated future benefit payments for our postretirement health care plans through December 31, 2022 of $164 million. We are unable to reliably estimate the timing of the payments beyond 2022; as such, they are excluded from the above table. There are also another $82 million of various other long-term liabilities that are expected to be paid over the next 5 years. In addition, the following long-term liabilities included on the consolidated balance sheet are excluded from the table above: accrued pension costs, income taxes, insurance accruals and other accruals. We are unable to reliably estimate the timing of the payments (or contributions beyond 2013, in the case of accrued pension costs) for these items. We currently expect to make approximately $320 million in contributions to our pension plans in 2013. We also expect that our net pension cost will decrease to approximately $370 million in 2013. The decrease is primarily due to non-recurring costs in 2012 related primarily to certain pension plan obligations transferred to Kraft Foods Group in the Spin-Off and other 2012 non-recurring costs, partially offset by increased pension plan expenses in 2013 related to lower discount rates. As of December 31, 2012, our total liability for income taxes, including uncertain tax positions and associated accrued interest and penalties, was $980 million. We currently estimate receiving approximately $126 million, net of estimated payments of approximately $128 million, related to these positions over the next 12 months.

 

46


Table of Contents

Equity and Dividends

Equity:

As a result of the Spin-Off, we divested $4.4 billion of Kraft Foods Group net assets, $4.3 billion of accumulated other comprehensive losses primarily related to the pension and other benefits plan net liabilities transferred to Kraft Foods Group and $89 million of unearned compensation recorded within additional paid in capital. In total, we recorded a distribution of $8.8 billion to our shareholders in connection with the Spin-Off of Kraft Foods Group on October 1, 2012. See Note 2, Divestitures and Acquisitions, to the consolidated financial statements for additional information on the Spin-Off of Kraft Foods Group.

Stock Plans:

In connection with the Spin-Off and divestiture of Kraft Foods Group, under the provisions of our existing plans, employee stock option and restricted and deferred stock awards were adjusted to preserve the fair value of the awards immediately before and after the Spin-Off. Long-term incentive plan awards held by Mondelēz International employees remained Mondelēz International awards. The underlying performance conditions for the Mondelēz International long-term incentive plan awards were modified and are consistent with our original performance targets adjusted to reflect our standalone business. No incremental compensation expense was recorded as a result of the modifications of the stock plan awards. See Note 11, Stock Plans, to the consolidated financial statements for more information on our stock plans, awards activity during 2012, 2011 and 2010, and stock award modifications related to the Spin-Off.

Dividends:

We paid dividends of $2,058 million in 2012, $2,043 million in 2011 and $2,175 million in 2010. The dividends paid relate to periods prior to the Spin-Off and are based on an annualized dividend rate of $1.16 per common share for these periods. The 0.7% increase in 2012 reflects an increase in shares outstanding. The decrease of 6.1% in 2011 reflects an additional dividend payment of $224 million in 2010 related to the Cadbury acquisition. Following the Spin-Off, we expect to pay an annualized dividend rate of $0.52. The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors that our Board of Directors deems relevant to its analysis and decision making.

2013 Outlook

We expect our 2013 Organic Net Revenue growth to be at the low end of our long-term growth target of 5 to 7 percent. Additionally, we expect our 2013 Operating EPS to be $1.52 to $1.57, reflecting average 2012 foreign currency rates and the devaluation of the Venezuelan bolivar announced on February 8, 2013.

 

47


Table of Contents

Non-GAAP Financial Measures

We use certain non-GAAP financial measures to budget, make operating and strategic decisions and evaluate our performance. We disclose non-GAAP financial measures so that you have the same financial data that we use to assist you in making comparisons to our historical operating results and analyzing our underlying performance.

Our non-GAAP financial measures reflect how we evaluate our operating results currently. As new events or circumstances arise, these definitions could change over time:

 

   

“Organic Net Revenues” which is defined as net revenues excluding the impact of acquisitions, divestitures, Integration Program costs, accounting calendar changes (including a 53rd week in 2011) and foreign currency rate fluctuations.

   

“Adjusted Operating Income” which is defined as operating income excluding the impact of Spin-Off Costs, the 2012-2014 Restructuring Program, Integration Program, acquisition-related costs, gains / losses on divestitures, pension costs related to obligations transferred in the Spin-Off and operating income from divested businesses. We also evaluate growth in our Adjusted Operating Income on a constant currency basis.

   

“Operating EPS” which is defined as Diluted EPS attributable to Mondelēz International from continuing operations excluding the impact of Spin-Off Costs, the 2012-2014 Restructuring Program, Integration Program, acquisition-related costs, gains / losses on divestitures, pension costs related to the obligations transferred in the Spin-Off, interest expense adjustment related to the Spin-Off transaction, operating income from divested businesses and the 2010 U.S. healthcare legislation change in prior periods. We also evaluate growth in our Operating EPS on a constant currency basis.

We believe that the presentation of these non-GAAP financial measures, when considered together with our U.S. GAAP financial measures and the reconciliations to the corresponding U.S. GAAP financial measures, provides you with a more complete understanding of the factors and trends affecting our business than could be obtained absent these disclosures. Because non-GAAP financial measures may vary among other companies, the non-GAAP financial measures presented in our Management’s Discussion and Analysis of Financial Condition and Results of Operations section may not be comparable to similarly titled measures used by other companies. Our use of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for any U.S. GAAP financial measure. A limitation of these non-GAAP financial measures is they exclude items detailed below which have an impact on our U.S. GAAP reported results. The best way this limitation can be addressed is by evaluating our non-GAAP financial measures in combination with our U.S. GAAP reported results and carefully evaluating the following tables which reconcile U.S. GAAP reported figures to the non-GAAP financial measures in this Form 10-K.

 

48


Table of Contents

Organic Net Revenues

Using the definition of “Organic Net Revenues” above, the only adjustments made to “net revenues” (the most comparable U.S. GAAP financial measure) were to exclude the impact of acquisitions, divestitures, Integration Program costs, accounting calendar changes (including the 53rd week in 2011) and foreign currency rate fluctuations. We believe that Organic Net Revenues better reflects the underlying growth from the ongoing activities of our business and provides improved comparability of results.

 

                                                                           
     For the Years Ended              
     December 31,              
     2012     2011     $ Change     % Change  
     (in millions)              

Organic Net Revenues

   $ 36,347      $ 34,816      $ 1,531        4.4%   

Impact of foreign currency

     (1,576            (1,576     (4.4)pp   

Impact of accounting calendar changes (2)

            679        (679     (2.0)pp   

Impact of divestitures

     244        316        (72     (0.2)pp   

Impact of Integration Program

            (1     1          
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

   $ 35,015      $ 35,810      $ (795     (2.2)%   
  

 

 

   

 

 

   

 

 

   

 

 

 
                          
     For the Years Ended              
     December 31,              
     2011     2010     $ Change     % Change  
     (in millions)              

Organic Net Revenues

   $ 33,385      $ 31,192      $ 2,193        7.0%   

Impact of foreign currency

     1,074               1,074        3.4pp   

Impact of acquisitions (1)

     697               697        2.3pp   

Impact of accounting calendar changes (2)

     655        193        462        1.4pp   

Impact of Integration Program

     (1     (1              

Impact of divestitures

            105        (105     (0.4)pp   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net revenues

   $ 35,810      $ 31,489      $ 4,321        13.7%   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

  (1) Impact of acquisitions reflects the incremental January 2011 operating results from our Cadbury acquisition.
  (2)

Includes a 53rd week of shipments in 2011.

 

49


Table of Contents

Adjusted Operating Income

Using the definition of “Adjusted Operating Income” above, the only adjustments made to “operating income” from continuing operations (the most comparable U.S. GAAP financial measure) were to exclude Spin-Off Costs, Integration Program costs, 2012-2014 Restructuring Program costs, acquisition-related costs and gains / (losses) on divestitures, pension costs related to obligations transferred in the Spin-Off, interest expense adjustment related to the Spin-Off transaction and operating income from divested businesses. We also evaluate Adjusted Operating Income on a constant currency basis. We believe these measures provide improved comparability of operating results.

 

                                                                           
     For the Years Ended              
     December 31,              
     2012     2011     $ Change     % Change  
     (in millions)              

Adjusted Operating Income (constant currency)

   $ 4,388      $ 4,097      $ 291        7.1%   

Impact of unfavorable foreign currency

     (153            (153     (3.7)pp   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Operating Income

   $ 4,235      $ 4,097      $ 138        3.4%   

Integration Program

     (140     (521     381        11.3pp   

Gains on divestitures, net

     107               107        2.6pp   

Spin-Off pension expense adjustment (1)

     (68     (91     23        0.8pp   

Spin-Off Costs

     (444     (46     (398     (10.9)pp   

2012-2014 Restructuring Program

     (110            (110     (3.0)pp   

Operating income from divested businesses

     58        59        (1     (0.1)pp   

Acquisition-related costs

     (1            (1     (0.1)pp   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

   $ 3,637      $ 3,498      $ 139        4.0%   
  

 

 

   

 

 

   

 

 

   

 

 

 
     For the Years Ended              
     December 31,              
     2011     2010     $ Change     % Change  
     (in millions)              

Adjusted Operating Income (constant currency)

   $ 3,997      $ 3,502      $ 495        14.1%   

Impact of favorable foreign currency

     159               159        4.6pp   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Operating Income

   $ 4,156      $ 3,502      $ 654        18.7%   

Acquisition-related costs-Cadbury

            (273     273        13.4pp   

Integration Program

     (521     (646     125        8.6pp   

Spin-Off pension expense adjustment (1)

     (91     (91            1.5pp   

Spin-Off Costs

     (46          &n